Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day
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Speaker 2: What is around a table here in New York? Binki Chata,
Speaker 2: chief global strategist, a head of UST allocation over at
Speaker 2: Deutsche Bank. Morning, Binkie, Good morning. I love a title
Speaker 2: in Southside Research, the wobble. Can we talk about the wobble?
Speaker 2: What is the wobble in the secuity market? What is that?
Speaker 3: The wobble is that, you know, we are basically overdue
Speaker 3: for a three to five percent pullback.
Speaker 4: It would be normal, believe it or not.
Speaker 3: We are now running in you know, ninety fifth percentile
Speaker 3: plus in terms of the duration, even though it seems
Speaker 3: rather short since March, since we had a three to
Speaker 3: five percent pullback. As I said, you know that's pretty normal.
Speaker 3: Three to five percent pullbacks happen every two to three months.
Speaker 3: So it's getting a bit extended. Number one. Number two,
Speaker 3: as you know, you know, the rise in positioning this
Speaker 3: time around has been you know, pretty vertical, especially on
Speaker 3: the discretionary investor side, and so it's an additional reason
Speaker 3: really for looking for you know, when that process is over.
Speaker 4: So I'm not.
Speaker 3: Being normative about this as do what should happen, but
Speaker 3: you know, if it when that does happen, we'll tell
Speaker 3: you that that part sort of played out.
Speaker 1: What is a chata process to buy on the dip?
Speaker 1: I'm fascinated you're sitting there like Ayce Greenberg years ago
Speaker 1: at Bear Strings, you got buy tickets over here, sell
Speaker 1: tickets over here. What's the chata process to buy in
Speaker 1: the dip?
Speaker 4: To buy on the dip? I mean, you have to
Speaker 4: have a view on what's the you know, the.
Speaker 3: Catalyst for a current three years out, not three years out,
Speaker 3: but you know what's driving a pullback. So the kind
Speaker 3: of pullback I'm talking about, it's really more sort of
Speaker 3: a consolidation and you know, sort of you want to
Speaker 3: see positioning rise gradually rather than vertically as it sort
Speaker 3: of did starting in late May.
Speaker 5: Does it make you nervous that everyone on your on
Speaker 5: Wall Street. All of your colleagues are revising upward their
Speaker 5: expectations for the S and P.
Speaker 4: It doesn't make me nervous.
Speaker 3: It's probably a little bit overdues the way I would
Speaker 3: put it.
Speaker 6: Okayl like welcome.
Speaker 3: We are just reporting, basically, you know, the second quarter
Speaker 3: of pretty solid sequential growth in earnings. You know, so
Speaker 3: if this was GDP we were talking about, and you
Speaker 3: were getting strong growth two quarters in a row, I
Speaker 3: think it would have an impact.
Speaker 4: The equity market tends to look at things.
Speaker 3: On a year and year basis, so you know, the
Speaker 3: turning that makes the turning points very fuzzy to be
Speaker 3: able to tell. If you look at headline earnings growth
Speaker 3: year and year, yes, you know we are still running negative,
Speaker 3: but a lot of that just simply has to do
Speaker 3: with the oil prices from last year. You take energy
Speaker 3: earnings out, and you know, it's first quarter of positive
Speaker 3: growth year and year after four negative quarters. I think
Speaker 3: it's more important to look at earnings growth on a
Speaker 3: sequential basis and also on an underlying basis. And really,
Speaker 3: if you look at underlying earnings, which is taking out energy,
Speaker 3: taking out the financials loan loss provisions, we've had two
Speaker 3: quarters now or four percent plus growth. Yeah, and we
Speaker 3: only fell six and a half percent last year.
Speaker 4: So actually the line.
Speaker 3: Earnings are at a new high, and you know the
Speaker 3: narrative is about a recession.
Speaker 5: Well, some people are also pointing to small business optimism,
Speaker 5: which came out this morning earlier, the highest levels in
Speaker 5: eight months, right, so sort of edifying your view. How
Speaker 5: much do yields push against that? We were talking about
Speaker 5: what's more important for your equity called this week? Is
Speaker 5: it going to be CPI on Thursday or is it
Speaker 5: going to be the Treasury auctions? And how many people
Speaker 5: step up to buy them?
Speaker 4: Yeah, I think yields matter, but it's really been much
Speaker 4: more over the last eighteen months. It's really been much.
Speaker 3: More about the volatility or if the message coming out
Speaker 3: of the rates market, rather than the level of rates.
Speaker 3: So as long as we were talking about you know,
Speaker 3: twenty five basis points here and there, Yeah, this doesn't
Speaker 3: really impact my view. If we get a big acceleration
Speaker 3: and inflation and a big you know response from the
Speaker 3: Fed and uncertainty increases, then you know it's a bigger
Speaker 3: concerned and a bigger pullback.
Speaker 2: I would say, how many of these stocks are actually
Speaker 2: growth stocks anymore. I'm looking at their multiples and they've
Speaker 2: got pretty tidy growth multiples on them, but how many
Speaker 2: are actually delivering growth?
Speaker 3: So you know, I would say, you know, the focus
Speaker 3: shifts over the course of the cycle. What we've basically
Speaker 3: seen is, you know, the megacap growth in tech stocks.
Speaker 3: Their earnings turn around first and very strongly in the
Speaker 3: first quarter, and it was pretty V shaped move if
Speaker 3: you're looking quarter by quarter, and that's now sort of
Speaker 3: widening out, is the way I would put it. So
Speaker 3: you know, we're catch up. It is so first Tech
Speaker 3: caught up with everyone else who hadn't fallen by as much.
Speaker 3: And the two of really since late May megacap growth
Speaker 3: in tech and the rest of the S and P
Speaker 3: five hundred they've they've moved really in tandem. But it
Speaker 3: does mean that since megacap growth in tech earnings since
Speaker 3: and amaze very short period, but their earnings.
Speaker 4: Do grow faster.
Speaker 3: So actually, on a relative multiple basis, all the valuation
Speaker 3: is coming in.
Speaker 2: You might be annoyed with me for bringing up a
Speaker 2: single name, but I think everyone's fascinated by the move
Speaker 2: with Apple at the moment. Yeah, and for five straight
Speaker 2: days into today. Yes, they're trying to snap back this
Speaker 2: morning a bounce, but ultimately are they producing the growth?
Speaker 2: Can we have this the biggest waiting on the S
Speaker 2: and P five hundred, the biggest waiting on the NaSTA
Speaker 2: one hundred traded a multiple as something like thirty times
Speaker 2: forward earnings when it's not delivering any growth.
Speaker 4: Yeah.
Speaker 3: So, I mean, you know, as you know, I don't
Speaker 3: come and from evaluation perspective, what the signal is that
Speaker 3: you take away from that name at the moment and
Speaker 3: the way it's performed. Sure, but I think that's part
Speaker 3: of the process, you know, of sort of the rally
Speaker 3: that we've seen so of our broadening out. It's precisely
Speaker 3: that question that broadens the rally out because you.
Speaker 4: Know, if we are.
Speaker 3: You know, the market's running with the soft landing narrative,
Speaker 3: and if the soft landing is going to happen, then
Speaker 3: you're going to have cyclical growth and so you should
Speaker 3: be rotating and the market has you know, it's sort
Speaker 3: of sitting.
Speaker 4: In the middle now. I mean, we're moving in tandem.
Speaker 3: As I said after, you know, growth stocks just leading
Speaker 3: the charge, and at some point I would expect you know,
Speaker 3: the next case you.
Speaker 1: Got a wobble, the wobble, the chatt to wobble is
Speaker 1: in place. Does that mean you reset your sp X outlook?
Speaker 4: Oh no, no, no, we get five thousand this morning on pullback.
Speaker 3: I think that you know, it's important to keep in
Speaker 3: mind that we haven't fulfilled even the three percent correct
Speaker 3: you know, pullback yet, so we were down basically. I think,
Speaker 3: you know, a return of normality after this big repricing
Speaker 3: that we've had, you know, would be helpful just.
Speaker 1: For our listeners and viewers. John, I mean, can we
Speaker 1: get tried to go to five thousand today.
Speaker 4: With the wobble? Not today, but yes it is our
Speaker 4: soft lending target.
Speaker 2: Thank you, Thank you for kind of fun pleasure. Thanks
Speaker 2: got to say it.
Speaker 1: We're gonna get a brief ound these markets right now.
Speaker 1: And I love what she says about August and summer
Speaker 1: mirror pandit with US Global Market Strategy JP Morgan Asset Management.
Speaker 1: You'd said, Tom, you're jogging in place. You sound like
Speaker 1: the entire King family, because that's what I do. I
Speaker 1: jog in place. What does jogging in place mean for
Speaker 1: a market that's been a moonshot since.
Speaker 7: October when we think about the market and the risks
Speaker 7: here going forward, there's not.
Speaker 8: A whole lot of upside risk here.
Speaker 7: But I think that the downside risk is somewhat limited
Speaker 7: because if we think.
Speaker 8: About where we are with the markets.
Speaker 7: We are in between in between the inflation spikes and
Speaker 7: the FED hikes, but also waiting for the economy and
Speaker 7: profits to sour. So I don't know that there is
Speaker 7: a whole lot of upside catalyst in a world where
Speaker 7: profits are just better than feared. We need to see
Speaker 7: some more out of the profits landscape in order to
Speaker 7: get some more upside from stocks that have already rallied
Speaker 7: really hard and that have already experienced in pretty high valuations.
Speaker 8: But at the same time time, until we see.
Speaker 7: Some more souring in profits in the economy, I think
Speaker 7: we're in an environment where stocks are essentially jogging in
Speaker 7: place where we are today.
Speaker 8: And that's not just for stocks. I think it's similar
Speaker 8: for yields.
Speaker 7: The pop and yields we've seen more recently, I would
Speaker 7: attribute that mostly to the pop and growth. Yes, there
Speaker 7: was a Fitch downgrade, Yes we're seeing some inflation break
Speaker 7: evens move a bit higher, But really it's all about growth.
Speaker 7: If we think about this higher yield environment since May,
Speaker 7: since the May FOMC meeting. So if we considered that environment,
Speaker 7: you know, I think that yields too for the rest
Speaker 7: of the year could kind of jog in place until
Speaker 7: next year.
Speaker 1: You're charm at JP Morgan. This is English major out
Speaker 1: of tough CFA, which I think is the coolest thing going.
Speaker 1: I can't imagine what the CFA was like for you
Speaker 1: coming out of that wonderful background. You write the documents
Speaker 1: at JP Morgan, You actually craft the documents that you're
Speaker 1: putting out. What are you writing right now about sixty forty?
Speaker 7: Right now, if we think about the sixty forty, it's
Speaker 7: had a huge rebound over the course of this year.
Speaker 8: Las year the sixty forty was dead.
Speaker 7: But I think what's important to think about with diversification
Speaker 7: is that markets and the economy look in opposite directions.
Speaker 7: Markets are very much forward looking. The economy is at
Speaker 7: best looking at where we are today, but also looking
Speaker 7: backward at the data we've already seen. And if we
Speaker 7: look at periods in history where the sixty forty has struggled,
Speaker 7: take two thousand and eight, take nineteen seventy four, if
Speaker 7: you look at the next year, nineteen seventy five, if
Speaker 7: we look at two thousand and nine, those were by
Speaker 7: no means good economic years, but you did see the
Speaker 7: markets rebound. I mean, two thousand and nine is a
Speaker 7: great example where you see markets bottom in March, we
Speaker 7: start to get out of recession in the summer, and
Speaker 7: actually the unemployment rate continues to rise until October.
Speaker 8: I think that's a helpful guidepost for.
Speaker 7: Where we are today, and that the market has priced
Speaker 7: in a whole lot of bad news and a lot
Speaker 7: of risks and threats, and we have yet to see
Speaker 7: all of them crystallize. But the market is already sort
Speaker 7: of looking a little bit beyond there, and that's a
Speaker 7: good environment for diversification.
Speaker 5: What do you say to a client who theoretically comes
Speaker 5: up to you and says, hold on, this time is different.
Speaker 5: Inflation's going to accelerate, These bonds are going to be worthless.
Speaker 5: It's going to wreck our evaluation of the stocks of
Speaker 5: the sockholdings that you currently have focused on. Something that's
Speaker 5: really problematic. We want to just hide in cash. I
Speaker 5: don't see how you could be calling for yields to
Speaker 5: go back down to something that was normal, What do
Speaker 5: you say to them.
Speaker 8: Ultimately, if we look at.
Speaker 7: Cash right now, clients love a guarantee. If you can
Speaker 7: get a guaranteed five percent in a CD, that seems great.
Speaker 7: But the reality is if you think about something like
Speaker 7: a six month CD, you have some reinvestment risk there.
Speaker 7: When we think about the arc of the year, and
Speaker 7: with yields where they are now with above trend growth,
Speaker 7: well above trend growth really for four quarters in a row,
Speaker 7: if we even start to see slightly subtrend growth, you're
Speaker 7: going to start to see yields come down. If we
Speaker 7: see inflation soften a little bit more, you're going to
Speaker 7: see yields come down. Doesn't mean they need to create
Speaker 7: this year, and again they could be jogging in place
Speaker 7: a bit. But as we head into next year and
Speaker 7: we look at that twelve month out look, yields can
Speaker 7: start to come down.
Speaker 8: So when you sit in cash, you have this.
Speaker 7: Opportunity cost where you're in come can potentially come down,
Speaker 7: but also you don't get the benefit of the upside
Speaker 7: within stepping out a little bit in the risk spectrum
Speaker 7: to bonds, you can potentially lock in income for a
Speaker 7: longer period of time, and in addition, have that potential
Speaker 7: for capital appreciation.
Speaker 5: We've been talking about the auctions this week and how
Speaker 5: the US Treasure Department is selling a greater amount of debt.
Speaker 5: Are you saying this is a good time to buy
Speaker 5: that four percent on a ten year yield to lock
Speaker 5: that in seems like a really nice opportunity.
Speaker 7: The window for the bond market has been extended over
Speaker 7: the course of the summer. It is, of course a
Speaker 7: setback in terms of that recovery that we were hoping
Speaker 7: to see throughout this year, but it does extend that
Speaker 7: window of opportunity from an entry point standpoint. One of
Speaker 7: the biggest challenges that investors are dealing with today is price.
Speaker 7: Where do you find something at a reasonable valuation? Now,
Speaker 7: I will fully concede that if we look at debt
Speaker 7: and deficits over the next decade plus, with deficits coming
Speaker 7: in at five and a half to seven percent on average,
Speaker 7: that is historically high, and we are going to deal
Speaker 7: with it a yield problem over time. But I think
Speaker 7: given the economic backdrop in the near term, this is
Speaker 7: a pretty good entry point.
Speaker 1: What does it sell right now to high net worth
Speaker 1: people about cash at a five percent yield? Are they
Speaker 1: comfortable with that, or they're saying, wait a minute, why
Speaker 1: can't we buy more Apple.
Speaker 7: You see that clients are comfortable with it because again,
Speaker 7: you haven't had that type of yield in so long.
Speaker 7: But I think getting back to your question about the
Speaker 7: sixty forty and how we broaden out that allocation, we're
Speaker 7: also seeing that people realize this is not a market
Speaker 7: for easy money. It's not just that you're going to
Speaker 7: experience data that's going to go up. So people have
Speaker 7: to be a little bit more discerning in how they're investing,
Speaker 7: you know, not only around the world, but in terms
Speaker 7: of types of vehicles, thinking about alternatives to enhance different
Speaker 7: outcomes for income diversification, capital appreciation. So I think that
Speaker 7: people are really sharpening their cells, and.
Speaker 1: This time active management wins into twenty twenty four, active
Speaker 1: management will beat index.
Speaker 8: Take a look at profits, take a look at companies.
Speaker 7: Even within the same sectors or industries, you're seeing a
Speaker 7: lot of differentiation in terms of how management is handling
Speaker 7: higher prices, higher wages, more headwinds thrown at them.
Speaker 8: So certainly it is a time to pick.
Speaker 7: And choose which managers and which management of companies are
Speaker 7: doing the right things in this environment.
Speaker 2: Mur thank you. It's going to see you more pandit
Speaker 2: the f JP Morgan as in management, this is.
Speaker 1: An important interview with our question, our interview of the
Speaker 1: day in fixed income and all that means across equities, commodities,
Speaker 1: in foreign exchange. Rob Waldner is out of the vintage
Speaker 1: of Newtonian calculus that would be engineering at top East
Speaker 1: Coast schools with a heritage back two hundred years. He's
Speaker 1: Princeton civil engineering. And that is a rigor about statics
Speaker 1: in dynamics that he brings to fixed income right now.
Speaker 1: This is not statics in the fixed income market. What
Speaker 1: is the dynamic of all the algebra and the math
Speaker 1: of fixed income right now? What's the dynamic that you're
Speaker 1: focused on?
Speaker 9: Well, Tom, you were talking about it earlier in the
Speaker 9: second in the show, which is the news around disinflation
Speaker 9: and and almost sort of seems like deflationary sort of
Speaker 9: vibes that we have out there. So we're getting USCPI
Speaker 9: data on Thursday, we get Chinese data tonight. Chinese data
Speaker 9: CPI is likely to come in negative year and ear
Speaker 9: us I think the Bloomberg consensus is will get a
Speaker 9: point two on core and point two on headline month
Speaker 9: and month. So the data is starting to come in
Speaker 9: as we've been anticipating, very disinflationary, and it looks like
Speaker 9: you know, in certain areas like China and the trade
Speaker 9: data we got overnight feels more like deflationary. And I
Speaker 9: think that's what's going on in the bond market here
Speaker 9: is people are finally realizing or looking at that and thinking, hey,
Speaker 9: if I can get a five and a half percent
Speaker 9: for investment grade bond portfolio, and we are in a
Speaker 9: dissinflationary environment where really where growth is going to be
Speaker 9: you know, mediocre, That sounds pretty good, right, So that's
Speaker 9: where the buyers come from.
Speaker 2: So there's a tug of war right now between disinflationary
Speaker 2: forces and additional tracery supply. You don't think that Tracey
Speaker 2: is apply wins out. You don't think it's as important
Speaker 2: as the disinflationary forces when it comes to what this
Speaker 2: bond mark is going to.
Speaker 9: Take day to day. The turury supply can drive things,
Speaker 9: and I think you were talking about it earlier. That's
Speaker 9: probably part of what revalue things last week is looking
Speaker 9: forward to that supply. But we know that in any
Speaker 9: medium term. You know, month type horizon supply is not
Speaker 9: the driver. It's the macro forces that are the drive yields.
Speaker 6: So have you been buying this bond sell off?
Speaker 9: We have been, Yeah, we have been. We are positive unduration.
Speaker 9: We've been looking at this treasury if you want to
Speaker 9: talk about the treurgy for a second. You know, we
Speaker 9: think the tenure has been in this three and a
Speaker 9: half to four percent range. I'm actually getting a little
Speaker 9: more positive that. So thinking about that here is a
Speaker 9: great buying opportunity because one, as I said, you have
Speaker 9: a disinflation environment with relatively moderate real growth and so
Speaker 9: that in the medium sure, that's quite good. And then
Speaker 9: if I start to think about the risks in there,
Speaker 9: the risk scenarios are that the FED overstays it's welcome here.
Speaker 9: You know, we have several FED members saying they think
Speaker 9: they need to hike again even though we believe we're
Speaker 9: in a disinflationary environment. That could be quite negative for
Speaker 9: the growth outlook. That could create you know, a dislocation,
Speaker 9: and that would be very positive for the treasury market.
Speaker 5: So in other words, when we're talking about these auctions
Speaker 5: this week, are you basically saying yes, let's go. I
Speaker 5: can't wait to load up on both ten year and
Speaker 5: thirty year treasuries.
Speaker 9: I think that you know, this is a great time
Speaker 9: to buy fixed income and if you want to buy treasuries,
Speaker 9: if that's your asset of choice.
Speaker 6: So who is coming in and joining you?
Speaker 5: Are you seeing more institutions who are doing the same
Speaker 5: thing that you are or is it still the international
Speaker 5: buyer still the same buyer base, and that we're all
Speaker 5: just making a lot of noise over nothing.
Speaker 9: Well, you have the same buyer base, The same international
Speaker 9: buyer base is still there. You know, fixed income flows
Speaker 9: have not turned incredibly positive yet, but you know we
Speaker 9: think that's likely to come.
Speaker 2: Can we talk about the new floor in global fixed income?
Speaker 1: Now?
Speaker 2: The POH is pulling back, the ACP has pulled back,
Speaker 2: the Federal Reserve has taken rates to five and a
Speaker 2: half percent, and people think maybe they only come back
Speaker 2: to maybe four three and a half something in between.
Speaker 2: What is the new floor for global fixed income? If
Speaker 2: you get into trouble, what do you runny down too?
Speaker 2: Just in terms of years? What are the limits of
Speaker 2: that running because people don't think it's zero anymore? What
Speaker 2: is it?
Speaker 9: Well, we'll have to see where that pans out. And
Speaker 9: it depends on what a recession looks like.
Speaker 2: How far we get back to developed thoughts on.
Speaker 9: But you know, we think that it's something in the
Speaker 9: range of sort of two, a more normalized Yeld curve
Speaker 9: would see, you know, a more steep Yeel curve. And
Speaker 9: if short rates get down to one, you're talking about
Speaker 9: ten years at two two and a quarter, you.
Speaker 2: Think short rates will potentially come back down to one.
Speaker 9: In a recessionary type environment.
Speaker 2: Yeah, interesting because least the kind of pushback I've heard
Speaker 2: is that perhaps you come down to three and a
Speaker 2: half four something like that. I think it was Mike
Speaker 2: Gapan's point over at Bank for America.
Speaker 5: The essentially inflation would be stickier for longer, and that
Speaker 5: would keep the FED at a higher level that we're
Speaker 5: going to go back to the low rate kind of environment.
Speaker 5: And I just wonder how much this is really the
Speaker 5: polls of the debate right now, people who believe we're
Speaker 5: going back to the environment we were in before and
Speaker 5: those who say this time really is different all.
Speaker 9: And I would I would really point, you know, we
Speaker 9: live in a nominal world. I think sometimes you get
Speaker 9: confused by this real and and and and and break
Speaker 9: even stuff. We live in a nominal world. Nominal growth
Speaker 9: is coming down very very quickly. So inflation's coming down
Speaker 9: and uh uh, growth is coming down. So you know,
Speaker 9: if you think going forward, were nominal growth somewhere in
Speaker 9: the four and a half type of range, that's a
Speaker 9: that's a tremendous environment for fixed income, right and and
Speaker 9: if nominal growth settles at something below that, then you
Speaker 9: could see rates come back down.
Speaker 2: Well, this was great, Thank you, sir, web the Vivesco.
Speaker 2: Good to see you in person.
Speaker 4: What we're going to do is.
Speaker 1: Dive in now with expertise at Bloomberg Intelligence. Long are
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Speaker 1: was read worldwide and across this nation on boring stuff
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Speaker 1: have them today. I want to conflate in here the
Speaker 1: bankruptcy of Yellow with what we see in ups. Given
Speaker 1: these events, can they raise rates? Can they raise and
Speaker 1: sustain revenues by raising rates? Yeah?
Speaker 10: I mean that's what UPS is going to have to do,
Speaker 10: and they do have pricing power because at the end
Speaker 10: of the day, there's really two main competitors at UPS FedEx.
Speaker 10: Obviously the US Postal Service are some smaller players, but
Speaker 10: they have the ability to raise rates. And not only
Speaker 10: can they raise rates, but they're also going into markets
Speaker 10: that are more profitable for them, So they're going to
Speaker 10: the small mid size shipper versus the big enterprise shipper.
Speaker 10: So they're kind of pivoting away from the Amazons of
Speaker 10: the world, if you will, and going, you know, kind
Speaker 10: of down market because those those customers tend to be
Speaker 10: more profitable, and they're going into more profit verticals like healthcare,
Speaker 10: which starts.
Speaker 1: To make more money for these You don't do by
Speaker 1: hold cell, John, But you know, to me, you wonder
Speaker 1: if this is just like back up your truck.
Speaker 4: And load the boat.
Speaker 2: We're not about to do it byhold a south on
Speaker 2: that night either.
Speaker 1: Is back up to the brown truck and load the boat.
Speaker 2: Right here, Can we bring in the volume story into
Speaker 2: the conversation and just talk to me about what's happening
Speaker 2: domestically in America because we're hearing from some domestic focused
Speaker 2: airlines for instance, Jet Blue Southwest mentioning that maybe things
Speaker 2: aren't as great as people are saying. What are we
Speaker 2: learning about the domestic US economy from this company?
Speaker 10: Well, we've been in a freight recession for quite some time,
Speaker 10: and that's really driven because we're everything's being normalized, right,
Speaker 10: recalibrating back to where we used to be before the pandemic.
Speaker 10: So freight is declining. So what we're seeing is what
Speaker 10: we view is kind of like the bottom of that.
Speaker 10: And you know, there's been a lot of destocking by
Speaker 10: retailers and we're pretty optimistic that you're going to see
Speaker 10: some sort of seasonal uptick into the fourth quarter. We're
Speaker 10: not calling a huge peak season, but last year there
Speaker 10: was no peak. We think there's like maybe a slight
Speaker 10: speed bump of a peak this year. And you know
Speaker 10: what's that telling us is that the consumer is still
Speaker 10: resilient and things should look better for UPS or a
Speaker 10: FedEx into twenty twenty four. On a volume standpoint, you
Speaker 10: have that plus pricing, you have that plus productivity improvements
Speaker 10: from tech. It's hopefully going to offset some of the
Speaker 10: increase that they got in cost from that new labor
Speaker 10: agreement with the teamsters.
Speaker 6: So how significant was that?
Speaker 5: I mean, that was really my question, is that a
Speaker 5: smoke screen, this whole agreement with the teamsters to cover
Speaker 5: some real fundamental weakness that they're facing or competition, or
Speaker 5: is this truly going to create a challenge their profits
Speaker 5: going forward in a more material way.
Speaker 10: It's definitely going to challenge things. But I would say,
Speaker 10: is that in the second quarter, well, you know, second quarter,
Speaker 10: that's a has been quarter. They did a fantastic job.
Speaker 10: I mean they beat by four cents in EPs, and
Speaker 10: it was all on margins. It wasn't on pricing, it
Speaker 10: wasn't on volumes. They actually disappointed. So they disappointed on
Speaker 10: the top line and they they surprise on the upside
Speaker 10: on the EPs, and that was real on margins. Their
Speaker 10: domestic business was you know, it was about one hundred
Speaker 10: and thirty basis points better than expectations, and it was
Speaker 10: only thirty basis points less than what people were thinking.
Speaker 5: If they can absorb it, what's the message to other
Speaker 5: logistics companies, to other trucking, shipping, flying companies that are
Speaker 5: also facing some organized complaints about the lack of wage growth,
Speaker 5: the lack of pass through of some of their profits
Speaker 5: to the employees.
Speaker 10: Yeah, at the end of the day, labor is increasing
Speaker 10: and we're not going back to a twenty seventeen, twenty eighteen,
Speaker 10: twenty nineteen level. So you know, if you're a truckload carrier,
Speaker 10: you had to increase the what you paid your drivers.
Speaker 10: Rates have gone down considerably, and so what that's doing
Speaker 10: is forcing a lot of smaller companies out of the market,
Speaker 10: and that will firm up rates and bring rates back up,
Speaker 10: and so the night swifts of the world will have
Speaker 10: much better margins in the coming quarters.
Speaker 8: So with higher prices.
Speaker 10: With higher prices, right now, the truckload market is terrible,
Speaker 10: like the spot market is pretty much bottoming. We should
Speaker 10: probably start seeing increase in spot rates into fourth quarter,
Speaker 10: and contract rates are down by low double digits, and
Speaker 10: we expect that to kind of invert positively in twenty
Speaker 10: twenty four to see maybe mid mid single digit truckload
Speaker 10: rate increases on the contractual side.
Speaker 1: If there was high single digit even double digit revenue
Speaker 1: growth and that reverts back to mid single digit, low
Speaker 1: single digit revenue growth. The slog of logistics, if you will,
Speaker 1: can they sustain a given margin down the income statement.
Speaker 10: Really depends on what sub segment of the market you're
Speaker 10: talking about, you know, the lesson truckload market where yellow
Speaker 10: defile bankruptcy. That's a very consolidated market. So they have
Speaker 10: pricing power. Fedexups, they have pricing power. Railroads they have
Speaker 10: pricing power. Truckload carriers not so much because it's extremely fragmented.
Speaker 10: So it really depends on what market you're in, whether
Speaker 10: or not you have the pricing power, and whether or
Speaker 10: not you can push those higher costs onto your consumers.
Speaker 2: Leate, this was great. It's good to see you. Come
Speaker 2: back soon. I will leak Alaska there at Bloomberg Intelligence.
Speaker 2: Thank you very much.
Speaker 1: Lisa Brambinson, time can you throw that David Rubinstein could
Speaker 1: join us this morning. This is perfectly timed because Nova
Speaker 1: Grants has been the pinata of bitcoin when it goes down.
Speaker 1: It's been the genius of bitcoin when it goes up.
Speaker 1: And all of a sudden, Larry showed up at the
Speaker 1: door to say, hey, big respectable firms can prosecute and
Speaker 1: do bitcoin link Lawrence Fink of black Rock to Mike Novagrants.
Speaker 11: Well, what's happened is people, as you suggest, make fun
Speaker 11: of bitcoin and other cryptocurrencies. But now the establishment. Larry
Speaker 11: Fink at Blackrock is now saying they're going to have
Speaker 11: an ETF if approved by the government in bitcoin. So
Speaker 11: you're saying, wait a second, If the mighty Blackrock is
Speaker 11: willing to have an ETF and bitcoin, maybe bitcoin, it's
Speaker 11: going to be around for a while.
Speaker 1: Lisa wants to jump in here, but I'm going to
Speaker 1: cut to the news moment. Is Carlisle announcing this morning
Speaker 1: a bitcoin advocacy.
Speaker 11: No, I don't think so, but there's no doubt that
Speaker 11: bitcoin is something that I wish I had bought it
Speaker 11: at one hundred dollars a bitcoin when when Mike and
Speaker 11: overgot started buying it. It's now at twenty nine thousand dollars,
Speaker 11: so he's made a lot of money and a lot
Speaker 11: of people who bought it at one hundred dollars or
Speaker 11: less are feeling pretty good now. It went up as
Speaker 11: high as sixty one thousand, I think, even down to
Speaker 11: thirty one thousand or even twenty nine thousand. Now it's
Speaker 11: still a pretty good profit if you're bought at one hundred.
Speaker 5: We all wish we would have bought it at one hundred,
Speaker 5: and to write it up, it's one thing for Black
Speaker 5: Rock to come up with an ETF because they believe
Speaker 5: the proposition of bitcoin. It's another because they see a
Speaker 5: profitability proposition where they can basically take advantage of the
Speaker 5: interest other people have. I mean, isn't that more of
Speaker 5: what this is? That basically Wall Street is saying, if
Speaker 5: there is a market for it, and we can viably
Speaker 5: make one for them and make some money, why not.
Speaker 11: Well, remember Wall Street is in business to make money,
Speaker 11: and this is something they can probably make money. You
Speaker 11: have to remember the United States government has been somewhat
Speaker 11: skeptical of it. I think Democrats in the Congress and
Speaker 11: particularly the people regulating the SEC are skeptical of bitcoin
Speaker 11: and other cryptocurrencies. But outside the United States there's a
Speaker 11: lot of interest in it. I think FTX really hurt
Speaker 11: when it went bankrupt, and it hurt the crypto industry.
Speaker 11: But a lot of people around the world want to
Speaker 11: be able to trade in a currency that their government
Speaker 11: can't know what they have, and they want to be
Speaker 11: able to move it around rightly or wrongly, and so
Speaker 11: I don't think bitcoin is going away. I think the
Speaker 11: Republicans on Capitol Hill are been pretty supportive of it.
Speaker 5: There's a difference between having a seamless cross currency payment,
Speaker 5: basically saying that instead of going to Western Union, I
Speaker 5: can go and just to transfer something in bitcoin if
Speaker 5: it has a stable enough price. That's one proposition, But
Speaker 5: the proposition of bitcoin is a store of value that
Speaker 5: could kind of be bid up the way that gold
Speaker 5: or silver could seems to have been parked. With the
Speaker 5: advent of yield suddenly that you can get for actual money.
Speaker 5: I mean, isn't that sort of the feeling that you're getting.
Speaker 11: Well, there's no doubt that when and interest rates are as
Speaker 11: high as they are, you don't need to have gold
Speaker 11: or other kinds of things to get you some solid
Speaker 11: return because when you get five percent on treasuries, but
Speaker 11: eventually five percent will be coming down at some point.
Speaker 11: I don't think bitcoin or cryptocurrencies that are the better ones,
Speaker 11: the better known ones. Bitcoin a number of brothers are
Speaker 11: going to go away. There's enormous interest around the world
Speaker 11: and be able to have something you can transfer without
Speaker 11: the government knowing about it and keep it private. And
Speaker 11: you know, you can say people shouldn't do that, but
Speaker 11: that's not going to stop people from doing it.
Speaker 1: Mister Novagrats and mister Gensler, What did you say about
Speaker 1: the efforts of our chairman of the Securities in Exchange Commission.
Speaker 11: Well, Gary Gensler, who's the chairman of the SEC, is
Speaker 11: not a big fan of cryptocurrency. I think that's fair
Speaker 11: to say. But he lost the major case recently in
Speaker 11: court where he was trying to argue that one of
Speaker 11: the cryptocurrencies Ripple was a security and he lost that case.
Speaker 11: So I think the SEC has not been able to
Speaker 11: convince these the government yet or at least the courts,
Speaker 11: that crypto currency is such a dangerous thing. And I
Speaker 11: remember a lot of people in the government now are
Speaker 11: thinking that Gary Ginster won't be the chair of the
Speaker 11: SEC forever.
Speaker 4: Everyone to go.
Speaker 1: I mean, these guys just wait them out, right.
Speaker 11: I think that's a strategy. It's very popular in Washington.
Speaker 11: Waiting out regulators you don't like.
Speaker 5: That seems to be something that has worked given some
Speaker 5: of the turnover that we've seen.
Speaker 6: I want to shift gears a little bit because we've
Speaker 6: been talking.
Speaker 5: All week about banks losing talent to your world, to
Speaker 5: private equity and to the sphere of private debt and
Speaker 5: inequity that has continued to take more and more market share.
Speaker 5: Have you seen that accelerate recently as people really take
Speaker 5: a look at what they can earn and the potential
Speaker 5: opportunities in your world.
Speaker 11: There's no doubt that some of the large investment banks
Speaker 11: like Goldman, Sacks and others, but not just Goldman Sacks
Speaker 11: have people leaving. But that's actually relatively normal. People are
Speaker 11: leave all these firms all the time now. After people
Speaker 11: typically retire from Goldman in their early fifties, whereas regular
Speaker 11: kind of job you might retire in your sixties. So
Speaker 11: I don't think it's that unusual right now. And I
Speaker 11: think Goldman has obviously got a deep bench. I think
Speaker 11: it's in pretty good shape. But there's no doubt that
Speaker 11: people think that in private equity, if you do well,
Speaker 11: you can make more money than you can invest in banking.
Speaker 11: That's generally been accepted for last ten twenty thirty years
Speaker 11: or so.
Speaker 5: Do you think that that's going to get pressured at
Speaker 5: all as there is more competition and frankly in the
Speaker 5: higher yield environment, and if there is some sort of
Speaker 5: default cycle and a little bit of stress.
Speaker 11: Well, remember in private equity, it's harder to do private
Speaker 11: equity deals typically today because the interest rates are harder
Speaker 11: at borrow and so forth, but that gives people more
Speaker 11: opportunities to buy things in the distress debt area. So
Speaker 11: there's always people who want to buy things at some
Speaker 11: kind of value chain proposition. And right now there's a
Speaker 11: lot of view that you can buy things relatively cheaply,
Speaker 11: probably in the near future, in distress real estate or
Speaker 11: other kinds of areas. So I don't think all of
Speaker 11: a sudden people that want to make be investors are
Speaker 11: going to say there's no opportunity.
Speaker 1: In what you're doing at Carlisle with your team. Is
Speaker 1: there malinvestment in AI right now? Is there a frenzy
Speaker 1: going on where dumb decisions.
Speaker 4: Are being made?
Speaker 11: Well, I don't want to speak for Carlisle. I would
Speaker 11: just say gen Net generally AI has caught at tension
Speaker 11: and people are putting money into it. Whether you're going
Speaker 11: to make a good return on that money, I don't know.
Speaker 11: There's a conventional view that the best way to invest
Speaker 11: in AI is investing in the large companies like Google,
Speaker 11: Microsoft and so forth. Other people say you should go
Speaker 11: find the next startup of open AI. I don't really
Speaker 11: know which is going to prevail, but there's no doubt
Speaker 11: that people are putting money to AI, and they will
Speaker 11: for some time.
Speaker 5: I want to just pick up on one thing that
Speaker 5: you said that in the dear future, there's going to
Speaker 5: be a good amount of distress, particularly in some.
Speaker 6: Real estate areas. Where are you talking about in particular, Well, I.
Speaker 11: Don't think it's a secret that in the commercial real
Speaker 11: estate office market in major cities New York, San Francisco,
Speaker 11: among others, people are not coming into offices, and therefore
Speaker 11: employers are thinking, I don't need as much office space
Speaker 11: as I once thought I did. And also, because interest
Speaker 11: rates are higher, the value of buildings goes down. Is
Speaker 11: an inverse relationship. So if you interest rates are high
Speaker 11: and the rally of real estate goes down and people
Speaker 11: don't need as much real estate as they did before,
Speaker 11: and then they renew their leases, they're going to take
Speaker 11: less space. It's probably gonna mean the value of these
Speaker 11: buildings are going to come down.
Speaker 6: How concerned are you about New York City?
Speaker 11: Well, people have been concerned about New York City for
Speaker 11: the last two hundred years or so. For two hundred years,
Speaker 11: people always say New York City is going to fall apart,
Speaker 11: and for two hundred years that survive. So I got
Speaker 11: a lot of things I'm worried about in New York
Speaker 11: City's not the number one, David.
Speaker 1: Thank you so much. David Rwinstein with us here. Subscribe
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