WEBVTT - JP Morgan, the Fed, and UAW (Podcast) 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:05.280 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moven news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets podcast called Apple Podcasts or wherever 0:00:17.400 --> 0:00:21.040 you listen to podcasts, and at Bloomberg dot com slash podcast. 0:00:22.000 --> 0:00:24.320 So, Matt, we've got some news crossing the tape here. 0:00:24.480 --> 0:00:28.040 Jason JP Morgan settles with Staley US Virgin Islands to 0:00:28.120 --> 0:00:32.360 end Epstein legal woes. JP Morgan Chase reached settlements with 0:00:32.479 --> 0:00:35.640 former executive Jess Stally and the US Virgin Islands over 0:00:35.720 --> 0:00:38.680 ties to Jeffrey Epstein as it seeks to end its 0:00:38.760 --> 0:00:42.440 legal woes over its banking relationship to the deceased pedophile. 0:00:42.479 --> 0:00:45.480 The biggest US bank tentatively agreed to pay seventy five 0:00:45.520 --> 0:00:47.960 million dollars to the US Virgin Island. That's, according to 0:00:47.960 --> 0:00:49.640 the statement Tuesday, less than half of one hundred and 0:00:49.680 --> 0:00:51.960 ninety million dollars of the territory it sought. So let's 0:00:52.000 --> 0:00:53.120 kind of break this down a little bit, and we 0:00:53.159 --> 0:00:55.160 can do that with Elliott Stein. He's the senior analyst 0:00:55.200 --> 0:01:00.600 of Bloomberg Intelligence. Following all the legal issues for bi Ellie, 0:01:00.720 --> 0:01:02.959 I guess this, if nothing else, does put an end 0:01:02.960 --> 0:01:06.400 to kind of what JP Morgan sees is a very 0:01:06.400 --> 0:01:08.000 bad part of its history. 0:01:08.200 --> 0:01:08.440 Yeah. 0:01:08.440 --> 0:01:10.720 I mean this, This has been assorted saga ever since 0:01:10.720 --> 0:01:13.520 Epstein was arrested, and then late last year you had 0:01:13.600 --> 0:01:16.959 both Deutsche Bank and JP Morgan sued both by the 0:01:17.280 --> 0:01:20.160 victims Epstein's victims, and then JP Morgan was also sued 0:01:20.160 --> 0:01:22.560 by the US Virgin Islands. Both banks settled with the 0:01:22.640 --> 0:01:26.160 victims previously, and now we have this settlement which should 0:01:26.160 --> 0:01:28.640 put an end to at least, you know, the litigation 0:01:28.680 --> 0:01:29.640 against the banks. 0:01:30.160 --> 0:01:36.040 It's sorry, it's unclear what the settlement with Staley looks like. 0:01:36.240 --> 0:01:39.560 So we know that in the in terms of the 0:01:39.640 --> 0:01:44.679 US Virgin Islands, the bank has at least tentatively agree 0:01:44.880 --> 0:01:49.920 to pay seventy five million dollars. They're not admitting any wrongdoing, 0:01:50.160 --> 0:01:53.960 I imagine, but when you fork over seventy five million dollars, 0:01:55.160 --> 0:01:59.160 you know that says something in itself. In terms of Staley, 0:02:00.080 --> 0:02:04.320 I don't get whether this means that he is going 0:02:04.400 --> 0:02:07.160 to pay them, and certainly they haven't released any terms. 0:02:08.040 --> 0:02:12.440 Yeah, I mean, presumably there's some sort of monetary component 0:02:12.639 --> 0:02:15.359 to the settlement between JP Morgan and Jess Staley. 0:02:15.400 --> 0:02:18.000 They were coming from Staley to JP Morgan. 0:02:17.840 --> 0:02:21.720 Right, JP Morgan was you know, they were saying that 0:02:21.720 --> 0:02:23.919 they were really only on the hook because of Jess 0:02:23.960 --> 0:02:27.600 Staley's involvement with bringing in Epstein into the bank as 0:02:27.680 --> 0:02:31.160 a client, and that as a result, the bank was 0:02:31.200 --> 0:02:33.920 you know, vicariously liable because of his actions, and so 0:02:33.960 --> 0:02:35.920 they went after him for a few things, you know, 0:02:36.560 --> 0:02:38.640 reaching his duty to the bank by not telling the 0:02:38.639 --> 0:02:41.480 bank earlier about what was going on, and then seeking 0:02:41.560 --> 0:02:44.440 any contribution for any payout that JP Morgan was going 0:02:44.520 --> 0:02:44.840 to make. 0:02:44.840 --> 0:02:47.320 Well for convincing them to keep Epstein's client. Everyone knew 0:02:47.320 --> 0:02:50.600 what was going on. I mean, his the prosecution and 0:02:50.639 --> 0:02:54.840 his conviction in what two thousand and eight was public knowledge. 0:02:55.400 --> 0:02:57.440 So everyone knew. 0:02:57.960 --> 0:03:00.000 Right, and you know, and that was the problem for 0:03:00.120 --> 0:03:02.359 the banks that there were red flags. I mean there 0:03:02.400 --> 0:03:05.640 was no you know, concrete evidence that he was you know, 0:03:05.720 --> 0:03:09.240 doing sex trafficking with children, but there were enough red flags, 0:03:09.320 --> 0:03:12.680 part of which was because he had a prior conviction. 0:03:12.919 --> 0:03:13.200 All right. 0:03:13.280 --> 0:03:15.840 Deutsche Bank also paid, didn't the actually remember them being involved. 0:03:16.000 --> 0:03:18.959 Yeah, So Deutsche earlier this year paid about seventy five 0:03:18.960 --> 0:03:22.280 million dollars to the class of victims that had sued Deutsche. 0:03:22.400 --> 0:03:24.840 JP Morgan also settled with that class of victims for 0:03:24.919 --> 0:03:28.440 about two hundred and ninety million dollars. And you know 0:03:28.560 --> 0:03:30.520 that was earlier in the year, in the spring and 0:03:30.560 --> 0:03:32.720 in the summer. And in this case, the US Origin 0:03:32.800 --> 0:03:34.400 Islands case against J. P. Morgan was going to go 0:03:34.480 --> 0:03:37.480 to trial in October. So actually I wrote just a 0:03:37.520 --> 0:03:39.040 couple weeks ago that it looked like this case was 0:03:39.080 --> 0:03:41.440 on the path the settlement because neither side wants to 0:03:41.440 --> 0:03:43.440 go to trial in the case this sillacious. 0:03:43.800 --> 0:03:45.600 Yeah, that's the last thing if you're JP Morgan you 0:03:45.640 --> 0:03:48.200 want to have and then have you know, Jamie Diamond 0:03:48.440 --> 0:03:49.160 dragged into this. 0:03:49.360 --> 0:03:52.520 Exactly right there. These are not facts anyone wants to 0:03:52.520 --> 0:03:53.160 come out in court. 0:03:53.440 --> 0:03:56.120 And so I guess, can we from JP Morgan's perspective, 0:03:56.200 --> 0:03:58.000 is this issue behind it now? 0:03:58.120 --> 0:03:58.560 I think so? 0:03:58.800 --> 0:04:01.400 Because you settled with the vic or the class of victims, 0:04:01.400 --> 0:04:03.840 I guess right, yep. And if you'd enjoined that class, 0:04:03.920 --> 0:04:05.880 do you have any standing to come back and try 0:04:05.920 --> 0:04:06.720 to do something again? 0:04:06.960 --> 0:04:09.400 No, no, you know, the settlement is like you either 0:04:09.400 --> 0:04:10.760 opt into the settlement or you don't. 0:04:10.920 --> 0:04:15.000 Okay, Well, they were sued by this class of victims, 0:04:15.480 --> 0:04:18.200 and they were sued by the US Virgin Islands. Right, 0:04:18.880 --> 0:04:21.760 who knows if some other group will come and sue 0:04:21.760 --> 0:04:22.320 them as well. 0:04:22.400 --> 0:04:25.200 Yeah, it's hard to envision what group that would be. 0:04:25.240 --> 0:04:27.840 And there's always statutes limitations too, which sort of put 0:04:27.839 --> 0:04:30.560 a cap on when lawsuits can be brought. So at 0:04:30.560 --> 0:04:34.560 this point, given you know, this is definitely this resolves 0:04:34.600 --> 0:04:36.880 everything that's out there right now for JP Morgan related 0:04:36.920 --> 0:04:38.560 to Epstein. 0:04:38.200 --> 0:04:41.120 All right, all right, that's interesting news, just crossing the 0:04:41.160 --> 0:04:42.599 tape here, So we want to dive into it and 0:04:42.640 --> 0:04:45.200 see what the impact will be for JP Morgan. But 0:04:45.200 --> 0:04:47.080 I guess if nothing else, it's like it puts that 0:04:47.400 --> 0:04:49.479 legal issue behind them. Elliot Stein, thanks so much for 0:04:49.520 --> 0:04:52.599 joining us. Elliot Stein is the senior analyst with Bloomberg Intelligence. 0:04:52.800 --> 0:04:53.640 He went to Stanford. 0:04:53.720 --> 0:04:56.440 So that's PAC twelve, right, you're Stanford cow all that 0:04:56.480 --> 0:04:59.440 kind of stuff. Yeah, guess what, it's Stale and the 0:04:59.480 --> 0:05:01.599 Stanford cardell Now have to come to the East coast 0:05:01.600 --> 0:05:04.600 because you're playing in the ACC Going forward, how stupid is. 0:05:04.560 --> 0:05:07.520 That they're coming closer to me? So I appreciate it. 0:05:07.600 --> 0:05:09.279 It's good for you, I guess for me, I can 0:05:09.320 --> 0:05:12.160 see more games, but it doesn't make any sense history. 0:05:12.200 --> 0:05:14.719 I'm going to ask the volleyball team, some of these 0:05:14.760 --> 0:05:17.640 young ladies to travel two days to get here, a 0:05:17.680 --> 0:05:19.640 couple of days, two days to get back for a 0:05:19.720 --> 0:05:21.839 volleyball game against NC State. 0:05:21.640 --> 0:05:25.080 And want to go to the West coast. 0:05:25.279 --> 0:05:27.680 You know, yeah, I always see these kids, you know, 0:05:27.839 --> 0:05:30.840 in the airports, these teams from all these schools, and 0:05:30.880 --> 0:05:32.880 they're you know, it's not like the football. 0:05:32.520 --> 0:05:34.159 Team where they get their own charter or anything. Of 0:05:34.200 --> 0:05:34.920 the basketball team. 0:05:35.000 --> 0:05:37.200 It's the volleyball team, it's the soccer team, it's the 0:05:37.240 --> 0:05:40.280 golf team or whatever. And they're always like sitting in airports, 0:05:40.360 --> 0:05:43.000 huddle up, trying to study and everything. I just imagine 0:05:43.320 --> 0:05:47.200 a cross country stuff. Of course, USC and UCLA they get. 0:05:47.000 --> 0:05:49.520 To come to Piscataway, New Jersey they play. How good 0:05:49.600 --> 0:05:51.800 is that? All right? Ellie, thanks so much for it. 0:05:51.800 --> 0:05:52.960 He joining us here. 0:05:54.120 --> 0:05:55.320 You're listening to the team. 0:05:55.640 --> 0:05:59.040 Can's a line program Bloomberg Markets weekdays at ten am, 0:05:59.040 --> 0:06:02.960 eastern Burg dot Com, The iHeartRadio app and the Blowberg 0:06:03.040 --> 0:06:06.360 Business app or listen on demand wherever you get your podcasts. 0:06:09.000 --> 0:06:12.159 Definitely a risk off feel to the market here today again, 0:06:12.200 --> 0:06:16.600 as the high interest rate environment seems to be here 0:06:16.640 --> 0:06:17.159 for longer. 0:06:17.200 --> 0:06:18.320 Is what the market's pricing in. 0:06:18.920 --> 0:06:21.479 Let's check in with somebody who has an informed opinion 0:06:21.520 --> 0:06:27.880 on this. Brent Shooty, chief investment strategist for Northwestern Mutual. Brent, 0:06:28.600 --> 0:06:32.239 what's your call here on what our federal Reserve is 0:06:32.360 --> 0:06:34.839 going to do kind of over the next six to 0:06:34.880 --> 0:06:35.920 twelve months. 0:06:36.880 --> 0:06:39.159 Yeah, I think the Federal Reserve is worried about wage growth. 0:06:39.480 --> 0:06:41.799 So you have seen the disinflation that we thought would happen. 0:06:42.080 --> 0:06:45.040 That was largely because the inflation that we had over 0:06:45.080 --> 0:06:47.640 the prior couple years was largely tied to COVID. As 0:06:47.640 --> 0:06:50.120 we pushed further past that and the economy moved back 0:06:50.360 --> 0:06:53.360 somewhere towards equilibrium, we thought that inflation would come down, 0:06:53.640 --> 0:06:56.560 and it has. That's the good news. The bad news 0:06:56.600 --> 0:06:59.120 is the US economy looks late in an economic cycle. 0:07:00.040 --> 0:07:02.120 Typically happens late in the economic cycle is that the 0:07:02.160 --> 0:07:06.160 labor market is tight, which causes wages to grow and 0:07:06.200 --> 0:07:08.760 that can lead to inflation being pulled back higher, which 0:07:08.760 --> 0:07:11.320 I think is the prime warror right now, and so 0:07:11.320 --> 0:07:15.000 so until the FED sees wages move lower, they are 0:07:15.040 --> 0:07:18.720 not going to take that liquidity tourniquet off. Unfortunately, the 0:07:18.720 --> 0:07:20.920 only way that labor or that wages have moved lower 0:07:20.920 --> 0:07:23.000 in the past when the labor markets is tied us 0:07:23.000 --> 0:07:25.680 through job losses, which we think is a likely outcome 0:07:25.680 --> 0:07:28.000 in the coming months, which will lead to that recession 0:07:28.000 --> 0:07:29.400 that we still think is on the horizon. 0:07:31.480 --> 0:07:35.280 What do you think about the UAW strike and you know, 0:07:35.360 --> 0:07:39.320 if they come back with wage increases, they're going to 0:07:39.320 --> 0:07:42.760 be at least twenty percent, right, maybe closer to thirty. 0:07:43.760 --> 0:07:45.920 That's I guess you could say only one hundred and 0:07:45.920 --> 0:07:48.560 fifty thousand workers, but people at other shops are going 0:07:48.640 --> 0:07:50.440 to look over there and say, I want that too. 0:07:51.920 --> 0:07:54.520 Is that going to be a real factor or is 0:07:55.280 --> 0:07:57.240 or or are you not expected to have kind of 0:07:57.240 --> 0:07:58.239 a nationwide effect? 0:07:59.040 --> 0:08:01.920 No, I mean, I think it's more indicative of where 0:08:01.920 --> 0:08:03.840 we are in the economic cycle, which is late where 0:08:03.840 --> 0:08:06.760 wages rise because there's a lack of workers to fill 0:08:06.800 --> 0:08:09.920 open positions, which causes that wage growth. Of the FED 0:08:09.960 --> 0:08:13.520 fears about, I think people forget that the inflationary period 0:08:13.560 --> 0:08:16.000 that the FED worries about that was so bad in 0:08:16.000 --> 0:08:19.640 this US economy was called the wage price spiral, and 0:08:19.680 --> 0:08:21.080 that's where I think we're at right now, and that's 0:08:21.080 --> 0:08:23.720 why I think the Federal Reserve isn't going to stop. 0:08:23.760 --> 0:08:26.760 They're not going to loosen policy until they see wages 0:08:26.800 --> 0:08:29.200 pull back. Right now, wages are running at four point 0:08:29.240 --> 0:08:31.960 three to four point five percent, pick your measure. I 0:08:31.960 --> 0:08:34.240 think in an interview a few weeks ago, John Williams, 0:08:34.720 --> 0:08:37.040 VP of the FMC said that three point two to 0:08:37.040 --> 0:08:39.440 three point five was more consistent with two percent inflation. 0:08:40.120 --> 0:08:41.880 And as I mentioned before, the only way that's happened 0:08:41.920 --> 0:08:44.520 in the past is through recession, and so maybe this 0:08:44.559 --> 0:08:46.839 time is different. But I think there are enough things 0:08:46.840 --> 0:08:50.720 that are flashing red that you can continue to think 0:08:50.720 --> 0:08:52.960 about that recession coming in the not too distant future. 0:08:53.440 --> 0:08:56.440 Well, if that's the background there, Brent, are you advising 0:08:56.440 --> 0:08:59.160 folks to just go into two year treasuries at five 0:08:59.160 --> 0:09:01.280 point one three percent? That doesn't seem like a bad 0:09:01.520 --> 0:09:02.040 place to be. 0:09:02.800 --> 0:09:05.040 Well, we have been repositioning towards fixed income for the 0:09:05.040 --> 0:09:06.760 better half the last six to nine months, and so 0:09:06.800 --> 0:09:09.640 we are overweight fixed income and underweight equities. As far 0:09:09.679 --> 0:09:11.360 as hiding out in the front end of the curve, 0:09:12.160 --> 0:09:14.840 I would advise people not to do that. I think 0:09:15.200 --> 0:09:18.800 intermediate term bonds offer value here, and they offer a 0:09:18.840 --> 0:09:21.560 hedge against equity downside risk, which I think will be 0:09:21.600 --> 0:09:25.680 caused by too little economic growth, which will cause inflation 0:09:26.120 --> 0:09:29.199 to fall. And so if you think about your Bloomberg 0:09:29.200 --> 0:09:31.839 aggregate index at five point three five percent and a 0:09:31.920 --> 0:09:36.920 six duration, if inflation does fall, think about the difference 0:09:36.920 --> 0:09:39.480 between five point three and two percent. That's where I 0:09:39.480 --> 0:09:41.760 think there's value right now, especially if you believe like 0:09:41.800 --> 0:09:43.960 I do, inflation is set to falter, which I do. 0:09:44.280 --> 0:09:46.000 I think the good news on the opposite side of 0:09:46.040 --> 0:09:48.120 that is the FED will be able to cut rates, 0:09:48.120 --> 0:09:50.720 but not until they actually see, you know, that actual 0:09:50.720 --> 0:09:54.120 recession happen, which I think is still on the horizon. 0:09:55.080 --> 0:09:58.000 How far out the curve do you go to you say, 0:09:58.040 --> 0:10:03.679 six year? I mean, I know nothing about bonds like Paul, 0:10:05.400 --> 0:10:08.760 but I look at four point eight five percent on 0:10:08.840 --> 0:10:11.439 the twenty year and I think, when's the next time 0:10:11.480 --> 0:10:12.200 I'm going to see that? 0:10:13.880 --> 0:10:16.120 Yeah, this is where so maybe just a little bit 0:10:16.160 --> 0:10:18.240 more common sensical. So if you invest in a two 0:10:18.320 --> 0:10:20.400 year right now. So let's take you back to six 0:10:20.440 --> 0:10:22.440 and give you a real life example. In O six, 0:10:22.480 --> 0:10:24.679 the yield care was inverted. I believe the two year 0:10:24.720 --> 0:10:26.480 was somewhere around five twenty eight to ten year was 0:10:26.520 --> 0:10:28.800 at five twenty four or something. So it wasn't as 0:10:28.800 --> 0:10:31.400 big as an inversion of the day. But think about 0:10:31.480 --> 0:10:33.920 that person in the two year, think about something called 0:10:33.960 --> 0:10:37.000 reinvestment rate risk. They would have had to have had 0:10:37.440 --> 0:10:40.600 to reinvest that tenuere or that two year four more times. 0:10:41.040 --> 0:10:44.040 The first reinvestment I believe would have occurred sub two percent, 0:10:44.400 --> 0:10:47.520 the last three sub one percent. And so that's where 0:10:47.559 --> 0:10:50.559 I think just having bonds across the spectrum for an individual, 0:10:51.040 --> 0:10:53.680 I think is the most appropriate thing. I just worry 0:10:53.760 --> 0:10:56.640 right now that people are hiding in cash, and you're right, 0:10:57.000 --> 0:10:59.480 who knows where rates will be two, three, five years 0:10:59.480 --> 0:11:02.440 from now. You know, perhaps rates are hired now. I 0:11:02.440 --> 0:11:04.760 don't think we're going back to where we were before, 0:11:04.840 --> 0:11:07.880 but that's still a kind of an uncertain call, and 0:11:07.920 --> 0:11:11.280 I think that's reflective of if you think about uncertainty, 0:11:11.280 --> 0:11:14.040 you probably want to spread your bond across the curve 0:11:14.120 --> 0:11:15.439 just a bit and not hide in any one part 0:11:15.440 --> 0:11:15.960 of the market. 0:11:16.600 --> 0:11:19.760 So on the fixed income space, go out a little bit, 0:11:20.280 --> 0:11:23.280 and is it really are you staying with investment grade? 0:11:23.360 --> 0:11:25.800 Are you considering certain parts of the high yield. 0:11:26.400 --> 0:11:28.559 No, not high yield yet, I mean investment grade right now, 0:11:28.600 --> 0:11:30.880 given that we're headed into an economic contraction, I think 0:11:30.880 --> 0:11:33.120 you want to stay high quality, especially when those investment 0:11:33.160 --> 0:11:36.079 grade bonds offer quite a bit of yield, in many 0:11:36.160 --> 0:11:38.400 cases yields you haven't seen in sixteen to twenty years, 0:11:38.679 --> 0:11:40.439 which I think you know four years ago, if I 0:11:40.600 --> 0:11:42.280 came on your show and told you that, you would 0:11:42.280 --> 0:11:44.360 have told me I'm crazy. So that maybe has a 0:11:44.360 --> 0:11:47.080 little bit of a commentary about how uncertain the world 0:11:47.080 --> 0:11:49.080 can be. And that's where I think, you know, I 0:11:49.080 --> 0:11:50.679 think people need to reflect that, and I think you 0:11:50.720 --> 0:11:52.960 need to invest across the curve, but focus more so 0:11:53.240 --> 0:11:55.840 on intermediate term bonds. Just given the fact that you 0:11:55.880 --> 0:11:57.840 do lock in those yields for a few more years. 0:11:58.440 --> 0:12:01.439 When is the right time to buy high yield debt? 0:12:01.840 --> 0:12:05.320 I mean, if you see a recession coming next year, 0:12:06.040 --> 0:12:08.480 do you buy in the middle of it, at the 0:12:08.480 --> 0:12:09.640 beginning of it, at the end of it? 0:12:09.679 --> 0:12:12.640 When, yeah, I think somewhere on the middle of it. 0:12:12.679 --> 0:12:14.000 I mean, that's where I think, and that's not where 0:12:14.040 --> 0:12:16.760 it's kind of uncertain about timing. You know, there are 0:12:16.760 --> 0:12:19.280 many indications to me that the US economy is headed 0:12:19.320 --> 0:12:21.440 to a recession. I think people ignoring them because they 0:12:21.440 --> 0:12:23.560 believe this time is different. There are so many things 0:12:23.559 --> 0:12:26.439 flashing red right now that you know, I think a 0:12:26.520 --> 0:12:29.559 recession is is probably you know, it could happen in 0:12:29.559 --> 0:12:31.360 the next three to six months. That's where timing is 0:12:31.360 --> 0:12:34.280 a bit uncertain. But that's where you just behave better 0:12:34.280 --> 0:12:36.400 at the end of an economic cycle, and that's where 0:12:36.440 --> 0:12:38.400 I think you want to be in high quality bonds now. 0:12:38.720 --> 0:12:41.600 I think the time for owning things that are less 0:12:41.720 --> 0:12:44.200 than high quality is after they reprice quite a bit, 0:12:44.200 --> 0:12:46.520 which they haven't done enough right so yet. 0:12:47.160 --> 0:12:50.240 By the way, I got another credit trader writing in 0:12:50.280 --> 0:12:54.880 with a question, since by rates is sort of consensus 0:12:54.960 --> 0:12:57.360 decade high yields, how do you outperform your peers if 0:12:57.400 --> 0:12:58.840 everyone's doing the same trade. 0:12:59.480 --> 0:13:01.360 I'm not for sure sure that that is consensus any 0:13:01.400 --> 0:13:03.360 longer or is consensed. So I think that you know, 0:13:03.400 --> 0:13:05.480 the soft landing trade was on the higher forever and 0:13:05.520 --> 0:13:08.440 interest rates when I talk to individual investors, they are 0:13:08.520 --> 0:13:11.400 scared to buy bonds, and I don't think you're seeing 0:13:11.679 --> 0:13:14.120 a huge rush into the bond market. I hear enough 0:13:14.200 --> 0:13:17.400 other voices of people like myself who are telling people 0:13:17.440 --> 0:13:19.120 the opposite, which I think is the wrong answer. 0:13:19.800 --> 0:13:22.440 Inequities, I mean, the big cap growth stocks have been 0:13:22.559 --> 0:13:23.439 the winners. 0:13:23.040 --> 0:13:23.720 Here this year. 0:13:23.760 --> 0:13:25.319 Do you stick with them or do you try to 0:13:25.320 --> 0:13:26.720 find some value elsewhere. 0:13:27.720 --> 0:13:29.320 I think you try to find value elsewhere. And this 0:13:29.360 --> 0:13:31.800 is where my probably my commentary about liking small and 0:13:31.880 --> 0:13:34.440 mid is a bit odd because they are more economically sensitive. 0:13:34.679 --> 0:13:36.080 And this is where I do think there is some 0:13:36.120 --> 0:13:38.840 good news for equity investors. I think parts of the 0:13:38.880 --> 0:13:41.480 market have discounted some sort of a recession. And so 0:13:41.520 --> 0:13:43.280 if you think about most of us on Wall Street, 0:13:43.320 --> 0:13:45.000 we do have to put money to work every day, 0:13:45.320 --> 0:13:47.080 and so I think most people have hidden out in 0:13:47.080 --> 0:13:50.520 those large cap names that they think are economically insensitive, 0:13:50.760 --> 0:13:52.920 that they're going to grow forever. And that's been the 0:13:52.920 --> 0:13:56.160 part of the market that has done well. Other parts 0:13:56.240 --> 0:13:59.600 of the market haven't. Those are small and mid cap stocks. 0:14:00.120 --> 0:14:03.319 S and P six hundred trades at twelve point five 0:14:03.400 --> 0:14:06.760 times four twelve earnings that are down twelve to thirteen percent, 0:14:07.200 --> 0:14:09.360 and so I suspect that you will see those earnings 0:14:09.440 --> 0:14:11.720 estimates fall a bit. But I do think there is 0:14:11.720 --> 0:14:13.880 some cushion there, and that's where I think the opposite 0:14:13.880 --> 0:14:15.840 side of this can be really good for individual investors 0:14:15.880 --> 0:14:16.520 in those areas. 0:14:16.640 --> 0:14:18.680 All Right, Brent, thanks so much for giving us some 0:14:18.679 --> 0:14:21.360 of your time. Really appreciated brand shooting. He's a chief 0:14:21.440 --> 0:14:26.080 investment strategist at Northwestern Mutual. I appreciate getting his thoughts 0:14:26.080 --> 0:14:29.360 here on the equity side, a little bit underweight and 0:14:29.560 --> 0:14:30.960 overweight on fixting companies. 0:14:31.040 --> 0:14:34.640 You're listening to the tape Kensur Live program Bloomberg Markets 0:14:34.680 --> 0:14:38.080 weekdays at ten am Eastern on Bloomberg Radio, the tune 0:14:38.120 --> 0:14:39.800 in app, Bloomberg dot Com, and. 0:14:39.760 --> 0:14:41.080 The Bloomberg Business App. 0:14:41.120 --> 0:14:43.920 You can also listen live on Amazon Alexa from our 0:14:43.960 --> 0:14:51.360 flagship New York station, Just say Alexa Play Bloomberg eleven thirty. 0:14:52.200 --> 0:14:52.480 Matt. 0:14:52.720 --> 0:14:55.360 We've been talking about this strike against the auto workers 0:14:55.360 --> 0:14:59.240 that doesn't appear like they're making much headway. One of 0:14:59.240 --> 0:15:01.920 the questions I have is how long can these auto 0:15:01.960 --> 0:15:06.240 companies go with this strike? From a financial perspective. Joe 0:15:06.320 --> 0:15:09.040 Levington Joints As. He's the director of credit research for 0:15:09.040 --> 0:15:13.080 Bloomberg Intelligence. He covers the auto companies from the credit perspective. 0:15:13.080 --> 0:15:15.480 He joins us live here in a Bloomberg Interactive broker studio. 0:15:15.600 --> 0:15:17.400 So, Joel, how are their balance sheets? 0:15:17.480 --> 0:15:19.920 How strong are these auto companies from a financial perspective, 0:15:19.920 --> 0:15:22.600 because at some point the strike's really going to hurt 0:15:22.600 --> 0:15:24.040 them financially potentially, oh one. 0:15:24.040 --> 0:15:24.880 Hundred percent, Paul. 0:15:25.120 --> 0:15:26.880 You know, eventually they all have to get to a 0:15:26.920 --> 0:15:29.280 table and have to come to agreement because everybody needs 0:15:29.360 --> 0:15:30.280 to make money, right. 0:15:30.120 --> 0:15:32.479 Well, they only have to have more money than the UAW. 0:15:32.960 --> 0:15:35.320 So how is their balance sheet look compared to that 0:15:35.440 --> 0:15:37.320 of the United Autoworkers Union. 0:15:37.880 --> 0:15:43.600 It's they're significantly significantly stronger than the AW. Okay, it's 0:15:43.720 --> 0:15:48.480 combined Ford and GF have about ninety billion dollars of liquidity. Stillantes, 0:15:48.520 --> 0:15:50.600 I think has about seventy billion dollars of liquidity. 0:15:50.880 --> 0:15:52.800 So liquidity for you is like cash on the balance 0:15:52.840 --> 0:15:56.160 sheet plus some bank lines that they control down on. 0:15:56.240 --> 0:15:58.520 So if I need cash, how much do I really have? 0:15:58.560 --> 0:16:00.880 And they've got like ninety billion years That's what I'm saying. 0:16:01.120 --> 0:16:03.240 STILLANTIS has like another seventy. So you're talking about one 0:16:03.320 --> 0:16:06.200 hundred and sixty billion dollars of firepower and the UAW 0:16:06.280 --> 0:16:09.040 has eight hundred and twenty five million dollars in cash. Oops, 0:16:09.200 --> 0:16:11.440 that's what I'm trying to say. Yeah, I mean, if 0:16:11.480 --> 0:16:14.760 you were on the DraftKings app, you'd probably heavily that 0:16:14.800 --> 0:16:17.440 the Lottos can you like, last a lot longer than 0:16:17.480 --> 0:16:18.440 the uawken. 0:16:18.560 --> 0:16:22.440 And they haven't even really struck where it hurts, right. 0:16:22.480 --> 0:16:25.320 They hit them at a Bronco plant. That's bad, you know, 0:16:25.400 --> 0:16:28.640 because there's already a long line of waiting for a Bronco. 0:16:28.800 --> 0:16:32.680 They're awesome. They hit the Colorado and I know, you know, 0:16:32.760 --> 0:16:35.120 Mark Royce loves those mid sized pickup trucks. 0:16:35.120 --> 0:16:36.000 Actually I drove. 0:16:35.880 --> 0:16:39.320 One, and I was really impressed with the turbo charged 0:16:39.320 --> 0:16:42.480 inline four engine because you're an in like six guy, 0:16:42.800 --> 0:16:45.200 I like an inline six, I like, you know, but 0:16:45.320 --> 0:16:49.680 this small engine I thought was super punchy, had a 0:16:49.720 --> 0:16:52.840 lot of torque. Anyway, they hit him the Wranglers, you know, 0:16:52.920 --> 0:16:56.040 high margin vehicle, but they haven't hit them on the 0:16:56.120 --> 0:16:59.360 truck lines, which is where it hurts, right. They haven't 0:16:59.400 --> 0:17:01.840 struck where they make the f one fifty. They haven't 0:17:01.840 --> 0:17:05.400 struck where they make the Tahoe and the suburban, and 0:17:06.480 --> 0:17:09.439 that would be pretty hardcore if they did that, it 0:17:09.480 --> 0:17:09.880 would be. 0:17:09.840 --> 0:17:11.720 But it goes both ways because the more people you 0:17:11.880 --> 0:17:14.280 put out of the plants, that also means the more 0:17:14.280 --> 0:17:16.240 they're draining down that eight hundred and twenty five million 0:17:16.280 --> 0:17:19.120 dollars right, because they're paying them while they're the UAW 0:17:19.200 --> 0:17:22.560 is paying their employee that their clients while they're you know, 0:17:22.560 --> 0:17:25.000 like while they're on strike. But I agree with you 0:17:25.040 --> 0:17:29.880 if you look back to times like the pandemic, right, 0:17:29.920 --> 0:17:32.160 the pandemic, really what you saw was about a ten 0:17:32.200 --> 0:17:34.439 billion dollars swing in cash flow over a couple of 0:17:34.480 --> 0:17:37.719 quarters if you're talking about a FORD or GM. So 0:17:37.880 --> 0:17:39.960 you could kind of get into that range like if 0:17:39.960 --> 0:17:43.600 this protracts into you know, like a five six, seven 0:17:43.640 --> 0:17:46.399 week kind of event. But we're not there yet, and 0:17:46.480 --> 0:17:48.800 I think, you know, while you have this time, both 0:17:48.840 --> 0:17:51.520 sides are going to hackle out for each percentage increase 0:17:51.520 --> 0:17:52.680 in salary that they can get. 0:17:53.200 --> 0:17:54.679 How are the bonds? How have they been trading? 0:17:55.359 --> 0:17:57.399 Bonds really haven't moved all that much because the raiders 0:17:57.440 --> 0:17:59.920 have been done Actually a very nice job of being 0:18:00.080 --> 0:18:03.119 republic about how they don't expect this to be impactful, 0:18:03.400 --> 0:18:05.440 and how they've built in somewhere between five and eight 0:18:05.480 --> 0:18:08.560 weeks of flexibility. So now that we're, you know, like 0:18:08.720 --> 0:18:12.200 just getting towards the low end of that range, there's 0:18:12.240 --> 0:18:14.720 still plenty of room in terms of how they're thinking 0:18:14.720 --> 0:18:15.399 about ratings. 0:18:16.000 --> 0:18:19.880 So we came out of so GM and Stillantis. 0:18:19.920 --> 0:18:23.840 They did go bankrupt during the crepy Well, I mean, 0:18:23.960 --> 0:18:28.040 Chrysler is really what you're talking about, right Stilantis is 0:18:28.680 --> 0:18:32.920 essentially a French company that bought the Italian company that 0:18:32.960 --> 0:18:34.920 bought Chrysler for like a dollar. 0:18:35.000 --> 0:18:39.119 It's a mix of Pugio Fiat At Chrislis okay coming together. 0:18:39.240 --> 0:18:42.080 But I mean, I'm gonna guess where you were going 0:18:42.080 --> 0:18:44.359 with this. So we talk a lot about the fact 0:18:44.400 --> 0:18:48.280 that the unions took a crappy deal in order to 0:18:48.359 --> 0:18:52.000 help support the automaker's post financial crisis. What we don't 0:18:52.040 --> 0:18:54.920 talk too much about is that the unions had a 0:18:55.000 --> 0:18:58.520 much greedier deal that kind of pushed these automakers into 0:18:58.560 --> 0:19:00.760 bankruptcy during the financial crisis. 0:19:00.840 --> 0:19:04.080 Right, Yeah, I mean we're still talking about I guess 0:19:04.080 --> 0:19:07.040 Mary Varrow's out there saying that we made an offer 0:19:07.080 --> 0:19:11.000 worth one hundred and fifteen thousand dollars uaw worker that 0:19:11.160 --> 0:19:11.800 was rejected. 0:19:11.840 --> 0:19:15.960 So whether you' that's their final pay, one hundred and 0:19:15.960 --> 0:19:17.440 fifteen thousand dollars. 0:19:17.119 --> 0:19:19.320 Right, that's your take home pay. So whether you are, 0:19:19.720 --> 0:19:21.320 depending on what side of the corner you're on, whether 0:19:21.359 --> 0:19:24.280 you think that's good or bad. It doesn't sound particularly 0:19:24.280 --> 0:19:29.199 horrible to me in any way for a unionized manufacturing facility. 0:19:29.240 --> 0:19:31.480 But you know, well, I'm just hang on, I'm just dividing. 0:19:31.600 --> 0:19:35.320 So Mary gets about twenty five million dollars, so divided 0:19:35.400 --> 0:19:39.160 by one hundred fifteen, so she still gets two hundred 0:19:39.160 --> 0:19:43.040 and seventeen times more than that. Yeah, and she works hard, 0:19:43.240 --> 0:19:47.840 I'm sure, and she's steered the company through some tough times, 0:19:48.160 --> 0:19:49.200 but she's had their help. 0:19:49.920 --> 0:19:52.720 Yes, And that's what I say. They eventually have to 0:19:52.720 --> 0:19:54.320 come together because they both need each other. 0:19:54.640 --> 0:19:55.679 Right, if you're going to. 0:19:55.680 --> 0:19:56.960 Make money, you have to have workers. 0:19:57.000 --> 0:19:59.280 And if workers want to have a salary, that they 0:19:59.400 --> 0:20:00.959 have to have a proper parable company behind them. 0:20:01.000 --> 0:20:03.200 Now, they don't just want a salary, right, Mary has 0:20:03.440 --> 0:20:06.600 a defined benefits pension plan. Yes, are the workers going 0:20:06.640 --> 0:20:07.240 to get that too? 0:20:07.600 --> 0:20:10.239 Well, Ford seems to have caved a little bit on 0:20:10.280 --> 0:20:10.760 that front. 0:20:10.760 --> 0:20:11.040 Matt. 0:20:11.400 --> 0:20:14.440 That's a really difficult front for others to go into, 0:20:14.480 --> 0:20:17.240 because if you think about GM, I mean, their opebs 0:20:17.240 --> 0:20:19.040 blew up to like seventy billion before they. 0:20:18.920 --> 0:20:21.640 Went to bankrupt I'm sorry that, Paul. 0:20:21.720 --> 0:20:25.359 There are other pension liabilities that are on their balance sheet. 0:20:25.720 --> 0:20:28.040 That's really what drove them into bankruptcy to begin with 0:20:28.240 --> 0:20:31.240 was to get rid of those liabilities. So to start 0:20:31.320 --> 0:20:33.280 bringing them back in I think would be a really 0:20:33.400 --> 0:20:35.720 difficult thing and probably one of the bigger challenges on 0:20:35.760 --> 0:20:39.200 the GM side. Whereas Ford woulds didn't go into bankruptcy, 0:20:39.240 --> 0:20:44.760 seems more open to working with the union in that aspect. 0:20:45.240 --> 0:20:48.760 So if I'm a creditor too, if I'm a bond 0:20:48.760 --> 0:20:51.520 holder of the big three auto companies, do I have 0:20:51.560 --> 0:20:55.119 a threshold where I don't want to see them have 0:20:55.200 --> 0:20:57.480 an increase more than twenty five thirty percent? 0:20:57.640 --> 0:20:58.960 Or do I just not really care? I just want 0:20:58.960 --> 0:20:59.920 to get a deal done the paper. 0:21:00.080 --> 0:21:03.080 It probably doesn't matter, right you care about the pension. 0:21:03.840 --> 0:21:06.080 I think you care about the pension first when it 0:21:06.080 --> 0:21:08.560 comes to pay. You know, when you're talking about these 0:21:08.560 --> 0:21:11.480 increases between twenty and forty percent are kind of you know, 0:21:11.520 --> 0:21:14.520 like where people are targeting. Even if you think about 0:21:14.520 --> 0:21:17.080 forty percent, it's forty percent of four percent of your 0:21:17.119 --> 0:21:19.680 total cost of your total bill, and that's before there's 0:21:19.760 --> 0:21:22.920 any cost benefits that the company may get, and that's 0:21:22.920 --> 0:21:23.920 before you think about price. 0:21:24.119 --> 0:21:26.240 So labor's only four percent of their cost. Diructor, it's 0:21:26.240 --> 0:21:26.960 only four percent. 0:21:27.040 --> 0:21:30.600 It's really deal, just well, that's that's what two guys 0:21:30.600 --> 0:21:33.960 from some it might say, yes, but why does it 0:21:34.000 --> 0:21:36.760 call it thirty or thirty five percent? Have a drink 0:21:36.800 --> 0:21:39.640 and revel with life, and then you'd be fine, because 0:21:39.640 --> 0:21:42.120 really you're talking about a percentage point or two on 0:21:42.160 --> 0:21:45.159 your price side, or figuring out some cost benefits on 0:21:45.200 --> 0:21:46.800 the way, and then you can move on with life. 0:21:47.160 --> 0:21:50.400 Pensions are much more expensive. They also want a four 0:21:50.520 --> 0:21:52.359 day work week, which means you got to hire a 0:21:52.359 --> 0:21:55.000 whole bunch of other people and pay more health care 0:21:55.640 --> 0:22:00.240 benefits to those men and women. Plus they want to 0:22:00.359 --> 0:22:03.639 know which products are coming. So, for example, you know, 0:22:03.760 --> 0:22:06.080 Dodge doesn't have anything coming next year and they're going 0:22:06.160 --> 0:22:09.040 to cancel a couple of their offerings. Chrysler only has 0:22:09.119 --> 0:22:11.520 the Pacific, a minivan and nothing else. 0:22:12.040 --> 0:22:13.679 It's a good thing that the UAW is not at 0:22:13.680 --> 0:22:16.280 Bloomberg because we love a seven day work week right here, 0:22:16.480 --> 0:22:18.240 I don't know what a four day work week would 0:22:18.240 --> 0:22:20.439 actually look like. It makes no sense to me. 0:22:20.480 --> 0:22:24.280 I'm a fan of a four hour work frankly, but 0:22:24.359 --> 0:22:26.720 clearly that's not going to happen with the autoworkers. 0:22:26.760 --> 0:22:29.200 That's just thrown out as a starting point. 0:22:30.200 --> 0:22:31.400 But yeah, you're totally right. 0:22:31.400 --> 0:22:32.080 It's the full. 0:22:31.920 --> 0:22:34.000 Package, and it's really the benefits side that I think 0:22:34.119 --> 0:22:36.119 is more of the sticking point for a GM or 0:22:36.160 --> 0:22:36.720 a stillant this. 0:22:37.160 --> 0:22:39.840 So how do you think this place out, having you know, 0:22:39.880 --> 0:22:41.880 listened to both sides and all three companies. 0:22:42.160 --> 0:22:44.040 Yeah, I mean I think Paul Well probably wind up 0:22:44.080 --> 0:22:46.320 somewhere that to some guys could figure it out over cocktail, 0:22:46.400 --> 0:22:48.240 is that it'll probably be somewhere in the thirty percent 0:22:48.320 --> 0:22:50.199 range of a salary increase. You're going to have your 0:22:50.200 --> 0:22:53.639 forty hour work week. Maybe there's some marginal benefit that 0:22:53.680 --> 0:22:55.960 they give back on pensions, and that's. 0:22:55.800 --> 0:22:57.240 About where it'll wind up. 0:22:57.520 --> 0:22:59.920 And the reason that it's not that relevant to it 0:23:00.160 --> 0:23:02.840 to a credit person is because when you think about 0:23:02.880 --> 0:23:05.800 that increase, you're talking about thirty or forty basis points 0:23:05.840 --> 0:23:08.399 of margin. It's really not that big a deal for 0:23:08.520 --> 0:23:11.560 the autos and their outlooks for the long term. 0:23:11.920 --> 0:23:12.680 All right, we'll. 0:23:12.600 --> 0:23:14.720 See what kind of deal they can get done. 0:23:15.240 --> 0:23:19.120 You're listening to the Team ken'shar Live program Bloomberg Markets 0:23:19.119 --> 0:23:22.240 weekdays at ten am Eastern on Bloomberg dot Com, the 0:23:22.320 --> 0:23:25.439 iHeartRadio app and the Bloomberg Business App, or listen on 0:23:25.520 --> 0:23:27.600 demand wherever you get your podcasts. 0:23:30.000 --> 0:23:32.240 Deftly, some concerns out there in the credit markets, but 0:23:32.359 --> 0:23:35.840 one area of a positive sign so Standard and Poors 0:23:36.359 --> 0:23:39.800 Global Ratings on Wednesday upgraded the Government of Jamaica's long 0:23:39.920 --> 0:23:43.880 term foreign and local currency issue a default rating from 0:23:44.119 --> 0:23:47.440 B plus to double B minus with a stable outlook. 0:23:47.440 --> 0:23:49.480 It is the best credit rating that Jamaica has received 0:23:49.520 --> 0:23:52.040 from S and P since it started rating the country 0:23:52.160 --> 0:23:53.680 sovereign dead in nineteen ninety nine. 0:23:53.680 --> 0:23:55.360 Some good news there. We're gonna break that. 0:23:55.359 --> 0:24:01.360 Down with Senator Auburn Hill, Minister of Industry, Investment and Commerce, 0:24:01.560 --> 0:24:03.680 Member of the Senate of the Government of Jamaica, joining 0:24:03.760 --> 0:24:06.879 us live here in our Bloomberg Interactive Broker studio. Minister, 0:24:07.000 --> 0:24:11.760 Welcome to Bloomberg what drove the increase in the rating 0:24:11.840 --> 0:24:16.159 outlook from your ratings issuer for Jamaica, if. 0:24:16.040 --> 0:24:21.200 I could put towards this discipline management we took over 0:24:21.359 --> 0:24:24.679 in twenty sixteen, the Andrew Holness administration took over. We 0:24:24.720 --> 0:24:28.120 made a commitment to the IMF at the time that 0:24:28.200 --> 0:24:31.879 we would continue to make sure we've become fiscally disciplined. 0:24:32.480 --> 0:24:35.520 Right through that period of time. We moved our debts 0:24:35.680 --> 0:24:37.840 down from the high as we might recall at one 0:24:37.880 --> 0:24:40.000 fur to seven when we took over must have been 0:24:40.000 --> 0:24:42.480 in the one thirty five or thereabouts, and move it 0:24:42.560 --> 0:24:45.720 down to where we are today at seventy seven and 0:24:45.960 --> 0:24:48.760 going in the direction of sixty. We had planned to 0:24:48.800 --> 0:24:53.040 get there by twenty sixteen, the pandemic interrupted. We moved 0:24:53.040 --> 0:24:55.520 it to twenty eighteen, but we might get there before 0:24:55.600 --> 0:24:59.680 twenty eighteen. And all through that we've gone through the 0:24:59.720 --> 0:25:02.600 plane them spend one hundred billion Jamaican dollars we didn't 0:25:02.600 --> 0:25:06.000 plan to spend, haven't borrowed any money, and we haven't 0:25:06.080 --> 0:25:10.159 raised taxes in seven years, so that kind of fiscal discipline. 0:25:10.880 --> 0:25:14.200 The rating agencies have been watching it, and the best 0:25:14.240 --> 0:25:17.560 rating we've ever had in twenty four years of S 0:25:17.640 --> 0:25:20.800 and P. We've just had the rating upgrade, and of 0:25:20.800 --> 0:25:22.560 course we're in not happy with that. We want to 0:25:22.600 --> 0:25:26.320 continue to make sure that gets to investment grade as 0:25:26.400 --> 0:25:27.120 quickly as we can. 0:25:27.280 --> 0:25:32.199 So what are the industries that are driving this? Are 0:25:32.280 --> 0:25:37.800 supporting this growth? I have been going to Jamaica my 0:25:37.880 --> 0:25:40.200 whole life. We go to Silver Sands and Trelawney and 0:25:40.240 --> 0:25:42.560 if I get a good bonus, then I'll spend a 0:25:42.560 --> 0:25:46.880 couple of days over at Rose Hall. It's a little pricey, 0:25:47.080 --> 0:25:50.639 but so tourism obviously is I guess one of the 0:25:50.640 --> 0:25:52.920 main industries. What else is pushing this because Jamaica is 0:25:52.960 --> 0:25:55.280 not an offshore economy. This isn't somewhere where people go 0:25:55.320 --> 0:25:58.720 to hide money, you know, or to start crypto businesses. 0:25:58.760 --> 0:26:03.040 No, that's not what we do. What happened is when 0:26:03.080 --> 0:26:07.560 tourism took a dip or and somebody who you've had 0:26:07.600 --> 0:26:11.680 here at Bloomberg, Grandite, tims Ed Bartlett, found all kinds 0:26:11.720 --> 0:26:15.360 of innovative ways to help us open back tourism as 0:26:15.400 --> 0:26:18.840 quickly as we can so that didn't stay down too 0:26:18.880 --> 0:26:22.640 long and we're now back this summer, well past what 0:26:22.720 --> 0:26:26.680 we were in twenty nineteen before the pandemic. But through 0:26:26.840 --> 0:26:31.560 the pandemic we had the BPO, the business processing outsourcing business, 0:26:31.560 --> 0:26:36.280 the knowledge outsourcing business, and that grew by twenty percent 0:26:36.320 --> 0:26:39.280 per year in the last four years. So we quickly 0:26:39.320 --> 0:26:42.840 moved to work from home media adjustments because under the 0:26:43.280 --> 0:26:46.960 BPO arrangement and OECD watching, you have to make sure 0:26:47.000 --> 0:26:49.800 you follow certain basic rules. We got those fixed with 0:26:49.840 --> 0:26:53.000 the Ministry of Finance and through myself, I was then 0:26:53.040 --> 0:26:55.640 in the Ministry of Economic Growth, which is a Prime 0:26:55.680 --> 0:26:58.959 minister's ministry, worked it out, got it to work, and 0:26:59.160 --> 0:27:01.639 it kept on growing and it keeps on growing. But 0:27:01.680 --> 0:27:07.600 we also are looking at growing or exports because we 0:27:07.720 --> 0:27:10.520 have had looks like we had a long period of 0:27:10.840 --> 0:27:14.600 bad debt situation. We've had a longer period of negative 0:27:15.960 --> 0:27:19.399 trade balances and we're now grapping our hands around that 0:27:19.480 --> 0:27:21.800 as we've done with debt. To me, and that's one 0:27:21.800 --> 0:27:26.120 of my main focus why I'm here with twenty odd 0:27:26.240 --> 0:27:30.560 thirty businesses to look at new markets and develop new 0:27:30.600 --> 0:27:34.879 market markets, because you cannot be an exporting business and 0:27:34.920 --> 0:27:37.040 stay in your office, right, So I take them with me. 0:27:37.400 --> 0:27:39.320 I took them here, took them to a land I'm 0:27:39.320 --> 0:27:42.400 going to London from here to make sure we developed 0:27:42.400 --> 0:27:45.120 the markets that we have, and then wider field. 0:27:44.920 --> 0:27:46.480 What are some of those markets that you'd like to 0:27:46.520 --> 0:27:48.800 develop or some of those products or services that you'd 0:27:48.840 --> 0:27:49.359 like to develop. 0:27:49.560 --> 0:27:53.440 For instance, you know Goya very well. We have something called. 0:27:54.760 --> 0:27:55.119 Aki. 0:27:55.320 --> 0:27:57.919 Matty would have had Aki courter breakfast in Jamaica. My 0:27:57.960 --> 0:28:00.520 eggs okay with your egg it looks like eggs, So 0:28:00.560 --> 0:28:05.359 we we know. Goya said to one of our importants 0:28:05.680 --> 0:28:10.399 in Florida recently, we want twenty fourty foot containers. They 0:28:10.440 --> 0:28:13.399 could only give them one. They want something we have color, 0:28:13.520 --> 0:28:16.879 which is like spinach. They want breadfruit, which is we 0:28:16.960 --> 0:28:20.159 make into flour and it's gluten free, which people want. 0:28:20.480 --> 0:28:24.840 We want containers of that. So we have markets I am. 0:28:24.920 --> 0:28:27.440 While I'm looking for new markets, we really what I'm 0:28:27.480 --> 0:28:31.000 looking for as well. The Ministry of Industry. Investment is 0:28:31.000 --> 0:28:34.280 the second part in commerce. I'm looking for investment to 0:28:34.680 --> 0:28:39.760 fit those markets. Come in, help us grow agriculture, agro 0:28:40.400 --> 0:28:43.600 process it and make sure we have the markets for you. 0:28:43.920 --> 0:28:46.200 Come invest. So that's part of the message I bring 0:28:46.200 --> 0:28:46.520 as well. 0:28:46.520 --> 0:28:48.840 What about cannabis, We talk about the canabis business here 0:28:48.880 --> 0:28:53.000 a lot Obviously, the legalization across well for recreational use 0:28:53.000 --> 0:28:56.720 twenty three states in the US has grown the market, 0:28:56.760 --> 0:28:59.960 the legal market considerably. Here can that be an export 0:29:00.360 --> 0:29:04.200 from a country that's in a way famous for Bob 0:29:04.280 --> 0:29:07.840 Marley and and that sort of product we have, We have. 0:29:07.880 --> 0:29:17.200 Exported to places like Australia and Germany, But you probably 0:29:17.240 --> 0:29:21.040 need to get to thirty eight states, at which point 0:29:21.080 --> 0:29:24.920 you can change a constitution because it's a Schedule one drug, 0:29:25.200 --> 0:29:29.600 and until the FEDS change it, you can't do interstate banking. 0:29:29.640 --> 0:29:31.360 So you can do all you want in Colorado, but 0:29:31.400 --> 0:29:35.120 you can't ship it to California. So until that changes. 0:29:36.440 --> 0:29:39.760 As a Schedule one drug, we have to abide by 0:29:39.840 --> 0:29:42.959 certain international rules that we've signed in treaties, So we 0:29:43.000 --> 0:29:45.200 can't just export it will in illly and we can't 0:29:45.240 --> 0:29:48.040 export the United States or even use your airspace to 0:29:48.080 --> 0:29:48.520 export it. 0:29:48.720 --> 0:29:51.920 What is the political climate like in Kingston? I mean, 0:29:52.560 --> 0:29:58.840 you know, we have here a very partisan, very divided 0:29:59.080 --> 0:30:05.400 political system, which is driving Moody is to threaten a downgrade. 0:30:05.520 --> 0:30:07.840 So we've already had downgrades at Fitch and s and P. 0:30:08.120 --> 0:30:11.080 So what advice can you give to the US government? 0:30:11.640 --> 0:30:16.479 You know, post upgrade to try and get along and 0:30:16.600 --> 0:30:18.840 govern correctly. 0:30:19.160 --> 0:30:21.800 Why don't I tell you what we've done. We have 0:30:22.680 --> 0:30:28.240 made sure that we focus on the fiscal part. Because 0:30:28.240 --> 0:30:32.040 I noticed why Moody is threatening to downgrade the same 0:30:32.080 --> 0:30:36.240 reason SMP did in twenty eleven. It's from what I've read, 0:30:36.400 --> 0:30:40.840 it's the fractiousness over the government closing down. Well, we 0:30:41.000 --> 0:30:44.680 can't say anything about that nor And you have the 0:30:44.760 --> 0:30:47.880 privilege of having the reserve currents in the world, so 0:30:48.120 --> 0:30:51.360 you're in a very particularly privileged position. But what we 0:30:51.480 --> 0:30:54.360 have done in Jamaica is if we didn't get I 0:30:54.400 --> 0:30:57.960 remember when the IMF came in twenty thirteen, I was 0:30:58.040 --> 0:31:01.160 in that meeting called the University of Western is by 0:31:01.160 --> 0:31:04.400 Oliver Clark, who I know, you know from from Silverton, 0:31:04.760 --> 0:31:08.280 from Silverstand. Oliver called that meeting. I remember the Governor 0:31:08.360 --> 0:31:11.880 brand went at the time saying, we cannot get our 0:31:12.720 --> 0:31:17.040 currency and our inflation under check unless the government gets 0:31:17.120 --> 0:31:20.360 its fiscal house in order. You will never hear or 0:31:20.480 --> 0:31:23.400 know we've made since then. We've made the Bank of 0:31:23.480 --> 0:31:27.080 Jamaica independent. You never hear the government talk. The governor 0:31:27.120 --> 0:31:29.680 of the central Bank talks about the talking about the 0:31:30.200 --> 0:31:34.280 fiscal position of the government because we've put it under control. 0:31:34.760 --> 0:31:40.080 And if until you get that done, then their the 0:31:40.200 --> 0:31:43.480 rating agents will have that discussion. But frankly, your discussion 0:31:43.520 --> 0:31:45.840 is quite different because you're the reserve We hold the 0:31:45.840 --> 0:31:48.280 reserve currency and the biggest military in the world. 0:31:49.080 --> 0:31:52.600 Minister talks us about the economy today in Jamaica. What's 0:31:52.640 --> 0:31:54.680 it like for the average in Jamaican today. 0:31:54.640 --> 0:31:58.000 The average Jamaican. First of all, we're just recently the 0:31:58.360 --> 0:32:01.600 most recent figure we had for unemployment is four point 0:32:01.600 --> 0:32:05.880 five percent. It's the lowest in the history of taking 0:32:05.960 --> 0:32:09.720 numbers in Jamaica, so we have a historical law in 0:32:09.800 --> 0:32:12.560 unemployment in the emerging market. Four point five percent is 0:32:12.560 --> 0:32:15.880 near the full employment. So what's happening people in the 0:32:15.960 --> 0:32:20.120 knowledge of outsourcing business, the hospitality business, the tourism business, saying, 0:32:20.280 --> 0:32:21.640 and the construction business. 0:32:21.680 --> 0:32:22.640 We want people. 0:32:24.160 --> 0:32:28.440 Seventy to eighty percent of our university graduates are women. 0:32:29.240 --> 0:32:32.000 We have three hundred or four hundred thousand young people 0:32:32.040 --> 0:32:35.640 on the street who tend to get into gangs their men, 0:32:35.880 --> 0:32:38.600 primarily men, because they're the ones who weren't graduating. So 0:32:38.760 --> 0:32:41.160 now we're saying we have heard trust and t we're 0:32:41.200 --> 0:32:45.240 investing money to take them off the street, put them 0:32:45.280 --> 0:32:49.800 in a training center for months, pay them a stipend. 0:32:50.000 --> 0:32:51.960 A part of the stipend we used to open a 0:32:52.000 --> 0:32:55.040 bank account. We give them a national idea. We give 0:32:55.080 --> 0:32:57.880 them a passport, driver's license so they become part of 0:32:57.920 --> 0:33:01.560 the citizenship. We give them the has been certify them 0:33:01.760 --> 0:33:03.720 so they could work in Jamaica, the United States or 0:33:03.720 --> 0:33:06.280 Saudia Arabia, and put them back in the workforce. So 0:33:06.360 --> 0:33:11.400 we're expanding the workforce in this vicinaty, but with apprenticeship 0:33:11.440 --> 0:33:12.080 with skills. 0:33:12.200 --> 0:33:14.760 All right, that's good news. That's a good story. 0:33:14.800 --> 0:33:17.560 The Standard and poorst certainly thinks it's a good story. 0:33:17.880 --> 0:33:19.800 Jamaica upgraded its credit rating. 0:33:19.960 --> 0:33:23.760 Senator Aubin Hill, he's a Minister of Industry, Investment in Commerce. 0:33:23.920 --> 0:33:26.080 He's also a member of the Senate in the government 0:33:26.120 --> 0:33:27.680 of Jamaica. We appreciate getting a few minuts. 0:33:27.680 --> 0:33:27.960 You're time. 0:33:27.960 --> 0:33:29.840 Great to have you here. Thanks so much for joining us. 0:33:30.120 --> 0:33:31.440 You're listening to the tape. 0:33:31.560 --> 0:33:34.840 Cat's are live program Bloomberg Markets weekdays at ten am 0:33:34.920 --> 0:33:38.720 Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, 0:33:38.760 --> 0:33:39.120 and the. 0:33:39.000 --> 0:33:40.200 Bloomberg Business app. 0:33:40.240 --> 0:33:43.040 You can also listen live on Amazon Alexa from our 0:33:43.080 --> 0:33:48.120 flagship New York station. Just say Alexa play Bloomberg eleven thirty. 0:33:48.720 --> 0:33:53.240 Gary Shilling from a Gary Shilling in company has darkened 0:33:53.240 --> 0:33:58.240 our door and Gary, we've seen an incredible rise in 0:33:58.400 --> 0:34:02.040 rates over the last few weeks. What is going on here? 0:34:03.040 --> 0:34:07.280 Well, I think there's a conviction that the Fed is 0:34:07.280 --> 0:34:11.040 not through tightening, and I don't think they are. They 0:34:11.160 --> 0:34:15.240 really are determined to get inflation back to two percent 0:34:15.320 --> 0:34:17.640 and to keep it there. And of course they were 0:34:17.960 --> 0:34:20.839 very much behind the curve when they started early last year. 0:34:21.239 --> 0:34:26.440 They thought that the inflation spurt was simply reopening the 0:34:26.440 --> 0:34:31.480 economy after the pandemic and and the problems with the 0:34:31.640 --> 0:34:32.440 supply change. 0:34:32.480 --> 0:34:34.279 Now, hang on a second, what have you got there? 0:34:34.320 --> 0:34:35.880 Is it like a candy bar wrapper or. 0:34:36.320 --> 0:34:37.719 It's a sweetish fish? All right? 0:34:37.760 --> 0:34:39.880 Now put the Swedish fish down, because we hear that 0:34:39.960 --> 0:34:42.760 crackling on the So what do you think about Jamie 0:34:42.760 --> 0:34:46.279 Diamond's warning? I mean, seven percent maybe just a number 0:34:46.280 --> 0:34:47.759 that he picked out of the air when he was 0:34:47.800 --> 0:34:49.759 talking in an interview of the Times of India. Who 0:34:49.840 --> 0:34:53.040 knows where he got that number, but we all thought 0:34:53.120 --> 0:34:56.719 that at the most the Fed is going to like 0:34:56.920 --> 0:34:59.719 five and three quarters, And now all of a sudden, 0:34:59.760 --> 0:35:01.080 ever talking about seven. 0:35:01.760 --> 0:35:04.399 Well, interestingly enough, we've done a lot of work over 0:35:04.400 --> 0:35:06.279 the years. We just updated on what we call a 0:35:06.360 --> 0:35:09.560 debt bomb, and that is the question of what is 0:35:09.600 --> 0:35:13.120 the rate at which the interest on the debt, which 0:35:13.160 --> 0:35:16.440 of course is part of the deficit, becomes so great 0:35:16.680 --> 0:35:20.640 that the whole thing grows geometrically and blows up. Now, 0:35:20.840 --> 0:35:24.439 the interest rate on the federal debt now is under 0:35:24.480 --> 0:35:26.640 three percent because a lot of a short term but 0:35:26.760 --> 0:35:30.280 of course it rolls over in time at higher rates. 0:35:30.280 --> 0:35:32.840 So if we stay here, it could be a problem. 0:35:32.880 --> 0:35:36.280 Although our numbers show that unless you got eight percent 0:35:36.920 --> 0:35:38.240 on the federal debt. 0:35:38.239 --> 0:35:40.520 The average eight and we've never been there, right, because 0:35:40.560 --> 0:35:41.520 I remember reading. 0:35:41.360 --> 0:35:44.520 Average maternity is only six years, so until you got 0:35:44.520 --> 0:35:47.440 to eight percent, you probably didn't have a problem. 0:35:47.560 --> 0:35:49.480 But we've never had that problem. We've never had a 0:35:49.520 --> 0:35:50.000 debt bomb. 0:35:50.040 --> 0:35:53.680 The closest we had was nineteen ninety two when interest 0:35:53.760 --> 0:35:56.960 in relation to GDP was three point one percent. It's 0:35:57.000 --> 0:36:00.799 now three percent. It's basically the same. We haven't been there. 0:36:00.800 --> 0:36:04.920 We're not Argentina, but but uh, you know this, this 0:36:05.160 --> 0:36:10.280 is a this is obviously a concern because if interest 0:36:10.360 --> 0:36:13.600 rates are up and stay up, of course, there's a 0:36:13.640 --> 0:36:14.920 lot of other things you worry about. 0:36:14.960 --> 0:36:16.200 I mean, you know, the economy. 0:36:16.200 --> 0:36:19.640 I don't think could stand anything like eight percent interest 0:36:19.719 --> 0:36:22.359 on the federal debt because you'd be you'd be talking 0:36:22.400 --> 0:36:25.399 about double digits for everything else. And we haven't seen 0:36:25.440 --> 0:36:28.920 that since, uh, since the Boker era and and the 0:36:30.120 --> 0:36:31.000 ensuing collapsed. 0:36:31.160 --> 0:36:33.520 Well, now, there's a lot of things you've done in 0:36:33.560 --> 0:36:37.719 your career, uh to to become such a famous economist. 0:36:38.320 --> 0:36:41.200 I probably the biggest is you're a bond bowl and 0:36:41.360 --> 0:36:45.520 we're for throughout the bond bowl market, and you know, 0:36:45.600 --> 0:36:48.960 really made your name with with those calls. How painful. 0:36:49.000 --> 0:36:52.240 Then has this drop in price, run up and yields 0:36:52.280 --> 0:36:57.840 been for you? And at what point do you say, Okay, 0:36:57.880 --> 0:36:59.120 now it's time to buy again. 0:37:00.320 --> 0:37:03.960 Well, obviously when you've had a long term forecast, and 0:37:04.520 --> 0:37:08.280 you might recall Matt when I said in nineteen eighty 0:37:08.320 --> 0:37:10.440 one that we're entering the bond rally of a lifetime 0:37:10.440 --> 0:37:13.000 to yield on the thirty year bond was fourteen point 0:37:13.160 --> 0:37:17.239 six percent. It was a long time ago. Obviously it 0:37:17.280 --> 0:37:20.359 came way down. Now it's rebounded with all other rays. 0:37:21.440 --> 0:37:24.120 I think we're getting I think we're getting close because 0:37:24.400 --> 0:37:28.440 the economy simply cannot stand these kind of rates. We're 0:37:28.880 --> 0:37:32.200 close to or maybe already in a recession. It's always 0:37:32.239 --> 0:37:34.279 up to the National Burea of Economic Research to make 0:37:34.320 --> 0:37:37.600 that call. But I think that will do it. And 0:37:37.640 --> 0:37:41.200 of course you get a recession. What happens. You get 0:37:41.440 --> 0:37:45.160 less demand for high quality credit, you get the safe 0:37:45.160 --> 0:37:49.880 haven of the treasuries, you get the FED easing. But 0:37:49.960 --> 0:37:51.400 I think the Fed is going to be slow to 0:37:51.480 --> 0:37:54.480 ease because they want to make sure that inflation. 0:37:54.200 --> 0:37:55.480 Is killed and killed dead. 0:37:56.480 --> 0:37:59.319 They really were so far behind the curve on this, 0:37:59.760 --> 0:38:02.040 so I think this whole thing is going to get 0:38:02.040 --> 0:38:04.799 stretched out. But I don't think we're there quite there 0:38:04.880 --> 0:38:07.680 yet where I won't go out. We in our portfolio, 0:38:07.680 --> 0:38:10.960 as we manage, we do have some long gone positions, 0:38:10.960 --> 0:38:13.680 but relatively small. We're not adding to them right yet. 0:38:13.920 --> 0:38:18.200 Is there an irrational investor exuberance back in this market? 0:38:21.120 --> 0:38:22.080 Well, he sure is. 0:38:22.200 --> 0:38:24.759 I mean if you look at you look a look 0:38:24.760 --> 0:38:30.319 at example at the FANG index gross stocks. Now to 0:38:30.360 --> 0:38:34.320 the extent that their prices today are the discounted value 0:38:34.360 --> 0:38:38.320 of future earnings out five or ten years. Those things 0:38:38.320 --> 0:38:40.960 ought to be in the tank. Now they've sold off 0:38:41.000 --> 0:38:43.360 a little bit lately, but I mean they've rallied for 0:38:43.480 --> 0:38:46.360 most of most of the year. And of course this 0:38:46.480 --> 0:38:49.120 is a big thorn in the side of the FED 0:38:49.160 --> 0:38:52.879 because they see investors really not believing them. They don't 0:38:52.920 --> 0:38:56.160 really they just don't really believe that they're serious, because 0:38:56.200 --> 0:38:58.000 if they did, you'd see a lot of things like this. 0:38:58.120 --> 0:39:01.120 You see stocks in general and says the interest rates 0:39:01.160 --> 0:39:05.600 sensor is housing already affected by interest rates, but investors 0:39:06.160 --> 0:39:09.600 in terms of securities not yet convinced. 0:39:09.160 --> 0:39:12.080 So so you think, I guess, do you think that 0:39:12.120 --> 0:39:14.920 there's a there's really risk to the stock market in general? 0:39:15.320 --> 0:39:15.520 Oh? 0:39:15.600 --> 0:39:16.880 Yeah. 0:39:17.000 --> 0:39:19.120 Early last year I said, I thought we have a 0:39:19.400 --> 0:39:22.080 thirty percent decline. Peaked the trough, we were down twenty 0:39:22.120 --> 0:39:22.760 five percent. 0:39:23.200 --> 0:39:24.040 You got a rally. 0:39:25.000 --> 0:39:27.880 That means from here you need about a thirty percent decline. 0:39:28.239 --> 0:39:32.319 And yeah, I think I think there is is big risk. 0:39:32.400 --> 0:39:35.440 I mean, you look at all the indicators, you look 0:39:35.480 --> 0:39:38.200 at the leading indicators, you look at the yield curve, 0:39:39.000 --> 0:39:41.840 you look at small business hiring intentions. It's just a 0:39:41.880 --> 0:39:45.480 whole host of factors. And boy, if this isn't if 0:39:45.480 --> 0:39:48.000 this doesn't tell your recession and all it goes with it, 0:39:48.360 --> 0:39:52.520 including fedies a lot easier, a lot lower rates, you've 0:39:52.560 --> 0:39:53.719 got to throw out all the history. 0:39:54.080 --> 0:39:56.759 I would think so too. And you know, I have 0:39:56.800 --> 0:39:59.359 a laundry list of all of the headwinds and all 0:39:59.360 --> 0:40:02.680 the problems that consumers are facing. And you've got along 0:40:02.719 --> 0:40:06.799 with that, this strike which could be bad for the economy, 0:40:06.880 --> 0:40:11.480 and also inflation, government shutdown which doesn't augur well, debts, 0:40:11.680 --> 0:40:16.560 student debt, coming back, delinquencies on credit card debt, and autolans. 0:40:17.160 --> 0:40:22.040 Every time I run this list by a bull, he'll say, hey, 0:40:22.719 --> 0:40:24.839 unemployment is at three point eight percent. You know, as 0:40:24.880 --> 0:40:27.160 long as we have jobs, it's no big deal. 0:40:27.320 --> 0:40:30.919 Well, one of the real issues here, Matt, is that 0:40:31.560 --> 0:40:35.680 employers spend so much time and energy hiring people that 0:40:35.719 --> 0:40:39.560 they're very reluctant to lay them off. It takes time 0:40:39.600 --> 0:40:42.400 to shift gears one hundred and eighty degrees. But of 0:40:42.400 --> 0:40:47.960 course as profits and sales weaken, that's what happens. They 0:40:47.960 --> 0:40:50.319 get layoffs. But this is one of the reasons I 0:40:50.320 --> 0:40:52.359 think this whole exercise is going to be stretched out. 0:40:52.440 --> 0:40:54.840 The other one is the FED taking their good sweet 0:40:54.920 --> 0:40:56.920 time to shift the east because they want to make 0:40:56.960 --> 0:40:58.560 sure that inflation is really. 0:40:58.600 --> 0:41:00.680 But that could mean a deeper set right if we 0:41:00.800 --> 0:41:03.080 have that could mean a very deep recession. If we 0:41:03.160 --> 0:41:06.640 have the kind of UH slow down where you know, 0:41:07.480 --> 0:41:11.359 companies have been not wanting to fire people, but are 0:41:11.360 --> 0:41:14.120 all of a sudden then pushed to do it, and 0:41:14.200 --> 0:41:16.960 then the FED doesn't want to come in cut rates 0:41:17.040 --> 0:41:20.799 until until the economy is really in trouble, that could 0:41:20.800 --> 0:41:22.040 mean a big deep drop. 0:41:22.320 --> 0:41:26.640 I think it means a long recession, but not necessarily deep. 0:41:26.680 --> 0:41:28.839 To get a really deep recession, you've got to have 0:41:28.880 --> 0:41:34.000 a major financial crisis. That That's what happened with the UH, 0:41:34.080 --> 0:41:38.080 with the dot coms in the in the late nineteen nineties, 0:41:38.080 --> 0:41:40.839 and of course that's what happened with the subprime mortgages, the. 0:41:40.760 --> 0:41:43.360 Great Financial Crisis. I mean, looks like there could be 0:41:43.400 --> 0:41:45.719 the beginning of that happening in China right now. 0:41:46.200 --> 0:41:49.319 Does that deep as opposed along you've got to get 0:41:49.320 --> 0:41:51.320 a huge inventory correctionion well. 0:41:51.200 --> 0:41:55.160 Does the Chinese property problem? Were you or are we 0:41:55.239 --> 0:41:58.839 too insulated? The economy, not not that much. 0:41:58.960 --> 0:42:05.080 I mean, our ourd with China has has atrophied. It does, no, 0:42:05.239 --> 0:42:08.680 it does. It does mean that China's internal growth is going. 0:42:08.640 --> 0:42:09.040 To be weak. 0:42:09.080 --> 0:42:13.160 But you look at Si who basically is a present 0:42:13.200 --> 0:42:16.680 for life. He doesn't really care about the well being 0:42:16.719 --> 0:42:19.279 of the average Chinese, only that it's good enough that 0:42:19.360 --> 0:42:22.640 they don't the regime doesn't get tossed out. But but 0:42:23.239 --> 0:42:25.600 they're in a different world. I mean we look at 0:42:25.600 --> 0:42:29.759 it through Western eyes where growth is is is good, 0:42:30.200 --> 0:42:32.160 but they don't look at it. Stay in power is 0:42:32.200 --> 0:42:35.680 good for as far as their concerned. So I don't 0:42:35.719 --> 0:42:38.040 think that China really really cares. And of course they 0:42:38.120 --> 0:42:42.520 got the property problem, they got overbuilt infrastructure, they got 0:42:42.640 --> 0:42:47.120 huge deaths. The result of this, particularly at the provincial level. Well, 0:42:47.160 --> 0:42:49.080 I think China is basically going to be in its 0:42:49.120 --> 0:42:50.480 own its own sphere. 0:42:50.520 --> 0:42:50.680 Now. 0:42:50.680 --> 0:42:53.200 One thing that is is does come out of this 0:42:53.320 --> 0:42:56.640 if it's China's growing more slowly. Uh, it's the second 0:42:56.760 --> 0:42:58.920 largest economy in the world, and it's a stage of 0:42:58.960 --> 0:43:03.640 growth where it's it's more emphasis on goods than services. 0:43:03.680 --> 0:43:06.919 It's economies mature, they shift their services and when you're 0:43:06.920 --> 0:43:10.319 in goods you need commodities, So I think that I 0:43:10.360 --> 0:43:13.600 think that that's we can. Commodities obviously is very differentiated 0:43:14.040 --> 0:43:16.879 the stuff that goes into electric cars, and it's kind 0:43:16.880 --> 0:43:17.640 of its own world. 0:43:17.719 --> 0:43:19.880 But you look at copper. Copper is my favorite. 0:43:20.560 --> 0:43:22.640 I like copper because there's no car tell on either 0:43:22.719 --> 0:43:24.880 the supplier demand side, and it goes into almost any 0:43:25.080 --> 0:43:30.000 manufactured I mean, again, full disclosure. We're short and short 0:43:30.000 --> 0:43:32.200 copper and portfolio as we manage. 0:43:32.040 --> 0:43:35.759 Your short copper. Yes, that's no bueno. Why why are 0:43:35.760 --> 0:43:36.560 you short copper? 0:43:36.719 --> 0:43:40.400 Well because it because that's a that's a bet on 0:43:40.520 --> 0:43:43.080 global manufacturing weakness. 0:43:43.360 --> 0:43:43.800 Yeah. 0:43:43.880 --> 0:43:46.200 Plus the fact say is a bear. I mean, I 0:43:46.200 --> 0:43:47.160 mean you look at opek. 0:43:47.239 --> 0:43:49.960 You can have a great forecast on the oil and 0:43:50.200 --> 0:43:54.040 yet Opac plus comes out tomorrow and make some announcement 0:43:54.120 --> 0:43:56.240 and you're. 0:43:55.840 --> 0:43:58.600 Really all as that were looking ninety dollars hundred dollar barrels. Gary, 0:43:58.640 --> 0:44:00.799 great having you in the studio. Thank you so much 0:44:00.840 --> 0:44:02.880 for coming in. A Gary shilling. 0:44:04.320 --> 0:44:06.960 Yeah, just you know, we just turn them on and 0:44:07.000 --> 0:44:08.200 we can just sit here and listen all day. 0:44:08.320 --> 0:44:10.720 Yeah, well I do that sometimes on the weekends. 0:44:10.760 --> 0:44:12.839 On the weekends. Okay, very good, All right, Gerry, Thanks 0:44:12.840 --> 0:44:13.799 so much for joining us. 0:44:14.200 --> 0:44:17.320 You're listening to the tape Cat's are live program Bloomberg 0:44:17.400 --> 0:44:21.000 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:44:21.040 --> 0:44:23.000 tune in app, Bloomberg dot Com, and. 0:44:22.960 --> 0:44:24.239 The Bloomberg Business App. 0:44:24.320 --> 0:44:27.120 You can also listen live on Amazon Alexa from our 0:44:27.160 --> 0:44:32.120 flagship New York station. Just say Alexa play Bloomberg eleven thirty. 0:44:33.120 --> 0:44:34.680 Let's check out our next guest right here. 0:44:35.360 --> 0:44:40.319 Tim Dewey, Chief US Economists for sg H Macro Advisors. Tim, 0:44:40.360 --> 0:44:42.799 I'm not sure if you heard our last discussion. It 0:44:42.920 --> 0:44:47.480 was with Gary Shilling, and he was bearsh right Man. 0:44:47.800 --> 0:44:49.920 Well, he is, obviously, you know, one of the most 0:44:49.920 --> 0:44:52.600 famous bears on Wall Street exactly. A lot of what 0:44:52.640 --> 0:44:54.719 he was saying reminded me a little bit of what 0:44:54.760 --> 0:44:58.719 I've heard from Jeremy Grantham as well, who is you know, 0:44:58.840 --> 0:45:03.439 obviously uber. But I have to admit that I have 0:45:04.640 --> 0:45:07.719 that that that appeals to me because I see so 0:45:07.800 --> 0:45:11.760 many headwinds in this economy, Tim, and you know, the 0:45:11.760 --> 0:45:15.440 the exuberance that pushed us up to forty five hundred 0:45:15.480 --> 0:45:17.640 on the S and P just doesn't make sense to 0:45:17.640 --> 0:45:19.839 me as the Fed's raising rates five hundred and six 0:45:19.960 --> 0:45:21.719 hundred basis points. How do you see it? 0:45:23.560 --> 0:45:27.840 I am I'm a little bit more optimistic than Gary Schilling. 0:45:27.920 --> 0:45:31.240 I'm not I'm not not quite as bearish of the economy, 0:45:31.239 --> 0:45:34.880 and I tend to be much more optimistic that the 0:45:35.000 --> 0:45:38.640 economy remains more resilient than than people give it credit for. 0:45:38.840 --> 0:45:43.960 And that's a big reason here why stocks that have 0:45:44.160 --> 0:45:48.560 performed better than I think anybody would have anticipated in 0:45:48.600 --> 0:45:51.839 this cycle, you know, given because you said the Fed 0:45:51.920 --> 0:45:54.120 raised rates, you know, over five hundred basis points and 0:45:54.239 --> 0:45:58.680 is threatening you know, the even possibility even more. But 0:45:58.760 --> 0:46:01.400 I think that's just really real that the the economy 0:46:01.520 --> 0:46:05.719 is is is at a fundamental level different and stronger 0:46:05.760 --> 0:46:09.879 than than than than people have really I think been 0:46:09.880 --> 0:46:11.440 willing to contemplate. 0:46:11.040 --> 0:46:13.200 Than ever before in history. Right, I mean, when's the 0:46:13.239 --> 0:46:15.200 last time the FED was able to raise rates five 0:46:15.280 --> 0:46:17.239 or six percent without causing a recession. 0:46:18.239 --> 0:46:20.680 It's a it's a it's a it's a big it's 0:46:20.719 --> 0:46:21.920 a big shift, right. 0:46:22.120 --> 0:46:22.440 Uh. 0:46:22.480 --> 0:46:24.920 And so you know that plenty of people pointed out 0:46:24.960 --> 0:46:29.359 to you know, uh, you know, indicators over the past year, 0:46:29.440 --> 0:46:32.000 year and a half that would all point to a 0:46:32.080 --> 0:46:35.600 recession and in so far you know that that recession 0:46:35.680 --> 0:46:38.880 just hasn't materialized. And again it's just I think speaks 0:46:38.920 --> 0:46:42.640 to a very different economic environment than than we've been 0:46:42.680 --> 0:46:43.239 familiar with. 0:46:43.960 --> 0:46:46.400 So I mean, for better or worse him, you know, 0:46:46.440 --> 0:46:49.280 on my personal agenda, I've taken recession off the table 0:46:49.400 --> 0:46:50.080 several months ago. 0:46:50.120 --> 0:46:53.240 But was I a little premature? There is that still 0:46:53.440 --> 0:46:54.959 really potentially in the cards here? 0:46:55.760 --> 0:46:58.319 Well, so eventually, right, I mean, this is this is 0:46:58.360 --> 0:47:01.680 the stop clock argument, is there's always going to be 0:47:01.680 --> 0:47:05.680 a recession sooner or later. But you know, I think 0:47:05.680 --> 0:47:07.800 you were wise to take it off the table several 0:47:07.840 --> 0:47:11.080 months ago because you know, clearly, you know, I think 0:47:11.120 --> 0:47:15.080 that the predictions that we would have a recession by 0:47:15.080 --> 0:47:19.360 this time, you know, just having materialized, and uh, you know, 0:47:19.360 --> 0:47:22.319 I don't really see one coming, you know, anytime soon. 0:47:22.440 --> 0:47:25.440 I think there's still some momentum under this economy. Uh 0:47:25.480 --> 0:47:29.200 and and that momentum is not going to fade very quickly. 0:47:30.080 --> 0:47:33.360 So I really, you know, I don't have a recession 0:47:33.360 --> 0:47:36.080 in the forecast because you know, it's it's such an 0:47:36.120 --> 0:47:39.120 idiosyncratic event. And that's what keeps tripping people up, is 0:47:39.120 --> 0:47:43.319 that every recession is a little bit different. The indicators 0:47:43.360 --> 0:47:45.279 that that lead you into that recession are a little 0:47:45.280 --> 0:47:48.520 bit different every time. So you know, we really, I think, 0:47:48.600 --> 0:47:52.320 don't have a lot of visibility on on when another 0:47:52.360 --> 0:47:53.239 recession is going to occur. 0:47:53.560 --> 0:47:57.200 And it's a big and diverse economy, who is it? 0:47:57.320 --> 0:47:59.640 Ed Yard Denny has said that he thinks we're in 0:48:00.080 --> 0:48:02.239 kind of a rolling recession where different pockets of the 0:48:02.280 --> 0:48:05.200 economy are hit at different times. You're not just the 0:48:05.280 --> 0:48:09.480 chief economist at SGH Macro Advisors. You are an actual 0:48:09.719 --> 0:48:13.200 doctor in economics. I mean you have a PhD and 0:48:13.280 --> 0:48:16.120 teach courses on this and uh, you know, help to 0:48:16.160 --> 0:48:18.560 guide the economy of the state of organ as far 0:48:18.600 --> 0:48:22.600 as I understand it. What do you think of that 0:48:22.840 --> 0:48:25.560 idea rolling recession? You know, some states are going to 0:48:25.640 --> 0:48:29.160 have problems, some industries are going to have recessions, whereas 0:48:29.840 --> 0:48:32.680 you know, we don't see everyone having a uniform recession. 0:48:32.760 --> 0:48:33.560 Doesn't that make sense? 0:48:34.400 --> 0:48:34.560 Oh? 0:48:34.680 --> 0:48:36.719 It makes it makes a lot of sense. I mean 0:48:36.800 --> 0:48:39.000 we get we sort of forgot it. I mean during 0:48:39.000 --> 0:48:44.319 the the immediate aftermath of the pandemic, when everything was booming, right, 0:48:44.440 --> 0:48:47.960 everybody was doing well, That's that's really not the norm, right, 0:48:48.360 --> 0:48:51.400 if you have, you know, a slower economy. You know 0:48:51.440 --> 0:48:54.000 it's still someone but even but slower economy. 0:48:54.360 --> 0:48:54.480 Uh. 0:48:54.719 --> 0:48:57.239 You you have sectors that that that that are op 0:48:57.360 --> 0:49:00.359 versus down, and that's just you know, that's just part 0:49:00.400 --> 0:49:03.040 of the national give and take. I think of the economy. 0:49:03.040 --> 0:49:06.839 You can't expect everything's going to be cruising along at 0:49:06.880 --> 0:49:09.640 a high speed. And of course that makes you know, 0:49:09.680 --> 0:49:12.200 it more difficult to assess, you know, if you're going 0:49:12.239 --> 0:49:14.640 to fall into a recession or not. Because again, one 0:49:14.680 --> 0:49:18.759 industry sliding. I say this, this industry always slid during 0:49:18.880 --> 0:49:21.080 a prior to a recession. Then you turn around and 0:49:21.120 --> 0:49:24.520 you find another industry that had always slid prior to recession, 0:49:24.760 --> 0:49:27.839 but now is gaining traction, right, And so you kind 0:49:27.840 --> 0:49:29.919 of say, well, wait a second, what's going on here? 0:49:30.560 --> 0:49:33.320 And what's going on here is that you don't have 0:49:33.920 --> 0:49:39.000 an economy wide shock that is really driving firms to 0:49:39.080 --> 0:49:45.040 cut investment and cut employment in a very syn synchronized way. 0:49:45.360 --> 0:49:47.840 And until you can get that kind of shock, that 0:49:47.960 --> 0:49:50.719 kind of momentum, you really I think it's really hard 0:49:50.760 --> 0:49:53.200 to create a recession in the economy. 0:49:53.719 --> 0:49:55.319 That's kind of where I want to go. I'm this 0:49:55.960 --> 0:49:58.279 labor market. Tim just kind of fascinates me. 0:49:58.560 --> 0:50:01.799 You know, I've heard the term hoarding of employees and 0:50:01.880 --> 0:50:03.360 I've never heard that before. 0:50:04.719 --> 0:50:06.520 What do you make of a three point seven percent 0:50:06.600 --> 0:50:08.120 unemployment right here in this economy? 0:50:08.920 --> 0:50:09.120 You know? 0:50:09.760 --> 0:50:13.080 So yeah, we we. I mean, certainly it was during 0:50:13.120 --> 0:50:15.560 the case of the pandemic that labor was so hard 0:50:15.560 --> 0:50:17.440 to get. You didn't want to you didn't want to 0:50:17.520 --> 0:50:21.040 let it go. I think that, you know, firms, if 0:50:21.080 --> 0:50:24.040 they had the sort of economic conditions that that drove 0:50:25.040 --> 0:50:27.840 the need for layoffs, they would react quickly. So the 0:50:27.960 --> 0:50:31.040 labor hoarding story only takes you so far. And remember 0:50:31.160 --> 0:50:34.040 last fall, last winter, you know, around the turn of 0:50:34.080 --> 0:50:38.480 the year, we saw uh, you know, lots and lots 0:50:38.480 --> 0:50:40.800 and lots of layoffs in the tech industry. 0:50:41.120 --> 0:50:43.879 So even though that had been an industry that had 0:50:43.920 --> 0:50:47.399 struggled immensely to hold onto labor during the pandemic, once 0:50:47.440 --> 0:50:50.480 it was ready to shed labor, it shed labor. Now 0:50:50.520 --> 0:50:53.640 that that that story I think has asked us already. 0:50:53.880 --> 0:50:57.520 So for me again, you know, when I look at 0:50:57.719 --> 0:51:00.840 you know, what happens the unemployment right tip Leena cycle, 0:51:01.320 --> 0:51:04.880 It falls to some level like this, a three and 0:51:04.920 --> 0:51:07.560 a half to four percent, somewhere in that range, and 0:51:07.640 --> 0:51:10.360 it just sort of hangs out there until you can 0:51:10.440 --> 0:51:14.000 get again that massive negative shock that really slips you, 0:51:14.080 --> 0:51:15.560 pushes you into another direction. 0:51:15.840 --> 0:51:18.760 Hey, So, Tim, I just want to jump in because 0:51:18.800 --> 0:51:21.719 we are looking at pictures of President Biden on the 0:51:21.800 --> 0:51:26.440 tarmac with UAW President Sean Fain and some other union members, 0:51:27.480 --> 0:51:29.719 you know, and while we're speaking about labor, I might 0:51:29.760 --> 0:51:32.520 as well bring up this because I think we've seen 0:51:32.640 --> 0:51:38.320 a really fascinating shift in the power dynamic between labor 0:51:38.760 --> 0:51:42.200 and the corporate bosses. This may be coming to a 0:51:42.239 --> 0:51:45.239 head now as the UAW is asking first thirty six 0:51:45.320 --> 0:51:49.279 percent wage increases, bringing back pensions. They want a four 0:51:49.360 --> 0:51:51.160 day work week, They want to know what the production 0:51:51.239 --> 0:51:53.640 schedules are at these companies. And I wonder what you 0:51:53.680 --> 0:51:55.360 think what kind of effect this is going to have, 0:51:55.480 --> 0:51:57.840 because on the one hand, if they stay on strike, 0:51:59.280 --> 0:52:01.920 I would think that they're going to drive up the 0:52:02.400 --> 0:52:05.160 cost of cars even more, and they have barely recovered 0:52:05.160 --> 0:52:08.200 from the pandemic and in those in those terms. On 0:52:08.239 --> 0:52:10.880 the other hand, they're going to boost wages for at 0:52:10.920 --> 0:52:13.359 least one hundred and fifty thousand workers and probably more 0:52:13.400 --> 0:52:15.520 who look over and say I want that deal too. 0:52:17.680 --> 0:52:17.879 Yeah. 0:52:18.000 --> 0:52:19.839 No, So on the one hand, you know, at least 0:52:19.840 --> 0:52:23.319 the nearest issues you're you're you're, you're correct. I mean, 0:52:23.400 --> 0:52:27.719 we were counting on lower car prices too, and lower 0:52:27.840 --> 0:52:29.840 use car prices certainly to help on some of the 0:52:29.880 --> 0:52:34.600 inflation front. And we kind of supply now again that's 0:52:34.640 --> 0:52:38.160 gonna that's going to delay that. There's really large, i 0:52:38.160 --> 0:52:40.960 think strong pent up demand for automobiles already and that's 0:52:41.000 --> 0:52:43.840 one reason auto sales is in fact hold relatively high 0:52:44.000 --> 0:52:47.879 despite rising interest rates. So that's clearly a near term 0:52:48.080 --> 0:52:51.040 hit for the economy. The interesting thing, and I really 0:52:51.080 --> 0:52:55.600 like what you just said on the UH on the wages, 0:52:56.080 --> 0:52:59.640 is that you know, to one extent, does does this 0:52:59.719 --> 0:53:02.359 because a signal for the rest of the economy, right, 0:53:02.520 --> 0:53:06.240 is that if auto workers are getting you know, huge raises, 0:53:06.320 --> 0:53:10.279 and we've seen huge, huge raises in other industries to 0:53:10.320 --> 0:53:15.759 an extent, does that make other workers expecting a higher wave? 0:53:15.960 --> 0:53:18.239 So you know, instead of expecting three percent a year, 0:53:18.239 --> 0:53:20.719 now they're expecting five percent a year. And then how 0:53:20.760 --> 0:53:24.080 does that work play into inflation expectations? And you can 0:53:24.120 --> 0:53:27.279 tell a story where a series of negative shocks or 0:53:27.520 --> 0:53:30.480 those kinds of shocks really, do you know, create a 0:53:30.640 --> 0:53:35.760 different inflation environment than we had in the pre pandemic period. 0:53:36.320 --> 0:53:37.839 All right, Tim, thanks so much for joining us. 0:53:37.840 --> 0:53:42.120 Really appreciate that Tim doing chief EOS Economists, s g H, 0:53:42.440 --> 0:53:45.439 Macro Advisors, getting his thoughts there a little bit, little 0:53:45.440 --> 0:53:48.200 bit of a different spin than when we've heard from 0:53:48.160 --> 0:53:49.200 market Fred Gary Shad. 0:53:51.680 --> 0:53:54.759 Thanks for listening to the Bloomberg Markets podcast. You can 0:53:54.800 --> 0:53:58.560 subscribe and listen to interviews at Apple Podcasts or whatever 0:53:58.640 --> 0:54:02.759 podcast platform you I'm Matt Miller. I'm on Twitter at 0:54:02.800 --> 0:54:04.480 Matt Miller nineteen seventy three. 0:54:04.960 --> 0:54:07.320 And I'm Paul Sweeney. I'm on Twitter at pt Sweeney. 0:54:07.440 --> 0:54:10.120 Before the podcast, you can always catch us worldwide at 0:54:10.120 --> 0:54:10.879 Bloomberg Radio.