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Speaker 2: Let's get back to that consumer confidence number, super strong
Speaker 2: coming in one of three point three. The estmate was
Speaker 2: for one hundred point seven. It's a better view of
Speaker 2: the economy and inflation, it looks like. So we wanted
Speaker 2: to go right to the source. Here, Stephanie Guchard, a
Speaker 2: senior economistic Global Indicators at the Conference board, joining us. Stephanie,
Speaker 2: what led the optimism?
Speaker 3: Well, so let me get this trait. It's an improvement,
Speaker 3: but I wouldn't qualify it as a strong improvement. The
Speaker 3: index is still in this narrow range, right, it has
Speaker 3: been for the past two years. So that's the first
Speaker 3: thing I wanted to say. But if we go into
Speaker 3: the improvement, so what has been driving the improvement is
Speaker 3: more positive views by consumers about business conditions right now
Speaker 3: and business conditions in the future. So this is really
Speaker 3: what us driving has driven the improvement in August.
Speaker 4: And looking at the measure of expectations for the next
Speaker 4: six months, it looks like the increase, so that's an
Speaker 4: eighty two point five from an eighty one point one
Speaker 4: similar increased relative to present conditions. Kind Of, how do
Speaker 4: you view the consumer right now, given you know, six
Speaker 4: months from now we could have three, four, five six
Speaker 4: interest rate cuts and on election in the rearview mirror.
Speaker 3: So consumer feelings about the economy are really mixed. So yes,
Speaker 3: they views about business condition improved, but at the same time,
Speaker 3: if you look into the details, they are getting more
Speaker 3: dicerned about employment both currently and in the future. So
Speaker 3: this is kind of it's really a mixed view about
Speaker 3: the economy. There are still concerned about high prices. At
Speaker 3: the same time, the inflation expectations have declined, the more
Speaker 3: they're expecting rate cuts more than they were a month ago.
Speaker 3: So some things are moving on the positive size and
Speaker 3: something are moving on the less positive sides, especially regarding employment.
Speaker 2: All right, we really appreciate you breaking that down and
Speaker 2: you know, putting it all into perspective for us, particularly
Speaker 2: the job's part, it feels like that's very much what
Speaker 2: the Fed's also worried about. Stephanie Gushard, senior economist Global
Speaker 2: in Caters at the conference board. It's interesting. It's like
Speaker 2: the FED seems to be pivoting to be worried about jobs,
Speaker 2: and it looks like that is very similar now to
Speaker 2: how consumers are feeling.
Speaker 4: Yeah, and it does make sense as she put it,
Speaker 4: that it's kind of mixed read and that's why the
Speaker 4: S and P is still down one to one percent.
Speaker 4: I mean, sure, it's summer Friday vibes on a Tuesday,
Speaker 4: but we're taking it Instriday.
Speaker 2: It is my Friday, so it definitely Friday vibes for me.
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Speaker 2: Let's get to some of the market moves here. Super
Speaker 2: micro computer shares just just humbling like crazy today. This
Speaker 2: is after Hindenberg Research said it's short the maker of
Speaker 2: service or of server equipment. We want to get more
Speaker 2: on this with Woujin Hoo Bloomberg Intelligence, a senior technology analyst,
Speaker 2: did you read, Like, what did you make of the report?
Speaker 2: It said it was glaring accounting red flags, evidence of
Speaker 2: undisclosed related party transactions, sanctions and export control failures, and
Speaker 2: customer issues.
Speaker 5: Yikes, there was a lot in there. I'm actually glad
Speaker 5: they sided our report than Jay.
Speaker 2: I didn't know that one.
Speaker 5: Okay, look a lot of the stuff that we've what
Speaker 5: I've read, they're non issues, right. They've been in the
Speaker 5: ten K and the ten Q filings as part of
Speaker 5: the risk and disclosures. They sided the delisting back in
Speaker 5: twenty nineteen. They also cited a related party issues as well,
Speaker 5: and these are all all known. I almost get a
Speaker 5: sense that they're trying to kick a dog while the
Speaker 5: dog is down. A short report because they had gross
Speaker 5: margin issues because of some aggressive pricing and supply chain issues.
Speaker 5: So you know, I do question the timing of this report.
Speaker 4: Yeah, just keeping in mind super Micro from July twelfth
Speaker 4: down more than forty percent. But my question automatically goes
Speaker 4: to there's a difference between known issues and issues that
Speaker 4: people actually factor into their valuation or their expectations, Like,
Speaker 4: does Hindenberg releasing this report in your view make analysts
Speaker 4: maybe revisit the Bear case.
Speaker 5: And that's a great question, Bailey, and I do think so, right,
Speaker 5: because there were some I guess questions in terms of
Speaker 5: who they were selling to in terms of sanction related
Speaker 5: uh parties, Uh, the Russia in particular, and that's going
Speaker 5: to raise yellow flags or red flags of the US government, right,
Speaker 5: And and if that's going to draw a greater scrutiny,
Speaker 5: you never know what might behind that be behind that closet.
Speaker 2: So you said that they cided your research. What what
Speaker 2: else did you guys pick out from like the ten
Speaker 2: K and stuff in terms of their risks for super Micro.
Speaker 1: Yeah.
Speaker 5: Look, one of one of the things that that I
Speaker 5: picked out was the the related parties.
Speaker 1: Right.
Speaker 5: Two of their suppliers, Uh, the CEOs of two of
Speaker 5: the suppliers are the CEO brothers of the super Micro CEO, right,
Speaker 5: And that's something that I'm not thrilled about quite frankly.
Speaker 5: You would like a little bit of diversity in terms
Speaker 5: of the supply chain versus some of an episistic relationship.
Speaker 5: And you know, uh, that's the big glurring one. But
Speaker 5: also they've had accounting issues in the past which prompted
Speaker 5: the uh, the delisting the hope is is that with
Speaker 5: the CFO that they have currently, they've cleaned all of
Speaker 5: that mess up.
Speaker 4: Well, because if it feels like in super Micro obviously
Speaker 4: everyone knows in video, but this is a stock that
Speaker 4: from over three years is up fifteen hundred percent, went
Speaker 4: from you know, one point six billion to a peak
Speaker 4: at fifty eight billion. Like when these companies go from
Speaker 4: small cap to large cap, it feels like incorrect me
Speaker 4: if I'm wrong. It feels like investors sometimes gloss over
Speaker 4: diving in Dick's disclosures and just kind of take them
Speaker 4: as a component, yes and B five hundred and let
Speaker 4: that be their investment.
Speaker 5: Well, well, let me take that a stuff further. When
Speaker 5: when you go for a management team from a small
Speaker 5: cap management team to and SAP five hundred listed company,
Speaker 5: you know, you're you're still in your preteen years, and
Speaker 5: all of a sudden you have to act like a
Speaker 5: grown up.
Speaker 2: Right, that's so brilliant analogy.
Speaker 5: Right, So when you have that like a grown up,
Speaker 5: the management team have to act like a grown up,
Speaker 5: the irt IR has to act a little bit more professionally,
Speaker 5: would sense. And then look, you you have a broader
Speaker 5: range of investors that are looking at the company right now.
Speaker 5: I'm not saying that they didn't do the work right,
Speaker 5: but there probably was some momentum in there, because.
Speaker 4: I do want to call out. So super micro nine
Speaker 4: buys nine holds one cell. That's nineteen analysts with the
Speaker 4: biggest shops on the street covering it. You look back
Speaker 4: in twenty twenty one, five buys, it was Northland, Loop Capital,
Speaker 4: SUSQUEHANNASCJS and vertical groups. So to your point, your management
Speaker 4: growing up, and also I imagine the street following has
Speaker 4: to get caught up to speed on a stock very quickly. Yes, right,
Speaker 4: does that enable some of these things to maybe be
Speaker 4: glossed over?
Speaker 5: And I will tell you if I see if I
Speaker 5: saw some of the research reports for this past earning
Speaker 5: season after they had that gross morgin, let's just say hiccup.
Speaker 5: Theoretically right, the commentary behind that was a lot more
Speaker 5: critical than somebody who may have been let's just say,
Speaker 5: an avid supporter of super micro over prior to the
Speaker 5: big AI boom.
Speaker 2: I think the preteen adult thing is like perfect analogy,
Speaker 2: and I think that that just sums it all up.
Speaker 2: And for a question, because I know you can't actually
Speaker 2: answer it. But how much more downside do you think
Speaker 2: that there is? Based on the fundamentals? Like, where's a
Speaker 2: good way to think about it?
Speaker 5: So I'll answer it in this way. Yes, if I
Speaker 5: look at the valuation of the stock right now, right,
Speaker 5: we're talking about zero point three times forward sales, I
Speaker 5: you know, give given the AI momentum. Typically I like
Speaker 5: one time's forward sales. But historically they've traded at points
Speaker 5: seventy five forward sales, so they're playing their their value
Speaker 5: at a discount to the historic evaluation.
Speaker 2: That's a great answer to that question. I love that.
Speaker 2: All right, Booge, thanks a lot. Also, good to see
Speaker 2: you in studio. I think it's been a minute, all right.
Speaker 2: Ujinho joining us from Bloomberg Intelligence. He is a senior
Speaker 2: technology analyst over there talking about Hindenburg research report that
Speaker 2: quoted Wu Jinho's research in Bloomberg Intelligence. Let's not forget that,
Speaker 2: so get your information there first.
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Speaker 2: You got the equity market doing a whole lot of nothing.
Speaker 2: Volume also quite light as well. What do you do
Speaker 2: when you wind up having Nvidia and you also have
Speaker 2: the jobs at a next Friday and liquidity is going
Speaker 2: to be super late at the same time. All right,
Speaker 2: let's get a professional view Kathy and Whistle Managing director
Speaker 2: Morgan Stanley Private Wealth Management joins us. Now, Kathy your
Speaker 2: private wealth management right, like, you're looking for the longer term.
Speaker 2: You're not a trader yet. How are you looking at
Speaker 2: the results on four to twenty on Wednesday afternoon when
Speaker 2: Nvidia comes out.
Speaker 6: Thanks for having me, Bailey, great to be with you both.
Speaker 7: I would say, look at anytime you've got a company
Speaker 7: that has or you know, any sort of companies that
Speaker 7: have an edge in their industry, you have to consider
Speaker 7: that for the long term as well. So I would
Speaker 7: say in terms of you know, people who are holding
Speaker 7: the types of stocks are coming out with earnings today
Speaker 7: that might have you know, special access to parts of
Speaker 7: the market, or you know, you know, like a technology
Speaker 7: that other companies do not.
Speaker 6: You have to that's.
Speaker 7: Important and listen if you own it or any company
Speaker 7: in an IRA or returnment account, it's easy to sell
Speaker 7: it and take your games off the table because you
Speaker 7: don't have any tax consequences.
Speaker 6: You really have to think about that when you.
Speaker 7: Own it in an individual account. So that's something that
Speaker 7: we think about when we're thinking about our clients with
Speaker 7: their long term view and also how to leg out
Speaker 7: of positions as well as leg into positions.
Speaker 4: Well, how are you positioning for an advising clients to
Speaker 4: position for this AI wave When we look at obviously
Speaker 4: Nvidia the most important company in the US market, if
Speaker 4: not the global market. But we have super Micro, we
Speaker 4: have arm we have Broadcom, you name it that are
Speaker 4: either beneficiaries or have some exposure to a print that
Speaker 4: not only will move the stock in the market, but
Speaker 4: all of these peers.
Speaker 6: Yeah.
Speaker 7: So for companies that I think are going to, you know,
Speaker 7: do well for the long term and have a competitive edge,
Speaker 7: I would say holding it in retirement accounts is probably
Speaker 7: a better way to go at the moment because of
Speaker 7: the large tax implications when and if you need to take.
Speaker 6: It out, you shouldn't be a trader. You shouldn't be
Speaker 6: going in and out.
Speaker 7: People don't realize what that does in terms of the
Speaker 7: tax impact and how it affects your overla over all
Speaker 7: profit margins. So in terms of that, yeah, I want
Speaker 7: clients to have access to AI, and it's not just
Speaker 7: the companies that are providing AI, but it's the companies
Speaker 7: that are using AI as well. Right now, the market
Speaker 7: has you know, had quite a run up, and we
Speaker 7: want to be more cautious. We're a little bit more
Speaker 7: underweight on equities as a whole, and we're also you know,
Speaker 7: trying to keep people away from the quote unquote over
Speaker 7: indulging in you know, the top seven or ten stocks
Speaker 7: that are out there. But at the same time, it's
Speaker 7: very hard to do when we see some of these
Speaker 7: companies running up. So it's a balancing act and it's
Speaker 7: important to really think about how that affects, you know,
Speaker 7: your full portfolio and not just one part of it.
Speaker 7: I always say never put more than five percent of
Speaker 7: your assets into one holding anyway, So you want to
Speaker 7: really be that you're not overextended in any one stock.
Speaker 2: So you mentioned that it's not like you were crazy
Speaker 2: invested in the equity market. What is your allocation right now?
Speaker 7: Well, you know, I don't take clients out of their
Speaker 7: equities that are in there for the long term unless
Speaker 7: there's a specific reason why we're doing so. So I'm
Speaker 7: typically looking for clients to have fifty to sixty percent
Speaker 7: in equities, to have twenty percent to twenty five percent
Speaker 7: in you know, taxble accounts, municial bonds typically, and the
Speaker 7: balance in some sort of alternative investment. There's a lot
Speaker 7: of liquid investments alternative investments available now to clients, and
Speaker 7: I've you know, heard a few times today people talking
Speaker 7: about the bank stocks and you know banks in general,
Speaker 7: and basically with all of the regulations that are out there,
Speaker 7: we're seeing a lot in the private market come in
Speaker 7: and take over for some of that credit access.
Speaker 6: So it's interesting too.
Speaker 4: And when you talk about some of those alternative investments
Speaker 4: a little bit more detail on that. Are you talking
Speaker 4: about like you know, privately funded companies investing in hedge funds?
Speaker 4: Like what are those opportunities?
Speaker 8: Like?
Speaker 7: No, different opportunities for different different people, different you know,
Speaker 7: levels of sophistication and also of wealth. So you want
Speaker 7: to make sure that you're targeting your asset allocation and
Speaker 7: the actual implementation according to that client's particular situation. But
Speaker 7: generally speaking, I would say, I'm talking about private equity,
Speaker 7: private markets, you know, different types of private credit, and
Speaker 7: there's ways for clients. They've democratized it in a sense
Speaker 7: alternative investments, and they've brought the industry has created investments
Speaker 7: that are now accessible to clients that were not accessible
Speaker 7: to three four years ago. So that's very interesting and
Speaker 7: it's a great way for individuals to add differentiation into
Speaker 7: their portfolio non correlated assets. And I'm a big fan
Speaker 7: of that.
Speaker 2: When you take a look at what the Fed Willer
Speaker 2: won't do, do you care in your investor allocation whether
Speaker 2: it's twenty five or fifty in September, and whether it's
Speaker 2: seventy five or one hundred this year, or is the
Speaker 2: moment for you just when they start doing it.
Speaker 6: No, I care ahead of the game.
Speaker 7: I think that perception is really baked into the numbers,
Speaker 7: and if you don't start making some moves ahead of
Speaker 7: the decisions, you'll probably miss out on a big opportunity.
Speaker 7: And for example, municipal bonds still look really attractive right here.
Speaker 6: At some point they're.
Speaker 7: Going to become less and less attractive as those rate
Speaker 7: cuts start to happen. So for clients with cash, I
Speaker 7: am putting them in municipal bonds, not legging in, and
Speaker 7: trying to get them in as thoughtfully and as quickly
Speaker 7: as possible, because I think that's a great opportunity for
Speaker 7: clients right now.
Speaker 4: Do you think the market's ahead of its skis when
Speaker 4: we're looking at six cuts being priced in between now
Speaker 4: in March?
Speaker 6: It's possible, it will be interesting. I think that.
Speaker 7: I think we're definitely getting cuts. You know, this year
Speaker 7: we're getting we are expecting cuts this year. We're expecting
Speaker 7: about three.
Speaker 6: Cuts this year.
Speaker 7: And then I would say I would just take a
Speaker 7: pause and see what's going on in the reaction, you
Speaker 7: know what the Fed is saying. But it is likely
Speaker 7: that we could have those cuts as well. And again
Speaker 7: with the economic environment, political environment, everything that's going on,
Speaker 7: there's a lot of stake in terms of your personal
Speaker 7: portfolio and your individual wealth, and we really want to
Speaker 7: be mindful and thoughtful about that for clients and make
Speaker 7: sure we're addressing it and we're discussing it.
Speaker 2: When you're talking to clients right now, what are they
Speaker 2: asking in relation to the election?
Speaker 7: Just basically, is there a way to position the portfolio
Speaker 7: one way or another based on like what the potential
Speaker 7: outcome would be. And I think you know, certainly overall
Speaker 7: clients are invested like clients are invested, and we don't
Speaker 7: want to make any huge moves ahead of the election.
Speaker 6: We can make some thoughtful moves.
Speaker 7: I think minimizing tax impact for clients at any time,
Speaker 7: regardless of who's running the country or what the economic
Speaker 7: position is is a great idea. So menis are a
Speaker 7: great idea right now using you know, direct indexing, where
Speaker 7: you have portfolios that are trying to minimize tax impact
Speaker 7: by you know, sort of buying and selling and matching
Speaker 7: those off throughout the year in order to minimize gains
Speaker 7: going forward. I think that's also a great way to
Speaker 7: help clients get a little bit more alpha in their portfolio.
Speaker 7: And the last thing I would say too is there's
Speaker 7: you know, there's going to potentially be some tax changes
Speaker 7: sunsetting of some tax laws that.
Speaker 6: Occurred a few years ago.
Speaker 7: And if you have an estate or you know net
Speaker 7: worth over you know, five six seven million dollars, you
Speaker 7: want to you might want to start thinking about some
Speaker 7: speaking your estate planning attorney about some trust you know,
Speaker 7: sort of implementation.
Speaker 4: And to bring it back to the equity market. Since
Speaker 4: I'm a I'm a big stocks guy, that's what I do.
Speaker 2: I'm like talking about tax and trust and you're like equities, man, Like.
Speaker 4: What about the lines that go up and down? You
Speaker 4: talk about taking a measured approach. Are there industries sectors
Speaker 4: that you see more kind of fairly valued or at
Speaker 4: least more of a better buying opportunity instead of chasing
Speaker 4: some of those growth e tech names.
Speaker 6: Yeah, I do.
Speaker 7: I think basically, anytime you look at different companies, you know,
Speaker 7: growth at a reasonable price.
Speaker 6: So you want to look at.
Speaker 7: The valuations of a company and see whether or not,
Speaker 7: you know, it's overpriced for what they're earning at the moment.
Speaker 7: But we like healthcare, we like financials, we like you know,
Speaker 7: consumer So there's other areas that you can look at,
Speaker 7: I would say, dividend paying growth a reasonable price, and
Speaker 7: income producing.
Speaker 6: It's interesting.
Speaker 7: I know you like stocks and we all do. We
Speaker 7: love equities. We're owners, right, not owners. But at the
Speaker 7: end of the day, there could be some really interesting
Speaker 7: opportunities in the fixed in code market as well.
Speaker 6: Don't dismiss that.
Speaker 2: Don't discount that, all right, Kathy, thanks a lot. We
Speaker 2: really appreciate it Kathy and Whistle, Managing director at Morgan
Speaker 2: Stanley Private Wealth Management, with her outlook on the market.
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Speaker 2: One of the top stories of the day is also
Speaker 2: Eli Lilly now selling some zepbound bials at a fifty
Speaker 2: percent discount to the shots. Michael Shatz, Bloomberg Intelligence Senior
Speaker 2: Pharma biotech analysts, can we just make help me understand
Speaker 2: why this is easier for Eli Lilly to produce than
Speaker 2: the actual shots?
Speaker 8: Absolutely, I mean the announcement state doesn't really come as
Speaker 8: a supply surprise on the aack of you know, the
Speaker 8: type supply. So yeah, they're providing a valve for relation.
Speaker 8: It's something that they've talked about, you know, for a
Speaker 8: while now on their calls. Now, the reason why these
Speaker 8: are easier to produce produce is you know, the fill
Speaker 8: and finished capacity, So the capacity needed to actually put
Speaker 8: the drug in the pens and the capacity needed to
Speaker 8: manufacture at the pens of the subcutaneous ejection. So overall,
Speaker 8: I think, you know, the move is you know positive
Speaker 8: for Lily clearly broaden's access or patients access you know
Speaker 8: to ze bound and also from you know, compounding pharmacy standpoint.
Speaker 8: The fact that the improved supply means that could you know,
Speaker 8: possibly combat you know, competition from you know, companies such
Speaker 8: as Hymns, Hymns and Hers.
Speaker 4: Yeah, Lily not so subtly saying that they want to
Speaker 4: aim to protect patients from quote, counterfeit, fake unsafe for
Speaker 4: untested knockoffs. So how does that impact kind of the
Speaker 4: business and demand If we're seeing a cheaper version being
Speaker 4: sold and maybe try and to court some of those
Speaker 4: Hymns and Hers g LP one users, how does that
Speaker 4: impact kind of the total addressable market and expectations for
Speaker 4: sales of zepp out.
Speaker 8: Well, I think if there's you know, if there's a
Speaker 8: branded bile formulation out there and there's obviously guarantees around
Speaker 8: kind of purity, et cetera, I think that's going to
Speaker 8: be the preferred choice. The fact that you're introducing these
Speaker 8: valves into the market would suggest that you know, some
Speaker 8: of that supply burden and supply shortage which is needed
Speaker 8: for a compounding pharmacy to produce a drug that is
Speaker 8: on pattern. You know, some of that will be alleviated there.
Speaker 8: So that's kind of why we think it's positive for Lily.
Speaker 8: As to whether you know, companies like him and hers
Speaker 8: will continue producing you know, their versions of the GEO
Speaker 8: beyond ones, I mean, that remains to be seen. But
Speaker 8: I imagine if they do, you know, Lily would you know,
Speaker 8: probably challenge it.
Speaker 2: When people then do their own shots, like administer it,
Speaker 2: like is there a risk in that? Like, well, what
Speaker 2: what kind of uptake are we expecting from that? Because
Speaker 2: I would be scared to do it. But maybe that's
Speaker 2: just me.
Speaker 8: I mean I think judging by you know, what we
Speaker 8: saw for uptake of these compounded drugs, there's clearly a
Speaker 8: appetite for injectable therapy injections. Now, you know, we looked
Speaker 8: at the diabetes market. You know, some of the incidents
Speaker 8: used to be injections, So I mean, I think it's
Speaker 8: not I mean, there's clearly kind of an increased kind
Speaker 8: of dosing burden associated within these injections, so they're probably
Speaker 8: not going to be suitable for all. But you know,
Speaker 8: I think there is going to be an appetite for it.
Speaker 4: What does this mean for the competitive landscape? So you
Speaker 4: have Lily, you have Novo. To your point, you have
Speaker 4: hymns and hers like, is this going to create a
Speaker 4: pricing war? Am I reading too much into that?
Speaker 8: I mean when we look at the I mean the
Speaker 8: headlines had fifty percent you know, discount, but we need
Speaker 8: to remember that, you know, on a net price basis,
Speaker 8: so you know, after taking account all the rebates and discounts,
Speaker 8: you know, the pricing is probably you know, fairly similar
Speaker 8: to the current net prices that we're seeing now at
Speaker 8: the moment. You know, it's an under penetrated market. You know,
Speaker 8: there's massive demand out there, there's tight supply. So I
Speaker 8: don't think it's gonna change too much in terms of
Speaker 8: the dynamics between you know, Novo and Lily. I think
Speaker 8: I think prescribing decisions are you know, less about kind
Speaker 8: of the profiles of the drug at the moment and
Speaker 8: more about you know, what is ensured, what can people
Speaker 8: get their hands on? So near term, I don't see
Speaker 8: you know that that changing from a Lily perspective. You know,
Speaker 8: as they ramp up supply over the over the midterm
Speaker 8: of their you know, their pens you know, you could
Speaker 8: potentially see you know, patients switching from the injectable onto
Speaker 8: the pen as and when that supply comes comes on board.
Speaker 2: Fair enough, all right, Michael, thanks a lot, really appreciate it.
Speaker 2: Michael Shot joining us Bloomberg Intelligence senior Pharma biotech analyst.
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Speaker 2: So markets are definitely quiet, there are some catalyst in video.
Speaker 2: We still have some data coming out. We get retail
Speaker 2: numbers from many stores coming up the next few days.
Speaker 2: And you have the jobs at a next Friday. So
Speaker 2: we want to check in with Rubin Hovanacion, his general
Speaker 2: portfolio manager at TCW's fixed income group. Hey, Rubin, what's
Speaker 2: my position right now headed into the next week and
Speaker 2: a half.
Speaker 9: Well, good morning, and thanks for having me on. Well
Speaker 9: our position is that, well, I guess it's it's probably
Speaker 9: worth mentioning that we've seen a significant reprising in the
Speaker 9: rates markets over the last month month and a half.
Speaker 9: So we've basically gone from pricing in only two cuts
Speaker 9: this year and a terminal rate of three point seven
Speaker 9: percent in mid twenty twenty six, to pricing in about
Speaker 9: four cuts this year and a terminal rate of about
Speaker 9: three percent again in mid twenty twenty six in the
Speaker 9: second quard of twenty twenty six. That's a sixty seventy
Speaker 9: basis points repricing in the forward rate curve. And what
Speaker 9: we find interesting is that when you look at the
Speaker 9: credit markets and equity markets, there was some weakness in
Speaker 9: the first week of August in those markets as well,
Speaker 9: which would be consistent with that reprising, but by now
Speaker 9: all of that weakness has been retraced. So if you
Speaker 9: look at the credit markets, for example, credit sprates both
Speaker 9: IG and high yield have retraced all the widening and
Speaker 9: they're back to their mid July levels or end of
Speaker 9: July levels. And if you look at equity markets, equities
Speaker 9: are retesting the old time highs reached in mid July.
Speaker 9: So we look at that and we think there's a
Speaker 9: little bit of a disconnect, a little bit of discontent inconsistency,
Speaker 9: because if you believe that the rates market has reprised
Speaker 9: because the investment community thinks the economy is weaker now
Speaker 9: and it's going to be weaker on a go forward basis,
Speaker 9: in fact, so much weaker that would require the FED
Speaker 9: to intervene, intervene sooner and cut more. Then you would
Speaker 9: think that some of that weakness should also be reflected
Speaker 9: in equity markets and credit markets. But we don't see
Speaker 9: that currently, so that I guess one reasonable one explanation
Speaker 9: for that would be that the market or one takeaway
Speaker 9: from that, is that the market has gone from price
Speaker 9: pricing in no lending to pricing in some sort of
Speaker 9: a perfect soft lending. In other words, this notion that
Speaker 9: the FED has a lot of room to cut, the
Speaker 9: FED will be able to navigate the cycle, the slate
Speaker 9: cycle perfectly and calibrate the rate just right to the
Speaker 9: right level to forestall the slowing economy and not not
Speaker 9: and at the same time not cause reacceleration of inflation.
Speaker 9: Excuse me, and obviously, yes, were.
Speaker 4: We surprised at all when we hear jaypow Will say
Speaker 4: the time has come. I mean it seemed like maybe
Speaker 4: with the expectations around Jackson Hall would be keeping kind
Speaker 4: of giving the all clear, but maybe not necessarily signaling
Speaker 4: that we're going to have at least as the rate
Speaker 4: market is implying what five or six straight cuts.
Speaker 9: We at t CW were not surprised because we have
Speaker 9: been of the opinion for a long time that the
Speaker 9: economy has been slowing, although the headline numbers sometimes may
Speaker 9: not lead you to that conclusion. But when you peel
Speaker 9: off a few layers and you look under the hoot,
Speaker 9: you would you would see slowing, you know, labor market
Speaker 9: for example, based on the forward looking indicators, you know,
Speaker 9: starting from the from for a year now, I guess
Speaker 9: we have been seeing slowing off consumption. For six months now,
Speaker 9: we've been seeing we've been seeing the slowing of the
Speaker 9: credit creation in the economy, and all of those were
Speaker 9: indicative of slowing economy for some time. Yet I think
Speaker 9: I tend to agree with you that declaring victory over
Speaker 9: inflation and telling that the time has come to shift
Speaker 9: to the second mandate of the Fed at the time
Speaker 9: when core CPI is a three point two percent and
Speaker 9: core PCE as a two point six percent indicates that
Speaker 9: they get it. They do understand that the downside risks
Speaker 9: are now real and they have to shift and they
Speaker 9: have to act to try to arrest the declining economic growth.
Speaker 2: All right, Rubin, we're gonna leave it there, Thank you
Speaker 2: so much. Rubin Hovnacian a general portfolio manager with TCW's
Speaker 2: Fixed Income group. And just to point out, we get
Speaker 2: the two year auction today coming at sixty eight billion dollars,
Speaker 2: then we get a five year for seventy billion, seven
Speaker 2: year and forty four billion, So lots of ways to
Speaker 2: kind of wager on the FED and supply over the
Speaker 2: next couple of days as well.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: Dlex Steel here alongside the Ellipshalaltz. Paul Sweeney is off today.
Speaker 2: This is Moving Intelligence Radio. We are broadcasting to live
Speaker 2: from an interactive broker studio right here in Midtown Manhattan,
Speaker 2: so Paul's not here so we can talk about shopping.
Speaker 2: I love shopping. I love shopping on sales. I will
Speaker 2: only shop on sales. I will only pay full price
Speaker 2: for face care, birkenstocks and bionics because I have to.
Speaker 2: I have bad feet, so I like I don't have
Speaker 2: a choice discretionary spending. Not I can wear heels or
Speaker 2: birkenstocks are bionics? That's it, John Twners details. You don't
Speaker 2: really have to tell everybody about do you want? I'm no,
Speaker 2: come on, I love it. Didn't you talk about the
Speaker 2: whole fan and ice thing or was that in commercial break?
Speaker 1: I think there's a commercial excellent.
Speaker 2: Okay, that's a different story. I've had a cool year
Speaker 2: home without air conditioner. Anyway, I wanted to get an
Speaker 2: expert on this because I'm personally interested in what the
Speaker 2: sales are going to be like for the summer, which
Speaker 2: just begs the question how much our luxury and other
Speaker 2: goods and other stores have to cut prices to get
Speaker 2: consumers in there in the store when they really are
Speaker 2: trying to splice and dice where they're spending is Sarani
Speaker 2: I said Home is managing partner at said Home Law Group.
Speaker 2: She joins us now. The law group provides the ability
Speaker 2: to immediately access counsel to provide practical solutions on critical
Speaker 2: issues for all kinds of kinds of companies, particularly though
Speaker 2: most of their clients tend to be in fashion, luxury goods, technology,
Speaker 2: and food and beverage. It's good to have you in
Speaker 2: the studio. Thank you so much for joining us.
Speaker 1: Thank you.
Speaker 2: So, what's the common question you're getting right now?
Speaker 10: Everyone is asking when is the economy going to improve?
Speaker 10: And how can I mitigate any risks because people are
Speaker 10: afraid they're going to have to file for bankruptcy.
Speaker 2: Wow, okay, so it's that bad for some of these
Speaker 2: guys that bankruptcy is on it is.
Speaker 10: I mean, retail is hurting. If you just walk down
Speaker 10: the street. Most people are walking around without bags. There's
Speaker 10: a lot of window shopping or whatever it's called when
Speaker 10: you enter and don't buy other kinds of shopping. But
Speaker 10: buying is on hold. And I think consumers are being
Speaker 10: pickier because they don't have as much disposable income.
Speaker 4: And we've been tracking and talking to economists about the
Speaker 4: k shape recovery post pandemic, So people who are affluent
Speaker 4: can still buy whatever they want, and others are having
Speaker 4: to seek deals how does that impact potential clients or
Speaker 4: companies that could be going bankrupt? Is that kind of
Speaker 4: skewing more towards the middle of the road, those are
Speaker 4: the companies that are worse off.
Speaker 10: I think so, yes, you know, it's it's very dangerous
Speaker 10: in the middle. Those who are catering to the one
Speaker 10: percent or the point one percent generally or fine like
Speaker 10: Ermez and Chanel and those brands, and those who are
Speaker 10: catering to people with no disposable income that sell food
Speaker 10: or things like that are generally okay because you have
Speaker 10: to eat. But when you're going into the mid market
Speaker 10: and trying to get Henry's or you know, middle class,
Speaker 10: whether it's middle middle class or upper middle class, it's
Speaker 10: very very difficult.
Speaker 2: So what's the strategy before we get to bankruptcy here?
Speaker 2: Because that's where the price cuts come into play.
Speaker 8: Right?
Speaker 2: Can they cut enough to get enough consumers in the
Speaker 2: stores to buy enough to make up for the revenue
Speaker 2: lot from the margin cut.
Speaker 10: Well, it's been working for Target. You know, Target cut
Speaker 10: about fifteen hundred of their goods buy substantial amounts, you know,
Speaker 10: over twenty percent, and I think they just reported earlier
Speaker 10: this week or maybe last week, last week. Yeah, because
Speaker 10: it's only a lens. Yeah, it's only Tuesday. Yes, that
Speaker 10: they're up finally, and they have a better forecast for
Speaker 10: the remainder of the year. So it does seem to
Speaker 10: be working for them. Whether it's working for luxury brands,
Speaker 10: it's too soon to say, but you know Burbery and
Speaker 10: YSL for example, Saint Laurent, they've cut their prices I
Speaker 10: would say by at least ten percent on many products,
Speaker 10: and I don't know yet whether it's going to help them.
Speaker 4: I'm just gonna ask the dumb question to someone who
Speaker 4: is not buy a lot of nice goods. Does ten
Speaker 4: percent really move the kind of people who would be
Speaker 4: buying a four hundred dollars belt off the sidelines to
Speaker 4: buy one?
Speaker 10: It certainly can be because the ten percent also reduces
Speaker 10: your tax in New York, right, so we're spending what eight,
Speaker 10: eight or nine percent, So ten percent reduction is more
Speaker 10: than a ten percent reduction in a way. So yeah,
Speaker 10: it can move the needle.
Speaker 2: It wouldn't move my needle, But I guess I'm just
Speaker 2: thinking from my put. I'm not their customer like to
Speaker 2: begin with, but you know, I like sales like you know,
Speaker 2: fifty percent like ten percent, ain't gonna cut it.
Speaker 4: That's why I asked, because like Macy's had underwhelming results.
Speaker 4: If I go to Macy's, I immediately go to the
Speaker 4: sale section, and if it's twenty percent to me, I'm
Speaker 4: like skeptical, so I think they aren't actually giving me
Speaker 4: a deal. But if you give me fifty or seventy
Speaker 4: five percent off like the last shirt in my size,
Speaker 4: that I'm gonna buy it.
Speaker 10: Yes, Well, this is the issue, right, These are the
Speaker 10: questions we're constantly discussing. At what point do the consumers
Speaker 10: think you're going to keep reducing your prices and wait
Speaker 10: and not purchase. You know, it's not holiday season yet.
Speaker 10: When holiday season comes around, people will be buying. What
Speaker 10: it is they're going to be buying. We're gonna find out.
Speaker 10: But you do have to ask yourself, how how many
Speaker 10: cuts do you need? Is it better to keep cutting
Speaker 10: a little bit at a time, you know, sort of
Speaker 10: like the FED with interest rates, a quarter point at
Speaker 10: a time, a teaser, or is it better to just
Speaker 10: cut the price. But these price cuts that we're discussing today,
Speaker 10: they're permanent, They're not on sale. These are the new
Speaker 10: prices that you will be paying, so when you walk
Speaker 10: into these stores when it's on sale, it should be
Speaker 10: even lower.
Speaker 2: Well, that's interesting to Bailey's point earlier, does any of
Speaker 2: this do you expect M and A and where?
Speaker 10: Yeah, that's a great question. I think that if you're
Speaker 10: in a niche market, your product is niche or your
Speaker 10: messaging is niche, you likely get picked up an M
Speaker 10: and A. But otherwise no, I think it's more you know,
Speaker 10: cannibalization and you know, Darwinism with.
Speaker 2: The niche guys. Aren't the niche guys doing okay because
Speaker 2: for the fact that their niche or it just still depends.
Speaker 10: No, it depends because the niche brands typically don't sell
Speaker 10: high volume, and so their cost of goods is high
Speaker 10: and they can't manipulate their pricing as much as larger
Speaker 10: corporations can.
Speaker 4: Well, you mentioned target cutting prices in that bringing consumers
Speaker 4: through the door. We spoke with Brooks Southerland about a
Speaker 4: story on commercial real estate and pointing out that fast
Speaker 4: food chains are being able to kind of weather different
Speaker 4: trends from a return to office, whereas maybe a mom
Speaker 4: and pop shop can't handle that as well. With target
Speaker 4: cutting prices and drawing and consumers and seemingly more people
Speaker 4: going to stores like Walmart or a Costco or Sam's Club.
Speaker 4: How does that impact some of these other either small
Speaker 4: businesses or even just less global retailers.
Speaker 10: I think it's tough out there, and I think it's
Speaker 10: going to get tougher. And unfortunately, where we stand right now,
Speaker 10: the economy is so uncertain because we don't know who
Speaker 10: the next president will be, and once we do know that,
Speaker 10: people can start planning. This is probably the worst time
Speaker 10: typically in any election year, because there's so much uncertain
Speaker 10: and this election in particular, we have two candidates who
Speaker 10: are on complete opposite sides of the economic spectrum, and
Speaker 10: so we are in a wait and see holding pattern,
Speaker 10: and that makes everything a lot more difficult.
Speaker 2: You mentioned Target. What other companies do you think have
Speaker 2: been doing the price cutting and managing this environment?
Speaker 10: Well, certainly Ikia. I mean they not only cut their prices.
Speaker 10: You can go online and you can see the price
Speaker 10: before and the price now, so they're really speaking to
Speaker 10: consumers and showing them, you know, you no longer have
Speaker 10: to pay. I'll make these numbers up three hundred dollars
Speaker 10: for this lamp you can pay, you know, two twenty
Speaker 10: five and this is our permanent new price. So I
Speaker 10: think they're doing a great job in showing the consumers
Speaker 10: exactly what it is they're doing to help them and
Speaker 10: drive their own sales.
Speaker 4: Of course, about ten seconds, if we're shopping, should we
Speaker 4: be going to the stores now or waiting for some
Speaker 4: of those holiday sales.
Speaker 10: That's such a tough question. I mean, I try not
Speaker 10: to buy things at full price if I can help it, so, I,
Speaker 10: you know, confession.
Speaker 2: Usually wait for sales, but if you need something.
Speaker 10: Try to go to those stores that have already reduced
Speaker 10: their prices.
Speaker 2: Yeah, she sees me, she sees me, She gets me.
Speaker 2: All right, thanks, not really appreciate a Runnias at home
Speaker 2: managing partner at set Home LG Group joining us. There
Speaker 2: are you done, Bailey with your home furnishing? I mean,
Speaker 2: it's been a year.
Speaker 4: It's never it's never never ending. Well, because we got married,
Speaker 4: so we had to plan the wedding and then we're
Speaker 4: still as JT know is trying to address a leaky
Speaker 4: roof fireplace to the living room.
Speaker 2: Still, yeah, he's not helping. He already said that.
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