1 00:00:00,120 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:08,240 --> 00:00:12,120 Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live 3 00:00:12,240 --> 00:00:15,320 Speaker 2: weekdays at ten am Eastern on Apple Cardplay and Android 4 00:00:15,320 --> 00:00:18,440 Speaker 2: Auto with the Bloomberg Business App. Listen on demand wherever 5 00:00:18,480 --> 00:00:22,320 Speaker 2: you get your podcasts, or watch us live on YouTube. 6 00:00:23,360 --> 00:00:25,600 Speaker 3: John Talker sitting in for Alex Deal and Paul Sweeney. 7 00:00:25,600 --> 00:00:27,960 Speaker 4: You're live here in our Bloomberg Interactive Broker Studio streaming 8 00:00:27,960 --> 00:00:30,400 Speaker 4: live on YouTube as well. John, look at that you 9 00:00:30,440 --> 00:00:32,320 Speaker 4: missed data a little bit better and expected. And what's 10 00:00:32,360 --> 00:00:35,080 Speaker 4: also interesting to me is the one year inflation outlook. 11 00:00:35,520 --> 00:00:37,639 Speaker 4: The consensus was two point nine percent, came in two 12 00:00:37,680 --> 00:00:39,519 Speaker 4: point seven, so maybe people feel a little bit better 13 00:00:39,560 --> 00:00:40,599 Speaker 4: about inflation. 14 00:00:40,840 --> 00:00:43,360 Speaker 1: And of course this is the pulse that we take 15 00:00:43,720 --> 00:00:44,880 Speaker 1: just before the election. 16 00:00:44,680 --> 00:00:45,360 Speaker 3: The last one. 17 00:00:45,400 --> 00:00:48,720 Speaker 1: Oh that's right, So uh, we're gonna have to put 18 00:00:48,720 --> 00:00:50,040 Speaker 1: on our politics. 19 00:00:49,560 --> 00:00:50,920 Speaker 3: Hasty as well. Yeah, exactly. 20 00:00:51,000 --> 00:00:53,720 Speaker 4: Let's break this data down with Joan shut She is 21 00:00:54,120 --> 00:00:58,520 Speaker 4: Surveys of Consumers Director at the University of Michigan. Joanna, 22 00:00:58,520 --> 00:01:00,720 Speaker 4: it seems like some pretty solid numbers here. 23 00:01:00,720 --> 00:01:02,640 Speaker 3: What is your takeaway Over. 24 00:01:02,520 --> 00:01:04,640 Speaker 5: The last few months, consumers have been inching up in 25 00:01:04,680 --> 00:01:07,840 Speaker 5: their level of confidence in the economy. They haven't really 26 00:01:07,880 --> 00:01:11,320 Speaker 5: been seeing major swings up or down. A lot of 27 00:01:11,360 --> 00:01:16,000 Speaker 5: people are kind of reserving judgment until the election because 28 00:01:16,000 --> 00:01:18,000 Speaker 5: for a lot of people, the trajectory of the economy 29 00:01:18,040 --> 00:01:21,119 Speaker 5: depends on which candidate wins the presidential race. 30 00:01:21,640 --> 00:01:25,840 Speaker 1: But what does it say about their feelings about which 31 00:01:25,840 --> 00:01:28,200 Speaker 1: way they're going to vote, Because the economy, we're told 32 00:01:28,480 --> 00:01:31,400 Speaker 1: time and time again, is the number one issue. 33 00:01:32,240 --> 00:01:35,640 Speaker 5: You know, consumers overall are feeling much better about the 34 00:01:35,680 --> 00:01:39,960 Speaker 5: economy than they were two years ago. Business conditions, expectations 35 00:01:40,240 --> 00:01:43,400 Speaker 5: are near their historical or at their historical average, so 36 00:01:43,440 --> 00:01:46,479 Speaker 5: people are not feeling as dismal about the economy as 37 00:01:46,520 --> 00:01:48,640 Speaker 5: they did a year ago two years ago. At the 38 00:01:48,640 --> 00:01:50,680 Speaker 5: same time, they continue to tell us how much high 39 00:01:50,720 --> 00:01:53,720 Speaker 5: prices are weighing on their personal finances. 40 00:01:54,560 --> 00:01:56,600 Speaker 6: So people don't necessarily feel. 41 00:01:56,360 --> 00:01:59,440 Speaker 5: Like they're thriving now, but they really have seen quite 42 00:01:59,480 --> 00:02:02,520 Speaker 5: a bit of amp since since the peak of inflation 43 00:02:02,560 --> 00:02:03,279 Speaker 5: a couple of years. 44 00:02:03,160 --> 00:02:06,559 Speaker 4: Ago, Joanne, how much, if any, is the recent FED 45 00:02:06,640 --> 00:02:11,240 Speaker 4: rate cut factor into these results for consumers? 46 00:02:11,280 --> 00:02:14,639 Speaker 6: They are, they're they're absolutely expecting. 47 00:02:14,680 --> 00:02:17,560 Speaker 5: They welcomed the rate cuts, and when we ask people 48 00:02:17,600 --> 00:02:20,880 Speaker 5: about buying conditions for large purchases like cars or homes 49 00:02:20,960 --> 00:02:25,320 Speaker 5: or durable goods, those those have all improved on the 50 00:02:25,320 --> 00:02:30,400 Speaker 5: wake of these rate cuts and and continue consumers expect 51 00:02:30,400 --> 00:02:33,040 Speaker 5: that to continue going forward. We have over half of 52 00:02:33,080 --> 00:02:35,760 Speaker 5: consumers expecting rake further rate cuts in the year ahead. 53 00:02:36,360 --> 00:02:39,079 Speaker 6: So it is helping a little bit. It's not helping dramatically. 54 00:02:39,360 --> 00:02:43,079 Speaker 5: Home buying conditions still near historic lows, but consumers absolutely 55 00:02:43,120 --> 00:02:44,120 Speaker 5: welcome these rate cuts. 56 00:02:44,360 --> 00:02:46,440 Speaker 1: Before you go, who are the people that you survey? 57 00:02:46,480 --> 00:02:50,280 Speaker 1: Are they whacked out lefties or hardcore right wingers. 58 00:02:50,880 --> 00:02:51,720 Speaker 6: All of the above. 59 00:02:52,160 --> 00:02:56,040 Speaker 5: We get a random sample of American consumers. We get 60 00:02:56,080 --> 00:03:01,160 Speaker 5: all ages, all political stripes, all educational payment levels, and 61 00:03:01,280 --> 00:03:02,840 Speaker 5: it absolutely comes through in our data. 62 00:03:03,200 --> 00:03:04,920 Speaker 4: All right, Joyanne, thank you so much for joining us. 63 00:03:04,960 --> 00:03:07,480 Speaker 4: We appreciate checking in with you on these you miss days. 64 00:03:07,720 --> 00:03:12,320 Speaker 4: Joan Shoe, She's Surveys of Consumers Director at the University 65 00:03:12,400 --> 00:03:13,280 Speaker 4: of Michigan. 66 00:03:14,760 --> 00:03:18,640 Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live 67 00:03:18,720 --> 00:03:22,239 Speaker 2: weekdays at ten am Eastern on applecar Play and Android 68 00:03:22,280 --> 00:03:25,040 Speaker 2: Auto with the Bloomberg Business app. You can also listen 69 00:03:25,160 --> 00:03:28,280 Speaker 2: live on Amazon Alexa from our flagship New York station. 70 00:03:28,639 --> 00:03:31,400 Speaker 2: Just say Alexa playing Bloomberg eleven thirty. 71 00:03:32,800 --> 00:03:34,920 Speaker 3: It's all about the election, John, It's all about DC. 72 00:03:35,520 --> 00:03:38,440 Speaker 4: The good news for us is we got Bloomberg intelligence 73 00:03:38,440 --> 00:03:41,120 Speaker 4: people down in DC and their job is to figure 74 00:03:41,160 --> 00:03:45,520 Speaker 4: out what's going to happen in DC in Congress and 75 00:03:45,560 --> 00:03:47,960 Speaker 4: how's it going to impact various industries and various markets. 76 00:03:48,080 --> 00:03:50,480 Speaker 4: We actually pay them to do this stuff and they're 77 00:03:50,520 --> 00:03:53,440 Speaker 4: really really good at it. Nathan Dean is our go 78 00:03:53,520 --> 00:03:55,560 Speaker 4: to person and all things Washington, and he makes sense 79 00:03:55,600 --> 00:03:59,040 Speaker 4: out of it all. Nathan Dean, Bloomberg Intelligence Senior policy analyst, 80 00:03:59,680 --> 00:04:02,360 Speaker 4: joined here. Hey, Nathan, I'm sure you're getting this question 81 00:04:02,480 --> 00:04:07,840 Speaker 4: one thousand times a day. What will a Harris administration 82 00:04:07,960 --> 00:04:10,400 Speaker 4: look like? And what will a Trump administration look like 83 00:04:10,840 --> 00:04:14,280 Speaker 4: across basically everything? And how will impact the markets? How 84 00:04:14,320 --> 00:04:17,240 Speaker 4: do you kind of synthesize that question to our clients? 85 00:04:17,640 --> 00:04:20,760 Speaker 7: Yeah, So I think we're saying that there's four, maybe 86 00:04:20,800 --> 00:04:23,200 Speaker 7: five key themes. Let's go with five for next year 87 00:04:23,240 --> 00:04:25,960 Speaker 7: in terms of a Harris or a Trump presidency, and 88 00:04:26,000 --> 00:04:28,039 Speaker 7: you can see where both presidencies are going to have 89 00:04:28,040 --> 00:04:29,520 Speaker 7: to play out in these themes. The first is, like 90 00:04:29,600 --> 00:04:31,960 Speaker 7: you just mentioned tariffs, Now we have a seventy percent 91 00:04:32,040 --> 00:04:35,000 Speaker 7: chance of tariff's coming no matter what next year. It's 92 00:04:35,080 --> 00:04:37,480 Speaker 7: just whether or not they are broad tariff like sixty 93 00:04:37,480 --> 00:04:40,400 Speaker 7: percent on all goods coming from China, or a subsector 94 00:04:40,400 --> 00:04:42,720 Speaker 7: of tariff like what we've seen in the Biden administration 95 00:04:42,839 --> 00:04:45,839 Speaker 7: with on automobiles, for example. Tariffs are somewhat popular, so 96 00:04:45,880 --> 00:04:48,320 Speaker 7: tariffs are coming. The second is tax. The Trump era 97 00:04:48,480 --> 00:04:50,640 Speaker 7: tax cuts expires at the end of twenty twenty five 98 00:04:50,680 --> 00:04:53,440 Speaker 7: for individuals, so we're going to see a robust tax debate, 99 00:04:53,480 --> 00:04:55,839 Speaker 7: and specifically you're going to see a debate on whether 100 00:04:55,920 --> 00:04:58,000 Speaker 7: or not that corporate tax rate changes from twenty one 101 00:04:58,040 --> 00:05:00,920 Speaker 7: percent to something else to help pay for these tax cuts. 102 00:05:01,040 --> 00:05:03,760 Speaker 7: You're going to see a regulation effort or a deregulation effort, 103 00:05:03,760 --> 00:05:05,880 Speaker 7: depending on who you are. This is certainly important to 104 00:05:05,920 --> 00:05:08,160 Speaker 7: the investment banks. You're going to see the debt sealing 105 00:05:08,200 --> 00:05:10,520 Speaker 7: return probably in the second to third quarter next year. 106 00:05:10,520 --> 00:05:12,719 Speaker 7: You're going to see a debt ceiling fight if Kamala 107 00:05:12,760 --> 00:05:15,479 Speaker 7: Harris wins the presidency. And finally, a lot of people 108 00:05:15,480 --> 00:05:18,000 Speaker 7: have questions on the Inflation Reduction Act because there's a 109 00:05:18,040 --> 00:05:21,400 Speaker 7: lot of capex coming into the United States on renewable industry. 110 00:05:21,400 --> 00:05:24,560 Speaker 7: For example, will the IRA either be cemented under Harris 111 00:05:24,560 --> 00:05:27,200 Speaker 7: presidency or tweaked or altered to help pay for those 112 00:05:27,200 --> 00:05:28,920 Speaker 7: tax cuts under a Trump presidency. 113 00:05:29,760 --> 00:05:34,480 Speaker 1: For banks, I go right to the capital requirements under 114 00:05:34,760 --> 00:05:39,240 Speaker 1: Bozel three. How do the candidate stand on that and 115 00:05:39,279 --> 00:05:41,840 Speaker 1: how would that impact the sector? 116 00:05:42,520 --> 00:05:45,000 Speaker 7: Yeah, so you're talking about the Basle three endgame. It's 117 00:05:45,040 --> 00:05:48,360 Speaker 7: a proposed rule which, if outlined as by the FED, 118 00:05:48,400 --> 00:05:51,120 Speaker 7: would increase capital requirements for the American gesips. So think 119 00:05:51,200 --> 00:05:52,880 Speaker 7: of the Bank of America as the JP Morgans and 120 00:05:52,920 --> 00:05:55,640 Speaker 7: the city groups around nine percent. You're looking around a 121 00:05:55,640 --> 00:05:57,680 Speaker 7: three to four percent increase in terms of the mid 122 00:05:57,720 --> 00:06:00,680 Speaker 7: sized regionals like P and C. Tryst If Kamlin Harrison 123 00:06:00,680 --> 00:06:03,839 Speaker 7: wins the presidency, we think this proposal will be reproposed 124 00:06:04,120 --> 00:06:06,039 Speaker 7: in the early part of next year, and they'll try 125 00:06:06,040 --> 00:06:08,640 Speaker 7: and finalize it towards the end of twenty twenty five, 126 00:06:08,960 --> 00:06:12,040 Speaker 7: maybe the beginning of twenty twenty six, and then implementation 127 00:06:12,080 --> 00:06:14,320 Speaker 7: would begin the next three years after that or over 128 00:06:14,320 --> 00:06:17,600 Speaker 7: the next three years. If President Trump wins, I think 129 00:06:17,640 --> 00:06:19,279 Speaker 7: you're going to see the work on this just stop. 130 00:06:19,320 --> 00:06:21,400 Speaker 7: And I don't think these capital requirements are ever going 131 00:06:21,480 --> 00:06:24,200 Speaker 7: to be implemented, at least not within the next few years. 132 00:06:24,640 --> 00:06:26,760 Speaker 7: And this is where it could actually turn global in 133 00:06:26,839 --> 00:06:30,560 Speaker 7: terms of its impact. The European regulators have already implemented this, 134 00:06:30,640 --> 00:06:33,440 Speaker 7: they call it Basil four. It's already been implemented, and 135 00:06:33,480 --> 00:06:36,400 Speaker 7: we've seen steps, for example, in the UK for the 136 00:06:36,520 --> 00:06:40,400 Speaker 7: UK regulators to delay the implementation because they're concerned the 137 00:06:40,440 --> 00:06:42,800 Speaker 7: Americans are never going to fallow suit. So if the 138 00:06:42,839 --> 00:06:45,039 Speaker 7: American regulators say no, we're not going to move forward 139 00:06:45,080 --> 00:06:47,280 Speaker 7: with the Bass of three endgame under the Trump presidency, 140 00:06:47,640 --> 00:06:50,000 Speaker 7: you could see but the potential start of a global 141 00:06:50,080 --> 00:06:52,520 Speaker 7: race to the bottom in terms of capital as Europe 142 00:06:52,520 --> 00:06:55,640 Speaker 7: begins to actually pull back some of their stuff as well. 143 00:06:55,839 --> 00:06:57,720 Speaker 3: Nathan, you're down there in DC. 144 00:06:57,839 --> 00:06:59,680 Speaker 4: You're knee deep in this stuff, and I know you've 145 00:06:59,680 --> 00:07:03,440 Speaker 4: got great sources down there. Is there any consensus to 146 00:07:03,520 --> 00:07:06,960 Speaker 4: how Congress may play out in this election or houses flipping? 147 00:07:07,000 --> 00:07:08,479 Speaker 4: Are they staying the same or we can have a 148 00:07:08,520 --> 00:07:11,560 Speaker 4: split type of thing? Is there any consensus? 149 00:07:12,120 --> 00:07:12,360 Speaker 8: Yeah? 150 00:07:12,400 --> 00:07:15,000 Speaker 7: So, I think most Washingtonians think that the Republicans have 151 00:07:15,000 --> 00:07:17,000 Speaker 7: a really good shot of taking the Senate. And the 152 00:07:17,040 --> 00:07:18,760 Speaker 7: reason being is is that this is not a good 153 00:07:18,840 --> 00:07:21,840 Speaker 7: race for the Democrats. They're playing. They're defending twenty three 154 00:07:22,000 --> 00:07:25,800 Speaker 7: against thirty four in states in total, and with Senator 155 00:07:25,840 --> 00:07:28,560 Speaker 7: Joe Manchin retiring in West Virginia most likely going to 156 00:07:28,600 --> 00:07:31,920 Speaker 7: replace him with a Republican. You know, the Democrats are 157 00:07:31,960 --> 00:07:33,960 Speaker 7: essentially going to have to run the gauntlet and have 158 00:07:34,000 --> 00:07:35,960 Speaker 7: a really good night in order to keep the Senate. 159 00:07:35,960 --> 00:07:38,800 Speaker 7: Now why do we care about this, Because the Senate 160 00:07:39,080 --> 00:07:41,840 Speaker 7: is there's a filibuster in the Senate for legislation. There's 161 00:07:41,880 --> 00:07:45,000 Speaker 7: no filibuster for nominations. So if Kamala Harris wins and 162 00:07:45,040 --> 00:07:48,200 Speaker 7: the Senate Republicans take the Senate, they'll effectively be able 163 00:07:48,200 --> 00:07:50,000 Speaker 7: to jam a lot of her nominees, a lot of 164 00:07:50,040 --> 00:07:53,040 Speaker 7: her regulatory leadership in place for the first half of 165 00:07:53,080 --> 00:07:55,400 Speaker 7: the year. If President Trump wins, he's going to be 166 00:07:55,400 --> 00:07:57,480 Speaker 7: able to get a lot of his nominees in place 167 00:07:57,520 --> 00:07:59,760 Speaker 7: and be able to move much quicker on a deregulatory 168 00:07:59,760 --> 00:08:01,920 Speaker 7: after Now, when it comes to the House, pulling is 169 00:08:01,920 --> 00:08:04,320 Speaker 7: a little bit more difficult. You know, it's extremely tight. 170 00:08:04,680 --> 00:08:07,040 Speaker 7: Our general thought is is that whoever wins the presidency 171 00:08:07,160 --> 00:08:09,680 Speaker 7: most likely win the House. And the reason why investors 172 00:08:09,680 --> 00:08:11,600 Speaker 7: should care about who wins the House is because of 173 00:08:11,640 --> 00:08:14,640 Speaker 7: the tax debate that I mentioned next year. Tax policy 174 00:08:14,800 --> 00:08:17,320 Speaker 7: historically starts in the House, So whoever controls the House 175 00:08:17,680 --> 00:08:20,280 Speaker 7: controls the House of Ways and Means Committee, and therefore 176 00:08:20,360 --> 00:08:23,120 Speaker 7: controls a very important person in Washington who's going to 177 00:08:23,200 --> 00:08:26,280 Speaker 7: decide what those tax negotiations will look like next year. 178 00:08:26,520 --> 00:08:26,720 Speaker 9: Ah. 179 00:08:26,800 --> 00:08:28,760 Speaker 1: Can I just jump back to some of the sectors, 180 00:08:28,800 --> 00:08:34,000 Speaker 1: specifically with electric vehicles, Harris, They would support subsidies for 181 00:08:34,280 --> 00:08:38,400 Speaker 1: electric vehicles or tax breaks, which I find curious because 182 00:08:38,440 --> 00:08:41,120 Speaker 1: Elon Musk is the guy stumping for Donald Trump at 183 00:08:41,160 --> 00:08:44,079 Speaker 1: this point, then he stands to be well, Tesla stands 184 00:08:44,120 --> 00:08:45,880 Speaker 1: to be impacted quite a bit by this. 185 00:08:46,520 --> 00:08:49,640 Speaker 7: Yeah, you know, we've heard anecdotally that, you know, because Tesla, 186 00:08:49,880 --> 00:08:52,960 Speaker 7: you know, the Tesla vehicle is pretty expensive, and so 187 00:08:53,040 --> 00:08:55,120 Speaker 7: whether or not a seventy five hundred dollars tax credit 188 00:08:55,440 --> 00:08:58,040 Speaker 7: would change the buying habits over Tesla. You know, I've 189 00:08:58,040 --> 00:09:00,160 Speaker 7: been talking to our auto's Annal Steve Man about this 190 00:09:00,240 --> 00:09:02,199 Speaker 7: quite a bit. So there's some thought out there that 191 00:09:02,280 --> 00:09:05,680 Speaker 7: Tesla's somewhat protected. We've also seen through Steve's work that 192 00:09:05,760 --> 00:09:07,760 Speaker 7: some of the other automakers are looking to try and 193 00:09:07,800 --> 00:09:10,480 Speaker 7: put out low cost evs as a way to combat that. 194 00:09:10,640 --> 00:09:12,720 Speaker 7: But the reason why the EV tax credit is so 195 00:09:12,760 --> 00:09:15,360 Speaker 7: important is because it's part of the Inflation Reduction Act. 196 00:09:15,520 --> 00:09:17,439 Speaker 7: And if you're going to try and figure out how 197 00:09:17,440 --> 00:09:19,640 Speaker 7: to pay for three and a half four trillion dollars 198 00:09:19,640 --> 00:09:22,120 Speaker 7: worth of tax cuts to extend those, you know, the 199 00:09:22,120 --> 00:09:24,000 Speaker 7: IRA is certainly something they're going to be looking at. 200 00:09:24,000 --> 00:09:24,160 Speaker 9: Now. 201 00:09:24,320 --> 00:09:26,320 Speaker 7: I think the IRA, for most part is going to 202 00:09:26,320 --> 00:09:29,360 Speaker 7: be cemented. It's really popular in Republican states in terms 203 00:09:29,360 --> 00:09:31,760 Speaker 7: of that capex that's coming in and building plants. But 204 00:09:31,840 --> 00:09:34,360 Speaker 7: that EV tax credit is one of those provisions that 205 00:09:34,400 --> 00:09:36,679 Speaker 7: could potentially be on the chopping block to help pay 206 00:09:36,679 --> 00:09:37,560 Speaker 7: for those tax cuts. 207 00:09:38,040 --> 00:09:41,160 Speaker 4: John John, If I were elected president, my first phone 208 00:09:41,160 --> 00:09:43,640 Speaker 4: call would be get this Nathan Dean guy in my 209 00:09:43,720 --> 00:09:46,560 Speaker 4: White House, just to get stuff done. He knows everything, 210 00:09:46,600 --> 00:09:48,679 Speaker 4: and I feel like he knows everybody, and he just 211 00:09:49,520 --> 00:09:52,120 Speaker 4: explains stuff so well, and just get stuff done. 212 00:09:52,440 --> 00:09:56,040 Speaker 1: Why isn't anybody talking about the fiscal deficits at this point? 213 00:09:56,160 --> 00:09:59,079 Speaker 1: I guess I guess it's just, you know, it's just. 214 00:09:59,120 --> 00:10:01,760 Speaker 3: It's not good, not popular, it's not good politics. 215 00:10:03,120 --> 00:10:07,000 Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live 216 00:10:07,080 --> 00:10:09,800 Speaker 2: weekdays at ten am Eastern on Apple car Playing and 217 00:10:09,920 --> 00:10:12,760 Speaker 2: Broud Auto with the Bloomberg Business App. Listen on demand 218 00:10:12,840 --> 00:10:17,679 Speaker 2: wherever you get your podcasts, or watch us live on YouTube. 219 00:10:18,600 --> 00:10:20,040 Speaker 4: Let's step back and take a look at these broader 220 00:10:20,040 --> 00:10:21,840 Speaker 4: markets share. We do have, you know, some green on 221 00:10:21,840 --> 00:10:24,520 Speaker 4: the screen here today, we've got the SMP of fifty points. 222 00:10:24,520 --> 00:10:26,600 Speaker 4: That's nine tens to one percent. The tech heavy NASDAC 223 00:10:26,880 --> 00:10:28,600 Speaker 4: up about one and a half percent here, So that's 224 00:10:28,679 --> 00:10:29,400 Speaker 4: good news there. 225 00:10:29,600 --> 00:10:30,920 Speaker 3: Victoria Fernandez joins us. 226 00:10:30,920 --> 00:10:36,120 Speaker 4: He's a chief market strategist at cross Mark Global Investments. Victoria, 227 00:10:36,160 --> 00:10:38,760 Speaker 4: we had some pretty good economic data today. I know, 228 00:10:38,840 --> 00:10:42,720 Speaker 4: durable goods orders came in better than expected. We had 229 00:10:42,720 --> 00:10:46,040 Speaker 4: the You Mission Sentiment survey come in better than expected. 230 00:10:46,720 --> 00:10:49,120 Speaker 4: If I'm the Federal Reserve, I can actually think about 231 00:10:49,160 --> 00:10:51,920 Speaker 4: maybe I don't have to cut come November. 232 00:10:52,240 --> 00:10:54,480 Speaker 3: How do you guys think about it over their cross Mark? 233 00:10:55,800 --> 00:10:58,920 Speaker 8: It's really been our thought process all along that we 234 00:10:58,960 --> 00:11:02,440 Speaker 8: would only get two cuts from the September through the 235 00:11:02,480 --> 00:11:04,960 Speaker 8: December meetings. We thought we would get a twenty five 236 00:11:05,000 --> 00:11:08,520 Speaker 8: basis point cut in September, they would skip November, and 237 00:11:08,559 --> 00:11:11,280 Speaker 8: then we would get another twenty five in December. For 238 00:11:11,360 --> 00:11:14,040 Speaker 8: the exact reasons that you're talking about. We've seen some 239 00:11:14,080 --> 00:11:17,360 Speaker 8: of the growth components of the economy continue to do 240 00:11:17,440 --> 00:11:19,200 Speaker 8: pretty well. I mean, you look back at the end 241 00:11:19,240 --> 00:11:23,320 Speaker 8: of August, the City Economic Surprise Index was one of 242 00:11:23,360 --> 00:11:26,439 Speaker 8: the worst levels it's been in years, but it has 243 00:11:26,520 --> 00:11:29,480 Speaker 8: come up significantly since then. It's one of the reasons 244 00:11:29,480 --> 00:11:32,920 Speaker 8: we've seen ten your treasury yields come up because they 245 00:11:32,920 --> 00:11:35,920 Speaker 8: have a pretty high correlation. So I think it does 246 00:11:36,080 --> 00:11:38,760 Speaker 8: give the FED a little bit of wiggle room if 247 00:11:38,760 --> 00:11:41,320 Speaker 8: they don't want to do anything the week of the election, 248 00:11:42,240 --> 00:11:44,600 Speaker 8: because I have a feeling we probably won't know who 249 00:11:44,600 --> 00:11:47,800 Speaker 8: the president is come Fed day when they're ready to 250 00:11:49,000 --> 00:11:51,480 Speaker 8: have their press conference. It gives them a little bit 251 00:11:51,520 --> 00:11:53,920 Speaker 8: of cover to hold off and then maybe do another 252 00:11:54,000 --> 00:11:54,960 Speaker 8: cut in December. 253 00:11:55,720 --> 00:11:59,040 Speaker 1: We get ahead of ourselves by the markets by pricing 254 00:11:59,080 --> 00:12:00,240 Speaker 1: FED cuts. 255 00:12:00,920 --> 00:12:04,160 Speaker 8: I think we absolutely did. It's no different than at 256 00:12:04,160 --> 00:12:06,120 Speaker 8: the end of last year, or when the market was 257 00:12:06,160 --> 00:12:10,440 Speaker 8: pricing in what was it, six seven rate cuts by March, 258 00:12:10,880 --> 00:12:13,560 Speaker 8: and we were having the conversation with clients going there's 259 00:12:13,640 --> 00:12:15,400 Speaker 8: no way that we're going to do that. The FED 260 00:12:15,480 --> 00:12:18,240 Speaker 8: has worked too hard and too long to get us 261 00:12:18,280 --> 00:12:19,839 Speaker 8: to the point where we are. They're not going to 262 00:12:19,920 --> 00:12:23,000 Speaker 8: start cutting that quickly, and we saw the market reprice 263 00:12:23,080 --> 00:12:25,880 Speaker 8: at that point in time. They did the same thing here. 264 00:12:25,920 --> 00:12:28,720 Speaker 8: I think they thought, okay, we're going to hit September. 265 00:12:29,120 --> 00:12:32,840 Speaker 8: Labor market is weakening. We had that one payroll report, 266 00:12:33,080 --> 00:12:35,960 Speaker 8: was it July that really kind of unnerved the market 267 00:12:36,000 --> 00:12:38,679 Speaker 8: a little bit, and the markets just ran with that. 268 00:12:38,840 --> 00:12:42,520 Speaker 8: And again here we are pricing some of those cuts out. 269 00:12:42,600 --> 00:12:45,920 Speaker 8: You look at where the neutral rate is priced. A 270 00:12:45,960 --> 00:12:49,480 Speaker 8: couple months ago, that neutral rate was around two and 271 00:12:49,559 --> 00:12:52,480 Speaker 8: three quarters two and a half. Now we're back up 272 00:12:52,640 --> 00:12:55,280 Speaker 8: over three. We're closer to like a three point six. 273 00:12:55,559 --> 00:12:58,680 Speaker 8: So they basically cut in half the number of cuts 274 00:12:58,720 --> 00:13:02,200 Speaker 8: that they're expecting over the next twelve eighteen months. So yes, 275 00:13:02,240 --> 00:13:04,199 Speaker 8: I think the market got a little bit ahead of itself. 276 00:13:04,240 --> 00:13:08,080 Speaker 8: It's correcting itself now, which again plays into the Fed's 277 00:13:08,640 --> 00:13:12,040 Speaker 8: hand of being able to be a little more cautious Victoria. 278 00:13:12,120 --> 00:13:14,560 Speaker 4: We're kind of in the teeth of the earning season 279 00:13:14,640 --> 00:13:16,520 Speaker 4: right now. We've had obviously the big banks put us 280 00:13:16,520 --> 00:13:19,080 Speaker 4: some really good numbers lot last week, and we're starting 281 00:13:19,080 --> 00:13:20,880 Speaker 4: to see some more What do you make of this 282 00:13:20,960 --> 00:13:23,360 Speaker 4: earnings season here so far, and what do you think 283 00:13:23,400 --> 00:13:27,040 Speaker 4: the market needs from earnings this period. 284 00:13:28,480 --> 00:13:32,560 Speaker 8: So we saw expectations get really lowered right coming in 285 00:13:33,440 --> 00:13:37,560 Speaker 8: to this earning season. It's really the lowest earnings growth 286 00:13:37,600 --> 00:13:40,840 Speaker 8: season that we've had since the second quarter of twenty three, 287 00:13:40,960 --> 00:13:43,520 Speaker 8: so a little bit over a year, and it was 288 00:13:43,600 --> 00:13:46,360 Speaker 8: negative back then. We're not expecting anything negative here. But 289 00:13:46,400 --> 00:13:49,760 Speaker 8: you're looking at maybe three to four percent earnings growth 290 00:13:49,760 --> 00:13:53,040 Speaker 8: for the third quarter, and you might say, Okay, we're 291 00:13:53,080 --> 00:13:57,360 Speaker 8: starting to see things come through from a weakening labor market. 292 00:13:57,400 --> 00:14:00,679 Speaker 8: Maybe we start to see less hiring wages, or off 293 00:14:01,000 --> 00:14:04,120 Speaker 8: margins are being compressed. All of that would make sense 294 00:14:04,200 --> 00:14:10,200 Speaker 8: to see a lower earnings bar being set right going 295 00:14:10,240 --> 00:14:12,880 Speaker 8: into next quarter and into the four quarters of next year, 296 00:14:13,000 --> 00:14:16,320 Speaker 8: expectations are right back for double digits. So it seems 297 00:14:16,320 --> 00:14:20,520 Speaker 8: like the market thinks earnings are continuing to be strong. Obviously, 298 00:14:20,520 --> 00:14:22,520 Speaker 8: I don't have a crystal ball to tell us whether they. 299 00:14:22,400 --> 00:14:22,880 Speaker 6: Will or not. 300 00:14:22,960 --> 00:14:25,800 Speaker 8: But if they don't, then I don't know how we 301 00:14:25,880 --> 00:14:30,000 Speaker 8: support a twenty two times evaluation on the equity market. 302 00:14:30,160 --> 00:14:33,320 Speaker 8: So earnings better pull through if we want to see 303 00:14:33,320 --> 00:14:35,760 Speaker 8: the stock market continue on the trend that it's been 304 00:14:35,800 --> 00:14:36,240 Speaker 8: on all. 305 00:14:36,240 --> 00:14:38,400 Speaker 1: Right, So how do we what should I buy? How 306 00:14:38,400 --> 00:14:39,640 Speaker 1: do we position ourselves? 307 00:14:41,160 --> 00:14:43,040 Speaker 8: So the one thing we don't want to do is 308 00:14:43,080 --> 00:14:45,200 Speaker 8: get in the way of the momentum of the market. 309 00:14:45,200 --> 00:14:47,400 Speaker 8: And we know we have this kind of momentum play 310 00:14:47,440 --> 00:14:51,000 Speaker 8: going right now because you're seeing yields and stocks. Except 311 00:14:51,000 --> 00:14:53,040 Speaker 8: for the last couple of days, yields and stocks have 312 00:14:53,160 --> 00:14:56,200 Speaker 8: been trending higher together. But we do think you need 313 00:14:56,200 --> 00:14:58,520 Speaker 8: to be a little bit guarded because there are yellow 314 00:14:58,560 --> 00:15:01,880 Speaker 8: flags that are out there, whether it's you know, Jolt's report, 315 00:15:01,960 --> 00:15:06,640 Speaker 8: whether it's temporary hiring declining, whether it's hiring rates across 316 00:15:06,680 --> 00:15:09,120 Speaker 8: the board declining, all of these different kind of yellow 317 00:15:09,120 --> 00:15:12,040 Speaker 8: flags we've been seeing in the economy. So we want 318 00:15:12,080 --> 00:15:15,640 Speaker 8: to have a pretty balanced portfolio. We like financials because 319 00:15:15,640 --> 00:15:18,560 Speaker 8: of the yield curve we think will be resteepening. They've 320 00:15:18,600 --> 00:15:21,200 Speaker 8: gone as you've mentioned, they had really good earnings, so 321 00:15:21,200 --> 00:15:24,280 Speaker 8: they've gone up. Maybe wait for a little pullback industrials 322 00:15:24,440 --> 00:15:27,480 Speaker 8: or showing leadership right now versus the rest of the market. 323 00:15:27,640 --> 00:15:30,480 Speaker 8: But find some of those areas that have pulled back 324 00:15:30,520 --> 00:15:34,640 Speaker 8: as of late, healthcare, staples, even some of the tech names. 325 00:15:34,920 --> 00:15:36,640 Speaker 8: That's where I think you need to go in and 326 00:15:36,640 --> 00:15:38,760 Speaker 8: start looking. You look at a name like Signa that 327 00:15:38,800 --> 00:15:42,400 Speaker 8: we own, doesn't have exposure to Medicare and Medicaid like 328 00:15:42,440 --> 00:15:44,720 Speaker 8: some of the other HMOs and has been holding its 329 00:15:44,720 --> 00:15:47,040 Speaker 8: own but it's had a pullback. You can go in 330 00:15:47,080 --> 00:15:49,560 Speaker 8: there and even a name like Qualcom. I think within 331 00:15:49,600 --> 00:15:51,720 Speaker 8: the tech industry. We know we've got the mag seven 332 00:15:51,760 --> 00:15:54,880 Speaker 8: reporting next week. You can find some other areas within 333 00:15:55,040 --> 00:15:58,680 Speaker 8: tech to add some exposure. So make sure you're diversified. 334 00:15:58,720 --> 00:16:00,680 Speaker 8: And we would add a little bit of fixed income 335 00:16:00,720 --> 00:16:03,360 Speaker 8: to have steady cash flow with yields as high as 336 00:16:03,360 --> 00:16:04,080 Speaker 8: they are right now. 337 00:16:04,200 --> 00:16:06,120 Speaker 4: All right, Victoria, thank you so much for joining us. 338 00:16:06,160 --> 00:16:09,480 Speaker 4: Victoria Fernandez Folks. She's chief market strategist at cross Mark 339 00:16:09,640 --> 00:16:13,040 Speaker 4: Global Investments, joining us via zoom from Houston, Texas. She's 340 00:16:13,080 --> 00:16:16,160 Speaker 4: a Houston native born and raised in Houston. When undergraduate 341 00:16:16,200 --> 00:16:19,000 Speaker 4: school at Rice, which is one of the great universities 342 00:16:19,040 --> 00:16:19,880 Speaker 4: in this country. 343 00:16:20,160 --> 00:16:22,080 Speaker 3: Wish I looked at Rice back. I don't even think 344 00:16:22,080 --> 00:16:22,440 Speaker 3: about that. 345 00:16:22,520 --> 00:16:24,360 Speaker 4: That would have been such a cool thing to be 346 00:16:24,400 --> 00:16:26,480 Speaker 4: in Houston, Texas. At Rice didn't even think about it. 347 00:16:27,960 --> 00:16:31,840 Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live 348 00:16:31,920 --> 00:16:35,440 Speaker 2: weekdays at ten am Eastern on applecar Play and Android 349 00:16:35,440 --> 00:16:38,240 Speaker 2: Auto with the Bloomberg Business app. You can also listen 350 00:16:38,360 --> 00:16:41,440 Speaker 2: live on Amazon Alexa from our flagship New York station 351 00:16:41,800 --> 00:16:44,560 Speaker 2: Just Say Alexa playing Bloomberg eleven thirty. 352 00:16:45,760 --> 00:16:46,360 Speaker 3: All right, John. 353 00:16:46,600 --> 00:16:48,680 Speaker 4: One of the new stories today was a deal that's 354 00:16:48,720 --> 00:16:51,360 Speaker 4: not going to happen, Tapestries eight point five billion dollars 355 00:16:51,400 --> 00:16:54,640 Speaker 4: deal for Capri that's halted by a judge. In a 356 00:16:54,640 --> 00:16:56,880 Speaker 4: big win for the Federal Trade Commission, not such a 357 00:16:56,920 --> 00:16:59,240 Speaker 4: big win for the shareholders of Capriga. I might add 358 00:16:59,400 --> 00:17:02,720 Speaker 4: deb Acon, she is our go to person for everything 359 00:17:03,600 --> 00:17:07,240 Speaker 4: Luxury Debate and Bloomberg Intelligence Luxury goods analyst deb I 360 00:17:07,280 --> 00:17:10,480 Speaker 4: have to admit I'm kind of surprised by this ruling 361 00:17:10,480 --> 00:17:13,240 Speaker 4: by the judge. I think the market is too judging 362 00:17:13,240 --> 00:17:15,960 Speaker 4: by the big decline and cappreciares what's going on there 363 00:17:15,960 --> 00:17:16,440 Speaker 4: with this deal? 364 00:17:17,800 --> 00:17:23,080 Speaker 9: I think so too, Hi, So yeah. I would say 365 00:17:23,080 --> 00:17:26,720 Speaker 9: there was a sixty to seventy percent swing of expectation 366 00:17:26,840 --> 00:17:28,879 Speaker 9: of this deal going ahead, and it's all about the 367 00:17:29,000 --> 00:17:32,280 Speaker 9: coming together taps use eight and a half billion bid 368 00:17:32,520 --> 00:17:37,159 Speaker 9: four Capri could have brought together two very big brands 369 00:17:37,160 --> 00:17:42,399 Speaker 9: in aspirational luxury, aspirational fashion, entry level luxury, however you 370 00:17:42,600 --> 00:17:49,000 Speaker 9: like to name with Coach under Tapestry and Michael Cars 371 00:17:49,160 --> 00:17:52,480 Speaker 9: under Capri as well as their four of the brands combined, 372 00:17:53,080 --> 00:17:55,560 Speaker 9: and the idea, you know what was found by the 373 00:17:55,640 --> 00:17:58,120 Speaker 9: judges that actually there would be too much of an 374 00:17:58,119 --> 00:18:02,760 Speaker 9: overlap and that there was a commission clash. So there's 375 00:18:02,760 --> 00:18:06,000 Speaker 9: been a rule against the expectation when we looked at 376 00:18:06,000 --> 00:18:07,800 Speaker 9: all the data sets as well as many of us 377 00:18:07,800 --> 00:18:10,159 Speaker 9: who've done the due diligence, and there are reams and 378 00:18:10,240 --> 00:18:13,440 Speaker 9: reams of data taken to court where that actually there's 379 00:18:13,520 --> 00:18:17,919 Speaker 9: so much fragmentation across the space, particularly in the US, 380 00:18:18,200 --> 00:18:21,560 Speaker 9: which is the biggest market for both brands, across so 381 00:18:21,640 --> 00:18:26,159 Speaker 9: many price points online and offline, in department stores, in 382 00:18:26,320 --> 00:18:29,240 Speaker 9: owned stores, that this was seen as possibly a deal 383 00:18:29,280 --> 00:18:30,280 Speaker 9: that could have gone ahead. 384 00:18:31,080 --> 00:18:34,400 Speaker 1: Yeah, it's what were the regulators afraid of, Like handbag prices. 385 00:18:34,440 --> 00:18:37,520 Speaker 1: Would you know there'd be a monopoly and price go 386 00:18:37,680 --> 00:18:39,240 Speaker 1: up so I couldn't afford Yeah. 387 00:18:40,080 --> 00:18:47,840 Speaker 9: Absolutely, the expectation, the expectation that over time price rises 388 00:18:48,800 --> 00:18:52,040 Speaker 9: would be seen to be taking place in the industry. 389 00:18:52,080 --> 00:18:54,000 Speaker 9: Once the two brands were together and it was seen 390 00:18:54,000 --> 00:18:57,880 Speaker 9: that they could have fifty nine percent of that aspirational marketplace, 391 00:18:58,320 --> 00:19:01,320 Speaker 9: which I find difficult to understand and as does know 392 00:19:01,400 --> 00:19:03,120 Speaker 9: much of the market, given that we did a lot 393 00:19:03,160 --> 00:19:06,960 Speaker 9: of work on that and there is the deadline on 394 00:19:07,000 --> 00:19:09,240 Speaker 9: this deal was actually the tenth of feb Speaking to 395 00:19:09,400 --> 00:19:14,240 Speaker 9: one of our specialists last night, there's an understanding of 396 00:19:14,320 --> 00:19:20,440 Speaker 9: course that Tapestry will appeal, that Capri will follow and 397 00:19:20,560 --> 00:19:24,880 Speaker 9: go along with that appeal, but that actually to get 398 00:19:24,960 --> 00:19:29,119 Speaker 9: the FTC to come up with their findings by the 399 00:19:29,160 --> 00:19:32,919 Speaker 9: tenth of February would be difficult, and then an extension 400 00:19:32,960 --> 00:19:36,000 Speaker 9: beyond which would be difficult. And at that point, if 401 00:19:36,040 --> 00:19:38,080 Speaker 9: the tenth of feb it could be that the deal 402 00:19:38,080 --> 00:19:42,320 Speaker 9: would break up. So you know, there are still cogs 403 00:19:42,359 --> 00:19:45,040 Speaker 9: in motion taking place. But the view in the market 404 00:19:45,040 --> 00:19:48,399 Speaker 9: today is that Tapestry a little bit is safe because 405 00:19:48,480 --> 00:19:52,280 Speaker 9: the market versus when they put the offer in two 406 00:19:52,440 --> 00:19:54,880 Speaker 9: years ago coming up by the time it would complete 407 00:19:55,119 --> 00:19:58,960 Speaker 9: it was actually a mid twenty twenty three. It's probably 408 00:19:58,960 --> 00:20:02,480 Speaker 9: down for aspiration luxury. In terms of growth, we're actually 409 00:20:02,520 --> 00:20:06,919 Speaker 9: in slight decline. Difficult US market, very difficult, China market 410 00:20:06,920 --> 00:20:10,880 Speaker 9: are particularly difficult Q two and we haven't seen any 411 00:20:10,960 --> 00:20:14,040 Speaker 9: changing Q three and that's moved into October. You know, 412 00:20:14,119 --> 00:20:16,560 Speaker 9: for China, we're probably seeing that market down twenty five 413 00:20:16,600 --> 00:20:21,840 Speaker 9: percent plus after a difficult couple of years. And then 414 00:20:21,880 --> 00:20:25,320 Speaker 9: for the US, very very slow growth, and you really 415 00:20:25,320 --> 00:20:28,760 Speaker 9: have to have your brand out there, visible, new design, 416 00:20:29,440 --> 00:20:34,159 Speaker 9: new innovations, coaches doing it well under Tapestry. We're just 417 00:20:34,200 --> 00:20:36,359 Speaker 9: we're looking at some data from lists to show that 418 00:20:36,400 --> 00:20:38,880 Speaker 9: they're in the doing very well and they're brand to eat, 419 00:20:38,920 --> 00:20:41,440 Speaker 9: you know, but there is a long way to go, 420 00:20:41,800 --> 00:20:42,359 Speaker 9: all right. 421 00:20:42,680 --> 00:20:44,760 Speaker 3: Deb thanks so much for joining us getting up to 422 00:20:44,840 --> 00:20:45,160 Speaker 3: date there. 423 00:20:45,160 --> 00:20:48,080 Speaker 4: They're making luxury goodzanas for Bloomberg Intelligence, John, I think 424 00:20:48,080 --> 00:20:51,160 Speaker 4: I would just walk members of the Federal Trade Commission. 425 00:20:50,800 --> 00:20:53,119 Speaker 3: Down like Canal Street. I mean, there's like a billion 426 00:20:53,160 --> 00:20:55,640 Speaker 3: of these knockoff bags all over the place. I mean, 427 00:20:56,600 --> 00:20:57,439 Speaker 3: you know, I meant. 428 00:20:58,080 --> 00:21:00,600 Speaker 1: I was tired of my belt that I bought at 429 00:21:00,640 --> 00:21:03,040 Speaker 1: Cole's falling apart. After a couple of mong steps back, 430 00:21:03,080 --> 00:21:04,800 Speaker 1: I was going to step up, go to coach. I 431 00:21:04,880 --> 00:21:08,520 Speaker 1: was told by one of the retail experts, no massimo data, 432 00:21:08,800 --> 00:21:12,560 Speaker 1: oh and a lot cheaper. And so far it hasn't 433 00:21:12,560 --> 00:21:13,320 Speaker 1: fallen apart. 434 00:21:13,160 --> 00:21:15,959 Speaker 3: You get a little belt. Correspondent John Tucker, very good. 435 00:21:17,520 --> 00:21:21,440 Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live 436 00:21:21,520 --> 00:21:25,000 Speaker 2: weekdays at ten am Eastern on applecar Play and Android 437 00:21:25,040 --> 00:21:27,840 Speaker 2: Auto with the Bloomberg Business ap You can also listen 438 00:21:27,960 --> 00:21:31,040 Speaker 2: live on Amazon Alexa from our flagship New York station 439 00:21:31,400 --> 00:21:35,120 Speaker 2: Just Say Alexa playing Bloomberg eleven thirty. 440 00:21:35,640 --> 00:21:38,000 Speaker 4: John Tucker sitting in for Alex Steel and Paul Sweeney 441 00:21:38,040 --> 00:21:39,920 Speaker 4: were live here on our Bloomberg Interactive Brober Studio on 442 00:21:39,960 --> 00:21:42,080 Speaker 4: our streaming live on YouTube as well, so check us 443 00:21:42,080 --> 00:21:43,920 Speaker 4: out there as well. 444 00:21:44,440 --> 00:21:47,480 Speaker 3: Big Take Stories we love them here. These are really 445 00:21:47,640 --> 00:21:49,680 Speaker 3: really deeply sourced stories. 446 00:21:49,680 --> 00:21:53,480 Speaker 4: They go really deep dives and some some really interesting topics. 447 00:21:53,480 --> 00:21:55,439 Speaker 4: And this one's about kind of the wealthy and some 448 00:21:55,520 --> 00:21:58,119 Speaker 4: of the advantages they have in terms of shielding of 449 00:21:58,160 --> 00:22:01,359 Speaker 4: their taxes. Justina Lee joins us here cross Asset Markets 450 00:22:01,359 --> 00:22:04,199 Speaker 4: reporter for Bloomberg News. She's based in London, joining us 451 00:22:04,240 --> 00:22:09,240 Speaker 4: there via zoom. Wealthy investors are using tax aware long 452 00:22:09,359 --> 00:22:13,159 Speaker 4: short strategies to generate losses that can be used to 453 00:22:13,160 --> 00:22:16,200 Speaker 4: offset capital gains taxes, allowing them to minimize their tax bills. 454 00:22:16,240 --> 00:22:18,040 Speaker 4: I had not heard of this before, so I learned 455 00:22:18,040 --> 00:22:20,880 Speaker 4: a lot reading this article. Justina, thanks for joining us here. 456 00:22:20,880 --> 00:22:23,399 Speaker 4: Can you tell us what a tax aware long short 457 00:22:23,440 --> 00:22:24,480 Speaker 4: strategy is? 458 00:22:25,960 --> 00:22:29,960 Speaker 10: Yeah? Sure, I think most people, probably if you're familiar 459 00:22:30,000 --> 00:22:32,639 Speaker 10: with the wealth management space, might have heard of tax 460 00:22:32,680 --> 00:22:36,280 Speaker 10: loss harvesting, and that's where you sell your losing investment 461 00:22:36,440 --> 00:22:39,480 Speaker 10: so that you have a capital loss to offset some 462 00:22:39,600 --> 00:22:42,800 Speaker 10: of your capital gains tax bill. So taxbi long short 463 00:22:42,880 --> 00:22:47,080 Speaker 10: essentially takes advantage of that same idea, except that because 464 00:22:47,080 --> 00:22:49,920 Speaker 10: you have longs and shorts, it means that at any 465 00:22:49,920 --> 00:22:52,480 Speaker 10: given time, even if the market is going up, you 466 00:22:52,520 --> 00:22:55,600 Speaker 10: can still generate quite a lot of losses to upset 467 00:22:56,000 --> 00:22:58,200 Speaker 10: kind of your capital gains tax bill. You know, maybe 468 00:22:58,240 --> 00:22:59,919 Speaker 10: you want to sell your apple stock, or you want 469 00:22:59,920 --> 00:23:01,800 Speaker 10: to sell your house, or you kind of you want 470 00:23:01,840 --> 00:23:04,600 Speaker 10: to sell your business, and so the whole idea here 471 00:23:04,760 --> 00:23:07,520 Speaker 10: is it kind of gets you more losses faster. 472 00:23:08,000 --> 00:23:10,399 Speaker 1: When you don't necessarily have losses. 473 00:23:10,600 --> 00:23:13,119 Speaker 10: Is the way I think I see this is that 474 00:23:13,240 --> 00:23:17,720 Speaker 10: right right exactly? And it sounds kind of funny because 475 00:23:17,760 --> 00:23:21,959 Speaker 10: obviously you want to make money overall, But the magic 476 00:23:22,000 --> 00:23:24,800 Speaker 10: of these strategies is they're still trying to make you 477 00:23:24,920 --> 00:23:29,320 Speaker 10: money on the whole, but usually kind of in a 478 00:23:29,320 --> 00:23:32,520 Speaker 10: whole portfolio, even if the portfolio is making money, there 479 00:23:32,560 --> 00:23:36,080 Speaker 10: will be some losing positions there because you're holding hundreds 480 00:23:36,119 --> 00:23:39,320 Speaker 10: of stocks usually in these strategies, and so the idea 481 00:23:39,560 --> 00:23:42,560 Speaker 10: is like, well, you know, you make the best out 482 00:23:42,600 --> 00:23:46,480 Speaker 10: of those losing investments, and in the meantime, you're also 483 00:23:46,600 --> 00:23:49,679 Speaker 10: like getting richer, and because you're saving money from not 484 00:23:49,760 --> 00:23:52,600 Speaker 10: paying taxes, you can also be invested for longer. 485 00:23:53,080 --> 00:23:54,159 Speaker 3: So and this is. 486 00:23:54,160 --> 00:23:57,000 Speaker 4: Different from just regular tax laws selling, because I'm buying 487 00:23:57,000 --> 00:24:01,520 Speaker 4: a huge basket of stocks knowing that overall I'll probably 488 00:24:01,520 --> 00:24:04,760 Speaker 4: make money, but there will be individual losers, even if 489 00:24:05,160 --> 00:24:07,040 Speaker 4: those are names I didn't necessarily want to own. 490 00:24:08,720 --> 00:24:12,480 Speaker 10: Right, So, in regular tax loss harvesting, usually you just 491 00:24:12,600 --> 00:24:15,359 Speaker 10: have a portfolio of stocks that you own. But the 492 00:24:15,520 --> 00:24:19,200 Speaker 10: problem with that is that over time the market goes 493 00:24:19,280 --> 00:24:21,720 Speaker 10: up and so you run out of losses to harvest. 494 00:24:22,240 --> 00:24:24,200 Speaker 10: I mean a lot of estimates say this can happen 495 00:24:24,280 --> 00:24:27,880 Speaker 10: even just after a few years. And so with long shorts, 496 00:24:27,880 --> 00:24:31,439 Speaker 10: because you have those shorts, that's betting against some stocks. Actually, 497 00:24:31,600 --> 00:24:34,920 Speaker 10: the idea is you will always have some positions to sell. 498 00:24:35,320 --> 00:24:38,680 Speaker 1: Okay, So election days coming up, and this does kind 499 00:24:38,680 --> 00:24:41,320 Speaker 1: of sort of figure into the elections because the Biden 500 00:24:41,359 --> 00:24:47,399 Speaker 1: administration has proposed a taxing unrealized profits. How does this 501 00:24:47,480 --> 00:24:50,399 Speaker 1: all I haven't I'm not sure what Kamala Harris's position is, 502 00:24:50,480 --> 00:24:51,840 Speaker 1: but how does this tie in? 503 00:24:53,920 --> 00:24:58,040 Speaker 10: Yeah, because I guess the whole reason tax loss harvesting 504 00:24:58,119 --> 00:25:00,720 Speaker 10: works is that you, as the investor, you can choose 505 00:25:00,720 --> 00:25:04,439 Speaker 10: when to sell your investments, and so most people you know, 506 00:25:04,760 --> 00:25:07,639 Speaker 10: just just never sell, especially because you can just you know, 507 00:25:07,720 --> 00:25:11,399 Speaker 10: pass them on to your you know, your kin and 508 00:25:11,440 --> 00:25:13,880 Speaker 10: then you get the step of a basis as well. 509 00:25:14,280 --> 00:25:16,399 Speaker 10: And so in order to tackle that, I mean, President 510 00:25:16,480 --> 00:25:19,240 Speaker 10: Biden proposed in his budget earlier this year that he 511 00:25:19,600 --> 00:25:22,600 Speaker 10: would impose a minimum tax on billionaire so I would 512 00:25:22,640 --> 00:25:26,760 Speaker 10: cover unrealized capital gains. And initially Kamala Harris did say 513 00:25:26,840 --> 00:25:30,199 Speaker 10: she supports that proposal in general, but more recently I 514 00:25:30,200 --> 00:25:33,880 Speaker 10: think her campaign has been kind of a little bit 515 00:25:33,880 --> 00:25:36,840 Speaker 10: more vague about whether they would support, you know, taxing 516 00:25:36,960 --> 00:25:38,560 Speaker 10: unrealized gains in particular. 517 00:25:38,920 --> 00:25:42,320 Speaker 4: All Right, so critics of I guess they argue that 518 00:25:42,359 --> 00:25:45,960 Speaker 4: these strategies, which are generally only accessible to the very wealthy, 519 00:25:46,760 --> 00:25:51,640 Speaker 4: exacerbate wealth inequality and encourage complex tax avoiding schemes rather 520 00:25:51,720 --> 00:25:55,880 Speaker 4: than encouraging investment and economic growth. How does the financial 521 00:25:55,920 --> 00:25:59,520 Speaker 4: services industry respond to those critics. I mean it's all legal, right, 522 00:26:01,160 --> 00:26:01,920 Speaker 4: right exactly. 523 00:26:02,000 --> 00:26:04,280 Speaker 10: I mean there are a few restrictions, you know, like 524 00:26:04,400 --> 00:26:08,040 Speaker 10: you cannot sell a security for the tax loss and 525 00:26:08,080 --> 00:26:11,440 Speaker 10: then buy it back tomorrow. But yeah, I mean generally 526 00:26:11,680 --> 00:26:15,600 Speaker 10: it's entirely legally above board. I think for a lot 527 00:26:15,640 --> 00:26:18,159 Speaker 10: of critics, I mean, it just shows the problem with 528 00:26:18,320 --> 00:26:24,080 Speaker 10: only taxical taxing capital gains upon realization. But the problem is, 529 00:26:24,160 --> 00:26:28,360 Speaker 10: and we've kind of seen this debate, you know, unfolding 530 00:26:28,440 --> 00:26:31,280 Speaker 10: over you know, Biden's proposal as well, that the problem 531 00:26:31,320 --> 00:26:35,640 Speaker 10: is if you're taxing unrealized gains, that's kind of very 532 00:26:35,640 --> 00:26:39,040 Speaker 10: hard to administer. And also some people say it will 533 00:26:39,080 --> 00:26:42,640 Speaker 10: discourage investments, and so that would be a massive overhaul, 534 00:26:42,680 --> 00:26:46,280 Speaker 10: and I don't think anyone's expecting that to change anytime soon. 535 00:26:46,359 --> 00:26:48,639 Speaker 10: And so I think that's also why these strategies have 536 00:26:48,760 --> 00:26:49,320 Speaker 10: been booming. 537 00:26:49,960 --> 00:26:52,240 Speaker 1: Uh is the iron rams going to swoop in at 538 00:26:52,240 --> 00:26:54,879 Speaker 1: some point the Congress going to take hold of this 539 00:26:54,960 --> 00:26:57,720 Speaker 1: and make changes. What's what's happening on that front? 540 00:26:59,119 --> 00:27:02,960 Speaker 10: There has been kind of a few bills in Congress 541 00:27:03,000 --> 00:27:07,480 Speaker 10: over the years from Democrats to tax unrealized gains. And 542 00:27:07,560 --> 00:27:09,920 Speaker 10: of course you could say you could change kind of 543 00:27:10,080 --> 00:27:12,520 Speaker 10: smaller things, you know, such as ending the step of 544 00:27:12,560 --> 00:27:15,880 Speaker 10: the basis or maybe changing the wash sale rule so 545 00:27:15,920 --> 00:27:20,240 Speaker 10: that you can't that's the rule that kind of restricts 546 00:27:20,320 --> 00:27:23,200 Speaker 10: you from buying back the stock immediately after you sell it. 547 00:27:23,920 --> 00:27:25,239 Speaker 10: But I think at the end of the day, I mean, 548 00:27:25,280 --> 00:27:27,000 Speaker 10: a lot of you know, people I spoke to for 549 00:27:27,040 --> 00:27:30,359 Speaker 10: the story say, I mean, they know that it takes 550 00:27:30,480 --> 00:27:33,360 Speaker 10: a long time for these changes to go through Congress, 551 00:27:33,400 --> 00:27:37,200 Speaker 10: So I think most people seem pretty confident that there 552 00:27:37,200 --> 00:27:40,200 Speaker 10: won't be any material changes that will affect these strategies 553 00:27:40,200 --> 00:27:40,880 Speaker 10: anytime soon. 554 00:27:41,880 --> 00:27:46,040 Speaker 4: Any sense of how many people actually employ these strategies. 555 00:27:47,560 --> 00:27:51,640 Speaker 10: It's hard to say, but it's it's interesting that they've 556 00:27:51,640 --> 00:27:54,520 Speaker 10: actually been around for a few years now, but they've 557 00:27:54,600 --> 00:27:58,600 Speaker 10: really only grown quite a bit in the last year 558 00:27:58,760 --> 00:28:02,640 Speaker 10: or so. So AQR, which is sort of a pioneer here, 559 00:28:02,760 --> 00:28:05,560 Speaker 10: I mean, their AUM and the strategy has almost doubled 560 00:28:05,600 --> 00:28:08,880 Speaker 10: in just half a year. And like Quantina, which kind 561 00:28:08,880 --> 00:28:11,359 Speaker 10: of shares some DNA with AQR, I mean that's the 562 00:28:11,400 --> 00:28:13,679 Speaker 10: only thing they do, and their AUM has more than 563 00:28:13,760 --> 00:28:19,280 Speaker 10: doubled this year. This strategy does have higher minimum thresholds, 564 00:28:19,280 --> 00:28:21,399 Speaker 10: so you do need to kind of put in at 565 00:28:21,480 --> 00:28:24,040 Speaker 10: least a million dollars, and of course for this to 566 00:28:24,080 --> 00:28:26,600 Speaker 10: be helpful at all, you need to have quite a 567 00:28:26,600 --> 00:28:29,800 Speaker 10: lot of capital gain somewhere in your portfolio. So it's 568 00:28:29,880 --> 00:28:31,639 Speaker 10: quite it's for the it's for the elite. 569 00:28:31,760 --> 00:28:34,520 Speaker 4: Yeah, all right, Justina, thank you so much for this 570 00:28:34,680 --> 00:28:37,480 Speaker 4: great story. Justin and Lee Cross asset markets reporter for 571 00:28:37,840 --> 00:28:41,480 Speaker 4: Bloomberg News, great Big Take story. You can read more 572 00:28:41,520 --> 00:28:44,920 Speaker 4: of this story on the Bloomberg and at Bloomberg dot 573 00:28:44,920 --> 00:28:46,600 Speaker 4: com Slash Big Take. 574 00:28:47,040 --> 00:28:51,560 Speaker 2: This is the Bloomberg Intelligence podcast, available on apples, Spotify, 575 00:28:51,800 --> 00:28:54,680 Speaker 2: and anywhere else you will get your podcasts. 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