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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am

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Speaker 1: or watch us live on YouTube.

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Speaker 2: Obviously, the big macro story is what we saw with

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Speaker 2: CPI and then looking ahead to that FED meeting. This

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Speaker 2: is the first time since twenty twenty that we get

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Speaker 2: the Central Bank decision on the same day as CPI,

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Speaker 2: and you could read the CPI in many different kind

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Speaker 2: of ways. So let's ask Jeffrey Cleveland. He's chief economist

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Speaker 2: at Peydon and Regal. He joins us, Now, hey, Jeffrey,

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Speaker 2: what was your read on CPI.

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Speaker 3: Well, good morning, happy FED day. I think you put

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Speaker 3: it in context. Sequentially, to start the year, we had

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Speaker 3: a point four reading, then another point four reading, then

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Speaker 3: I think we had another point for reading, and then

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Speaker 3: we hado point three month to month percent change for

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Speaker 3: April for four CPI, and then this morning point two

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Speaker 3: or if you like, on the out to do two

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Speaker 3: decimal places, it was point one six. So this is

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Speaker 3: great news. This is great news. Uh, we you know,

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Speaker 3: it shows a little cooling off in the underlying pace

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Speaker 3: of inflation on goods. Goods prices were down, but also

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Speaker 3: services price is cool during the month. So everything's sort

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Speaker 3: of moving in the right direction or I think for

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Speaker 3: the soft landing narrative, but you know, also in the

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Speaker 3: direction that policymakers would like to see. So it's a

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Speaker 3: great start to FED day.

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Speaker 4: All right, Jeffrey.

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Speaker 5: So given that, how do you think how do you

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Speaker 5: think our good friends at the FED will digest this news.

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Speaker 3: Well, I don't know if it's irony or it's the

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Speaker 3: perfect day for this, but I suspect at you know,

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Speaker 3: two pm your time, eleven am my time here in

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Speaker 3: Los Angeles, we'll get some news in probably the median

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Speaker 3: estimate for core PCE for twenty twenty four we'll be

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Speaker 3: nudged up by policy makers. So they as of the

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Speaker 3: last projections they gave us two point six, that probably

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Speaker 3: gets pushed up to two point eight. So in a

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Speaker 3: day where CPI came in soft inflation is seeming to soften,

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Speaker 3: they're going to raise their inflation estimate for the year

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Speaker 3: a little bit, just based on the math, similar maybe

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Speaker 3: to what the ECB also did last week, so that's possible.

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Speaker 3: They probably also reduced a number of ikes or sorry

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Speaker 3: cuts cuts. I didn't say hikes an when I said

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Speaker 3: cuts Italy in the dots.

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Speaker 6: Yeah.

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Speaker 3: Yeah, so they had three in there. That probably goes

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Speaker 3: down to two. I could go down to one, but

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Speaker 3: I think two is probably more likely. So that'll be

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Speaker 3: interesting for the rest of the day. And then we'll

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Speaker 3: see Chair Powell how he puts this into contest. I

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Speaker 3: suspect he'll say this is good, this is good, but

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Speaker 3: we need a few good months, not just one good month,

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Speaker 3: so then we can argue later is that free? Is

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Speaker 3: that four?

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Speaker 2: I was saying, is it five? I've heard like how

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Speaker 2: many months?

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Speaker 6: Is that?

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Speaker 2: Constant tute? Which brings me to that infletion point. You

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Speaker 2: just pointed out that they might raise it to two

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Speaker 2: point eight percent. Is the market going to take that

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Speaker 2: as good news or bad news?

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Speaker 6: You know?

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Speaker 3: I think this is pretty well telegraphed. I mean, if

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Speaker 3: you're looking at these numbers in the forecasting community, I

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Speaker 3: think that's not controversial. However, the market, yeah, could react negatively.

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Speaker 3: The other thing might be alex would be not just

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Speaker 3: the twenty twenty four dot but the twenty twenty five,

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Speaker 3: so the median for PCEE for next year. If that

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Speaker 3: moves up a little bit, that could maybe send a

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Speaker 3: message that inflation is a bit stickier. That could disappoint

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Speaker 3: the market. So that there's a lot of movie parts

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Speaker 3: here that will have to play out over the course

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Speaker 3: of the day.

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Speaker 5: So, Jeffrey, what do you think the Fed does here?

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Speaker 5: I mean, I think the market is now pressing in,

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Speaker 5: you know, maybe certainly a November cut and bringing September

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Speaker 5: back on to the table here. How do you think

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Speaker 5: what kind of messaging we'll get around that?

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Speaker 3: Well, I think that's where it comes back to you. Okay,

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Speaker 3: this is a good report. How many good reports do

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Speaker 3: the policymakers need to see to become confident? Is it three?

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Speaker 3: Is it four? Is it five? If it's four, I

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Speaker 3: think that rules out a cut before the election, so

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Speaker 3: that we still have the first cut in December in

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Speaker 3: our projection, I'm pretty comfortable with that. We'll have to

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Speaker 3: listen to the bed share today and see if there's

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Speaker 3: any reason to speed that up. I mean, the other

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Speaker 3: thing to keep in mind here, talking to colleagues this

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Speaker 3: morning doesn't need to do a lot I don't think

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Speaker 3: they're in a good spot. I said that a few

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Speaker 3: times over the months on this show. The stocks are,

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Speaker 3: you know, at all time high. Labor market is holding

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Speaker 3: up pretty solid.

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Speaker 7: You know.

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Speaker 3: Some of the concern was if the bed remained too

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Speaker 3: high for too long, it would sink the labor market.

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Speaker 3: That doesn't appear to be happening, and inflation is you know,

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Speaker 3: things cooled off in May. This is good news, I

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Speaker 3: fully admit it. But we're still above two percent on

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Speaker 3: the year on year, whether you're looking at four piece

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Speaker 3: or you're looking at course. Yes, still rush to do

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Speaker 3: anything here, So I think, you know, we'll just wait

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Speaker 3: and see see how the data comes in the next

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Speaker 3: couple of months, then make a decision.

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Speaker 2: And that is why Bank of America. So if you discim,

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Speaker 2: Renni and who was on surveillance, said things are kind

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Speaker 2: of awesome for stocks, like cue the Lego song, Like

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Speaker 2: that's exactly the point that you're kind of laying out

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Speaker 2: My big question that I just don't really understand or

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Speaker 2: shelter costs. So I appreciate that they were the biggest

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Speaker 2: component of the May price increase. Why are we not

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Speaker 2: falling faster like we have been waiting for the rents

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Speaker 2: to reset, for things to cool down and shelter for

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Speaker 2: years at this point.

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Speaker 3: Yeah, that's come up a lot with clients, and I

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Speaker 3: think the issue is a lot of clients point to

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Speaker 3: the you know measures, private sector rent measures that may

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Speaker 3: be capturing the marginal renters cost of renting. So someone

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Speaker 3: moving into a nice building there and in Manhattan, you

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Speaker 3: know where they have a nice door person, you know

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Speaker 3: the door for them, those rents may have come down.

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Speaker 3: I don't know. You tell me, I don't know.

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Speaker 2: We don't live there.

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Speaker 3: That's on a lot of those private sector rent metrics capture.

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Speaker 3: The BLS is running a different exercise and trying to

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Speaker 3: look at the average cost to all renters, and this

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Speaker 3: tend this series just tends to move a lot slower

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Speaker 3: than investors at Hope. So you know, the patients from

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Speaker 3: a lot of investors, it's like, hey, this we need

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Speaker 3: to we're seeing it. We're seeing the disinflation in the

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Speaker 3: private sector rent metrics. That's got to translate, and it's

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Speaker 3: just taking it's taken longer to play out. So that's

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Speaker 3: my preferred story.

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Speaker 5: Jeff for giving us an economic or inflation backdrop that

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Speaker 5: we got I guess a better handle on today. What's

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Speaker 5: your call in the US consumer? Can US consumer continue

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Speaker 5: to power this economy?

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Speaker 3: For yes, yes it can. I mean we look at

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Speaker 3: the consumer, We look at how many people are employed,

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Speaker 3: how much they're working, what they're getting paid, And when

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Speaker 3: you look at that, that that measure, that aggregate measure

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Speaker 3: PAUL is still running almost six percent year on year.

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Speaker 3: So and we know the US consumer is not a

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Speaker 3: big saber. What they earn, they tend to spend. So

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Speaker 3: really earnings matter, and earnings are holding up through the

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Speaker 3: main data, so I think the US consumer will have

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Speaker 3: ample spending power. The other thing, if I have a

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Speaker 3: few more seconds, is that in addition to income, US

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Speaker 3: consumers can rely on borrowing capacity. We don't think borrowing

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Speaker 3: capacity is maxed out, so people could borrow more. Some

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Speaker 3: cohorts of the US consumer could also sell assets or

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Speaker 3: borrow against assets to spend. Net worth is up a

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Speaker 3: lot in the last few years, so we think that's

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Speaker 3: a big component that could keep the consumer spending. So

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Speaker 3: that's why when you look at our GDP call, we're

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Speaker 3: still above trend for twenty twenty four. We think GDP

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Speaker 3: will grow around two point four two point five percent

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Speaker 3: this year, and that's driven by the consumer.

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Speaker 2: You were just like so awesome. You have so much

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Speaker 2: energy and so much enthusiasm. I don't know if you

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Speaker 2: get off air and you just like go to sleep,

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Speaker 2: but it's so nice and refreshing to hear like a

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Speaker 2: solid opinion and some enthusiasm. To that point, you talked

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Speaker 2: about the consumers holding in. What about like restaurants and

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Speaker 2: services and things that are directly tied to the consumer,

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Speaker 2: of those prices coming down or is that demand and

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Speaker 2: those sticky consumers keeping prices elevated.

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Speaker 3: It's possible that just the pace of consumer spending will

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Speaker 3: keep prices stickier. Doesn't mean an acceleration. It just means that,

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Speaker 3: you know, on core, maybe we'll hang out three percent,

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Speaker 3: three three and a half percent on core, we won't

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Speaker 3: get back to you know, the pre COVID sub two

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Speaker 3: percent level. So that's entirely plausible. It's also, you know,

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Speaker 3: possible that consumers are shifting away maybe spending less on

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Speaker 3: some retail on goods, they're spending more on services. So

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Speaker 3: that's a shift that's underway. You seeing that with air travel.

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Speaker 3: So I think that's that's one thing to keep in mind,

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Speaker 3: it's not necessarily a slow down in consumer spending, but

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Speaker 3: a shift in how consumers are spending those dollars.

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Speaker 5: All right, Jeffrey Clevelan, thanks so much for joining us.

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Speaker 5: Jeffrey Cleveland chief economists have paid in and regal joining

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Speaker 5: us a via zoom from Los Angeles.

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Speaker 2: It is FED day, it is CPI Day. So what

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Speaker 2: do we do? We talked to one of the best,

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Speaker 2: Danielle di Martino Booth. She's CEO and chief strategist for

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Speaker 2: QI Research. We love the strong opinions that you have,

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Speaker 2: and we love how you look at the market. Okay,

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Speaker 2: so you're pessimistic on the economy. Is that a fair

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Speaker 2: statement to say?

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Speaker 7: It's? Yes, it is fair. I'm right there with Anna Wong,

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Speaker 7: and I've been saying it since January that we likely

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Speaker 7: went into recession in October of twenty twenty three. That's

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Speaker 7: when the McKelvey rule was first triggered. It's got a

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Speaker 7: flawless track record back to nineteen sixty eight. It's kind

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Speaker 7: of like the Psalm role, but it's devised differently by

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Speaker 7: the former chief economist at Goldman's Acts. He was interviewed

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Speaker 7: in January of two thousand and eight, and because his

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Speaker 7: mckelvy rule had been triggered in December two thousand and seven,

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Speaker 7: and they said they asked him at the time the

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Speaker 7: Wall Street Journal, are are we in recession? And he said, oh,

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Speaker 7: I'm gonna have to wait and see. So of his

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Speaker 7: own rule, he said it might be different this time.

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Speaker 7: But it wasn't. It wasn't. We didn't find out for

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Speaker 7: three hundred and sixty six days from the National Bureau

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Speaker 7: of Economic Research that it did. The recession had been

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Speaker 7: dated to December two thousand and seven. But we know

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Speaker 7: that once the mckelviy rule is triggered that we're typically

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Speaker 7: in recession.

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Speaker 2: But then we have this whole like record high in

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Speaker 2: the equity market. Oh, everything's kind of awesome.

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Speaker 7: It's supposed to be this way by bonds.

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Speaker 2: Y'ls are lower, It's supposed to be like this right now.

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Speaker 7: It is you typically get a good ten percent blowoff

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Speaker 7: rally the time kind of when main Street starts to

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Speaker 7: understand that we're in recession, which Bright Chairpowell acknowledged that

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Speaker 7: last time he was at the podium, he mentioned indeed,

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Speaker 7: dot Com, he mentioned University of Michigan and households starting

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Speaker 7: to say, oh my gosh, if I lose my job,

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Speaker 7: I'm not going to get another one. Kind of from

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Speaker 7: that moment of the Fed recognizing that main Street sees

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Speaker 7: that we're falling into recession, until when the Fed actually

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Speaker 7: cuts rights for the first time, you tend to see

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Speaker 7: a good ten percent rally in the stock market.

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Speaker 4: So what we'll be hear from our feeder reserve the

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Speaker 4: cerconion you believe.

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Speaker 7: I think we're gonna hear either two or three. I

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Speaker 7: would not be surprised to see the three rate cuts.

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Speaker 7: Say on the table, the unemployment rate was not rounded

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Speaker 7: up to four point zero percent. It was three point

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Speaker 7: nine six percent. It was a good strong four percent.

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Speaker 7: And given what we've seen in the past, when the

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Speaker 7: unmployment rate moves up, inches up a tenth of a

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Speaker 7: percentage point a tenth, a tenth a tent right, that's

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Speaker 7: exactly what we've seen for the last thirteen months, very

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Speaker 7: small movements. But typically when we see you know, your

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Speaker 7: Bloomberg bc y function, when the when bankruptcy start to run,

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Speaker 7: as they're running this month at the fastest pace since

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Speaker 7: the pandemic, companies with fifty million in liabilities or more.

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Speaker 7: There was coach last night at five Transportation company. Typically

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Speaker 7: when we see an acceleration in bankruptcy filings, we also

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Speaker 7: see the increases in the unemployment rate tick up. So

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Speaker 7: it's feasible that we could see in July and in

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Speaker 7: August a large enough move to put the FED in

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Speaker 7: play come September, September, November, December. Maybe those three dots

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Speaker 7: stay on the plot today.

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Speaker 2: So see why Go?

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Speaker 7: You see why Go?

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Speaker 2: It is really awesome. Has a nice little pie chart

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Speaker 2: that shows where the bankruptcies are are coming and the

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Speaker 2: most are coming from consumer discretionary and this is a

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Speaker 2: period over one year. It breaks down industries, it breaks

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Speaker 2: down the name and then the liability is very cool.

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Speaker 7: One of the richest functions on the termin that.

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Speaker 2: That's our desert island function.

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Speaker 7: Is what you said, now, that is my desert island function.

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Speaker 7: My desert island go to financial indicator would be the

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Speaker 7: move index, which should be a pure play on treasury

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Speaker 7: market volatility. However, when treasury rates fall and the move

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Speaker 7: moves up, it's telling you what's going on in BCY

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Speaker 7: that there's a credit event rumbling. So we're under the

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Speaker 7: surface because if treasury rates are falling, then treasury volatility

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Speaker 7: should fall. When they move in the opposite direction, there's

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Speaker 7: a lot of tension in the system that typically starts

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Speaker 7: to flag you know, there's issues with the banking system.

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Speaker 7: We're lending and what are we seeing. We're seeing commercial

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Speaker 7: industrial lending contract right now?

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Speaker 4: Should the Fed have already been cutting likely?

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Speaker 7: Likely? Right, We're eleven months in to the Fed holding

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Speaker 7: after their last rate hike heading into the Great Recession

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Speaker 7: December two thousand and seven, the Fed held off for

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Speaker 7: fifteen months. It was the longest in history. So the

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Speaker 7: longer they kind of hold off, hold off, hold off,

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Speaker 7: the bigger the potential for a policy here that they've

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Speaker 7: waited too long.

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Speaker 2: So I have to say, when Danielle's on, I get

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Speaker 2: right ins to be like, ask you this, ask for that,

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Speaker 2: ask you this. So this comes from a listener. Do

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Speaker 2: you think that the next rolling six months of economic

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Speaker 2: data remains noisy, or does the deterioration remain consistent, So

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Speaker 2: it's like a drip drip, or it's like a cliff.

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Speaker 7: I think we're starting to see something that more closely

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Speaker 7: resembles a cliff. You have essentials inflation at QI Research,

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Speaker 7: we parse them out running at four point seven percent

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Speaker 7: year over year. It also happens to be completely out

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Speaker 7: of the Fed's control, pure discretionary inflation. It used to

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Speaker 7: just be a goods deflation story, but what we saw

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Speaker 7: this morning was goods and services that are discretionary in nature.

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Speaker 7: These are things at households want to buy but do

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Speaker 7: not need to have. That's at zero point one percent

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Speaker 7: year over year. At the cusp of falling into negativity.

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Speaker 7: We've got hotel rates falling, car rental rates falling, air

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Speaker 7: airfares are coming down. So the services inflation that had

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Speaker 7: been the happy story post, well, everybody's bought enough of

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Speaker 7: what they need, so they're not going to build themselves

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Speaker 7: an extra deck in the back of their house. We're

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Speaker 7: actually seeing that combining now with massive disinflation on the

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Speaker 7: services side. So the Fed's job is basically done because

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Speaker 7: all they can can control is what's discretionary in nature?

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Speaker 4: Do they not look at that data? Do they not

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Speaker 4: value this high as maybe others do.

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Speaker 7: Of course they look at the data. But but Powell

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Speaker 7: seems for some reason to want to stay higher for longer.

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Speaker 7: Maybe he gets up at the podium today and only

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Speaker 7: talks about non farm payrolls and not the unemployment rate

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Speaker 7: and not the zero print on headline CPI. Maybe he

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Speaker 7: just says, that's an anomaly of energy prices.

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Speaker 2: Who knows, where's the disinflation? You mentioned a lot of

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Speaker 2: services disinflation where.

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Speaker 7: Well, we're seeing it in hotels. They're down negative, they're

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Speaker 7: one point seven percent uh year over year. We're seeing

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Speaker 7: that play out in very weak occupancy trends. We get

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Speaker 7: the str data on a weekly basis. City does a

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Speaker 7: good job of providing reports on that. Outside of a

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Speaker 7: bump at Easter, we've seen occupancy negative year over year,

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Speaker 7: week after week after week, beginning the week after New

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Speaker 7: Year's And that is telling you what a lot of

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Speaker 7: ged Why is this hotel selling for pennies on the dollar.

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Speaker 7: That doesn't make any sense. Americans are still spending on

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Speaker 7: services unless we've pulled back, Unless we're just focused sheerly

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Speaker 7: on okay, fine, auto insurance rates tick down just a

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Speaker 7: little bit, they're still up twenty percent. You're over here

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Speaker 7: the things we must buy. That inflation's running at four

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Speaker 7: point seven percent year over year, you are pulling back

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Speaker 7: on anything that is discretionary, including travel.

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Speaker 4: Dot plots Do I care? I mean, I've got a

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Speaker 4: function for it.

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Speaker 7: We care a lot about the dot plots today because

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Speaker 7: the dotstab you could have a mac truck between the

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Speaker 7: difference between the market reaction of three staying or being

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Speaker 7: whittled down from three to two. I do think that

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Speaker 7: markets right now are assuming too given today's CPI print.

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Speaker 7: If they keep three, then you're going to look to

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Speaker 7: Powell at the podium to talk a lot more about

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Speaker 7: the second mandate of maximizing employment.

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Speaker 4: Great stuff, yep, always always.

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Speaker 2: Danielle, thank you so much. We appreciate you stopping in.

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Speaker 7: Great to be here.

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Speaker 2: It's great to get a counterintuitive, passionate voice on stuff.

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Speaker 2: Daniel de Martinez, Booth CEO and chief strategist for a

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Speaker 2: q I Research. Interesting. I don't I don't want to

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Speaker 2: be an economist. I feel like everything is a worst

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Speaker 2: has test. Everyone has the same data, But then how

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Speaker 2: you filter it through your models gets you to different conclusions,

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Speaker 2: but you have to wonder.

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Speaker 5: I tell you the market likes to today, the S

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Speaker 5: and P five one and a quarter percent, the NASTAC

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Speaker 5: up one point eight percent. The Russell will point out,

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Speaker 5: that's kind of where the game is right now, up

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Speaker 5: two point nine percent here today.

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Speaker 4: So we're broadening out, which a lot of.

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Speaker 5: Market strategies will tell you that's a healthy thing for

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Speaker 5: the markets in general.

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Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple car Play and

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Speaker 1: Android Auto with the Bloomberg Business App. Listen on demand

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Speaker 1: wherever you get your podcasts, or watch us live on YouTube.

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Speaker 4: Alex Deal and Paul Sweeney.

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Speaker 5: We're live here in our Bloomberg Interactive Brokers studio and

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Speaker 5: we're also streaming live on YouTube, so you can head

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Speaker 5: over to YouTube dot com and search Bloomberg Podcast and

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Speaker 5: that's where you will find this. Charlie was just reporting

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Speaker 5: S and P at record highs, just a big big

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Speaker 5: I think, embraced by the marketplace and risk assets on

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Speaker 5: what we saw was a little bit cooler than expected

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Speaker 5: inflation data. Couple that with a FED meeting in the

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Speaker 5: stair for noon. A lot of folks taking this as

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Speaker 5: an opportunity to jump into the market's check in.

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Speaker 4: With a professional on this whole thing.

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Speaker 5: David Kodla, founder, chief executive officer and chief investment strategist

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Speaker 5: at Mainstay Capital Management, joins us. David, the market likes

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Speaker 5: what it heard this morning. I guess anticipating an accommodati

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Speaker 5: of FED going forward.

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Speaker 4: What's your take.

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Speaker 6: I think that's exactly what we're seeing. Good morning, Paul

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Speaker 6: and alex. I you know, we here's the quandary, right

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Speaker 6: We have an inverty deal curve for the longest in

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Speaker 6: history and an inversion very deep that is eight freight

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Speaker 6: on predicting a recession. We have these stats out there,

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Speaker 6: credit card interests at an all time high, delinquencies at

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Speaker 6: an all time high, auto loan defaults rising rapidly. That

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Speaker 6: is anecdotal data pointing towards problems in the economy. At

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Speaker 6: the same time, we had positive GDP in the fourth quarter,

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Speaker 6: first quarter, and GDP now from the Atlanta FED is

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Speaker 6: currently above three percent for the second quarter, and that's

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Speaker 6: a very volatile number. Earnings are beat expectations by a

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Speaker 6: wide margin for the first quarter. We're expecting good earnings

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Speaker 6: for the year. We're out of the earnings recession, strong

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Speaker 6: earnings going forward. And the S and P Global PMI

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Speaker 6: has manufacturing and services at twenty four and twenty five

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Speaker 6: month highs. So there is a lot of conflicting data

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Speaker 6: out there as to where the economy is at right

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Speaker 6: now and where the economy is going. And as far

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Speaker 6: as the Fed, UH, Yeah, we saw we saw another

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Speaker 6: slight decrease in UH in CPI and we know though

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Speaker 6: that it's going to be you know, Powell is, we'll

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Speaker 6: see what we hear in the presser today and what

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Speaker 6: kind of guidance we get what the dot plot shows.

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Speaker 6: But we're you know, we're seeing we're seeing UH inflation

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Speaker 6: being sticky. Even their preferred gauge services PMI is a

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Speaker 6: two point eight. They're not a target yet, and it's

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Speaker 6: and inflation is being is remaining sticky and stubbornly high.

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Speaker 2: So you think the Fed eventually today takes away that

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Speaker 2: punch bowl by sort of pouring some cold water here.

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Speaker 6: Well, I think that, you know, and it's it's it's

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Speaker 6: you know, become a parlor game like calling the the

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Speaker 6: level of the S and P five hundred at the

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Speaker 6: end of the years to win, the FED will cut

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Speaker 6: and see economists and wirehouses with each data point jumping

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Speaker 6: back and forth between July or December or September. Uh,

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Speaker 6: but we see the fact of the matter is until

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Speaker 6: it's clear to the fo MC that inflation or CPI

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Speaker 6: is getting close or pc is getting close to their target,

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Speaker 6: they're not going to cut. They're not going to cut.

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Speaker 6: And there's plenty of economic data they can point to,

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Speaker 6: uh that that that says the economy is really doing okay,

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Speaker 6: although there's some economic data out there that scares the

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Speaker 6: heck out of me.

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Speaker 5: So given that backdrop here, how are you thinking about

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Speaker 5: your portfolio construction?

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Speaker 4: What kind of.

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Speaker 5: Tweaks have you been making maybe over the last several months,

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Speaker 5: would you anticipate and over the next several months.

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Speaker 6: Well, and that's and that's what we we haven't We

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Speaker 6: haven't really We've been on the on the equity side. Uh.

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Speaker 6: You know, we continue to favor, we favor large cap

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Speaker 6: over small cap, and we've seen that that valuation spread keeps,

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Speaker 6: you know, setting multi year records as well, large cap

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Speaker 6: over small cap, US over foreign growth over value growth

437
00:22:04,040 --> 00:22:08,240
Speaker 6: over value being and large over small being very important.

438
00:22:08,840 --> 00:22:12,800
Speaker 6: Mega cap tech continues to rock and roll. Look at

439
00:22:12,840 --> 00:22:16,119
Speaker 6: what we've got today. I mean, how many how many?

440
00:22:18,200 --> 00:22:20,240
Speaker 6: How many people have come on the show and talked

441
00:22:20,280 --> 00:22:25,320
Speaker 6: about shortening the megacap stocks over the past year. Short,

442
00:22:26,640 --> 00:22:27,200
Speaker 6: No one.

443
00:22:27,359 --> 00:22:30,240
Speaker 2: No, I haven't heard anyone saying short the megacaps. No way.

444
00:22:30,920 --> 00:22:32,160
Speaker 2: That's like standing in front of a train.

445
00:22:33,160 --> 00:22:36,359
Speaker 6: Oh well, I agree with you, But but we have,

446
00:22:36,560 --> 00:22:41,720
Speaker 6: I mean we have. And and likewise, on the income side,

447
00:22:41,920 --> 00:22:43,600
Speaker 6: how many people have come on the show and said

448
00:22:43,600 --> 00:22:46,199
Speaker 6: they're adding duration because the FED is going to cut rates.

449
00:22:46,600 --> 00:22:49,840
Speaker 6: They've had their head handed to them. The US aggregate

450
00:22:49,880 --> 00:22:53,040
Speaker 6: bond index is negative year to date, and what we've

451
00:22:53,080 --> 00:22:55,200
Speaker 6: been saying is that where you want to be at

452
00:22:55,200 --> 00:22:59,480
Speaker 6: a sixty to forty portfolio, whatever the income oriented portion

453
00:22:59,560 --> 00:23:03,920
Speaker 6: your portfolio, has to be an ultra short maturity, high

454
00:23:04,000 --> 00:23:07,800
Speaker 6: yielding with zero duration risk that produced about a seven

455
00:23:07,840 --> 00:23:11,520
Speaker 6: and a half percent return last year with those types

456
00:23:11,560 --> 00:23:13,600
Speaker 6: of all short bond funds about three and a half

457
00:23:13,600 --> 00:23:17,920
Speaker 6: percent this year versus a negative US aggregate bond index.

458
00:23:18,000 --> 00:23:24,320
Speaker 6: So that strategy, that combination of leaning towards large cap growth.

459
00:23:24,600 --> 00:23:29,080
Speaker 6: On our equity side, ultra short, high yielding, zero duration

460
00:23:29,280 --> 00:23:34,560
Speaker 6: risk in our bond funds ETFs bond allocation. It is

461
00:23:34,600 --> 00:23:36,040
Speaker 6: continued to work very very well.

462
00:23:36,480 --> 00:23:40,000
Speaker 5: And David, you know you mentioned the US AGG bond index,

463
00:23:40,240 --> 00:23:43,359
Speaker 5: the Bloomberg Index down zero point nine percent year to date,

464
00:23:43,680 --> 00:23:46,440
Speaker 5: But are you surprised that the corporate US corporate high

465
00:23:46,480 --> 00:23:48,520
Speaker 5: yield is actually up a couple of percent here and

466
00:23:48,600 --> 00:23:51,000
Speaker 5: has been outperforming really over the last couple of years.

467
00:23:51,000 --> 00:23:54,560
Speaker 5: Given concerns about our recession. Are you surprised that the

468
00:23:54,640 --> 00:23:55,960
Speaker 5: highield market set as well as.

469
00:23:55,840 --> 00:24:00,800
Speaker 6: That has Yeah, I mean, crowdit spreads are tight, uh,

470
00:24:00,880 --> 00:24:03,720
Speaker 6: And you know, we don't want to be high yield

471
00:24:03,760 --> 00:24:07,040
Speaker 6: with long duration, right, We're talking about where we're holding

472
00:24:07,080 --> 00:24:11,040
Speaker 6: high yield, where we're holding bank loan, where we're holding

473
00:24:11,119 --> 00:24:15,320
Speaker 6: floating rate. I'm talking about an income portfolio or a

474
00:24:15,359 --> 00:24:19,240
Speaker 6: credit debt portfolio with the duration of about zero point one,

475
00:24:19,560 --> 00:24:23,080
Speaker 6: not five or six or ten. Right, So we want

476
00:24:23,119 --> 00:24:26,400
Speaker 6: to you know, in each of those categories, we don't

477
00:24:26,400 --> 00:24:28,440
Speaker 6: want the duration risk. We're not ready for that yet,

478
00:24:28,480 --> 00:24:32,840
Speaker 6: because look, we don't we think we think. I said

479
00:24:32,840 --> 00:24:34,560
Speaker 6: it my notes and I'll continue to say it.

480
00:24:34,600 --> 00:24:34,840
Speaker 1: FED.

481
00:24:35,240 --> 00:24:38,200
Speaker 6: The FED rate cut is the first FED rate cut

482
00:24:38,240 --> 00:24:42,720
Speaker 6: is months away because they're nowhere near target or there's

483
00:24:42,720 --> 00:24:44,960
Speaker 6: still far enough away on the target. We have a

484
00:24:44,960 --> 00:24:48,960
Speaker 6: slight improvement, you know, in this in this release, but

485
00:24:49,040 --> 00:24:51,440
Speaker 6: they've got a long way to go unless they change

486
00:24:51,480 --> 00:24:54,119
Speaker 6: their target to get to two percent.

487
00:24:55,359 --> 00:24:57,600
Speaker 2: I know this is sacrilege, like a couple hours before

488
00:24:57,640 --> 00:25:00,800
Speaker 2: the FED. But what about x US with the ECB

489
00:25:00,920 --> 00:25:04,200
Speaker 2: having already cut, but the politics situation there is really

490
00:25:04,240 --> 00:25:08,400
Speaker 2: up ended. In France and also the UK. Anything our

491
00:25:08,640 --> 00:25:10,199
Speaker 2: overseas that strikes your fancy.

492
00:25:11,200 --> 00:25:14,920
Speaker 6: Yeah, a good question that you know when we when

493
00:25:14,960 --> 00:25:19,639
Speaker 6: we look abroad Europe, you know whether the ECB should

494
00:25:19,680 --> 00:25:22,919
Speaker 6: be cutting yet or not. They cut a quarter point

495
00:25:23,560 --> 00:25:27,359
Speaker 6: in Japan. We've loved Japan for a long time now, uh,

496
00:25:27,520 --> 00:25:30,720
Speaker 6: with with the weakness and the end uh just tremendous

497
00:25:30,760 --> 00:25:34,600
Speaker 6: for their exporters. Other corporate reforms Japan has been we've

498
00:25:34,600 --> 00:25:35,600
Speaker 6: had an allocation too.

499
00:25:36,280 --> 00:25:36,680
Speaker 1: Uh.

500
00:25:36,800 --> 00:25:39,240
Speaker 6: With all of this, you have to be very careful

501
00:25:39,520 --> 00:25:42,480
Speaker 6: to hedge the currency because what's happening with the FED

502
00:25:42,560 --> 00:25:46,480
Speaker 6: staying tight, ECB cutting, what's happening with the end. You

503
00:25:46,480 --> 00:25:48,639
Speaker 6: don't want that, you know, you don't want to affects

504
00:25:48,640 --> 00:25:50,600
Speaker 6: affecting your return. You don't want you need the currency

505
00:25:50,600 --> 00:25:53,040
Speaker 6: hedge in there. But yeah, we're seeing more and more

506
00:25:53,080 --> 00:25:56,320
Speaker 6: opportunities abroad in that respect. That's why I said our

507
00:25:56,359 --> 00:26:00,280
Speaker 6: growth over value are large over small is the important

508
00:26:01,080 --> 00:26:04,200
Speaker 6: US over FORORN. I still think it's America first, but

509
00:26:04,359 --> 00:26:08,200
Speaker 6: there are opportunities abroad, specifically Japan, and I think coming

510
00:26:08,240 --> 00:26:08,760
Speaker 6: on in Europe.

511
00:26:08,840 --> 00:26:11,080
Speaker 5: Now, all right, David, thank you so much for joining

512
00:26:11,119 --> 00:26:13,800
Speaker 5: us at David Kudla, Founder, chief executive officer and chief

513
00:26:13,800 --> 00:26:18,639
Speaker 5: investment officer, Mainstay Capital Management. Appreciate getting a few moments

514
00:26:18,640 --> 00:26:21,400
Speaker 5: this time sticking with the large cap growth names. And

515
00:26:21,840 --> 00:26:24,760
Speaker 5: I guess why not. That's kind of where you know,

516
00:26:24,800 --> 00:26:26,000
Speaker 5: we've seen all of the action.

517
00:26:26,040 --> 00:26:30,960
Speaker 1: You know you're listening to the Bloomberg Intelligence Podcast. Catch

518
00:26:31,040 --> 00:26:34,399
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519
00:26:34,440 --> 00:26:37,560
Speaker 1: and Android Auto with the Bloomberg Business. You can also

520
00:26:37,640 --> 00:26:41,119
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521
00:26:41,480 --> 00:26:44,240
Speaker 1: Just say Alexa play Bloomberg eleven thirty.

522
00:26:45,960 --> 00:26:48,080
Speaker 2: I'm Alex the alongside paulse We need this. At Bloomberg

523
00:26:48,119 --> 00:26:50,119
Speaker 2: Intelligence Radio, we bring you all the top news and

524
00:26:50,160 --> 00:26:52,480
Speaker 2: business and economics and finance. But there are lens of

525
00:26:52,480 --> 00:26:55,639
Speaker 2: Bloomberg Intelligence analysts. They cover two thousand companies and one

526
00:26:55,680 --> 00:26:59,359
Speaker 2: hundred and thirty industries all around the world. One top

527
00:26:59,440 --> 00:27:01,679
Speaker 2: news item here and so interesting that it comes on

528
00:27:01,800 --> 00:27:05,080
Speaker 2: the day of the shareholder TESLA vote, which would come tomorrow,

529
00:27:05,840 --> 00:27:09,040
Speaker 2: is the European Union's decision to put tariffs of up

530
00:27:09,119 --> 00:27:13,199
Speaker 2: to forty eight percent on ev imports from China. It

531
00:27:13,359 --> 00:27:16,199
Speaker 2: just escalates trade tensions and adds to the cost of

532
00:27:16,240 --> 00:27:19,840
Speaker 2: buying an EV. Craig Trudell is Global Auto's editor for

533
00:27:19,840 --> 00:27:21,840
Speaker 2: Bloomberg News, and he joins us now from London. I

534
00:27:21,880 --> 00:27:24,280
Speaker 2: got to ask questions on this one, but broad strokes,

535
00:27:24,720 --> 00:27:27,040
Speaker 2: what are the details with these tariff increases.

536
00:27:28,280 --> 00:27:31,480
Speaker 8: Yeah, this is huge news. It was anticipated, but the

537
00:27:31,520 --> 00:27:36,840
Speaker 8: particulars are something that are very fresh. So the European

538
00:27:36,920 --> 00:27:40,480
Speaker 8: Union launched this investigation last year into the extent of

539
00:27:40,520 --> 00:27:45,480
Speaker 8: the subsidization of electric vehicles by China, which are are

540
00:27:45,600 --> 00:27:49,800
Speaker 8: increasingly you know, coming into Europe and you know, really

541
00:27:49,840 --> 00:27:53,760
Speaker 8: able to compete with local manufacturers. There's been concerns about

542
00:27:53,800 --> 00:27:57,960
Speaker 8: you know, Chinese cars being able to undercut companies like

543
00:27:58,000 --> 00:28:02,960
Speaker 8: Volkswagen and Stalantis and and renaut. The details here today

544
00:28:03,520 --> 00:28:06,520
Speaker 8: sai See, the maker of MG, which is a British

545
00:28:06,520 --> 00:28:09,640
Speaker 8: brand that you know, was sort of brought back from

546
00:28:09,640 --> 00:28:13,880
Speaker 8: the brink by a state owned company in China. Sa see.

547
00:28:14,800 --> 00:28:16,880
Speaker 8: They are going to be subject to a thirty eight

548
00:28:16,960 --> 00:28:20,680
Speaker 8: percent additional tariff. And MG has really been sort of lighting,

549
00:28:21,160 --> 00:28:23,440
Speaker 8: you know, lighting things on fire here in Europe and

550
00:28:23,560 --> 00:28:26,920
Speaker 8: in the UK in terms of really, you know, being

551
00:28:26,960 --> 00:28:30,000
Speaker 8: able to push a lot more volume the last couple

552
00:28:30,000 --> 00:28:33,440
Speaker 8: of years. Another big manufacturer that's going to be subject

553
00:28:33,480 --> 00:28:36,639
Speaker 8: to a substantial teriff will b g Le. They of

554
00:28:36,640 --> 00:28:40,080
Speaker 8: course own Volvo and Pollstar and some other big brands.

555
00:28:40,840 --> 00:28:44,480
Speaker 8: Byd is another company that will be subject to seventeen

556
00:28:44,560 --> 00:28:48,520
Speaker 8: percent additional tariff, and the rest of the industry will

557
00:28:48,720 --> 00:28:52,240
Speaker 8: be subject to an a weighted average duty of twenty

558
00:28:52,280 --> 00:28:52,840
Speaker 8: one percent.

559
00:28:54,400 --> 00:28:56,960
Speaker 5: So talk to us about just the EV market and

560
00:28:57,000 --> 00:29:00,800
Speaker 5: the China's percentage, Like what's China's market share in Europe

561
00:29:00,800 --> 00:29:03,479
Speaker 5: of evs forrady defined because you can't find one here

562
00:29:03,480 --> 00:29:04,240
Speaker 5: in the US.

563
00:29:04,960 --> 00:29:07,040
Speaker 8: Yeah, I mean, it's it's tricky because it of course

564
00:29:07,080 --> 00:29:08,960
Speaker 8: depends a little bit on how you define it. And

565
00:29:09,040 --> 00:29:11,280
Speaker 8: I think one of the things that's really interesting here

566
00:29:11,600 --> 00:29:14,560
Speaker 8: is that it's not necessarily just Chinese companies that are

567
00:29:14,560 --> 00:29:15,720
Speaker 8: that are doing this importing.

568
00:29:16,080 --> 00:29:16,160
Speaker 6: UH.

569
00:29:16,240 --> 00:29:19,080
Speaker 8: The biggest importer as a matter of fact is Tesla.

570
00:29:19,640 --> 00:29:23,280
Speaker 8: They have the plant in Germany where they make Model Wise,

571
00:29:23,320 --> 00:29:25,520
Speaker 8: but they don't make Model threes there, so they've been

572
00:29:25,800 --> 00:29:28,360
Speaker 8: shipping an awful lot of Model threes from their plant

573
00:29:28,360 --> 00:29:29,040
Speaker 8: in Shanghai.

574
00:29:29,480 --> 00:29:29,640
Speaker 1: UH.

575
00:29:29,680 --> 00:29:33,520
Speaker 8: They interestingly are going to try to to have a

576
00:29:33,960 --> 00:29:37,240
Speaker 8: lower duty rate UH and make the argument to the

577
00:29:37,280 --> 00:29:41,800
Speaker 8: European Commission that because they've been, you know, benefiting less

578
00:29:42,480 --> 00:29:46,680
Speaker 8: than other manufacturers, uh, you know, from subsidies, that they

579
00:29:46,720 --> 00:29:50,240
Speaker 8: should have a sort of commensurate duty rate. Other manufacturers

580
00:29:50,240 --> 00:29:53,680
Speaker 8: are able to make that request and have you know,

581
00:29:54,040 --> 00:29:58,560
Speaker 8: what's called a a you know, individually calculated rate. But

582
00:29:59,400 --> 00:30:02,080
Speaker 8: if at this juncture the only company that we know

583
00:30:02,200 --> 00:30:04,200
Speaker 8: that's asked for that and may get it as Tesla,

584
00:30:05,280 --> 00:30:05,880
Speaker 8: Here's what I.

585
00:30:05,800 --> 00:30:08,480
Speaker 2: Don't quite understand, and I know I'm kind of beating

586
00:30:08,520 --> 00:30:10,280
Speaker 2: my head against a all on this one. But if

587
00:30:10,280 --> 00:30:12,480
Speaker 2: the goal is to go green, why wouldn't they want

588
00:30:12,480 --> 00:30:14,560
Speaker 2: to flood the market with a ton of Chinese ev

589
00:30:14,680 --> 00:30:17,920
Speaker 2: imports and get the green stuff going. And I appreciate

590
00:30:18,280 --> 00:30:21,080
Speaker 2: that they want to protect their current manufacturers, but you know,

591
00:30:21,200 --> 00:30:26,200
Speaker 2: importing cheaper evs also spurs competition. So the line to

592
00:30:26,320 --> 00:30:28,720
Speaker 2: thread the needle I find to be very confusing.

593
00:30:30,040 --> 00:30:33,880
Speaker 8: It's absolutely needle threading or you know, tightrope walking, pick

594
00:30:33,920 --> 00:30:37,160
Speaker 8: your metaphor, and it is a very valid question. And

595
00:30:37,240 --> 00:30:40,520
Speaker 8: depending on who you ask, they're they're doing absolutely the

596
00:30:40,680 --> 00:30:43,440
Speaker 8: right thing here or or they're really sort of shooting

597
00:30:43,520 --> 00:30:48,360
Speaker 8: themselves in the foot Folks in Brussels. The debate here

598
00:30:48,480 --> 00:30:52,280
Speaker 8: is is to what extent do you know, local manufacturers

599
00:30:52,360 --> 00:30:55,360
Speaker 8: need to be protected from the fact that kinda has

600
00:30:55,440 --> 00:30:58,400
Speaker 8: jumped up out to this huge lead. They're dominant in

601
00:30:58,440 --> 00:31:01,960
Speaker 8: this space. They're able to, you know, bring electric vehicles

602
00:31:02,320 --> 00:31:05,720
Speaker 8: to market with much cheaper batteries that people can actually afford,

603
00:31:06,040 --> 00:31:08,680
Speaker 8: and that's been you know, the the major you know,

604
00:31:08,720 --> 00:31:12,360
Speaker 8: sort of pain point for the industry is they have

605
00:31:12,560 --> 00:31:16,040
Speaker 8: not been able to bring prices down far enough fast

606
00:31:16,120 --> 00:31:20,040
Speaker 8: enough for you know, more mass market adoption. China has

607
00:31:20,080 --> 00:31:22,440
Speaker 8: been able to pull that off, uh, you know, in

608
00:31:22,560 --> 00:31:25,600
Speaker 8: large part European companies have not been able to do that.

609
00:31:26,000 --> 00:31:27,880
Speaker 8: So while you know, we've seen quite a bit more

610
00:31:27,880 --> 00:31:32,479
Speaker 8: momentum in Europe relative to to say the US, that

611
00:31:32,560 --> 00:31:35,840
Speaker 8: momentum has really slowed of late, particularly as we've seen

612
00:31:36,160 --> 00:31:39,040
Speaker 8: you know, the cost of living crisis and inflation really

613
00:31:39,080 --> 00:31:42,479
Speaker 8: hitting consumers pocketbooks. We've not seen you know, the the

614
00:31:42,480 --> 00:31:45,480
Speaker 8: growth rates that you know, just in the last few years.

615
00:31:45,760 --> 00:31:48,480
Speaker 8: We're really eye popping and you know, getting a lot

616
00:31:48,480 --> 00:31:52,200
Speaker 8: of people excited about you know, this transition being doable.

617
00:31:53,200 --> 00:31:55,200
Speaker 4: So that's kind of where I wanted to go.

618
00:31:55,280 --> 00:31:57,840
Speaker 5: Great because here in the US there really seems to

619
00:31:57,840 --> 00:32:03,160
Speaker 5: be a palpable i guess, decline in the adoption rate

620
00:32:03,240 --> 00:32:06,360
Speaker 5: for evs, and people debate whether it's price, whether there's

621
00:32:06,400 --> 00:32:09,800
Speaker 5: some political issues out there, whether there's lack of autequate

622
00:32:09,880 --> 00:32:12,840
Speaker 5: charging infrastructure, whatever, but there's been a palpable you know,

623
00:32:12,920 --> 00:32:14,920
Speaker 5: kind of sense of the market's cooling off. Give us

624
00:32:14,960 --> 00:32:16,480
Speaker 5: a sense of how the market is in the UK

625
00:32:16,840 --> 00:32:17,560
Speaker 5: and the EU.

626
00:32:18,800 --> 00:32:21,800
Speaker 8: Yeah, I would definitely recommend that listeners take a look

627
00:32:22,400 --> 00:32:25,320
Speaker 8: to the extent they have access to the Bloomberg Neft's

628
00:32:25,640 --> 00:32:29,120
Speaker 8: report out today, their annual ev outlook. It really goes

629
00:32:29,160 --> 00:32:32,240
Speaker 8: into a great detail on just you know, sort of

630
00:32:32,280 --> 00:32:35,400
Speaker 8: the ins and outs here. What we've been seeing is

631
00:32:35,520 --> 00:32:38,200
Speaker 8: you know, one manufacturer after another coming out and really

632
00:32:38,280 --> 00:32:41,760
Speaker 8: sort of dialing back there and ambitions. You know, Mercedes

633
00:32:42,240 --> 00:32:44,880
Speaker 8: did a few years ago talked about being able to

634
00:32:45,160 --> 00:32:49,400
Speaker 8: maybe go fully electric, you know, around twenty thirty. In

635
00:32:49,480 --> 00:32:52,280
Speaker 8: certain markets, they've really walked that back. You've seen Ford

636
00:32:52,360 --> 00:32:55,800
Speaker 8: and GM and Volkswagen, even Tesla you know, put off

637
00:32:56,160 --> 00:33:01,320
Speaker 8: or sort of indefinitely delay factory investments. You know, Tesla

638
00:33:01,360 --> 00:33:04,320
Speaker 8: of course, you know, made a big announcement about building

639
00:33:04,520 --> 00:33:07,360
Speaker 8: a factory in Mexico that is very much on ice.

640
00:33:08,040 --> 00:33:12,080
Speaker 8: Volkswagen canceled a plant in Germany. Uh, there's just a

641
00:33:12,120 --> 00:33:15,840
Speaker 8: lot of concern among manufacturers about being able to profitably

642
00:33:15,880 --> 00:33:20,560
Speaker 8: make affordable electric vehicles. And again, you know, the the

643
00:33:20,600 --> 00:33:24,400
Speaker 8: way in which the Chinese have been able to achieve

644
00:33:24,440 --> 00:33:27,520
Speaker 8: this has been driving down battery prices. And that's one

645
00:33:27,560 --> 00:33:29,600
Speaker 8: of the most compelling things in this report for me,

646
00:33:29,760 --> 00:33:32,880
Speaker 8: is just the amount of capacity that we've seen in China.

647
00:33:33,000 --> 00:33:35,760
Speaker 8: So when you want to talk about you know, competition

648
00:33:35,880 --> 00:33:39,760
Speaker 8: and fairness, that's something that Brussels in Washington they really

649
00:33:39,840 --> 00:33:43,160
Speaker 8: highlight as what's problematic here is that they're essentially making

650
00:33:43,160 --> 00:33:46,520
Speaker 8: the case that China is flooding the market and artificially

651
00:33:46,600 --> 00:33:50,160
Speaker 8: driving down prices. That's good for the consumer. But you know,

652
00:33:50,280 --> 00:33:53,800
Speaker 8: risks putting their companies, you know, out of out of

653
00:33:53,840 --> 00:33:56,160
Speaker 8: business or you know, if that's too extreme at least

654
00:33:56,440 --> 00:33:58,320
Speaker 8: you know, at a significant disadvantage.

655
00:33:58,800 --> 00:34:01,240
Speaker 2: Greg really appreciate it. Thank you so much. Craig Trudel,

656
00:34:01,280 --> 00:34:04,080
Speaker 2: a Bloomberg Global Autos editor, joining us there. Yes, and

657
00:34:04,080 --> 00:34:08,480
Speaker 2: that Bloomberg ANI report that comes out is widely cited

658
00:34:08,560 --> 00:34:11,520
Speaker 2: by most auto analysts on the street is really seen

659
00:34:11,560 --> 00:34:15,800
Speaker 2: as the definitive ev demand outlook and supply outlooks. So

660
00:34:15,840 --> 00:34:18,360
Speaker 2: if you can get your hands on it in any capacity,

661
00:34:18,400 --> 00:34:20,800
Speaker 2: you should definitely do so. And it feels like a

662
00:34:20,880 --> 00:34:23,600
Speaker 2: chicken and an egg thing. You need the supply and

663
00:34:23,600 --> 00:34:26,279
Speaker 2: then you need the demand and the chicken in the egg.

664
00:34:28,760 --> 00:34:32,640
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

665
00:34:32,719 --> 00:34:36,240
Speaker 1: weekdays at ten am Eastern on applecar Play and Android

666
00:34:36,280 --> 00:34:39,440
Speaker 1: Auto with the Bloomberg Business. You can also listen live

667
00:34:39,520 --> 00:34:42,719
Speaker 1: on Amazon Alexa from our flagship New York station. Just

668
00:34:42,760 --> 00:34:45,400
Speaker 1: say Alexa play Bloomberg eleven thirty.

669
00:34:47,080 --> 00:34:49,680
Speaker 2: So one thing in the market is if you look at, say,

670
00:34:49,760 --> 00:34:51,799
Speaker 2: the top sectors in the SMP so far this year,

671
00:34:51,840 --> 00:34:56,200
Speaker 2: you get tech, you get information, consumer communications. Thank you

672
00:34:56,320 --> 00:34:58,919
Speaker 2: very much. But you also get utilities, and a big

673
00:34:59,000 --> 00:35:01,319
Speaker 2: part of that utility story is sure you get some

674
00:35:01,400 --> 00:35:03,960
Speaker 2: nice yield and it's that safety defensive play. Okay, but

675
00:35:04,239 --> 00:35:06,360
Speaker 2: I'm starting to wonder how much of a growth sector

676
00:35:06,400 --> 00:35:09,200
Speaker 2: it is also, as you see massive power demand build

677
00:35:09,440 --> 00:35:12,560
Speaker 2: from data centers and AI in addition to the energy transition,

678
00:35:12,680 --> 00:35:14,960
Speaker 2: utilities kind of sit in the middle of all of that.

679
00:35:15,080 --> 00:35:19,160
Speaker 2: And one company is Next Era Energy. It's ticker n E.

680
00:35:19,440 --> 00:35:21,600
Speaker 2: The stock has had a nice run up this year,

681
00:35:21,680 --> 00:35:23,600
Speaker 2: it's not done so well in the last couple of days,

682
00:35:23,600 --> 00:35:25,759
Speaker 2: and we'll get to that after an investor presentation. We'll

683
00:35:25,760 --> 00:35:29,200
Speaker 2: get to that with the CEO and president, John Ketchum. Hey, John,

684
00:35:29,239 --> 00:35:31,000
Speaker 2: it's so good to see you again. Thanks for coming

685
00:35:31,040 --> 00:35:31,840
Speaker 2: in Alex.

686
00:35:31,920 --> 00:35:32,560
Speaker 9: Great to see you.

687
00:35:32,719 --> 00:35:33,400
Speaker 6: Good to be here.

688
00:35:33,480 --> 00:35:36,960
Speaker 2: So tell our viewers first, what does Next Era Energy

689
00:35:37,000 --> 00:35:38,520
Speaker 2: actually do well.

690
00:35:38,560 --> 00:35:42,120
Speaker 9: We're made up of two businesses. One we own the

691
00:35:42,200 --> 00:35:47,080
Speaker 9: nation's largest rate regulated utility floor to power and light,

692
00:35:48,040 --> 00:35:52,479
Speaker 9: and two we are the world's leader in renewables when

693
00:35:53,120 --> 00:35:58,280
Speaker 9: solar battery storage, a unique combination bringing those two companies together.

694
00:35:58,440 --> 00:36:01,160
Speaker 2: But you still have like nuclear and too right like.

695
00:36:01,440 --> 00:36:03,799
Speaker 4: We do for the utility side, we do, so we

696
00:36:03,880 --> 00:36:07,160
Speaker 4: cover it all. We're in every part of the energy value.

697
00:36:06,920 --> 00:36:10,640
Speaker 9: Chain, not only a renewables. We have six gigawatts of

698
00:36:10,840 --> 00:36:13,239
Speaker 9: nuclear and we're one of the best operators in the

699
00:36:13,280 --> 00:36:16,520
Speaker 9: country on the nuclear side. And we also own gas

700
00:36:16,520 --> 00:36:21,000
Speaker 9: fire generation. Seventy two percent of our generation fleet in

701
00:36:21,120 --> 00:36:24,920
Speaker 9: Florida is actually natural gas fired. So we view ourselves

702
00:36:25,440 --> 00:36:28,360
Speaker 9: really as a very credible source in being able to

703
00:36:28,400 --> 00:36:31,960
Speaker 9: advise our customers on what the lowest cost option is

704
00:36:32,000 --> 00:36:32,640
Speaker 9: for generation.

705
00:36:33,440 --> 00:36:37,480
Speaker 5: Owning a utility electric utility in Florida would seem to

706
00:36:37,520 --> 00:36:40,520
Speaker 5: be a tough business with all the weather down there.

707
00:36:40,520 --> 00:36:42,879
Speaker 5: What happens when these storms come through?

708
00:36:42,920 --> 00:36:43,600
Speaker 4: How do you guys?

709
00:36:43,840 --> 00:36:46,160
Speaker 5: You have to almost be in a constant state of

710
00:36:46,239 --> 00:36:47,880
Speaker 5: emergency almost to be able to react.

711
00:36:48,040 --> 00:36:50,239
Speaker 9: We are battle tested. That's one of the great things

712
00:36:50,280 --> 00:36:54,120
Speaker 9: about our company is that nothing catches us up by surprise,

713
00:36:54,200 --> 00:36:58,320
Speaker 9: and it comes from a culture of continuous improvement and innovation,

714
00:36:58,920 --> 00:37:01,719
Speaker 9: and we practice and we drill, and we've had what

715
00:37:01,840 --> 00:37:05,360
Speaker 9: forty nine hurricanes in the last twenty or thirty years.

716
00:37:05,400 --> 00:37:09,520
Speaker 9: We're never caught by surprise. We're a company that is

717
00:37:09,719 --> 00:37:12,960
Speaker 9: used to managing through diversity, and that's one of the strengths.

718
00:37:13,160 --> 00:37:16,000
Speaker 2: So you mentioned catch by surprise and I mentioned the

719
00:37:16,000 --> 00:37:17,799
Speaker 2: stock price in the last couple of days. So there

720
00:37:17,800 --> 00:37:21,440
Speaker 2: was an investor presentation that you made and where you

721
00:37:21,440 --> 00:37:24,640
Speaker 2: outline your forecast this year through twenty twenty six. You're

722
00:37:24,680 --> 00:37:28,560
Speaker 2: also twenty twenty seven midpoint profit forecast. That's the one

723
00:37:28,960 --> 00:37:32,280
Speaker 2: that analysts said that falls short of our estimates. Yeah,

724
00:37:32,320 --> 00:37:34,360
Speaker 2: and I guess the question is if data demand and

725
00:37:34,480 --> 00:37:37,000
Speaker 2: data power is going to drive so much demand for

726
00:37:37,080 --> 00:37:40,040
Speaker 2: your stuff, why isn't that midpoint higher.

727
00:37:40,480 --> 00:37:42,600
Speaker 9: Well, here's what we see, and we talked a lot

728
00:37:42,640 --> 00:37:46,600
Speaker 9: about this at the analyst day yesterday. There are three

729
00:37:46,719 --> 00:37:49,920
Speaker 9: things that I think really differentiate next Era as part

730
00:37:49,960 --> 00:37:53,080
Speaker 9: of our value story. One, we're seeing an inflection point

731
00:37:53,080 --> 00:37:55,640
Speaker 9: and power demand. Two, it's going to be met by

732
00:37:55,760 --> 00:37:59,720
Speaker 9: renewables because it's low costs, fast to deploy, and it's clean.

733
00:38:00,080 --> 00:38:02,399
Speaker 9: O companies better position to meet it than we are.

734
00:38:02,960 --> 00:38:06,560
Speaker 9: And our business model has always been what I would

735
00:38:06,560 --> 00:38:10,480
Speaker 9: call a replacement cycle. We're building new renewables to replace

736
00:38:11,200 --> 00:38:17,400
Speaker 9: higher cost coal plants, higher costs, less efficient gas fired units,

737
00:38:17,480 --> 00:38:21,200
Speaker 9: oil fired units. We now have this new opportunity that's

738
00:38:21,239 --> 00:38:24,520
Speaker 9: really emerged in the last six to nine months, which

739
00:38:24,560 --> 00:38:28,279
Speaker 9: is what I call our growth cycle opportunity. It's a

740
00:38:28,320 --> 00:38:32,680
Speaker 9: new demand that has come and it's across industries. It's

741
00:38:32,680 --> 00:38:35,880
Speaker 9: not just data centers get a lot of discussion, but

742
00:38:35,960 --> 00:38:40,640
Speaker 9: it's industrial electrification, reshoring, and manufacturing as well. But when

743
00:38:40,719 --> 00:38:44,080
Speaker 9: you think about it, we're having all these discussions with

744
00:38:44,160 --> 00:38:47,399
Speaker 9: these customers now. Take data centers, for example, it takes

745
00:38:47,400 --> 00:38:49,319
Speaker 9: two to three years to build a data center, so

746
00:38:49,320 --> 00:38:52,440
Speaker 9: they won't need the power until twenty twenty seven. We

747
00:38:52,560 --> 00:38:55,680
Speaker 9: might sign a contract today, but the power comes in

748
00:38:55,719 --> 00:38:58,440
Speaker 9: twenty seven, which means it contributes in twenty eight. And

749
00:38:58,480 --> 00:39:01,640
Speaker 9: so we're trying to explain to investors yesterday is look,

750
00:39:01,840 --> 00:39:05,600
Speaker 9: we have a tremendous long term growth outlook, but a

751
00:39:05,640 --> 00:39:09,560
Speaker 9: lot of this growth cycle demand is really going to

752
00:39:09,560 --> 00:39:13,480
Speaker 9: start materializing and producing revenues and earnings in twenty seven,

753
00:39:13,520 --> 00:39:16,439
Speaker 9: which means it really starts to contribute in twenty eight.

754
00:39:17,200 --> 00:39:19,279
Speaker 5: As you walk through midtown Manhattan, you probably see some

755
00:39:19,320 --> 00:39:22,399
Speaker 5: empty office space here. I think they all move down

756
00:39:22,440 --> 00:39:25,440
Speaker 5: to your state. Talk to us about how that's impacted

757
00:39:25,480 --> 00:39:28,120
Speaker 5: your business in terms of demand and maybe what you

758
00:39:28,160 --> 00:39:30,200
Speaker 5: have to invest back into your grip.

759
00:39:30,400 --> 00:39:32,759
Speaker 9: Yeah, and that's what's great about our business, right is

760
00:39:32,960 --> 00:39:35,960
Speaker 9: the Barbell approach. We've got the nation's leading great regularly

761
00:39:36,080 --> 00:39:39,480
Speaker 9: utility in Florida and the world's leader and renewables in Florida.

762
00:39:39,560 --> 00:39:43,520
Speaker 9: We're seeing tremendous growth over the next twenty years. We're

763
00:39:43,560 --> 00:39:47,319
Speaker 9: projecting a forty four percent increase in GDP. We have

764
00:39:47,360 --> 00:39:51,240
Speaker 9: one thousand people a day moving to the state of Florida.

765
00:39:51,440 --> 00:39:55,640
Speaker 9: Four of the five fastest growing metropolitan areas in the

766
00:39:55,760 --> 00:39:57,920
Speaker 9: United States are in Florida.

767
00:39:58,120 --> 00:39:58,560
Speaker 4: Florida.

768
00:39:58,560 --> 00:40:02,360
Speaker 9: We're a country, it would have the fourteenth largest economy

769
00:40:02,520 --> 00:40:06,320
Speaker 9: in the world, and we're there to power all that growth.

770
00:40:06,440 --> 00:40:09,600
Speaker 9: So our growth story is not only about what I

771
00:40:09,760 --> 00:40:13,040
Speaker 9: just discussed about all this renewable demand that we see

772
00:40:13,080 --> 00:40:17,480
Speaker 9: power in AI and industry and manufacturing across the United States,

773
00:40:17,480 --> 00:40:20,640
Speaker 9: but it's also all the growth that we see right

774
00:40:20,680 --> 00:40:22,360
Speaker 9: in our own backyard in Florida.

775
00:40:22,480 --> 00:40:26,160
Speaker 2: Talk to me about rates. So you're going to need

776
00:40:26,200 --> 00:40:28,600
Speaker 2: to invest a lot, right, Like there's maybe an enormous

777
00:40:28,600 --> 00:40:32,000
Speaker 2: investment cycle, as you mentioned, like the growth cycle for utilities. Right,

778
00:40:32,600 --> 00:40:35,160
Speaker 2: what is it like on the regulated side of going

779
00:40:35,200 --> 00:40:36,960
Speaker 2: back to the government and saying, Okay, guys, I got

780
00:40:36,960 --> 00:40:38,840
Speaker 2: to invest it you've got to raise the rates.

781
00:40:39,520 --> 00:40:41,919
Speaker 9: Yeah, And so what we do is we have done

782
00:40:42,239 --> 00:40:44,720
Speaker 9: a terrific job of taking cost out of our business.

783
00:40:44,719 --> 00:40:47,120
Speaker 9: So when you look at what we've been able to

784
00:40:47,200 --> 00:40:50,680
Speaker 9: do over the last twenty years, our O and M

785
00:40:50,719 --> 00:40:54,280
Speaker 9: on a dollar per megawate hour basis is seventy percent

786
00:40:54,680 --> 00:40:59,280
Speaker 9: seventy percent lower than the national average. That's three billion

787
00:40:59,440 --> 00:41:04,279
Speaker 9: dollars we put in our customer's pocketbook every single year

788
00:41:04,440 --> 00:41:08,120
Speaker 9: compared to an average utility. And we've always been able

789
00:41:08,160 --> 00:41:12,439
Speaker 9: to make really smart capital investment decisions around bringing low

790
00:41:12,520 --> 00:41:16,040
Speaker 9: cost generation into the fold. And today the lowest cost

791
00:41:16,120 --> 00:41:20,520
Speaker 9: generation option that we have in Florida is solar and storage.

792
00:41:20,600 --> 00:41:24,279
Speaker 9: So although we're investing more capital, it's actually lowering the

793
00:41:24,320 --> 00:41:28,600
Speaker 9: bill because it's a lot cheaper than other generation alternatives,

794
00:41:28,719 --> 00:41:31,799
Speaker 9: combined with our ability to take cost out with the

795
00:41:31,800 --> 00:41:32,560
Speaker 9: way we operate.

796
00:41:32,600 --> 00:41:35,040
Speaker 4: But from your investors perspective, is a.

797
00:41:36,600 --> 00:41:39,400
Speaker 5: Unit of power from a renewable source, what's a profit

798
00:41:39,440 --> 00:41:42,400
Speaker 5: margin on that versus maybe an existing source.

799
00:41:43,160 --> 00:41:46,880
Speaker 9: Well, when you think about renewables, I mean renewables you

800
00:41:46,920 --> 00:41:51,239
Speaker 9: know have really strong returns and their low cost And

801
00:41:51,280 --> 00:41:54,200
Speaker 9: you talked about, you know, interest rates being one of

802
00:41:54,200 --> 00:41:57,040
Speaker 9: the factors. We pass those costs through to our customers,

803
00:41:57,440 --> 00:42:01,600
Speaker 9: and so the cost of WHEN and solar has gone

804
00:42:01,680 --> 00:42:04,840
Speaker 9: up a little bit as we've seen some pressure you

805
00:42:04,880 --> 00:42:09,759
Speaker 9: know here from the macro environment, but so have cost

806
00:42:09,920 --> 00:42:13,440
Speaker 9: increase for every other type of generation. Actually, gas fired

807
00:42:13,800 --> 00:42:17,880
Speaker 9: generation has really gone up in price. And so you know,

808
00:42:17,920 --> 00:42:22,640
Speaker 9: what we have seen with gas fire technology is a

809
00:42:22,760 --> 00:42:26,640
Speaker 9: fifty percent increase in the last twelve months. That has

810
00:42:26,719 --> 00:42:30,480
Speaker 9: not happened to renewables, making renewables even lower costs than

811
00:42:30,480 --> 00:42:35,120
Speaker 9: they've ever been on a relative basis to gas turbine options.

812
00:42:35,320 --> 00:42:38,200
Speaker 2: So what I hear is that everything is just more

813
00:42:38,200 --> 00:42:41,400
Speaker 2: expensive because that's the environment that we're in. But because

814
00:42:41,400 --> 00:42:44,759
Speaker 2: you're able to take costs out, the rate payer may

815
00:42:44,800 --> 00:42:47,160
Speaker 2: not get hit as hard. Is that a fair statement?

816
00:42:47,280 --> 00:42:48,080
Speaker 4: That's exactly right.

817
00:42:48,120 --> 00:42:50,120
Speaker 9: And so what we've been able to do in Florida,

818
00:42:50,600 --> 00:42:53,800
Speaker 9: our bill is thirty seven percent lower than the national

819
00:42:53,840 --> 00:42:57,120
Speaker 9: average thirty seven percent. It's because of our ability to

820
00:42:57,160 --> 00:43:00,360
Speaker 9: take all those costs out of the company and also

821
00:43:00,480 --> 00:43:04,719
Speaker 9: offer them low cost renewable solutions as part of the

822
00:43:04,760 --> 00:43:08,160
Speaker 9: generation mix. And when you put those two together, that's

823
00:43:08,200 --> 00:43:11,920
Speaker 9: how we're able to achieve that thirty seven percent lower

824
00:43:11,960 --> 00:43:15,120
Speaker 9: bill than the rest of the nation. That's a really

825
00:43:15,239 --> 00:43:20,719
Speaker 9: compelling investor, customer value proposition and investor value proposition.

826
00:43:20,760 --> 00:43:23,400
Speaker 2: Man, I have like seventy five more questions. We didn't

827
00:43:23,400 --> 00:43:26,680
Speaker 2: get to nuclear, we didn't get to you know, hydrogen. Okay,

828
00:43:26,719 --> 00:43:29,480
Speaker 2: you're coming back, John. This is so helpful, and you're

829
00:43:29,480 --> 00:43:31,560
Speaker 2: really in those two parts like the here and now

830
00:43:31,640 --> 00:43:34,080
Speaker 2: and then the future, and I think that's just so fascinating.

831
00:43:34,120 --> 00:43:36,800
Speaker 2: So definitely come back. We'd love to further the perspective.

832
00:43:36,840 --> 00:43:41,080
Speaker 2: John Ketchum, President and CEO of Next Era Energy, based

833
00:43:41,120 --> 00:43:42,759
Speaker 2: in Florida. Great to see you.

834
00:43:43,239 --> 00:43:47,719
Speaker 1: This is the Bloomberg Intelligence podcast, available on apples, Spotify,

835
00:43:47,920 --> 00:43:51,120
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836
00:43:51,160 --> 00:43:54,520
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837
00:43:54,640 --> 00:43:58,040
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838
00:43:58,160 --> 00:44:01,480
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839
00:44:01,640 --> 00:44:03,160
Speaker 1: always on the Bloomberg Journal

840
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Speaker 8: M