WEBVTT - Bloomberg Surveillance December 24, 2024 0:00:02.400 --> 0:00:06.720 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.600 --> 0:00:15.400 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.640 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.680 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.360 --> 0:00:24.840 from our global headquarters in New York City. We are 0:00:24.880 --> 0:00:27.640 live on Bloomberg Television weekday mornings from six to nine 0:00:27.680 --> 0:00:31.240 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.879 anywhere else you listen, and as always on the Bloomberg 0:00:33.960 --> 0:00:35.800 Terminal and the Bloomberg Business app. 0:00:37.000 --> 0:00:40.559 Let's bring in Margie Bttell of Oscaring Global investments. She 0:00:40.680 --> 0:00:44.080 wrote that in twenty twenty five, I expect another decent 0:00:44.159 --> 0:00:46.839 equity year, although not with the total performance that we 0:00:46.880 --> 0:00:50.800 have seen this year. Admittedly, the market looks rather frothy. 0:00:51.280 --> 0:00:53.600 I'm pleased to say Margie joins us now. Margie, thanks 0:00:53.800 --> 0:00:56.840 so much for spending some time with us on this 0:00:56.880 --> 0:00:59.360 holiday shortened week. What are you seeing in terms of 0:00:59.400 --> 0:01:02.080 the frothyness? Where is it most prominent? 0:01:03.440 --> 0:01:05.639 Well, I think it's not so much in the stock market. 0:01:05.680 --> 0:01:07.920 I think you can see this manifestation. 0:01:08.080 --> 0:01:12.000 There's actually a lot of liquidity in the financial markets. 0:01:12.200 --> 0:01:14.720 You see it in crypto, you certainly see it in 0:01:14.800 --> 0:01:15.399 real estate. 0:01:15.760 --> 0:01:18.560 You see it in the explosion of private debt and 0:01:18.600 --> 0:01:21.720 private equity, which has been a big boost to the 0:01:21.720 --> 0:01:24.560 financial markets. And it's really kept the law of the 0:01:24.560 --> 0:01:28.240 Fed's actions out of the control of the FED because. 0:01:28.000 --> 0:01:29.920 It's been in the market. Not like the bank score 0:01:29.959 --> 0:01:31.520 things are typely regulated. 0:01:31.680 --> 0:01:33.560 But as far as a stock market, I'd say it's 0:01:33.840 --> 0:01:36.240 reasonably price for another decent year next year. 0:01:37.040 --> 0:01:39.840 Talk a little bit about the interplay between those private assets, 0:01:39.840 --> 0:01:42.760 whether it's private credit or private equity to a lesser extent, 0:01:43.600 --> 0:01:46.520 and what that means for money flowing into equities. 0:01:47.720 --> 0:01:49.880 Well, I think that the first thing is if you 0:01:49.920 --> 0:01:52.640 think we had the FED make the biggest increase in 0:01:52.680 --> 0:01:56.080 its history in short term rates from basically zero to 0:01:56.120 --> 0:01:59.240 five percent in eighteen months, and yet we didn't have 0:01:59.280 --> 0:02:02.440 a recession as result, that tells you that the money 0:02:02.440 --> 0:02:05.520 flows in the financial system really isn't under the bank sump, 0:02:05.640 --> 0:02:08.519 under the bank sump and the Federal Reserve supervision the 0:02:08.560 --> 0:02:10.880 way it used to be. So you've seen a lot 0:02:10.880 --> 0:02:13.839 of companies that needed liquidity could actually go to these 0:02:13.919 --> 0:02:19.200 private markets and get these terms period. And also better 0:02:19.280 --> 0:02:19.800 terms than. 0:02:19.680 --> 0:02:21.520 They could have gotten in the public market. 0:02:21.880 --> 0:02:23.920 And so I think that's why you could say, well, 0:02:23.960 --> 0:02:27.080 the pe is high, you know, nineteen times something like that. 0:02:27.520 --> 0:02:29.920 But really, when you look at the profit goos under 0:02:29.919 --> 0:02:33.240 that and compare that to our treasure yields are it 0:02:33.280 --> 0:02:34.679 looks rather reasonable to me. 0:02:35.280 --> 0:02:37.640 Well, Marguie, one of the byproducts of the FED raising 0:02:37.680 --> 0:02:40.440 short term rates, as you mentioned, from zero to five percent, 0:02:40.560 --> 0:02:44.000 is that cash looks great here, yields are relatively high, 0:02:44.280 --> 0:02:47.400 and on money markets even still, you have seven trillion 0:02:47.480 --> 0:02:49.240 dollars sitting in cash right now. 0:02:49.240 --> 0:02:51.200 It feels like for the past couple of years. 0:02:50.919 --> 0:02:54.079 People have been calling people moving off of the sidelines 0:02:54.120 --> 0:02:57.160 back more fully into risk markets. Do you see that 0:02:57.280 --> 0:02:59.520 actually happening when you take a look at all that 0:02:59.560 --> 0:03:00.760 money market action. 0:03:01.760 --> 0:03:04.280 Yes, I think you'll see a lot of towel throwing 0:03:04.360 --> 0:03:07.680 from the cash equivalent market, because if. 0:03:07.600 --> 0:03:09.560 You look at it, if you got a good yeald 0:03:09.720 --> 0:03:10.440 historically and. 0:03:10.360 --> 0:03:13.240 Cash just year, say four or five percent, But on 0:03:13.280 --> 0:03:16.040 the other hand, the equity market was up fifteen to 0:03:16.080 --> 0:03:18.800 twenty five percent, depending whether you look at value names 0:03:18.840 --> 0:03:22.200 or more growthing names. That's a big disparity for investors 0:03:22.400 --> 0:03:25.680 and I think people have been hoping and actually believing 0:03:25.720 --> 0:03:28.239 that we would have a recession. The recession hasn't come 0:03:28.600 --> 0:03:31.560 with the FED at least stable of a problem cutting race. 0:03:31.639 --> 0:03:33.280 It's very hard to see how we can have a 0:03:33.320 --> 0:03:36.560 recession in twenty five. So we're thinking one and a 0:03:36.600 --> 0:03:39.600 half two and a half percent economic growth, maybe even 0:03:39.640 --> 0:03:42.080 surprising on the high side. And I think that's going 0:03:42.160 --> 0:03:44.440 to draw money out to say, how many years do 0:03:44.480 --> 0:03:46.640 you want to leave that much of a spread on 0:03:46.720 --> 0:03:47.200 the table. 0:03:47.880 --> 0:03:50.320 Well, Margie, let's say that you have been sitting in cash, 0:03:50.360 --> 0:03:53.040 you've been over allocated, and now you have the luxury 0:03:53.080 --> 0:03:55.320 of having a lot of money here to deploy. When 0:03:55.320 --> 0:03:57.240 you take a look at the relative values of the 0:03:57.280 --> 0:04:00.400 different asset classes, specifically when it comes to fix income 0:04:00.480 --> 0:04:03.240 to equities, where's the best opportunity right now? 0:04:04.360 --> 0:04:06.480 Well, I think it's ad equities. Even though we've had 0:04:06.520 --> 0:04:10.680 two terrific years. I think that if we have the e. 0:04:10.600 --> 0:04:14.040 Connery growing, you know, two plus or minus percent maybe 0:04:14.080 --> 0:04:17.080 on the high side, that should allow corporate profits to 0:04:17.120 --> 0:04:20.200 be up to say ten or twelve percent. Just to say, 0:04:20.200 --> 0:04:22.920 world this year about thirteen percent, even though we had 0:04:22.960 --> 0:04:26.280 more modest economic growth, So that says if that's your 0:04:26.320 --> 0:04:29.160 target on likely you turn on equities. When you look 0:04:29.160 --> 0:04:32.080 at fixed income treasures of say four and a half percent, 0:04:32.400 --> 0:04:33.320 if you look at high. 0:04:33.240 --> 0:04:35.359 Yield, you're only looking at say six and a half 0:04:35.360 --> 0:04:36.640 to seven and a half percent. 0:04:37.279 --> 0:04:39.799 And because we've had rallies in the fixed income market, 0:04:40.120 --> 0:04:42.800 those bonds are really trading in a very small discount 0:04:42.839 --> 0:04:45.680 from parsave around ninety eight cents on a dollar. So 0:04:45.720 --> 0:04:46.600 there's an automot of. 0:04:46.520 --> 0:04:49.520 Capital appreciation in the fixed income world. 0:04:49.640 --> 0:04:52.640 By the same token, defaults have been very low, so 0:04:52.680 --> 0:04:55.159 you have been taking much risk when you dip down 0:04:55.160 --> 0:04:57.480 into below investment grade. So I think that still says 0:04:57.480 --> 0:05:01.320 opinions over on the equity side, we're return should be higher. 0:05:01.680 --> 0:05:04.000 Okay, So with inequities, do you go with what's been 0:05:04.040 --> 0:05:07.800 working all along, the defensives in this case MAGS seven 0:05:08.000 --> 0:05:11.080 big tech type names, or do you go and maybe 0:05:11.160 --> 0:05:14.240 start picking up some of the underperforming sectors in the market, 0:05:14.279 --> 0:05:18.520 whether it's materials companies or energy companies, both those groups 0:05:18.839 --> 0:05:21.120 not moving more than one percent so far this year. 0:05:21.880 --> 0:05:22.920 Yes, well, I. 0:05:22.839 --> 0:05:25.599 Think that you really have to stick with the companies 0:05:25.600 --> 0:05:28.400 that have proven to have profit growth and a lot 0:05:28.440 --> 0:05:31.920 of that has been in the chech sector, some industrial 0:05:31.960 --> 0:05:35.440 sectors that have been tied to the big scenes electrification 0:05:35.640 --> 0:05:38.880 increases in data centers I think are going to continue 0:05:38.880 --> 0:05:41.520 to do well, and even in actually energy, I think 0:05:41.560 --> 0:05:44.839 that gas related names are going to continue to do 0:05:44.920 --> 0:05:49.720 surprisingly well because of benefit from the expansion and gas 0:05:49.800 --> 0:05:54.720 is used to increase our base slow power capacity. But 0:05:55.000 --> 0:05:58.000 I think a low growing company when we've had a 0:05:58.040 --> 0:06:01.440 decent markets mostly, I think stayload groom. So it says 0:06:01.440 --> 0:06:04.599 you have to buy the quality by the higher price 0:06:04.800 --> 0:06:07.960 relative stocks because they probably will continue to have strong 0:06:08.000 --> 0:06:09.360 earnings in twenty twenty five. 0:06:10.200 --> 0:06:12.480 You know, I look at the VICS and it spiked 0:06:12.560 --> 0:06:16.720 up to almost twenty eight on Wednesday after the FED decision. 0:06:17.279 --> 0:06:19.640 Certainly we saw equity sell office on bond sell off. 0:06:19.720 --> 0:06:22.200 It's come right back down though, now just about above 0:06:22.279 --> 0:06:24.839 sixteen and a half. Is the FED going to be 0:06:24.880 --> 0:06:27.400 the source of volatility in twenty twenty five or is 0:06:27.440 --> 0:06:29.160 it going to be the incoming White House? 0:06:31.080 --> 0:06:33.000 Well, the FIT has been pretty dependable. 0:06:33.120 --> 0:06:36.160 Is causing a lot of volatility in the marketplace by 0:06:36.200 --> 0:06:39.280 their actions that haven't really produced positive results. 0:06:39.320 --> 0:06:42.960 So my money is the less offensives, and the more 0:06:42.960 --> 0:06:44.520 in the background they are, the better. 0:06:44.760 --> 0:06:47.040 As far as the new administration, there are lots of 0:06:47.080 --> 0:06:51.200 exciting ideas, lots of frothy talk about what might happen, 0:06:51.720 --> 0:06:55.120 and we'll have to see how practical and how quickly 0:06:55.760 --> 0:06:58.880 some of these ideas that look favorable business can get through. 0:06:59.080 --> 0:07:02.960 I'd say the big positive is that there's no longer 0:07:02.960 --> 0:07:06.240 any talk about raising corporate income texts, which would have 0:07:06.240 --> 0:07:09.080 been a real depressant on the market had that gone through. 0:07:09.120 --> 0:07:11.520 I think to have tax rates for corporations where they 0:07:11.560 --> 0:07:14.480 are even lower will be a positive factor for the 0:07:14.520 --> 0:07:16.080 soft market continuing to do. 0:07:16.040 --> 0:07:16.800 Better next year. 0:07:17.120 --> 0:07:19.440 Well, let's talk about the relationship between what we're talking 0:07:19.480 --> 0:07:21.560 about on the fiscal side and what that could mean 0:07:21.600 --> 0:07:24.840 for monetary policy. Torson slack Over at Apollo put out 0:07:24.880 --> 0:07:27.520 a note of risks in twenty twenty five yesterday, and 0:07:27.560 --> 0:07:31.240 it was nice because he actually put probabilities next to them. 0:07:31.400 --> 0:07:34.760 He assigned forty percent odds that the Fed raises interest 0:07:34.840 --> 0:07:37.280 rates in twenty twenty five. You aren't seeing that being 0:07:37.280 --> 0:07:40.680 priced into the market at all virtually right now. Do 0:07:40.720 --> 0:07:42.640 you think that some of the things that we're talking 0:07:42.640 --> 0:07:46.480 about tariff's taxes, if those come to fruition, should we 0:07:46.560 --> 0:07:49.320 be talking about a potential rate raise next year. 0:07:50.640 --> 0:07:54.640 Well, I'm not so sure about the teriff situation of 0:07:54.800 --> 0:07:57.520 how seman be imposed, what the immediate impact would be 0:07:57.560 --> 0:07:59.880 on price levels, But I think it is interesting to 0:08:00.120 --> 0:08:04.080 think historically you've often seen a second wave of inflation 0:08:04.240 --> 0:08:07.640 after first wave look like things were tamped down, and 0:08:08.080 --> 0:08:10.760 really when you look at these other signs in the marketplaces, 0:08:10.800 --> 0:08:13.800 so there's plenty of liquidity that says maybe inflation is 0:08:13.800 --> 0:08:16.680 going to be much harder for the FED to bring 0:08:16.760 --> 0:08:18.880 down to its target level of two percent. 0:08:19.360 --> 0:08:21.000 So I think it's certainly. 0:08:21.000 --> 0:08:23.680 I'd say forty percent sounds find that there is that 0:08:23.840 --> 0:08:27.120 possibility later twenty five if I could say this. 0:08:27.000 --> 0:08:28.960 Isn't working, we need to raise rates. 0:08:29.040 --> 0:08:33.160 Economies doing fine, So I think it's a possibility. But again, 0:08:33.200 --> 0:08:34.800 that would be if we had I think a pretty 0:08:34.840 --> 0:08:38.200 strong economy. The Fed's always very very sensitive about looking 0:08:38.240 --> 0:08:41.720 at unemployment rates and the economy before they act, but 0:08:42.080 --> 0:08:44.200 a strong economy, I think that's likely. 0:08:44.720 --> 0:08:46.840 What is that spell for the back end of the 0:08:46.880 --> 0:08:48.959 treasury curve? Scarlet and I were talking just a few 0:08:48.960 --> 0:08:51.040 minutes ago about how there's been plenty of demand for 0:08:51.080 --> 0:08:52.600 the short end, and of course you can see that 0:08:52.840 --> 0:08:55.120 in money market funds, you can see that in the auctions. 0:08:55.559 --> 0:08:58.040 The long end of the curve has been a much. 0:08:57.880 --> 0:08:59.320 Harrier place to be. 0:08:59.640 --> 0:09:04.640 What's expectation in twenty twenty five in terms of duration volatility. 0:09:04.880 --> 0:09:07.240 Well, I'm not looking for any big spike up in 0:09:07.559 --> 0:09:10.200 the long end of the treasury market because although I 0:09:10.200 --> 0:09:12.959 think for domestic investors we tend to want to be 0:09:13.080 --> 0:09:17.200 shorter in maturity with things like treasuries and municipals, but 0:09:17.280 --> 0:09:21.400 I think that globally there are many investors international entities 0:09:21.720 --> 0:09:24.280 that would like that very very long duration because there 0:09:24.320 --> 0:09:28.560 aren't motip places where a long term investor can get very, 0:09:28.640 --> 0:09:31.520 very high quality and long duration. So I don't think 0:09:31.559 --> 0:09:33.520 that's going to be a problem that they can always 0:09:33.600 --> 0:09:36.000 change what they issue if there looks like there's pressure 0:09:35.920 --> 0:09:38.160 and one part of the curve or not. But really 0:09:38.200 --> 0:09:40.959 the issue is the amount of financing that the fit 0:09:41.080 --> 0:09:43.600 has to do because of the very very large emphasis, 0:09:44.000 --> 0:09:45.720 meaning that you might have a little bit in my 0:09:45.800 --> 0:09:49.800 opinion of saying excess supply in the treasury market versus 0:09:49.840 --> 0:09:53.160 the stock market versus even corporate bond market high yield 0:09:53.240 --> 0:09:56.199 market where there's a relative supply scarcity, and I think 0:09:56.200 --> 0:09:59.960 that's what's driven spreads in the corporate market narrower, because 0:10:00.080 --> 0:10:03.800 there's been people want that extra yield and the supplies 0:10:03.920 --> 0:10:06.440 rather limited, lot of it been hogged off into the 0:10:06.520 --> 0:10:09.280 product mark. So I think that says to me that 0:10:09.400 --> 0:10:12.000 yield spreads are likely to get narrower and we're not 0:10:12.040 --> 0:10:13.840 going to have any big spike in the long end 0:10:13.840 --> 0:10:18.240 of the curve. Foreign institutional investors and also the fifth 0:10:18.520 --> 0:10:20.319 being able to control what they would just should and 0:10:20.440 --> 0:10:21.480 keep that under control. 0:10:21.840 --> 0:10:25.200 Yeah, you've really outlined some of the big, big technical 0:10:25.240 --> 0:10:28.199 issues that investors need to contend with, whether it's in 0:10:28.280 --> 0:10:30.920 equities or in fixed income. Margie, always a pleasure. Thank 0:10:30.960 --> 0:10:33.240 you so much for joining us. Happy holidays and happy New. 0:10:33.200 --> 0:10:33.679 Year to you. 0:10:34.040 --> 0:10:38.160 Margie Battel of Offspring Global Investments. 0:10:45.880 --> 0:10:49.320 Brian Peterson of Flexport, writing, We're seeing strong demand for 0:10:49.360 --> 0:10:50.079 ocean freight. 0:10:50.400 --> 0:10:52.679 It could be driven by a multitude of factors. 0:10:52.920 --> 0:10:55.840 Fear of a potential i AL strike and tariff increases 0:10:56.000 --> 0:10:59.920 earlier than usual, lunar new year, plus a strong economy. 0:11:00.280 --> 0:11:03.480 Ryan joins us. Now, Ryan really interesting there. When you 0:11:03.520 --> 0:11:06.480 think about this increased demand for ocean free you name 0:11:06.520 --> 0:11:07.280 a number. 0:11:07.000 --> 0:11:09.199 Of factors as we just walked through. 0:11:09.360 --> 0:11:12.920 Is that taking share from other methods or is this 0:11:13.160 --> 0:11:14.520 just the pie growing bigger? 0:11:15.640 --> 0:11:17.480 Well, I think what you're saying is a pull forward, 0:11:17.559 --> 0:11:19.960 So it's taking share from the future that people are 0:11:19.960 --> 0:11:23.640 trying to get goods in before a potential strike or tariffs. 0:11:23.679 --> 0:11:25.680 That if you're concerned about those things, which you. 0:11:25.679 --> 0:11:28.199 Should be, that you know and you have the option, 0:11:28.280 --> 0:11:29.800 you have the flexibility your supply chain, you want to 0:11:29.800 --> 0:11:31.360 get the goods in as soon as possible to avoid 0:11:31.360 --> 0:11:31.880 the disruption. 0:11:32.760 --> 0:11:35.000 And how much can we draw on the experience of 0:11:35.080 --> 0:11:38.600 the twenty sixteen election and the first Trump administration when 0:11:38.640 --> 0:11:41.400 it comes to mapping out the potential impacts of some 0:11:41.480 --> 0:11:43.000 of the tariffs that we're talking about. 0:11:44.640 --> 0:11:46.959 Yeah, I mean we've seen this movie before. 0:11:47.000 --> 0:11:51.480 In many ways, the tariffs weren't as disruptive as people 0:11:51.559 --> 0:11:54.880 maybe expected them to be. Their tariffs have existed, you know, 0:11:54.920 --> 0:11:57.439 throughout all of human history. It's basically how government's always 0:11:57.480 --> 0:11:58.160 funded themselves. 0:11:58.240 --> 0:12:00.120 So people are able. 0:11:59.880 --> 0:12:03.120 To adapt to this. It's not huge shock, but it is. 0:12:03.400 --> 0:12:05.160 You know, the big thing right now is the uncertainty. 0:12:05.200 --> 0:12:07.280 It's like what exactly is going to hit, When is 0:12:07.280 --> 0:12:09.280 it going to hit, how is it going to hit. So, 0:12:09.320 --> 0:12:13.240 for example, this just this week, the President of Mexico 0:12:13.360 --> 0:12:18.000 actually imposed large tariffs against imports from China, and to 0:12:18.080 --> 0:12:21.839 everyone's surprise, those actually affected Mexican fulfillment centers. So these 0:12:21.840 --> 0:12:25.400 are e commerce warehouses who are not shipping into Mexico 0:12:25.480 --> 0:12:28.439 but import to Mexico in order to ship, reship the 0:12:28.600 --> 0:12:31.560 re export those goods to consumers in the US. That's 0:12:31.960 --> 0:12:34.160 a huge way that US e commerce has done is 0:12:34.160 --> 0:12:38.280 actually out of fulfillment centers in Mexico. And this morning, 0:12:38.320 --> 0:12:40.520 you know, the largest or last night, late last night, 0:12:40.800 --> 0:12:44.600 the largest fulfillment centers in Mexico had to like email 0:12:44.640 --> 0:12:47.520 all of their customers and cancel all their contracts. So 0:12:47.600 --> 0:12:50.880 a lot of American businesses are scrambling today to find 0:12:50.960 --> 0:12:55.400 new new fulfillment opportunities, new ways to serve their customers 0:12:55.400 --> 0:12:56.720 in the US, even though it had nothing to do 0:12:56.760 --> 0:12:57.600 with the US government. 0:12:58.600 --> 0:13:01.120 Yeah, and that feels like a complete card. So when 0:13:01.160 --> 0:13:03.560 something like that happens, basically someone throws a deck of 0:13:03.559 --> 0:13:05.440 cards up in the air. How long does it take 0:13:05.559 --> 0:13:08.319 for a new normal to be set in place. 0:13:10.440 --> 0:13:12.720 The fun part about working in logistics, we all figured 0:13:12.720 --> 0:13:14.800 out many years ago there's no such thing as normal, 0:13:14.880 --> 0:13:17.040 and we got to be ready for whatever happens. 0:13:17.120 --> 0:13:19.439 So it's every day a new thing. 0:13:19.520 --> 0:13:21.440 It feels like between the you know, the strikes and 0:13:21.480 --> 0:13:25.240 the Red Sea disrupting ocean freight, you've got tariffs, You've 0:13:25.240 --> 0:13:28.400 got a drought that's affecting the Panama Canal. Sort of, 0:13:28.440 --> 0:13:30.560 you just have to be very nimble and agile if 0:13:30.600 --> 0:13:32.520 you want to run a supply chain in the modern world. 0:13:32.800 --> 0:13:33.640 Yeah, makes sense. 0:13:33.880 --> 0:13:36.439 Going back to the tariffs question that Katie was posing, 0:13:36.679 --> 0:13:39.040 the details, of course, are TBD. We don't know when, 0:13:39.080 --> 0:13:40.760 we don't know how much, but we do know that 0:13:40.920 --> 0:13:44.000 some form of these tariffs are coming on imported goods 0:13:44.080 --> 0:13:46.400 into the US, and the mechanics are pretty clear in 0:13:46.480 --> 0:13:50.120 terms of teriffs tend to reduce demand for these imports, 0:13:50.120 --> 0:13:53.240 at least if you're American. But you also point out 0:13:53.280 --> 0:13:55.360 that we've seen a decrease in ocean freight rates from 0:13:55.440 --> 0:13:58.200 China and that could be an offset. So walk us 0:13:58.240 --> 0:14:01.160 through how that what that might mean for goods that 0:14:01.200 --> 0:14:04.120 are being imported from China, and how manufacturers think about that. 0:14:05.559 --> 0:14:07.480 Yeah, Well, see, our ship freight rates have been quite 0:14:07.559 --> 0:14:11.440 high throughout the year, sort of two to three times 0:14:11.720 --> 0:14:15.200 long run historical averages. And this is in a market 0:14:15.440 --> 0:14:18.079 where the supply side of the market, the number of 0:14:18.160 --> 0:14:21.880 ships at operation in their capacity, has has ballooned. There's 0:14:21.880 --> 0:14:24.520 been a huge number, a huge deployment of new container 0:14:24.560 --> 0:14:27.360 ships that as these carriers made a lot of money 0:14:27.440 --> 0:14:31.760 during the last cycle during COVID, they reinvested that in 0:14:31.840 --> 0:14:34.640 new ships. So one would predict with this huge surge 0:14:34.640 --> 0:14:36.960 of supply that the price will come down. The only 0:14:37.040 --> 0:14:39.360 reason that hasn't happened is because of the Red Sea. 0:14:39.760 --> 0:14:42.280 It's absorbing capacity as ships have to go around the 0:14:42.320 --> 0:14:45.760 southern coast of Africa. If anything is to be done 0:14:45.880 --> 0:14:48.760 and allowing container ships to return through the Red Sea, 0:14:49.280 --> 0:14:51.880 that will instantly bring the price of motion freight down 0:14:52.440 --> 0:14:55.000 by two thirds or so, is our guest, maybe more, 0:14:55.920 --> 0:14:59.760 probably saving companies four to five thousand dollars per container. 0:14:59.760 --> 0:15:03.640 That or that's a pretty big deal. The average value 0:15:03.640 --> 0:15:04.440 of an ocean. 0:15:04.160 --> 0:15:06.960 Container at wholesale the goods inside of it is probably 0:15:07.000 --> 0:15:10.680 one hundred thousand dollars, So if you're talking about twenty 0:15:10.680 --> 0:15:11.720 five percent tariffs. 0:15:11.720 --> 0:15:12.640 That's twenty five. 0:15:12.480 --> 0:15:14.800 Thousand helps a little bit, it's not going to get 0:15:14.800 --> 0:15:16.440 you all the way back there. The twenty five thousand 0:15:16.440 --> 0:15:18.040 dollars per containers are pretty big blow. 0:15:18.320 --> 0:15:18.680 Yeah. 0:15:18.720 --> 0:15:21.400 Absolutely, And I mean, as we've been talking about, there's 0:15:21.680 --> 0:15:24.960 a lot of unknown here and spoils about the levels 0:15:25.000 --> 0:15:27.000 that we're talking about, the final levels, whether or not 0:15:27.120 --> 0:15:30.680 we get deals negotiated with our trade partners. But when 0:15:30.680 --> 0:15:33.800 it comes to actual tariffs. In your notes you write 0:15:33.800 --> 0:15:36.440 that there's basically only two ways that businesses can deal 0:15:36.760 --> 0:15:39.880 with new tariffs. They can absorb the costs themselves, or 0:15:39.920 --> 0:15:42.680 they can increase their prices. And the businesses that you 0:15:42.840 --> 0:15:45.600 work with that you speak to, what are you hearing 0:15:45.720 --> 0:15:48.800 so far about what path they're actually going to follow? 0:15:50.240 --> 0:15:52.640 Yeah, well those are That's a very simplistic way that, 0:15:52.920 --> 0:15:54.840 you know, trying to simplify things for everybody. I think 0:15:54.840 --> 0:15:56.680 that's true in a very short run, you know, if 0:15:56.680 --> 0:15:58.440 you've got goods on the water coming here and not 0:15:58.560 --> 0:16:00.760 much else to do but hey, tariffs, and then you 0:16:00.760 --> 0:16:02.480 have to choose whether it make less money or pass 0:16:02.480 --> 0:16:02.680 it on. 0:16:02.760 --> 0:16:05.640 But in the medium term, there's a lot of strategies available. 0:16:06.240 --> 0:16:08.040 You can by the way make goods in the United States, 0:16:08.080 --> 0:16:09.240 and you don't have to pay the tariffs. 0:16:09.400 --> 0:16:09.480 UH. 0:16:09.760 --> 0:16:11.320 You know, you may own the raw materials, but you 0:16:11.360 --> 0:16:13.480 won't on the on the finished goods, which is most 0:16:13.480 --> 0:16:15.640 of the value. You can make goods in other countries 0:16:15.640 --> 0:16:17.680 that have free trade agreements with the United States. 0:16:18.200 --> 0:16:20.200 UH, there's there's tariff engineering. 0:16:20.640 --> 0:16:23.680 So by understanding at a very detailed level of partnering 0:16:23.680 --> 0:16:26.840 with your customs broker like Sarah Flexport, you can understand 0:16:27.160 --> 0:16:31.440 the raw materials and how those UH create the duty rate, 0:16:31.960 --> 0:16:33.600 and if you change things, you may get a different 0:16:33.680 --> 0:16:34.160 duty rate. 0:16:34.240 --> 0:16:35.000 So there's a lot of. 0:16:34.920 --> 0:16:38.920 Opportunity to uh to reduce tariffs over the medium term. 0:16:39.200 --> 0:16:41.239 And I think companies are getting really smart. 0:16:40.960 --> 0:16:43.960 About this thanks to the last cycle, all of these 0:16:43.960 --> 0:16:45.240 strategies you've been deployed. 0:16:46.520 --> 0:16:49.800 UH. People is if you didn't see this coming at all. 0:16:50.200 --> 0:16:52.480 Sure, people weren't sure that Trump was going to get elected, 0:16:52.480 --> 0:16:54.560 but by the way, Biden's been increasing tariffs too. So 0:16:55.000 --> 0:16:57.200 I think people have been preparing for this for a 0:16:57.240 --> 0:17:01.320 while and and and should be in a reasonably okay 0:17:01.400 --> 0:17:02.520 place to adapt to it. 0:17:03.240 --> 0:17:05.920 Well, Ryan, where are we on the near shoring slash 0:17:05.960 --> 0:17:09.240 on shoring narrative, because that's been a big push over 0:17:09.280 --> 0:17:12.560 the last couple of years, especially gaining steam in the pandemic. 0:17:12.640 --> 0:17:14.480 But you know better than most people that. 0:17:14.560 --> 0:17:18.640 Supply chains are pretty uh slow moving animals. They take 0:17:18.680 --> 0:17:21.920 a long time to actually shift and move them. 0:17:22.000 --> 0:17:25.159 So where are we on that push it? 0:17:25.520 --> 0:17:26.760 Yeah, it really depends on the sector. 0:17:26.800 --> 0:17:28.639 I mean, there's a there's a massive amount of industry 0:17:28.680 --> 0:17:31.520 real industrialization taking place in the United States right now, 0:17:31.880 --> 0:17:34.600 but it tends to be much higher value goods, higher 0:17:34.600 --> 0:17:38.639 complexity things that where and the deployment of things like 0:17:38.680 --> 0:17:42.760 advanced manufacturing robotics. But for low value goods, what you're 0:17:42.760 --> 0:17:46.720 seeing is that the shift down to countries like Vietnam 0:17:47.440 --> 0:17:50.520 to Mexico as well, but even cheaper countries like Vietnam 0:17:50.520 --> 0:17:55.040 and Cambodia. India is having quite a boom right now 0:17:55.080 --> 0:17:58.679 and exports, so it's and then and then certain things. 0:17:58.760 --> 0:18:01.560 You know, China is still just a rate country at manufacturing, 0:18:01.600 --> 0:18:05.119 and there are certain sectors where even with higher tariffs, 0:18:05.440 --> 0:18:07.960 it still makes economic sense to produce there because of 0:18:08.000 --> 0:18:12.439 the quality and the scale of their manufacturing capabilities. 0:18:12.520 --> 0:18:13.119 And you see it. 0:18:13.920 --> 0:18:15.880 You know, I was in China not too long ago, 0:18:15.880 --> 0:18:19.400 and the quality of their cars is remarkable that even 0:18:19.400 --> 0:18:21.160 with high tariffs, I think for much of the world, 0:18:21.160 --> 0:18:23.320 people are gonna still want to import those cars. They're 0:18:23.400 --> 0:18:26.199 so much cheaper and better than what's produced domestically in 0:18:26.240 --> 0:18:26.960 most countries. 0:18:27.160 --> 0:18:30.560 Yeah, and at affordable prices. No less too. Ryan, as 0:18:30.600 --> 0:18:33.040 you speak with your customers, what is the number one 0:18:34.000 --> 0:18:36.760 worry that they have for twenty twenty five beyond tariffs, 0:18:36.760 --> 0:18:38.919 because that is a big unknown and it kind of 0:18:38.920 --> 0:18:39.800 hangs over everything. 0:18:40.920 --> 0:18:43.800 Yeah, I mean, short term, it's definitely this isla, the 0:18:43.960 --> 0:18:47.000 strike on the East Coast that's looming over our heads. 0:18:47.040 --> 0:18:50.840 We had that back in October for four or five days, 0:18:50.920 --> 0:18:52.919 and then the Biden administration stepped in and kind of 0:18:53.320 --> 0:18:55.439 told them, hey, knock it off before the election, So 0:18:55.440 --> 0:18:58.240 they got to stay until January fifteenth, and extension of 0:18:58.280 --> 0:19:02.720 the contract five days before inauguration. Obviously, so we are 0:19:03.280 --> 0:19:07.120