Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day, we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moving news.
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Speaker 1: All right, let's check in on this federal reserve. You know,
Speaker 1: I mean I hate to talk to Arad Jersey because
Speaker 1: then he just want to talk soccer, soccer, soccer. You
Speaker 1: want to talk to Manchester United. You know, they just
Speaker 1: won the Premiership, but we're going to try to focus
Speaker 1: them back a little bit on rates here. So I
Speaker 1: we're getting a lot of ego data this week. I
Speaker 1: don't know how you're feeling about the debt ceiling. Let's
Speaker 1: assume it kind of gets done with that backdrop, How
Speaker 1: do you think your your feederal reserve is feeling these days?
Speaker 3: Well, first, let's before you get a lot of angry
Speaker 3: tweets and emails. If it's Manchester City.
Speaker 1: The Manchester City, okay, thank you.
Speaker 3: Manchester United is fighting for a Champions League place right now?
Speaker 1: Okay, But you're not a fan of either Manchester.
Speaker 3: Team, right, So my son is actually a very big
Speaker 3: United supporter, but yeah, I'm not a fan of city
Speaker 3: at all.
Speaker 1: And what's your team?
Speaker 3: By the way, aston Villa?
Speaker 1: Why would it be aston Villa? Where'd you pick that
Speaker 1: one up?
Speaker 3: I I when I did a postgraduate degree at the
Speaker 3: University of Birmingham, which is very close to aston Villa.
Speaker 3: So a bunch of Villa matches.
Speaker 1: All right, there you go. Everybody's got to see.
Speaker 3: Yeah, so let's assume that the dead ceiling gets raised,
Speaker 3: because they probably will raise it, and if they don't,
Speaker 3: there's so many disaster scenarios that could potentially come around
Speaker 3: that that, you know, we'd rather not kind of think
Speaker 3: about it at the moment. It's we've spent way too
Speaker 3: much gray matter on thinking about it. I think that
Speaker 3: you know that the Federal Reserve is contending with kind
Speaker 3: of two competing forces at the moment. So one is
Speaker 3: inflation coming down as quickly as they want. You know,
Speaker 3: some of the data that we've seen, the the jobs
Speaker 3: data continues to deteriorate a little bit, but we're still
Speaker 3: creating a lot of jobs and there's still very tight
Speaker 3: labor markets. But then on the other side, you know
Speaker 3: that I think the FED will be a little bit
Speaker 3: reluctant to hike because they're worried about what might happen
Speaker 3: to some of the banking sectors. Right, so we obviously
Speaker 3: all know what happened back in March, and I don't
Speaker 3: think that the FED Reserve wants to be the impetus
Speaker 3: for additional bank failures and bank runs, especially since they've
Speaker 3: already raised interest rates five hundred basis points. So our
Speaker 3: base case remains that the Fed is going to be
Speaker 3: on hold that they might job try to talk the
Speaker 3: market out of pricing for interest rate cuts later this year.
Speaker 3: But I think that that the bulk of the Committee
Speaker 3: is not going to agree with James Bullard saying that
Speaker 3: we're going to hike interest rates another twenty five or
Speaker 3: fifty basis points. I think that most people on the
Speaker 3: Committee want to take a little bit of a wait
Speaker 3: and see attitude from now.
Speaker 4: Hey, Ira, I'm looking at the four week Treasury bills
Speaker 4: and how they're hovering around five point four percent, So
Speaker 4: that would basically bring their rise since the beginning of
Speaker 4: May to more than sixty basis points. I'm wondering what
Speaker 4: kind of movement are you expecting to see Indy bond
Speaker 4: market on which hopefully be a potential deal soon here.
Speaker 3: Yeah, so I think that some of those bills that
Speaker 3: are trading super cheap right now will we'll come back
Speaker 3: into line with kind of the market expectation. So the
Speaker 3: thing to look at for, you know, the real market
Speaker 3: expectations for what the Fed is going to do in June,
Speaker 3: would be looking at the overnight interest rate swap market.
Speaker 3: So these are short term derivative instruments that are based
Speaker 3: on the Federal Funds effective rate. So so that that
Speaker 3: will be a much better gauge than looking at treasury bills,
Speaker 3: because treasury bills right now, even the one month treasury bills,
Speaker 3: are being very skewed by the debt ceiling ancs that
Speaker 3: are that are going on. So we are pricing some
Speaker 3: probability of an interest rate hike by the Fed at
Speaker 3: the June meeting. And when we look at these overnight
Speaker 3: index swaps for the next Fed meeting, what we wind
Speaker 3: up seeing is that we are pricing for you know,
Speaker 3: more or less a thirty thirty five percent chance that
Speaker 3: the Federal Reserve does another twenty five basis point interest increase. Now,
Speaker 3: I think as we get closer to that and as
Speaker 3: we get more data. Uh So, we get the pc
Speaker 3: data this week for the month of April, and that's
Speaker 3: that's the measure that that the Federal Reserve really likes
Speaker 3: and is their preferred gauge of inflation. You know, if
Speaker 3: that comes out as expected, then I think that you
Speaker 3: wind up probably with the with uh that price that
Speaker 3: pike being priced out of the market at least at
Speaker 3: least in the near term until we get the CPI report,
Speaker 3: which we get very soon before the June meeting.
Speaker 1: So again you mentioned on a Friday, get the PCE data,
Speaker 1: and as you mentioned, the core deflator, which is kind
Speaker 1: of the preferred metric for the Fed month on month
Speaker 1: of consensus is zero point three percent. That's even with
Speaker 1: last month. On an annualized basis, that's four point six percent,
Speaker 1: even with with last month. Those numbers just that I
Speaker 1: just quoted, they feel sticky to me, number one, and
Speaker 1: but number two, I guess that four point six is
Speaker 1: that the number they want to see Closer to two percent?
Speaker 3: Yeah, it is, and it's not getting there very quickly,
Speaker 3: which is the reason why I think that the the
Speaker 3: you know, J. Powell mentioned this even in his little
Speaker 3: round table discussion last week when he was on with
Speaker 3: former chair Ben Bernanki that the Federal Reserve is not
Speaker 3: going to be cutting interest rates anytime soon, and especially
Speaker 3: when you continue to get kind of zero point three
Speaker 3: percent core core deflator or headline deflator measures. So think
Speaker 3: about what zero point three is, Paul, because if you
Speaker 3: annualize that, then you're talking about three point nine percent inflation.
Speaker 5: Right.
Speaker 3: It's a pretty simple calculation, right, or three point six
Speaker 3: Excuse me, I can't do math today. Three point six
Speaker 3: percent inflation, and three point six percent is still well
Speaker 3: above the Fed's two percent measure. You know, I think
Speaker 3: the Feds kind of box themselves into a corner a
Speaker 3: little bit because focusing in on two percent, we want
Speaker 3: to get inflation back to two percent. Paul. You and
Speaker 3: I grew up in this industry back and then in
Speaker 3: the eighties and nineties when we had inflation that was
Speaker 3: above three percent, but wages were growing above three percent,
Speaker 3: and no one was you know, consumer confidence was reasonably good.
Speaker 3: People weren't unhappy about their employment situation because jobs were
Speaker 3: reasonably plentiful and people were getting four percent pay raises
Speaker 3: every year when inflation was three percent, so that wasn't
Speaker 3: the worst thing in the world. And I think if
Speaker 3: we fall back into an environment like that, it's going
Speaker 3: to be difficult at this point for the FED to
Speaker 3: pivot back to saying, well, maybe three percents not so
Speaker 3: bad for inflation, right. And I think that that's the
Speaker 3: challenge with having these inflation targets, like a lot of
Speaker 3: central banks have, is that moving away from them ends
Speaker 3: up being disrupted to the markets and confusing from a
Speaker 3: communications perspective.
Speaker 4: And Ira, you're bringing up the CPI report, I was
Speaker 4: looking at the schedule. It's actually coming out on June thirteenth,
Speaker 4: so that would be day one of the fed's next meeting,
Speaker 4: and the decision is on June fourteenth. I was curious
Speaker 4: what we do hear from Obviously, as you know, tons
Speaker 4: of Feds speak this week. We just heard from James
Speaker 4: Bullard yesterday talking about trying to get in potentially two
Speaker 4: more rate hikes because of the labor market being strong.
Speaker 4: How much whenever we do have FED speak like that,
Speaker 4: do you see those types of potential changes there in
Speaker 4: the bond market or even just pricing in those expectations
Speaker 4: for potentially another rate cut or rate rise rather at
Speaker 4: the next meeting.
Speaker 5: Yeah.
Speaker 3: Well, I think that's one reason why you saw two
Speaker 3: year yields move, and you certainly saw the overnight index
Speaker 3: swop market and some of the derivatives market move a
Speaker 3: little bit after after President Bullard spoke yesterday. You'll still
Speaker 3: see volatility around that. And one people have focused very
Speaker 3: much on James Bullard's cycle in particular because he was
Speaker 3: pretty early in being one of the more hawkish members
Speaker 3: that that basically, you know, was kind of the southsayer
Speaker 3: for for the FED hiking and inflation remaining high and sticky.
Speaker 3: You know, I'm not sure that his colleagues on the
Speaker 3: FED agree with him. So, you know, as we hear
Speaker 3: from other speakers, you know, maybe we you know, hear
Speaker 3: from a couple of governors for example, this week, and
Speaker 3: if they're they found a little bit more dubbish than Billard,
Speaker 3: then maybe we'll, you know, that will be the impetus
Speaker 3: for us to take some of those hikes out of
Speaker 3: the market.
Speaker 1: All right, Ira, thanks so much for joining us. As always,
Speaker 1: Ira Jersey, chief US interest rate strategists for Bloomberg Intelligence.
Speaker 1: He's also the resident Aston Villa uber fan, so we
Speaker 1: appreciate getting some of his thoughts again fed front and
Speaker 1: center as usual.
Speaker 5: You're listening to the team Ken's are Live program Bloomberg
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg dot Com,
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Speaker 5: on demand wherever you get your podcasts.
Speaker 1: Jess, we are so fortunate. I think here at Bloomberg
Speaker 1: we've got, you know, seventeen hundred reporters and bi analysts
Speaker 1: around the world that are experts at what they do,
Speaker 1: and for the most part, they're very friendly. And if
Speaker 1: you call them up and say, hey, can you help
Speaker 1: us out on Bloomberg Radio, more times than not they
Speaker 1: say yes. And that is just a treat for us
Speaker 1: and for our audience. And boy, this round table takes
Speaker 1: the cake because we want to talk about this debt ceiling.
Speaker 1: I'm going to call a dilemma. I don't know what's
Speaker 1: going on at there. I assume it's going to get them,
Speaker 1: but what do I know. But a couple of our
Speaker 1: guests are really smart and they can help us shine
Speaker 1: some light on it. Liz McCormick, Chief correspondent for Global
Speaker 1: Macro markets with Bloomberg News. She joins us as well
Speaker 1: as Cameron Christ macro strategists with Bloomberg News as well.
Speaker 1: So we get a couple smart minds here. They've got
Speaker 1: some experience, they've got some perspective. Liz, let's start with
Speaker 1: you. You know, I'm just an equity guy, and I don't
Speaker 1: see I got my equity indexes up this year. It
Speaker 1: doesn't seem like the equity market's too worried about it.
Speaker 1: If I were to look deeply in the bond market
Speaker 1: when I see some tension, some growing tension in the
Speaker 1: bond market about a potential debt issue.
Speaker 6: Yeah, exactly. There's like two worlds going on. So it
Speaker 6: seems right between stocks and the fixed income market. But yeah,
Speaker 6: and that's kind of the fixed income market's job front
Speaker 6: and center early on to do a read on this
Speaker 6: debt ceiling issue, and you're seeing it. You're seeing treasury
Speaker 6: bills that mature around now. Janet Yelling was out I
Speaker 6: believe it was yesterday, just yesterday, with a new letter
Speaker 6: to Congress saying she thinks there's a lot of risk
Speaker 6: they could run out of capacity to pay all the
Speaker 6: bills as early as June one, she's you know, that's
Speaker 6: highly likely. So the treasury market, there's you know, kind
Speaker 6: of a buffer range maybe through early June. Treasury investors
Speaker 6: are kind of weary of buying treasury bills that mature
Speaker 6: around that time. So you're seeing those bills with very
Speaker 6: high rates, well over five percent, and those rates are
Speaker 6: higher than those with longer maturities, which usually have a
Speaker 6: higher rate. So people are avoiding that. You're seeing credit
Speaker 6: to caul swamps, their costs go up as people buy
Speaker 6: some insurance, and just a level of angst in the marketplace.
Speaker 6: But yeah, I mean the stock market. There's a lot
Speaker 6: of people say until the stock market really kind of
Speaker 6: takes it hard, maybe politicians won't, you know, step off
Speaker 6: the face of getting a deal. But that's another topic.
Speaker 4: I guess, you know, Cameron, I wanted to bring you
Speaker 4: to this conversation. Who we call Macroman at Bloomberg so
Speaker 4: is so exciting. I know, you just put out a
Speaker 4: column that the head line is where the yield curve
Speaker 4: thinks the neutral rate may be. What do you find here?
Speaker 7: Yeah, I mean, unsurprisingly it's lower than where we are.
Speaker 7: I mean, listen, taking a step back, the whole idea
Speaker 7: of neutrality is like an economist dream because they get
Speaker 7: to make very complicated models with lots of Greek letters.
Speaker 7: But what we also find is that they tend to
Speaker 7: be revised a lot, and they're not necessarily terribly accurate.
Speaker 7: So my approach was just, well, let's just look at
Speaker 7: what the old curve says, because we know that when
Speaker 7: the yield curve is very steep, it's basically saying that
Speaker 7: rates are easy, and when the yeld curve is very inverted,
Speaker 7: it's saying that rates are restrictive, and obviously the curve
Speaker 7: is very restrictive. The curve is very inverted at the moment,
Speaker 7: saying that rates are restrictive, and the best I can
Speaker 7: tease out, it's saying that in the US at least,
Speaker 7: the neutral level of rates is about three point six
Speaker 7: percent at the moment.
Speaker 1: So Cameron, for your perspective, I don't know, are you
Speaker 1: gaming out at all yet? Have you pre written a
Speaker 1: column about we just defaulted on our debt? I mean,
Speaker 1: how are you thinking about it?
Speaker 6: No?
Speaker 7: I haven't because I hope it doesn't come to that.
Speaker 7: I mean, I mean honest with you, I feel like
Speaker 7: I'm at the circus just watching a bunch of clowns.
Speaker 7: I wish I had a bag of peanuts I could throw,
Speaker 7: you know, I could throw at them. I think the
Speaker 7: assumption is pretty prevalent in the market that when push
Speaker 7: comes to shove, nobody wants their name on a default,
Speaker 7: and that they at the very least they will come
Speaker 7: to some agreement to kick the can down the road
Speaker 7: a few months to allow for more robust negotiations. I
Speaker 7: suspect that the Republicans would like the issue to become
Speaker 7: front and center again early next year with the presidential campaign,
Speaker 7: and I'm equally sure that the White House would prefer
Speaker 7: that not to be the case. So there's still you know,
Speaker 7: there's still some political considerations there. But you know, nobody
Speaker 7: comes out with their reputation enhanced by a government default,
Speaker 7: and I think we have to operate on the on
Speaker 7: the notion, at the end of the day, the sole goal,
Speaker 7: or the primary goal of every politician is to be
Speaker 7: re elected.
Speaker 4: Liz, I know you've been looking at how the US
Speaker 4: Treasury thirty year yield hit four percent for the first
Speaker 4: time since March. Whenever you're speaking with your sources, what
Speaker 4: are they thinking as far as what we could see
Speaker 4: happen in the bond market once there hopefully would be
Speaker 4: a deal coming soon.
Speaker 6: Well, I think if there's a deal, and I think
Speaker 6: Cameron is right, there's a lot of us who are like,
Speaker 6: can we turn this movie off? We've seen it before,
Speaker 6: can we just get it, get the deal. We're tired
Speaker 6: of it. Don't tell my boss that now. I'm just kidding,
Speaker 6: but I think, yeah, I think if we get a deal,
Speaker 6: the bond market reverts its focus, which hasn't forgotten, but
Speaker 6: it's all about the economy and the and like you
Speaker 6: guys were talking earlier with IRA, we did have some
Speaker 6: hawker speakers yesterday that doesn't seem to jive with what
Speaker 6: Chairman Palell said, who kind of seemed to lay the
Speaker 6: case for a pause in June. So I think, you know,
Speaker 6: whereas maybe the stocks, even though they haven't gotten beaten
Speaker 6: up too much, there's folks that say they see immediate
Speaker 6: relief rally if there's a dead ceiling deal, I think
Speaker 6: bond yields can creep higher because there has been no
Speaker 6: kind of indications. In fact, some of the easing that
Speaker 6: was priced in the second half of the year from
Speaker 6: the swats traders has kind of paired back a little.
Speaker 6: So I think the market needs to see some you know,
Speaker 6: strong information signaling a recession is really coming soon, or
Speaker 6: that the Fed is not only ready to for sure pause,
Speaker 6: but pivot, which they clearly have not indicated. There's a
Speaker 6: lot of people who think there could be some move
Speaker 6: higher in rates. So, like you said, Jess, we saw
Speaker 6: the thirty year ago about four percent. The whole curve
Speaker 6: is have greats higher today, with the short end even
Speaker 6: higher than the long end. So I think, yeah, that's
Speaker 6: kind of filtering back into the system. What happens next?
Speaker 5: Right?
Speaker 1: So, Lis you mentioned earlier credit default swaps, and I
Speaker 1: think all of us, you know, learned a lot about
Speaker 1: credit the fault swaps back in a great financial crisis
Speaker 1: when we're looking at all these banks and all that.
Speaker 1: So you're telling us there are credit default swaps on
Speaker 1: the US government, and if so, what are they telling
Speaker 1: us today?
Speaker 6: Yeah, it's it's kind of crazy, right, And let's just
Speaker 6: say which I know Cameron would I would think agree
Speaker 6: with me. It's a very thinly traded market. There's always
Speaker 6: kind of a lot of people who are suspect. Let's
Speaker 6: not read too much into this because you know, it's
Speaker 6: not a huge market, but the cost to buy them
Speaker 6: has gone up the very short maturities like a year,
Speaker 6: which at least shows you some broad signal that there,
Speaker 6: you know, people are a little bit worried or doing
Speaker 6: some hedging that there could be a default. But by
Speaker 6: all means that it's a more actively traded market and
Speaker 6: emerging markets where unfortunately defaults have in some countries been commonplace.
Speaker 6: But yeah, I mean it's definitely something we look at.
Speaker 6: If you look at Alex Harrison nineteen, who does this
Speaker 6: great little debt ceiling tracker, you know she has that
Speaker 6: in there. It's just important to kind of keep on
Speaker 6: your radar screen of what's going on.
Speaker 4: Yeah, Cameron, I know you've been keeping a close eye
Speaker 4: on real yields. What are they telling us right now, Well.
Speaker 7: They're telling us that that if you are long gold,
Speaker 7: or if you are long stocks, maybe you want to
Speaker 7: be a little worried because they've been they've been taking
Speaker 7: higher two. Your real yields are basically at their highs
Speaker 7: of the entire cycles. So this sort of rebound in
Speaker 7: interest rates that we've seen over the last couple of
Speaker 7: weeks has not been the market pricing and more inflation
Speaker 7: moving forward, essentially the market pricing and tighter policy settings
Speaker 7: or tighter effective policy settings moving forward. And that is
Speaker 7: not a particularly positive one for assets that are dependent
Speaker 7: on kind of free money or the ample liquidity and
Speaker 7: there we were thinking of gold, or we're thinking of
Speaker 7: the sort of infinite maturity or infinite durationtech dot complex.
Speaker 7: It has done so well this year.
Speaker 1: Hey, Keim, just about thirty seconds here. Are you surprised
Speaker 1: that the nasdak's up twenty one percent, the NASDAK one
Speaker 1: hunters up twenty six percent, the SMP's up nine percent?
Speaker 1: You're surprised that these moves in the equity.
Speaker 7: Markets over the course of the year. Yeah, I mean, yes,
Speaker 7: very much.
Speaker 6: So.
Speaker 7: I mean, to some extent, you can sort of post
Speaker 7: hawk explain it via the move in interest rates, but
Speaker 7: it looks to me a lot like equity investors trying
Speaker 7: to convince themselves that they get all the benefit of
Speaker 7: low rates without any of the pain that causes the
Speaker 7: said to.
Speaker 1: Cut All right, guys, really appreciate getting some time from
Speaker 1: both of you. Cameron christ Macro Strategists, Bloomberg News End.
Speaker 1: Liz McCormick, chief correspondent covering the global macro markets. Two
Speaker 1: seasoned reporters and observers of these markets, and they are
Speaker 1: both graduates. So two of my favorite institutes of higher learning.
Speaker 1: Liz McCormick of the Rutgers University, the State University of
Speaker 1: New Jersey, and Camera Christ, a little school down in Durmoruth,
Speaker 1: Carolina known as Duke.
Speaker 5: You're listening to the tape Kent's are live program Bloomberg
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 5: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
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Speaker 5: flagship New York station. Just say Alexa, play Bloomberg eleven thirty.
Speaker 1: All right, let's talk delivering stuff boxes. Now when you
Speaker 1: get home tonight, just how many boxes are gonna be
Speaker 1: in front of your door? Probably?
Speaker 4: I mean, my birthday was last week, so I have
Speaker 4: a lot.
Speaker 8: Of people been sending me some things, so I hope
Speaker 8: that there are more boxes waiting for me.
Speaker 1: You get, It's just it's unbelievable how the world's changed here.
Speaker 1: So let's break it all down with Mike Para. He's
Speaker 1: the CEO for the Americas at DHL Express joining us
Speaker 1: live here in our Bloomberg Interactive Broker studio. So, Mike,
Speaker 1: thanks so much for joining us here. Appreciate you coming.
Speaker 1: And you got a whole bunch of notes with you,
Speaker 1: but this is a note free studio. See, I got nothing.
Speaker 1: I just kind of for four of it talk to
Speaker 1: us about your business here. I'm gonna ask you to
Speaker 1: go back and tell us, you know, a minute or
Speaker 1: so what the pandemic was like for you guys, and
Speaker 1: then we'll go to kind of where you are today.
Speaker 9: Yeah, So, first of all, thank you for having me
Speaker 9: and thank you for having us. You know, the pandemic
Speaker 9: for us was a blessing and obviously it was a curse.
Speaker 9: First of all, on the curse side, we lost forty
Speaker 9: two employees here in the Americas, and that was the
Speaker 9: curse side. That was the difficult side for us. The
Speaker 9: blessing side of it was that workers absolutely.
Speaker 1: Yeah.
Speaker 9: The blessing side was that our business just blossomed and
Speaker 9: blossomed in many different ways. Number one is we were
Speaker 9: able to successfully deliver over two point one billion vaccines
Speaker 9: across the world. Many of the countries that got their
Speaker 9: vaccines were delivered via DHL, so that was a blessing.
Speaker 9: And then we had a growth and explosion over a
Speaker 9: two year period of time that we had never seen
Speaker 9: in the you know the history of our organization. So
Speaker 9: that's what I would say. The ability to help to
Speaker 9: connect people and improve lives was the blessing. To lose
Speaker 9: colleagues across the world was painful.
Speaker 4: And when you're looking at the market at this point,
Speaker 4: what is it telling you is through your business because
Speaker 4: I would imagine this is a big key as far
Speaker 4: as what things are looking, not just nationally, but globally
Speaker 4: as well.
Speaker 9: Yeah, oh look the market right now is interesting. Just
Speaker 9: coming off an interview and discussing this, you know, what
Speaker 9: I would say from a macro level is, you know,
Speaker 9: we went through this whole fear of running out what
Speaker 9: I call four to roho and now to you know,
Speaker 9: to access inventory and where you have supply is greater
Speaker 9: than the demand that is out there at the moment.
Speaker 9: But we are starting to see some signs of life.
Speaker 9: We're starting to see some tailwinds out of China and
Speaker 9: out of Hong Kong, so we're starting to see those
Speaker 9: numbers grow.
Speaker 4: Now.
Speaker 9: Remember the baseline of this also is coming off the
Speaker 9: fact that last year they were in a lockdown from
Speaker 9: that perspective. So we're starting to see some momentum. We're
Speaker 9: starting to add some additional capacit out of China and
Speaker 9: out of Hong Kong into the United States predominantly. So
Speaker 9: what we do know is that we're a bit more
Speaker 9: optimistic than what everybody is saying in regards to the
Speaker 9: US consumer, and we think we're going to you know,
Speaker 9: we're getting ready for what will be a good fourth quarter.
Speaker 9: So some people are saying the bounce back will come
Speaker 9: back in the third quarter. You know, my thoughts, it's
Speaker 9: going to be much more in the fourth quarter. I
Speaker 9: think we're going to see more experiences happen, people taking
Speaker 9: more vacation. The airlines are ramping up for that for June, July,
Speaker 9: and August, and as a result of that, that's why
Speaker 9: I'm saying it's going to be much more fourth quarter related.
Speaker 1: Talk to us about you know, one of the key
Speaker 1: components of your cost structure your business is your people. Yea,
Speaker 1: labor Do you have enough people, do you have them employed?
Speaker 1: Is it hard to get them? Do you have to
Speaker 1: pay them more? Talk to us about your labor force.
Speaker 9: Thank you, Thank you for asking that question. In regards
Speaker 9: do we have enough people, yes, do we need to
Speaker 9: pay them more? We just put out the law. Our
Speaker 9: just pay increase in the history of the company was
Speaker 9: this year in twenty twenty three, and rightfully so, based
Speaker 9: on inflation and cost of living in general that's going on.
Speaker 9: And by the way, this was not just here in
Speaker 9: the United States but also globally from that perspective, so
Speaker 9: less concerned about that. In regards to recruitment and recruitment efforts.
Speaker 9: We are replacing folks as we have either attrition or promotions.
Speaker 9: We are replacing roles. But we are constantly looking at
Speaker 9: our efficiencies and how we can optimize our network, not
Speaker 9: only in the air but also on the ground.
Speaker 4: What are your thoughts on geopolitics right now? And is
Speaker 4: the debt sealing a concern for you?
Speaker 9: You know, somebody asked me as well that question on
Speaker 9: the debt ceiling. We're not spending a lot of time
Speaker 9: because that's going to work its way out as it
Speaker 9: has historically. Now some might say, well, Mike, everybody says that,
Speaker 9: but in all reality, I think it's just much more
Speaker 9: of a timetable of when it's going to get negotiated
Speaker 9: and worked out. I think there's more fear associated with
Speaker 9: the whole debt ceiling and are we going to out
Speaker 9: of time? And are you know what's going to happen
Speaker 9: to the US economy. But so we're not spending a
Speaker 9: lot of time on it, and from a global perspective, people,
Speaker 9: we're watching it, but from a perspective of it, you know,
Speaker 9: I'm not going to bed at night, not sleeping.
Speaker 4: I'm less concerned any of those fears affecting the business
Speaker 4: at all through your models.
Speaker 9: At the moment, I would say, no, you know, some
Speaker 9: of the bigger challenges that we face, and we face
Speaker 9: challenges every day, right. I mean we've got you know,
Speaker 9: what's going on in Russia and Ukraine, that's always been
Speaker 9: a concern. You've got the potential concern of China and Taiwan.
Speaker 9: That's a concern. So we watch all those spaces closely.
Speaker 9: What we are what we are seeing is as we
Speaker 9: get through this inventory. And you were talking about luxury
Speaker 9: goods before I came on board. By my way, my
Speaker 9: wife is a huge LVBAH so you know, and I
Speaker 9: purchase our bags as well. But what I would say
Speaker 9: is we have seen as slow down in luxury goods,
Speaker 9: and that slowed down in luxury goods. What we're hearing
Speaker 9: from our customers is they're spending much more on experiences.
Speaker 9: Having come out of two years in COVID and not
Speaker 9: being able to travel, not being able to get out.
Speaker 9: They're using the money that they do have and they're
Speaker 9: using it on experiences. And that's why I think we'll
Speaker 9: see that through the summer as well.
Speaker 4: What do you think that tells us about the economy?
Speaker 4: Then if you're seeing sort of a shift, there is
Speaker 4: this more of an optimistic sign for the economy rather
Speaker 4: than when everyone's focused on the health of the consumer.
Speaker 9: Yeah, and that's why I said it was a bit
Speaker 9: more optimistic about the US consumer going into Q four.
Speaker 9: And I do think we're going to have a real
Speaker 9: peak season this year, whereas last year we had the
Speaker 9: eternal Black Friday, the eternal Cyber Monday, and the sales
Speaker 9: that went on for a healthy period of time. I
Speaker 9: think we're going to see a bounce back in retail
Speaker 9: from that perspective as well, and we're starting to see
Speaker 9: that in the number of activations that are happening with
Speaker 9: our customers.
Speaker 1: Talk to us about the competitive environment. I mean FedEx
Speaker 1: ups the United States Postal Service. I guess I don't know,
Speaker 1: but FedEx, I mean they had the integrated T and T.
Speaker 1: So talk just about the competitive land landscape.
Speaker 9: Yeah, I mean, look, both our competitors, good companies, very
Speaker 9: large domestic presence. Their focus is big time focus on domestic.
Speaker 9: Our focus is predominantly one hundred percent internationally, more specifically
Speaker 9: here in the United States. You know, you've got two
Speaker 9: different things going on. You've got a transformation going on
Speaker 9: on one side, which is an optimization of you know,
Speaker 9: of an organization, uh as well as the future of
Speaker 9: combining two different entities, which will be a first for
Speaker 9: them on one side, and that that could potentially be
Speaker 9: a distraction, is what I would say. The other or
Speaker 9: the other side is an organization that is focusing on
Speaker 9: yield and margin, which we focus on consistently from a
Speaker 9: pricing perspective, an efficiency perspective, but also you know, a
Speaker 9: labor potential challenge that they may be facing. So again
Speaker 9: that's another distraction. Our focus right now is on making
Speaker 9: sure that we're protecting the jobs that we do have,
Speaker 9: protecting the customers that we do have, and growing our
Speaker 9: business the right.
Speaker 1: Way, Hey, Jess, I got to call out here, Mike's
Speaker 1: worrying and a Miami Heat Cup links. Oh about the
Speaker 1: Heat and Miami. How big a story is that in Miami.
Speaker 9: Well, look, there's two big stories going on in Miami
Speaker 9: right now. One is the Florida Panthers that are three
Speaker 9: and oh right and in twenty seven years have never
Speaker 9: reached the the NHL finals. And then we've got my
Speaker 9: Miami Heat, God bless them, three and oh against Boston
Speaker 9: eight seed, seven undrafted free agents that everybody keeps reminding
Speaker 9: us about. And you've got an organization that really has
Speaker 9: been there before but said they weren't going to beat
Speaker 9: Milwaukee and they did. If you're a Knicks fan, I
Speaker 9: apologize for everyone here said hey, you're going to have
Speaker 9: a hard time against the Knicks, and we were able
Speaker 9: to win there. And now we're up three to zero
Speaker 9: against Boston and hoping to close it out tonight at home.
Speaker 9: So excited. Excited for Jimmy Butler, excited for the Miami
Speaker 9: Heat organization, but excited in general for sports sports because
Speaker 9: you have an underdog team in both the We're the
Speaker 9: Panthers eight seed in the NHL that are potentially going
Speaker 9: to close it out and the eight seed Miami Heat
Speaker 9: that can do it.
Speaker 1: So good the story from them, that good story from im.
Speaker 1: Now you get the baseball. The guess we all set.
Speaker 1: Mike Paris, CEO of America, is for DHL Express, joining
Speaker 1: us here in our studio. Appreciate geting the update on
Speaker 1: the business and our friends at DHL.
Speaker 4: As well as the thirtieth anniversary is coming up.
Speaker 1: I know you've been at the companies and like out
Speaker 1: very college.
Speaker 9: Boom, it's my marriage, my wife.
Speaker 1: Yeah, this is Bloomberg.
Speaker 5: You're listening to the team. Ken's are live program Bloomberg
Speaker 5: Markets weekdays at ten am eastering on Bloomberg dot com,
Speaker 5: the iHeartRadio app and the Bloomberg Business app, or listen
Speaker 5: on demand wherever you get your podcasts.
Speaker 1: Currently, right now in Katara, there is the Qatar Economic
Speaker 1: Form and that's where Caroline Hyde, a host of Bloomberg Technology,
Speaker 1: track down the CEO of Tiktoks. We want to check
Speaker 1: in with Caroline. We also got Man Deep singing here,
Speaker 1: senior technologyannels for Bloomberg Intelligence. He's in our studio here,
Speaker 1: Meek and Pepper Caroline some questions too, Caroline thanks so
Speaker 1: much for joining us. You know your interview with show
Speaker 1: Cho the CEO, hope I got that somewhat correct. For TikTok,
Speaker 1: What were the key items? What were the key takeaways
Speaker 1: you had from your discussion with the CEO of TikTok.
Speaker 10: I mean, ah, boy, wasn't it newsie, Because of course,
Speaker 10: just less than twenty four hours before sitting down with him,
Speaker 10: it became public that indeed TikTok was suing the State
Speaker 10: of Montana.
Speaker 11: After of course, the state.
Speaker 10: Of Antana has said that they're going to be going
Speaker 10: further than any state has ever gone before and banning
Speaker 10: the app from the beginning of January twenty twenty four.
Speaker 10: So here was the statement coming from the CEO that
Speaker 10: they feel that this is unconstitutional. The key takeaway was
Speaker 10: that the key takeaway was feeling also that it looks
Speaker 10: pretty confident. Ultimately, he feels that they will prevail, they'll
Speaker 10: be able to stay in the United States. And why
Speaker 10: is that Because they have one hundred and fifty million users,
Speaker 10: they have people consuming next content and actually more business
Speaker 10: is depending on it. But he didn't offer anything new
Speaker 10: really in terms of what they're doing the state and
Speaker 10: protect the privacy of US users. That's why Montana's of
Speaker 10: course taking the step wanting to bang the lord about
Speaker 10: the Chinese government having access to US data and still
Speaker 10: there standing by this Oracle plan that is Project Texas,
Speaker 10: that would be able to secure your data in the US,
Speaker 10: they say, and ultimately prevent back door. He said, no
Speaker 10: company can do and prevent them a backdoor any risks
Speaker 10: one hundred percent that will be underrepresent the risks without level.
Speaker 4: And Carolin, to your point, especially with lawmakers in the
Speaker 4: US in these sort of ongoing security fears when it
Speaker 4: comes to TikTok. You mentioned Oracle on how their TikTok
Speaker 4: is working with them to sort of allay these types
Speaker 4: of fears. He laid out any sort of options as
Speaker 4: far as what there could be to potentially end up
Speaker 4: mitigating some of these fears that are out there.
Speaker 10: Ultimately, no, I mean they feel that they've gone further
Speaker 10: than any other company to make clear that they can
Speaker 10: protect data. Now remember, I mean Mandy will be able
Speaker 10: to discuss this in depth. But this is but a
Speaker 10: day after we understand that the EU is also finding
Speaker 10: a record fine more than a billion to Meta. So
Speaker 10: the fact that look, it's doing exactly what they currently
Speaker 10: the Montana is warting that Chinese will do europe is
Speaker 10: claiming that the US in meta is access and could
Speaker 10: potentially access Europeans user data of Facebook or Instagram users
Speaker 10: or WhatsApp or the other products that meta users, and
Speaker 10: so they're doing meta. They're finding meta in fact by
Speaker 10: saying that you haven't done enough to protect the privacy
Speaker 10: of the EU user from the US. So, ultimately, this
Speaker 10: is actually a deeply global conversation. We're getting very divided,
Speaker 10: and I have to say that's actually something so Chu
Speaker 10: spoke very eloquently on saying we are sort of heading
Speaker 10: towards vulcanism here, ultimately putting barriers between a global internet
Speaker 10: with creating frictions. And this is the worry he says ultimately, like,
Speaker 10: how are you going to do this without the quote
Speaker 10: unquote breaking the internet?
Speaker 12: With his great fear Here, Caroline, you had a great
Speaker 12: point around you know, the user of chat GPT and
Speaker 12: how TikTok could actually use that for you know, generating
Speaker 12: video content. What was your sense in terms of how
Speaker 12: TikTok plans to use that or are they going to
Speaker 12: develop their own model?
Speaker 10: Ah, that would have been a great answer to get
Speaker 10: to get from him. And then you're always analysis is
Speaker 10: so thoughtful and discussion points about all these things about
Speaker 10: ultimately how AI is going to make it a lot easier,
Speaker 10: a lot more perhaps exciting for users and for content creators.
Speaker 10: He didn't go as far to say that they're developing
Speaker 10: their own lunch language model. I did put that to him,
Speaker 10: and he said, they're just analyzing how a in generator
Speaker 10: AI could be interesting and utiful to his business. They're
Speaker 10: still assessing the risks, is the way that he said it.
Speaker 10: But ultimately, I think AI this is why TikTok is
Speaker 10: so successful and to many fears so addictive. It's because
Speaker 10: of official intelligence and machine learning has meant that we
Speaker 10: are posted things that we all find deeply interesting. It
Speaker 10: happens to spark our imagination. The worry I put to
Speaker 10: him as well is what if AI am particularly from
Speaker 10: the AI filter, What if they make it even more
Speaker 10: addictive to the young, or give even more unrealistic assessments
Speaker 10: of what reality is like. Just think of the AI
Speaker 10: filter that currently makes people more beautiful. I think it's
Speaker 10: called the golden AI effects. Well, we've already empherticizing that
Speaker 10: that it gives an unfair idea of really what beauty
Speaker 10: is for the younger teenage, particularly female user of TikTok.
Speaker 1: Right now, Hey, Caroline, is there a scenario, reasonable scenario
Speaker 1: at all, where maybe white Edance would divest its ownership
Speaker 1: of TikTok? Is that something that's even on the table.
Speaker 1: Do you think.
Speaker 10: They won't go there? They've said time and time again
Speaker 10: that that will not solve the national security issue that
Speaker 10: play here. They won't really go into it as to why. Ultimately,
Speaker 10: I think because bike Dance receives the overall valuation of
Speaker 10: this company the most valuable set up out there, and
Speaker 10: doesn't want to have to forcibly go there at a
Speaker 10: price point that isn't at the top level IPO. Would
Speaker 10: an IPO solve this? I mean, it's certainly something there
Speaker 10: eventually will be on the agenda for the company, But
Speaker 10: I think for now they're really taking any selling to
Speaker 10: another US party off the agenda, off the table. They
Speaker 10: don't feel that's going to secure the national security argument.
Speaker 10: What will they say is the Project Texas, Project Clover's
Speaker 10: ability to keep the US data safely in the US
Speaker 10: and ensure there's no backdoors, But certainly any sort of
Speaker 10: spinough doesn't seem to be something that they want to
Speaker 10: negotiate on.
Speaker 4: Something that struck me, Caroline, is that despite what's going
Speaker 4: on with these political tensions, TikTok hasn't really eased its
Speaker 4: push when it comes to monetization. Can you talk to
Speaker 4: us more about some of these other ventures like live streaming,
Speaker 4: commerce and in other places of the world that they're
Speaker 4: still going into at this.
Speaker 10: Point, Yeah, and actually really rolling it out much more
Speaker 10: fast and furiously. In the United States, for example, it's
Speaker 10: one much more it in say Singapore and in Asia
Speaker 10: is ecommerce basically making it that much easier to be
Speaker 10: able to purchase, to do your shopping, to bring more
Speaker 10: than mediums to identerprises onto TikTok. Of course, the general
Speaker 10: revenue model in the US thus far and in Europe
Speaker 10: as you're a user, has been advertising, as is the
Speaker 10: way with all social media products at the moment, and
Speaker 10: that the highs and the lows. That that ends up
Speaker 10: meaning in a way that we are sent various pushes
Speaker 10: to make purchases, but they want intertwined commerce far more
Speaker 10: into the business. So TikTok shop is something that's really
Speaker 10: being rolled out at the moment and focused in particular
Speaker 10: in the US and U. The XP had to piece
Speaker 10: out how they're moving some of their talents tickly from
Speaker 10: Brazil and other countries to the US and UK to
Speaker 10: focus in on how I can ultimately, yeah, monetize our rivals.
Speaker 10: The room of the health hard at.
Speaker 1: The moment, Man Manty. From a technical perspective, this is
Speaker 1: on showing of data this project Texas. As you know,
Speaker 1: as Caroline was talking to the CEO, it kind of
Speaker 1: made sense to me from a technical perspective, shouldn't that
Speaker 1: be a good fix?
Speaker 12: I mean, look at this week, you know Meta having
Speaker 12: to pay fines because of data sovereignty issues. So clearly
Speaker 12: this is something and Caroline touched on that during her
Speaker 12: interview that you know, this is something that every company
Speaker 12: has to do it. There is no choice, and the
Speaker 12: sooner they do it, I think the better off. David,
Speaker 12: it'll be from a regulatory standpoint, I do think, you know,
Speaker 12: with the proliferation of machine generated data, it's going to
Speaker 12: get harder and harder. You can control user generated data
Speaker 12: in terms of where it's stored, but when it comes
Speaker 12: to you know, a large language model, curating new types
Speaker 12: of content, how do you control that? And so that
Speaker 12: will be the hard problem to solve.
Speaker 4: Mand But what do you think is coming next as
Speaker 4: far as what you're watching as an analyst when it
Speaker 4: comes to all of the sort of political in security
Speaker 4: questions when it comes to TikTok.
Speaker 12: Well, so I think again, it was a wide ranging
Speaker 12: interview and he touched on a few things, but for me,
Speaker 12: the key question was what happens to TikTok's independence if
Speaker 12: you know they are forced to divest and and that
Speaker 12: you know, Oracle seems to be the front runner when
Speaker 12: it comes to you know, how they have engaged with
Speaker 12: the company. Clearly, there are only a handful of social
Speaker 12: media assets which have you know, over a billion monthly
Speaker 12: active users, and TikTok is that kind of platform where
Speaker 12: it can be very powerful, but it comes when it
Speaker 12: comes to security. Clearly there are threats and I think
Speaker 12: there are a lot of unanswered questions even uh, I
Speaker 12: think Aroline covered a lot of ground in our interview,
Speaker 12: but definitely something that I'm sure regulators will Pressdick dot
Speaker 12: com all right.
Speaker 1: And everybody you can check out. That is a great interview.
Speaker 1: Caroline Hyde with the CEO of TikTok from the Cutter
Speaker 1: Economic Form. You can catch that on Bloomberg dot Com.
Speaker 1: It's Caroline Hyde, anchor for Bloomberg Technology, man Deep Seeing
Speaker 1: senior techanomals for Bloomberg Intelligence. And again Caroline's interview this
Speaker 1: morning from Qatar was really interesting. I'm not sure what
Speaker 1: the solution there is because of this Chinese ownership, Jess.
Speaker 1: You know, I just don't know where we go. Is
Speaker 1: it an ipo? Is it a spin off this oracle
Speaker 1: buy it?
Speaker 6: Right?
Speaker 1: But it's not going away. I mean it's too popular.
Speaker 4: Right, and Bloomberg Intelligence recently had this evaluation on it
Speaker 4: that was, I mean north of fifty billion dollars.
Speaker 13: Wow.
Speaker 1: Yeah, So again it's big, as many people saying, and
Speaker 1: it's got size, it's got scale, So you just got
Speaker 1: to figure out what the best ownership structure is.
Speaker 5: You're listening to the tape. Catch our live program Bloomberg
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Speaker 5: eleven thirty.
Speaker 1: That all right, Jess, commodities and stuff commodities here, the
Speaker 1: Bloomber commodity index over the trailing twelve months is off
Speaker 1: twenty six percent. I mean, what does that tell us.
Speaker 1: I'm going to sign some blame here, folks. I'm going
Speaker 1: to sign the blame to Mike mac bloane. He's a
Speaker 1: senior macro strategist. He's our commodities. Go to the person
Speaker 1: for Bloomberg Intelligence. Mike. When you see that kind of
Speaker 1: move in the Bloomer commodity Nicks, what's that telling you?
Speaker 14: Well? And thank you to take the blame. Happy to
Speaker 14: take the blame. It is showing pretty severe deflation. The
Speaker 14: last time it was down more than that on a
Speaker 14: twelve oneth basis was that the depth of the financial crisis.
Speaker 14: And the key difference is the FED was aggressively easing,
Speaker 14: in fact, started easing in September two thousand and seven,
Speaker 14: and commodities didn't really bottom until beginning to two thousand
Speaker 14: and nine. And that's the difference. Now they're showing severe
Speaker 14: deflationary forces. That's the fact. As you mentioned, yet the
Speaker 14: FED is still tightening. And if you look at our
Speaker 14: warp function, and the futures they're showing that we actually
Speaker 14: might tighten at the June meeting.
Speaker 4: So, Mike, what does that tell us about the trajectory
Speaker 4: of the economy. Then, when we're looking at how quantity
Speaker 4: prices are performing at this.
Speaker 14: Point, lowis lose. I'm glad you mentioned it, Jessa. There
Speaker 14: was a lot of optimism that we'd see decent demand
Speaker 14: pull out at China and the reopening, and that's clearly
Speaker 14: not happening. We're seeing very disappointing data. Now we somewhat
Speaker 14: predicted that, and it's also showing up in copper copper
Speaker 14: doctor copper, the metal known as the APH and D
Speaker 14: in economics, it jumped up twelve percent of the year
Speaker 14: and now it's back down in the year, and that
Speaker 14: is very deflation neary implications also for risk acids. So
Speaker 14: I like to let's just tilt it over to copper copper.
Speaker 14: If you look at the dollar price of copper, it's
Speaker 14: about two dollars and seventy five cents a pound. If
Speaker 14: you overlay it with a stock market and just take
Speaker 14: the s P five hundred divide by thousand, they've been
Speaker 14: almost the same price since twenty fifteen. So it shows
Speaker 14: we're not getting that demand pull. The FED is still
Speaker 14: tightened based on kind of lagging measures of inflation. Yet
Speaker 14: the forward looking markets are severe deflation just starting to
Speaker 14: kick in. So I look at it as a train
Speaker 14: wreck for deflation.
Speaker 1: So, Mike, in your research, you've written that you believe
Speaker 1: we are in the midst of the biggest economic reset
Speaker 1: of our lifetimes. Now, I want you to explain that
Speaker 1: to me as if I'm a fifty nine year old person.
Speaker 14: Well, okay, how about a six year old person. That
Speaker 14: might help for me. I think I peaked when IL six.
Speaker 14: It's the Let's go back to Ben Bernaki's warning about
Speaker 14: the when he wrote the Essays and the Great Depression.
Speaker 14: He said, the number one reason we all kind of
Speaker 14: knew what happened was because central banks, most know the
Speaker 14: find of reserve, was pulling back on liquidity and money
Speaker 14: markets and money supply at the time the economy started
Speaker 14: a tilt lower. That's exactly what we're doing now. And also,
Speaker 14: if you study the lessons of history, all booms and
Speaker 14: busts come on the back of the booms start with
Speaker 14: massive liquidity, and then they bust when that liquidity goes away.
Speaker 14: We've had the biggest boom in liquidity ever and the
Speaker 14: sharpest bust in liquidity ever. It's all happened now, and
Speaker 14: I look at it as simple lessons of history, simple
Speaker 14: lessons of markets that you should be very careful. And
Speaker 14: I just look at the fact that the FED is
Speaker 14: still tightening despite the producer price index dropping at the
Speaker 14: fastest pace in history. Now, yes, we only go back
Speaker 14: seventy five years. It peaked at eighteen percent last year.
Speaker 14: Year of year, now it's two percent. It's very likely
Speaker 14: to go negative in the next few months. Is just
Speaker 14: classic cases of the FED venue a little bit too
Speaker 14: far behind and actually, you know, responding to all that
Speaker 14: massive pump and liquidity, and now they're fighting an inflation
Speaker 14: game that's starting to tilt towards deflation and it's just
Speaker 14: getting started. The long and variable lags are quite disconcerting.
Speaker 11: Mike.
Speaker 4: You brought up copper, obviously very critical when it comes
Speaker 4: to a base metal, and what that means for the
Speaker 4: global economy. What's sort of the make or break levels
Speaker 4: that you're watching for copper to mean if it breaks
Speaker 4: below a particular point, what that could mean for other
Speaker 4: asset classes, especially say when we look at the US
Speaker 4: stock market.
Speaker 14: Well, I'm glad you mentioned that, Jess. It's actually right
Speaker 14: now with three dollars and sixty six three hours of
Speaker 14: sixty six of pump on, which implies the S and
Speaker 14: P five hundred should be about three thousand, six hundred.
Speaker 14: Right now it's four two hundred. That's just course, maybe
Speaker 14: that has broken down. But when copper broke down below
Speaker 14: four four dollars, that was to me the signal that, Okay,
Speaker 14: everything's sot in a tilt lower now, because one thing
Speaker 14: that led it was natural gas. Natural gas has dropped
Speaker 14: eighty percent from last year's peak and it dropped to
Speaker 14: the same level as nineteen ninety. First traded in nineteen ninety,
Speaker 14: So it's severe deflation for a significant commodity. And to me,
Speaker 14: all that is tilting lower, and it keeps the question
Speaker 14: I like to ask myself, Jess, is what stops this
Speaker 14: downward trajectory? Now natural gas is bottom of two, but
Speaker 14: had to drop eighty percent to get there. Typically takes
Speaker 14: prices to go very low, squash that to supply and
Speaker 14: increase that demand, and we're just in that current trajectory.
Speaker 14: And I asked myself, so what stops this downward trajectory.
Speaker 14: Typically it takes lower prices or most notably a long
Speaker 14: and variable lackt is significant federal reserve easing and we're
Speaker 14: still priced are tightening next month.
Speaker 1: So if we are in the midst of the biggest
Speaker 1: economic reset of our lifetime, do I just go long
Speaker 1: gold and short everything else?
Speaker 14: Well, there's nothing wrong with good old government to your
Speaker 14: notes that are given you right now four point three
Speaker 14: nine percent. Remember they piked at five percent, that was
Speaker 14: right before the crisis. I think that's what most rational
Speaker 14: boomers in the planet are doing, saying thank you very much,
Speaker 14: meaning in two years I'm going to get almost nine
Speaker 14: percent back guaranteed. Of course, of defenderal the government, Well,
Speaker 14: they might delay the payment in wood, but there won't
Speaker 14: be the fault, so that sweeps what's happening. There was
Speaker 14: some prominent analysts today coming out and recommending gold, and
Speaker 14: I will point about gold. Gold is the best performing
Speaker 14: major commodity on the year of a year basis. Despite
Speaker 14: the Bloomer Commodity Index down twenty six six percent, Gold
Speaker 14: is in that index, but it's up six percent. I
Speaker 14: think gold's on the customs a pretty significant breakout, just
Speaker 14: like it did in two thousand and seven and eight,
Speaker 14: it was bumping up against eight hundred dollars and they
Speaker 14: finally popped to around nineteen hundred. We got by the
Speaker 14: time we got to twenty eleven, Paul I pulled up.
Speaker 4: The copper to gold ratio here on the terminal. There
Speaker 4: is such a thing.
Speaker 1: Why do you know it?
Speaker 8: I mean, what is that cover this on the for
Speaker 8: US stocks? As Oh, okay, follow these things, all things macro,
Speaker 8: not just equities. But I want to get your thoughts
Speaker 8: on this because when you're looking at the copper to
Speaker 8: gold ratio, and we saw it this year hit a
Speaker 8: high in February, but now you're seeing that even below
Speaker 8: where it had been last summer. I'm wondering, again, what
Speaker 8: does this tell us when you're seeing that ratio, because
Speaker 8: typically when the ratio is higher, that usually mean better
Speaker 8: days ahead for the stock market.
Speaker 14: Yes, I'm justin glad you bring that up. I watch
Speaker 14: it a lot, and also some prominent infix and interest
Speaker 14: rate people watch it. It's showing a tilt towards recession.
Speaker 14: And one thing I'll point about copper goals. Oftentimes I
Speaker 14: like to walk it with gold divided by copper because
Speaker 14: that shows an the neurine upward trend. And it's keating
Speaker 14: to remember about gold, it basically outperforms almost all commondies
Speaker 14: over time, partly because it's money you can store cheaply,
Speaker 14: and it's really no cost to store, and there's a
Speaker 14: limited supply. Copper you can bring on rather not quickly,
Speaker 14: but there's it's just much easier to produce and create
Speaker 14: more of it than gold. But the key thing that
Speaker 14: you mentioned is comparent declining versus gold is a clear recession.
Speaker 14: You're introjectory. And I asked myself, okay, so what might
Speaker 14: stop this? Typically I would say, okay, well we've been
Speaker 14: a year or two and two FED easing and the
Speaker 14: economy is starting to expand and recover. We're still here
Speaker 14: and started at easing, we're still tightening. That's why I
Speaker 14: really concerned that this is going to be one of
Speaker 14: the biggest resets of our lifetime.
Speaker 9: Now.
Speaker 14: In the defense of the FED, they are tightening, they
Speaker 14: have to, but the inflation measures they're looking at, like
Speaker 14: personal consumption expenditures as on a wong Or Chief Economists
Speaker 14: told us those are going to be very sticky, and
Speaker 14: she pointed out the FED will not be easing like
Speaker 14: they have in the past, although their models have pointed
Speaker 14: to ease, but they can't because inflation is sticky. That
Speaker 14: shows all the negativity that I see. And I don't
Speaker 14: like to be mcloum, which has been my nickname. I
Speaker 14: like to be more Mick facts.
Speaker 5: These are the.
Speaker 1: Facts, all right, Mike. Somehow you scam to move down
Speaker 1: to South Florida and getting a little warm down there,
Speaker 1: you still committed.
Speaker 14: Oh yes it is. I'm getting older and it's it's
Speaker 14: much better on the bones and muscles of that humidity.
Speaker 1: All right, Mike, great stuff, Really appreciate it. Mike mcglohan,
Speaker 1: Senior macro strategist for Bloomberg Intelligence.
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Speaker 1: All right, let's go to this Low's So we had
Speaker 1: home deepot before. They were kind of cautious, and we
Speaker 1: saw that reflected in the lower stock price, their guidance
Speaker 1: was a little bit soft Low's. I'm looking at the stock,
Speaker 1: it's up three percent even though they cut their view here.
Speaker 1: So let's bring in somebody who does this stuff for
Speaker 1: a living, Drew Redding. He's a research channels to Bloomberg Intelligence.
Speaker 1: He covers all the housing and housing related industries.
Speaker 6: Drew.
Speaker 1: What's your takeaway from Low's particularly and maybe differentiate it
Speaker 1: from what we saw from Home Depot.
Speaker 11: Yeah, So, to be honest, we didn't hear anything that
Speaker 11: was all that different compared to what we heard last
Speaker 11: week from Home Depot, and that sales were impacted by
Speaker 11: a late start spring. You had commodity deflation, particularly for lumber,
Speaker 11: and a slowdown in discretionary spending. So we're finally starting
Speaker 11: to see that moderation big ticket spending, which has been
Speaker 11: a key driver for the industry in terms of the
Speaker 11: stock reaction. There's probably a couple of factors of play
Speaker 11: here for starters. We did see last week Home Deep
Speaker 11: be lower the guide, and so I think it was
Speaker 11: kind of increasingly understood that Lows would be under a
Speaker 11: bit of pressure here from a fundamental perspective, and at
Speaker 11: the same time, a lot of the weakness in the
Speaker 11: quarter was attributable to weather commodity deflation, which aren't necessarily
Speaker 11: representative of the underlying business, and I think that led
Speaker 11: to a little bit of optimism around the guide. But
Speaker 11: that's actually where we think that there could still be
Speaker 11: some risk, particularly since they didn't cut it as much
Speaker 11: as some depot. You know, from where we're sitting, it
Speaker 11: seems like we're just getting started with this slowdown indiscretionary spending,
Speaker 11: particularly for big ticket spending. So I think that's where
Speaker 11: a lot of the debate will be going forward into
Speaker 11: the next.
Speaker 4: Couple of So, Drew, it sounds like you're saying their
Speaker 4: outlook seems to be a bit too optimistic, even though
Speaker 4: they already cut it.
Speaker 11: Yeah, so they lowered their their same source sales view
Speaker 11: to a decline of two to four percent from flat
Speaker 11: to down two percent last time, and that assumes that
Speaker 11: the broader home improvement industry is down about mid single digits.
Speaker 11: You know, we think that there is risk that the
Speaker 11: broader industry declines more in the high single digit range.
Speaker 11: It's something we heard from Home Depot. We actually heard
Speaker 11: it from a number of the building product manufacturers who
Speaker 11: were tied into the repairing ram modeling market. So, like
Speaker 11: I said, I think the debate will be did they
Speaker 11: bring down guidance enough or are we just starting to
Speaker 11: kind of see this downward revision because there's still some
Speaker 11: strain on the consumer as we get through the end
Speaker 11: of the year.
Speaker 1: Drew Occasionally I do get lost and I find myself
Speaker 1: in the middle of a home depot or lows and
Speaker 1: what I noticed is there's a ton of stuff out
Speaker 1: on the floor, like of tons of inventory. How are
Speaker 1: these those companies and the home improvement bus is how
Speaker 1: are their inventories? I know that was an issue for
Speaker 1: a lot of retail. Was that also an issue for
Speaker 1: these homer furnishing folks.
Speaker 11: Yeah, not at this point. I mean, they did get
Speaker 11: ahead of the game earlier in the pandemic, so they
Speaker 11: were well stocked. They did have a couple of quarters
Speaker 11: where they started to work down some of that inventory,
Speaker 11: but now their inventory is in a good position, so
Speaker 11: it's really not a concern in terms of having to discount.
Speaker 11: You know, they implement a lot of technology into the
Speaker 11: stuff they're doing, particularly you know, when the work on
Speaker 11: their marchandise categories, they know what's moving they have a
Speaker 11: pretty good read on demand, so from an inventory perspective,
Speaker 11: they're looking pretty good.
Speaker 4: So what do you think this tells us about the
Speaker 4: state of the US consumer at this point?
Speaker 11: So we do think that there's still some challenges out
Speaker 11: there for the consumer, and it looks like, you know,
Speaker 11: in the home improvement category, which has been one of
Speaker 11: the retail bright spots recently, we think they're just starting
Speaker 11: to show. You know, you've got inflation which is hurting
Speaker 11: people's wallets, Real incomes are down, We've seen credit card
Speaker 11: balances starting to balloon. So all of these things point
Speaker 11: to more stress among the consumer. You know, at the
Speaker 11: same time, interest rates have sneakily crept back up to
Speaker 11: seven percent, so you know, to the extent that you
Speaker 11: see more pressure on the existing home market, obviously that'll
Speaker 11: trickle down into what we're seeing at the home improvement
Speaker 11: retailers as well.
Speaker 1: All Right, Drew, you also cover the broader housing market.
Speaker 1: Talk to us about kind of where we are in
Speaker 1: the housing market. What are you seeing, What are you
Speaker 1: hearing from the Toll Brothers of the world, the d
Speaker 1: H Wardens, What are they saying about their business? Given
Speaker 1: that you know, as you mentioned, we have mortgage rates
Speaker 1: around seven Pasl.
Speaker 4: Brothers also reports after the bell today.
Speaker 1: Oh very good, thank you.
Speaker 11: Yep. It's a great question, because I think there's right
Speaker 11: now we're seeing a bifurcation in the US housing market
Speaker 11: between the existing home market and the new home market.
Speaker 11: And it really has to do with a couple of factors. One,
Speaker 11: there's not a whole heck of a lot of inventory
Speaker 11: in the resale market. One of the reasons is because
Speaker 11: a lot of current homeowners have rates below four below
Speaker 11: three and a half percent, so there's a disincentive for
Speaker 11: them to list their home and take on a rate
Speaker 11: that's now, as you said, approaching seven percent. So that's
Speaker 11: keeping inventory low. At the same time, nobody wants to
Speaker 11: lower the prices. They made all this equity over the
Speaker 11: last couple of years, and they want to sell their
Speaker 11: house at last year's prices, and buyers are playing ball.
Speaker 11: On the other hand, the business model the home builders
Speaker 11: requires that they turn their inventory over. So what they've
Speaker 11: done is they at the end of last year, they
Speaker 11: got aggressive and cutting prices. They cut base prices, they're
Speaker 11: offering more incentives. But most importantly, and what's worth the
Speaker 11: best is that builders are able to offer the buyers
Speaker 11: rate by downs. So whereas somebody looking in the existing
Speaker 11: home market is looking at the interest rate of six
Speaker 11: and a half to seven percent, builders are getting people
Speaker 11: through the door at five to five and a half percent.
Speaker 11: So the combination of lower prices and offering a lower
Speaker 11: rates helped the math work better in the new home market,
Speaker 11: and that's why we're seeing share gains there and we
Speaker 11: think that continues in the coming quarters.
Speaker 4: Also, and it comes to just the low amount of inventory.
Speaker 4: Clearly that was a problem before the pandemic, but then
Speaker 4: even exacerbated more So, how are home builders still benefiting
Speaker 4: from that? Because when I'm talking to portfolio managers, a
Speaker 4: lot of them are still adding exposure to homebuilder stocks
Speaker 4: because they feel like there's just this mixed smash there
Speaker 4: and that they'll ply continue to benefit from that low inventory.
Speaker 11: Yeah, you're absolutely right. I mean, the lack of resale
Speaker 11: supply continues to funnel buyers into the new home market.
Speaker 11: And the interesting thing is that builders were putting all
Speaker 11: this new supply into market and it's just kind of
Speaker 11: this steady drip that you know, a couple months ago,
Speaker 11: everybody was worried about there's going to be an oversupply
Speaker 11: of new housing. But as builders have kind of made
Speaker 11: the math work, we're seeing that home shoppers are increasingly
Speaker 11: preferring this quick move in inventory that where a buyer
Speaker 11: can go, they can lock in their rate and they
Speaker 11: have some confidence that they know what their monthly payment's
Speaker 11: going to be. So I think that builders who have
Speaker 11: a spec focused model where the inventory is there a
Speaker 11: buyer can move right in, are position in this environment
Speaker 11: because buyers are looking for certainty given all the rate volatility.
Speaker 1: How about the inexisting market, how how's that trending?
Speaker 11: Yeah, so it's I mean from a transaction perspective, like
Speaker 11: we said, sales are down sharply compared to the new
Speaker 11: home market, and that's because there's not enough people willing
Speaker 11: to sell their home. From a pricing perspective, prices have
Speaker 11: held up relatively well, you know, from the peak. We're
Speaker 11: only down low single digits.
Speaker 1: One.
Speaker 11: That's because people don't have to sell. There's no forced sellers.
Speaker 11: People have a lot of equity right now. The job
Speaker 11: market is still strong, so people aren't forced to put
Speaker 11: their home on the market. They're comfortable with their low rate,
Speaker 11: they're comfortable with their wage increases. Conversely, in the new
Speaker 11: home market, prices are down much more because builders have
Speaker 11: been aggressive and kind of cutting them. So in the
Speaker 11: resale markets, transactions down prices supported by that low inventory.
Speaker 4: That's interesting because if you don't want to move and
Speaker 4: you've locked in this low rate, wouldn't that still help
Speaker 4: home builders, especially if there's already that low inventory that
Speaker 4: we were talking about.
Speaker 11: Yeah, certainly, so I think that that dynamic favors homebuilders,
Speaker 11: and it also favors renovating over moving, and I think
Speaker 11: we saw a lot of that with the home depot
Speaker 11: and lows and building product manufacturers, where you probably saw
Speaker 11: a lot of demand pulled forward over the last couple
Speaker 11: of years. Now, those same people that aren't moving have
Speaker 11: massive amounts of home equity, so even if home prices
Speaker 11: were to fall mid single digits, there's still a lot
Speaker 11: of equity built in those properties. So with decreased mobility,
Speaker 11: we would expect that remodeling, once we kind of get
Speaker 11: through this air pocket of demand, starts to pick back up,
Speaker 11: and that industry is looking really good over the longer term.
Speaker 1: All right, Drew, thanks so much for joining us. Always
Speaker 1: appreciate getting your perspective on the broader housing market and
Speaker 1: also on some of these housing related retailers like Low's
Speaker 1: and Home Depot reading. He's a research analyst covers all
Speaker 1: the housing stuff for Bloomberg Intelligencies based down in our Princeton,
Speaker 1: New Jersey campus.
Speaker 5: You're listening to the date. That's our live program, Bloomberg
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the
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Speaker 5: You can also listen live on Amazon Alexa from our
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Speaker 1: When reading kind of the background the resume of our
Speaker 1: next guest, I noted the fact that he's a twenty
Speaker 1: nine year Navy veteran. There's like I who does not
Speaker 1: like change, but he served all over the globe. That
Speaker 1: kind of got my attention, and we thank him for
Speaker 1: his service. Of course, Jess looks at it and she sees, oh,
Speaker 1: he went to Texas a and m.
Speaker 8: As I did too, so too, Aggie.
Speaker 4: Is how exciting to have it in one segment?
Speaker 1: All right? Kevin Brand defense policy anols for Bloomberg Intelligence. Kevin,
Speaker 1: thanks so much for joining us here. I need you know,
Speaker 1: I follow the military military history pretty closely over for
Speaker 1: a long time. Here's a new one for me when
Speaker 1: this war broke out in Ukraine. Hypersonic weapons. What is
Speaker 1: a hypersonic hypersonic weapon? I've never heard of that before.
Speaker 13: Yeah, great, thanks for having me.
Speaker 6: So.
Speaker 13: A hypersonic weapon is really the next generation of air
Speaker 13: or ballistic missile threat that's facing friendly troops. If you
Speaker 13: think about it from a speed perspective, hypersonic speeds are
Speaker 13: really anything over the over about mock five, which is
Speaker 13: five times a speed of sound. Think that highway speeds.
Speaker 13: Your car moves about a mile, about a mile in
Speaker 13: one minute. At mock five, you're talking about moving a
Speaker 13: mile in one second. That's what a hypersonic weapon essentially is.
Speaker 4: And I know that you wrote in a note that's
Speaker 4: on the terminal about how it basically falls into two
Speaker 4: broad categories. Can you kind of break down what two
Speaker 4: categories are?
Speaker 13: Sure? So, hypersonic weapons fall into one of two categories
Speaker 13: as you as you mentioned, it's either a ballistic missile essentially,
Speaker 13: think about a launcher with a big solid fuel rocket
Speaker 13: on it that launches something into the atmosphere, whether it
Speaker 13: be a space shuttle or something else, but it moves
Speaker 13: into the atmosphere into outer space and essentially arcs in
Speaker 13: a very ballistic sort of trajectory and then re enters
Speaker 13: the atmosphere at incredible speeds. The space Shuttle or the
Speaker 13: Apollo missions came back at almost mock twenty five if
Speaker 13: you think about that. The second category of weapon is
Speaker 13: really an air breathing jet powered engine, a type of
Speaker 13: cruise missile. It uses what they call a scramjet, which
Speaker 13: means you have to get this missile up to incredible
Speaker 13: speeds like four mock five, and then it opens a
Speaker 13: thrust an intake and then becomes hypersonic and accelerate up
Speaker 13: to mock ten mock twenty five. If you watch the
Speaker 13: Top Gun Maverick movie that Stump Works project, Maverick was
Speaker 13: flying a hypersonic jet capable of movie at mock ten
Speaker 13: or faster. So it hypersonic weapon falls into one of
Speaker 13: those two categories, either something ballistic that leaves the atmosphere
Speaker 13: and then comes back down or something that stays inside
Speaker 13: the atmosphere and uses a scramjet power motor to really
Speaker 13: move back.
Speaker 1: All right, So if Russia is firing these things that
Speaker 1: Ukraine can Ukraine shoot these things down?
Speaker 13: Well, Ukraine apparently has shot down up to seven of
Speaker 13: these early what I would call first generation hypersonic missiles.
Speaker 13: And as we mentioned earlier, almost anything that can leave
Speaker 13: the atmosphere travels at a hypersonic speed at a MOCK five.
Speaker 13: And the Kinsol missile, which is what Russia has supposedly launched,
Speaker 13: is capable of speed something between mock five and Mak ten.
Speaker 13: And what we know is that those should be very
Speaker 13: very hard to defend against with today's technology. But Ukraine
Speaker 13: was successful in shooting that, we think up to about
Speaker 13: seven of these in recent weeks.
Speaker 4: So what does this Russian mag thirty one? So they're
Speaker 4: basically carrying some of these missiles.
Speaker 13: That's right. So Russia has a capability on it. Some
Speaker 13: of its spider aircraft and some of its bombers to
Speaker 13: carry air are essentially air to surface missiles, in this
Speaker 13: case a cruise missile, and in this particular case, that Kinzal,
Speaker 13: which we know is capable of achieving at least speeds
Speaker 13: of mock five. And what we surmise at this point
Speaker 13: in time is that Russia was targeting one of Ukraine's
Speaker 13: Patriot air defense batteries, and so the missile was inbound
Speaker 13: directly at that weapon system, and so it was a
Speaker 13: nose to nose sort of a point defense weapon shot,
Speaker 13: and the Patriot was successful in shooting this weapon down.
Speaker 1: All right, Kevin, let's let's pull the focus out a
Speaker 1: little bit and talk about you know, kind of arming Ukraine.
Speaker 1: That's been you know, a long time for this war,
Speaker 1: and there seems to be kind of a no end
Speaker 1: to sit here. We seem to be the armory for Ukraine.
Speaker 1: Can we still do that? Can we do that on
Speaker 1: a long term basis? Can we continue to do that
Speaker 1: and still meet our own defense needs?
Speaker 11: I think so.
Speaker 7: So.
Speaker 13: We certainly still have a lot of inventory that's capable
Speaker 13: of being moved from different theaters, whether it be the
Speaker 13: European theater or the Asia Pacific theater to help Ukraine.
Speaker 13: We can draw those down from US weapons style, or
Speaker 13: we have the ability to potentially ramp up production of
Speaker 13: the defense industrial base from the big defense companies. The
Speaker 13: latter has been a concern as you know in recent months,
Speaker 13: especially with Congress looking at the defense industrial base and
Speaker 13: how do we maximize production Certainly, if we keep this
Speaker 13: up for extended period of time, I think years will
Speaker 13: draw down before we can replenish our inventories, and that
Speaker 13: is a concern. But I think in the short term
Speaker 13: to maybe eighteen months, that really won't be a very
Speaker 13: acute problem for the Western militaries.
Speaker 1: So, Kevin, the probably one of the big decisions that
Speaker 1: the President made about Ukraine is sending over F Sixteen's
Speaker 1: explain to us how that may play out in terms
Speaker 1: of timing, how many aircraft they're pilots and what impact
Speaker 1: you think that might have.
Speaker 13: Yeah, great question. So I think there's two aspects of this.
Speaker 13: One is whether the United States sends any of its
Speaker 13: own F sixteens or from the Defense Industrial Base are
Speaker 13: able to provide those to Ukraine. But the second thing
Speaker 13: I think more importantly that the Biden administration recently did
Speaker 13: is they sort of cleared the decks for action and
Speaker 13: authorized our allies to provide S sixteens if they are
Speaker 13: so inclined to Ukraine's defense. But before any of those
Speaker 13: aircraft can really get there, the big thing that Ukraine
Speaker 13: and the West has to do is start training Ukrainian
Speaker 13: pilots on how to use those aircraft, and that could
Speaker 13: take anywhere from several months for very proficient pilots just
Speaker 13: kind of type model series training to convert them to
Speaker 13: use Western equipment, to up to a year to eighteen
Speaker 13: months to really get them proficient on how to use
Speaker 13: those aircraft.
Speaker 4: We only have about a minute left, but I was
Speaker 4: curious about the supply chain threats that exist right now
Speaker 4: when it comes to China and did coupling that's happening there.
Speaker 13: Yeah, great question if you look at what's sort of happening,
Speaker 13: whether you take the COVID pandemic and what we saw
Speaker 13: in supply chains there, or how difficult it was from
Speaker 13: Europe to kind of get off. Russian oil and natural
Speaker 13: gas disruptions really have got the attention of the defense
Speaker 13: industrial base, and what they're really looking to do is
Speaker 13: how do you sort of do you risk your supply chains.
Speaker 13: It's not a really good idea if you have a
Speaker 13: potential foreign adversary or a foreign thread or somebody who's
Speaker 13: geopolitically opposed your objectives to be over reliant upon them
Speaker 13: for any source of supply, whether those be critical raw materials,
Speaker 13: oil and natural gas. And so I think you're seeing
Speaker 13: a very natural tendency right now for people to take
Speaker 13: a look at where are they over concentrated and how
Speaker 13: do I de risk that, How do I spread sort
Speaker 13: of the wealth around so that I'm not beholding to
Speaker 13: any one supplier in the future.
Speaker 1: Kevin, thanks so much for joining us. I really appreciate
Speaker 1: getting the benefit of your expertise. Kevin Brand defense policy
Speaker 1: analysts for Bloomberg Intelligence and a twenty nine year Navy veteran.
Speaker 1: So we thank Kevin for his many years of service
Speaker 1: and he really helps us kind of understand what's happening
Speaker 1: on the ground and in the air in the war
Speaker 1: in Ukraine.
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 2: at Matt Miller nineteen seventy three.
Speaker 1: And I'm fall Sweeney. I'm on Twitter at pt Sweeney.
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Speaker 1: Bloomberg Radio.