1 00:00:00,120 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,240 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:37,800 Speaker 2: Terminal and the Bloomberg Business app. Morgan Stanley's Mike Wilson 10 00:00:37,840 --> 00:00:40,560 Speaker 2: saying this, we believe equity markets have been trading poorly 11 00:00:40,600 --> 00:00:43,640 Speaker 2: in April, primarily due to the repricing of fed cuts, 12 00:00:43,680 --> 00:00:45,720 Speaker 2: with ten yere yields now well above our key four 13 00:00:45,880 --> 00:00:49,640 Speaker 2: thirty five four forty target. Stock appreciation from here would 14 00:00:49,680 --> 00:00:52,800 Speaker 2: largely have to be earned through earnings upside rather than 15 00:00:52,960 --> 00:00:56,520 Speaker 2: multiple expansion. Mike and Polica says with us around the table, Mike, 16 00:00:56,560 --> 00:00:58,480 Speaker 2: good morning to you. You're worrying how high is the 17 00:00:58,520 --> 00:01:00,880 Speaker 2: bar or low for those tech fis through this week. 18 00:01:01,240 --> 00:01:03,480 Speaker 3: Well, it's mixed, as you were saying, it's it's not 19 00:01:03,600 --> 00:01:04,840 Speaker 3: all one trade anymore. 20 00:01:04,880 --> 00:01:06,480 Speaker 4: It's sort of the Magnificent three or four. 21 00:01:06,560 --> 00:01:08,679 Speaker 3: Some are falling by the wayside for fundamental reasons, some 22 00:01:08,760 --> 00:01:10,119 Speaker 3: are falling by the wayside. 23 00:01:09,760 --> 00:01:10,679 Speaker 4: For rate reasons. 24 00:01:11,080 --> 00:01:14,000 Speaker 3: And look they've got they've got tougher comparisons now, so 25 00:01:14,080 --> 00:01:16,800 Speaker 3: I think that always the case, right, It's not so 26 00:01:16,880 --> 00:01:19,640 Speaker 3: much about the earnings results. It's about the reaction of 27 00:01:19,680 --> 00:01:22,000 Speaker 3: the stock to the earnings results. And I think that's 28 00:01:22,000 --> 00:01:24,360 Speaker 3: what I'm really fascinated to see how much goodness is 29 00:01:24,360 --> 00:01:26,840 Speaker 3: already priced into even the winners, and there are some 30 00:01:26,840 --> 00:01:27,920 Speaker 3: big winners in that group. 31 00:01:28,160 --> 00:01:29,000 Speaker 4: I agree with you, Lisa. 32 00:01:29,040 --> 00:01:30,919 Speaker 3: I think what's more interesting is what's going on away 33 00:01:30,920 --> 00:01:34,040 Speaker 3: from those stocks that will that will inform us more about. 34 00:01:33,800 --> 00:01:35,319 Speaker 4: What's actually happening in the economy. 35 00:01:35,480 --> 00:01:37,800 Speaker 3: You know, what the expectations are around FED for example, 36 00:01:38,000 --> 00:01:39,920 Speaker 3: and also some of the geopolitical risk, which I think 37 00:01:40,080 --> 00:01:42,240 Speaker 3: you know that's not our number one concern, but it's 38 00:01:42,240 --> 00:01:44,040 Speaker 3: also one of the reasons we're overweight energy. 39 00:01:44,120 --> 00:01:46,160 Speaker 2: You said, we can learn something from the earnings themselves 40 00:01:46,160 --> 00:01:47,720 Speaker 2: and how the stalk responds to them. What if we 41 00:01:47,800 --> 00:01:50,440 Speaker 2: learned so far as we get deeper into any season, Well. 42 00:01:50,400 --> 00:01:52,320 Speaker 3: It's about fifty to fifty, So fifty percent have been 43 00:01:52,440 --> 00:01:54,480 Speaker 3: up to plus one, fifty percent have been down. 44 00:01:54,480 --> 00:01:55,400 Speaker 4: That's worse than normal. 45 00:01:55,920 --> 00:01:57,720 Speaker 3: This is in line with what we've been saying for 46 00:01:57,840 --> 00:01:59,360 Speaker 3: quite a while now as we think now we're in 47 00:01:59,400 --> 00:01:59,960 Speaker 3: a period. 48 00:01:59,720 --> 00:02:01,000 Speaker 4: Of moultiple contraction. 49 00:02:01,520 --> 00:02:01,600 Speaker 1: Right. 50 00:02:01,600 --> 00:02:03,760 Speaker 3: If you think about the last six months, all that 51 00:02:03,800 --> 00:02:06,720 Speaker 3: really happened was, you know, the Fed pivoted treasury. I 52 00:02:06,720 --> 00:02:08,760 Speaker 3: would argue, sort of squeeze the bomb market. We had 53 00:02:08,760 --> 00:02:11,360 Speaker 3: a duration rally into year end and that affected a 54 00:02:11,480 --> 00:02:14,720 Speaker 3: huge multiple expansion. You know, it doesn't get a lot 55 00:02:14,720 --> 00:02:16,960 Speaker 3: of press, but twenty twenty four estimates for the S 56 00:02:17,000 --> 00:02:18,880 Speaker 3: and P five hundred have really gone up. Okay, they've 57 00:02:18,880 --> 00:02:20,880 Speaker 3: been sort of flat over that six month period. It's 58 00:02:20,880 --> 00:02:23,920 Speaker 3: all multiple expansion. So our call basically is that we 59 00:02:23,960 --> 00:02:26,239 Speaker 3: first always thought seven cuts was silly. I think a 60 00:02:26,240 --> 00:02:28,680 Speaker 3: lot of people agreed with that, and now we're down 61 00:02:28,720 --> 00:02:31,519 Speaker 3: to one and a half. So why wouldn't multiples come 62 00:02:31,560 --> 00:02:33,359 Speaker 3: down in that environment? And I think that's what we're 63 00:02:33,360 --> 00:02:36,160 Speaker 3: facing now during earning season is you've got to really 64 00:02:36,200 --> 00:02:39,120 Speaker 3: put up a serious beat and a revision. 65 00:02:38,680 --> 00:02:40,359 Speaker 4: To the upside for the stock to go up. 66 00:02:40,760 --> 00:02:42,799 Speaker 3: I'm very curious to see how that plays for the 67 00:02:42,840 --> 00:02:43,480 Speaker 3: next two weeks. 68 00:02:43,520 --> 00:02:46,000 Speaker 1: What we're seeing right now in the earnings is not 69 00:02:46,120 --> 00:02:49,040 Speaker 1: a cohesive story. I mean, honestly, you're seeing some areas 70 00:02:49,080 --> 00:02:51,799 Speaker 1: where it's cost cutting that's keeping margins afloat, in other 71 00:02:51,880 --> 00:02:54,880 Speaker 1: areas where you see, you know, for example, demand for 72 00:02:54,919 --> 00:02:57,800 Speaker 1: trucks in the US going gangbusters. Are you seeing any 73 00:02:57,880 --> 00:02:59,839 Speaker 1: themes that you can kind of grab onto so far? 74 00:03:00,280 --> 00:03:03,320 Speaker 3: The theme is that it's a very unbalanced economy, and 75 00:03:03,360 --> 00:03:04,400 Speaker 3: that's the theme we've had. 76 00:03:04,320 --> 00:03:04,720 Speaker 4: For a while. 77 00:03:04,760 --> 00:03:07,680 Speaker 3: So post COVID has just been a very unpredictable environment 78 00:03:07,680 --> 00:03:08,320 Speaker 3: for a lot of reasons. 79 00:03:08,360 --> 00:03:09,520 Speaker 4: Some of those things we got really right. 80 00:03:09,560 --> 00:03:11,480 Speaker 3: So most things we got really wrong, and I think 81 00:03:11,520 --> 00:03:13,520 Speaker 3: we're trying to figure out kind of what the next 82 00:03:13,520 --> 00:03:15,840 Speaker 3: stage is. Let's look at the last year as an example. 83 00:03:15,919 --> 00:03:18,919 Speaker 3: So a year ago hard landing recession was the consensus 84 00:03:19,000 --> 00:03:21,840 Speaker 3: view market overpriced that. Then we got a soft landing 85 00:03:21,840 --> 00:03:23,720 Speaker 3: price in in two q Then we had a sort 86 00:03:23,720 --> 00:03:26,560 Speaker 3: of a fiscal sustainability problem where growth got too hot 87 00:03:26,840 --> 00:03:28,400 Speaker 3: and rates went up and we had a big correction. 88 00:03:28,480 --> 00:03:30,520 Speaker 3: Then we went back to the soft landing and now 89 00:03:30,919 --> 00:03:33,720 Speaker 3: we're in no landing. So this is our view at 90 00:03:33,760 --> 00:03:36,440 Speaker 3: the beginning of the year, there's a third of a percent. 91 00:03:36,480 --> 00:03:38,280 Speaker 3: There's a thirty three percent chance of all three of 92 00:03:38,280 --> 00:03:42,280 Speaker 3: those happening soft landing, no landing, hard landing, and I 93 00:03:42,280 --> 00:03:44,120 Speaker 3: think it's the same. So in other words, right now 94 00:03:44,160 --> 00:03:47,200 Speaker 3: we're trying to price that no landing scenario, but I'm 95 00:03:47,200 --> 00:03:50,080 Speaker 3: not confident that we're going to stay in that environment. 96 00:03:50,120 --> 00:03:51,800 Speaker 4: And companies are a reflection of that. 97 00:03:51,880 --> 00:03:53,920 Speaker 3: Right Some companies do better in that scenario, and that's 98 00:03:53,920 --> 00:03:56,560 Speaker 3: why they're doing better things like energy and materials, financials. 99 00:03:57,080 --> 00:03:58,240 Speaker 4: But is that sustainable. 100 00:03:58,240 --> 00:03:59,760 Speaker 1: We're going to find out, you know, we said that 101 00:04:00,120 --> 00:04:02,520 Speaker 1: we're going to see how much multiple expansion could continue 102 00:04:02,560 --> 00:04:05,600 Speaker 1: and whether we see multiple contraction. The multiple expansion has 103 00:04:05,640 --> 00:04:08,120 Speaker 1: been really concentrated in big tech. 104 00:04:08,320 --> 00:04:09,480 Speaker 4: It has been really. 105 00:04:09,200 --> 00:04:11,280 Speaker 1: Concentrated in some of the quality names that you like. 106 00:04:11,520 --> 00:04:14,200 Speaker 1: It has not been concentrated in the Russell two thousand, 107 00:04:14,200 --> 00:04:16,800 Speaker 1: which has not experienced that same kind of run. Do 108 00:04:16,839 --> 00:04:19,960 Speaker 1: you start to like some of those areas because suddenly 109 00:04:20,040 --> 00:04:23,240 Speaker 1: it is an economy that's okay, maybe supported by a 110 00:04:23,279 --> 00:04:26,560 Speaker 1: couple rate cuts, and frankly, you haven't seen that multiple expansion. 111 00:04:26,960 --> 00:04:29,400 Speaker 3: Well we did, I mean November December was one of 112 00:04:29,440 --> 00:04:31,799 Speaker 3: the biggest short squeezes I've ever seen in the lower 113 00:04:31,839 --> 00:04:34,320 Speaker 3: quality parts of the market. So we did absolutely see 114 00:04:34,600 --> 00:04:36,840 Speaker 3: multiple expansion. Now we're giving some of that back, right, 115 00:04:36,880 --> 00:04:39,080 Speaker 3: And that's our call, which is that I don't really 116 00:04:39,120 --> 00:04:41,520 Speaker 3: want to go to the low quality world, Okay, and 117 00:04:41,520 --> 00:04:44,320 Speaker 3: that includes small caps. Not all small cap companies are 118 00:04:44,360 --> 00:04:46,839 Speaker 3: low quality, just be clear, but as a group, okay, 119 00:04:46,920 --> 00:04:49,599 Speaker 3: Russell two thousand is a low quality index and that's 120 00:04:49,600 --> 00:04:53,040 Speaker 3: why it's underperforming again because race are too high for them. 121 00:04:53,640 --> 00:04:56,159 Speaker 4: Like our star. People talking about our star, Okay, Well. 122 00:04:55,960 --> 00:04:58,320 Speaker 3: Our star is different depending on who you are and 123 00:04:58,360 --> 00:05:01,200 Speaker 3: what kind of company you run. It's extremely variable, and 124 00:05:01,240 --> 00:05:04,640 Speaker 3: the market's been really efficient Lisa in saying, look, rates 125 00:05:04,680 --> 00:05:07,840 Speaker 3: are too high for a majority of the economy, whether 126 00:05:07,839 --> 00:05:10,520 Speaker 3: it's consumers or small businesses. So we're sticking with that 127 00:05:10,600 --> 00:05:13,640 Speaker 3: until rates really get cut. We think that the trade 128 00:05:13,680 --> 00:05:15,960 Speaker 3: is still you got to go with self funding businesses 129 00:05:16,080 --> 00:05:19,279 Speaker 3: that have idiosyncratic kind of growth opportunities are pricing power 130 00:05:19,360 --> 00:05:21,720 Speaker 3: and just playing out again this year in space, A. 131 00:05:21,680 --> 00:05:25,520 Speaker 1: Lot of people think about you as a bear because yesterday, 132 00:05:25,800 --> 00:05:27,680 Speaker 1: for last year, I should say, you are really calling 133 00:05:27,720 --> 00:05:30,680 Speaker 1: for some sort of downturn in the economy. Where are 134 00:05:30,720 --> 00:05:34,080 Speaker 1: we in terms of that cycle, in terms of just 135 00:05:34,160 --> 00:05:36,640 Speaker 1: how close we are to a downturn? Are you basically saying, 136 00:05:36,800 --> 00:05:38,719 Speaker 1: you know what, this isn't something you can really call 137 00:05:38,839 --> 00:05:41,680 Speaker 1: with any definitive conviction that you have to sort of 138 00:05:41,680 --> 00:05:43,880 Speaker 1: just look at specific companies and stay away from that stuff. 139 00:05:44,000 --> 00:05:46,360 Speaker 3: You know, it's me it's a humbling business. And I think, 140 00:05:46,400 --> 00:05:48,120 Speaker 3: I mean seventy percent of the street I think was 141 00:05:48,120 --> 00:05:50,280 Speaker 3: in the recession camp a year ago. Our economists were not, 142 00:05:50,320 --> 00:05:52,359 Speaker 3: but a lot of people were in that camp and 143 00:05:52,400 --> 00:05:54,960 Speaker 3: we had to reprice that out. So where we think 144 00:05:54,960 --> 00:05:56,919 Speaker 3: we're still very much late cycle. I heard you all chatting. 145 00:05:57,000 --> 00:05:58,760 Speaker 3: One of the questions we've had is why can't it 146 00:05:58,760 --> 00:06:01,400 Speaker 3: be early cycle. Well, there's a lot of reasons why 147 00:06:01,400 --> 00:06:03,400 Speaker 3: we don't think it's early cycle. Labor market's very tight, 148 00:06:03,560 --> 00:06:05,480 Speaker 3: the old curve is still inverted. We don't have a 149 00:06:05,520 --> 00:06:07,560 Speaker 3: lot of supply in the labor market. We have immigration 150 00:06:07,640 --> 00:06:09,920 Speaker 3: maybe supporting that, but generally it's a tight labor market. 151 00:06:10,120 --> 00:06:12,480 Speaker 3: You know, margins are still at record high levels. So 152 00:06:12,640 --> 00:06:14,040 Speaker 3: all of the things that we would look at from 153 00:06:14,040 --> 00:06:16,560 Speaker 3: an early cycle perspective are just not there. So we're 154 00:06:16,600 --> 00:06:19,000 Speaker 3: still late cycle, and what does that mean. It means 155 00:06:19,240 --> 00:06:22,280 Speaker 3: this can last for another two years, or it could 156 00:06:22,320 --> 00:06:25,479 Speaker 3: be over tomorrow if we have another shock. So we're 157 00:06:25,760 --> 00:06:27,919 Speaker 3: probably going to sider we're not going to be as 158 00:06:27,960 --> 00:06:29,840 Speaker 3: aggressive trying to make that shock because we don't know 159 00:06:29,880 --> 00:06:31,839 Speaker 3: what it is. We thought it was a regional banking 160 00:06:31,920 --> 00:06:34,200 Speaker 3: crisis last year turned out to be not the case. 161 00:06:34,240 --> 00:06:36,599 Speaker 3: The economy turned out to be stronger. I would also 162 00:06:36,760 --> 00:06:40,680 Speaker 3: argue that we have an incredibly imbalanced policy mix, which 163 00:06:40,680 --> 00:06:43,920 Speaker 3: has helped the economy to sustain itself. So economic data 164 00:06:43,920 --> 00:06:46,080 Speaker 3: does not look like the earnings data to us. Okay, 165 00:06:46,320 --> 00:06:48,920 Speaker 3: economic data is much stronger than the earnings data. 166 00:06:48,920 --> 00:06:50,880 Speaker 4: Why is that? An enormous amount. 167 00:06:50,600 --> 00:06:53,640 Speaker 3: Of fiscal support into the economy is keeping the economic 168 00:06:53,720 --> 00:06:56,520 Speaker 3: data looking strong, which is preventing the FED from really 169 00:06:56,560 --> 00:07:00,160 Speaker 3: cutting rates for an early cycle rotation. And that's we're 170 00:07:00,160 --> 00:07:01,479 Speaker 3: just kind of stuck in that and we could be 171 00:07:01,520 --> 00:07:03,600 Speaker 3: there for a while. I don't see that breaking. I 172 00:07:03,600 --> 00:07:06,279 Speaker 3: don't see any discipline in Congress. We're spending more money 173 00:07:06,279 --> 00:07:08,919 Speaker 3: this week with this bill, I mean, so that is 174 00:07:08,920 --> 00:07:12,360 Speaker 3: where we are. The question is is that overpriced? And 175 00:07:12,440 --> 00:07:14,360 Speaker 3: I think it is because should I pay a higher 176 00:07:14,440 --> 00:07:18,280 Speaker 3: multiple for what I call low quality growth, government sort 177 00:07:18,280 --> 00:07:20,840 Speaker 3: of driven growth. I would already know for some companies 178 00:07:20,880 --> 00:07:22,760 Speaker 3: you can pay higre multiple because they're IDoc and credic 179 00:07:22,800 --> 00:07:24,520 Speaker 3: to that. And that's what's happening. Companies that don't need 180 00:07:24,560 --> 00:07:28,280 Speaker 3: government support are doing better. Companies that we're getting constrained 181 00:07:28,280 --> 00:07:30,080 Speaker 3: by higher rates are underperforming. 182 00:07:30,280 --> 00:07:32,800 Speaker 5: Let's talk about fiscal and the fact that it doesn't 183 00:07:32,840 --> 00:07:34,800 Speaker 5: matter who wins the election, there's going to be more 184 00:07:34,800 --> 00:07:37,640 Speaker 5: money coming out of Washington. It's one of your questions 185 00:07:37,680 --> 00:07:39,120 Speaker 5: you ask in your note, how are you thinking about 186 00:07:39,120 --> 00:07:41,040 Speaker 5: the election as a driver of markets this year? Is 187 00:07:41,080 --> 00:07:43,280 Speaker 5: it too soon to start preparing for November? 188 00:07:43,520 --> 00:07:43,680 Speaker 1: Yeah? 189 00:07:43,720 --> 00:07:45,280 Speaker 3: I mean historic, and we put this in a note. 190 00:07:45,280 --> 00:07:47,800 Speaker 3: I mean typically the volatility the market picks up two 191 00:07:47,800 --> 00:07:51,200 Speaker 3: to three months before the election. My experience is that 192 00:07:51,440 --> 00:07:53,760 Speaker 3: until we have the conventions and we really see the 193 00:07:53,800 --> 00:07:56,920 Speaker 3: platforms at the stock level, and we don't see. 194 00:07:56,720 --> 00:07:57,320 Speaker 4: A lot of action. 195 00:07:57,760 --> 00:08:00,520 Speaker 3: Now, interestingly, this year, the market is rallied in the 196 00:08:00,560 --> 00:08:03,160 Speaker 3: beginning of the year. Typically it doesn't do well in 197 00:08:03,160 --> 00:08:04,640 Speaker 3: the first half and it does better in the second 198 00:08:04,680 --> 00:08:06,880 Speaker 3: half as it becomes more clear. So is that going 199 00:08:06,880 --> 00:08:09,200 Speaker 3: to reverse this year? We have a tougher second half maybe, 200 00:08:09,800 --> 00:08:13,200 Speaker 3: But I agree with your first sort of position, which 201 00:08:13,240 --> 00:08:15,320 Speaker 3: is I don't see a lot of difference between these 202 00:08:15,360 --> 00:08:18,400 Speaker 3: two campaigns in terms of the fiscal and even the 203 00:08:18,440 --> 00:08:21,440 Speaker 3: monetary mix. The one thing I would say is focus 204 00:08:21,520 --> 00:08:24,920 Speaker 3: on the areas where the president can do things that 205 00:08:24,960 --> 00:08:27,440 Speaker 3: are executive order okay, And the biggest one in my 206 00:08:27,520 --> 00:08:30,440 Speaker 3: mind is immigration, and terrass is the second one. That's 207 00:08:30,440 --> 00:08:32,679 Speaker 3: the second one. So terroris and immigration could be done 208 00:08:32,720 --> 00:08:36,880 Speaker 3: without congressional voting. So that's where I think, because I'm 209 00:08:36,920 --> 00:08:38,719 Speaker 3: not confident that we're going to get a sweep either way, 210 00:08:38,760 --> 00:08:41,440 Speaker 3: that's probably the least likely outcome. It's probably ten percent chance. 211 00:08:41,559 --> 00:08:43,480 Speaker 3: It's going to be very close. But to get one 212 00:08:43,520 --> 00:08:45,320 Speaker 3: party as a sweep, I think it's going to be challenging. 213 00:08:45,440 --> 00:08:48,440 Speaker 3: So the executive order lever, if you're thinking about Trump 214 00:08:48,520 --> 00:08:50,679 Speaker 3: or Biden, that's where that's what the action is going 215 00:08:50,720 --> 00:08:50,920 Speaker 3: to be. 216 00:08:50,960 --> 00:08:52,600 Speaker 2: I just want to work that's through an extra step. 217 00:08:52,679 --> 00:08:54,560 Speaker 2: You suggest that might be if we get a president Trump. 218 00:08:54,640 --> 00:08:58,360 Speaker 2: Volume two to this supply site, Nevana that some people 219 00:08:58,400 --> 00:09:00,400 Speaker 2: in the world of economics are embracing my be threat. 220 00:09:00,400 --> 00:09:01,880 Speaker 4: Since I think that's exactly right. 221 00:09:02,200 --> 00:09:04,200 Speaker 3: I would argue that there's a chance that maybe something 222 00:09:04,320 --> 00:09:07,160 Speaker 3: is done prior to the election for political because this 223 00:09:07,240 --> 00:09:10,000 Speaker 3: is a hot issue for the election, right, Immigration is 224 00:09:10,000 --> 00:09:12,720 Speaker 3: a hot topic, and the question is do they try 225 00:09:12,720 --> 00:09:15,800 Speaker 3: to curtail some of that inflow prior to the election. 226 00:09:15,880 --> 00:09:17,160 Speaker 4: I have no idea, but we're going. 227 00:09:17,080 --> 00:09:19,439 Speaker 3: To learn more about that, I think in the conventions 228 00:09:19,120 --> 00:09:20,640 Speaker 3: in terms of how they're talking about it. 229 00:09:20,679 --> 00:09:22,720 Speaker 2: So your point that mind, this could change quickly in 230 00:09:22,760 --> 00:09:24,199 Speaker 2: the space of a couple of months. I'm just trying 231 00:09:24,240 --> 00:09:26,040 Speaker 2: to work out how quickly that would shot upen the data, 232 00:09:26,160 --> 00:09:29,080 Speaker 2: how quickly the market might respond to that change. 233 00:09:29,240 --> 00:09:32,400 Speaker 3: Well, here's the real takeaway, John, I feel like there's 234 00:09:32,440 --> 00:09:34,439 Speaker 3: been a lot of marking to market going on, right, 235 00:09:34,600 --> 00:09:37,840 Speaker 3: So I would argue everybody's been wrong about the fundamental 236 00:09:37,880 --> 00:09:39,760 Speaker 3: picture in many many ways over the last two years, 237 00:09:39,800 --> 00:09:43,719 Speaker 3: including ourselves, Okay, and that marketing to market. All of 238 00:09:43,720 --> 00:09:45,280 Speaker 3: a sudden, you mark yourself to market, Why are you 239 00:09:45,320 --> 00:09:47,880 Speaker 3: any more confident you know what's going to happen next? Right, 240 00:09:47,960 --> 00:09:50,640 Speaker 3: And that's where we have a problem with valuations is 241 00:09:50,679 --> 00:09:54,160 Speaker 3: there seems to be this perceived certainty again being priced in. 242 00:09:54,240 --> 00:09:55,800 Speaker 4: It's like I'm not certain at all. Maybe I'm the 243 00:09:55,840 --> 00:09:56,480 Speaker 4: dummy in the room. 244 00:09:56,520 --> 00:09:58,200 Speaker 3: I don't know, but I feel like there's a little 245 00:09:58,200 --> 00:10:00,000 Speaker 3: bit of complacency around just knowing what's going to happen. 246 00:10:00,160 --> 00:10:01,200 Speaker 4: By the way I send all bad. 247 00:10:01,440 --> 00:10:04,640 Speaker 3: There could be some positive surprises, but those positive surprises 248 00:10:04,760 --> 00:10:07,400 Speaker 3: may lead you to a different group of assets that 249 00:10:07,440 --> 00:10:09,880 Speaker 3: you want to own. Okay, I mean I think bonds 250 00:10:09,880 --> 00:10:12,439 Speaker 3: are just suspend a minute on bonds, so my goodness. 251 00:10:12,480 --> 00:10:14,880 Speaker 3: I mean this is one where I literally can flip 252 00:10:14,880 --> 00:10:16,120 Speaker 3: a coin and I would fit. 253 00:10:16,280 --> 00:10:18,240 Speaker 4: Okay, that's it, you know, because I could. 254 00:10:18,040 --> 00:10:21,400 Speaker 3: See rates higher from the standpoint of fiscal sustainability problems, 255 00:10:21,440 --> 00:10:24,080 Speaker 3: we have a term premium increased like last last year. 256 00:10:24,640 --> 00:10:27,200 Speaker 3: Or I could see things slow down again because rates 257 00:10:27,240 --> 00:10:29,600 Speaker 3: are now higher, right, the wealthffect is kind of being 258 00:10:29,600 --> 00:10:31,640 Speaker 3: priced out of the market, and maybe things slow again. 259 00:10:31,760 --> 00:10:33,480 Speaker 3: Our house call is we're going back to sort of 260 00:10:33,520 --> 00:10:35,520 Speaker 3: four fifteen. I think you just had a guest saying 261 00:10:35,520 --> 00:10:38,280 Speaker 3: three seventy five. Yep, I mean three seventy five would 262 00:10:38,360 --> 00:10:40,360 Speaker 3: argue that we're probably back into a soft landing or 263 00:10:40,400 --> 00:10:42,760 Speaker 3: hard landing scenario. Four to fifteen is kind of more 264 00:10:42,880 --> 00:10:44,520 Speaker 3: the things just kind of slow down a bit. 265 00:10:44,600 --> 00:10:45,920 Speaker 2: Can I put you on the spot just a little bit? 266 00:10:45,960 --> 00:10:48,880 Speaker 2: Is it easier to foresee than being one hundred basis 267 00:10:48,880 --> 00:10:51,160 Speaker 2: points lower than being one hundred basis points higher? 268 00:10:51,320 --> 00:10:52,680 Speaker 4: Or you actually ten more and split? 269 00:10:52,760 --> 00:10:56,280 Speaker 3: Yeah, one hundreds big, okay? And those are the tails, right, 270 00:10:56,320 --> 00:10:58,720 Speaker 3: So one hundred on the upside would be the market 271 00:10:58,760 --> 00:11:02,920 Speaker 3: is really concerned about unding sustainability, almost like the UK okay, 272 00:11:03,280 --> 00:11:05,679 Speaker 3: two years ago. And I think one hundred base of 273 00:11:05,720 --> 00:11:08,000 Speaker 3: points lower from here is kind of a hard landing. 274 00:11:08,160 --> 00:11:09,160 Speaker 4: Give me the next fifty. 275 00:11:09,400 --> 00:11:12,960 Speaker 3: Yeah, so fifty, I'm I'm still leaning to higher, but 276 00:11:13,040 --> 00:11:16,280 Speaker 3: our house call is lower, so you know, and I 277 00:11:16,280 --> 00:11:16,800 Speaker 3: got to go with the. 278 00:11:16,760 --> 00:11:17,280 Speaker 4: House call. 279 00:11:18,960 --> 00:11:19,120 Speaker 6: There. 280 00:11:19,200 --> 00:11:21,120 Speaker 4: But I mean, but the bond guys, I. 281 00:11:21,040 --> 00:11:22,560 Speaker 3: Mean, that's their job, and so I gotta, I gotta, 282 00:11:22,600 --> 00:11:23,319 Speaker 3: I gotta bet. 283 00:11:23,120 --> 00:11:25,480 Speaker 4: With them, okay. And so that would be okay. 284 00:11:25,480 --> 00:11:27,720 Speaker 3: So what happens in that scenario for stocks, Well, all 285 00:11:27,760 --> 00:11:30,560 Speaker 3: of a sudden, our no landing scenario probably isn't the case, 286 00:11:30,600 --> 00:11:32,920 Speaker 3: and we probably would downgrade energy, and we probably would 287 00:11:32,960 --> 00:11:34,320 Speaker 3: go back to some of the things that were doing 288 00:11:34,400 --> 00:11:36,199 Speaker 3: better last year. And so it's just I think you 289 00:11:36,320 --> 00:11:38,360 Speaker 3: just got to keep a really flexible open mind that's 290 00:11:38,400 --> 00:11:40,079 Speaker 3: what we try to do now with the with the 291 00:11:40,120 --> 00:11:42,400 Speaker 3: stock picking. We haven't really talked much about index in 292 00:11:42,440 --> 00:11:43,920 Speaker 3: the last four or five months because we're trying to 293 00:11:43,960 --> 00:11:46,199 Speaker 3: focus on the relative value trades and we've got a 294 00:11:46,240 --> 00:11:48,400 Speaker 3: lot of those right and hopefully, knock on wood, we 295 00:11:48,400 --> 00:11:49,240 Speaker 3: can continue to do that. 296 00:11:49,440 --> 00:11:51,560 Speaker 2: Stick with a Mike, you're gonna sty Clive Smike Wilson, 297 00:11:51,640 --> 00:11:53,120 Speaker 2: that of mulch and Stanley. 298 00:12:02,720 --> 00:12:03,360 Speaker 4: Matters with us. 299 00:12:03,400 --> 00:12:05,760 Speaker 2: Now for more My congratulations because I think a lot 300 00:12:05,800 --> 00:12:08,680 Speaker 2: of people have moved to your view of the world. 301 00:12:08,960 --> 00:12:11,320 Speaker 2: You were talking about a mid cycle adjustment quite a 302 00:12:11,320 --> 00:12:13,200 Speaker 2: while ago, and I think everyone else is caught up 303 00:12:13,240 --> 00:12:15,600 Speaker 2: now this is no longer about the start of a 304 00:12:15,640 --> 00:12:19,000 Speaker 2: cutting cycle and perhaps an adjustment mid cycle. Can you 305 00:12:19,040 --> 00:12:21,280 Speaker 2: frame the difference and what led you towards that conclusion? 306 00:12:21,400 --> 00:12:24,400 Speaker 7: Yeah, absolutely so. We have I think two historical examples 307 00:12:24,440 --> 00:12:25,920 Speaker 7: of mid cycle adjustments. You had one in the mid 308 00:12:26,000 --> 00:12:28,520 Speaker 7: nineteen nineties, you had one in twenty nineteen. And the 309 00:12:28,559 --> 00:12:30,840 Speaker 7: logic there is the FED is cutting rates, not necessarily 310 00:12:30,880 --> 00:12:32,960 Speaker 7: because we're in a recession, but maybe they're seeing some 311 00:12:33,000 --> 00:12:34,960 Speaker 7: weakness in the economy that they're trying to get ahead of, 312 00:12:35,440 --> 00:12:37,959 Speaker 7: or they're seeing that inflation's coming down substantially. I think 313 00:12:38,000 --> 00:12:40,640 Speaker 7: this cycle was going to be all about inflation coming 314 00:12:40,640 --> 00:12:42,880 Speaker 7: down and the FED being able to cut rates modestly 315 00:12:42,920 --> 00:12:45,360 Speaker 7: in response to that. Certainly we're seeing that that get 316 00:12:45,400 --> 00:12:45,920 Speaker 7: pushed back. 317 00:12:46,280 --> 00:12:47,480 Speaker 4: But with a labor market where. 318 00:12:47,360 --> 00:12:49,640 Speaker 7: It is, with growth as resilient as it is, with 319 00:12:49,720 --> 00:12:53,360 Speaker 7: financial conditions as easy and accommodative as they are, there's 320 00:12:53,360 --> 00:12:55,120 Speaker 7: really no reason for the FED to guide towards a 321 00:12:55,120 --> 00:12:57,480 Speaker 7: full cutting cycle at this point in time pre pandemic. 322 00:12:57,480 --> 00:12:59,360 Speaker 2: I can remember a phrase that Chairman Pound talked about 323 00:12:59,360 --> 00:13:02,800 Speaker 2: the objective to extend the CINCO. It's not the objective now, 324 00:13:02,880 --> 00:13:04,760 Speaker 2: and where are we in a so called cyco. 325 00:13:05,040 --> 00:13:05,240 Speaker 6: Yeah. 326 00:13:05,280 --> 00:13:08,199 Speaker 7: I think you've seen FED officials talking about risk management 327 00:13:08,480 --> 00:13:11,200 Speaker 7: for a long time over the past three years. Risk 328 00:13:11,280 --> 00:13:14,400 Speaker 7: management meant being hawkish raising grades in order to ensure 329 00:13:14,400 --> 00:13:16,760 Speaker 7: that inflation doesn't become entrenched. I think three or four 330 00:13:16,800 --> 00:13:19,400 Speaker 7: months ago we saw better balancing of those risks. 331 00:13:19,200 --> 00:13:20,800 Speaker 4: As inflation was looking softer. 332 00:13:20,640 --> 00:13:22,720 Speaker 7: And the FED became a little bit worried about growth. 333 00:13:22,760 --> 00:13:25,280 Speaker 7: I think the past three months of stronger inflation prints 334 00:13:25,640 --> 00:13:28,160 Speaker 7: have put inflation back to the forefront for the FED 335 00:13:28,640 --> 00:13:31,400 Speaker 7: and extending the cycle at this point, I think does 336 00:13:31,520 --> 00:13:34,880 Speaker 7: mean ensuring that inflation does not get entrenched, not cutting 337 00:13:34,960 --> 00:13:38,079 Speaker 7: rates prematurely. We hear more FED officials talking about the 338 00:13:38,160 --> 00:13:41,440 Speaker 7: risk that that's the bigger risk, cutting rates prematurely having 339 00:13:41,520 --> 00:13:42,520 Speaker 7: to rehike later. 340 00:13:42,760 --> 00:13:45,679 Speaker 1: I like Ben Bernike's idea of scenario analysis. I would 341 00:13:45,720 --> 00:13:47,360 Speaker 1: like to have a sense of exactly how the FED 342 00:13:47,400 --> 00:13:50,679 Speaker 1: would respond if certain things happen. Since it's been such 343 00:13:50,720 --> 00:13:54,640 Speaker 1: an unpredictable cycle. How many hot inflation prints will it 344 00:13:54,679 --> 00:13:57,120 Speaker 1: take before we start talking about no hikes this year 345 00:13:57,559 --> 00:13:59,840 Speaker 1: and no more cuts this year? And how many we 346 00:14:00,080 --> 00:14:01,920 Speaker 1: prints does it take for the FED to cut? 347 00:14:02,200 --> 00:14:05,240 Speaker 7: Yeah, I think we're close to talking about no cuts. 348 00:14:05,480 --> 00:14:07,520 Speaker 7: You know, our expectation is the FED only cuts once 349 00:14:07,600 --> 00:14:10,960 Speaker 7: and it comes cut in December. Well, we also expect 350 00:14:10,960 --> 00:14:12,560 Speaker 7: that you're going to see disinflation come back over the 351 00:14:12,600 --> 00:14:15,440 Speaker 7: next several months. So even if you get disinflation, you know, 352 00:14:15,440 --> 00:14:17,520 Speaker 7: three four months ahead, I think the FED is going 353 00:14:17,559 --> 00:14:19,000 Speaker 7: to be a little bit more reluctant to cut rates 354 00:14:19,000 --> 00:14:21,600 Speaker 7: because you know, they've seen a headfake from the inflation data. 355 00:14:21,680 --> 00:14:23,960 Speaker 7: It's going to take a while to rebuild that confidence. 356 00:14:24,160 --> 00:14:26,360 Speaker 7: I think if you take take a step back. You know, 357 00:14:26,440 --> 00:14:29,120 Speaker 7: core PC inflation on Friday might be two seven or 358 00:14:29,120 --> 00:14:32,040 Speaker 7: two eight. We have growth, which you know around two 359 00:14:32,040 --> 00:14:34,160 Speaker 7: and a quarter percent. We have financial conditions that are easy. 360 00:14:34,160 --> 00:14:36,240 Speaker 7: We have the labor market, you know, adding more than 361 00:14:36,240 --> 00:14:38,040 Speaker 7: two hundred thousand jobs per month on average, with a 362 00:14:38,120 --> 00:14:40,840 Speaker 7: historically low on employment rate. There's just not very compelling 363 00:14:40,880 --> 00:14:43,320 Speaker 7: reasons to cut rates within that environment, and I think 364 00:14:43,320 --> 00:14:44,520 Speaker 7: the FED is coming around to that view. 365 00:14:44,680 --> 00:14:48,120 Speaker 1: How much are they basically also kind of tacitly admitting 366 00:14:48,560 --> 00:14:51,720 Speaker 1: that the pivot last year really kind of worked against 367 00:14:51,760 --> 00:14:54,920 Speaker 1: their goal of disinflation, that that might have actually contributed 368 00:14:54,960 --> 00:14:57,240 Speaker 1: to the stickiness that we're seeing right now. Is some 369 00:14:57,280 --> 00:14:57,760 Speaker 1: of the data. 370 00:14:58,160 --> 00:15:00,000 Speaker 7: I think, you know, perhaps it's somewhat of a contry 371 00:15:00,080 --> 00:15:02,800 Speaker 7: beating factor. I think a lot of this may be seasonal, 372 00:15:02,880 --> 00:15:05,280 Speaker 7: So you do have some seasonal factors that boost. 373 00:15:05,000 --> 00:15:06,320 Speaker 4: Inflation early in the year. 374 00:15:06,600 --> 00:15:08,480 Speaker 7: But what that means is the disinflation we saw last 375 00:15:08,520 --> 00:15:11,920 Speaker 7: year was overstated, and so overall inflation is just going to. 376 00:15:11,840 --> 00:15:13,160 Speaker 4: Be more elevated than then we thought. 377 00:15:13,280 --> 00:15:16,120 Speaker 7: I think financial conditions will help to boost growth as 378 00:15:16,160 --> 00:15:18,480 Speaker 7: we look ahead, but I don't think that it's been 379 00:15:18,640 --> 00:15:20,960 Speaker 7: a key factor for the stronger inflation prints of the 380 00:15:20,960 --> 00:15:21,800 Speaker 7: first three months of the year. 381 00:15:21,920 --> 00:15:25,120 Speaker 1: Mid cycle adjustment doesn't sound like we're near any kind 382 00:15:25,160 --> 00:15:27,960 Speaker 1: of hard landing. And yet the different rolling cycles that 383 00:15:27,960 --> 00:15:29,880 Speaker 1: we're seeing in a lot of these earnings reports and 384 00:15:29,920 --> 00:15:34,040 Speaker 1: what people are talking about the two sided economy, it's 385 00:15:34,160 --> 00:15:36,720 Speaker 1: very real. How do you play that out given the 386 00:15:36,720 --> 00:15:39,160 Speaker 1: fact that if rates were made at this level, the 387 00:15:39,240 --> 00:15:43,080 Speaker 1: lower tier, the lower half, frankly of the population is 388 00:15:43,080 --> 00:15:45,320 Speaker 1: going to struggle all the much more so. And I'm 389 00:15:45,320 --> 00:15:47,520 Speaker 1: talking about both companies and individuals. 390 00:15:47,600 --> 00:15:50,120 Speaker 7: Yeah, I think from my perspective, that's returning to more 391 00:15:50,160 --> 00:15:52,560 Speaker 7: normal conditions. You know, it is the reality of the 392 00:15:52,640 --> 00:15:55,320 Speaker 7: US economy that you have delinquency rates that are more 393 00:15:55,320 --> 00:15:59,360 Speaker 7: elevated for for lower income households, for for lower education households. 394 00:15:59,800 --> 00:16:01,680 Speaker 7: So a lot of this is returning to a more 395 00:16:01,720 --> 00:16:05,440 Speaker 7: normal pre code environment as that access savings gets drawn down. 396 00:16:05,720 --> 00:16:09,360 Speaker 7: What we've seen in that environment still is robust consumer spending. 397 00:16:09,600 --> 00:16:11,760 Speaker 7: We saw it with the retail sales report recently. We 398 00:16:11,800 --> 00:16:14,480 Speaker 7: see GDP growth that looks quite solid. We see employment 399 00:16:14,480 --> 00:16:17,240 Speaker 7: gains which are above two hundred thousand. We see households 400 00:16:17,240 --> 00:16:21,600 Speaker 7: adding meaningful income growth with decelerating inflation. All that I 401 00:16:21,600 --> 00:16:25,600 Speaker 7: think is pretty supportive for still solid growth for the 402 00:16:25,640 --> 00:16:26,640 Speaker 7: US economy and something. 403 00:16:26,480 --> 00:16:27,720 Speaker 4: That theft shouldn't be worried about. 404 00:16:27,880 --> 00:16:30,160 Speaker 5: What about for twenty twenty five? How are you thinking 405 00:16:30,160 --> 00:16:31,520 Speaker 5: you had twenty twenty five given the fact that we 406 00:16:31,600 --> 00:16:35,680 Speaker 5: might have very different policies fiscal maybe immigration coming out 407 00:16:35,720 --> 00:16:36,760 Speaker 5: of Washington. 408 00:16:36,680 --> 00:16:38,680 Speaker 7: No doubt, And I think it's a key challenge to 409 00:16:38,680 --> 00:16:40,640 Speaker 7: think that the Fed cut cut rates in December. So 410 00:16:40,920 --> 00:16:42,880 Speaker 7: when we change the view and we have one rate 411 00:16:42,920 --> 00:16:44,960 Speaker 7: cut in December, I think that that could be highly 412 00:16:45,000 --> 00:16:46,960 Speaker 7: conditioned on the election outcome that we get. If you 413 00:16:46,960 --> 00:16:49,920 Speaker 7: get an election outcome that has meaningful fiscal stimulus and 414 00:16:49,960 --> 00:16:53,880 Speaker 7: has inflationary policies, whether it's their trade or immigration, the 415 00:16:53,960 --> 00:16:55,240 Speaker 7: likelihood that the Fed cuts rates in. 416 00:16:55,160 --> 00:16:56,400 Speaker 4: December is reduced. 417 00:16:56,520 --> 00:16:59,520 Speaker 7: So I do think as we look about potential to 418 00:16:59,520 --> 00:17:02,320 Speaker 7: cut rates, the Fed certainly will have to factor in 419 00:17:02,400 --> 00:17:06,000 Speaker 7: economic policies that will impact inflation, the labor market, and growth. 420 00:17:06,040 --> 00:17:07,800 Speaker 7: And if those things suggested that they shouldn't cut them. 421 00:17:07,720 --> 00:17:08,320 Speaker 4: They're less likely to. 422 00:17:08,560 --> 00:17:10,480 Speaker 2: Let's wrap it up with a cancer point. Andrew Honhorst 423 00:17:10,520 --> 00:17:12,720 Speaker 2: of City on the program a little bit earlier this morning. 424 00:17:12,760 --> 00:17:15,640 Speaker 2: He still thinks midyear only until recently you were looking 425 00:17:15,680 --> 00:17:18,000 Speaker 2: for midyear as well. You push that back out to December. 426 00:17:18,320 --> 00:17:20,600 Speaker 2: Can you walk me through how low the bomb might 427 00:17:20,640 --> 00:17:23,120 Speaker 2: be to rate cut midyear. I'm just trying to work 428 00:17:23,119 --> 00:17:25,080 Speaker 2: out how this market would respond. Let's say, in a 429 00:17:25,080 --> 00:17:27,760 Speaker 2: few weeks time, get a really soft inflation print. Did 430 00:17:27,800 --> 00:17:30,439 Speaker 2: the conversations of the last month just disappear and we 431 00:17:30,480 --> 00:17:32,600 Speaker 2: start going back to what we're talking about two months ago? 432 00:17:32,760 --> 00:17:33,719 Speaker 2: How does all that work? 433 00:17:33,840 --> 00:17:34,080 Speaker 4: Yeah? 434 00:17:34,160 --> 00:17:36,360 Speaker 7: I think to get a cut by June seems very 435 00:17:36,440 --> 00:17:39,159 Speaker 7: unlike like at this point in time, absent a weakening 436 00:17:39,160 --> 00:17:39,960 Speaker 7: in the growth environment. 437 00:17:39,960 --> 00:17:41,360 Speaker 4: To get a cut by by July. 438 00:17:41,800 --> 00:17:43,280 Speaker 7: You know, I think you need to see a pretty 439 00:17:43,359 --> 00:17:46,240 Speaker 7: quick deceleration in the inflation data, because we've now had 440 00:17:46,320 --> 00:17:48,840 Speaker 7: three inflation prints that were well above the FED subjective. 441 00:17:49,119 --> 00:17:51,240 Speaker 7: We see three and six month in your lized rates, 442 00:17:51,240 --> 00:17:54,120 Speaker 7: which I've been accelerating. It's unlikely you get core PC 443 00:17:54,200 --> 00:17:55,879 Speaker 7: inflation down to two and a half percent year over 444 00:17:56,000 --> 00:17:56,520 Speaker 7: year by that. 445 00:17:56,480 --> 00:17:57,200 Speaker 4: Period in time. 446 00:17:58,000 --> 00:18:00,160 Speaker 7: So I think you really need to see a swift 447 00:18:00,480 --> 00:18:04,040 Speaker 7: in compelling and convincing several prints of weaker inflation data, 448 00:18:04,280 --> 00:18:06,880 Speaker 7: probably coupled with some weakening of the labor What do. 449 00:18:06,840 --> 00:18:08,840 Speaker 2: You see in the inflation mix right now that makes 450 00:18:08,880 --> 00:18:10,120 Speaker 2: you think that's very unlikely. 451 00:18:10,680 --> 00:18:12,760 Speaker 7: So when you look at things like trim mean and median, 452 00:18:13,119 --> 00:18:15,440 Speaker 7: those things have remained elevated, telling you it's not all about. 453 00:18:15,280 --> 00:18:16,440 Speaker 4: Outliers at this point in time. 454 00:18:16,600 --> 00:18:18,880 Speaker 7: I would also highlight last week we got this new 455 00:18:18,920 --> 00:18:21,320 Speaker 7: tenant and all tenant rent index data from the Cleveland 456 00:18:21,320 --> 00:18:23,240 Speaker 7: Fedit it has a little bit of a lead, and 457 00:18:23,280 --> 00:18:26,600 Speaker 7: the alternate index actually stabilized at elevated levels. And so 458 00:18:26,640 --> 00:18:29,159 Speaker 7: that tells us at least through Q two, we're unlikely 459 00:18:29,200 --> 00:18:32,159 Speaker 7: to see shelter inflation decelerate quickly. If that happens, we're 460 00:18:32,200 --> 00:18:34,359 Speaker 7: unlikely to get the soft inflation the Fed needs. 461 00:18:34,440 --> 00:18:34,640 Speaker 4: Matt. 462 00:18:34,640 --> 00:18:36,520 Speaker 2: This was smart always to can't shut up the brilliant 463 00:18:36,520 --> 00:18:38,920 Speaker 2: Matttersati that Deutsche Bank looking for the first rate cut 464 00:18:38,960 --> 00:18:41,679 Speaker 2: to come in December and looking for that to be 465 00:18:42,000 --> 00:18:44,320 Speaker 2: maybe some moderate adjustment in twenty twenty five, and what 466 00:18:44,320 --> 00:18:46,440 Speaker 2: the team of at Deutsche Bank are cooling a mid 467 00:18:46,520 --> 00:18:47,959 Speaker 2: cycle adjustment. 468 00:18:59,160 --> 00:18:59,400 Speaker 8: VJ. 469 00:18:59,480 --> 00:19:00,480 Speaker 4: We've got some time. 470 00:19:00,280 --> 00:19:02,199 Speaker 2: With you on place to say the work through a 471 00:19:02,200 --> 00:19:04,359 Speaker 2: lot of issues and the coaching question for us on 472 00:19:04,400 --> 00:19:06,399 Speaker 2: this program over the last few weeks has been do 473 00:19:06,480 --> 00:19:09,160 Speaker 2: we have an industry problem here or a test the problem? 474 00:19:09,600 --> 00:19:10,320 Speaker 2: Which one is there? 475 00:19:11,359 --> 00:19:13,159 Speaker 8: I think it's a little bit of both. 476 00:19:13,560 --> 00:19:16,479 Speaker 6: I think in terms of industry, we have seen a 477 00:19:16,600 --> 00:19:19,680 Speaker 6: very strong adoption of eb's the last two three years, 478 00:19:19,680 --> 00:19:22,480 Speaker 6: and now you've gone to the first round of early 479 00:19:22,520 --> 00:19:25,080 Speaker 6: adopters and evs, So now getting to the second ground 480 00:19:25,160 --> 00:19:27,560 Speaker 6: is a little bit tougher as most of the low 481 00:19:27,600 --> 00:19:31,200 Speaker 6: hanging food has been taken. So you are seeing broadly 482 00:19:31,320 --> 00:19:34,960 Speaker 6: ev industry face of challenges, especially even in China significant 483 00:19:35,000 --> 00:19:39,320 Speaker 6: price competition. But that said, on Tesla specifically, you have 484 00:19:39,640 --> 00:19:45,000 Speaker 6: a fleet that needs refresh people where investors were looking 485 00:19:45,040 --> 00:19:47,359 Speaker 6: for the model too, so that'll be the focus to 486 00:19:47,440 --> 00:19:50,000 Speaker 6: earnings call if the models too is still on track 487 00:19:50,040 --> 00:19:52,439 Speaker 6: per second half twenty five or do we see that 488 00:19:52,520 --> 00:19:56,080 Speaker 6: get pushed out to twenty six, which in which case, 489 00:19:56,119 --> 00:19:58,960 Speaker 6: you know twenty four and twenty twenty five, you don't 490 00:19:58,960 --> 00:20:01,040 Speaker 6: have a lot of new more is coming to market, 491 00:20:01,160 --> 00:20:02,000 Speaker 6: So so I would. 492 00:20:01,840 --> 00:20:03,200 Speaker 8: Say a little bit of both. VJ. 493 00:20:03,280 --> 00:20:05,080 Speaker 2: If we don't have growth, how do you value the 494 00:20:05,080 --> 00:20:07,680 Speaker 2: growth company? It's a question that wels Fargo. We've tried 495 00:20:07,720 --> 00:20:10,760 Speaker 2: to answer you've raised this question, so kind of valuations 496 00:20:10,760 --> 00:20:11,600 Speaker 2: you put on that name? 497 00:20:12,880 --> 00:20:16,040 Speaker 8: Yeah, I mean I think it's really a tale of 498 00:20:16,200 --> 00:20:17,680 Speaker 8: two scenarios. 499 00:20:17,760 --> 00:20:21,120 Speaker 6: One is definitely near term where you have challenging growth 500 00:20:21,560 --> 00:20:25,800 Speaker 6: expectations because of a you know, a fleet that needs 501 00:20:25,800 --> 00:20:26,320 Speaker 6: to reflesh. 502 00:20:26,520 --> 00:20:28,560 Speaker 8: But longer term, you still have. 503 00:20:28,600 --> 00:20:33,560 Speaker 6: The sicular tailwind that electrification is still very much on track, 504 00:20:33,640 --> 00:20:37,120 Speaker 6: and we will see the global EV market grows significantly 505 00:20:37,160 --> 00:20:39,560 Speaker 6: as you look out tons and twenty eight because that's 506 00:20:39,600 --> 00:20:42,200 Speaker 6: where everybody is placing their chips. 507 00:20:41,960 --> 00:20:44,080 Speaker 8: I mean, all the global auto ems. 508 00:20:43,680 --> 00:20:47,800 Speaker 6: All global economies, everybody is pushing on the EV roadmap. 509 00:20:47,920 --> 00:20:51,480 Speaker 8: So that's where the trend is. Near term, you have 510 00:20:51,600 --> 00:20:53,000 Speaker 8: some challenges because. 511 00:20:54,720 --> 00:20:58,800 Speaker 6: You're fishing a conundrum of lowering pricing, lowering costs to 512 00:20:58,920 --> 00:21:02,600 Speaker 6: drive sales and are not there yet. The EV market 513 00:21:02,640 --> 00:21:04,760 Speaker 6: still needs to make sure to bring costs down, bring 514 00:21:04,760 --> 00:21:07,399 Speaker 6: asps down, and the Model two would have been a 515 00:21:07,480 --> 00:21:11,720 Speaker 6: very welcome addition to that fleet, but it looks like 516 00:21:12,200 --> 00:21:13,800 Speaker 6: there are some question marks around that. 517 00:21:13,880 --> 00:21:16,080 Speaker 1: So given that, what gets us to one hundred and 518 00:21:16,119 --> 00:21:18,560 Speaker 1: ninety five dollars a share from the current one hundred 519 00:21:18,560 --> 00:21:21,200 Speaker 1: and forty two dollars a share on Tesla as you project. 520 00:21:22,200 --> 00:21:25,640 Speaker 6: Yeah, I think a lot of the pullback has been 521 00:21:26,840 --> 00:21:30,080 Speaker 6: given some of the recent trends in slowing EVSs, but 522 00:21:30,240 --> 00:21:35,760 Speaker 6: also some doubt around the model to timeline, especially if 523 00:21:35,760 --> 00:21:38,000 Speaker 6: it's still on second have twenty five or twenty six. 524 00:21:38,040 --> 00:21:43,000 Speaker 6: I think the more clarity CEO, Elon Musk and Tesla 525 00:21:43,040 --> 00:21:45,760 Speaker 6: can give to the street, the better chance you have 526 00:21:46,320 --> 00:21:49,879 Speaker 6: for the stock to consolidate or move higher. So I 527 00:21:49,880 --> 00:21:53,040 Speaker 6: think that's definitely what investors really focusing on. I think 528 00:21:53,160 --> 00:21:57,760 Speaker 6: robot taxis are a good roadmap, but obviously there are 529 00:21:57,800 --> 00:22:03,119 Speaker 6: some significant challenges around, you know, regulatory clients, you know, 530 00:22:03,160 --> 00:22:08,679 Speaker 6: getting the standards there, getting nitsa to a poet, putting 531 00:22:08,720 --> 00:22:11,560 Speaker 6: some you know, guidelines around what is accesible, what's not 532 00:22:11,560 --> 00:22:13,720 Speaker 6: not acceptable, not a pilot eccepter. 533 00:22:13,880 --> 00:22:16,440 Speaker 8: So it's still a roadmap that needs evolving. 534 00:22:17,040 --> 00:22:20,240 Speaker 6: Might be we see something happening BET twenty twenty eight 535 00:22:20,640 --> 00:22:25,360 Speaker 6: at the earliest Sonata. You know, the big focus has 536 00:22:25,400 --> 00:22:27,520 Speaker 6: to be getting Model two back on track. 537 00:22:27,680 --> 00:22:28,480 Speaker 8: So VJ. 538 00:22:28,600 --> 00:22:30,480 Speaker 1: We were talking about this with our own Craig Trudell 539 00:22:30,520 --> 00:22:33,040 Speaker 1: earlier this morning, about which Elon Musk would show up 540 00:22:33,240 --> 00:22:35,119 Speaker 1: to the earnings call. How much does it matter to 541 00:22:35,160 --> 00:22:38,000 Speaker 1: you his tone, whether he likes you guys, or whether 542 00:22:38,040 --> 00:22:41,000 Speaker 1: he just excoriates you for boring questions. 543 00:22:41,600 --> 00:22:47,280 Speaker 6: I think, you know, we have to disassociate the execution troum. 544 00:22:48,000 --> 00:22:52,159 Speaker 6: You know, basically the valuation should be linked to the 545 00:22:52,200 --> 00:22:54,719 Speaker 6: execution of the company. And so I think as Tesla 546 00:22:54,800 --> 00:22:58,520 Speaker 6: has done an excellent job in kind of evangelizing evs 547 00:22:58,600 --> 00:23:01,240 Speaker 6: and growing that whole market, being first to market, and 548 00:23:01,240 --> 00:23:03,520 Speaker 6: they have a massive balance sheet, so all those are 549 00:23:03,560 --> 00:23:06,600 Speaker 6: not issues. Now. The focus should be on getting the 550 00:23:06,600 --> 00:23:09,880 Speaker 6: product roadmap back on track, you know, getting growth back 551 00:23:09,920 --> 00:23:13,879 Speaker 6: on track. So I think that's where, you know, that's 552 00:23:14,160 --> 00:23:17,800 Speaker 6: really what the tie valuation of Tesla stock is really 553 00:23:17,840 --> 00:23:21,040 Speaker 6: the execution on the product loadmap and how that you know, 554 00:23:21,080 --> 00:23:23,560 Speaker 6: how that top line margins evolved. 555 00:23:23,200 --> 00:23:26,640 Speaker 5: Going out, so as it deals with this cost war, 556 00:23:26,720 --> 00:23:29,359 Speaker 5: this price war in China, was it a mistake to 557 00:23:29,400 --> 00:23:32,600 Speaker 5: get rid of the cheaper version twenty five thousand dollars Tesla? 558 00:23:34,520 --> 00:23:36,320 Speaker 8: I think we are not there yet, right. 559 00:23:36,359 --> 00:23:40,240 Speaker 6: I think there have been you know, press reports to 560 00:23:41,520 --> 00:23:43,040 Speaker 6: that that model gets delayed. 561 00:23:43,520 --> 00:23:45,440 Speaker 8: There have been you know. 562 00:23:45,440 --> 00:23:49,120 Speaker 6: Twitter posts about not getting delayed, so we I'm sure 563 00:23:49,200 --> 00:23:52,720 Speaker 6: that's where all the investor questions and focus on the 564 00:23:52,760 --> 00:23:55,760 Speaker 6: call will be. It's much less focus on what learnings 565 00:23:55,760 --> 00:23:58,080 Speaker 6: for the current quler looks like because estimates for the 566 00:23:58,119 --> 00:24:01,600 Speaker 6: current quarter have come down very significant. So I don't think, 567 00:24:02,119 --> 00:24:04,000 Speaker 6: you know any there will be much of any concern 568 00:24:04,040 --> 00:24:06,960 Speaker 6: around what the numbers are for the court and where. 569 00:24:06,840 --> 00:24:07,600 Speaker 8: The margins are. 570 00:24:07,720 --> 00:24:11,280 Speaker 6: All the questions will be how does Tesla get through 571 00:24:11,320 --> 00:24:14,040 Speaker 6: twenty twenty four to twenty five? Is a low cost 572 00:24:14,080 --> 00:24:17,200 Speaker 6: model still on track extra So I think that's really 573 00:24:17,240 --> 00:24:19,000 Speaker 6: where the focus will be. That's really where all the 574 00:24:19,080 --> 00:24:21,720 Speaker 6: questions will be based as they plan. 575 00:24:21,680 --> 00:24:23,960 Speaker 5: To roll out the ROBOTAXI in August. You went through 576 00:24:24,000 --> 00:24:25,959 Speaker 5: a slew of issues that they have to deal with 577 00:24:26,040 --> 00:24:29,000 Speaker 5: before August. I mean, this doesn't even have government approval yet. 578 00:24:29,440 --> 00:24:31,359 Speaker 5: What do you need to hear from US today to 579 00:24:31,480 --> 00:24:34,160 Speaker 5: make you think that, Okay, August, we can actually see 580 00:24:34,160 --> 00:24:34,719 Speaker 5: this product. 581 00:24:36,480 --> 00:24:40,359 Speaker 6: Yeah, I mean, I think seeing the product is it 582 00:24:40,400 --> 00:24:41,560 Speaker 6: is really not a big challenge. 583 00:24:41,560 --> 00:24:43,800 Speaker 8: I think we can have the product there. The real 584 00:24:44,600 --> 00:24:47,359 Speaker 8: question would be, Okay, what's the execution on it? What's 585 00:24:47,359 --> 00:24:49,960 Speaker 8: the performance? You know, what's the driver intervention levels? 586 00:24:50,600 --> 00:24:52,879 Speaker 6: You know, what are the standards we are going to 587 00:24:53,760 --> 00:24:57,600 Speaker 6: you know, be guided by kind of commercializing the robot taxi. 588 00:24:58,000 --> 00:24:59,160 Speaker 8: How many miyers. 589 00:24:58,840 --> 00:25:01,520 Speaker 6: Do we have, you know, what's customer feedback. So there 590 00:25:01,560 --> 00:25:05,120 Speaker 6: is multiple challenges. You know, at this level, the autonomy 591 00:25:05,160 --> 00:25:07,440 Speaker 6: that we haven't even got into yet. So I think 592 00:25:07,480 --> 00:25:10,320 Speaker 6: there are significant challenges to that. And that's why we 593 00:25:10,440 --> 00:25:15,760 Speaker 6: think any significant rollout will need not just a revamp 594 00:25:16,240 --> 00:25:19,840 Speaker 6: an upgrade on the Tesla fest but also significant infrastructure 595 00:25:20,040 --> 00:25:26,040 Speaker 6: upgrades as well. And so it's a route that everybody 596 00:25:26,080 --> 00:25:28,840 Speaker 6: wants to see happen. You know, we have seen this 597 00:25:29,760 --> 00:25:34,280 Speaker 6: multiple times before where where timelines get pushed out, And 598 00:25:34,359 --> 00:25:37,280 Speaker 6: at this point, I think it's fair to assume that 599 00:25:37,840 --> 00:25:40,640 Speaker 6: twenty seven twenty eight is where we think that there 600 00:25:40,680 --> 00:25:43,040 Speaker 6: could be any chance of really seeing. 601 00:25:42,760 --> 00:25:44,120 Speaker 8: Globo taxing on the road. 602 00:25:44,200 --> 00:25:47,440 Speaker 6: That's not geofens, you know, having a little bit more 603 00:25:47,440 --> 00:25:48,800 Speaker 6: flexibility on where you run. 604 00:25:48,720 --> 00:25:49,280 Speaker 4: It, etc. 605 00:25:49,560 --> 00:25:52,200 Speaker 6: At this point, it's still in the very early experimental stage. 606 00:25:52,880 --> 00:25:55,200 Speaker 2: Je let's wrap things up by talking about leadership. Alon 607 00:25:55,280 --> 00:25:58,960 Speaker 2: Musk wasn't always a polarizing figure. It's been highly successful. 608 00:25:58,960 --> 00:26:02,680 Speaker 2: It's incredibly unique amount of success he's had across various industries. 609 00:26:02,920 --> 00:26:05,439 Speaker 2: If you think about payments in the early days the 610 00:26:05,480 --> 00:26:07,960 Speaker 2: time at PayPal. I go back to what he's doing 611 00:26:08,080 --> 00:26:12,080 Speaker 2: right now, innovations in healthcare. It's unbelievable. At the same time, 612 00:26:12,320 --> 00:26:15,119 Speaker 2: he's doing things with SpaceX and again with Tesla, and 613 00:26:15,119 --> 00:26:17,360 Speaker 2: we can talk about sweater another day. But I think, 614 00:26:17,520 --> 00:26:20,359 Speaker 2: in fact, think VJ more recently, the experience of Twitter 615 00:26:20,480 --> 00:26:24,200 Speaker 2: has led to this increased polarization of the man himself. 616 00:26:24,200 --> 00:26:27,360 Speaker 2: When you have conversations with clients about leadership, do they 617 00:26:27,400 --> 00:26:30,919 Speaker 2: feel like he's isolate, isolating a certain portion of the 618 00:26:30,920 --> 00:26:31,680 Speaker 2: consumer base. 619 00:26:33,240 --> 00:26:33,760 Speaker 8: Yeah. I think. 620 00:26:33,800 --> 00:26:36,119 Speaker 6: You know, when you look at geniuses, as you mentioned 621 00:26:36,160 --> 00:26:39,680 Speaker 6: the list of accomplishments along, I think they always tend 622 00:26:39,680 --> 00:26:42,840 Speaker 6: to be eccentric. And so that's exactly why we have to, 623 00:26:43,840 --> 00:26:47,520 Speaker 6: you know, kind of compartmentalized the execution on the stock 624 00:26:48,080 --> 00:26:52,600 Speaker 6: and how Tesla itself is doing from personalities. I mean, 625 00:26:52,720 --> 00:26:54,639 Speaker 6: I know it's very tough to do that, but I 626 00:26:54,680 --> 00:26:57,359 Speaker 6: think when you look at Tesla and you look at SpaceX, 627 00:26:57,600 --> 00:26:58,679 Speaker 6: you know, you have to look. 628 00:26:58,560 --> 00:27:01,680 Speaker 8: At how is that company curing? What's the roadmap? 629 00:27:01,880 --> 00:27:08,080 Speaker 6: Is there something that drives you value valuations, what drives 630 00:27:08,080 --> 00:27:12,399 Speaker 6: ecretionment this company? Except so, but obviously, you know, like 631 00:27:12,480 --> 00:27:16,080 Speaker 6: you said, I mean a real genius got there because 632 00:27:16,119 --> 00:27:18,680 Speaker 6: of their accomplishments, because you know, and none of them 633 00:27:19,000 --> 00:27:21,240 Speaker 6: are seemed to be normal people. They all are eccentric 634 00:27:21,560 --> 00:27:24,320 Speaker 6: and they all have their works, so I wouldn't go there. 635 00:27:24,320 --> 00:27:25,200 Speaker 4: It's a double edged sword. 636 00:27:25,200 --> 00:27:28,640 Speaker 2: It's very diplomatic j Well navigated feature Racash and mis zero. 637 00:27:29,520 --> 00:27:33,040 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best 638 00:27:33,119 --> 00:27:36,440 Speaker 2: in markets, economics, ANNGIO politics. You can watch the show 639 00:27:36,480 --> 00:27:39,439 Speaker 2: live on Bloomberg TV weekday mornings from six am to 640 00:27:39,560 --> 00:27:43,320 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 641 00:27:43,480 --> 00:27:45,680 Speaker 2: or anywhere else you listen, and as always, on the 642 00:27:45,680 --> 00:27:48,120 Speaker 2: Bloomberg Terminal and the Bloomberg Business app.