1 00:00:00,800 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day, we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,520 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,560 --> 00:00:18,439 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:21,800 Speaker 1: at Bloomberg dot com slash podcast. Let's get over right 7 00:00:21,800 --> 00:00:25,599 Speaker 1: now to Bloomberg Intelligence analyst Erica Heidelberg. She's the MBS 8 00:00:25,720 --> 00:00:28,479 Speaker 1: strategists with Bloomberg Intelligence, so she's going to talk to 9 00:00:28,560 --> 00:00:32,599 Speaker 1: us about UH mortgage rates and her housing research as 10 00:00:32,600 --> 00:00:35,480 Speaker 1: well as an outlook for the real estate industry. Erica, 11 00:00:35,520 --> 00:00:37,599 Speaker 1: thanks so much for joining us in the Bloomberg Interactive 12 00:00:37,600 --> 00:00:41,880 Speaker 1: Broker Studio. UM mortgage rates seem to have sustainably turned 13 00:00:41,920 --> 00:00:44,640 Speaker 1: lower from the over seven percent that we saw for 14 00:00:44,720 --> 00:00:48,120 Speaker 1: a month or so. Where where are we right right now? UM, 15 00:00:48,159 --> 00:00:50,600 Speaker 1: as of this morning, I think we hit six twenty 16 00:00:50,720 --> 00:00:53,440 Speaker 1: three or something like that. Yeah, on the Bortgage Banker 17 00:00:53,560 --> 00:00:56,640 Speaker 1: Association thirty or eight. That's you know, a few days old, 18 00:00:57,000 --> 00:00:59,520 Speaker 1: So that's of course not quite taking into account today. 19 00:01:00,320 --> 00:01:02,200 Speaker 1: Uh so maybe even a little bit lower now, but 20 00:01:02,240 --> 00:01:04,560 Speaker 1: that that's a full one hundred base points below where 21 00:01:04,560 --> 00:01:07,880 Speaker 1: we were at the peak in October, and we are 22 00:01:07,959 --> 00:01:12,560 Speaker 1: seeing that begin to filter through, probably marginally into you know, 23 00:01:12,560 --> 00:01:15,800 Speaker 1: slightly higher loan applications and even a tiny bit of 24 00:01:15,880 --> 00:01:18,720 Speaker 1: higher refinancing. A lot of people are all excited about 25 00:01:18,760 --> 00:01:21,959 Speaker 1: the twenty seven increase in refinancing loan and you know, 26 00:01:22,160 --> 00:01:26,839 Speaker 1: um increases week over week. But you know, a hundred 27 00:01:26,920 --> 00:01:31,360 Speaker 1: one hundred is thirty times below the peak is not 28 00:01:31,440 --> 00:01:33,240 Speaker 1: that much, you know, it's it's a it's a very 29 00:01:33,240 --> 00:01:35,640 Speaker 1: small increase. We should really talk about numbers, and the 30 00:01:35,760 --> 00:01:37,600 Speaker 1: numbers aren't up that much, but they are up a 31 00:01:37,640 --> 00:01:40,479 Speaker 1: little bit, and certainly the purchasing number increases a trend 32 00:01:40,520 --> 00:01:43,440 Speaker 1: to watch to see if that's pulling homeowners back into 33 00:01:43,440 --> 00:01:46,640 Speaker 1: the market. I also noticed the National Association of Home 34 00:01:46,680 --> 00:01:49,360 Speaker 1: Buyers index ticked up a little bit. It's still at 35 00:01:49,360 --> 00:01:54,000 Speaker 1: thirty five off of thirty one. Below fifty means they're pessimistic. Um, 36 00:01:54,040 --> 00:01:57,520 Speaker 1: it's a different usion index, so you know, not super promising, 37 00:01:57,560 --> 00:01:59,520 Speaker 1: but you know, certainly the first reversal we've seen in 38 00:01:59,560 --> 00:02:02,080 Speaker 1: quite a while. So Erica, we were talking about that 39 00:02:02,120 --> 00:02:05,200 Speaker 1: bet that Matt and I said, what was that six seven, 40 00:02:05,360 --> 00:02:07,440 Speaker 1: seven months ago, which, by the way, I think the 41 00:02:07,440 --> 00:02:10,400 Speaker 1: bet was for. Was it dairy Queen? Yes, yeah, you 42 00:02:10,440 --> 00:02:13,800 Speaker 1: had to buy me dinner at dairy Queen, but it 43 00:02:13,919 --> 00:02:17,200 Speaker 1: was a specific dairy queen at the Pilot truck stop 44 00:02:17,680 --> 00:02:20,280 Speaker 1: off of Route seventy nine and Hebrew in Ohio. And 45 00:02:20,360 --> 00:02:23,400 Speaker 1: then he went, yeah, so you see my problem, America. 46 00:02:23,480 --> 00:02:27,400 Speaker 1: She just gasped for radio audience. But then he went 47 00:02:27,440 --> 00:02:29,200 Speaker 1: on the diet so we couldn't go to dairy Queen, 48 00:02:29,200 --> 00:02:30,840 Speaker 1: which end up becoming our issue. But the point is 49 00:02:30,880 --> 00:02:35,040 Speaker 1: one of my uh, basically pillars of my thesis here 50 00:02:35,040 --> 00:02:36,960 Speaker 1: on that bet was simply the idea of the housing 51 00:02:37,000 --> 00:02:39,519 Speaker 1: market isn't going to slow down anytime soon. Talk to 52 00:02:39,600 --> 00:02:41,000 Speaker 1: us a little bit about the slowdown that But the 53 00:02:41,000 --> 00:02:43,600 Speaker 1: housing market slowed down drastically, it did, but it's still 54 00:02:43,600 --> 00:02:47,399 Speaker 1: extremely hot relative to uh what it should be, right, 55 00:02:47,520 --> 00:02:49,639 Speaker 1: I mean, Erica, can you tell me, well, it depends 56 00:02:49,680 --> 00:02:52,720 Speaker 1: on the area we're talking about. There's certainly areas that 57 00:02:52,919 --> 00:02:56,280 Speaker 1: blew up to the upside during the crisis, you know, 58 00:02:56,360 --> 00:03:00,480 Speaker 1: during the pandemic, like Austin and Boise, Idaho, or canaries 59 00:03:00,480 --> 00:03:01,919 Speaker 1: in the coal mine that a lot of people refer 60 00:03:02,040 --> 00:03:05,560 Speaker 1: to and their prices are down, and in fact, you know, 61 00:03:05,840 --> 00:03:12,040 Speaker 1: it's really hard to distinguish seasonal downturns versus um you know, 62 00:03:12,200 --> 00:03:14,079 Speaker 1: just just regular downturchs. Will have to wait till you 63 00:03:14,120 --> 00:03:16,160 Speaker 1: see year year numbers and about a you know, a 64 00:03:16,200 --> 00:03:21,360 Speaker 1: few months. But in general, they non seasonally adjusted numbers 65 00:03:21,400 --> 00:03:23,320 Speaker 1: off about ten percent from their highs. When you look 66 00:03:23,320 --> 00:03:25,799 Speaker 1: at something like existing home prices, you know, of course 67 00:03:25,800 --> 00:03:27,680 Speaker 1: they're always down a little bit. We're just we're down 68 00:03:27,720 --> 00:03:30,920 Speaker 1: more than more than usual. So it's hard to kind of, 69 00:03:31,040 --> 00:03:33,440 Speaker 1: you know, fully appreciate or just for how much of 70 00:03:33,440 --> 00:03:35,600 Speaker 1: a downturn that is. And who knows, you know, if 71 00:03:35,720 --> 00:03:38,600 Speaker 1: if mortgage rates continue trending downwards a little bit, which 72 00:03:39,200 --> 00:03:41,480 Speaker 1: I think, you know, at least our head of rates 73 00:03:41,640 --> 00:03:45,080 Speaker 1: believes that treasuries are going to continue rallying um and 74 00:03:45,240 --> 00:03:47,640 Speaker 1: mortgage spreads have been tightening very well. We've seen a 75 00:03:47,680 --> 00:03:51,040 Speaker 1: great January effect this year for mortgages that that could 76 00:03:51,080 --> 00:03:54,960 Speaker 1: push mortgage rates back below six percent, which could encourage 77 00:03:55,000 --> 00:03:58,200 Speaker 1: more homeowners to jump in, which could support the housing 78 00:03:58,240 --> 00:04:00,560 Speaker 1: market a little more than you know, if rates for 79 00:04:00,600 --> 00:04:03,600 Speaker 1: rates didn't do that, we're still double where we were 80 00:04:03,800 --> 00:04:06,000 Speaker 1: a year ago, but you know, at the same time 81 00:04:06,440 --> 00:04:09,400 Speaker 1: double where we were in terms of rates. In terms 82 00:04:09,440 --> 00:04:12,160 Speaker 1: of mortgage rates. Mortgage rates are around three three or 83 00:04:12,280 --> 00:04:14,600 Speaker 1: just because my understanding is that the single family home 84 00:04:14,600 --> 00:04:16,560 Speaker 1: market had just ground to a halt. I mean, people 85 00:04:16,560 --> 00:04:19,680 Speaker 1: who were selling homes had to rent them instead because 86 00:04:19,680 --> 00:04:22,120 Speaker 1: they couldn't find any buyers. Yeah. No, we definitely got 87 00:04:22,120 --> 00:04:25,520 Speaker 1: into the level of you know, as they as a 88 00:04:25,720 --> 00:04:31,599 Speaker 1: technically call it affordability, being below the median homeowners affordability level. 89 00:04:32,160 --> 00:04:35,279 Speaker 1: So um, yeah, but people are people are finding ways 90 00:04:35,320 --> 00:04:38,080 Speaker 1: around that. Certainly builders are finding ways around that. I've 91 00:04:38,080 --> 00:04:40,760 Speaker 1: talked to people who worked for builders trying to sell 92 00:04:40,800 --> 00:04:44,120 Speaker 1: new homes, and they're offering all sorts of buyouts and 93 00:04:44,160 --> 00:04:46,920 Speaker 1: incentives in the rates, So you know, suddenly or six 94 00:04:46,960 --> 00:04:50,640 Speaker 1: percent rate becomes a four percent rate um at least 95 00:04:50,640 --> 00:04:52,920 Speaker 1: for a while. So there there are ways that people 96 00:04:52,960 --> 00:04:54,840 Speaker 1: are trying to get around that. The other side of 97 00:04:54,880 --> 00:04:58,440 Speaker 1: the market is that inventories remain very very low, in part, 98 00:04:58,640 --> 00:05:03,000 Speaker 1: especially in existing homes sales, because people aren't willing to 99 00:05:03,000 --> 00:05:04,800 Speaker 1: sell their homes into what they proceed to be a 100 00:05:04,800 --> 00:05:07,800 Speaker 1: falling uh price market. But if the prices don't fall, 101 00:05:07,839 --> 00:05:09,960 Speaker 1: then maybe they're more willing to sell. So I just 102 00:05:10,000 --> 00:05:12,440 Speaker 1: got about thirty seconds left. Um, I don't know if 103 00:05:12,440 --> 00:05:15,159 Speaker 1: you've talked to Ira Jersey today. What's happened in the 104 00:05:15,200 --> 00:05:18,640 Speaker 1: treasury market. We were at five fifty six yesterday, sorry, 105 00:05:18,640 --> 00:05:21,119 Speaker 1: three fifty six yesterday, and now we're at three thirty seven. 106 00:05:21,120 --> 00:05:25,160 Speaker 1: We dropped you know, twenty basis points. Yeah, that's primarily 107 00:05:25,200 --> 00:05:27,880 Speaker 1: about p p I and the continuation of the feeling 108 00:05:27,960 --> 00:05:32,039 Speaker 1: that the Fed will be able to pause sooner than later. Um, 109 00:05:32,080 --> 00:05:34,880 Speaker 1: you know some other positive you know, bad is good, 110 00:05:34,960 --> 00:05:37,880 Speaker 1: so some other you know, lower retail sales numbers and 111 00:05:37,880 --> 00:05:40,320 Speaker 1: things like that today make people think that maybe we 112 00:05:40,360 --> 00:05:43,080 Speaker 1: are headed for that soft landing after all. Alright, so 113 00:05:43,120 --> 00:05:47,400 Speaker 1: the treasury market really moved by the pp I. Guess 114 00:05:47,440 --> 00:05:50,680 Speaker 1: the final demand month of a month number UM is 115 00:05:50,720 --> 00:05:52,760 Speaker 1: the most stark, at a drop of a half a 116 00:05:52,800 --> 00:05:57,359 Speaker 1: percent UM. But we got some real slow down story 117 00:05:57,480 --> 00:06:01,000 Speaker 1: news in terms of retail sales UH, in terms of 118 00:06:01,160 --> 00:06:04,240 Speaker 1: p p I, in terms of I guess industrial production 119 00:06:04,240 --> 00:06:06,680 Speaker 1: at least came in in line with the s No. 120 00:06:06,800 --> 00:06:09,840 Speaker 1: Industrial production month over month also down zero point seven percent. 121 00:06:09,880 --> 00:06:11,520 Speaker 1: We were looking for drop of zero point one percent. 122 00:06:11,600 --> 00:06:14,320 Speaker 1: So real drops there, Erica, thanks so much for joining us. 123 00:06:14,400 --> 00:06:18,800 Speaker 1: Erica Heidelberg there, MBS strategist mortgage backed security strategists with 124 00:06:18,800 --> 00:06:22,520 Speaker 1: Bloomberg Intelligence talking to us about the mortgage rates and 125 00:06:22,920 --> 00:06:28,200 Speaker 1: the housing market. Now one of the major stories that 126 00:06:28,320 --> 00:06:31,000 Speaker 1: is moving this market this morning. It's on the stock markets, 127 00:06:31,279 --> 00:06:33,480 Speaker 1: sort of, in the bond markets, definitely in the currency 128 00:06:33,520 --> 00:06:36,840 Speaker 1: market dollar again one handle. As of course, we had 129 00:06:36,880 --> 00:06:39,360 Speaker 1: the b o J overnight say well, actually we're not 130 00:06:39,400 --> 00:06:41,560 Speaker 1: going to make any changes that of course shocking the market. 131 00:06:41,600 --> 00:06:44,680 Speaker 1: Given their last meeting they actually widened the bands of 132 00:06:44,720 --> 00:06:47,360 Speaker 1: their yield curve control. Who better to break this all 133 00:06:47,400 --> 00:06:50,680 Speaker 1: down on what it means for the American listener is 134 00:06:50,720 --> 00:06:53,480 Speaker 1: Ben Emmon's head of fixed income and managing director from 135 00:06:53,520 --> 00:06:55,800 Speaker 1: New Edge Wealth. Of course he's joining the program to 136 00:06:55,839 --> 00:06:58,880 Speaker 1: talk all things Japan and frankly, why we should care? 137 00:06:59,040 --> 00:07:03,880 Speaker 1: Ben walk us the IT crety. Yeah, why should we 138 00:07:03,920 --> 00:07:06,960 Speaker 1: care about this? Because you know it's a technical story 139 00:07:07,400 --> 00:07:13,160 Speaker 1: and the Bank of Japan has really specific communication about 140 00:07:13,280 --> 00:07:16,280 Speaker 1: how it wants to conduct this policy really really different 141 00:07:16,280 --> 00:07:19,760 Speaker 1: in the Federal Reserve. But why we should care is 142 00:07:19,840 --> 00:07:25,520 Speaker 1: that no one Japan is in a place where a 143 00:07:25,560 --> 00:07:29,080 Speaker 1: lot of money is there and has been over the years, 144 00:07:29,200 --> 00:07:33,320 Speaker 1: reinvested outside of Japan in treasury, bonds and stocks and 145 00:07:33,360 --> 00:07:37,120 Speaker 1: command its emerging markets. Most of all because the Japanese 146 00:07:37,160 --> 00:07:43,520 Speaker 1: yend being weak weaker at times, especially when Crewder took 147 00:07:43,920 --> 00:07:47,880 Speaker 1: office and Japanese industry is being negative, it was a 148 00:07:47,960 --> 00:07:50,920 Speaker 1: cheap source of funding so to speak, and say you 149 00:07:50,960 --> 00:07:54,480 Speaker 1: can borrow negative rates, it's a cheap curency and reinvest 150 00:07:54,520 --> 00:07:58,160 Speaker 1: that into higher yielding assets. And that's why you should care. 151 00:07:58,160 --> 00:08:00,880 Speaker 1: That's why investors should watch for this bankage span is 152 00:08:00,880 --> 00:08:03,600 Speaker 1: going to do as it looks like that it will 153 00:08:04,360 --> 00:08:08,680 Speaker 1: really change this policy between placed since sixteen, When do 154 00:08:08,720 --> 00:08:10,200 Speaker 1: you think they're going to change it? And then what 155 00:08:10,240 --> 00:08:15,680 Speaker 1: are the reverberations going to look like in markets? Yes, 156 00:08:16,200 --> 00:08:18,960 Speaker 1: so there's an anticipation today man, and that they may 157 00:08:19,200 --> 00:08:22,320 Speaker 1: make the final change. I think that was more of 158 00:08:22,360 --> 00:08:26,120 Speaker 1: a respective rumor in the market and that officially furthered 159 00:08:26,160 --> 00:08:30,520 Speaker 1: by official. But during this press conference in between the lines, 160 00:08:31,200 --> 00:08:33,760 Speaker 1: Crew and did hinted it like the more tweets are 161 00:08:33,760 --> 00:08:38,520 Speaker 1: could be comings. They just very tactical opportunity uses the 162 00:08:38,600 --> 00:08:41,680 Speaker 1: last press cuss March to make another tweet to the 163 00:08:41,720 --> 00:08:46,040 Speaker 1: policy just to set the new governor for Okay, you 164 00:08:46,080 --> 00:08:49,360 Speaker 1: know here you have it. It's pretty flexible. Now you 165 00:08:49,400 --> 00:08:52,160 Speaker 1: can do what you want with it. And most of all, 166 00:08:52,240 --> 00:08:55,520 Speaker 1: you know, the infasition data is just far above the 167 00:08:55,600 --> 00:08:59,520 Speaker 1: bankuage spence target. Right tonight's infliction data will come out. 168 00:08:59,559 --> 00:09:03,600 Speaker 1: It's like four. And Japan is very energy dependent. So 169 00:09:04,120 --> 00:09:06,600 Speaker 1: I think there is concerned with in Japan that they 170 00:09:06,640 --> 00:09:09,720 Speaker 1: can't go on with the policy. That's that's the place 171 00:09:09,760 --> 00:09:14,120 Speaker 1: they have finished. Then let's talk about the trade here specifically, 172 00:09:14,320 --> 00:09:17,320 Speaker 1: if we're talking about kind of the read through from 173 00:09:17,360 --> 00:09:20,160 Speaker 1: the BOJ and to say the US treasury market, what 174 00:09:20,320 --> 00:09:25,840 Speaker 1: might that look like. Well, for one creating, I think 175 00:09:25,920 --> 00:09:28,760 Speaker 1: that we've seen it to an extensive at least in 176 00:09:28,800 --> 00:09:35,120 Speaker 1: December when Coula announced the first change that Japanese investors 177 00:09:35,120 --> 00:09:38,319 Speaker 1: seemed to be no few of them participating in transfy auctions. 178 00:09:38,400 --> 00:09:41,080 Speaker 1: So I think that's one effect that you could see 179 00:09:41,160 --> 00:09:44,640 Speaker 1: coming through. But the more important one was at the end, 180 00:09:44,679 --> 00:09:48,800 Speaker 1: it's appreciated, its appreciated value since and has been really 181 00:09:48,920 --> 00:09:52,959 Speaker 1: de contributor to the weakness of the dollar. And the 182 00:09:53,000 --> 00:09:56,280 Speaker 1: weakness of the dollar is the big macro factor that's 183 00:09:56,360 --> 00:10:01,240 Speaker 1: been seeing financial markets currently. It's leading to merger markets revived. 184 00:10:01,280 --> 00:10:06,160 Speaker 1: That needs super European markets revive. That's the big phase here. 185 00:10:06,240 --> 00:10:10,040 Speaker 1: That state changed that policy and the end has strength 186 00:10:10,120 --> 00:10:15,560 Speaker 1: and the dollark is more downcraft emerging markets European actually 187 00:10:15,640 --> 00:10:18,760 Speaker 1: Marcus auto markets out before. I think that's the trade 188 00:10:19,120 --> 00:10:22,720 Speaker 1: for markets relative to Yeah, I say, Japanese guys, Mark, 189 00:10:24,440 --> 00:10:27,680 Speaker 1: all right, Uh, we are looking at right now a 190 00:10:27,760 --> 00:10:33,199 Speaker 1: US tenure down at three UM a substantial, substantial drop 191 00:10:33,280 --> 00:10:35,520 Speaker 1: from where we saw it yesterday. Right, We're off already 192 00:10:35,559 --> 00:10:38,360 Speaker 1: today seventeen basis points, which is a huge move. I 193 00:10:38,400 --> 00:10:42,360 Speaker 1: think Eric Heidelberg said she really thinks it's the the 194 00:10:42,480 --> 00:10:45,280 Speaker 1: miss in terms of p P I. Um. You know, 195 00:10:45,480 --> 00:10:48,079 Speaker 1: I guess to the good side, right, dropped of more 196 00:10:48,120 --> 00:10:52,440 Speaker 1: than we expected. That pushed it down so much. Um, Ben, 197 00:10:52,440 --> 00:10:56,040 Speaker 1: what does that mean to you in terms of the Fed? Also? Um, 198 00:10:56,080 --> 00:10:59,559 Speaker 1: you know, this narrative that inflation is coming down pretty 199 00:10:59,640 --> 00:11:05,160 Speaker 1: quickly seems to have been confirmed by today's data. Yeah, 200 00:11:05,280 --> 00:11:09,680 Speaker 1: the narrative is definitely shifting. I think Master yesterday declare 201 00:11:09,760 --> 00:11:13,640 Speaker 1: that that the fat is really quelling inflation and even 202 00:11:13,720 --> 00:11:16,360 Speaker 1: barred to day in the five Q and A with 203 00:11:16,400 --> 00:11:20,120 Speaker 1: the Bolster Journals. This good news for Fallacy here that 204 00:11:20,200 --> 00:11:22,560 Speaker 1: this is that the inflation is coming off a quicker 205 00:11:22,600 --> 00:11:26,200 Speaker 1: than they dissipated. And even though Ballard is the most 206 00:11:26,200 --> 00:11:29,680 Speaker 1: hawkish person and wants to continue to raise rates about five, 207 00:11:30,640 --> 00:11:34,000 Speaker 1: I think the narrative is shifting to they can bring 208 00:11:34,040 --> 00:11:37,760 Speaker 1: it back to the twenty five baseball and being marked 209 00:11:37,920 --> 00:11:44,800 Speaker 1: stop the tightening cycle. This full period of time last 210 00:11:45,000 --> 00:11:48,760 Speaker 1: in June July, Matt only at that time the most 211 00:11:48,800 --> 00:11:51,840 Speaker 1: well actually put off guard with a rapid increase of 212 00:11:51,880 --> 00:11:55,960 Speaker 1: inflation in the subsequent months. I think this time we're 213 00:11:55,960 --> 00:11:59,320 Speaker 1: in the situation where it may be decelerating a bit faster, 214 00:11:59,600 --> 00:12:02,560 Speaker 1: and that for the fat Candison moved through the pause 215 00:12:03,120 --> 00:12:06,080 Speaker 1: that everyone's been distending so much, and then we'll just 216 00:12:06,120 --> 00:12:08,640 Speaker 1: have to see what happened. So I think that's where 217 00:12:08,679 --> 00:12:13,040 Speaker 1: we has all right, Ben, Thanks very much, Ben Emmons. Uh, 218 00:12:13,080 --> 00:12:20,000 Speaker 1: they're talking to us about the b O J joining 219 00:12:20,120 --> 00:12:23,600 Speaker 1: us in the studio, which we really appreciate. Monica, thanks 220 00:12:23,640 --> 00:12:26,800 Speaker 1: so much for coming in. Thank you. Let's talk about 221 00:12:26,800 --> 00:12:29,000 Speaker 1: first of all, your expectations have they changed? You know, 222 00:12:29,040 --> 00:12:32,960 Speaker 1: we we've we've noticed a shift um amongst our guests 223 00:12:33,000 --> 00:12:35,800 Speaker 1: over the past couple of months in that they were 224 00:12:35,920 --> 00:12:40,160 Speaker 1: very pessimistic about three and it's uh, we're now hearing 225 00:12:40,160 --> 00:12:42,120 Speaker 1: more and more people say they expect the soft landing 226 00:12:43,000 --> 00:12:45,480 Speaker 1: well when it goes to the US. Honestly, how our 227 00:12:45,559 --> 00:12:48,320 Speaker 1: ward is goes to the second half of next year 228 00:12:48,480 --> 00:12:52,360 Speaker 1: and we haven't changed that much our expectation. Where we've 229 00:12:52,440 --> 00:12:56,040 Speaker 1: been upgrading the expectation is on the U area. And 230 00:12:56,080 --> 00:12:59,360 Speaker 1: again gas process is definitely one of the reasons. And 231 00:12:59,440 --> 00:13:04,360 Speaker 1: I'm trying due to a faster than expected reopening, so 232 00:13:05,240 --> 00:13:09,440 Speaker 1: shovel the session possibly in the in the US, Germany 233 00:13:09,480 --> 00:13:13,200 Speaker 1: struggling in the euro area, but Flatish could also Yesterday 234 00:13:13,360 --> 00:13:16,560 Speaker 1: yesterday Chancellor Schultz told John Michael Thwaite he doesn't expect 235 00:13:16,559 --> 00:13:21,680 Speaker 1: your recession this year obviously, but you know, because of 236 00:13:21,720 --> 00:13:26,000 Speaker 1: the proximity in and the energy dependence. Definitely German and 237 00:13:26,080 --> 00:13:29,720 Speaker 1: it's indust reproduction is what it's a matter of concern 238 00:13:29,800 --> 00:13:34,000 Speaker 1: for Europeans well. One of the growing consensus as well. 239 00:13:34,080 --> 00:13:35,640 Speaker 1: We've talked about this with many of our guests on 240 00:13:35,679 --> 00:13:37,439 Speaker 1: the show, is simply that we're going to see a 241 00:13:37,480 --> 00:13:40,000 Speaker 1: soft landing in the US and in Europe, and in in fact, 242 00:13:40,040 --> 00:13:42,760 Speaker 1: a lot of people turning very bullish on Europe altogether. 243 00:13:43,000 --> 00:13:47,200 Speaker 1: Despite the war Ukraine becoming an ongoing issue. Is that 244 00:13:47,320 --> 00:13:49,720 Speaker 1: an issue that is now just getting pushed back a year? 245 00:13:51,040 --> 00:13:54,679 Speaker 1: Well after one year. Obviously this is a terrible situation, 246 00:13:54,760 --> 00:13:57,480 Speaker 1: But when it goes to the energy dependence, I think 247 00:13:57,480 --> 00:14:00,880 Speaker 1: that Europeans have done a lot in order to dilute 248 00:14:01,240 --> 00:14:04,760 Speaker 1: a bit the dependence from the from the gas out 249 00:14:04,800 --> 00:14:07,920 Speaker 1: of out of Russia. So all in all, after one 250 00:14:08,000 --> 00:14:11,160 Speaker 1: year we are in a fairly better position. But even 251 00:14:11,240 --> 00:14:13,800 Speaker 1: with that commodity uh calm down for lack of a 252 00:14:13,880 --> 00:14:16,480 Speaker 1: better term, we're still seeing extremely high inflation in the 253 00:14:16,520 --> 00:14:20,320 Speaker 1: Netherlands and the UK um across Europe. Those are just 254 00:14:20,360 --> 00:14:22,720 Speaker 1: the worst places. But talk to us a little bit 255 00:14:22,720 --> 00:14:24,560 Speaker 1: about how long that's actually going to last before we 256 00:14:24,600 --> 00:14:27,560 Speaker 1: start to see some semblance of normal again. We think 257 00:14:27,600 --> 00:14:31,840 Speaker 1: that inflation is going to shift from energy into core 258 00:14:32,160 --> 00:14:35,680 Speaker 1: food for example, so it is really broad based. And 259 00:14:36,000 --> 00:14:38,240 Speaker 1: if I look at our computation for next year, we 260 00:14:38,240 --> 00:14:43,000 Speaker 1: are still above seven percent, which is definitely much much 261 00:14:43,120 --> 00:14:45,640 Speaker 1: higher than what is in the in the US and 262 00:14:45,680 --> 00:14:48,520 Speaker 1: above the target of DCB. Having in mind that wage 263 00:14:48,560 --> 00:14:53,400 Speaker 1: inflation unfortunately is not there in terms of investments. You 264 00:14:53,440 --> 00:14:56,520 Speaker 1: want to get back to bonds and look at entry 265 00:14:56,520 --> 00:14:59,160 Speaker 1: points for equities. So you're not pessimistic when it comes 266 00:14:59,160 --> 00:15:02,720 Speaker 1: to the markets. I would say that we are cautious. Um, 267 00:15:02,800 --> 00:15:07,600 Speaker 1: you need to disentangle economic recession from profit recession, and 268 00:15:07,680 --> 00:15:09,920 Speaker 1: we do believe that we are in a profit recession 269 00:15:09,960 --> 00:15:12,840 Speaker 1: at the corporate level, and this is what is making 270 00:15:12,920 --> 00:15:17,080 Speaker 1: us today more worried. Then when we move along the here, 271 00:15:17,600 --> 00:15:23,800 Speaker 1: we do expect producer price prices get a little bit milder. 272 00:15:24,280 --> 00:15:27,000 Speaker 1: You need labor cost to to fade a bit and 273 00:15:27,040 --> 00:15:31,800 Speaker 1: this should uh leave some let leave out some pressure 274 00:15:31,840 --> 00:15:35,240 Speaker 1: on the margins and have earnings to recover. And this 275 00:15:35,360 --> 00:15:39,000 Speaker 1: is where you might change the emphasis of your portfolio 276 00:15:39,080 --> 00:15:42,960 Speaker 1: being on capital preservation going into res accomolation in the 277 00:15:43,000 --> 00:15:46,640 Speaker 1: second half. Yeah, what what's going to be the I mean, 278 00:15:46,680 --> 00:15:49,440 Speaker 1: other than the shift in the calendar, what's gonna be 279 00:15:50,640 --> 00:15:52,760 Speaker 1: the point that shows you it's time to go back 280 00:15:52,800 --> 00:15:57,760 Speaker 1: in the central banks? People? So when the Fed and 281 00:15:57,800 --> 00:16:00,320 Speaker 1: this will be there, this will for sure give some 282 00:16:00,360 --> 00:16:04,600 Speaker 1: more clarity at to us in the positioning. We're speaking 283 00:16:04,600 --> 00:16:07,640 Speaker 1: about positioning. You're now starting to see in the debt 284 00:16:07,680 --> 00:16:10,240 Speaker 1: markets once again, people very bullish on European equities, but 285 00:16:10,280 --> 00:16:12,800 Speaker 1: also getting a little bit more bullish on European debt 286 00:16:12,880 --> 00:16:15,600 Speaker 1: as well. What could change that in the face of 287 00:16:15,680 --> 00:16:19,800 Speaker 1: the ECB now looking to slow down, we should the 288 00:16:19,840 --> 00:16:24,440 Speaker 1: ECB um go too too far and and too fast. 289 00:16:24,960 --> 00:16:28,440 Speaker 1: This might be really detrimental for the economy that itself 290 00:16:28,520 --> 00:16:31,880 Speaker 1: is much more fragile and less resilient than than the US. 291 00:16:32,040 --> 00:16:34,520 Speaker 1: It's a bigger problem than the FED. The Fed can overshoot, 292 00:16:34,560 --> 00:16:37,600 Speaker 1: you're saying, but the ECB needs to be much more careful. Yeah, 293 00:16:37,640 --> 00:16:40,240 Speaker 1: you know, it's really an into regenious picture. I think 294 00:16:40,240 --> 00:16:44,720 Speaker 1: about Germany, Italy, frost Spain, different countries with different economic 295 00:16:44,760 --> 00:16:48,640 Speaker 1: future and resilience. Well, how can they then already make 296 00:16:48,680 --> 00:16:51,280 Speaker 1: forecasts on what they're going to hike in March? Then 297 00:16:51,320 --> 00:16:53,880 Speaker 1: we're talking about reporting I believe from yesterday or maybe Monday, 298 00:16:54,080 --> 00:16:56,040 Speaker 1: where there's talking about fifty basis points of a hike 299 00:16:56,120 --> 00:16:58,600 Speaker 1: in in February. Second, I believe it's the ECB meeting 300 00:16:58,760 --> 00:17:00,440 Speaker 1: and then twenty five followed in more. How can you 301 00:17:00,440 --> 00:17:04,119 Speaker 1: even look that far? Well, we might be you know, 302 00:17:04,160 --> 00:17:07,119 Speaker 1: also big critics on what the easy B is saying 303 00:17:07,359 --> 00:17:09,600 Speaker 1: to us. It is really important that it is clear 304 00:17:09,680 --> 00:17:12,760 Speaker 1: that their focus is a fight inflation. But going back 305 00:17:12,800 --> 00:17:16,879 Speaker 1: to financing condition, this is what they should really look 306 00:17:16,880 --> 00:17:19,840 Speaker 1: at and what should be plugged into the forward guidance 307 00:17:19,880 --> 00:17:22,879 Speaker 1: back again, I mean Frenchois Pillroy today told France and 308 00:17:22,920 --> 00:17:26,000 Speaker 1: you can't look that far right, um, which I think 309 00:17:26,119 --> 00:17:31,000 Speaker 1: was smart. They're sticking with fifty for February, but who 310 00:17:31,000 --> 00:17:33,120 Speaker 1: knows what's going to happen in March. I guess that's 311 00:17:33,119 --> 00:17:36,040 Speaker 1: pretty far out for the US as well. We can't 312 00:17:37,240 --> 00:17:39,199 Speaker 1: get a clear consensus on whether the Fed is going 313 00:17:39,280 --> 00:17:42,680 Speaker 1: to go twenty five or fifty before that on February one, 314 00:17:43,560 --> 00:17:45,119 Speaker 1: Well we are we stay in the camp of the 315 00:17:45,119 --> 00:17:48,000 Speaker 1: twenty five and seventy five up to the people. So 316 00:17:48,119 --> 00:17:51,560 Speaker 1: we have this is a five five and three five 317 00:17:51,680 --> 00:17:54,600 Speaker 1: three fifty on the e CYB. What we did on 318 00:17:54,600 --> 00:17:57,880 Speaker 1: our side was to try to stress these apothies. Having 319 00:17:58,000 --> 00:18:01,600 Speaker 1: higher termin rate, well you end up lower growth even 320 00:18:01,600 --> 00:18:05,199 Speaker 1: a protractive recession and inflation that eventually does not correct 321 00:18:05,200 --> 00:18:08,159 Speaker 1: that much in particularly in Europe where it is not 322 00:18:08,480 --> 00:18:12,480 Speaker 1: demand driven. It's really uh mostly on energy. By the way, 323 00:18:12,520 --> 00:18:15,679 Speaker 1: E s G themes something that you're paying close attention to. 324 00:18:16,480 --> 00:18:18,159 Speaker 1: There seems to be a bit of a backlash at 325 00:18:18,200 --> 00:18:21,040 Speaker 1: least here in the US on E, S G. Do 326 00:18:21,119 --> 00:18:24,480 Speaker 1: you feel that in Europe? Not really? Maybe this might 327 00:18:24,560 --> 00:18:29,240 Speaker 1: be related to our attention to renewables. They need to 328 00:18:29,359 --> 00:18:32,119 Speaker 1: get faster in order to get a strategical autonomy and 329 00:18:32,160 --> 00:18:35,040 Speaker 1: energy independence. So on that front at least, how we 330 00:18:35,040 --> 00:18:37,200 Speaker 1: are moving quiet. You're you're concerned more with the E, 331 00:18:37,760 --> 00:18:40,760 Speaker 1: it seems than the S energy. Well, I think that 332 00:18:41,359 --> 00:18:44,280 Speaker 1: they are there. Three of them are quite important. Think 333 00:18:44,320 --> 00:18:47,480 Speaker 1: about Yes, the sure issues that we got last year, 334 00:18:47,600 --> 00:18:51,439 Speaker 1: Social is going to be quite a relevant subject moving forward. 335 00:18:51,640 --> 00:18:56,360 Speaker 1: Inequalities back on track unfortunately and on the again it's 336 00:18:56,960 --> 00:18:58,840 Speaker 1: we've done a lot and we will continue to do. 337 00:18:59,200 --> 00:19:02,000 Speaker 1: Is the inequality think more of a concern in Europe? 338 00:19:02,040 --> 00:19:05,080 Speaker 1: I mean, do you have are you further behind in 339 00:19:05,160 --> 00:19:07,560 Speaker 1: terms of, for example, gender equality on boards than we 340 00:19:07,600 --> 00:19:10,760 Speaker 1: are here in the US. I'm more worried not on 341 00:19:10,800 --> 00:19:14,679 Speaker 1: gender inequality, because this is really something on top of 342 00:19:14,800 --> 00:19:18,159 Speaker 1: the list. It's really on the income inequalities. In the 343 00:19:18,200 --> 00:19:23,600 Speaker 1: aftermath of a very difficult period to think about the pandemic, 344 00:19:23,680 --> 00:19:28,119 Speaker 1: how low income people have been hit by that or 345 00:19:28,400 --> 00:19:31,680 Speaker 1: by all the immigration waves that we are seeing, so 346 00:19:31,680 --> 00:19:35,920 Speaker 1: social is really at top spot in Europe. All right, Well, 347 00:19:36,000 --> 00:19:38,199 Speaker 1: great having in the studio. Thanks so much for joining us. 348 00:19:38,200 --> 00:19:40,879 Speaker 1: Really appreciate you stopping by. Monica Defend there she is 349 00:19:41,080 --> 00:19:44,280 Speaker 1: heading a chief strategist at a Monday in Student's Europe's 350 00:19:44,320 --> 00:19:52,320 Speaker 1: largest asset management manager, talking to us about her outlook. Fore, 351 00:19:52,960 --> 00:19:54,439 Speaker 1: we're gonna talk a little bit right now. I've been 352 00:19:54,480 --> 00:19:56,760 Speaker 1: looking forward to this for a couple of days because 353 00:19:56,840 --> 00:19:59,560 Speaker 1: our next guest was on Bloomberg Business Week the other day. 354 00:19:59,600 --> 00:20:02,600 Speaker 1: Were you in the room there? Probably not with her, 355 00:20:02,840 --> 00:20:05,000 Speaker 1: but I think you were in the room. I feel 356 00:20:05,040 --> 00:20:06,919 Speaker 1: like maybe you were leaving when she was coming in. Anyway, 357 00:20:06,960 --> 00:20:11,679 Speaker 1: she contractor joins us here in the Bloomberg Interactive Broker studio. 358 00:20:11,720 --> 00:20:14,000 Speaker 1: She's the E S G Research analysts for Bloomberg Intelligence. 359 00:20:14,000 --> 00:20:15,920 Speaker 1: And I always find it fascinating to talk to you, Shane, 360 00:20:16,960 --> 00:20:19,200 Speaker 1: just because you're so good at your job. Thank you mainly. 361 00:20:19,280 --> 00:20:22,280 Speaker 1: But um, we were talking with Monica Defend earlier from 362 00:20:22,280 --> 00:20:25,560 Speaker 1: a Monday and she's Italian, and it struck me that, 363 00:20:26,320 --> 00:20:32,359 Speaker 1: you know, Europe is still fully embracing E S g um, 364 00:20:32,440 --> 00:20:34,879 Speaker 1: whereas here in the US we've had such a backlash 365 00:20:34,920 --> 00:20:36,920 Speaker 1: that we don't even bother to talk about it anymore. 366 00:20:37,400 --> 00:20:40,200 Speaker 1: What what's what's the division is? That is my anecdotal 367 00:20:40,240 --> 00:20:43,920 Speaker 1: experience represented in the in the data. Yes, Matt, so 368 00:20:43,920 --> 00:20:46,159 Speaker 1: so very much so. Just to put a few numbers 369 00:20:46,160 --> 00:20:49,440 Speaker 1: around it, the U S E S g Eta flews. 370 00:20:50,880 --> 00:20:56,520 Speaker 1: They dropped from nine zero, while Europe sort of continued 371 00:20:56,600 --> 00:20:59,560 Speaker 1: to show strength. It definitely slowed, but less than the 372 00:20:59,560 --> 00:21:03,400 Speaker 1: broadom market. Now on one side, you have to sort 373 00:21:03,440 --> 00:21:06,879 Speaker 1: of realize that Europe has more favorable regulation, which has 374 00:21:06,920 --> 00:21:10,360 Speaker 1: sort of driven it forward. It's got fund labeling, all 375 00:21:10,400 --> 00:21:13,320 Speaker 1: that stuff is promoted fund rebrandings and nanny as she 376 00:21:13,560 --> 00:21:17,920 Speaker 1: into ears, she the U S sort of I feel 377 00:21:17,960 --> 00:21:20,560 Speaker 1: like the growth in the US traditionally was because of 378 00:21:20,600 --> 00:21:23,920 Speaker 1: a lot of a few investors putting large chunks of money, 379 00:21:24,000 --> 00:21:27,640 Speaker 1: creating this concentration risks, and we're starting to see that unravel. 380 00:21:28,680 --> 00:21:30,879 Speaker 1: Who are like you A few investors like black Rock, 381 00:21:30,960 --> 00:21:33,600 Speaker 1: I mean like no, like like the finished pension fund 382 00:21:33,760 --> 00:21:36,320 Speaker 1: right they ceded two E S E D s in 383 00:21:36,359 --> 00:21:40,480 Speaker 1: the US with one billion in allocation each and last 384 00:21:40,520 --> 00:21:43,520 Speaker 1: year for example, Calsters and these this group of pension 385 00:21:43,520 --> 00:21:46,919 Speaker 1: funds seeded black Rocks carbon transition funds, So that again 386 00:21:46,960 --> 00:21:50,000 Speaker 1: created another jump in assets, and then if that goes 387 00:21:50,040 --> 00:21:53,080 Speaker 1: out of that stuff is coming in, people cry. That's 388 00:21:53,119 --> 00:21:56,680 Speaker 1: what we saw in two. Well, Shane, let's go even 389 00:21:56,800 --> 00:21:59,800 Speaker 1: further back Tober. One of the stories than being the 390 00:22:00,080 --> 00:22:03,520 Speaker 1: s G E t F s were surging in popularity 391 00:22:03,680 --> 00:22:06,440 Speaker 1: state side, and it was really a function if you 392 00:22:06,480 --> 00:22:08,399 Speaker 1: look deeper in about what the components were. Right, if 393 00:22:08,400 --> 00:22:10,359 Speaker 1: you want to tech trade, you go to the s 394 00:22:10,400 --> 00:22:12,919 Speaker 1: G T s because the exposure is better from an 395 00:22:12,960 --> 00:22:16,639 Speaker 1: environmental perspective. How much of the appeal of E s 396 00:22:16,680 --> 00:22:19,040 Speaker 1: G E t F s in the US three years 397 00:22:19,119 --> 00:22:22,880 Speaker 1: later is still a function of tech. So I think 398 00:22:23,080 --> 00:22:25,399 Speaker 1: you're referring to performance sort of like when tech was 399 00:22:25,440 --> 00:22:28,119 Speaker 1: out performing, everyone should When tech went down, sort of 400 00:22:28,320 --> 00:22:31,080 Speaker 1: we slow down and flows. I think that has a 401 00:22:31,160 --> 00:22:33,560 Speaker 1: lot to do with it, at least the slow down 402 00:22:34,040 --> 00:22:37,119 Speaker 1: I think if you go back to also the large 403 00:22:37,160 --> 00:22:39,879 Speaker 1: jumps and flows also due to things like clean energy. 404 00:22:40,040 --> 00:22:44,040 Speaker 1: So clean energy went from eight billion and eight so sorry, 405 00:22:44,119 --> 00:22:47,720 Speaker 1: eight million to ten billion, million to billion. Now you 406 00:22:47,720 --> 00:22:49,919 Speaker 1: can imagine what that does for top line numbers. It 407 00:22:49,960 --> 00:22:52,920 Speaker 1: just takes it straight up. So there were many pieces 408 00:22:52,960 --> 00:22:56,400 Speaker 1: of this that caused the growth, um that has has 409 00:22:56,440 --> 00:23:00,000 Speaker 1: caused this the accelerational so that we see only your 410 00:23:00,000 --> 00:23:02,760 Speaker 1: they're big differences. I note between Europe and the US 411 00:23:03,080 --> 00:23:07,720 Speaker 1: is gender diversity. Now they have mandated gender diversity in 412 00:23:07,760 --> 00:23:11,720 Speaker 1: many European countries on boards, but when it comes to 413 00:23:11,760 --> 00:23:15,760 Speaker 1: who's running the shop, UM, in the US, I feel 414 00:23:15,760 --> 00:23:18,320 Speaker 1: like it's far more likely that you find a woman 415 00:23:18,359 --> 00:23:22,440 Speaker 1: at the helm than in Europe. So we can compare 416 00:23:22,480 --> 00:23:24,720 Speaker 1: board numbers and sort of one level down which is 417 00:23:24,760 --> 00:23:27,400 Speaker 1: maybe maybe not one level down, but sort of female executives. 418 00:23:27,760 --> 00:23:30,000 Speaker 1: What do you said? Is interesting because that's true in 419 00:23:30,520 --> 00:23:32,879 Speaker 1: Europe sort of leads in terms of women on boards 420 00:23:32,880 --> 00:23:36,080 Speaker 1: because there it's mandated by lower they have to. But 421 00:23:36,160 --> 00:23:39,840 Speaker 1: if you look at the US, it leads on female executives. 422 00:23:39,840 --> 00:23:42,520 Speaker 1: So it's very clear that that sort of flips around. 423 00:23:43,280 --> 00:23:45,800 Speaker 1: The US doesn't have any policies, doesn't have any mandates. 424 00:23:45,800 --> 00:23:48,679 Speaker 1: That actually took a backstep, but they do have a 425 00:23:48,720 --> 00:23:52,879 Speaker 1: higher share of female executives and than you. In finance. Uh, 426 00:23:53,080 --> 00:23:56,800 Speaker 1: what we just had um a female run e t 427 00:23:57,040 --> 00:23:59,800 Speaker 1: F on last week and she was saying that they're 428 00:23:59,840 --> 00:24:04,800 Speaker 1: not nearly enough women in that area of finance. In ETFs. 429 00:24:05,320 --> 00:24:08,679 Speaker 1: Wouldn't it make sense though, to to want as an 430 00:24:08,720 --> 00:24:13,119 Speaker 1: investor more diversity um in your fund managers, just like 431 00:24:13,240 --> 00:24:15,680 Speaker 1: you want more diversity in your investments. Of course, I 432 00:24:15,800 --> 00:24:17,760 Speaker 1: think if you're if you're if you're focused on reducing 433 00:24:17,840 --> 00:24:21,080 Speaker 1: volatility for example, Yeah, of course, so you can take 434 00:24:21,160 --> 00:24:23,600 Speaker 1: you know, leading a company to be kind of akin 435 00:24:23,760 --> 00:24:26,120 Speaker 1: to like you know, fund management or leading a fund. 436 00:24:26,200 --> 00:24:29,200 Speaker 1: It's the leadership. And we found we did this interesting 437 00:24:29,240 --> 00:24:31,640 Speaker 1: study and we found that sort of when we back 438 00:24:31,720 --> 00:24:34,399 Speaker 1: tested women on boards, we found that it led to 439 00:24:34,920 --> 00:24:38,440 Speaker 1: lower volatility across most regions. It didn't lead to better 440 00:24:38,520 --> 00:24:41,800 Speaker 1: returns across our regions, but it did lead to lower volatility. 441 00:24:41,880 --> 00:24:44,560 Speaker 1: So I translate that to sort of women in leadership 442 00:24:45,119 --> 00:24:50,600 Speaker 1: positions can bring about some benefits in the form of diversity. Well, 443 00:24:50,720 --> 00:24:52,280 Speaker 1: I also have said, then ask how much of that 444 00:24:52,359 --> 00:24:54,240 Speaker 1: is even a factor on the u S side? Then, 445 00:24:55,680 --> 00:24:59,040 Speaker 1: So in the US we did see low volatility and 446 00:24:59,240 --> 00:25:02,920 Speaker 1: lower and of higher returns, and your we we saw 447 00:25:03,000 --> 00:25:06,400 Speaker 1: the same in a pack. We actually didn't see any 448 00:25:06,440 --> 00:25:09,000 Speaker 1: correlation with returns, but we did see lower volatility. So 449 00:25:09,080 --> 00:25:12,960 Speaker 1: I think the volatility pieces across the board. So you're 450 00:25:12,960 --> 00:25:15,120 Speaker 1: gonna come on our E t F program this afternoon 451 00:25:15,920 --> 00:25:19,400 Speaker 1: one pm. What are we going to talk about? Probably 452 00:25:19,840 --> 00:25:23,480 Speaker 1: this E s G E t FM US flows that 453 00:25:23,640 --> 00:25:26,119 Speaker 1: we just discussed in the beginning. Sort of there's a 454 00:25:26,200 --> 00:25:29,720 Speaker 1: lot of confusion and misconception around why the US has 455 00:25:29,760 --> 00:25:33,680 Speaker 1: fallen so much. Everyone attributes it to the backlash. I 456 00:25:33,760 --> 00:25:35,320 Speaker 1: think it has nothing to do with the back lad. 457 00:25:35,400 --> 00:25:38,600 Speaker 1: You don't think it's because of the anti woke, not 458 00:25:38,840 --> 00:25:40,760 Speaker 1: at all. What do you think it is? So the 459 00:25:40,920 --> 00:25:44,880 Speaker 1: three things. First is concentration risks. Assets have grown because 460 00:25:44,920 --> 00:25:48,800 Speaker 1: of larger one allocations. When the market sort of slows 461 00:25:48,840 --> 00:25:52,280 Speaker 1: down or when those allocations taper off, it's very noticeable. 462 00:25:52,800 --> 00:25:56,440 Speaker 1: The second is model portfolio changes. A lot of money 463 00:25:56,520 --> 00:25:58,920 Speaker 1: sort of moves out on one single day, which is 464 00:25:59,080 --> 00:26:01,359 Speaker 1: sort of not necessarily E s G. You can have 465 00:26:02,359 --> 00:26:05,040 Speaker 1: a fund that basically doesn't want equity anymore and it 466 00:26:05,119 --> 00:26:06,720 Speaker 1: goes to cash and it just sells. It's the S 467 00:26:06,760 --> 00:26:09,960 Speaker 1: three positions. That's the second and the third one is 468 00:26:10,000 --> 00:26:14,120 Speaker 1: clean energy. Clean energy just came off its high back 469 00:26:14,200 --> 00:26:17,159 Speaker 1: to averages and contributed to that downtown. And this is 470 00:26:17,240 --> 00:26:21,159 Speaker 1: kind of like the tech hypothesis that Trety was presented. No, 471 00:26:21,440 --> 00:26:24,359 Speaker 1: not for clean energy, because clean energy searched because Biden 472 00:26:24,480 --> 00:26:29,879 Speaker 1: came into pout and late it searched one and anticipation 473 00:26:30,000 --> 00:26:34,359 Speaker 1: of favorable clean energy policy and that manifested it, I 474 00:26:34,400 --> 00:26:36,000 Speaker 1: guess in the I R A. And then we're coming 475 00:26:36,040 --> 00:26:40,360 Speaker 1: back down to averages. Interesting, all right, So we'll talk 476 00:26:40,400 --> 00:26:43,920 Speaker 1: about that, and we'll talk about diversity as well. I 477 00:26:44,000 --> 00:26:46,560 Speaker 1: wonder if there isn't a problem in terms of the taxonomy, 478 00:26:46,640 --> 00:26:51,120 Speaker 1: you know, because it's so difficult to tell one person's 479 00:26:51,160 --> 00:26:53,800 Speaker 1: idea of E, S, G is very different from another person's, 480 00:26:53,800 --> 00:26:58,320 Speaker 1: and we haven't really standardized it. Um. I also wonder 481 00:26:58,400 --> 00:27:00,920 Speaker 1: if you could break the three apart. You know, many 482 00:27:00,960 --> 00:27:03,240 Speaker 1: people are concerned with the E, but not as much 483 00:27:03,520 --> 00:27:06,440 Speaker 1: about the S and the G as we just um 484 00:27:07,240 --> 00:27:09,280 Speaker 1: as we just kind of stated. In Europe, you know, 485 00:27:09,760 --> 00:27:13,960 Speaker 1: they're fighting for the E, but they don't really seem 486 00:27:14,040 --> 00:27:16,199 Speaker 1: to care that much about the S energy even though 487 00:27:16,240 --> 00:27:19,200 Speaker 1: they had the mandates in place on the on the 488 00:27:19,320 --> 00:27:22,880 Speaker 1: actual retail and consumer level, they're just not as concerned 489 00:27:22,880 --> 00:27:26,040 Speaker 1: about it. So I think with the definition of E, S, 490 00:27:26,119 --> 00:27:28,040 Speaker 1: she said it right, E, S, she is subjective, like 491 00:27:28,160 --> 00:27:30,600 Speaker 1: I can think, you know, genetically modified crops are a 492 00:27:30,720 --> 00:27:33,040 Speaker 1: solution forward and go, and you can think that sort 493 00:27:33,040 --> 00:27:35,639 Speaker 1: of the evil thing out there, so that makes it 494 00:27:35,920 --> 00:27:38,080 Speaker 1: wait that is good or bad? No, people might have 495 00:27:38,200 --> 00:27:41,400 Speaker 1: differing opinions, like GM crops are pretty controversial. I might 496 00:27:41,440 --> 00:27:43,600 Speaker 1: think that great, you might not. It's it's it's like 497 00:27:43,680 --> 00:27:47,360 Speaker 1: a subjective nuclear power for example. Subject the Germans think 498 00:27:47,960 --> 00:27:51,040 Speaker 1: the biggest evil that there could be. Everyone else seems 499 00:27:51,040 --> 00:27:54,159 Speaker 1: to think it's clean energy exactly, so that becomes that 500 00:27:54,359 --> 00:27:59,119 Speaker 1: sort of makes me believe that regulators and actually classifying 501 00:27:59,160 --> 00:28:02,840 Speaker 1: it in a tax on me is the only way though, 502 00:28:02,960 --> 00:28:05,240 Speaker 1: I mean, good luck to them, right trying to deal 503 00:28:05,280 --> 00:28:08,040 Speaker 1: with the subjectivity. But what's what's the other way? And 504 00:28:08,359 --> 00:28:11,159 Speaker 1: you said breaking up E, S and G I don't know. 505 00:28:11,240 --> 00:28:12,600 Speaker 1: I mean, at the end of the day, they're all 506 00:28:12,760 --> 00:28:15,760 Speaker 1: non financial indicators, which is how I see things, just 507 00:28:16,000 --> 00:28:19,240 Speaker 1: you know, getting a view of the material non financial 508 00:28:19,920 --> 00:28:22,440 Speaker 1: E S, RG risks that might impact the company. You've 509 00:28:22,440 --> 00:28:27,760 Speaker 1: been studying this though for years. What's the solution again? Materiality? 510 00:28:27,920 --> 00:28:31,440 Speaker 1: So different issues impact different sectors, like for mining, I 511 00:28:31,480 --> 00:28:33,800 Speaker 1: would say, you know, safety is very important because it's 512 00:28:33,840 --> 00:28:36,159 Speaker 1: a dangerous industry and it can lead to sort of 513 00:28:36,280 --> 00:28:40,600 Speaker 1: mind shutting down lots of productivity. Cement is very carbon intensive, 514 00:28:40,680 --> 00:28:44,680 Speaker 1: so let's say the or carbon is more important. So 515 00:28:44,840 --> 00:28:47,760 Speaker 1: it's very specific to each industry. So you can't really 516 00:28:47,800 --> 00:28:52,880 Speaker 1: separate three because different things matter for different sectors. Fascinating, 517 00:28:53,040 --> 00:28:56,000 Speaker 1: fascinating stuff. All right, Shaheen, thanks so much for joining us. 518 00:28:56,000 --> 00:28:58,800 Speaker 1: Pleasure having you in the Bloomberg Interactive broker studio, Shame 519 00:28:58,880 --> 00:29:03,040 Speaker 1: contractors and e s G research analysts with Bloomberg Intelligence. 520 00:29:06,200 --> 00:29:09,440 Speaker 1: Let's bring in Dana Telsey right now, chief Research Officer 521 00:29:09,520 --> 00:29:13,320 Speaker 1: and CEO of Telsey Advisory Group to talk about, uh, 522 00:29:13,800 --> 00:29:17,080 Speaker 1: what's going on with the consumer as it looks like. Dana, 523 00:29:17,200 --> 00:29:18,719 Speaker 1: first of all, good morning, and thank you so much 524 00:29:18,760 --> 00:29:22,440 Speaker 1: for joining us. UM, it looks like this market as 525 00:29:22,440 --> 00:29:25,240 Speaker 1: all of a sudden concerned about a recession, looking for 526 00:29:25,360 --> 00:29:29,160 Speaker 1: safety and selling off risk assets. UM. When you look 527 00:29:29,200 --> 00:29:31,720 Speaker 1: at the US consumer, that's a huge part of whether 528 00:29:31,760 --> 00:29:34,000 Speaker 1: we get into a recession. Right. Aren't we still seeing 529 00:29:34,720 --> 00:29:38,480 Speaker 1: you know, uh, consumers out there with decent bank balances 530 00:29:38,640 --> 00:29:42,560 Speaker 1: that aren't at all over leveraged and still ready to 531 00:29:42,680 --> 00:29:46,200 Speaker 1: shop a couple of things. Yes, you are still seeing 532 00:29:46,360 --> 00:29:49,040 Speaker 1: consumer which is by all intents and purposes healthy. But 533 00:29:49,160 --> 00:29:52,200 Speaker 1: there's moderation all over the place. We obviously have the 534 00:29:52,240 --> 00:29:56,680 Speaker 1: retail sales figures today which not only showed moderation in December, 535 00:29:57,040 --> 00:30:01,160 Speaker 1: but don't forget that November's results were also takedown all 536 00:30:01,440 --> 00:30:05,240 Speaker 1: from original expectations, as was Nova, as was the month 537 00:30:05,280 --> 00:30:09,080 Speaker 1: of October. Inventory levels are coming down, which is encouraging, 538 00:30:09,440 --> 00:30:12,320 Speaker 1: and you're laughing some of the supply chain headwinds that 539 00:30:12,400 --> 00:30:15,600 Speaker 1: you had last year. The ability of the consumer to 540 00:30:15,720 --> 00:30:18,760 Speaker 1: spend is really the question mark. That we're seeing a 541 00:30:18,840 --> 00:30:22,040 Speaker 1: trade down from many different income levels, and even at 542 00:30:22,080 --> 00:30:24,960 Speaker 1: the high end, there's a moderation and growth from what 543 00:30:25,120 --> 00:30:29,520 Speaker 1: you had seen earlier, whether it's stock market volatility or 544 00:30:29,640 --> 00:30:33,360 Speaker 1: real estate headwinds. At the same time as you're as 545 00:30:33,440 --> 00:30:37,840 Speaker 1: you're having unemployment um which frankly continues to remain low, 546 00:30:38,160 --> 00:30:42,400 Speaker 1: but in certain industries you're seeing a tick up and layoff. Dana, 547 00:30:42,440 --> 00:30:45,720 Speaker 1: when you talked about the retail sector specifically, I want 548 00:30:45,760 --> 00:30:49,160 Speaker 1: to say, throughout your forecast for three was we're still 549 00:30:49,160 --> 00:30:50,640 Speaker 1: going to see a lot of promotions, still going to 550 00:30:50,720 --> 00:30:52,480 Speaker 1: see a lot of markdowns, a lot of clearance items. 551 00:30:52,960 --> 00:30:55,240 Speaker 1: Is that gonna be enough to entice the consumer, the 552 00:30:55,280 --> 00:30:59,000 Speaker 1: American consumer to keep spending. There's certainly is the reason 553 00:30:59,080 --> 00:31:01,560 Speaker 1: why they can keep spendings. Do they have the ability 554 00:31:01,640 --> 00:31:04,040 Speaker 1: to spend will be the question. I think as the 555 00:31:04,160 --> 00:31:07,959 Speaker 1: inventory levels continue to be promoted and get leaner by 556 00:31:08,040 --> 00:31:10,120 Speaker 1: the end of the first half of the year, then 557 00:31:10,160 --> 00:31:12,680 Speaker 1: we'll see the next the next element. I think that 558 00:31:13,160 --> 00:31:16,520 Speaker 1: the wherewithal with the savings rate having dropped down is 559 00:31:16,560 --> 00:31:18,640 Speaker 1: going to be one of the question marks. But across 560 00:31:18,800 --> 00:31:22,880 Speaker 1: the board, we certainly have seen a step down from 561 00:31:22,920 --> 00:31:26,520 Speaker 1: the growth rate that we've saught earlier in two so 562 00:31:26,600 --> 00:31:30,120 Speaker 1: the savings rate is dropped substantially, but the unemployment rate 563 00:31:30,240 --> 00:31:34,920 Speaker 1: is still to me unbelievably low, I mean three point 564 00:31:35,120 --> 00:31:38,880 Speaker 1: five percent, and we've seen some decent wage gains. They 565 00:31:38,920 --> 00:31:41,840 Speaker 1: haven't kept up with inflation. M I right saying that, right, 566 00:31:42,720 --> 00:31:45,240 Speaker 1: but you know people have jobs and they have big 567 00:31:45,320 --> 00:31:50,360 Speaker 1: bank balances. Um, what's your expectation for unemployment and for 568 00:31:50,480 --> 00:31:54,600 Speaker 1: wage gains going forward? I think overall, there certainly is 569 00:31:54,760 --> 00:31:58,560 Speaker 1: demand for workers out there. Is it going to be satisfied? 570 00:31:58,640 --> 00:32:01,120 Speaker 1: And certainly with the pullback and spending that you're getting 571 00:32:01,160 --> 00:32:04,360 Speaker 1: on the consumer side, will adjustments may be made that 572 00:32:04,520 --> 00:32:07,760 Speaker 1: can easily be easily be part of it. I think 573 00:32:07,880 --> 00:32:11,719 Speaker 1: the pullback um the consumer spending. Consumer spending had been 574 00:32:11,800 --> 00:32:14,840 Speaker 1: so resilient for quite some time, and now the fourth 575 00:32:14,920 --> 00:32:18,560 Speaker 1: quarter data is showing some some capitulation in the face 576 00:32:18,640 --> 00:32:21,720 Speaker 1: of the inflationary headwinds. I think, both in terms of 577 00:32:22,280 --> 00:32:25,280 Speaker 1: labor and in wage growth. I think you can see 578 00:32:25,320 --> 00:32:28,320 Speaker 1: wage growth paps moderate a little bit, and hopefully we 579 00:32:28,480 --> 00:32:33,280 Speaker 1: see some jobs filled, particularly in the discretionary sector where 580 00:32:33,320 --> 00:32:37,040 Speaker 1: whether it's restaurants or other areas needs needs those employees 581 00:32:37,440 --> 00:32:41,040 Speaker 1: at what rate still remains to be seen. So Dana, 582 00:32:41,120 --> 00:32:44,520 Speaker 1: let's push ahead twelve months or Gus eleven months down 583 00:32:44,560 --> 00:32:47,440 Speaker 1: the road. Are we still going to see the same 584 00:32:47,480 --> 00:32:50,920 Speaker 1: patterns that we're seeing right now going to next holiday season. 585 00:32:50,960 --> 00:32:52,760 Speaker 1: I know it's early to be even thinking about that, 586 00:32:52,920 --> 00:32:55,360 Speaker 1: but some of that preparation happens in just a few months. 587 00:32:55,680 --> 00:32:58,200 Speaker 1: Walk us through what you think. I think overall, we're 588 00:32:58,240 --> 00:33:01,000 Speaker 1: going to continue to see inventory level remain very lean. 589 00:33:01,440 --> 00:33:04,320 Speaker 1: We could certainly see a pick up in margins from 590 00:33:04,360 --> 00:33:07,240 Speaker 1: what you had this holiday season, because I don't think 591 00:33:07,320 --> 00:33:11,360 Speaker 1: the level of inventory coming in at mismatched times will occur. 592 00:33:11,880 --> 00:33:15,040 Speaker 1: And I think as you go into four you'll have 593 00:33:15,440 --> 00:33:19,040 Speaker 1: more stabilization perhaps and even more resilient consumer than what 594 00:33:19,120 --> 00:33:23,840 Speaker 1: you have right now. In terms of the stores out there, 595 00:33:23,880 --> 00:33:27,400 Speaker 1: the retailers, who's dealing the best and who's dealing the 596 00:33:27,480 --> 00:33:31,680 Speaker 1: worst with this situation. The luxury goods companies obviously are 597 00:33:31,720 --> 00:33:33,920 Speaker 1: handling it. They have limited inventory and they have a 598 00:33:34,000 --> 00:33:37,400 Speaker 1: stronger consumer with the ability to pay, so you're definitely 599 00:33:37,480 --> 00:33:40,840 Speaker 1: seeing that. I think you're continuing to see cosmetics um 600 00:33:41,000 --> 00:33:43,880 Speaker 1: do very well and be strong given the fact that 601 00:33:44,440 --> 00:33:48,040 Speaker 1: you're getting both the specialty stores and the brands performing 602 00:33:48,120 --> 00:33:51,040 Speaker 1: well and the category remains solid. I think you have 603 00:33:51,080 --> 00:33:54,760 Speaker 1: a seat change going on in apparel with denim slowing, 604 00:33:54,920 --> 00:33:57,720 Speaker 1: and you're seeing a pick up in other fabrications and 605 00:33:57,880 --> 00:34:00,440 Speaker 1: more of a focus perhaps on occasion are than what 606 00:34:00,680 --> 00:34:03,800 Speaker 1: than what we've had in the past. And also look 607 00:34:03,880 --> 00:34:06,840 Speaker 1: at food and essentials. You're seeing the grocers and the 608 00:34:06,960 --> 00:34:11,040 Speaker 1: discounters be certainly a magnet for a greater share of wallet. 609 00:34:11,640 --> 00:34:15,160 Speaker 1: What about car sales, It's been a huge issue in 610 00:34:15,320 --> 00:34:19,200 Speaker 1: terms of the inflation picture, and I guess we've seen 611 00:34:19,239 --> 00:34:22,080 Speaker 1: a dramatic turnaround there, have we not, as financing costs 612 00:34:22,160 --> 00:34:26,480 Speaker 1: just skyrocket, Yes, and it's and also the availability too 613 00:34:26,560 --> 00:34:28,600 Speaker 1: I think that's going to be a question mark also, 614 00:34:29,200 --> 00:34:33,200 Speaker 1: definitely when I think about high ticket items overall. I mean, 615 00:34:33,320 --> 00:34:35,839 Speaker 1: you think about some of the the relief that we've 616 00:34:35,880 --> 00:34:38,799 Speaker 1: gotten at the gasoline pump. It was interesting that gas 617 00:34:38,880 --> 00:34:42,360 Speaker 1: station sales even declined in the most recent month of December, 618 00:34:42,719 --> 00:34:45,520 Speaker 1: given the sharp ball off and gasoline prices. But we 619 00:34:45,600 --> 00:34:47,200 Speaker 1: have I mean, you've got a double wammy there and 620 00:34:47,280 --> 00:34:50,680 Speaker 1: that for example for the auto manufacturers. I don't know 621 00:34:50,680 --> 00:34:53,920 Speaker 1: about other high ticket items, but the supply is now 622 00:34:54,080 --> 00:34:59,480 Speaker 1: there and financing costs make it too expensive. Affordable affordability 623 00:34:59,520 --> 00:35:03,000 Speaker 1: has gone, you know, to the roof. Yeah, and you 624 00:35:03,040 --> 00:35:05,759 Speaker 1: saw up sales of big ticket items this month was 625 00:35:05,960 --> 00:35:09,040 Speaker 1: download single digits, and furniture sales was down even a 626 00:35:09,080 --> 00:35:13,160 Speaker 1: little bit more along with electronics and appliance sales. Where 627 00:35:13,200 --> 00:35:16,920 Speaker 1: for electronics and appliances it was the eighth consecutive months 628 00:35:17,000 --> 00:35:21,120 Speaker 1: of decline for the category. It's a lot of pain 629 00:35:21,680 --> 00:35:25,600 Speaker 1: in retail, yeah, cross board on the big ticket It's 630 00:35:25,640 --> 00:35:27,520 Speaker 1: it's interesting to see. I wonder how much the FED 631 00:35:27,560 --> 00:35:30,799 Speaker 1: pays attention to financing costs. I guess very much, right, 632 00:35:30,800 --> 00:35:33,480 Speaker 1: because you see it in the financial conditions. Dana great 633 00:35:33,480 --> 00:35:35,000 Speaker 1: having you on the program today. Thanks so much for 634 00:35:35,120 --> 00:35:38,200 Speaker 1: joining us. Dana Telsey there, she's a Chief Research Officer 635 00:35:38,320 --> 00:35:41,520 Speaker 1: and the CEO of the Telsey Advisory Group, and she 636 00:35:41,719 --> 00:35:44,160 Speaker 1: is our go to voice when we want to talk 637 00:35:44,280 --> 00:35:48,080 Speaker 1: anything retail. The numbers we got out today certainly prompted 638 00:35:48,160 --> 00:35:52,920 Speaker 1: that and really moved the markets. Thanks for listening to 639 00:35:52,960 --> 00:35:56,440 Speaker 1: the Bloomberg Markets podcast. You can subscribe and listen to 640 00:35:56,560 --> 00:36:00,680 Speaker 1: interviews with Apple Podcasts or whatever podcast plat form you prefer. 641 00:36:01,080 --> 00:36:05,080 Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller three. 642 00:36:05,680 --> 00:36:08,279 Speaker 1: On Fall Sweeney, I'm on Twitter at pt Sweeney before 643 00:36:08,320 --> 00:36:11,439 Speaker 1: the podcast. You can always catch us worldwide at Bloomberg Radio.