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Speaker 2: One of the stock stories of the day we've been
Speaker 2: reporting Macy's. They are disclosed that a employee may have
Speaker 2: hit as much as one hundred and fifty four million
Speaker 2: dollars of delivery expenses, so they don't know what's going
Speaker 2: on with their financials. They delayed their earnings release, so
Speaker 2: a lot of issues going on at macy Stocks off
Speaker 2: three and a half three point twenty five percent today
Speaker 2: on the news. Let's check in with the analysts who
Speaker 2: follows this company. Mary Ross Gilbert for Bloomberg Intelligence. He's
Speaker 2: senior equity analyst, Mary. What have you heard from the company?
Speaker 2: What's going on there? Really is an odd story.
Speaker 3: It is an odd story and something kind of wild
Speaker 3: to wake up on a Monday before Thanksgiving and Black Friday.
Speaker 3: But as you know, Macy's reported that one employee had
Speaker 3: hidden one hundred and thirty two to one hundred and
Speaker 3: fifty four million of cumulative costs. But when you look
Speaker 3: at it's over about a three year period, so it's
Speaker 3: about twenty cents a share impact, meaning that they might
Speaker 3: have to restate their earnings by about twenty cents. It's
Speaker 3: not a huge number in that respect, it's huge in
Speaker 3: this sense of well, what happened with the financial controls here.
Speaker 3: On the other hand, I think they can move past this,
Speaker 3: and I think if there were some positive snippets in
Speaker 3: the press release that came out this morning with their
Speaker 3: third quarter preliminary sales results. So they reported that their
Speaker 3: comparable sales on an owned plus license plus marketplace basis
Speaker 3: was down one point three percent for the company, and
Speaker 3: that was a little better than what analysts were looking for.
Speaker 3: They were looking for a while one and a half
Speaker 3: percent decrease. And if you look at the go forward stores,
Speaker 3: so this excludes the one hundred and fifty stores they
Speaker 3: are planning to close, the comp sales on that same
Speaker 3: basis were down just zero point nine percent. And in
Speaker 3: the third quarter, most apparel retailers have been negatively impacted
Speaker 3: by unseasonable warm weather related to in September primarily but
Speaker 3: also in October, and so when you look at the results.
Speaker 3: We're already seeing November Macy's reported, and we've seen this
Speaker 3: with other retailers. Sales are actually performing better than what
Speaker 3: we saw on the third quarter because the weather, of
Speaker 3: course has turned cooler. So we think those are some
Speaker 3: of the snippets of good news, including the luxury side
Speaker 3: of their business. With Bloomingdale's comp sales up three point
Speaker 3: two percent and Bloomergray up three point three percent. So
Speaker 3: I think that kind of outweighs this because that employee's
Speaker 3: now gone. And of course we'll learn more once this
Speaker 3: investigation is complete and they can report and their earnings.
Speaker 3: Call what's happened in terms of the financial controls.
Speaker 4: Talk to me about what we know about inventory for
Speaker 4: Macy's and any discounting. I'm just asking for a friend,
Speaker 4: particularly for Bloomingdale's.
Speaker 3: Yeah, well, of course going into Black Friday, and the
Speaker 3: one thing that we learned from a consumer survey that
Speaker 3: we recently completed, discounts and sales anything like that is
Speaker 3: a primary driver for sales, and the other one is weather.
Speaker 3: That comes second, is a change in weather, and that
Speaker 3: prompts apparel sales. So I think that we're already seeing
Speaker 3: pre Black Friday sales. Macy's is always top of mind.
Speaker 3: They're known for their promotions, known for their sales, so
Speaker 3: they're already out there with their Black Friday sales going on.
Speaker 3: And of course they're going to open early on Friday
Speaker 3: on Black Friday, so we'll actually be there in the stores.
Speaker 2: At that time. That Yeah, absolutely, all right, Mary, thank
Speaker 2: you so much. We appreciate that. Mary Ross Gilbert, senior
Speaker 2: equity analysts covering retail for Bloomberg Intelligence. Again, a wacky
Speaker 2: story or there Macy's. Macy's delays earnings after employee had
Speaker 2: millions and expenses. For me, it would just be you know,
Speaker 2: the the you know, the audit and control function for
Speaker 2: the company. Can I trust it? The other numbers that
Speaker 2: are out there? So that's kind of typically.
Speaker 5: Do you think it takes for that to sort of
Speaker 5: clear its way out?
Speaker 2: Well, I think what's most troubling is that it was
Speaker 2: over a multi year period. Yeah, you know, that's kind
Speaker 2: of goes to the quality of the controls both internally
Speaker 2: of the company and then from their auditor. I'd can
Speaker 2: be looking at my order saying, dude, I mean that's
Speaker 2: what we pay it for to kind of go through
Speaker 2: our statements. Make sure this stuff is, you know, in
Speaker 2: fine shapes, so we'll see.
Speaker 4: I cannot argue with Paul Sweeney on this one.
Speaker 5: Sorry, I can't do it.
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Speaker 5: Let's get brought our take on the market.
Speaker 4: Kati Kaminski, chief research strategist and portfolio manager at Alpha Simplex,
Speaker 4: joins us. All right, Katie, this record high here, potentially
Speaker 4: another record high on the SMP. How long until we
Speaker 4: start to see re upgrading the S ANDB forecast for
Speaker 4: twenty twenty five.
Speaker 6: I mean this is exciting. I mean it's a positive day.
Speaker 6: I was actually surprised.
Speaker 7: So I think, you know, the last week or two
Speaker 7: we've seen a little bit of retraction, and I think
Speaker 7: in general the market is still parsing through some of
Speaker 7: the aftermath of the elections.
Speaker 6: So I do think that.
Speaker 7: People are forecasting and I'm seeing more and more positive
Speaker 7: sentiment about equities US equities in particular, are going into
Speaker 7: your end.
Speaker 2: So when you woke up the day after the election,
Speaker 2: did you and your team did you sit down and say,
Speaker 2: we got to redo our models here, we got to
Speaker 2: change some inputs. Did the market outlook materially changed for
Speaker 2: you guys.
Speaker 7: No, not at all, actually, And what's strange is that,
Speaker 7: as quantitative traders or trend followers, we systematically follow where
Speaker 7: prices are moving.
Speaker 6: And I think what was the.
Speaker 7: Most interesting to me about the election is the Trump trade.
Speaker 7: So for example, long equities, short fixed income, long dollar
Speaker 7: was actually playing out quite a few weeks before the election,
Speaker 7: and it.
Speaker 6: Just extended after the fact.
Speaker 7: It's not really working today, but it has you know
Speaker 7: pretty much what pre and post.
Speaker 4: Do you think that US exceptionalism, if would just call
Speaker 4: it like that, does that keep working?
Speaker 6: Hopefully?
Speaker 7: So, I mean, obviously since that's something we're seeing in
Speaker 7: the data and we're seeing in momentum signals.
Speaker 6: But it has been an interesting month.
Speaker 7: I mean, look at this month, like the Russell ahead
Speaker 7: US strongly ahead of em and Europe. So that's been
Speaker 7: sort of a US centric theme this month, and you're
Speaker 7: seeing that coupling from the US and other areas. So
Speaker 7: it does seem to have some steam so far.
Speaker 2: And how about the US dollar here, because that was
Speaker 2: a pillar of the Trump trade long US dollar? How
Speaker 2: do you think about that?
Speaker 7: So the US dollar, I mean, that's probably one of
Speaker 7: the bigger movers that I think a lot of investors
Speaker 7: don't realize how incredibly strong that move has been. We've
Speaker 7: had new highs on the dollar for eight weeks. It
Speaker 7: is selling off today for various reasons related to some
Speaker 7: of the you know, we can talk about that later,
Speaker 7: but basically the dollar has been an overall extremely strong
Speaker 7: especially versus the Euro. I think that it's up six
Speaker 7: point five percent versus the Euro and the last you know,
Speaker 7: two months, which is pretty huge.
Speaker 4: Yeah, it was one oh four we were talking about
Speaker 4: on Friday before we saw everything kind of calm down today. Okay,
Speaker 4: there is I keep getting notes though, to not discount Europe,
Speaker 4: in part because the economy could get better over in
Speaker 4: Europe because the ECB is going to have to cut
Speaker 4: more aggressively, and that that's going to be good for
Speaker 4: European equities, and that we can finally I've heard the
Speaker 4: story before, can finally sort of outshine the US a
Speaker 4: little bit. Are you seeing any trends or flows or
Speaker 4: momentum into that kind of trade?
Speaker 7: So I agree with that, but I also think that
Speaker 7: has two sides.
Speaker 6: If the ECB keeps cutting, that's going.
Speaker 7: To put more pressure on the euro, which is not
Speaker 7: going to be helpful. The one story that we will
Speaker 7: be looking for that we haven't seen so far is
Speaker 7: perhaps stronger growth at some point in Europe, So there
Speaker 7: will be potential for that rotation if we can see
Speaker 7: stronger growth. I think the euro trade is still a
Speaker 7: little bit more questionable because of what I said that.
Speaker 7: You know, if ECB continues to cut through next year
Speaker 7: and we see a more steady FED, that's actually going
Speaker 7: to be pro dollar. So I think there's going to
Speaker 7: be it's going to require quite a bit, especially with
Speaker 7: the weaker euro.
Speaker 2: Are you concerned about inflation here at the US economy
Speaker 2: or do you feel like the Fed's got that under control,
Speaker 2: Because I feel like I'm hearing more and more people
Speaker 2: say twenty twenty five that might be a thing in
Speaker 2: terms of researching inflation.
Speaker 7: So we definitely do see cross asset themes and movements
Speaker 7: to show some indication of concern for inflation. I think
Speaker 7: Initially post selection, there was a lot of concern. Today
Speaker 7: is a day where you're seeing some of that abate
Speaker 7: because given some of the you know, the choice of
Speaker 7: US Treasury Secretary by the incoming president suggests that, you know,
Speaker 7: there's a little bit more pro business, and recent commentary
Speaker 7: has also focused on maybe tariffs won't be as aggressive.
Speaker 7: So I think the general digesting of that information is
Speaker 7: about figuring out, you know, how much inflation could we
Speaker 7: actually have as a result of a change in policy.
Speaker 7: There's definitely still a good chance that that's something on
Speaker 7: the longer term, especially with the deficit as high as
Speaker 7: it is.
Speaker 4: This gonna be a really dumb question, but does better
Speaker 4: US economic growth than mean more inflation in that? Yeah? No,
Speaker 4: I mean, I mean just that, like in order to
Speaker 4: small caps and mid caps to really work, in order
Speaker 4: for value to really work, you really need a stronger
Speaker 4: US economy. But then that comes with demand, and then
Speaker 4: you add tariffs into that, and then that leads to
Speaker 4: higher prices.
Speaker 7: Yes, And I think that's part of the narrative that
Speaker 7: people are concerned about, is if we do have that
Speaker 7: coupled with high debt or high deficit, then at some
Speaker 7: point you have to have higher prices, which is kind
Speaker 7: of what happened post COVID, which is why people, especially us,
Speaker 7: we think a lot about what's going to happen to
Speaker 7: the yield curve because that's probably where you're going to
Speaker 7: see those price expectations for inflation baked in. It is
Speaker 7: interesting to see also how much gold has gone up
Speaker 7: this year, because that.
Speaker 6: Tends to be a play on inflation.
Speaker 7: So I think there are definitely enough people out there
Speaker 7: that have significant concerns about inflation longer term and the
Speaker 7: potential impact of that.
Speaker 2: Katie, thank you so much for joining us. Always appreciate
Speaker 2: getting a few minutes of your time. Katie Kaminski, Chief
Speaker 2: Research Strategy is important only a manatured alpha simplex up
Speaker 2: there in Cambridge.
Speaker 8: Massive.
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Speaker 4: Alex still here alongside Paul Sweenie. This is Bloomberg Intelligence Radio.
Speaker 4: We bring you all the tap news and business economics
Speaker 4: and finance through our lens of our Bloomberg Intelligence folks.
Speaker 4: And because I love energy, we talk a lot about energy.
Speaker 4: We'll just throw that in there too, why not. So
Speaker 4: one company that you may not have heard of is
Speaker 4: called Bloom Energy. They are a fuel cell maker. They
Speaker 4: made a lot of headlines in the last couple of
Speaker 4: weeks and hid an all time high on November twenty
Speaker 4: second after it made a deal with American Electric Power.
Speaker 5: American Electric Power.
Speaker 4: Is going to use their fuel cells to bring electricity
Speaker 4: to say hyperscalers AEP is going to use up to
Speaker 4: one gigawatt of Bloom's fuel cells. Now, something that's quite
Speaker 4: interesting in this is that a lot of companies in
Speaker 4: the energy space do do cool stuff, but syncing up
Speaker 4: with the companies that could actually use their cool stuff
Speaker 4: isn't always easy. In fact, it is quite difficult. So
Speaker 4: we wanted to get an idea of how this came about.
Speaker 8: K R.
Speaker 4: Shweththar is CEO of Bloom Energy and he joins us
Speaker 4: now from Silicon Valley in California.
Speaker 5: K Or how did this deal come about?
Speaker 9: So we have been working with data centers for a
Speaker 9: very long time. Now we have over three hundred megawarts
Speaker 9: in multiple data centers across the country. These are the
Speaker 9: smaller data centers called the edge data centers that are
Speaker 9: located where customers are somewhere in.
Speaker 8: The five to ten megawat range in a particular site.
Speaker 9: So we have transacted close to three hundred megawards, so
Speaker 9: we are a known player to data centers. Now with
Speaker 9: the hyperscalers, what's the difference, it's a much larger data centers.
Speaker 8: These are now particularly.
Speaker 9: More important in terms of growth because of AI and
Speaker 9: the amount of power they need. And currently these hyperscalers,
Speaker 9: as they had growth going very fast, the transmission distribution
Speaker 9: is not able to keep up with providing those hundreds
Speaker 9: of megawats of power right at the site where you
Speaker 9: need it within the time that you need it maybe five.
Speaker 8: To six years.
Speaker 9: They may be able to provide the power, but the
Speaker 9: data center really wants it today, they want it now.
Speaker 9: So we are a perfect solution under those circumstances because
Speaker 9: our Bloom Energy servers can be deployed in a matter
Speaker 9: of months right where the customer is, thereby not worrying
Speaker 9: about the transmission distribution gridlock and providing that reliable, clean,
Speaker 9: always on power to the data center.
Speaker 8: So that's the reason this happened.
Speaker 9: And here what happened is the electricity provider AEP said,
Speaker 9: we don't make nuclear power plants, we don't make gas turbance,
Speaker 9: we don't make fuel cells.
Speaker 8: We're agnostic. We'll buy your systems.
Speaker 9: And similar to us using those other power sources to
Speaker 9: provide power to the customer. Here we can take your
Speaker 9: fuel cells and take the power you produce and give
Speaker 9: it to the data center.
Speaker 8: However, the big advantage here.
Speaker 9: Is we can put these fuel cells right where the
Speaker 9: data center is, thereby avoiding the transmission distribution issue.
Speaker 2: So carry I mean, just you know, I didn't know
Speaker 2: much about your company before, so just reading up here,
Speaker 2: it's like right company, right place, at the right time,
Speaker 2: with the right technology, and boom. Talk to us about
Speaker 2: how good your fuel cells are. How would I know
Speaker 2: whether your fuel cell is better more productive than say
Speaker 2: a competitor.
Speaker 8: That's a great question.
Speaker 9: So let me go away from fuel cells just into
Speaker 9: electricity for the customer. At the end of the day,
Speaker 9: we all provide a service or a product to our
Speaker 9: end customer. That electricity that a data center takes has
Speaker 9: to be clean, it has to be always on and
Speaker 9: reliable twenty four to seven. It needs to have a
Speaker 9: pay su grow characteristic, and it needs to be future proofed.
Speaker 9: In terms of sustainability. Bloom Energy is one of those
Speaker 9: solutions that offer all of the above no rs.
Speaker 8: It's the genius of end So.
Speaker 9: We are the most efficient way of taking natural gas
Speaker 9: and making electricity out of it without combusting. Because we
Speaker 9: don't combust, there is no knock stocks particulates anything going
Speaker 9: into the atmosphere, so there is no local air pollution.
Speaker 9: And if you look at our system they're like lego blocks.
Speaker 9: You put many of these lego blocks, hundreds of them
Speaker 9: to be able to provide power to a data center.
Speaker 9: If any one of them has to be serviced, you
Speaker 9: can just hot swap them in and out. So the
Speaker 9: reliability and the resiliency of our systems are very.
Speaker 8: High and.
Speaker 9: You can pay as you grow data centers. Even though
Speaker 9: they build a big data center, don't start that entire
Speaker 9: data center on day one. They may do one third
Speaker 9: of the load, and then a few months later they
Speaker 9: may add additional load. As they are adding the load,
Speaker 9: they can add more and more of our fuel cells.
Speaker 9: You can't do that with the gas turbine. You can't
Speaker 9: do that to the nuclear power plant. So we bring
Speaker 9: all these attributes in so I would say we are
Speaker 9: ideally suited for this AI data central market.
Speaker 4: Oh, now the financial terms were not disclosed. I appreciate that,
Speaker 4: So I'm going to ask about the money a different way.
Speaker 4: How easy was it or difficult was it to come
Speaker 4: to an agreement on price with AEP.
Speaker 9: In this particular case, it was fairly easy to come
Speaker 9: to that agreement. Nothing is easy, but relatively speaking, And
Speaker 9: here is why. There are three parties involved, actually four,
Speaker 9: the data center, customer, AP, the public at large where.
Speaker 8: This is being installed, and blow energy we.
Speaker 9: Were able to put together When when for all four
Speaker 9: of these stakeholders, why is.
Speaker 8: That number one?
Speaker 9: Let's started the public at large with other kind of
Speaker 9: provisions that were being contemplated. The fear of the rate
Speaker 9: payer was because the hyperscaler is going to get a
Speaker 9: large amount of power from the transmission distribution company, they
Speaker 9: will end up carrying the bill. In this construct, AEP
Speaker 9: made sure none of the costs associated with putting these
Speaker 9: fuel cells and providing that clean power to the data
Speaker 9: center will cost the rate payer any money. So that
Speaker 9: was a win for the ratepayer Number two for the
Speaker 9: data center. For the data center, the price of not
Speaker 9: having power on time is significantly greater than the cost
Speaker 9: of power.
Speaker 8: If you just think about.
Speaker 9: The race in AI and who has to get there competitively.
Speaker 9: So time to power was the key metric, and they
Speaker 9: would pay a slight premium to be able to get that,
Speaker 9: and that penciled out for AP. They were able to
Speaker 9: grow their customer base, give them their growth needs without
Speaker 9: disintermediating them and having them go to some of their
Speaker 9: stake which is what has been happening in places like
Speaker 9: Virginia where data centers are moving away from there because
Speaker 9: there is not enough power. So it was a win
Speaker 9: for AEP in retaining their customer and taking care of
Speaker 9: their customer and making money for Bloom. Whether we are
Speaker 9: in front of the meter or behind the meter, it
Speaker 9: is the same thing whether we sell it to AEP
Speaker 9: who then provides the power for the data center, or
Speaker 9: we sell to the data center and they provide it
Speaker 9: and they take their own power. You know, for us,
Speaker 9: we are agnostic because we get to make the sale
Speaker 9: and we get the gross margins and the product.
Speaker 8: So that's how it was constructed.
Speaker 2: Alex another story.
Speaker 8: I missed.
Speaker 2: Bloom Energy stocks up seventy two per year today, all
Speaker 2: time high today up ninety on a trolley twelve month basis,
Speaker 2: Where were you? Where was the story for me? Like
Speaker 2: fifty dollars ago?
Speaker 5: Yeah, sorry, man, missed that one for you. Yeah, my bad.
Speaker 4: All right, great to see you. Thank you so much
Speaker 4: for the great story. Archer reydar a CEO of Bloom Energy,
Speaker 4: and just sort of the idea that how you pair
Speaker 4: all these things together, whether you're an energy butt provider
Speaker 4: and then electricity provider and then a hyperscaler and getting
Speaker 4: all of that to match up sounds like it could
Speaker 4: be really simple, and sometimes it is, as Kara was saying,
Speaker 4: and sometimes it's really not.
Speaker 2: It doesn't, but it sounds like, again, they have a
Speaker 2: great product for this part of you know, the AI
Speaker 2: energy provision kind of scenario.
Speaker 5: Wow, you said, right time, right place.
Speaker 2: And again in San Jose, California. I mean, just the
Speaker 2: amount of innovation is in all parts of the industry
Speaker 2: in that part of the country is just amazing.
Speaker 8: Yeah.
Speaker 2: Fortunately, my youngest goes to college there, so I'm like, dude,
Speaker 2: get a job.
Speaker 4: You're like, just feel the feel the innovation, Get the innovation.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: Dallas Steele, Paul Swingey. We're live here on a Bloomberg
Speaker 2: Interactive Brooker Studio and are streaming live on YouTube as well.
Speaker 2: So head over to YouTube dot com search Bloomberg Podcast
Speaker 2: and that's where you'll find us. A part of the
Speaker 2: Trump trade was to sell bonds, and the market certainly did.
Speaker 2: We had rached shoot up. We got a little bit
Speaker 2: of a pullback today, as Charlie was pointing out, But
Speaker 2: see what's happening in the world of fixing. Come today
Speaker 2: to do that. We check in with r J. Gallows,
Speaker 2: senior portfolio manager over the fixed income group at federatedt Hermes.
Speaker 2: They're in the great city of Pittsburgh, PA. RJ. When
Speaker 2: you and your team woke up the day after election Day,
Speaker 2: you sat down, you got to your next strategy meeting
Speaker 2: with your fixed income folks. Did you guys, change your
Speaker 2: outlook at all, or maybe how you approach the market.
Speaker 10: Yeah, we did.
Speaker 11: I know, plenty of people didn't want to bet on
Speaker 11: the election, and I would put us in that camp.
Speaker 11: I would say that the sharp increase in yields from
Speaker 11: mid September all the way up pretty much to election day,
Speaker 11: in part reflected that the betting markets had moved sharply
Speaker 11: in Trump's favor, and so the market was advancing to
Speaker 11: start pricing in a Trump trade even before the election
Speaker 11: outcome was known. We you know, we were a little
Speaker 11: cautious on duration during that period. You know, probably booked
Speaker 11: a few basis points of excess returners, was all. We
Speaker 11: didn't make a big bet a little bit for the
Speaker 11: actual election itself. The you know, the polls were closed,
Speaker 11: the betting markets weren't. As it turned out, the betting
Speaker 11: markets were much more accurate. And then following the election,
Speaker 11: we also got a little short duration, thinking that we
Speaker 11: would maybe test four fifty on the tenure, and that's
Speaker 11: exactly what happened. But as we looked this morning, we're
Speaker 11: back to four thirty pretty much.
Speaker 4: So yeah, so what does that mean then for the
Speaker 4: long end? Is it path of Lee's resistance lower, do
Speaker 4: we stay sticky?
Speaker 11: I think that this is sort of a tactical replacement.
Speaker 11: I think that the moves of four to fifty was
Speaker 11: pricing in as much as one could the idea of
Speaker 11: the Trump trade, a broader fiscal deficit, stimulative suite of policies,
Speaker 11: especially deregulation, and the prospect of tariffs and trade war
Speaker 11: which could boost inflation in the short run. That's what
Speaker 11: drove rates in part to where they were. I think
Speaker 11: the fact that we've had a retlacement that the market
Speaker 11: was sort of consolidating as we wait to see how
Speaker 11: all these policy plans actually get implemented, how successful would
Speaker 11: the Trump administration be in implementing them, How open to
Speaker 11: negotiation are they on tariffs.
Speaker 10: The fact that the market's responding with a bit of.
Speaker 11: A rally today yields sharply lower about almost ten eleven
Speaker 11: basis points in the tenure. It seems that the market
Speaker 11: views best int as a pretty conventional pick. I think
Speaker 11: I would agree with that. I wouldn't say it eliminates
Speaker 11: the Trump trade. It's just the next iteration of the
Speaker 11: unfolding of the actual Trump outcome, which is going to
Speaker 11: take time to see.
Speaker 2: So let's talk about this US economy here, man, how
Speaker 2: do you think that'll be reflected in the rates market.
Speaker 2: It seems some of the economic Now this is going
Speaker 2: to be a busy week for economic data, inflation data,
Speaker 2: jobs data. In terms of claims your thought on the
Speaker 2: economy and how that might be affecting this federal reserve.
Speaker 11: The economy has held up remarkably well. The once expected
Speaker 11: recession a year ago never showed up. The economy had
Speaker 11: a lot of tailwinds. Credit markets have done well.
Speaker 8: You know.
Speaker 11: The recipe for our performance and fixed income has been
Speaker 11: to own lower quality credit risk over higher quality credit risk.
Speaker 11: I'm glad to say broad fixed income indicies of all
Speaker 11: sorts have generated positive returns. The economic outlook from here
Speaker 11: is still relatively supportive.
Speaker 10: I worry a little.
Speaker 11: Bit that the overall suite of Trump policies that I've
Speaker 11: described previously might actually end up being stimulative in the
Speaker 11: short run, but at a meaningful cost in the longer run,
Speaker 11: in the sense that you'll have larger deficits, more debt,
Speaker 11: and the bond market might be left to be the
Speaker 11: source of discipline in terms of reacting to that outcome.
Speaker 11: With higher yields as we go into further into twenty
Speaker 11: twenty five, but a lot remains to be seen. We
Speaker 11: have to see how serious are is the Trump administration
Speaker 11: about the broader tear of threat?
Speaker 10: Is it in fact a negotiation.
Speaker 11: I do think that the Feds the lesser expectations for
Speaker 11: FED easing are in fact rational as the fiscal policy
Speaker 11: expansion is pushing in the other direction in terms of
Speaker 11: monetary policy expectations.
Speaker 4: So fiscal policy chain expand and the FED gets looser.
Speaker 11: No, no, no, the Fed gets less loose those but
Speaker 11: they're still loose. You look at so for futures, for example,
Speaker 11: they gap sharply higher and implied rate in terms of
Speaker 11: the terminal rate in this trough.
Speaker 10: Upon the election outcome, Really.
Speaker 11: As the market was moving to price in the Trump trade,
Speaker 11: less FED easing was expected. That is very rational monetary
Speaker 11: stimulus as the fiscal side opens up more with bigger deficits.
Speaker 2: The best performance by far and fixed to come this
Speaker 2: year RJ has been high yield and leverage loans in
Speaker 2: the US, So I guess the market the market's comfortable
Speaker 2: with risk.
Speaker 8: I guess.
Speaker 10: Well.
Speaker 11: I think once it became clear that the economy had
Speaker 11: significant tailwinds and corporate profits have held up relatively well.
Speaker 11: It's been sort of risk on in terms of where
Speaker 11: you put your capital up and down the credit quality
Speaker 11: spectrum and spreads have tightened, and you've generated very very
Speaker 11: favorable returns. To be frank in our multisector, you know,
Speaker 11: a strategy here at Federated we've been a little more
Speaker 11: cautious thinking that spreads had gotten too tight.
Speaker 10: As a result, we've been a little underweight.
Speaker 11: Fortunately, we've been able to make it up a little
Speaker 11: bit more on curve positioning. Theyll curve is steep and sharply,
Speaker 11: and a number of our strategies taking an active position
Speaker 11: to benefit from that has really worked very well. We've
Speaker 11: also been overweight mortgages, which have generated incremental outperformance. Not
Speaker 11: as much as how you corporate, but there's a lot
Speaker 11: of eras in the quiver of a fixed income manager
Speaker 11: and we've been shooting some of them in the right direction.
Speaker 11: The high yield one has been a little tough and
Speaker 11: the rally has outpaced us. We're still a little cautious
Speaker 11: that that might actually crack as we headed in next year,
Speaker 11: especially if rates start to rise in a sort of
Speaker 11: Bond benjel Ante theme around the Trump administration.
Speaker 5: All right, our Jay, super appreciate it. Have a good week.
Speaker 8: R J.
Speaker 4: Gallows, Senior portfolio Manager, Fixed Income at Federated Hermes.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
Speaker 1: Otto with the Bloomberg Business. You can also listen live
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Speaker 1: Say Alexa playing Bloomberg eleven thirty.
Speaker 5: We have a great story out in the Bloomberg terminal.
Speaker 4: It talks about their new head of Wealth, Andy Sigg,
Speaker 4: and how the's revamping the wealth business and how that's going.
Speaker 4: Basically at the end of the day, joining us now
Speaker 4: from more Catherine Doherty, Bloomberg Finance reporter, joining ours on
Speaker 4: that story.
Speaker 5: So how is it going?
Speaker 12: So the story kind of goes in different directions on
Speaker 12: that exact answer, right. I mean, Andy is one year
Speaker 12: into his new role, and he came into it with
Speaker 12: a lot of difficulties, and the basic infrastructure that city
Speaker 12: was was working with in their wealth division was something
Speaker 12: that had been lagging peers. It was way behind in
Speaker 12: terms of speed execution and really that was something that
Speaker 12: Andy had focused on right when he came in, and
Speaker 12: upgrading the technology was one thing, then bringing talent was
Speaker 12: kind of the second pillar to improving the wealth division.
Speaker 12: And keeping talent is the hardest part about building a
Speaker 12: wealth business across Wall Street because you're it's a very
Speaker 12: competitive business. The pay is oftentimes used as a way
Speaker 12: to lure experience and advisors to competitors, and so not
Speaker 12: only are you trying to focus on keeping that talent,
Speaker 12: the talent is tied to the assets that they're managing
Speaker 12: for their clients. So anytime you lose some big advisors
Speaker 12: with millions or even billions in assets, that's going to
Speaker 12: affect your business moving forward.
Speaker 6: So Andy had a very big.
Speaker 12: Agenda in front of him in terms of having to
Speaker 12: clean up, and not just clean up, but then improve
Speaker 12: City's wealth business so that it could truly compete with
Speaker 12: the big peers on Wall Street.
Speaker 2: Yeah, because like when I think of Morgan Stanley, I
Speaker 2: think of wealth management I use, and that's different. When
Speaker 2: I grew up in the business, I thought about them
Speaker 2: as sales and trading and investment banking.
Speaker 10: City I don't.
Speaker 2: Necessarily think of wealth as part as a kind of
Speaker 2: a growth driver for them. But I know in their
Speaker 2: private bank, which generates two point three billion dollars in revenue,
Speaker 2: it is high touch service for the wealthiest clients, including
Speaker 2: a quarter of the world's billionaire minimum net worth twenty
Speaker 2: five million dollars. So is this a situation for City
Speaker 2: that Jane Fraser has to just put a flag in
Speaker 2: a ground sake? This is a core business for City
Speaker 2: and we will invest accordingly.
Speaker 12: Private bank is definitely one of their money makers. You
Speaker 12: can see that in the numbers. But also if you
Speaker 12: think two tiers down, you have City Gold and this
Speaker 12: is clients with average monthly balances of at least two
Speaker 12: hundred thousand. So it's definitely not at the private bank tier.
Speaker 12: The private bank tier. Why they're trying to keep that
Speaker 12: part of the wealth business up is because that's where
Speaker 12: the biggest assets are. That's where the revenue really gets generated.
Speaker 12: When you have the wealthiest and it's not just Americans,
Speaker 12: it's oftentimes billionaires in Asia. They're really focused on growing
Speaker 12: their business outside of the US, which is different from
Speaker 12: some of the other big Wall Street banks that are
Speaker 12: more US focused in terms of building up their own
Speaker 12: private bank assets and so City, their private bank, I
Speaker 12: would say, was their strong suit and continues to be
Speaker 12: their strong suit, but it doesn't mean that that's going
Speaker 12: to stay that way. So they really have to remain
Speaker 12: competitive keep their advisors that are catering to the wealthiest individuals,
Speaker 12: not just in the US, but across the globe.
Speaker 4: Did they lose advisors because they were posed or because
Speaker 4: they let them go because they were revamping it, and.
Speaker 12: So it's a combination. Just last week we reported that
Speaker 12: two of City's former private bank advisors defected to go
Speaker 12: to Bank of America actually in their private bank, which
Speaker 12: is interesting because that's where Andy sig had come. He
Speaker 12: worked in the Meryl division, but still it's under the
Speaker 12: Bank of America umbrella. And those two advisors they brought
Speaker 12: seven billion of assets that they managed. So that was
Speaker 12: a big kick to City. And so when you see that,
Speaker 12: but it's not i would say unique just to City.
Speaker 12: There's stories like that all the time of some of
Speaker 12: these really big, big advisors bringing their team to a
Speaker 12: competitor and oftentimes they're just looking for uh, it's it's opportunity,
Speaker 12: and most of the time that opportunity is translated and
Speaker 12: in pay and in compensation.
Speaker 2: Another risk to the talent is something that Alex and
Speaker 2: I work with Commonwealth people, those platforms that are non
Speaker 2: wire house investment banks. They say, hey, why are you
Speaker 2: working for Merrill Lynch or think you know, we have
Speaker 2: to sell their progress. Go on your own. We'll support
Speaker 2: you with all the technology, all the back office stuff,
Speaker 2: and you go run your business like you want to
Speaker 2: run your business. And that is also another risk to
Speaker 2: you know, the you know all these big wirehouses. So great,
Speaker 2: great story. Not surprisingly it's the second most read story
Speaker 2: in the entire Bloomberg terminalism. You talk about our terminal
Speaker 2: users and their businesses in their futures. They read it.
Speaker 1: Oh yeah, you're listening to the Bloomberg Intelligence Podcast. Catch
Speaker 1: us live weekdays at ten am Eastern on applecar Play
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Speaker 4: Happy Monday, everybody and Alexia alongside Paulus. We need this
Speaker 4: a Bloomberg Intelligence Radio. We are broadcasting to live from
Speaker 4: Interactive Brooker Studio right here in Midtown Manhattan. You can
Speaker 4: also check us out on YouTube as well. We also
Speaker 4: at this round this time every Monday, we tap our
Speaker 4: wonderful Bloomberg bn EF folks. They do amazing research on commodities, power, transport, industry, buildings,
Speaker 4: AG sectors, all in the terms of helping businesses and
Speaker 4: finances transition to green energy to the energy transition. That
Speaker 4: cover great stuff for US and Davies is a Bloomberg
Speaker 4: b andn EF's head of renewable fuels and she joins
Speaker 4: US now and has worn many hats also over at
Speaker 4: b and EF over time. And what kind of renewable
Speaker 4: fuel projects are there, Let's just say in the US,
Speaker 4: and let's at the stage because then we want to
Speaker 4: know what's going to look like four years from now.
Speaker 13: Sure, so there's a good number of projects in the
Speaker 13: US and needs to be here, and there's a wide range.
Speaker 13: The US is the biggest market at the moment, so
Speaker 13: a lot of the projects are based here, a lot
Speaker 13: of renewable fields. When we talk about reneable fuels, we're
Speaker 13: really talking about basically biofuels at the moment made from
Speaker 13: oils like soybean oil or even use cooking oil like
Speaker 13: the excess grease from your Fryer. The key here is
Speaker 13: that unlike ethanol or biodiesel or biofuels you usually think about,
Speaker 13: renewable fuels are a special term for ones that are
Speaker 13: drop in ready, which means they produce a diesel molecule
Speaker 13: or a jet fuel molecule that's basically the same as
Speaker 13: fossil dieseler jet fuel, So you could just blend it
Speaker 13: one for one into your dieseler jet fuel pool. There's
Speaker 13: no blending limit. It can just go in however much
Speaker 13: you have, so it's really cool in that regard. A
Speaker 13: lot of the projects in the US are based, especially
Speaker 13: out of California. You could take an old oil refinery
Speaker 13: and convert that to produce a biooil like a biofeedstock
Speaker 13: instead of a crude feedstock, so that's really common. There's
Speaker 13: also a lot of projects being developed to use other feedstocks,
Speaker 13: things like corn ethanol, because if you think about passenger
Speaker 13: vehicle fleet going electric, you're going to have less demand
Speaker 13: for gasoline or ethanol, so this could be another use
Speaker 13: for that ethanol in the world today.
Speaker 2: Got to ask the question everybody wants to ask, how
Speaker 2: will the Trump administration impact renewable fuel business?
Speaker 13: That is the million dollar question. Probably for every clean
Speaker 13: energy sector. I'd say that renewable fuels, compared to a
Speaker 13: lot of the other sectors of clean energy, might be
Speaker 13: a bit better insulated than most because this is a
Speaker 13: sector where it really promotes the agriculture industry by using
Speaker 13: biofuels as a new demand source. It also is a
Speaker 13: way for the oil industry to get a second life
Speaker 13: because they can't take this old refinery and convert it
Speaker 13: into something new. So in that regard, I don't think
Speaker 13: it's going to be completely in the crosshairs. There are ways, though,
Speaker 13: that the Trump administration might have a big impact on
Speaker 13: this sector. One of the big ones is if he
Speaker 13: puts a tariff on used cooking oil from China or
Speaker 13: some of the.
Speaker 2: Feet support use cooking oil from China.
Speaker 9: We do.
Speaker 13: China produces a lot of used cooking oil, a lot
Speaker 13: of fried food. They export the cooking oil to California,
Speaker 13: which they can then blend into these refineries. Use cooking
Speaker 13: oil is a really popular feedstock for renewable fuels because
Speaker 13: it has a low carbon intensity. Otherwise it's just wasted
Speaker 13: right you throw it out, it has to be collected.
Speaker 13: It was collected into dumped in probably a dump.
Speaker 5: But so we don't have.
Speaker 4: Enough fuse cooking oil here in the US as supplement
Speaker 4: if everything, we.
Speaker 13: Have a lot, but if you think about replacing you know,
Speaker 13: the diesel or the jet fuel pool, you can always
Speaker 13: use more.
Speaker 8: I see.
Speaker 4: So to that point, what is the price spread between
Speaker 4: renewable fuels and traditional fuels right now?
Speaker 13: TI renewable fuels, their cheapest are probably two to four times,
Speaker 13: which is a big range, but cheaper than more expensive
Speaker 13: sorry than fossil like jet fuel. And if you talk
Speaker 13: about some of the novel technologies, So one of the
Speaker 13: ways to make these renewable fuels is to take carbon
Speaker 13: dioxide and green hydrogen, which is great because then you're
Speaker 13: not using any biofeedstock that could be up to like
Speaker 13: ten times as expensive as jet fuel. These are pricey
Speaker 13: fuels and they're probably not going to get too much
Speaker 13: cheaper because a lot of it is just the technology.
Speaker 2: So but if as an airline am I'm mandated to
Speaker 2: use a certain percentage of clean fuel.
Speaker 13: Depends where you are in Europe starting next year, yes
Speaker 13: you are mandated to blend it in in the US,
Speaker 13: we don't have mandates yet. The biggest is we're doing
Speaker 13: a lot of carrot incentives. So the Inflation Reduction Act
Speaker 13: has a tax credit for producing renewable sustainable aviation fuel
Speaker 13: that would give a discount of about a dollar dollar
Speaker 13: twenty five to these producers. It's not enough to cover
Speaker 13: that bridge that cost. It could bring it down closer.
Speaker 4: And then if that goes away, then it makes it
Speaker 4: even worse. So what's the best way to lower that gap?
Speaker 4: Is it we need better technology, we need scalable technology,
Speaker 4: or more sourcing.
Speaker 13: I don't think technology is going to come down too
Speaker 13: much in cost because a lot of the cost technology
Speaker 13: is a big component, but the feedstock is a big
Speaker 13: component too, and it's hard China exactly, so that could
Speaker 13: make it worse. A lot of it is probably going
Speaker 13: to be a bit mix of mandates and subsidies. So
Speaker 13: if you have a mandate, then you just have to
Speaker 13: blend a certain amount. That's going to cause you know,
Speaker 13: maybe you put a premium on the cost of jet fuel,
Speaker 13: a tax on jet fuel that can cause that price
Speaker 13: gap to close, or if you offer an incentive to
Speaker 13: produce these fuels that can bring it down. There's a
Speaker 13: lot of research being done on nude feedstocks like something
Speaker 13: like cover crops. If you have a fuel you could
Speaker 13: just plant a new oil crop in the off season
Speaker 13: that can help retain the soil. You can use the
Speaker 13: same land. You don't have to have this issue of
Speaker 13: food versus fuel land use. But yeah, that's an dar
Speaker 13: question is how cheap can you get?
Speaker 5: It? So interesting it is.
Speaker 2: I'm glad we do this every week.
Speaker 5: Yes see if we learn stuff?
Speaker 4: All right, Anna Davis, thank you very much, really appreciate it.
Speaker 5: No easy solutions is.
Speaker 4: Basically at the end of the day, what we see,
Speaker 4: Anna Davies is Bloomberg bnif's head of renewable fuels. Here's
Speaker 4: something that caught my eye, apology, did you see this
Speaker 4: one that some colleges are cutting their tuition by fifty
Speaker 4: percent as Ivy's near one hundred thousand?
Speaker 5: Did you see this?
Speaker 8: No?
Speaker 4: So, I mean okay, So basically you got some private
Speaker 4: colleges like Bethel University in Minnesota, for example, cuts his
Speaker 4: tuition price from forty four thousand to twenty five twenty
Speaker 4: six thousand, effort to attract more students because other ones
Speaker 4: are just so expensive.
Speaker 5: But then can you survive if you slash your tuitions?
Speaker 8: Right?
Speaker 2: And small colleges that do not have an endowment. The
Speaker 2: answer probably is no, because they fund so much of
Speaker 2: their total funny comes from to tuition. They don't get
Speaker 2: income off the endowment like bigger schools do, so that's
Speaker 2: why they've always always had a very stretch of his
Speaker 2: business model. But having been involved in higher education for
Speaker 2: a long time at the board level, you got to
Speaker 2: cut your costs dramatically. There's no will to do that.
Speaker 4: You get to cut costs, you got to cut tuition,
Speaker 4: you got to enroll more students, and you also got
Speaker 4: to spend to attract the best.
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