Speaker 1: This is Bloomberg Business Week. I'm Karl Masser and I'm
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Speaker 1: YouTube search Bloomberg Global News. Well, talk about Houston. There's
Speaker 1: a problem FedEx shares. As you know, we've been talking
Speaker 1: about how they have tumbled today down uh the most
Speaker 1: and over forty years after pulling its earnings forecast on
Speaker 1: worsening business conditions potentially worrying signed for the global economy.
Speaker 1: And I think about this kind of story twenty four
Speaker 1: hours ago, tim Essentially we just started to break down
Speaker 1: this and I wondered about analysis, especially when it comes
Speaker 1: to our Bloomberg intelligence to you and look at it now. Yeah,
Speaker 1: really eager to speak to Leak Glasgow, Senior transport logistics
Speaker 1: and shipping analysts for Blue Brig Intelligence. Lee joins us
Speaker 1: this afternoon via zoom from Bloomberg Intelligence headquarters in at Princeton,
Speaker 1: New Jersey. Uh. Lee, good to have you with us.
Speaker 1: We were really itching to get you on to talk
Speaker 1: all about this this afternoon. I think the question that
Speaker 1: Carol asked sort of rhetorically earlier was about whether this
Speaker 1: is a company specific story, if it's FedEx specifically, because
Speaker 1: we're seeing it way on certainly other sectors and uh
Speaker 1: peers within the sector. But but take us into what
Speaker 1: exactly the concern is that FedEx has. Yeah, So what
Speaker 1: I would say is it is a company's specific yes,
Speaker 1: and is there a read through for the rest of
Speaker 1: the broader economy a little? And why we say that
Speaker 1: is that, you know, in the release, the company mentioned
Speaker 1: the fact that there are some service challenges in Europe
Speaker 1: and we view that as mostly dealing with the T
Speaker 1: and T integration, coupled with the fact that you know, um,
Speaker 1: Europe is I'm sure you're all aware that Europe having
Speaker 1: some problems with inflation due to high energy costs and
Speaker 1: that's having a major impact in demand. You know, the
Speaker 1: risk of your going into a recession or if they're
Speaker 1: not a recession already is a lot higher than here
Speaker 1: in the US UM and you know that that is
Speaker 1: probably driving some of the weakness that we saw. And
Speaker 1: Express Express revenues came in five percent below expectations for
Speaker 1: the first quarter when they pre announced yesterday. And then
Speaker 1: the margins that you know that they showed the the
Speaker 1: adjusted operating um operating margins were about one point seven percent,
Speaker 1: which is very low relative to history. I mean history,
Speaker 1: historically it's been around about five to six percent UH
Speaker 1: and and so you've seen a real step down in
Speaker 1: margins and it probably has to do with higher costs, UH,
Speaker 1: with the inflationary aspects that we were talking, lower demand,
Speaker 1: and some integration problems at T and T and and
Speaker 1: for some background, you know T and T was an
Speaker 1: acquisition they made two thousand and sixteen, UH and they
Speaker 1: did it so they could be more competitive in Europe
Speaker 1: with UPS and and and Deutsche Post. You know, there's
Speaker 1: still a third when it comes to Europe, but there
Speaker 1: are a lot, you know, a lot closer to the
Speaker 1: number two ups in Europe now. But the problem was
Speaker 1: in two thousand and seventeen there was a huge um
Speaker 1: cyber attack on TNT which rendered it pretty much useless.
Speaker 1: And it wasn't for fed x's capital, the company probably
Speaker 1: wouldn't be around today. And then that couple with a
Speaker 1: couple of management missteps, will call them, really slowed the
Speaker 1: progress of integrating T n T. And then you know,
Speaker 1: we had a pandemic and that threw a wrench and
Speaker 1: everyone's business model. UM. And so we just think that
Speaker 1: that the benefits, if any, are really going to be
Speaker 1: kicked down the road as management tries to properly resource
Speaker 1: its network in the US and in Europe. Hey Ley,
Speaker 1: what does this mean for the company's new CEO, who
Speaker 1: who took over just in June, inherited this and just
Speaker 1: trying to make it right or is this maybe a
Speaker 1: first big stumble? Yeah? So um, you know Roger Subramani
Speaker 1: in UM he's became the CEO and president in June. UM.
Speaker 1: You know, also Richard Smith became the CEO of its
Speaker 1: rest in April. Uh So they're relatively new, shall we say,
Speaker 1: to their role, but they've been long time managers in
Speaker 1: the organization. You know what, I would say that's very
Speaker 1: different than what we're seeing at fed X. Versus UPS.
Speaker 1: You know, in UPS got a new CEO, Carol Toma,
Speaker 1: and she was on the board UM. But you know,
Speaker 1: people were a little skeptical about her because most of
Speaker 1: UPS senior managers will always used to be able to
Speaker 1: say that, you know, my first job was when I
Speaker 1: was in college, loading on loading EPs trucks, and I've
Speaker 1: been there forever. And so she was like, not quite
Speaker 1: an outsider, but kind of an outsider. And she's really
Speaker 1: done a phenomenal job. She's she's been selling off on
Speaker 1: profitable businesses. She sold their less than truckload business off
Speaker 1: to t f I. UM. They're really focused on what
Speaker 1: they're calling better not bigger strategy, which really seems to
Speaker 1: be paying off. And UPS had a sales side event
Speaker 1: on September nine, and they didn't call that any any
Speaker 1: glaring issues. They actually reiterated their two guidance. And that's
Speaker 1: why we think it's mostly a company specific issue for
Speaker 1: fed X versus the broader economy. You know, we'd be
Speaker 1: naive to think, yes, you know, growth has slowed over
Speaker 1: the last three months, but you know, also you know
Speaker 1: fed X is has more of exposure in China, uh,
Speaker 1: and you know the the zero tolerance policy of the
Speaker 1: Chinese government due to COVID have really restricted economic activity
Speaker 1: there and that's gone on longer than I think most
Speaker 1: of us have would have wanted or thought, uh, And
Speaker 1: that's also something weighing on on FedEx's business as well.
Speaker 1: Just want to throw out some numbers. Looking at the
Speaker 1: d e S page on the Bloomberg when you look
Speaker 1: at fed X USOV almost sixty five billion international was
Speaker 1: almost twenty nine. If you pull up ups US is
Speaker 1: about seventy four billion internationals about twenty three. So that
Speaker 1: speaks really to your point. So I mean, when we
Speaker 1: think about ups LEE, that's more of a US play
Speaker 1: domestic play. Yeah. And when I was also in up
Speaker 1: s U p SS one integrated network, so they have,
Speaker 1: you know, an express in domestic business. But you know,
Speaker 1: when someone delivers a package to your house, it's not
Speaker 1: a separate organization. At FedEx. The majority of their packages
Speaker 1: here on the ground network which are independent contractors, or
Speaker 1: their express network, which are employees. A lot of people
Speaker 1: on the street are kind of wondering, you know what
Speaker 1: the rationale for that is and does it truly make sense, uh,
Speaker 1: to not have an integrated network. Well, great, to check
Speaker 1: in with you, Lee Clascow of our Bloomberg Intelligence team.
Speaker 1: You're listening to Bloomberg Business Week with Carol Messer and
Speaker 1: Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. The new
Speaker 1: issue of Bloomberg Business Week out. It is online at
Speaker 1: Bloomberg dot com, slash business Week, on the Bloomberg Terminal,
Speaker 1: and of course on news stands. One story in the
Speaker 1: issue takes a look at the biggest US copper mind
Speaker 1: that may not be able to actually deliver on its
Speaker 1: good stint. We're talking about Rio Tinto's Resolution Project. It's
Speaker 1: got enough of the medal for two seventy five million
Speaker 1: e vs. Some locals say though, it should never be developed.
Speaker 1: The story by Joe Dough. He is Medals and Agricultural
Speaker 1: America's deputy team leader for Bloomberg News. He's with us
Speaker 1: right now in the Bloomberg Interactive Broker's studio. Joel Weber
Speaker 1: is going to be joining us to He's editor of
Speaker 1: Bloomberg Business Week. He's with us in the Bloomberg Interactive
Speaker 1: Broker Studio. Joe, I want to start with you just because, um,
Speaker 1: you know, you got to go visit this mine in Arizona,
Speaker 1: and what was it like? So, I mean, you're in
Speaker 1: Phoenix and you drive about forty five minutes east of
Speaker 1: Phoenix and suddenly you just go from like city to
Speaker 1: desert to like this beautiful, rolling, hilly, uh kind of
Speaker 1: cliffy area, and then you kind of go through this
Speaker 1: crevasse and you enter this beautiful kind of range with
Speaker 1: these rocks and whatnot. And they're at the top of
Speaker 1: all this is this kind of like plane shaft. Right,
Speaker 1: there's a couple of large pieces of iron that have
Speaker 1: clear lifts going down to the ground, and but you
Speaker 1: don't think anything other about it. So that's where the
Speaker 1: actual mine is located. And I said, well, you know,
Speaker 1: I want to go down into it because it's the
Speaker 1: deepest mine in in the Americas. It's about a mile
Speaker 1: and a half DP. So we went all the way
Speaker 1: down there, and you get down there and it's it's
Speaker 1: kind of like, uh, I don't know, you go to
Speaker 1: like a new library, right, it's all concrete and lit
Speaker 1: up by fluorescent lights and everything else. And if you
Speaker 1: didn't know you were a mile a mile and a
Speaker 1: half in the ground, you might think you're like a
Speaker 1: casino or you know, someplace without windows. Uh. But that's
Speaker 1: where it stops because there is no mind being built
Speaker 1: because they don't actually have the right to the land
Speaker 1: right now to build where the actual copper veins are. Right.
Speaker 1: So this is gonna be a copper mine. It's gonna have,
Speaker 1: like you said, be producing the most copper in all
Speaker 1: of North America. And it sits below this uh Native
Speaker 1: American site. It is a campground actually owned by the
Speaker 1: Forest Service, but uh, the San Carlos Apache tribe say,
Speaker 1: this has been our land for time and prepeptuity. That
Speaker 1: I was actually talking to the guy who is one
Speaker 1: of the former Apache leaders who's now leading the kind
Speaker 1: of charge to say, you should not give this land
Speaker 1: over to Rio Tinto. The United States should hold onto
Speaker 1: this land. And yeah, well so there's tension. I want
Speaker 1: to bring Joe Webber into because Joel, you know the
Speaker 1: reason we this is such an important story. As we
Speaker 1: talked so much about electrical vehicles EVS, and we talk
Speaker 1: about Lithian that's so important, but actually copper is really
Speaker 1: important when it comes to EVS and we need a
Speaker 1: lot of it, yes, like so much of it, Like
Speaker 1: you need you need like maybe a big gigantic mind
Speaker 1: with like the biggest deposit in the US may be visited. Yeah, exactly.
Speaker 1: And but you know, I think it does speak to
Speaker 1: when you mentioned some other materials there, some metals, They're like,
Speaker 1: look like the US has really never been at the
Speaker 1: forefront of getting this stuff out of the ground and
Speaker 1: making it be a supply chain that could end up
Speaker 1: in electric vehicles. I think that really changed with the
Speaker 1: new incentives from Washington. And and this shows how, uh,
Speaker 1: there's this reality that has yet to meet where you know,
Speaker 1: we might end up in the future. But but in
Speaker 1: this specific example, it you know, how likely is rio
Speaker 1: tend to gonna be even to get this copper out
Speaker 1: of the ground anytime? Anytimes? I mean, if you assume
Speaker 1: that the United States government does end up approving the
Speaker 1: land swap and it is on hold right now because
Speaker 1: the Biden administration said, wait a minute, we feel like
Speaker 1: some of the licensing wasn't actually done correctly. We feel
Speaker 1: like some of the environment and impact studies were not
Speaker 1: done correctly, so maybe we should redo those. Even if
Speaker 1: they suddenly said, you know what, we're going to reverse
Speaker 1: that and allow for the swap, it would still take
Speaker 1: ten years before Rio Tinto is actually pulling copper or
Speaker 1: up out of the ground. So I mean, it just
Speaker 1: reminds us that mining projects take minimum ten years to
Speaker 1: get up off the ground. And this is the problem
Speaker 1: I was I was saying on Twitter just yesterday. You know,
Speaker 1: the Biden administration has been front and center talking about
Speaker 1: the materials being domestically produced. And even though most people
Speaker 1: don't think, oh, energy transition, we need to talk about
Speaker 1: the minds. And this is like constantly being talked about
Speaker 1: in the White House and being talked about around Congress.
Speaker 1: Everybody's for this, but you get into complexities of this
Speaker 1: situation with resolution, and you see why it is so difficult,
Speaker 1: um and the problem that we have right if we
Speaker 1: truly want to do this at home, we got to
Speaker 1: be ready for understanding it's going to take ten twenty
Speaker 1: years to actually have the ability to do that all domestically.
Speaker 1: Makes me wonder that idea of what two fifths of
Speaker 1: passenger cars carsels to be e vs makes me wonder
Speaker 1: how the heck do we do it, especially if we
Speaker 1: want everything to be made domestically or a lot of it. Right,
Speaker 1: And this wasn't in the story, but I was recently
Speaker 1: having a conversation with a very big trading firm that
Speaker 1: actually trades all these medals, and they said, it's just
Speaker 1: now getting on people's radar exactly how much copper you need.
Speaker 1: And what is in the story is Goldman's most recent
Speaker 1: research says we're not going to hit a deficit for
Speaker 1: three more years, but the price is going to more
Speaker 1: than double for copper. And that's because the market the
Speaker 1: world's going to start. China is very much aware of that,
Speaker 1: and they are the ones also going out there to
Speaker 1: secure off take agreements. And by part of minds in
Speaker 1: all different parts of the world that people like Elon
Speaker 1: Musk say, you know what, maybe we don't want to
Speaker 1: touch that copper mine and the Democratic Republic of Congo,
Speaker 1: maybe we do just want the one that's in Arizona
Speaker 1: that we can trust, or the one that's in Chile
Speaker 1: that we can trust. By the way, there was a
Speaker 1: proposed land swap. What happened there? Uh? So the land
Speaker 1: swap was written into law uh in a bill passed
Speaker 1: during the Obama administration. It was tucked into a defense
Speaker 1: bill of course, so there's debates over did Obama actually
Speaker 1: like this thing? Uh? And then by the end of
Speaker 1: the Trump administration. The Trump administration had enough push going
Speaker 1: from behind the scenes from lobbyists and whatnot. They said,
Speaker 1: let's approve the land swap. Let's go. Biden gets in
Speaker 1: in the first month, and the Forest Service, the U.
Speaker 1: S d A, which actually is in charge of all this,
Speaker 1: come and say, you know, actually we're putting a halt
Speaker 1: on the land swap. And so that's where we are
Speaker 1: at right now. The land swap hasn't happen. Uh. The
Speaker 1: United States government says we still need to do more
Speaker 1: due diligence on this, and of course Rio says, the
Speaker 1: due diligence has been done. We've chosen all the various
Speaker 1: spots around Arizona to give them, uh, to give the
Speaker 1: United States government. Um, so let's get this thing moving on.
Speaker 1: Are there other areas of the United States that have
Speaker 1: copper veins such as this? I know this is the
Speaker 1: biggest potential one. But what what if if Riotinto doesn't
Speaker 1: get access to this? What happens? So where this mine
Speaker 1: is located is actually like for over a hundred years,
Speaker 1: been known as one of the great deposits of copper
Speaker 1: in the world. I asked one of the geologists there
Speaker 1: should I've never thought it was the US, but it's
Speaker 1: I mean right there in Arizona. Right, Arizona is like
Speaker 1: copper Universe. I asked one of the geologists. Why, why, like,
Speaker 1: what's interesting? He showed me this weird map with all
Speaker 1: this crud on it. I said, I don't get this,
Speaker 1: but I do notice this one spot here that makes
Speaker 1: no sense to me. The lines all converge. He goes,
Speaker 1: my job is to make money by getting copper out
Speaker 1: of the ground. What makes me love my job is
Speaker 1: the thing you just pointed out there about the geology,
Speaker 1: and he said, basically, we're still trying to figure out,
Speaker 1: after hundreds of years of looking in this area, what
Speaker 1: happened to the Earth millions of years ago for this
Speaker 1: to be the spot where copper is found. It's in
Speaker 1: Jurassic Park. Just watch them. That's all there, which I
Speaker 1: don't know. I don't know. I only like the first one,
Speaker 1: all right. Our Thanks to Joe doo Middleton, a America's
Speaker 1: deputy team leader of Bloomberg News, this story in the
Speaker 1: new issue of Bloomberg Business Week magazine. It is out
Speaker 1: or thanks to the editor of the magazine, Jill Webber,
Speaker 1: This is Bloomberg Business Week with Carol Masser and Bloomberg
Speaker 1: Quick Takes Tim Stinovic on Bloomberg Radio. Get ready for
Speaker 1: another likely year weather disasters that destroy homes, ruined crops,
Speaker 1: disrupt shipping and threatened lives. Yeah, you thought you were
Speaker 1: going to have a good Friday. Forget about it. It's
Speaker 1: not happening here. Check out today is a big take.
Speaker 1: You can do that by visiting a Bloomberg dot Com
Speaker 1: slash Big Take. Also type and I Big Take on
Speaker 1: the Bloomberg Terminal. We've got Elizabeth Elkin with us. She's
Speaker 1: agricultural reporter for Bloomberg New She's with U right now
Speaker 1: in the Bloomberg Interactive Broker Studio. Elizabeth, I gotta tell
Speaker 1: you it's not just you know, the American West, or
Speaker 1: what's happening in Australia. Over the last few years. We've
Speaker 1: got deadly floods in Pakistan. We've got scorching heat all
Speaker 1: over the western part of the country. In Europe as well,
Speaker 1: we've got torrential rains in Indonesia than the Mega Droute
Speaker 1: in Brazil and Argentina to what's going on, Yeah, absolutely
Speaker 1: absolutely so. La Nina has been the driver behind weather
Speaker 1: disaster since like mid um, and it's all but guaranteed
Speaker 1: that we're going to see another year of Ladina at
Speaker 1: this point. Um. Now, three years of Laddinia in a
Speaker 1: row has only happened like twice since nineteen fifty and
Speaker 1: the last time started in so it's like really rare um.
Speaker 1: And by the time three finishes, the world could see
Speaker 1: one trillion dollars in weather disaster damages for these three
Speaker 1: years of London. So is Landinia getting worse? Like like
Speaker 1: you just said, it doesn't happen a lot, but we
Speaker 1: keep talking about that. The current, the warming of the planet.
Speaker 1: The planet just makes the what we're seeing in terms
Speaker 1: of climate imbalances and the impact on our world. It's
Speaker 1: gotten even worse as a result. Absolutely, Yeah, So I
Speaker 1: would describe it as La Nina is like the driver
Speaker 1: behind all of this weather chaos, but climate change just
Speaker 1: magnifies everything. So like for me, you know, I'm a
Speaker 1: football fan. Um, if I were to give it a
Speaker 1: sports analogy, right, uh, La Nina is like setting the
Speaker 1: rules of the game. It's like how you play, and
Speaker 1: then climate change is like if you put in the
Speaker 1: best quarterback ever and you just watched that guy hurl
Speaker 1: the ball down the field. Right, that's climate change. What's
Speaker 1: the atmospheric phenomenon behind Landina? Like how does it work?
Speaker 1: So I think the atmosphere of the atmospheric phenomenon behind
Speaker 1: Landinia just it ends up making it so that the
Speaker 1: ocean is just a little bit cooler, right, It's just
Speaker 1: a little bit cooler, and that tiny little bit can
Speaker 1: just cause all of these massive weather disasters. And I
Speaker 1: think about right when we have crazy storms like in
Speaker 1: our world, like when there's a real hot and then
Speaker 1: you get hit by a cold front. Like it's right,
Speaker 1: it's the extremes that just magnify everything, whether it's lots
Speaker 1: of rains or an extreme drought. Absolutely absolutely, and then
Speaker 1: you know you end up with things like yeah, the
Speaker 1: droughtout rest, but also like the deadly flog floods in
Speaker 1: Pakistan like we were talking about. Um, you know, I
Speaker 1: know for me, like I love coffee, right, and so
Speaker 1: like problems growing coffee in places like Brazil that's like
Speaker 1: super inflationary. Talk to us about this because agriculture, right,
Speaker 1: we always think about the old economy. You cares about it.
Speaker 1: But like just like with the rail, just with the
Speaker 1: rail strikes, we realized getting stuff around, which seems so old.
Speaker 1: Economy it's important. It's it's how the economy keeps things moving.
Speaker 1: Act like, it's so crucial in so many different ways.
Speaker 1: What are you hearing as you report on this in
Speaker 1: a daily basis and then as it relates to climate change? Yeah?
Speaker 1: Absolutely absolutely. I mean, you know, when I talk to farmers,
Speaker 1: you hear stories about like almond farmers literally ripping out
Speaker 1: their trees because it's so dry, right, and they just
Speaker 1: don't have enough rain year after year, which is a
Speaker 1: real problem for people who like want to eat almonds
Speaker 1: or you know, the things that almond goes into, like
Speaker 1: almond milk and all of that. Like, that's that's going
Speaker 1: to be a real problem. Um, you know, I covered dairy,
Speaker 1: so talking to dairy farmers, dairy farmers are talking about
Speaker 1: whether they can even do what they do in places
Speaker 1: like California anymore over the next you know, decades or
Speaker 1: however long. That's pretty remarkable to think about. I mean,
Speaker 1: California is you know, it's it's it's the agricultural center
Speaker 1: of the United States. It provides so much produce to
Speaker 1: the rest of the country. What does that mean for
Speaker 1: for all of US Americans. Yeah, it is very, very inflationary.
Speaker 1: I mean, you know, as it becomes more expensive to
Speaker 1: grow things, to to grow fruits, to grow vegetables, to
Speaker 1: grow everything else. Um, it just spins down the supple
Speaker 1: Hi Chaine, right, So it becomes more expensive for you
Speaker 1: to buy it. Um. And in the long term, you know,
Speaker 1: there could be issues of like can we even grow
Speaker 1: things in California the way that we have been um,
Speaker 1: And you know you talk about fruits and veggies, but
Speaker 1: it's also like dairy. I mean, California is our number
Speaker 1: one dairy state. R It's like a lot of what
Speaker 1: we grow comes out of this one area that has
Speaker 1: so many problems for us. But as you guys started,
Speaker 1: I think Timmy pointed out, I mean it's a global problem.
Speaker 1: So whether it's the flooding in Pakistan or you know,
Speaker 1: incredible droughts in South America. I mean, we are seeing
Speaker 1: this globally, this these extremes, and and while it's felt
Speaker 1: like a really really rough here, it sounds like, you know,
Speaker 1: get ready for more to come. UM. So important and
Speaker 1: so much a sign of our times. Elizabeth, thank you
Speaker 1: so much, really appreciate it. Elizabeth Elkin, agg reporter here
Speaker 1: at Bloomberg News, joining us in our interactive broker story
Speaker 1: Broker studio. This is our Bloomberg Big Take today. Yeah,
Speaker 1: check it out and I Big Take on the Bloomberg
Speaker 1: terminal and also at Bloomberg dot Com Slash Big Take Journal. Yeah,
Speaker 1: but you let me drive? Oh no, no, no, no no home?
Speaker 1: All right, please, I'll go. I want to drive. It's
Speaker 1: good question. This is the drive to the clothes on
Speaker 1: Bloomberg Radio Tik Talk. Everybody. Ten minutes left in today
Speaker 1: as well, actually nine and a half, let's be exact here.
Speaker 1: We like numbers and like being exact on Bloomberg's about
Speaker 1: nine and a half minutes left in today's trading session,
Speaker 1: getting ready to wrap up what has been a week,
Speaker 1: certainly for the equity trade, a bearish one. We're seeing
Speaker 1: significant losses losses in today's trade, although we are off
Speaker 1: tim our worst levels of the day today, we are
Speaker 1: really interested to hear what Brian Railing has to say.
Speaker 1: He's head of Global fixed income strategy at Wells Farges
Speaker 1: Investment Institute. He joins us on the phone from St.
Speaker 1: Louis this afternoon. Brian, how are you great. Okay, let's
Speaker 1: talk fixed income here. Um, just give us an overview
Speaker 1: of where you think we are right now and what
Speaker 1: the fixed income market is telling us about the economy,
Speaker 1: because if you look at the equity market, uh, you know,
Speaker 1: you're pretty much seeing alarm bells across the board. Yeah. Well,
Speaker 1: the pick thinker market has been giving alarm bells here
Speaker 1: since June with the yield curve inverted. And you know
Speaker 1: that inversion maintains itself. Um. Uh, you know if you
Speaker 1: look at just twos to tends almost forty basis points
Speaker 1: inverted there. So, um, you're saying that rough times ahead
Speaker 1: for the economy. So where's the value and where's the
Speaker 1: difficulty and figuring out, especially when it comes to the
Speaker 1: fixed income market, when you're looking at price and yield
Speaker 1: right now, where's the value? Where's the right trade? Yeah? Well,
Speaker 1: I mean the easy trade is just short term because
Speaker 1: you can get really nice yields there, um, with very
Speaker 1: little risk. Now, I'm not sure. I don't believe you
Speaker 1: put in the peak yet in those longer term rates,
Speaker 1: but I don't think we're too far away from that.
Speaker 1: So I do think we're gonna come a time when
Speaker 1: really extending duration and buying long term bonds will pay
Speaker 1: off in the long run. You know, the sentiment numbers
Speaker 1: today we're talking about UM, you know one and I
Speaker 1: think was a ten year in inflation expectations and coming down.
Speaker 1: So do you anticipate that we will see a significant
Speaker 1: UH turnaround when it comes to the rate outlook? Maybe
Speaker 1: it's next year, Maybe it's late next year, maybe it's
Speaker 1: early in the following year. It's about the the one
Speaker 1: year in five year excuse me, inflation expectations as a
Speaker 1: result of the University of Michigan surveys showed lower than
Speaker 1: expect expectations. So how how what's your expectation when it
Speaker 1: comes to rates? Yeah, I do. I do believe that
Speaker 1: we're entering a point again. I don't think we've hit
Speaker 1: the peak yet. We're entering a point where it's a
Speaker 1: really good buying opportunity for UH longer term duration. UH.
Speaker 1: Simply for that reason, I do expect that inflation expectations
Speaker 1: and eventually inflation over the intermediate to long term will
Speaker 1: go down. I believe that the Fed will win its
Speaker 1: war and will hit its targets. Now, not over the
Speaker 1: near term. There's going to be a lot more. I
Speaker 1: think fear around inflation a lot more work to fit
Speaker 1: it's going to have to do. But I think the
Speaker 1: Fed will do the work that's required. Brian. What's near
Speaker 1: term though? In your view? I mean, I think what's
Speaker 1: so crucial and and to be fair, I think no
Speaker 1: one anticipated the inflationary pressures in terms of the timeline
Speaker 1: and that they would be so sticky for so long.
Speaker 1: But do you have a timeline when you think inflation
Speaker 1: starts to come down significantly? Well significantly, I think we're
Speaker 1: gonna probably have to wait until you know, at least
Speaker 1: the first quarter of next year, if not a little
Speaker 1: bit beyond that. But you know, significantly still is not
Speaker 1: down to the feeds target. The markets really have to appreciate.
Speaker 1: And you know, just because we get inflation maybe down
Speaker 1: to five percent or four percent, yeah, that's a big
Speaker 1: move down. But um, I don't look for the Fed
Speaker 1: to blink. I think the FED will continue to hold
Speaker 1: those rates at high level until their confident they're gonna win.
Speaker 1: Hey Brian, um, what about when it comes to quality
Speaker 1: of fixed income? What what are you telling clients right now?
Speaker 1: What should they be focused on? We got we're we're
Speaker 1: up in quality UM, but the yields are looking more
Speaker 1: attracted by the day in a lower quality. That's said, uh,
Speaker 1: buying low quality, buying below investment grade fixed income going
Speaker 1: into a recession is not a good strategy. We're likely
Speaker 1: to see more fear in the markets. See those spreads
Speaker 1: widen out again. I think there's gonna be great buying opportunities. Uh.
Speaker 1: And maybe spreads won't widen out to the seven we've
Speaker 1: seen in past recessions. But I hold off here until
Speaker 1: it's a little bit more certain exactly. You know that
Speaker 1: we've entered into a recession and we maybe get to
Speaker 1: spread wide. So what would be the sign that that
Speaker 1: that that that that's happened. I mean, you need the
Speaker 1: n b ARE to come out and say that we're
Speaker 1: in a recession. No, no, no, no, I just I
Speaker 1: would just like to see the spreads UM, you know,
Speaker 1: widen out six seven hundred uh in those below investment
Speaker 1: grade indicries. To me, that would be the bottom market
Speaker 1: saying listen, we've already got the fear with the yield curve,
Speaker 1: and we get some fear in credit spreads, you know,
Speaker 1: it starts to line up. You do not want to
Speaker 1: wait for a recession to be called or to be obvious,
Speaker 1: we're in a recession, but waiting for those indicators. Um,
Speaker 1: you know, those the cheapening prices, it's almost certainly going
Speaker 1: to happen into a recession. All right, How do you
Speaker 1: put the US versus maybe overseas? Where are the opportunities? Essentially?
Speaker 1: How do you play it? Yeah, I mean we're still
Speaker 1: US centric for sure. I think Overseas has a lot
Speaker 1: more issues and uh, you know, their economies are not
Speaker 1: in as good as shape as ours ours is, uh,
Speaker 1: even if ours is weakening, and we've got energy crises
Speaker 1: looming potentially uh this winter, especially over in Europe. And
Speaker 1: so to me, you know, I would I would definitely
Speaker 1: stay US centric. I know this depends on you know,
Speaker 1: a person's risk tolerance and where they are in their lifetimes.
Speaker 1: But how do you look at the role of fixed
Speaker 1: income in two and a portfolio given that rates have
Speaker 1: been so low for so long? Yeah? Well, I mean
Speaker 1: in the rough year for all asset classes, including uh
Speaker 1: fixed income, but number one fixed income, you know you
Speaker 1: do see less volatility. Uh. So again, as you are
Speaker 1: an investor looking maybe less on the return side and
Speaker 1: more on the uh, you know your your stability, You're
Speaker 1: gonna continue to add more and more fixed income. But
Speaker 1: now things are getting very interesting with these higher yields UM.
Speaker 1: You know, with even very low risk in short term
Speaker 1: being able to get yields that we have not seen
Speaker 1: in some time. And if you are specifically in a
Speaker 1: high tax bracket, you know, muni bonds look particularly attractive
Speaker 1: to UM. Again, the high quality shorter term, Uh, it's
Speaker 1: kind of a no brainer. Hey, do you have a
Speaker 1: quick thought on mortgage rates and what happens. We certainly
Speaker 1: saw homebuilders a little bit of a rally in today's
Speaker 1: overall downward equity trade, and that was because of some
Speaker 1: of the optimism about longer term inflationary expectations. As we
Speaker 1: talked about some thoughts on mortgage rates just quickly, again,
Speaker 1: they're gonna remain elevated. That market is going to remain difficult.
Speaker 1: It's going to be difficult for people to afford the affordability.
Speaker 1: But again kind of with my intermediate to longer term
Speaker 1: out look, I do expect the inflation expectations and eventually
Speaker 1: inflation to move lower and that should uh cause those
Speaker 1: longer term rates to start to take a little bit
Speaker 1: lower and that will actually bring down mortgage rates. All Right,
Speaker 1: we gotta run. Hey, have a great weekend. Brian Railing,
Speaker 1: he's head of Global fixed Income Strategy at Wells Fargo
Speaker 1: Investment Institute, joining us on the phone from St. Louis
Speaker 1: on this Friday. Thanks for listening to Bloomberg Business Week.
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