Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am
Speaker 1: Eastern on Affo Cardplay and then Broyd Auto with the
Speaker 1: Bloomberg Business app. Listen on demand wherever you get your podcasts,
Speaker 1: or watch us live on YouTube.
Speaker 2: Obviously, the big macro story is what we saw with
Speaker 2: CPI and then looking ahead to that FED meeting. This
Speaker 2: is the first time since twenty twenty that we get
Speaker 2: the Central Bank decision on the same day as CPI,
Speaker 2: and you could read the CPI in many different kind
Speaker 2: of ways. So let's ask Jeffrey Cleveland. He's chief economist
Speaker 2: at Peydon and Regal. He joins us, Now, hey, Jeffrey,
Speaker 2: what was your read on CPI.
Speaker 3: Well, good morning, happy FED day. I think you put
Speaker 3: it in context. Sequentially, to start the year, we had
Speaker 3: a point four reading, then another point four reading, then
Speaker 3: I think we had another point for reading, and then
Speaker 3: we hado point three month to month percent change for
Speaker 3: April for four CPI, and then this morning point two
Speaker 3: or if you like, on the out to do two
Speaker 3: decimal places, it was point one six. So this is
Speaker 3: great news. This is great news. Uh, we you know,
Speaker 3: it shows a little cooling off in the underlying pace
Speaker 3: of inflation on goods. Goods prices were down, but also
Speaker 3: services price is cool during the month. So everything's sort
Speaker 3: of moving in the right direction or I think for
Speaker 3: the soft landing narrative, but you know, also in the
Speaker 3: direction that policymakers would like to see. So it's a
Speaker 3: great start to FED day.
Speaker 4: All right, Jeffrey.
Speaker 5: So given that, how do you think how do you
Speaker 5: think our good friends at the FED will digest this news.
Speaker 3: Well, I don't know if it's irony or it's the
Speaker 3: perfect day for this, but I suspect at you know,
Speaker 3: two pm your time, eleven am my time here in
Speaker 3: Los Angeles, we'll get some news in probably the median
Speaker 3: estimate for core PCE for twenty twenty four we'll be
Speaker 3: nudged up by policy makers. So they as of the
Speaker 3: last projections they gave us two point six, that probably
Speaker 3: gets pushed up to two point eight. So in a
Speaker 3: day where CPI came in soft inflation is seeming to soften,
Speaker 3: they're going to raise their inflation estimate for the year
Speaker 3: a little bit, just based on the math, similar maybe
Speaker 3: to what the ECB also did last week, so that's possible.
Speaker 3: They probably also reduced a number of ikes or sorry
Speaker 3: cuts cuts. I didn't say hikes an when I said
Speaker 3: cuts Italy in the dots.
Speaker 6: Yeah.
Speaker 3: Yeah, so they had three in there. That probably goes
Speaker 3: down to two. I could go down to one, but
Speaker 3: I think two is probably more likely. So that'll be
Speaker 3: interesting for the rest of the day. And then we'll
Speaker 3: see Chair Powell how he puts this into contest. I
Speaker 3: suspect he'll say this is good, this is good, but
Speaker 3: we need a few good months, not just one good month,
Speaker 3: so then we can argue later is that free? Is
Speaker 3: that four?
Speaker 2: I was saying, is it five? I've heard like how
Speaker 2: many months?
Speaker 6: Is that?
Speaker 2: Constant tute? Which brings me to that infletion point. You
Speaker 2: just pointed out that they might raise it to two
Speaker 2: point eight percent. Is the market going to take that
Speaker 2: as good news or bad news?
Speaker 6: You know?
Speaker 3: I think this is pretty well telegraphed. I mean, if
Speaker 3: you're looking at these numbers in the forecasting community, I
Speaker 3: think that's not controversial. However, the market, yeah, could react negatively.
Speaker 3: The other thing might be alex would be not just
Speaker 3: the twenty twenty four dot but the twenty twenty five,
Speaker 3: so the median for PCEE for next year. If that
Speaker 3: moves up a little bit, that could maybe send a
Speaker 3: message that inflation is a bit stickier. That could disappoint
Speaker 3: the market. So that there's a lot of movie parts
Speaker 3: here that will have to play out over the course
Speaker 3: of the day.
Speaker 5: So, Jeffrey, what do you think the Fed does here?
Speaker 5: I mean, I think the market is now pressing in,
Speaker 5: you know, maybe certainly a November cut and bringing September
Speaker 5: back on to the table here. How do you think
Speaker 5: what kind of messaging we'll get around that?
Speaker 3: Well, I think that's where it comes back to you. Okay,
Speaker 3: this is a good report. How many good reports do
Speaker 3: the policymakers need to see to become confident? Is it three?
Speaker 3: Is it four? Is it five? If it's four, I
Speaker 3: think that rules out a cut before the election, so
Speaker 3: that we still have the first cut in December in
Speaker 3: our projection, I'm pretty comfortable with that. We'll have to
Speaker 3: listen to the bed share today and see if there's
Speaker 3: any reason to speed that up. I mean, the other
Speaker 3: thing to keep in mind here, talking to colleagues this
Speaker 3: morning doesn't need to do a lot I don't think
Speaker 3: they're in a good spot. I said that a few
Speaker 3: times over the months on this show. The stocks are,
Speaker 3: you know, at all time high. Labor market is holding
Speaker 3: up pretty solid.
Speaker 7: You know.
Speaker 3: Some of the concern was if the bed remained too
Speaker 3: high for too long, it would sink the labor market.
Speaker 3: That doesn't appear to be happening, and inflation is you know,
Speaker 3: things cooled off in May. This is good news, I
Speaker 3: fully admit it. But we're still above two percent on
Speaker 3: the year on year, whether you're looking at four piece
Speaker 3: or you're looking at course. Yes, still rush to do
Speaker 3: anything here, So I think, you know, we'll just wait
Speaker 3: and see see how the data comes in the next
Speaker 3: couple of months, then make a decision.
Speaker 2: And that is why Bank of America. So if you discim,
Speaker 2: Renni and who was on surveillance, said things are kind
Speaker 2: of awesome for stocks, like cue the Lego song, Like
Speaker 2: that's exactly the point that you're kind of laying out
Speaker 2: My big question that I just don't really understand or
Speaker 2: shelter costs. So I appreciate that they were the biggest
Speaker 2: component of the May price increase. Why are we not
Speaker 2: falling faster like we have been waiting for the rents
Speaker 2: to reset, for things to cool down and shelter for
Speaker 2: years at this point.
Speaker 3: Yeah, that's come up a lot with clients, and I
Speaker 3: think the issue is a lot of clients point to
Speaker 3: the you know measures, private sector rent measures that may
Speaker 3: be capturing the marginal renters cost of renting. So someone
Speaker 3: moving into a nice building there and in Manhattan, you
Speaker 3: know where they have a nice door person, you know
Speaker 3: the door for them, those rents may have come down.
Speaker 3: I don't know. You tell me, I don't know.
Speaker 2: We don't live there.
Speaker 3: That's on a lot of those private sector rent metrics capture.
Speaker 3: The BLS is running a different exercise and trying to
Speaker 3: look at the average cost to all renters, and this
Speaker 3: tend this series just tends to move a lot slower
Speaker 3: than investors at Hope. So you know, the patients from
Speaker 3: a lot of investors, it's like, hey, this we need
Speaker 3: to we're seeing it. We're seeing the disinflation in the
Speaker 3: private sector rent metrics. That's got to translate, and it's
Speaker 3: just taking it's taken longer to play out. So that's
Speaker 3: my preferred story.
Speaker 5: Jeff for giving us an economic or inflation backdrop that
Speaker 5: we got I guess a better handle on today. What's
Speaker 5: your call in the US consumer? Can US consumer continue
Speaker 5: to power this economy?
Speaker 3: For yes, yes it can. I mean we look at
Speaker 3: the consumer, We look at how many people are employed,
Speaker 3: how much they're working, what they're getting paid, And when
Speaker 3: you look at that, that that measure, that aggregate measure
Speaker 3: PAUL is still running almost six percent year on year.
Speaker 3: So and we know the US consumer is not a
Speaker 3: big saber. What they earn, they tend to spend. So
Speaker 3: really earnings matter, and earnings are holding up through the
Speaker 3: main data, so I think the US consumer will have
Speaker 3: ample spending power. The other thing, if I have a
Speaker 3: few more seconds, is that in addition to income, US
Speaker 3: consumers can rely on borrowing capacity. We don't think borrowing
Speaker 3: capacity is maxed out, so people could borrow more. Some
Speaker 3: cohorts of the US consumer could also sell assets or
Speaker 3: borrow against assets to spend. Net worth is up a
Speaker 3: lot in the last few years, so we think that's
Speaker 3: a big component that could keep the consumer spending. So
Speaker 3: that's why when you look at our GDP call, we're
Speaker 3: still above trend for twenty twenty four. We think GDP
Speaker 3: will grow around two point four two point five percent
Speaker 3: this year, and that's driven by the consumer.
Speaker 2: You were just like so awesome. You have so much
Speaker 2: energy and so much enthusiasm. I don't know if you
Speaker 2: get off air and you just like go to sleep,
Speaker 2: but it's so nice and refreshing to hear like a
Speaker 2: solid opinion and some enthusiasm. To that point, you talked
Speaker 2: about the consumers holding in. What about like restaurants and
Speaker 2: services and things that are directly tied to the consumer,
Speaker 2: of those prices coming down or is that demand and
Speaker 2: those sticky consumers keeping prices elevated.
Speaker 3: It's possible that just the pace of consumer spending will
Speaker 3: keep prices stickier. Doesn't mean an acceleration. It just means that,
Speaker 3: you know, on core, maybe we'll hang out three percent,
Speaker 3: three three and a half percent on core, we won't
Speaker 3: get back to you know, the pre COVID sub two
Speaker 3: percent level. So that's entirely plausible. It's also, you know,
Speaker 3: possible that consumers are shifting away maybe spending less on
Speaker 3: some retail on goods, they're spending more on services. So
Speaker 3: that's a shift that's underway. You seeing that with air travel.
Speaker 3: So I think that's that's one thing to keep in mind,
Speaker 3: it's not necessarily a slow down in consumer spending, but
Speaker 3: a shift in how consumers are spending those dollars.
Speaker 5: All right, Jeffrey Clevelan, thanks so much for joining us.
Speaker 5: Jeffrey Cleveland chief economists have paid in and regal joining
Speaker 5: us a via zoom from Los Angeles.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
Speaker 1: Auto with the Bloomberg Business app. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station.
Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 2: It is FED day, it is CPI Day. So what
Speaker 2: do we do? We talked to one of the best,
Speaker 2: Danielle di Martino Booth. She's CEO and chief strategist for
Speaker 2: QI Research. We love the strong opinions that you have,
Speaker 2: and we love how you look at the market. Okay,
Speaker 2: so you're pessimistic on the economy. Is that a fair
Speaker 2: statement to say?
Speaker 7: It's? Yes, it is fair. I'm right there with Anna Wong,
Speaker 7: and I've been saying it since January that we likely
Speaker 7: went into recession in October of twenty twenty three. That's
Speaker 7: when the McKelvey rule was first triggered. It's got a
Speaker 7: flawless track record back to nineteen sixty eight. It's kind
Speaker 7: of like the Psalm role, but it's devised differently by
Speaker 7: the former chief economist at Goldman's Acts. He was interviewed
Speaker 7: in January of two thousand and eight, and because his
Speaker 7: mckelvy rule had been triggered in December two thousand and seven,
Speaker 7: and they said they asked him at the time the
Speaker 7: Wall Street Journal, are are we in recession? And he said, oh,
Speaker 7: I'm gonna have to wait and see. So of his
Speaker 7: own rule, he said it might be different this time.
Speaker 7: But it wasn't. It wasn't. We didn't find out for
Speaker 7: three hundred and sixty six days from the National Bureau
Speaker 7: of Economic Research that it did. The recession had been
Speaker 7: dated to December two thousand and seven. But we know
Speaker 7: that once the mckelviy rule is triggered that we're typically
Speaker 7: in recession.
Speaker 2: But then we have this whole like record high in
Speaker 2: the equity market. Oh, everything's kind of awesome.
Speaker 7: It's supposed to be this way by bonds.
Speaker 2: Y'ls are lower, It's supposed to be like this right now.
Speaker 7: It is you typically get a good ten percent blowoff
Speaker 7: rally the time kind of when main Street starts to
Speaker 7: understand that we're in recession, which Bright Chairpowell acknowledged that
Speaker 7: last time he was at the podium, he mentioned indeed,
Speaker 7: dot Com, he mentioned University of Michigan and households starting
Speaker 7: to say, oh my gosh, if I lose my job,
Speaker 7: I'm not going to get another one. Kind of from
Speaker 7: that moment of the Fed recognizing that main Street sees
Speaker 7: that we're falling into recession, until when the Fed actually
Speaker 7: cuts rights for the first time, you tend to see
Speaker 7: a good ten percent rally in the stock market.
Speaker 4: So what we'll be hear from our feeder reserve the
Speaker 4: cerconion you believe.
Speaker 7: I think we're gonna hear either two or three. I
Speaker 7: would not be surprised to see the three rate cuts.
Speaker 7: Say on the table, the unemployment rate was not rounded
Speaker 7: up to four point zero percent. It was three point
Speaker 7: nine six percent. It was a good strong four percent.
Speaker 7: And given what we've seen in the past, when the
Speaker 7: unmployment rate moves up, inches up a tenth of a
Speaker 7: percentage point a tenth, a tenth a tent right, that's
Speaker 7: exactly what we've seen for the last thirteen months, very
Speaker 7: small movements. But typically when we see you know, your
Speaker 7: Bloomberg bc y function, when the when bankruptcy start to run,
Speaker 7: as they're running this month at the fastest pace since
Speaker 7: the pandemic, companies with fifty million in liabilities or more.
Speaker 7: There was coach last night at five Transportation company. Typically
Speaker 7: when we see an acceleration in bankruptcy filings, we also
Speaker 7: see the increases in the unemployment rate tick up. So
Speaker 7: it's feasible that we could see in July and in
Speaker 7: August a large enough move to put the FED in
Speaker 7: play come September, September, November, December. Maybe those three dots
Speaker 7: stay on the plot today.
Speaker 2: So see why Go?
Speaker 7: You see why Go?
Speaker 2: It is really awesome. Has a nice little pie chart
Speaker 2: that shows where the bankruptcies are are coming and the
Speaker 2: most are coming from consumer discretionary and this is a
Speaker 2: period over one year. It breaks down industries, it breaks
Speaker 2: down the name and then the liability is very cool.
Speaker 7: One of the richest functions on the termin that.
Speaker 2: That's our desert island function.
Speaker 7: Is what you said, now, that is my desert island function.
Speaker 7: My desert island go to financial indicator would be the
Speaker 7: move index, which should be a pure play on treasury
Speaker 7: market volatility. However, when treasury rates fall and the move
Speaker 7: moves up, it's telling you what's going on in BCY
Speaker 7: that there's a credit event rumbling. So we're under the
Speaker 7: surface because if treasury rates are falling, then treasury volatility
Speaker 7: should fall. When they move in the opposite direction, there's
Speaker 7: a lot of tension in the system that typically starts
Speaker 7: to flag you know, there's issues with the banking system.
Speaker 7: We're lending and what are we seeing. We're seeing commercial
Speaker 7: industrial lending contract right now?
Speaker 4: Should the Fed have already been cutting likely?
Speaker 7: Likely? Right, We're eleven months in to the Fed holding
Speaker 7: after their last rate hike heading into the Great Recession
Speaker 7: December two thousand and seven, the Fed held off for
Speaker 7: fifteen months. It was the longest in history. So the
Speaker 7: longer they kind of hold off, hold off, hold off,
Speaker 7: the bigger the potential for a policy here that they've
Speaker 7: waited too long.
Speaker 2: So I have to say, when Danielle's on, I get
Speaker 2: right ins to be like, ask you this, ask for that,
Speaker 2: ask you this. So this comes from a listener. Do
Speaker 2: you think that the next rolling six months of economic
Speaker 2: data remains noisy, or does the deterioration remain consistent, So
Speaker 2: it's like a drip drip, or it's like a cliff.
Speaker 7: I think we're starting to see something that more closely
Speaker 7: resembles a cliff. You have essentials inflation at QI Research,
Speaker 7: we parse them out running at four point seven percent
Speaker 7: year over year. It also happens to be completely out
Speaker 7: of the Fed's control, pure discretionary inflation. It used to
Speaker 7: just be a goods deflation story, but what we saw
Speaker 7: this morning was goods and services that are discretionary in nature.
Speaker 7: These are things at households want to buy but do
Speaker 7: not need to have. That's at zero point one percent
Speaker 7: year over year. At the cusp of falling into negativity.
Speaker 7: We've got hotel rates falling, car rental rates falling, air
Speaker 7: airfares are coming down. So the services inflation that had
Speaker 7: been the happy story post, well, everybody's bought enough of
Speaker 7: what they need, so they're not going to build themselves
Speaker 7: an extra deck in the back of their house. We're
Speaker 7: actually seeing that combining now with massive disinflation on the
Speaker 7: services side. So the Fed's job is basically done because
Speaker 7: all they can can control is what's discretionary in nature?
Speaker 4: Do they not look at that data? Do they not
Speaker 4: value this high as maybe others do.
Speaker 7: Of course they look at the data. But but Powell
Speaker 7: seems for some reason to want to stay higher for longer.
Speaker 7: Maybe he gets up at the podium today and only
Speaker 7: talks about non farm payrolls and not the unemployment rate
Speaker 7: and not the zero print on headline CPI. Maybe he
Speaker 7: just says, that's an anomaly of energy prices.
Speaker 2: Who knows, where's the disinflation? You mentioned a lot of
Speaker 2: services disinflation where.
Speaker 7: Well, we're seeing it in hotels. They're down negative, they're
Speaker 7: one point seven percent uh year over year. We're seeing
Speaker 7: that play out in very weak occupancy trends. We get
Speaker 7: the str data on a weekly basis. City does a
Speaker 7: good job of providing reports on that. Outside of a
Speaker 7: bump at Easter, we've seen occupancy negative year over year,
Speaker 7: week after week after week, beginning the week after New
Speaker 7: Year's And that is telling you what a lot of
Speaker 7: ged Why is this hotel selling for pennies on the dollar.
Speaker 7: That doesn't make any sense. Americans are still spending on
Speaker 7: services unless we've pulled back, Unless we're just focused sheerly
Speaker 7: on okay, fine, auto insurance rates tick down just a
Speaker 7: little bit, they're still up twenty percent. You're over here
Speaker 7: the things we must buy. That inflation's running at four
Speaker 7: point seven percent year over year, you are pulling back
Speaker 7: on anything that is discretionary, including travel.
Speaker 4: Dot plots Do I care? I mean, I've got a
Speaker 4: function for it.
Speaker 7: We care a lot about the dot plots today because
Speaker 7: the dotstab you could have a mac truck between the
Speaker 7: difference between the market reaction of three staying or being
Speaker 7: whittled down from three to two. I do think that
Speaker 7: markets right now are assuming too given today's CPI print.
Speaker 7: If they keep three, then you're going to look to
Speaker 7: Powell at the podium to talk a lot more about
Speaker 7: the second mandate of maximizing employment.
Speaker 4: Great stuff, yep, always always.
Speaker 2: Danielle, thank you so much. We appreciate you stopping in.
Speaker 7: Great to be here.
Speaker 2: It's great to get a counterintuitive, passionate voice on stuff.
Speaker 2: Daniel de Martinez, Booth CEO and chief strategist for a
Speaker 2: q I Research. Interesting. I don't I don't want to
Speaker 2: be an economist. I feel like everything is a worst
Speaker 2: has test. Everyone has the same data, But then how
Speaker 2: you filter it through your models gets you to different conclusions,
Speaker 2: but you have to wonder.
Speaker 5: I tell you the market likes to today, the S
Speaker 5: and P five one and a quarter percent, the NASTAC
Speaker 5: up one point eight percent. The Russell will point out,
Speaker 5: that's kind of where the game is right now, up
Speaker 5: two point nine percent here today.
Speaker 4: So we're broadening out, which a lot of.
Speaker 5: Market strategies will tell you that's a healthy thing for
Speaker 5: the markets in general.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple car Play and
Speaker 1: Android Auto with the Bloomberg Business App. Listen on demand
Speaker 1: wherever you get your podcasts, or watch us live on YouTube.
Speaker 4: Alex Deal and Paul Sweeney.
Speaker 5: We're live here in our Bloomberg Interactive Brokers studio and
Speaker 5: we're also streaming live on YouTube, so you can head
Speaker 5: over to YouTube dot com and search Bloomberg Podcast and
Speaker 5: that's where you will find this. Charlie was just reporting
Speaker 5: S and P at record highs, just a big big
Speaker 5: I think, embraced by the marketplace and risk assets on
Speaker 5: what we saw was a little bit cooler than expected
Speaker 5: inflation data. Couple that with a FED meeting in the
Speaker 5: stair for noon. A lot of folks taking this as
Speaker 5: an opportunity to jump into the market's check in.
Speaker 4: With a professional on this whole thing.
Speaker 5: David Kodla, founder, chief executive officer and chief investment strategist
Speaker 5: at Mainstay Capital Management, joins us. David, the market likes
Speaker 5: what it heard this morning. I guess anticipating an accommodati
Speaker 5: of FED going forward.
Speaker 4: What's your take.
Speaker 6: I think that's exactly what we're seeing. Good morning, Paul
Speaker 6: and alex. I you know, we here's the quandary, right
Speaker 6: We have an inverty deal curve for the longest in
Speaker 6: history and an inversion very deep that is eight freight
Speaker 6: on predicting a recession. We have these stats out there,
Speaker 6: credit card interests at an all time high, delinquencies at
Speaker 6: an all time high, auto loan defaults rising rapidly. That
Speaker 6: is anecdotal data pointing towards problems in the economy. At
Speaker 6: the same time, we had positive GDP in the fourth quarter,
Speaker 6: first quarter, and GDP now from the Atlanta FED is
Speaker 6: currently above three percent for the second quarter, and that's
Speaker 6: a very volatile number. Earnings are beat expectations by a
Speaker 6: wide margin for the first quarter. We're expecting good earnings
Speaker 6: for the year. We're out of the earnings recession, strong
Speaker 6: earnings going forward. And the S and P Global PMI
Speaker 6: has manufacturing and services at twenty four and twenty five
Speaker 6: month highs. So there is a lot of conflicting data
Speaker 6: out there as to where the economy is at right
Speaker 6: now and where the economy is going. And as far
Speaker 6: as the Fed, UH, Yeah, we saw we saw another
Speaker 6: slight decrease in UH in CPI and we know though
Speaker 6: that it's going to be you know, Powell is, we'll
Speaker 6: see what we hear in the presser today and what
Speaker 6: kind of guidance we get what the dot plot shows.
Speaker 6: But we're you know, we're seeing we're seeing UH inflation
Speaker 6: being sticky. Even their preferred gauge services PMI is a
Speaker 6: two point eight. They're not a target yet, and it's
Speaker 6: and inflation is being is remaining sticky and stubbornly high.
Speaker 2: So you think the Fed eventually today takes away that
Speaker 2: punch bowl by sort of pouring some cold water here.
Speaker 6: Well, I think that, you know, and it's it's it's
Speaker 6: you know, become a parlor game like calling the the
Speaker 6: level of the S and P five hundred at the
Speaker 6: end of the years to win, the FED will cut
Speaker 6: and see economists and wirehouses with each data point jumping
Speaker 6: back and forth between July or December or September. Uh,
Speaker 6: but we see the fact of the matter is until
Speaker 6: it's clear to the fo MC that inflation or CPI
Speaker 6: is getting close or pc is getting close to their target,
Speaker 6: they're not going to cut. They're not going to cut.
Speaker 6: And there's plenty of economic data they can point to,
Speaker 6: uh that that that says the economy is really doing okay,
Speaker 6: although there's some economic data out there that scares the
Speaker 6: heck out of me.
Speaker 5: So given that backdrop here, how are you thinking about
Speaker 5: your portfolio construction?
Speaker 4: What kind of.
Speaker 5: Tweaks have you been making maybe over the last several months,
Speaker 5: would you anticipate and over the next several months.
Speaker 6: Well, and that's and that's what we we haven't We
Speaker 6: haven't really We've been on the on the equity side. Uh.
Speaker 6: You know, we continue to favor, we favor large cap
Speaker 6: over small cap, and we've seen that that valuation spread keeps,
Speaker 6: you know, setting multi year records as well, large cap
Speaker 6: over small cap, US over foreign growth over value growth
Speaker 6: over value being and large over small being very important.
Speaker 6: Mega cap tech continues to rock and roll. Look at
Speaker 6: what we've got today. I mean, how many how many?
Speaker 6: How many people have come on the show and talked
Speaker 6: about shortening the megacap stocks over the past year. Short,
Speaker 6: No one.
Speaker 2: No, I haven't heard anyone saying short the megacaps. No way.
Speaker 2: That's like standing in front of a train.
Speaker 6: Oh well, I agree with you, But but we have,
Speaker 6: I mean we have. And and likewise, on the income side,
Speaker 6: how many people have come on the show and said
Speaker 6: they're adding duration because the FED is going to cut rates.
Speaker 6: They've had their head handed to them. The US aggregate
Speaker 6: bond index is negative year to date, and what we've
Speaker 6: been saying is that where you want to be at
Speaker 6: a sixty to forty portfolio, whatever the income oriented portion
Speaker 6: your portfolio, has to be an ultra short maturity, high
Speaker 6: yielding with zero duration risk that produced about a seven
Speaker 6: and a half percent return last year with those types
Speaker 6: of all short bond funds about three and a half
Speaker 6: percent this year versus a negative US aggregate bond index.
Speaker 6: So that strategy, that combination of leaning towards large cap growth.
Speaker 6: On our equity side, ultra short, high yielding, zero duration
Speaker 6: risk in our bond funds ETFs bond allocation. It is
Speaker 6: continued to work very very well.
Speaker 5: And David, you know you mentioned the US AGG bond index,
Speaker 5: the Bloomberg Index down zero point nine percent year to date,
Speaker 5: But are you surprised that the corporate US corporate high
Speaker 5: yield is actually up a couple of percent here and
Speaker 5: has been outperforming really over the last couple of years.
Speaker 5: Given concerns about our recession. Are you surprised that the
Speaker 5: highield market set as well as.
Speaker 6: That has Yeah, I mean, crowdit spreads are tight, uh,
Speaker 6: And you know, we don't want to be high yield
Speaker 6: with long duration, right, We're talking about where we're holding
Speaker 6: high yield, where we're holding bank loan, where we're holding
Speaker 6: floating rate. I'm talking about an income portfolio or a
Speaker 6: credit debt portfolio with the duration of about zero point one,
Speaker 6: not five or six or ten. Right, So we want
Speaker 6: to you know, in each of those categories, we don't
Speaker 6: want the duration risk. We're not ready for that yet,
Speaker 6: because look, we don't we think we think. I said
Speaker 6: it my notes and I'll continue to say it.
Speaker 1: FED.
Speaker 6: The FED rate cut is the first FED rate cut
Speaker 6: is months away because they're nowhere near target or there's
Speaker 6: still far enough away on the target. We have a
Speaker 6: slight improvement, you know, in this in this release, but
Speaker 6: they've got a long way to go unless they change
Speaker 6: their target to get to two percent.
Speaker 2: I know this is sacrilege, like a couple hours before
Speaker 2: the FED. But what about x US with the ECB
Speaker 2: having already cut, but the politics situation there is really
Speaker 2: up ended. In France and also the UK. Anything our
Speaker 2: overseas that strikes your fancy.
Speaker 6: Yeah, a good question that you know when we when
Speaker 6: we look abroad Europe, you know whether the ECB should
Speaker 6: be cutting yet or not. They cut a quarter point
Speaker 6: in Japan. We've loved Japan for a long time now, uh,
Speaker 6: with with the weakness and the end uh just tremendous
Speaker 6: for their exporters. Other corporate reforms Japan has been we've
Speaker 6: had an allocation too.
Speaker 1: Uh.
Speaker 6: With all of this, you have to be very careful
Speaker 6: to hedge the currency because what's happening with the FED
Speaker 6: staying tight, ECB cutting, what's happening with the end. You
Speaker 6: don't want that, you know, you don't want to affects
Speaker 6: affecting your return. You don't want you need the currency
Speaker 6: hedge in there. But yeah, we're seeing more and more
Speaker 6: opportunities abroad in that respect. That's why I said our
Speaker 6: growth over value are large over small is the important
Speaker 6: US over FORORN. I still think it's America first, but
Speaker 6: there are opportunities abroad, specifically Japan, and I think coming
Speaker 6: on in Europe.
Speaker 5: Now, all right, David, thank you so much for joining
Speaker 5: us at David Kudla, Founder, chief executive officer and chief
Speaker 5: investment officer, Mainstay Capital Management. Appreciate getting a few moments
Speaker 5: this time sticking with the large cap growth names. And
Speaker 5: I guess why not. That's kind of where you know,
Speaker 5: we've seen all of the action.
Speaker 1: You know you're listening to the Bloomberg Intelligence Podcast. Catch
Speaker 1: us live weekdays at ten am Eastern on applecar Play
Speaker 1: and Android Auto with the Bloomberg Business. You can also
Speaker 1: listen live on Amazon Alexa from our flagship New York station.
Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 2: I'm Alex the alongside paulse We need this. At Bloomberg
Speaker 2: Intelligence Radio, we bring you all the top news and
Speaker 2: business and economics and finance. But there are lens of
Speaker 2: Bloomberg Intelligence analysts. They cover two thousand companies and one
Speaker 2: hundred and thirty industries all around the world. One top
Speaker 2: news item here and so interesting that it comes on
Speaker 2: the day of the shareholder TESLA vote, which would come tomorrow,
Speaker 2: is the European Union's decision to put tariffs of up
Speaker 2: to forty eight percent on ev imports from China. It
Speaker 2: just escalates trade tensions and adds to the cost of
Speaker 2: buying an EV. Craig Trudell is Global Auto's editor for
Speaker 2: Bloomberg News, and he joins us now from London. I
Speaker 2: got to ask questions on this one, but broad strokes,
Speaker 2: what are the details with these tariff increases.
Speaker 8: Yeah, this is huge news. It was anticipated, but the
Speaker 8: particulars are something that are very fresh. So the European
Speaker 8: Union launched this investigation last year into the extent of
Speaker 8: the subsidization of electric vehicles by China, which are are
Speaker 8: increasingly you know, coming into Europe and you know, really
Speaker 8: able to compete with local manufacturers. There's been concerns about
Speaker 8: you know, Chinese cars being able to undercut companies like
Speaker 8: Volkswagen and Stalantis and and renaut. The details here today
Speaker 8: sai See, the maker of MG, which is a British
Speaker 8: brand that you know, was sort of brought back from
Speaker 8: the brink by a state owned company in China. Sa see.
Speaker 8: They are going to be subject to a thirty eight
Speaker 8: percent additional tariff. And MG has really been sort of lighting,
Speaker 8: you know, lighting things on fire here in Europe and
Speaker 8: in the UK in terms of really, you know, being
Speaker 8: able to push a lot more volume the last couple
Speaker 8: of years. Another big manufacturer that's going to be subject
Speaker 8: to a substantial teriff will b g Le. They of
Speaker 8: course own Volvo and Pollstar and some other big brands.
Speaker 8: Byd is another company that will be subject to seventeen
Speaker 8: percent additional tariff, and the rest of the industry will
Speaker 8: be subject to an a weighted average duty of twenty
Speaker 8: one percent.
Speaker 5: So talk to us about just the EV market and
Speaker 5: the China's percentage, Like what's China's market share in Europe
Speaker 5: of evs forrady defined because you can't find one here
Speaker 5: in the US.
Speaker 8: Yeah, I mean, it's it's tricky because it of course
Speaker 8: depends a little bit on how you define it. And
Speaker 8: I think one of the things that's really interesting here
Speaker 8: is that it's not necessarily just Chinese companies that are
Speaker 8: that are doing this importing.
Speaker 6: UH.
Speaker 8: The biggest importer as a matter of fact is Tesla.
Speaker 8: They have the plant in Germany where they make Model Wise,
Speaker 8: but they don't make Model threes there, so they've been
Speaker 8: shipping an awful lot of Model threes from their plant
Speaker 8: in Shanghai.
Speaker 1: UH.
Speaker 8: They interestingly are going to try to to have a
Speaker 8: lower duty rate UH and make the argument to the
Speaker 8: European Commission that because they've been, you know, benefiting less
Speaker 8: than other manufacturers, uh, you know, from subsidies, that they
Speaker 8: should have a sort of commensurate duty rate. Other manufacturers
Speaker 8: are able to make that request and have you know,
Speaker 8: what's called a a you know, individually calculated rate. But
Speaker 8: if at this juncture the only company that we know
Speaker 8: that's asked for that and may get it as Tesla,
Speaker 8: Here's what I.
Speaker 2: Don't quite understand, and I know I'm kind of beating
Speaker 2: my head against a all on this one. But if
Speaker 2: the goal is to go green, why wouldn't they want
Speaker 2: to flood the market with a ton of Chinese ev
Speaker 2: imports and get the green stuff going. And I appreciate
Speaker 2: that they want to protect their current manufacturers, but you know,
Speaker 2: importing cheaper evs also spurs competition. So the line to
Speaker 2: thread the needle I find to be very confusing.
Speaker 8: It's absolutely needle threading or you know, tightrope walking, pick
Speaker 8: your metaphor, and it is a very valid question. And
Speaker 8: depending on who you ask, they're they're doing absolutely the
Speaker 8: right thing here or or they're really sort of shooting
Speaker 8: themselves in the foot Folks in Brussels. The debate here
Speaker 8: is is to what extent do you know, local manufacturers
Speaker 8: need to be protected from the fact that kinda has
Speaker 8: jumped up out to this huge lead. They're dominant in
Speaker 8: this space. They're able to, you know, bring electric vehicles
Speaker 8: to market with much cheaper batteries that people can actually afford,
Speaker 8: and that's been you know, the the major you know,
Speaker 8: sort of pain point for the industry is they have
Speaker 8: not been able to bring prices down far enough fast
Speaker 8: enough for you know, more mass market adoption. China has
Speaker 8: been able to pull that off, uh, you know, in
Speaker 8: large part European companies have not been able to do that.
Speaker 8: So while you know, we've seen quite a bit more
Speaker 8: momentum in Europe relative to to say the US, that
Speaker 8: momentum has really slowed of late, particularly as we've seen
Speaker 8: you know, the cost of living crisis and inflation really
Speaker 8: hitting consumers pocketbooks. We've not seen you know, the the
Speaker 8: growth rates that you know, just in the last few years.
Speaker 8: We're really eye popping and you know, getting a lot
Speaker 8: of people excited about you know, this transition being doable.
Speaker 4: So that's kind of where I wanted to go.
Speaker 5: Great because here in the US there really seems to
Speaker 5: be a palpable i guess, decline in the adoption rate
Speaker 5: for evs, and people debate whether it's price, whether there's
Speaker 5: some political issues out there, whether there's lack of autequate
Speaker 5: charging infrastructure, whatever, but there's been a palpable you know,
Speaker 5: kind of sense of the market's cooling off. Give us
Speaker 5: a sense of how the market is in the UK
Speaker 5: and the EU.
Speaker 8: Yeah, I would definitely recommend that listeners take a look
Speaker 8: to the extent they have access to the Bloomberg Neft's
Speaker 8: report out today, their annual ev outlook. It really goes
Speaker 8: into a great detail on just you know, sort of
Speaker 8: the ins and outs here. What we've been seeing is
Speaker 8: you know, one manufacturer after another coming out and really
Speaker 8: sort of dialing back there and ambitions. You know, Mercedes
Speaker 8: did a few years ago talked about being able to
Speaker 8: maybe go fully electric, you know, around twenty thirty. In
Speaker 8: certain markets, they've really walked that back. You've seen Ford
Speaker 8: and GM and Volkswagen, even Tesla you know, put off
Speaker 8: or sort of indefinitely delay factory investments. You know, Tesla
Speaker 8: of course, you know, made a big announcement about building
Speaker 8: a factory in Mexico that is very much on ice.
Speaker 8: Volkswagen canceled a plant in Germany. Uh, there's just a
Speaker 8: lot of concern among manufacturers about being able to profitably
Speaker 8: make affordable electric vehicles. And again, you know, the the
Speaker 8: way in which the Chinese have been able to achieve
Speaker 8: this has been driving down battery prices. And that's one
Speaker 8: of the most compelling things in this report for me,
Speaker 8: is just the amount of capacity that we've seen in China.
Speaker 8: So when you want to talk about you know, competition
Speaker 8: and fairness, that's something that Brussels in Washington they really
Speaker 8: highlight as what's problematic here is that they're essentially making
Speaker 8: the case that China is flooding the market and artificially
Speaker 8: driving down prices. That's good for the consumer. But you know,
Speaker 8: risks putting their companies, you know, out of out of
Speaker 8: business or you know, if that's too extreme at least
Speaker 8: you know, at a significant disadvantage.
Speaker 2: Greg really appreciate it. Thank you so much. Craig Trudel,
Speaker 2: a Bloomberg Global Autos editor, joining us there. Yes, and
Speaker 2: that Bloomberg ANI report that comes out is widely cited
Speaker 2: by most auto analysts on the street is really seen
Speaker 2: as the definitive ev demand outlook and supply outlooks. So
Speaker 2: if you can get your hands on it in any capacity,
Speaker 2: you should definitely do so. And it feels like a
Speaker 2: chicken and an egg thing. You need the supply and
Speaker 2: then you need the demand and the chicken in the egg.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
Speaker 1: Auto with the Bloomberg Business. You can also listen live
Speaker 1: on Amazon Alexa from our flagship New York station. Just
Speaker 1: say Alexa play Bloomberg eleven thirty.
Speaker 2: So one thing in the market is if you look at, say,
Speaker 2: the top sectors in the SMP so far this year,
Speaker 2: you get tech, you get information, consumer communications. Thank you
Speaker 2: very much. But you also get utilities, and a big
Speaker 2: part of that utility story is sure you get some
Speaker 2: nice yield and it's that safety defensive play. Okay, but
Speaker 2: I'm starting to wonder how much of a growth sector
Speaker 2: it is also, as you see massive power demand build
Speaker 2: from data centers and AI in addition to the energy transition,
Speaker 2: utilities kind of sit in the middle of all of that.
Speaker 2: And one company is Next Era Energy. It's ticker n E.
Speaker 2: The stock has had a nice run up this year,
Speaker 2: it's not done so well in the last couple of days,
Speaker 2: and we'll get to that after an investor presentation. We'll
Speaker 2: get to that with the CEO and president, John Ketchum. Hey, John,
Speaker 2: it's so good to see you again. Thanks for coming
Speaker 2: in Alex.
Speaker 9: Great to see you.
Speaker 6: Good to be here.
Speaker 2: So tell our viewers first, what does Next Era Energy
Speaker 2: actually do well.
Speaker 9: We're made up of two businesses. One we own the
Speaker 9: nation's largest rate regulated utility floor to power and light,
Speaker 9: and two we are the world's leader in renewables when
Speaker 9: solar battery storage, a unique combination bringing those two companies together.
Speaker 2: But you still have like nuclear and too right like.
Speaker 4: We do for the utility side, we do, so we
Speaker 4: cover it all. We're in every part of the energy value.
Speaker 9: Chain, not only a renewables. We have six gigawatts of
Speaker 9: nuclear and we're one of the best operators in the
Speaker 9: country on the nuclear side. And we also own gas
Speaker 9: fire generation. Seventy two percent of our generation fleet in
Speaker 9: Florida is actually natural gas fired. So we view ourselves
Speaker 9: really as a very credible source in being able to
Speaker 9: advise our customers on what the lowest cost option is
Speaker 9: for generation.
Speaker 5: Owning a utility electric utility in Florida would seem to
Speaker 5: be a tough business with all the weather down there.
Speaker 5: What happens when these storms come through?
Speaker 4: How do you guys?
Speaker 5: You have to almost be in a constant state of
Speaker 5: emergency almost to be able to react.
Speaker 9: We are battle tested. That's one of the great things
Speaker 9: about our company is that nothing catches us up by surprise,
Speaker 9: and it comes from a culture of continuous improvement and innovation,
Speaker 9: and we practice and we drill, and we've had what
Speaker 9: forty nine hurricanes in the last twenty or thirty years.
Speaker 9: We're never caught by surprise. We're a company that is
Speaker 9: used to managing through diversity, and that's one of the strengths.
Speaker 2: So you mentioned catch by surprise and I mentioned the
Speaker 2: stock price in the last couple of days. So there
Speaker 2: was an investor presentation that you made and where you
Speaker 2: outline your forecast this year through twenty twenty six. You're
Speaker 2: also twenty twenty seven midpoint profit forecast. That's the one
Speaker 2: that analysts said that falls short of our estimates. Yeah,
Speaker 2: and I guess the question is if data demand and
Speaker 2: data power is going to drive so much demand for
Speaker 2: your stuff, why isn't that midpoint higher.
Speaker 9: Well, here's what we see, and we talked a lot
Speaker 9: about this at the analyst day yesterday. There are three
Speaker 9: things that I think really differentiate next Era as part
Speaker 9: of our value story. One, we're seeing an inflection point
Speaker 9: and power demand. Two, it's going to be met by
Speaker 9: renewables because it's low costs, fast to deploy, and it's clean.
Speaker 9: O companies better position to meet it than we are.
Speaker 9: And our business model has always been what I would
Speaker 9: call a replacement cycle. We're building new renewables to replace
Speaker 9: higher cost coal plants, higher costs, less efficient gas fired units,
Speaker 9: oil fired units. We now have this new opportunity that's
Speaker 9: really emerged in the last six to nine months, which
Speaker 9: is what I call our growth cycle opportunity. It's a
Speaker 9: new demand that has come and it's across industries. It's
Speaker 9: not just data centers get a lot of discussion, but
Speaker 9: it's industrial electrification, reshoring, and manufacturing as well. But when
Speaker 9: you think about it, we're having all these discussions with
Speaker 9: these customers now. Take data centers, for example, it takes
Speaker 9: two to three years to build a data center, so
Speaker 9: they won't need the power until twenty twenty seven. We
Speaker 9: might sign a contract today, but the power comes in
Speaker 9: twenty seven, which means it contributes in twenty eight. And
Speaker 9: so we're trying to explain to investors yesterday is look,
Speaker 9: we have a tremendous long term growth outlook, but a
Speaker 9: lot of this growth cycle demand is really going to
Speaker 9: start materializing and producing revenues and earnings in twenty seven,
Speaker 9: which means it really starts to contribute in twenty eight.
Speaker 5: As you walk through midtown Manhattan, you probably see some
Speaker 5: empty office space here. I think they all move down
Speaker 5: to your state. Talk to us about how that's impacted
Speaker 5: your business in terms of demand and maybe what you
Speaker 5: have to invest back into your grip.
Speaker 9: Yeah, and that's what's great about our business, right is
Speaker 9: the Barbell approach. We've got the nation's leading great regularly
Speaker 9: utility in Florida and the world's leader and renewables in Florida.
Speaker 9: We're seeing tremendous growth over the next twenty years. We're
Speaker 9: projecting a forty four percent increase in GDP. We have
Speaker 9: one thousand people a day moving to the state of Florida.
Speaker 9: Four of the five fastest growing metropolitan areas in the
Speaker 9: United States are in Florida.
Speaker 4: Florida.
Speaker 9: We're a country, it would have the fourteenth largest economy
Speaker 9: in the world, and we're there to power all that growth.
Speaker 9: So our growth story is not only about what I
Speaker 9: just discussed about all this renewable demand that we see
Speaker 9: power in AI and industry and manufacturing across the United States,
Speaker 9: but it's also all the growth that we see right
Speaker 9: in our own backyard in Florida.
Speaker 2: Talk to me about rates. So you're going to need
Speaker 2: to invest a lot, right, Like there's maybe an enormous
Speaker 2: investment cycle, as you mentioned, like the growth cycle for utilities. Right,
Speaker 2: what is it like on the regulated side of going
Speaker 2: back to the government and saying, Okay, guys, I got
Speaker 2: to invest it you've got to raise the rates.
Speaker 9: Yeah, And so what we do is we have done
Speaker 9: a terrific job of taking cost out of our business.
Speaker 9: So when you look at what we've been able to
Speaker 9: do over the last twenty years, our O and M
Speaker 9: on a dollar per megawate hour basis is seventy percent
Speaker 9: seventy percent lower than the national average. That's three billion
Speaker 9: dollars we put in our customer's pocketbook every single year
Speaker 9: compared to an average utility. And we've always been able
Speaker 9: to make really smart capital investment decisions around bringing low
Speaker 9: cost generation into the fold. And today the lowest cost
Speaker 9: generation option that we have in Florida is solar and storage.
Speaker 9: So although we're investing more capital, it's actually lowering the
Speaker 9: bill because it's a lot cheaper than other generation alternatives,
Speaker 9: combined with our ability to take cost out with the
Speaker 9: way we operate.
Speaker 4: But from your investors perspective, is a.
Speaker 5: Unit of power from a renewable source, what's a profit
Speaker 5: margin on that versus maybe an existing source.
Speaker 9: Well, when you think about renewables, I mean renewables you
Speaker 9: know have really strong returns and their low cost And
Speaker 9: you talked about, you know, interest rates being one of
Speaker 9: the factors. We pass those costs through to our customers,
Speaker 9: and so the cost of WHEN and solar has gone
Speaker 9: up a little bit as we've seen some pressure you
Speaker 9: know here from the macro environment, but so have cost
Speaker 9: increase for every other type of generation. Actually, gas fired
Speaker 9: generation has really gone up in price. And so you know,
Speaker 9: what we have seen with gas fire technology is a
Speaker 9: fifty percent increase in the last twelve months. That has
Speaker 9: not happened to renewables, making renewables even lower costs than
Speaker 9: they've ever been on a relative basis to gas turbine options.
Speaker 2: So what I hear is that everything is just more
Speaker 2: expensive because that's the environment that we're in. But because
Speaker 2: you're able to take costs out, the rate payer may
Speaker 2: not get hit as hard. Is that a fair statement?
Speaker 4: That's exactly right.
Speaker 9: And so what we've been able to do in Florida,
Speaker 9: our bill is thirty seven percent lower than the national
Speaker 9: average thirty seven percent. It's because of our ability to
Speaker 9: take all those costs out of the company and also
Speaker 9: offer them low cost renewable solutions as part of the
Speaker 9: generation mix. And when you put those two together, that's
Speaker 9: how we're able to achieve that thirty seven percent lower
Speaker 9: bill than the rest of the nation. That's a really
Speaker 9: compelling investor, customer value proposition and investor value proposition.
Speaker 2: Man, I have like seventy five more questions. We didn't
Speaker 2: get to nuclear, we didn't get to you know, hydrogen. Okay,
Speaker 2: you're coming back, John. This is so helpful, and you're
Speaker 2: really in those two parts like the here and now
Speaker 2: and then the future, and I think that's just so fascinating.
Speaker 2: So definitely come back. We'd love to further the perspective.
Speaker 2: John Ketchum, President and CEO of Next Era Energy, based
Speaker 2: in Florida. Great to see you.
Speaker 1: This is the Bloomberg Intelligence podcast, available on apples, Spotify,
Speaker 1: and anywhere else you get your podcasts. Listen live each
Speaker 1: weekday ten am to noon Eastern on Bloomberg dot Com,
Speaker 1: the IHR Radio app, tune In, and the Bloomberg Business app.
Speaker 1: You can also watch us live weekday on YouTube and
Speaker 1: always on the Bloomberg Journal
Speaker 8: M