Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moven news.
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Speaker 3: So, Matt, we've got some news crossing the tape here.
Speaker 1: Jason JP Morgan settles with Staley US Virgin Islands to
Speaker 1: end Epstein legal woes. JP Morgan Chase reached settlements with
Speaker 1: former executive Jess Stally and the US Virgin Islands over
Speaker 1: ties to Jeffrey Epstein as it seeks to end its
Speaker 1: legal woes over its banking relationship to the deceased pedophile.
Speaker 1: The biggest US bank tentatively agreed to pay seventy five
Speaker 1: million dollars to the US Virgin Island. That's, according to
Speaker 1: the statement Tuesday, less than half of one hundred and
Speaker 1: ninety million dollars of the territory it sought. So let's
Speaker 1: kind of break this down a little bit, and we
Speaker 1: can do that with Elliott Stein. He's the senior analyst
Speaker 1: of Bloomberg Intelligence. Following all the legal issues for bi Ellie,
Speaker 1: I guess this, if nothing else, does put an end
Speaker 1: to kind of what JP Morgan sees is a very
Speaker 1: bad part of its history.
Speaker 4: Yeah.
Speaker 5: I mean this, This has been assorted saga ever since
Speaker 5: Epstein was arrested, and then late last year you had
Speaker 5: both Deutsche Bank and JP Morgan sued both by the
Speaker 5: victims Epstein's victims, and then JP Morgan was also sued
Speaker 5: by the US Virgin Islands. Both banks settled with the
Speaker 5: victims previously, and now we have this settlement which should
Speaker 5: put an end to at least, you know, the litigation
Speaker 5: against the banks.
Speaker 2: It's sorry, it's unclear what the settlement with Staley looks like.
Speaker 2: So we know that in the in terms of the
Speaker 2: US Virgin Islands, the bank has at least tentatively agree
Speaker 2: to pay seventy five million dollars. They're not admitting any wrongdoing,
Speaker 2: I imagine, but when you fork over seventy five million dollars,
Speaker 2: you know that says something in itself. In terms of Staley,
Speaker 2: I don't get whether this means that he is going
Speaker 2: to pay them, and certainly they haven't released any terms.
Speaker 5: Yeah, I mean, presumably there's some sort of monetary component
Speaker 5: to the settlement between JP Morgan and Jess Staley.
Speaker 2: They were coming from Staley to JP Morgan.
Speaker 5: Right, JP Morgan was you know, they were saying that
Speaker 5: they were really only on the hook because of Jess
Speaker 5: Staley's involvement with bringing in Epstein into the bank as
Speaker 5: a client, and that as a result, the bank was
Speaker 5: you know, vicariously liable because of his actions, and so
Speaker 5: they went after him for a few things, you know,
Speaker 5: reaching his duty to the bank by not telling the
Speaker 5: bank earlier about what was going on, and then seeking
Speaker 5: any contribution for any payout that JP Morgan was going
Speaker 5: to make.
Speaker 2: Well for convincing them to keep Epstein's client. Everyone knew
Speaker 2: what was going on. I mean, his the prosecution and
Speaker 2: his conviction in what two thousand and eight was public knowledge.
Speaker 2: So everyone knew.
Speaker 5: Right, and you know, and that was the problem for
Speaker 5: the banks that there were red flags. I mean there
Speaker 5: was no you know, concrete evidence that he was you know,
Speaker 5: doing sex trafficking with children, but there were enough red flags,
Speaker 5: part of which was because he had a prior conviction.
Speaker 4: All right.
Speaker 3: Deutsche Bank also paid, didn't the actually remember them being involved.
Speaker 5: Yeah, So Deutsche earlier this year paid about seventy five
Speaker 5: million dollars to the class of victims that had sued Deutsche.
Speaker 5: JP Morgan also settled with that class of victims for
Speaker 5: about two hundred and ninety million dollars. And you know
Speaker 5: that was earlier in the year, in the spring and
Speaker 5: in the summer. And in this case, the US Origin
Speaker 5: Islands case against J. P. Morgan was going to go
Speaker 5: to trial in October. So actually I wrote just a
Speaker 5: couple weeks ago that it looked like this case was
Speaker 5: on the path the settlement because neither side wants to
Speaker 5: go to trial in the case this sillacious.
Speaker 1: Yeah, that's the last thing if you're JP Morgan you
Speaker 1: want to have and then have you know, Jamie Diamond
Speaker 1: dragged into this.
Speaker 5: Exactly right there. These are not facts anyone wants to
Speaker 5: come out in court.
Speaker 1: And so I guess, can we from JP Morgan's perspective,
Speaker 1: is this issue behind it now?
Speaker 5: I think so?
Speaker 1: Because you settled with the vic or the class of victims,
Speaker 1: I guess right, yep. And if you'd enjoined that class,
Speaker 1: do you have any standing to come back and try
Speaker 1: to do something again?
Speaker 5: No, no, you know, the settlement is like you either
Speaker 5: opt into the settlement or you don't.
Speaker 2: Okay, Well, they were sued by this class of victims,
Speaker 2: and they were sued by the US Virgin Islands. Right,
Speaker 2: who knows if some other group will come and sue
Speaker 2: them as well.
Speaker 5: Yeah, it's hard to envision what group that would be.
Speaker 5: And there's always statutes limitations too, which sort of put
Speaker 5: a cap on when lawsuits can be brought. So at
Speaker 5: this point, given you know, this is definitely this resolves
Speaker 5: everything that's out there right now for JP Morgan related
Speaker 5: to Epstein.
Speaker 1: All right, all right, that's interesting news, just crossing the
Speaker 1: tape here, So we want to dive into it and
Speaker 1: see what the impact will be for JP Morgan. But
Speaker 1: I guess if nothing else, it's like it puts that
Speaker 1: legal issue behind them. Elliot Stein, thanks so much for
Speaker 1: joining us. Elliot Stein is the senior analyst with Bloomberg Intelligence.
Speaker 3: He went to Stanford.
Speaker 1: So that's PAC twelve, right, you're Stanford cow all that
Speaker 1: kind of stuff. Yeah, guess what, it's Stale and the
Speaker 1: Stanford cardell Now have to come to the East coast
Speaker 1: because you're playing in the ACC Going forward, how stupid is.
Speaker 5: That they're coming closer to me? So I appreciate it.
Speaker 2: It's good for you, I guess for me, I can
Speaker 2: see more games, but it doesn't make any sense history.
Speaker 1: I'm going to ask the volleyball team, some of these
Speaker 1: young ladies to travel two days to get here, a
Speaker 1: couple of days, two days to get back for a
Speaker 1: volleyball game against NC State.
Speaker 2: And want to go to the West coast.
Speaker 1: You know, yeah, I always see these kids, you know,
Speaker 1: in the airports, these teams from all these schools, and
Speaker 1: they're you know, it's not like the football.
Speaker 3: Team where they get their own charter or anything. Of
Speaker 3: the basketball team.
Speaker 1: It's the volleyball team, it's the soccer team, it's the
Speaker 1: golf team or whatever. And they're always like sitting in airports,
Speaker 1: huddle up, trying to study and everything. I just imagine
Speaker 1: a cross country stuff. Of course, USC and UCLA they get.
Speaker 3: To come to Piscataway, New Jersey they play. How good
Speaker 3: is that? All right? Ellie, thanks so much for it.
Speaker 3: He joining us here.
Speaker 4: You're listening to the team.
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Speaker 1: Definitely a risk off feel to the market here today again,
Speaker 1: as the high interest rate environment seems to be here
Speaker 1: for longer.
Speaker 3: Is what the market's pricing in.
Speaker 1: Let's check in with somebody who has an informed opinion
Speaker 1: on this. Brent Shooty, chief investment strategist for Northwestern Mutual. Brent,
Speaker 1: what's your call here on what our federal Reserve is
Speaker 1: going to do kind of over the next six to
Speaker 1: twelve months.
Speaker 7: Yeah, I think the Federal Reserve is worried about wage growth.
Speaker 7: So you have seen the disinflation that we thought would happen.
Speaker 7: That was largely because the inflation that we had over
Speaker 7: the prior couple years was largely tied to COVID. As
Speaker 7: we pushed further past that and the economy moved back
Speaker 7: somewhere towards equilibrium, we thought that inflation would come down,
Speaker 7: and it has. That's the good news. The bad news
Speaker 7: is the US economy looks late in an economic cycle.
Speaker 7: Typically happens late in the economic cycle is that the
Speaker 7: labor market is tight, which causes wages to grow and
Speaker 7: that can lead to inflation being pulled back higher, which
Speaker 7: I think is the prime warror right now, and so
Speaker 7: so until the FED sees wages move lower, they are
Speaker 7: not going to take that liquidity tourniquet off. Unfortunately, the
Speaker 7: only way that labor or that wages have moved lower
Speaker 7: in the past when the labor markets is tied us
Speaker 7: through job losses, which we think is a likely outcome
Speaker 7: in the coming months, which will lead to that recession
Speaker 7: that we still think is on the horizon.
Speaker 2: What do you think about the UAW strike and you know,
Speaker 2: if they come back with wage increases, they're going to
Speaker 2: be at least twenty percent, right, maybe closer to thirty.
Speaker 2: That's I guess you could say only one hundred and
Speaker 2: fifty thousand workers, but people at other shops are going
Speaker 2: to look over there and say, I want that too.
Speaker 2: Is that going to be a real factor or is
Speaker 2: or or are you not expected to have kind of
Speaker 2: a nationwide effect?
Speaker 7: No, I mean, I think it's more indicative of where
Speaker 7: we are in the economic cycle, which is late where
Speaker 7: wages rise because there's a lack of workers to fill
Speaker 7: open positions, which causes that wage growth. Of the FED
Speaker 7: fears about, I think people forget that the inflationary period
Speaker 7: that the FED worries about that was so bad in
Speaker 7: this US economy was called the wage price spiral, and
Speaker 7: that's where I think we're at right now, and that's
Speaker 7: why I think the Federal Reserve isn't going to stop.
Speaker 7: They're not going to loosen policy until they see wages
Speaker 7: pull back. Right now, wages are running at four point
Speaker 7: three to four point five percent, pick your measure. I
Speaker 7: think in an interview a few weeks ago, John Williams,
Speaker 7: VP of the FMC said that three point two to
Speaker 7: three point five was more consistent with two percent inflation.
Speaker 7: And as I mentioned before, the only way that's happened
Speaker 7: in the past is through recession, and so maybe this
Speaker 7: time is different. But I think there are enough things
Speaker 7: that are flashing red that you can continue to think
Speaker 7: about that recession coming in the not too distant future.
Speaker 1: Well, if that's the background there, Brent, are you advising
Speaker 1: folks to just go into two year treasuries at five
Speaker 1: point one three percent? That doesn't seem like a bad
Speaker 1: place to be.
Speaker 7: Well, we have been repositioning towards fixed income for the
Speaker 7: better half the last six to nine months, and so
Speaker 7: we are overweight fixed income and underweight equities. As far
Speaker 7: as hiding out in the front end of the curve,
Speaker 7: I would advise people not to do that. I think
Speaker 7: intermediate term bonds offer value here, and they offer a
Speaker 7: hedge against equity downside risk, which I think will be
Speaker 7: caused by too little economic growth, which will cause inflation
Speaker 7: to fall. And so if you think about your Bloomberg
Speaker 7: aggregate index at five point three five percent and a
Speaker 7: six duration, if inflation does fall, think about the difference
Speaker 7: between five point three and two percent. That's where I
Speaker 7: think there's value right now, especially if you believe like
Speaker 7: I do, inflation is set to falter, which I do.
Speaker 7: I think the good news on the opposite side of
Speaker 7: that is the FED will be able to cut rates,
Speaker 7: but not until they actually see, you know, that actual
Speaker 7: recession happen, which I think is still on the horizon.
Speaker 2: How far out the curve do you go to you say,
Speaker 2: six year? I mean, I know nothing about bonds like Paul,
Speaker 2: but I look at four point eight five percent on
Speaker 2: the twenty year and I think, when's the next time
Speaker 2: I'm going to see that?
Speaker 7: Yeah, this is where so maybe just a little bit
Speaker 7: more common sensical. So if you invest in a two
Speaker 7: year right now. So let's take you back to six
Speaker 7: and give you a real life example. In O six,
Speaker 7: the yield care was inverted. I believe the two year
Speaker 7: was somewhere around five twenty eight to ten year was
Speaker 7: at five twenty four or something. So it wasn't as
Speaker 7: big as an inversion of the day. But think about
Speaker 7: that person in the two year, think about something called
Speaker 7: reinvestment rate risk. They would have had to have had
Speaker 7: to reinvest that tenuere or that two year four more times.
Speaker 7: The first reinvestment I believe would have occurred sub two percent,
Speaker 7: the last three sub one percent. And so that's where
Speaker 7: I think just having bonds across the spectrum for an individual,
Speaker 7: I think is the most appropriate thing. I just worry
Speaker 7: right now that people are hiding in cash, and you're right,
Speaker 7: who knows where rates will be two, three, five years
Speaker 7: from now. You know, perhaps rates are hired now. I
Speaker 7: don't think we're going back to where we were before,
Speaker 7: but that's still a kind of an uncertain call, and
Speaker 7: I think that's reflective of if you think about uncertainty,
Speaker 7: you probably want to spread your bond across the curve
Speaker 7: just a bit and not hide in any one part
Speaker 7: of the market.
Speaker 1: So on the fixed income space, go out a little bit,
Speaker 1: and is it really are you staying with investment grade?
Speaker 3: Are you considering certain parts of the high yield.
Speaker 7: No, not high yield yet, I mean investment grade right now,
Speaker 7: given that we're headed into an economic contraction, I think
Speaker 7: you want to stay high quality, especially when those investment
Speaker 7: grade bonds offer quite a bit of yield, in many
Speaker 7: cases yields you haven't seen in sixteen to twenty years,
Speaker 7: which I think you know four years ago, if I
Speaker 7: came on your show and told you that, you would
Speaker 7: have told me I'm crazy. So that maybe has a
Speaker 7: little bit of a commentary about how uncertain the world
Speaker 7: can be. And that's where I think, you know, I
Speaker 7: think people need to reflect that, and I think you
Speaker 7: need to invest across the curve, but focus more so
Speaker 7: on intermediate term bonds. Just given the fact that you
Speaker 7: do lock in those yields for a few more years.
Speaker 2: When is the right time to buy high yield debt?
Speaker 2: I mean, if you see a recession coming next year,
Speaker 2: do you buy in the middle of it, at the
Speaker 2: beginning of it, at the end of it?
Speaker 7: When, yeah, I think somewhere on the middle of it.
Speaker 7: I mean, that's where I think, and that's not where
Speaker 7: it's kind of uncertain about timing. You know, there are
Speaker 7: many indications to me that the US economy is headed
Speaker 7: to a recession. I think people ignoring them because they
Speaker 7: believe this time is different. There are so many things
Speaker 7: flashing red right now that you know, I think a
Speaker 7: recession is is probably you know, it could happen in
Speaker 7: the next three to six months. That's where timing is
Speaker 7: a bit uncertain. But that's where you just behave better
Speaker 7: at the end of an economic cycle, and that's where
Speaker 7: I think you want to be in high quality bonds now.
Speaker 7: I think the time for owning things that are less
Speaker 7: than high quality is after they reprice quite a bit,
Speaker 7: which they haven't done enough right so yet.
Speaker 2: By the way, I got another credit trader writing in
Speaker 2: with a question, since by rates is sort of consensus
Speaker 2: decade high yields, how do you outperform your peers if
Speaker 2: everyone's doing the same trade.
Speaker 7: I'm not for sure sure that that is consensus any
Speaker 7: longer or is consensed. So I think that you know,
Speaker 7: the soft landing trade was on the higher forever and
Speaker 7: interest rates when I talk to individual investors, they are
Speaker 7: scared to buy bonds, and I don't think you're seeing
Speaker 7: a huge rush into the bond market. I hear enough
Speaker 7: other voices of people like myself who are telling people
Speaker 7: the opposite, which I think is the wrong answer.
Speaker 1: Inequities, I mean, the big cap growth stocks have been
Speaker 1: the winners.
Speaker 3: Here this year.
Speaker 1: Do you stick with them or do you try to
Speaker 1: find some value elsewhere.
Speaker 7: I think you try to find value elsewhere. And this
Speaker 7: is where my probably my commentary about liking small and
Speaker 7: mid is a bit odd because they are more economically sensitive.
Speaker 7: And this is where I do think there is some
Speaker 7: good news for equity investors. I think parts of the
Speaker 7: market have discounted some sort of a recession. And so
Speaker 7: if you think about most of us on Wall Street,
Speaker 7: we do have to put money to work every day,
Speaker 7: and so I think most people have hidden out in
Speaker 7: those large cap names that they think are economically insensitive,
Speaker 7: that they're going to grow forever. And that's been the
Speaker 7: part of the market that has done well. Other parts
Speaker 7: of the market haven't. Those are small and mid cap stocks.
Speaker 7: S and P six hundred trades at twelve point five
Speaker 7: times four twelve earnings that are down twelve to thirteen percent,
Speaker 7: and so I suspect that you will see those earnings
Speaker 7: estimates fall a bit. But I do think there is
Speaker 7: some cushion there, and that's where I think the opposite
Speaker 7: side of this can be really good for individual investors
Speaker 7: in those areas.
Speaker 1: All Right, Brent, thanks so much for giving us some
Speaker 1: of your time. Really appreciated brand shooting. He's a chief
Speaker 1: investment strategist at Northwestern Mutual. I appreciate getting his thoughts
Speaker 1: here on the equity side, a little bit underweight and
Speaker 1: overweight on fixting companies.
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Speaker 3: Matt.
Speaker 1: We've been talking about this strike against the auto workers
Speaker 1: that doesn't appear like they're making much headway. One of
Speaker 1: the questions I have is how long can these auto
Speaker 1: companies go with this strike? From a financial perspective. Joe
Speaker 1: Levington Joints As. He's the director of credit research for
Speaker 1: Bloomberg Intelligence. He covers the auto companies from the credit perspective.
Speaker 1: He joins us live here in a Bloomberg Interactive broker studio.
Speaker 3: So, Joel, how are their balance sheets?
Speaker 1: How strong are these auto companies from a financial perspective,
Speaker 1: because at some point the strike's really going to hurt
Speaker 1: them financially potentially, oh one.
Speaker 8: Hundred percent, Paul.
Speaker 9: You know, eventually they all have to get to a
Speaker 9: table and have to come to agreement because everybody needs
Speaker 9: to make money, right.
Speaker 2: Well, they only have to have more money than the UAW.
Speaker 2: So how is their balance sheet look compared to that
Speaker 2: of the United Autoworkers Union.
Speaker 9: It's they're significantly significantly stronger than the AW. Okay, it's
Speaker 9: combined Ford and GF have about ninety billion dollars of liquidity. Stillantes,
Speaker 9: I think has about seventy billion dollars of liquidity.
Speaker 1: So liquidity for you is like cash on the balance
Speaker 1: sheet plus some bank lines that they control down on.
Speaker 3: So if I need cash, how much do I really have?
Speaker 9: And they've got like ninety billion years That's what I'm saying.
Speaker 9: STILLANTIS has like another seventy. So you're talking about one
Speaker 9: hundred and sixty billion dollars of firepower and the UAW
Speaker 9: has eight hundred and twenty five million dollars in cash. Oops,
Speaker 9: that's what I'm trying to say. Yeah, I mean, if
Speaker 9: you were on the DraftKings app, you'd probably heavily that
Speaker 9: the Lottos can you like, last a lot longer than
Speaker 9: the uawken.
Speaker 2: And they haven't even really struck where it hurts, right.
Speaker 2: They hit them at a Bronco plant. That's bad, you know,
Speaker 2: because there's already a long line of waiting for a Bronco.
Speaker 2: They're awesome. They hit the Colorado and I know, you know,
Speaker 2: Mark Royce loves those mid sized pickup trucks.
Speaker 3: Actually I drove.
Speaker 2: One, and I was really impressed with the turbo charged
Speaker 2: inline four engine because you're an in like six guy,
Speaker 2: I like an inline six, I like, you know, but
Speaker 2: this small engine I thought was super punchy, had a
Speaker 2: lot of torque. Anyway, they hit him the Wranglers, you know,
Speaker 2: high margin vehicle, but they haven't hit them on the
Speaker 2: truck lines, which is where it hurts, right. They haven't
Speaker 2: struck where they make the f one fifty. They haven't
Speaker 2: struck where they make the Tahoe and the suburban, and
Speaker 2: that would be pretty hardcore if they did that, it
Speaker 2: would be.
Speaker 9: But it goes both ways because the more people you
Speaker 9: put out of the plants, that also means the more
Speaker 9: they're draining down that eight hundred and twenty five million
Speaker 9: dollars right, because they're paying them while they're the UAW
Speaker 9: is paying their employee that their clients while they're you know,
Speaker 9: like while they're on strike. But I agree with you
Speaker 9: if you look back to times like the pandemic, right,
Speaker 9: the pandemic, really what you saw was about a ten
Speaker 9: billion dollars swing in cash flow over a couple of
Speaker 9: quarters if you're talking about a FORD or GM. So
Speaker 9: you could kind of get into that range like if
Speaker 9: this protracts into you know, like a five six, seven
Speaker 9: week kind of event. But we're not there yet, and
Speaker 9: I think, you know, while you have this time, both
Speaker 9: sides are going to hackle out for each percentage increase
Speaker 9: in salary that they can get.
Speaker 3: How are the bonds? How have they been trading?
Speaker 9: Bonds really haven't moved all that much because the raiders
Speaker 9: have been done Actually a very nice job of being
Speaker 9: republic about how they don't expect this to be impactful,
Speaker 9: and how they've built in somewhere between five and eight
Speaker 9: weeks of flexibility. So now that we're, you know, like
Speaker 9: just getting towards the low end of that range, there's
Speaker 9: still plenty of room in terms of how they're thinking
Speaker 9: about ratings.
Speaker 3: So we came out of so GM and Stillantis.
Speaker 2: They did go bankrupt during the crepy Well, I mean,
Speaker 2: Chrysler is really what you're talking about, right Stilantis is
Speaker 2: essentially a French company that bought the Italian company that
Speaker 2: bought Chrysler for like a dollar.
Speaker 9: It's a mix of Pugio Fiat At Chrislis okay coming together.
Speaker 2: But I mean, I'm gonna guess where you were going
Speaker 2: with this. So we talk a lot about the fact
Speaker 2: that the unions took a crappy deal in order to
Speaker 2: help support the automaker's post financial crisis. What we don't
Speaker 2: talk too much about is that the unions had a
Speaker 2: much greedier deal that kind of pushed these automakers into
Speaker 2: bankruptcy during the financial crisis.
Speaker 9: Right, Yeah, I mean we're still talking about I guess
Speaker 9: Mary Varrow's out there saying that we made an offer
Speaker 9: worth one hundred and fifteen thousand dollars uaw worker that
Speaker 9: was rejected.
Speaker 2: So whether you' that's their final pay, one hundred and
Speaker 2: fifteen thousand dollars.
Speaker 9: Right, that's your take home pay. So whether you are,
Speaker 9: depending on what side of the corner you're on, whether
Speaker 9: you think that's good or bad. It doesn't sound particularly
Speaker 9: horrible to me in any way for a unionized manufacturing facility.
Speaker 2: But you know, well, I'm just hang on, I'm just dividing.
Speaker 2: So Mary gets about twenty five million dollars, so divided
Speaker 2: by one hundred fifteen, so she still gets two hundred
Speaker 2: and seventeen times more than that. Yeah, and she works hard,
Speaker 2: I'm sure, and she's steered the company through some tough times,
Speaker 2: but she's had their help.
Speaker 9: Yes, And that's what I say. They eventually have to
Speaker 9: come together because they both need each other.
Speaker 3: Right, if you're going to.
Speaker 2: Make money, you have to have workers.
Speaker 9: And if workers want to have a salary, that they
Speaker 9: have to have a proper parable company behind them.
Speaker 2: Now, they don't just want a salary, right, Mary has
Speaker 2: a defined benefits pension plan. Yes, are the workers going
Speaker 2: to get that too?
Speaker 9: Well, Ford seems to have caved a little bit on
Speaker 9: that front.
Speaker 4: Matt.
Speaker 9: That's a really difficult front for others to go into,
Speaker 9: because if you think about GM, I mean, their opebs
Speaker 9: blew up to like seventy billion before they.
Speaker 3: Went to bankrupt I'm sorry that, Paul.
Speaker 9: There are other pension liabilities that are on their balance sheet.
Speaker 9: That's really what drove them into bankruptcy to begin with
Speaker 9: was to get rid of those liabilities. So to start
Speaker 9: bringing them back in I think would be a really
Speaker 9: difficult thing and probably one of the bigger challenges on
Speaker 9: the GM side. Whereas Ford woulds didn't go into bankruptcy,
Speaker 9: seems more open to working with the union in that aspect.
Speaker 1: So if I'm a creditor too, if I'm a bond
Speaker 1: holder of the big three auto companies, do I have
Speaker 1: a threshold where I don't want to see them have
Speaker 1: an increase more than twenty five thirty percent?
Speaker 3: Or do I just not really care? I just want
Speaker 3: to get a deal done the paper.
Speaker 2: It probably doesn't matter, right you care about the pension.
Speaker 9: I think you care about the pension first when it
Speaker 9: comes to pay. You know, when you're talking about these
Speaker 9: increases between twenty and forty percent are kind of you know,
Speaker 9: like where people are targeting. Even if you think about
Speaker 9: forty percent, it's forty percent of four percent of your
Speaker 9: total cost of your total bill, and that's before there's
Speaker 9: any cost benefits that the company may get, and that's
Speaker 9: before you think about price.
Speaker 3: So labor's only four percent of their cost. Diructor, it's
Speaker 3: only four percent.
Speaker 9: It's really deal, just well, that's that's what two guys
Speaker 9: from some it might say, yes, but why does it
Speaker 9: call it thirty or thirty five percent? Have a drink
Speaker 9: and revel with life, and then you'd be fine, because
Speaker 9: really you're talking about a percentage point or two on
Speaker 9: your price side, or figuring out some cost benefits on
Speaker 9: the way, and then you can move on with life.
Speaker 2: Pensions are much more expensive. They also want a four
Speaker 2: day work week, which means you got to hire a
Speaker 2: whole bunch of other people and pay more health care
Speaker 2: benefits to those men and women. Plus they want to
Speaker 2: know which products are coming. So, for example, you know,
Speaker 2: Dodge doesn't have anything coming next year and they're going
Speaker 2: to cancel a couple of their offerings. Chrysler only has
Speaker 2: the Pacific, a minivan and nothing else.
Speaker 9: It's a good thing that the UAW is not at
Speaker 9: Bloomberg because we love a seven day work week right here,
Speaker 9: I don't know what a four day work week would
Speaker 9: actually look like. It makes no sense to me.
Speaker 2: I'm a fan of a four hour work frankly, but
Speaker 2: clearly that's not going to happen with the autoworkers.
Speaker 9: That's just thrown out as a starting point.
Speaker 2: But yeah, you're totally right.
Speaker 3: It's the full.
Speaker 9: Package, and it's really the benefits side that I think
Speaker 9: is more of the sticking point for a GM or
Speaker 9: a stillant this.
Speaker 1: So how do you think this place out, having you know,
Speaker 1: listened to both sides and all three companies.
Speaker 9: Yeah, I mean I think Paul Well probably wind up
Speaker 9: somewhere that to some guys could figure it out over cocktail,
Speaker 9: is that it'll probably be somewhere in the thirty percent
Speaker 9: range of a salary increase. You're going to have your
Speaker 9: forty hour work week. Maybe there's some marginal benefit that
Speaker 9: they give back on pensions, and that's.
Speaker 2: About where it'll wind up.
Speaker 9: And the reason that it's not that relevant to it
Speaker 9: to a credit person is because when you think about
Speaker 9: that increase, you're talking about thirty or forty basis points
Speaker 9: of margin. It's really not that big a deal for
Speaker 9: the autos and their outlooks for the long term.
Speaker 4: All right, we'll.
Speaker 3: See what kind of deal they can get done.
Speaker 6: You're listening to the Team ken'shar Live program Bloomberg Markets
Speaker 6: weekdays at ten am Eastern on Bloomberg dot Com, the
Speaker 6: iHeartRadio app and the Bloomberg Business App, or listen on
Speaker 6: demand wherever you get your podcasts.
Speaker 1: Deftly, some concerns out there in the credit markets, but
Speaker 1: one area of a positive sign so Standard and Poors
Speaker 1: Global Ratings on Wednesday upgraded the Government of Jamaica's long
Speaker 1: term foreign and local currency issue a default rating from
Speaker 1: B plus to double B minus with a stable outlook.
Speaker 1: It is the best credit rating that Jamaica has received
Speaker 1: from S and P since it started rating the country
Speaker 1: sovereign dead in nineteen ninety nine.
Speaker 3: Some good news there. We're gonna break that.
Speaker 1: Down with Senator Auburn Hill, Minister of Industry, Investment and Commerce,
Speaker 1: Member of the Senate of the Government of Jamaica, joining
Speaker 1: us live here in our Bloomberg Interactive Broker studio. Minister,
Speaker 1: Welcome to Bloomberg what drove the increase in the rating
Speaker 1: outlook from your ratings issuer for Jamaica, if.
Speaker 8: I could put towards this discipline management we took over
Speaker 8: in twenty sixteen, the Andrew Holness administration took over. We
Speaker 8: made a commitment to the IMF at the time that
Speaker 8: we would continue to make sure we've become fiscally disciplined.
Speaker 8: Right through that period of time. We moved our debts
Speaker 8: down from the high as we might recall at one
Speaker 8: fur to seven when we took over must have been
Speaker 8: in the one thirty five or thereabouts, and move it
Speaker 8: down to where we are today at seventy seven and
Speaker 8: going in the direction of sixty. We had planned to
Speaker 8: get there by twenty sixteen, the pandemic interrupted. We moved
Speaker 8: it to twenty eighteen, but we might get there before
Speaker 8: twenty eighteen. And all through that we've gone through the
Speaker 8: plane them spend one hundred billion Jamaican dollars we didn't
Speaker 8: plan to spend, haven't borrowed any money, and we haven't
Speaker 8: raised taxes in seven years, so that kind of fiscal discipline.
Speaker 8: The rating agencies have been watching it, and the best
Speaker 8: rating we've ever had in twenty four years of S
Speaker 8: and P. We've just had the rating upgrade, and of
Speaker 8: course we're in not happy with that. We want to
Speaker 8: continue to make sure that gets to investment grade as
Speaker 8: quickly as we can.
Speaker 2: So what are the industries that are driving this? Are
Speaker 2: supporting this growth? I have been going to Jamaica my
Speaker 2: whole life. We go to Silver Sands and Trelawney and
Speaker 2: if I get a good bonus, then I'll spend a
Speaker 2: couple of days over at Rose Hall. It's a little pricey,
Speaker 2: but so tourism obviously is I guess one of the
Speaker 2: main industries. What else is pushing this because Jamaica is
Speaker 2: not an offshore economy. This isn't somewhere where people go
Speaker 2: to hide money, you know, or to start crypto businesses.
Speaker 8: No, that's not what we do. What happened is when
Speaker 8: tourism took a dip or and somebody who you've had
Speaker 8: here at Bloomberg, Grandite, tims Ed Bartlett, found all kinds
Speaker 8: of innovative ways to help us open back tourism as
Speaker 8: quickly as we can so that didn't stay down too
Speaker 8: long and we're now back this summer, well past what
Speaker 8: we were in twenty nineteen before the pandemic. But through
Speaker 8: the pandemic we had the BPO, the business processing outsourcing business,
Speaker 8: the knowledge outsourcing business, and that grew by twenty percent
Speaker 8: per year in the last four years. So we quickly
Speaker 8: moved to work from home media adjustments because under the
Speaker 8: BPO arrangement and OECD watching, you have to make sure
Speaker 8: you follow certain basic rules. We got those fixed with
Speaker 8: the Ministry of Finance and through myself, I was then
Speaker 8: in the Ministry of Economic Growth, which is a Prime
Speaker 8: minister's ministry, worked it out, got it to work, and
Speaker 8: it kept on growing and it keeps on growing. But
Speaker 8: we also are looking at growing or exports because we
Speaker 8: have had looks like we had a long period of
Speaker 8: bad debt situation. We've had a longer period of negative
Speaker 8: trade balances and we're now grapping our hands around that
Speaker 8: as we've done with debt. To me, and that's one
Speaker 8: of my main focus why I'm here with twenty odd
Speaker 8: thirty businesses to look at new markets and develop new
Speaker 8: market markets, because you cannot be an exporting business and
Speaker 8: stay in your office, right, So I take them with me.
Speaker 8: I took them here, took them to a land I'm
Speaker 8: going to London from here to make sure we developed
Speaker 8: the markets that we have, and then wider field.
Speaker 1: What are some of those markets that you'd like to
Speaker 1: develop or some of those products or services that you'd
Speaker 1: like to develop.
Speaker 8: For instance, you know Goya very well. We have something called.
Speaker 10: Aki.
Speaker 8: Matty would have had Aki courter breakfast in Jamaica. My
Speaker 8: eggs okay with your egg it looks like eggs, So
Speaker 8: we we know. Goya said to one of our importants
Speaker 8: in Florida recently, we want twenty fourty foot containers. They
Speaker 8: could only give them one. They want something we have color,
Speaker 8: which is like spinach. They want breadfruit, which is we
Speaker 8: make into flour and it's gluten free, which people want.
Speaker 8: We want containers of that. So we have markets I am.
Speaker 8: While I'm looking for new markets, we really what I'm
Speaker 8: looking for as well. The Ministry of Industry. Investment is
Speaker 8: the second part in commerce. I'm looking for investment to
Speaker 8: fit those markets. Come in, help us grow agriculture, agro
Speaker 8: process it and make sure we have the markets for you.
Speaker 8: Come invest. So that's part of the message I bring
Speaker 8: as well.
Speaker 2: What about cannabis, We talk about the canabis business here
Speaker 2: a lot Obviously, the legalization across well for recreational use
Speaker 2: twenty three states in the US has grown the market,
Speaker 2: the legal market considerably. Here can that be an export
Speaker 2: from a country that's in a way famous for Bob
Speaker 2: Marley and and that sort of product we have, We have.
Speaker 8: Exported to places like Australia and Germany, But you probably
Speaker 8: need to get to thirty eight states, at which point
Speaker 8: you can change a constitution because it's a Schedule one drug,
Speaker 8: and until the FEDS change it, you can't do interstate banking.
Speaker 8: So you can do all you want in Colorado, but
Speaker 8: you can't ship it to California. So until that changes.
Speaker 8: As a Schedule one drug, we have to abide by
Speaker 8: certain international rules that we've signed in treaties, So we
Speaker 8: can't just export it will in illly and we can't
Speaker 8: export the United States or even use your airspace to
Speaker 8: export it.
Speaker 2: What is the political climate like in Kingston? I mean,
Speaker 2: you know, we have here a very partisan, very divided
Speaker 2: political system, which is driving Moody is to threaten a downgrade.
Speaker 2: So we've already had downgrades at Fitch and s and P.
Speaker 2: So what advice can you give to the US government?
Speaker 2: You know, post upgrade to try and get along and
Speaker 2: govern correctly.
Speaker 8: Why don't I tell you what we've done. We have
Speaker 8: made sure that we focus on the fiscal part. Because
Speaker 8: I noticed why Moody is threatening to downgrade the same
Speaker 8: reason SMP did in twenty eleven. It's from what I've read,
Speaker 8: it's the fractiousness over the government closing down. Well, we
Speaker 8: can't say anything about that nor And you have the
Speaker 8: privilege of having the reserve currents in the world, so
Speaker 8: you're in a very particularly privileged position. But what we
Speaker 8: have done in Jamaica is if we didn't get I
Speaker 8: remember when the IMF came in twenty thirteen, I was
Speaker 8: in that meeting called the University of Western is by
Speaker 8: Oliver Clark, who I know, you know from from Silverton,
Speaker 8: from Silverstand. Oliver called that meeting. I remember the Governor
Speaker 8: brand went at the time saying, we cannot get our
Speaker 8: currency and our inflation under check unless the government gets
Speaker 8: its fiscal house in order. You will never hear or
Speaker 8: know we've made since then. We've made the Bank of
Speaker 8: Jamaica independent. You never hear the government talk. The governor
Speaker 8: of the central Bank talks about the talking about the
Speaker 8: fiscal position of the government because we've put it under control.
Speaker 8: And if until you get that done, then their the
Speaker 8: rating agents will have that discussion. But frankly, your discussion
Speaker 8: is quite different because you're the reserve We hold the
Speaker 8: reserve currency and the biggest military in the world.
Speaker 1: Minister talks us about the economy today in Jamaica. What's
Speaker 1: it like for the average in Jamaican today.
Speaker 8: The average Jamaican. First of all, we're just recently the
Speaker 8: most recent figure we had for unemployment is four point
Speaker 8: five percent. It's the lowest in the history of taking
Speaker 8: numbers in Jamaica, so we have a historical law in
Speaker 8: unemployment in the emerging market. Four point five percent is
Speaker 8: near the full employment. So what's happening people in the
Speaker 8: knowledge of outsourcing business, the hospitality business, the tourism business, saying,
Speaker 8: and the construction business.
Speaker 4: We want people.
Speaker 8: Seventy to eighty percent of our university graduates are women.
Speaker 8: We have three hundred or four hundred thousand young people
Speaker 8: on the street who tend to get into gangs their men,
Speaker 8: primarily men, because they're the ones who weren't graduating. So
Speaker 8: now we're saying we have heard trust and t we're
Speaker 8: investing money to take them off the street, put them
Speaker 8: in a training center for months, pay them a stipend.
Speaker 8: A part of the stipend we used to open a
Speaker 8: bank account. We give them a national idea. We give
Speaker 8: them a passport, driver's license so they become part of
Speaker 8: the citizenship. We give them the has been certify them
Speaker 8: so they could work in Jamaica, the United States or
Speaker 8: Saudia Arabia, and put them back in the workforce. So
Speaker 8: we're expanding the workforce in this vicinaty, but with apprenticeship
Speaker 8: with skills.
Speaker 3: All right, that's good news. That's a good story.
Speaker 1: The Standard and poorst certainly thinks it's a good story.
Speaker 3: Jamaica upgraded its credit rating.
Speaker 1: Senator Aubin Hill, he's a Minister of Industry, Investment in Commerce.
Speaker 1: He's also a member of the Senate in the government
Speaker 1: of Jamaica. We appreciate getting a few minuts.
Speaker 3: You're time.
Speaker 2: Great to have you here. Thanks so much for joining us.
Speaker 4: You're listening to the tape.
Speaker 6: Cat's are live program Bloomberg Markets weekdays at ten am
Speaker 6: Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com,
Speaker 6: and the.
Speaker 4: Bloomberg Business app.
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Speaker 6: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 2: Gary Shilling from a Gary Shilling in company has darkened
Speaker 2: our door and Gary, we've seen an incredible rise in
Speaker 2: rates over the last few weeks. What is going on here?
Speaker 11: Well, I think there's a conviction that the Fed is
Speaker 11: not through tightening, and I don't think they are. They
Speaker 11: really are determined to get inflation back to two percent
Speaker 11: and to keep it there. And of course they were
Speaker 11: very much behind the curve when they started early last year.
Speaker 11: They thought that the inflation spurt was simply reopening the
Speaker 11: economy after the pandemic and and the problems with the
Speaker 11: supply change.
Speaker 2: Now, hang on a second, what have you got there?
Speaker 2: Is it like a candy bar wrapper or.
Speaker 10: It's a sweetish fish? All right?
Speaker 2: Now put the Swedish fish down, because we hear that
Speaker 2: crackling on the So what do you think about Jamie
Speaker 2: Diamond's warning? I mean, seven percent maybe just a number
Speaker 2: that he picked out of the air when he was
Speaker 2: talking in an interview of the Times of India. Who
Speaker 2: knows where he got that number, but we all thought
Speaker 2: that at the most the Fed is going to like
Speaker 2: five and three quarters, And now all of a sudden,
Speaker 2: ever talking about seven.
Speaker 11: Well, interestingly enough, we've done a lot of work over
Speaker 11: the years. We just updated on what we call a
Speaker 11: debt bomb, and that is the question of what is
Speaker 11: the rate at which the interest on the debt, which
Speaker 11: of course is part of the deficit, becomes so great
Speaker 11: that the whole thing grows geometrically and blows up. Now,
Speaker 11: the interest rate on the federal debt now is under
Speaker 11: three percent because a lot of a short term but
Speaker 11: of course it rolls over in time at higher rates.
Speaker 11: So if we stay here, it could be a problem.
Speaker 11: Although our numbers show that unless you got eight percent
Speaker 11: on the federal debt.
Speaker 2: The average eight and we've never been there, right, because
Speaker 2: I remember reading.
Speaker 11: Average maternity is only six years, so until you got
Speaker 11: to eight percent, you probably didn't have a problem.
Speaker 10: But we've never had that problem. We've never had a
Speaker 10: debt bomb.
Speaker 11: The closest we had was nineteen ninety two when interest
Speaker 11: in relation to GDP was three point one percent. It's
Speaker 11: now three percent. It's basically the same. We haven't been there.
Speaker 11: We're not Argentina, but but uh, you know this, this
Speaker 11: is a this is obviously a concern because if interest
Speaker 11: rates are up and stay up, of course, there's a
Speaker 11: lot of other things you worry about.
Speaker 10: I mean, you know, the economy.
Speaker 11: I don't think could stand anything like eight percent interest
Speaker 11: on the federal debt because you'd be you'd be talking
Speaker 11: about double digits for everything else. And we haven't seen
Speaker 11: that since, uh, since the Boker era and and the
Speaker 11: ensuing collapsed.
Speaker 2: Well, now, there's a lot of things you've done in
Speaker 2: your career, uh to to become such a famous economist.
Speaker 2: I probably the biggest is you're a bond bowl and
Speaker 2: we're for throughout the bond bowl market, and you know,
Speaker 2: really made your name with with those calls. How painful.
Speaker 2: Then has this drop in price, run up and yields
Speaker 2: been for you? And at what point do you say, Okay,
Speaker 2: now it's time to buy again.
Speaker 11: Well, obviously when you've had a long term forecast, and
Speaker 11: you might recall Matt when I said in nineteen eighty
Speaker 11: one that we're entering the bond rally of a lifetime
Speaker 11: to yield on the thirty year bond was fourteen point
Speaker 11: six percent. It was a long time ago. Obviously it
Speaker 11: came way down. Now it's rebounded with all other rays.
Speaker 11: I think we're getting I think we're getting close because
Speaker 11: the economy simply cannot stand these kind of rates. We're
Speaker 11: close to or maybe already in a recession. It's always
Speaker 11: up to the National Burea of Economic Research to make
Speaker 11: that call. But I think that will do it. And
Speaker 11: of course you get a recession. What happens. You get
Speaker 11: less demand for high quality credit, you get the safe
Speaker 11: haven of the treasuries, you get the FED easing. But
Speaker 11: I think the Fed is going to be slow to
Speaker 11: ease because they want to make sure that inflation.
Speaker 10: Is killed and killed dead.
Speaker 11: They really were so far behind the curve on this,
Speaker 11: so I think this whole thing is going to get
Speaker 11: stretched out. But I don't think we're there quite there
Speaker 11: yet where I won't go out. We in our portfolio,
Speaker 11: as we manage, we do have some long gone positions,
Speaker 11: but relatively small. We're not adding to them right yet.
Speaker 1: Is there an irrational investor exuberance back in this market?
Speaker 10: Well, he sure is.
Speaker 11: I mean if you look at you look a look
Speaker 11: at example at the FANG index gross stocks. Now to
Speaker 11: the extent that their prices today are the discounted value
Speaker 11: of future earnings out five or ten years. Those things
Speaker 11: ought to be in the tank. Now they've sold off
Speaker 11: a little bit lately, but I mean they've rallied for
Speaker 11: most of most of the year. And of course this
Speaker 11: is a big thorn in the side of the FED
Speaker 11: because they see investors really not believing them. They don't
Speaker 11: really they just don't really believe that they're serious, because
Speaker 11: if they did, you'd see a lot of things like this.
Speaker 11: You see stocks in general and says the interest rates
Speaker 11: sensor is housing already affected by interest rates, but investors
Speaker 11: in terms of securities not yet convinced.
Speaker 1: So so you think, I guess, do you think that
Speaker 1: there's a there's really risk to the stock market in general?
Speaker 4: Oh?
Speaker 10: Yeah.
Speaker 11: Early last year I said, I thought we have a
Speaker 11: thirty percent decline. Peaked the trough, we were down twenty
Speaker 11: five percent.
Speaker 10: You got a rally.
Speaker 11: That means from here you need about a thirty percent decline.
Speaker 11: And yeah, I think I think there is is big risk.
Speaker 11: I mean, you look at all the indicators, you look
Speaker 11: at the leading indicators, you look at the yield curve,
Speaker 11: you look at small business hiring intentions. It's just a
Speaker 11: whole host of factors. And boy, if this isn't if
Speaker 11: this doesn't tell your recession and all it goes with it,
Speaker 11: including fedies a lot easier, a lot lower rates, you've
Speaker 11: got to throw out all the history.
Speaker 2: I would think so too. And you know, I have
Speaker 2: a laundry list of all of the headwinds and all
Speaker 2: the problems that consumers are facing. And you've got along
Speaker 2: with that, this strike which could be bad for the economy,
Speaker 2: and also inflation, government shutdown which doesn't augur well, debts,
Speaker 2: student debt, coming back, delinquencies on credit card debt, and autolans.
Speaker 2: Every time I run this list by a bull, he'll say, hey,
Speaker 2: unemployment is at three point eight percent. You know, as
Speaker 2: long as we have jobs, it's no big deal.
Speaker 11: Well, one of the real issues here, Matt, is that
Speaker 11: employers spend so much time and energy hiring people that
Speaker 11: they're very reluctant to lay them off. It takes time
Speaker 11: to shift gears one hundred and eighty degrees. But of
Speaker 11: course as profits and sales weaken, that's what happens. They
Speaker 11: get layoffs. But this is one of the reasons I
Speaker 11: think this whole exercise is going to be stretched out.
Speaker 11: The other one is the FED taking their good sweet
Speaker 11: time to shift the east because they want to make
Speaker 11: sure that inflation is really.
Speaker 2: But that could mean a deeper set right if we
Speaker 2: have that could mean a very deep recession. If we
Speaker 2: have the kind of UH slow down where you know,
Speaker 2: companies have been not wanting to fire people, but are
Speaker 2: all of a sudden then pushed to do it, and
Speaker 2: then the FED doesn't want to come in cut rates
Speaker 2: until until the economy is really in trouble, that could
Speaker 2: mean a big deep drop.
Speaker 11: I think it means a long recession, but not necessarily deep.
Speaker 11: To get a really deep recession, you've got to have
Speaker 11: a major financial crisis. That That's what happened with the UH,
Speaker 11: with the dot coms in the in the late nineteen nineties,
Speaker 11: and of course that's what happened with the subprime mortgages, the.
Speaker 2: Great Financial Crisis. I mean, looks like there could be
Speaker 2: the beginning of that happening in China right now.
Speaker 11: Does that deep as opposed along you've got to get
Speaker 11: a huge inventory correctionion well.
Speaker 2: Does the Chinese property problem? Were you or are we
Speaker 2: too insulated? The economy, not not that much.
Speaker 11: I mean, our ourd with China has has atrophied. It does, no,
Speaker 11: it does. It does mean that China's internal growth is going.
Speaker 4: To be weak.
Speaker 11: But you look at Si who basically is a present
Speaker 11: for life. He doesn't really care about the well being
Speaker 11: of the average Chinese, only that it's good enough that
Speaker 11: they don't the regime doesn't get tossed out. But but
Speaker 11: they're in a different world. I mean we look at
Speaker 11: it through Western eyes where growth is is is good,
Speaker 11: but they don't look at it. Stay in power is
Speaker 11: good for as far as their concerned. So I don't
Speaker 11: think that China really really cares. And of course they
Speaker 11: got the property problem, they got overbuilt infrastructure, they got
Speaker 11: huge deaths. The result of this, particularly at the provincial level. Well,
Speaker 11: I think China is basically going to be in its
Speaker 11: own its own sphere.
Speaker 4: Now.
Speaker 11: One thing that is is does come out of this
Speaker 11: if it's China's growing more slowly. Uh, it's the second
Speaker 11: largest economy in the world, and it's a stage of
Speaker 11: growth where it's it's more emphasis on goods than services.
Speaker 11: It's economies mature, they shift their services and when you're
Speaker 11: in goods you need commodities, So I think that I
Speaker 11: think that that's we can. Commodities obviously is very differentiated
Speaker 11: the stuff that goes into electric cars, and it's kind
Speaker 11: of its own world.
Speaker 10: But you look at copper. Copper is my favorite.
Speaker 11: I like copper because there's no car tell on either
Speaker 11: the supplier demand side, and it goes into almost any
Speaker 11: manufactured I mean, again, full disclosure. We're short and short
Speaker 11: copper and portfolio as we manage.
Speaker 2: Your short copper. Yes, that's no bueno. Why why are
Speaker 2: you short copper?
Speaker 11: Well because it because that's a that's a bet on
Speaker 11: global manufacturing weakness.
Speaker 4: Yeah.
Speaker 10: Plus the fact say is a bear. I mean, I
Speaker 10: mean you look at opek.
Speaker 11: You can have a great forecast on the oil and
Speaker 11: yet Opac plus comes out tomorrow and make some announcement
Speaker 11: and you're.
Speaker 2: Really all as that were looking ninety dollars hundred dollar barrels. Gary,
Speaker 2: great having you in the studio. Thank you so much
Speaker 2: for coming in. A Gary shilling.
Speaker 3: Yeah, just you know, we just turn them on and
Speaker 3: we can just sit here and listen all day.
Speaker 2: Yeah, well I do that sometimes on the weekends.
Speaker 3: On the weekends. Okay, very good, All right, Gerry, Thanks
Speaker 3: so much for joining us.
Speaker 6: You're listening to the tape Cat's are live program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 6: tune in app, Bloomberg dot Com, and.
Speaker 4: The Bloomberg Business App.
Speaker 6: You can also listen live on Amazon Alexa from our
Speaker 6: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 3: Let's check out our next guest right here.
Speaker 1: Tim Dewey, Chief US Economists for sg H Macro Advisors. Tim,
Speaker 1: I'm not sure if you heard our last discussion. It
Speaker 1: was with Gary Shilling, and he was bearsh right Man.
Speaker 2: Well, he is, obviously, you know, one of the most
Speaker 2: famous bears on Wall Street exactly. A lot of what
Speaker 2: he was saying reminded me a little bit of what
Speaker 2: I've heard from Jeremy Grantham as well, who is you know,
Speaker 2: obviously uber. But I have to admit that I have
Speaker 2: that that that appeals to me because I see so
Speaker 2: many headwinds in this economy, Tim, and you know, the
Speaker 2: the exuberance that pushed us up to forty five hundred
Speaker 2: on the S and P just doesn't make sense to
Speaker 2: me as the Fed's raising rates five hundred and six
Speaker 2: hundred basis points. How do you see it?
Speaker 12: I am I'm a little bit more optimistic than Gary Schilling.
Speaker 12: I'm not I'm not not quite as bearish of the economy,
Speaker 12: and I tend to be much more optimistic that the
Speaker 12: economy remains more resilient than than people give it credit for.
Speaker 12: And that's a big reason here why stocks that have
Speaker 12: performed better than I think anybody would have anticipated in
Speaker 12: this cycle, you know, given because you said the Fed
Speaker 12: raised rates, you know, over five hundred basis points and
Speaker 12: is threatening you know, the even possibility even more. But
Speaker 12: I think that's just really real that the the economy
Speaker 12: is is is at a fundamental level different and stronger
Speaker 12: than than than than people have really I think been
Speaker 12: willing to contemplate.
Speaker 2: Than ever before in history. Right, I mean, when's the
Speaker 2: last time the FED was able to raise rates five
Speaker 2: or six percent without causing a recession.
Speaker 12: It's a it's a it's a it's a big it's
Speaker 12: a big shift, right.
Speaker 11: Uh.
Speaker 12: And so you know that plenty of people pointed out
Speaker 12: to you know, uh, you know, indicators over the past year,
Speaker 12: year and a half that would all point to a
Speaker 12: recession and in so far you know that that recession
Speaker 12: just hasn't materialized. And again it's just I think speaks
Speaker 12: to a very different economic environment than than we've been
Speaker 12: familiar with.
Speaker 1: So I mean, for better or worse him, you know,
Speaker 1: on my personal agenda, I've taken recession off the table
Speaker 1: several months ago.
Speaker 3: But was I a little premature? There is that still
Speaker 3: really potentially in the cards here?
Speaker 12: Well, so eventually, right, I mean, this is this is
Speaker 12: the stop clock argument, is there's always going to be
Speaker 12: a recession sooner or later. But you know, I think
Speaker 12: you were wise to take it off the table several
Speaker 12: months ago because you know, clearly, you know, I think
Speaker 12: that the predictions that we would have a recession by
Speaker 12: this time, you know, just having materialized, and uh, you know,
Speaker 12: I don't really see one coming, you know, anytime soon.
Speaker 12: I think there's still some momentum under this economy. Uh
Speaker 12: and and that momentum is not going to fade very quickly.
Speaker 12: So I really, you know, I don't have a recession
Speaker 12: in the forecast because you know, it's it's such an
Speaker 12: idiosyncratic event. And that's what keeps tripping people up, is
Speaker 12: that every recession is a little bit different. The indicators
Speaker 12: that that lead you into that recession are a little
Speaker 12: bit different every time. So you know, we really, I think,
Speaker 12: don't have a lot of visibility on on when another
Speaker 12: recession is going to occur.
Speaker 2: And it's a big and diverse economy, who is it?
Speaker 2: Ed Yard Denny has said that he thinks we're in
Speaker 2: kind of a rolling recession where different pockets of the
Speaker 2: economy are hit at different times. You're not just the
Speaker 2: chief economist at SGH Macro Advisors. You are an actual
Speaker 2: doctor in economics. I mean you have a PhD and
Speaker 2: teach courses on this and uh, you know, help to
Speaker 2: guide the economy of the state of organ as far
Speaker 2: as I understand it. What do you think of that
Speaker 2: idea rolling recession? You know, some states are going to
Speaker 2: have problems, some industries are going to have recessions, whereas
Speaker 2: you know, we don't see everyone having a uniform recession.
Speaker 2: Doesn't that make sense?
Speaker 7: Oh?
Speaker 12: It makes it makes a lot of sense. I mean
Speaker 12: we get we sort of forgot it. I mean during
Speaker 12: the the immediate aftermath of the pandemic, when everything was booming, right,
Speaker 12: everybody was doing well, That's that's really not the norm, right,
Speaker 12: if you have, you know, a slower economy. You know
Speaker 12: it's still someone but even but slower economy.
Speaker 11: Uh.
Speaker 12: You you have sectors that that that that are op
Speaker 12: versus down, and that's just you know, that's just part
Speaker 12: of the national give and take. I think of the economy.
Speaker 12: You can't expect everything's going to be cruising along at
Speaker 12: a high speed. And of course that makes you know,
Speaker 12: it more difficult to assess, you know, if you're going
Speaker 12: to fall into a recession or not. Because again, one
Speaker 12: industry sliding. I say this, this industry always slid during
Speaker 12: a prior to a recession. Then you turn around and
Speaker 12: you find another industry that had always slid prior to recession,
Speaker 12: but now is gaining traction, right, And so you kind
Speaker 12: of say, well, wait a second, what's going on here?
Speaker 12: And what's going on here is that you don't have
Speaker 12: an economy wide shock that is really driving firms to
Speaker 12: cut investment and cut employment in a very syn synchronized way.
Speaker 12: And until you can get that kind of shock, that
Speaker 12: kind of momentum, you really I think it's really hard
Speaker 12: to create a recession in the economy.
Speaker 1: That's kind of where I want to go. I'm this
Speaker 1: labor market. Tim just kind of fascinates me.
Speaker 3: You know, I've heard the term hoarding of employees and
Speaker 3: I've never heard that before.
Speaker 1: What do you make of a three point seven percent
Speaker 1: unemployment right here in this economy?
Speaker 4: You know?
Speaker 12: So yeah, we we. I mean, certainly it was during
Speaker 12: the case of the pandemic that labor was so hard
Speaker 12: to get. You didn't want to you didn't want to
Speaker 12: let it go. I think that, you know, firms, if
Speaker 12: they had the sort of economic conditions that that drove
Speaker 12: the need for layoffs, they would react quickly. So the
Speaker 12: labor hoarding story only takes you so far. And remember
Speaker 12: last fall, last winter, you know, around the turn of
Speaker 12: the year, we saw uh, you know, lots and lots
Speaker 12: and lots of layoffs in the tech industry.
Speaker 13: So even though that had been an industry that had
Speaker 13: struggled immensely to hold onto labor during the pandemic, once
Speaker 13: it was ready to shed labor, it shed labor. Now
Speaker 13: that that that story I think has asked us already.
Speaker 12: So for me again, you know, when I look at
Speaker 12: you know, what happens the unemployment right tip Leena cycle,
Speaker 12: It falls to some level like this, a three and
Speaker 12: a half to four percent, somewhere in that range, and
Speaker 12: it just sort of hangs out there until you can
Speaker 12: get again that massive negative shock that really slips you,
Speaker 12: pushes you into another direction.
Speaker 2: Hey, So, Tim, I just want to jump in because
Speaker 2: we are looking at pictures of President Biden on the
Speaker 2: tarmac with UAW President Sean Fain and some other union members,
Speaker 2: you know, and while we're speaking about labor, I might
Speaker 2: as well bring up this because I think we've seen
Speaker 2: a really fascinating shift in the power dynamic between labor
Speaker 2: and the corporate bosses. This may be coming to a
Speaker 2: head now as the UAW is asking first thirty six
Speaker 2: percent wage increases, bringing back pensions. They want a four
Speaker 2: day work week, They want to know what the production
Speaker 2: schedules are at these companies. And I wonder what you
Speaker 2: think what kind of effect this is going to have,
Speaker 2: because on the one hand, if they stay on strike,
Speaker 2: I would think that they're going to drive up the
Speaker 2: cost of cars even more, and they have barely recovered
Speaker 2: from the pandemic and in those in those terms. On
Speaker 2: the other hand, they're going to boost wages for at
Speaker 2: least one hundred and fifty thousand workers and probably more
Speaker 2: who look over and say I want that deal too.
Speaker 5: Yeah.
Speaker 12: No, So on the one hand, you know, at least
Speaker 12: the nearest issues you're you're you're, you're correct. I mean,
Speaker 12: we were counting on lower car prices too, and lower
Speaker 12: use car prices certainly to help on some of the
Speaker 12: inflation front. And we kind of supply now again that's
Speaker 12: gonna that's going to delay that. There's really large, i
Speaker 12: think strong pent up demand for automobiles already and that's
Speaker 12: one reason auto sales is in fact hold relatively high
Speaker 12: despite rising interest rates. So that's clearly a near term
Speaker 12: hit for the economy. The interesting thing, and I really
Speaker 12: like what you just said on the UH on the wages,
Speaker 12: is that you know, to one extent, does does this
Speaker 12: because a signal for the rest of the economy, right,
Speaker 12: is that if auto workers are getting you know, huge raises,
Speaker 12: and we've seen huge, huge raises in other industries to
Speaker 12: an extent, does that make other workers expecting a higher wave?
Speaker 12: So you know, instead of expecting three percent a year,
Speaker 12: now they're expecting five percent a year. And then how
Speaker 12: does that work play into inflation expectations? And you can
Speaker 12: tell a story where a series of negative shocks or
Speaker 12: those kinds of shocks really, do you know, create a
Speaker 12: different inflation environment than we had in the pre pandemic period.
Speaker 3: All right, Tim, thanks so much for joining us.
Speaker 1: Really appreciate that Tim doing chief EOS Economists, s g H,
Speaker 1: Macro Advisors, getting his thoughts there a little bit, little
Speaker 1: bit of a different spin than when we've heard from
Speaker 1: market Fred Gary Shad.
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
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Speaker 2: podcast platform you I'm Matt Miller. I'm on Twitter at
Speaker 2: Matt Miller nineteen seventy three.
Speaker 3: And I'm Paul Sweeney. I'm on Twitter at pt Sweeney.
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