Speaker 1: This is Bloomberg Business Week. I'm Carole Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanovk. We're here every day bringing
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Speaker 1: pm Eastern Time on Bloomberg Radio or watch us on
Speaker 1: YouTube search Bloomberg Global News. Well. Among the headlines we
Speaker 1: are following at this hour about the Russian invasion of
Speaker 1: and war with Ukraine is more businesses exiting, Credit Suites
Speaker 1: Group and Abu Dhabi's Well Fund will stop investing in Russia,
Speaker 1: while beer makers Carlsberg and Heineken announcing plans to exit
Speaker 1: the country. So we have been following that. We've also
Speaker 1: been following what's going on with Ukraine's I T and
Speaker 1: tech community in a big way. Buscar Chalk Revordy is
Speaker 1: Dean of Global Business at the Fletcher School at Tufts University. That,
Speaker 1: Dean joins us once again on the phone from Boston.
Speaker 1: How are you, Dean. I'm doing very well, thank you
Speaker 1: and you we're doing well. It's good to have you
Speaker 1: back with us. UM. I wanted to just start by
Speaker 1: because you are in constant conversations and Carolin I have
Speaker 1: talked a lot over the last month, in the last
Speaker 1: five six weeks about the I T community on the
Speaker 1: ground in Ukraine and how much international businesses, American businesses
Speaker 1: rely on tech workers in that part of the world. UM,
Speaker 1: but you're in constant contact with with the I T
Speaker 1: community there and give us an idea of what's happening.
Speaker 1: Has it been disrupted and if they're still able to work, Yes,
Speaker 1: absolutely so, no question, it has been disrupted and they are.
Speaker 1: The community, of course, is spread out across the country,
Speaker 1: and in my conversations with them, UM, I realized that
Speaker 1: you know Ukraine, you know, just to look at the
Speaker 1: map will remind us of the fact that Ukraine is
Speaker 1: a very large geographic area. So the I T community
Speaker 1: is spread out across the country and they literally seem
Speaker 1: to break the country up into what they called the
Speaker 1: hot zone and you know, perhaps the cooler zones and
Speaker 1: the cooler zones are towards the western side of the country,
Speaker 1: and many of the I T firms that are still
Speaker 1: operating are on the western side or they have relocated
Speaker 1: their personnel and and and other equipment to the western side.
Speaker 1: So they're adapting their adjusting, and certainly the ones that
Speaker 1: are based on the western edge of the country, they're
Speaker 1: operating and they're looking for business well. And as Tim said,
Speaker 1: you know, we unfortunately as a result of this war
Speaker 1: in Ukraine, we are realizing what a important and large
Speaker 1: I T and tech community is in Ukraine and how
Speaker 1: many you know, global companies interact or rely on that
Speaker 1: tech community. From what I understand, you have been as
Speaker 1: you said, you know, entire with many members of that
Speaker 1: community on the ground. I believe they call themselves the
Speaker 1: I T Army. What are you hearing though, about what
Speaker 1: they are seeing, their expectations maybe about when this ends? Uh?
Speaker 1: And what is the future? Can they even think about
Speaker 1: it at this point? Yes? So of course, uh, you know,
Speaker 1: their guests as to how and when this ends is
Speaker 1: um just as challenging you know, for them as it
Speaker 1: is for us, and you know us being all those
Speaker 1: of us who are watching this UH, this war UH
Speaker 1: in in horror and shocks on the outside because the
Speaker 1: end game is still unclear. What they are doing is
Speaker 1: they have set up backup plans and they are continuing
Speaker 1: to at least the ones, as I mentioned on the
Speaker 1: western side of the country see themselves as the economic
Speaker 1: soldiers food soldiers in this war. President Zelenski has encouraged UH,
Speaker 1: everybody who is a significant contributor to the economy to
Speaker 1: do their best to keep the economy running. They have
Speaker 1: also the Ukrainian government has made some significant changes to
Speaker 1: the tax code and they have essentially made the tax
Speaker 1: scheme simple, pay two percent tax and it's voluntary. It's voluntary.
Speaker 1: So they're trying to encourage people to get back to
Speaker 1: work to keep the economy running. And they see the
Speaker 1: I T industry as the prime engine for the economy
Speaker 1: to be running because it's the one industry that can
Speaker 1: survive as long as the internet infrastructure survives. So this
Speaker 1: industry has at least the ones that have been successful
Speaker 1: have got internet connectivity, they have got backup power. UH,
Speaker 1: they are storing their data offshore, and they're continuing to
Speaker 1: do work with their science. As you mentioned, they do
Speaker 1: see themselves as the i T Army. They see that
Speaker 1: they are contributing to the war by keeping people employed,
Speaker 1: by bringing in revenues and potentially contributing to the TACH
Speaker 1: survenues that the government sorely needs in order to you know,
Speaker 1: keep everything that it is doing uh operating. So here
Speaker 1: here's my question. If you're a startup right now and
Speaker 1: you have a germ of an idea and you're somewhere
Speaker 1: outside of Ukraine but you need I T workers, are
Speaker 1: you less likely to look to Ukraine for that I
Speaker 1: T work given the disruptions there? And my question is
Speaker 1: really about long term economic damage to the country as
Speaker 1: a result of this, because I imagine that if you're
Speaker 1: if you're looking for stability, it perhaps isn't the right
Speaker 1: place to go right now if you're that startup founder. Absolutely,
Speaker 1: and I would empathize with everybody who is either a
Speaker 1: startup or an established company, because when you're looking to
Speaker 1: get any kind of outsource work done, whether it's I
Speaker 1: T or any other kind of service, you're looking for
Speaker 1: not only quality, but also agreements at the service level
Speaker 1: and the stability you know that even if I have
Speaker 1: you know, a great talent and capital I want the
Speaker 1: work done and I want to make sure that the
Speaker 1: work doesn't get disrupted by something like a war going on.
Speaker 1: So um, absolutely, people are concerned about the risk. That said,
Speaker 1: a lot of companies, startups included, are looking for ways
Speaker 1: in which they can help this war effort. So my
Speaker 1: ask for the startups would be take on some of
Speaker 1: the risk. And some of the folks are spoken within
Speaker 1: this I d Army. They're saying they have tried to
Speaker 1: ensure against many of the priss and the contingencies. Of
Speaker 1: course that's not guaranteed. Well, great to check in with
Speaker 1: you once again. Another important important aspect certainly to this
Speaker 1: story in this reality buscar check Orty, he's doing of
Speaker 1: Global business at the Fletcher's School at Tufts University, joining
Speaker 1: us once again on the phone from Boston. Really appreciate
Speaker 1: his time on this Monday. I mean, I feel like
Speaker 1: I learned so much about Ukraine right in terms of
Speaker 1: the I T community, remarkable resilience. You're listening to Business Week,
Speaker 1: Carl Master, Tim Stanovic. This is Bloomberg Radio. This is
Speaker 1: Bloomberg business Week with Carol Messer and Bloomberg Quick Takes.
Speaker 1: Tim Stenovic on Bloomberg Radio Now for something um a
Speaker 1: little bit different, but definitely on our radar. It's a
Speaker 1: story coming up in the New is Shoe of Bloomberg
Speaker 1: business Week, out later this week, already online and on
Speaker 1: the Bloomberg and Tim. It's about a Smike, a spike
Speaker 1: in mail theft, and it's been fueled by a black
Speaker 1: market for stolen checks. The story by Jack gil I'm
Speaker 1: cybersecurity correspondent at Bloomberg News. He joins us from the
Speaker 1: ninety and one studio in Washington, d C. With us
Speaker 1: in person here in New York City. Joel Weber, editor
Speaker 1: at Bloomberg Business Week. He's with us in the Bloomberg
Speaker 1: Interactive Broker studio. Joel, It's interesting. We talked so much
Speaker 1: about hacking and cybersecurity and then I read a story
Speaker 1: like this, and it's like, does it get any more
Speaker 1: old school than stealing checks from the mail and trying
Speaker 1: to change who they're addressed to. Yeah, there are the
Speaker 1: new ways of hacks, and then I guess there's like
Speaker 1: the ultimate old school. This does involve technology? It does?
Speaker 1: It does? And Jack's story and reporting like totally caught
Speaker 1: r I because it was just like wait what And
Speaker 1: the whole scheme centers on basically getting people's mail like hardmail. Uh,
Speaker 1: there's been a raft of thefts of mail keys which
Speaker 1: can open boxes. There's all these Telegram videos online of
Speaker 1: of these grabbing as much meal as they can, stuffing
Speaker 1: it into cars getaway vehicles. But that's where it gets interesting,
Speaker 1: because what do you do with those those checks that
Speaker 1: are in the mail that you're still paying your your
Speaker 1: bills with. Jack, Well, this is an interesting theft or
Speaker 1: a thing of a string of thefts, right, It's like
Speaker 1: we're kind of bringing it back here, as you mentioned,
Speaker 1: to the old school, and what's happening here is it's
Speaker 1: a new twist, I would say on an on an
Speaker 1: old problem. It's not new that people have tried to
Speaker 1: fish letters out of the mailbox, right, but it is
Speaker 1: a new phenomenon that they are taking these checks, putting
Speaker 1: them on apps like Telegram, and selling them by the thousands.
Speaker 1: And it's pretty straightforward. I mean, I've even looked at
Speaker 1: a bunch of YouTube videos about putting these a nail
Speaker 1: polish remover, uh, stripping away the ink that you may
Speaker 1: be right out to your your power company, maybe for
Speaker 1: your mortgage or your rent check. Or Grandma sent it
Speaker 1: or or right, yeah, Grandma sends you fifty bucks for
Speaker 1: your birthday, you know, in lieu of a nice knitted sweater.
Speaker 1: And guess what this thing gets posted online? Someone over
Speaker 1: over draws your account like a gentleman. We spoke with
Speaker 1: your in the DC area and it's off to the races.
Speaker 1: So the whole thing here the scam is basically if
Speaker 1: you can remove who the check was was made out to,
Speaker 1: but keep the the amounts right so or do you
Speaker 1: just strip it all and sell? Are you selling a
Speaker 1: blank check? When you do it this way, you're essentially
Speaker 1: selling a blink check. And one of the victims we
Speaker 1: spoke with said that, you know, he found out at first,
Speaker 1: he found out about it because I called him up
Speaker 1: and said, hey, did you try to make a credit
Speaker 1: card pavement for such a chuch bank? And he says,
Speaker 1: how do you know? I said, well, I'm looking at
Speaker 1: your check right now, and he was very much taken aback.
Speaker 1: But then, you know, about a week later he said
Speaker 1: that somebody tried to withdraw a much larger amount than he,
Speaker 1: of course had in his account at the time. His
Speaker 1: bank had already been flagged for this and and said, oh,
Speaker 1: look there's another check that got pounced. So I think
Speaker 1: it really it's kind of a guess, right, how much
Speaker 1: is somebody going to have in their account? Maybe they
Speaker 1: seem wealthy, you know, maybe we'll try for a thousand bucks.
Speaker 1: If it doesn't work, you know, no skin off our nose.
Speaker 1: If it does, well, here's a stack of twenties. We
Speaker 1: can now go around town with. Okay, jack, So many questions,
Speaker 1: so little time. But I do wonder, uh, if somebody
Speaker 1: makes a checkout to themselves, aren't they incriminating themselves then?
Speaker 1: Or do they make it out to cash? How does
Speaker 1: that work? So there are a few different ways that
Speaker 1: could do this. Um, you know, these these channels that
Speaker 1: we had talked about, This professor at Georgia State, uh,
Speaker 1: David Mayman, had actually tracks not just stolen checks, but
Speaker 1: stolen identities, bank account information, so user names and passwords
Speaker 1: to get into these accounts. So I wouldn't put it
Speaker 1: past these folks to actually create fraudulent identities that they
Speaker 1: then used to make a check out to themselves to
Speaker 1: you know, a Joe Smith or maybe a less suspicious
Speaker 1: looking name. Perhaps go to a check cashing place. It
Speaker 1: might not be as reputable as a major bank and
Speaker 1: walk out of the bank with the stack of twenties.
Speaker 1: And these dudes and du dats man, they're not trying
Speaker 1: to hide, right, They actually are posting photos of themselves
Speaker 1: with piles of money. They are. I mean, some of
Speaker 1: these videos I have to say no one other word
Speaker 1: is just wild. I mean there are there are just
Speaker 1: stacks of maile like flowing out of this one guy's
Speaker 1: back seat when you open up at the back of it,
Speaker 1: another guy's photograph with a you know, a real sort
Speaker 1: of you know ear to ear grin pulling a you know,
Speaker 1: a stack at Andrew Jackson's out of a out of
Speaker 1: an envelope that he just got. Um, they don't hide themselves,
Speaker 1: and you know, the folks we spoke to you said,
Speaker 1: is because there's no incentive for them to be anonymous.
Speaker 1: These thefts have increased while the rate of at least
Speaker 1: federal prosecuts of this mails have to have gone down.
Speaker 1: So you know, you'd be the judge about how often
Speaker 1: someone's actually gonna get caught and how how big of
Speaker 1: a problem do we think this is. I mean, I
Speaker 1: know it's going to be difficult to put number on it.
Speaker 1: But how how big of a spike in mail theft
Speaker 1: are we seeing? So, I mean, if you look at
Speaker 1: the numbers that so the the the watchdog, the Inspector
Speaker 1: General for the USPS says that at least in the
Speaker 1: last year or so, the check thefts have gone up
Speaker 1: by about a hundred and sixty one percent. Or rather,
Speaker 1: complaints of mail thefts now the postal services. Not all
Speaker 1: those are indeed bona fide. Maybe somebody lost how to
Speaker 1: check lost in the mail, got upset reported as stolen
Speaker 1: and it was fine. But you know, by and large,
Speaker 1: when we talked to some of the experts, some of
Speaker 1: the officials who study this, they say, look, these numbers
Speaker 1: are significantly going up. And just by you know, Bloomberg's
Speaker 1: view of looking at on these telegram channels of our own,
Speaker 1: I mean just anecdotally, every day, every hour, almost every minute,
Speaker 1: you know, these things get posted. Unbelievable. All right, we
Speaker 1: gotta leave with their jackuell um uh He is Sobersecurity
Speaker 1: correspondent Bloomberg News from our ninety nine one studio in
Speaker 1: Washington and our thanks to Jill Webber, editor a Bloomberg
Speaker 1: Business Week. You're listening to Bloomberg Business Week with Carol
Speaker 1: Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. So,
Speaker 1: one of the stocks that we've been watching in today's session,
Speaker 1: and that is Test Lab stock is pretty much holding
Speaker 1: onto its highs, up about seven point seven percent this company.
Speaker 1: I haven't done the math in the last half hour
Speaker 1: or so or hour, but it looks like it's on
Speaker 1: pace to add about eighty five billion to its market
Speaker 1: cap today. Not too shabby. It's been on a tear.
Speaker 1: I think it's up around the past ten trading days. Uh. Yeah,
Speaker 1: that was before the stock split was announced. That was
Speaker 1: before that's with today's game. So that's with today's game.
Speaker 1: If you propose stock split right, I'd love those. West
Speaker 1: Coast correspondent for Bloomberg News. He joins us from the
Speaker 1: Bloomberg nine sixties studio in San Francisco, also joining us
Speaker 1: on camera for our YouTube audience, h D. When it
Speaker 1: comes to stock splits, nothing fundamental changes about a company
Speaker 1: when more shares are created. And in this day age
Speaker 1: when you can buy slices of stock through trash wa
Speaker 1: the delity, Robin Hood and more, why do we still
Speaker 1: see investor optimism with an announcement like this. Yeah, I
Speaker 1: mean we've been having this debate on Bloomberg television and
Speaker 1: radio all day. Right. Essentially, the rationale in the past
Speaker 1: has been to lower the barrier to entry. You know,
Speaker 1: a thousand dollars a share for the retail investor who
Speaker 1: only wants to buy a few shares, you can't get
Speaker 1: access to them. Now, you made the good point. You
Speaker 1: could go on one of the trading apps or platforms
Speaker 1: and buy a fraction of a share um, but it's
Speaker 1: not the same sensation, right, And remember that Elon Musk
Speaker 1: has talked about this in the past. Tesla shareholders retail
Speaker 1: investors are normally people who own the vehicles, they own
Speaker 1: the Tesla energy products. They believe in the long term thesis,
Speaker 1: they believe in Elon Musk, And it's about shared ownership
Speaker 1: and democratizing that ownership. And we don't know what the
Speaker 1: rational is here. All we have is the eight K
Speaker 1: filing and the tweet to go on, Right, but you'd
Speaker 1: assume that lowering that barried entries what their motivation was. Well,
Speaker 1: and it's interesting because I was thinking about, right, you
Speaker 1: reduced when you do buybacks. That's initially when investors get excited,
Speaker 1: and because you reduce the amount of shares and then
Speaker 1: improves your earnings per share. Right, that's just simple math. Yeah,
Speaker 1: and you know the way the mechanics of this will work.
Speaker 1: We don't know, because again in the eight K filing,
Speaker 1: all they said was they're going to ask shareholders to
Speaker 1: approve the idea of a stock split at the annual meeting.
Speaker 1: But in the past, what usually happens is you you
Speaker 1: do a split three for one, five, one, twenty, foe,
Speaker 1: whatever it may be, and you offer a nominal tent
Speaker 1: of a cent value for each additional share you issue.
Speaker 1: But I think what's really interesting is that it depends
Speaker 1: on how big the split is. But a lot of
Speaker 1: folks they've been talking about whether Tester could be included
Speaker 1: on the dal Jones Industrial Average, for example, because the
Speaker 1: mechanics of that index work differently to the SMP five
Speaker 1: and therefore you have a broader slice of the population
Speaker 1: having a slice of Tesla investing in this company. Okay,
Speaker 1: so the news coming out in a tweet before even
Speaker 1: the a K came out, and what if you follow
Speaker 1: Tesla really closely, it doesn't really have a formal communications
Speaker 1: department those days, which is I think still so so yesterday, Tim,
Speaker 1: What is that it doesn't have a formal communications Yeah,
Speaker 1: I mean what Elon Musk does all the they have
Speaker 1: a formal communications. It's called Twitter and media. Well that's
Speaker 1: that's why. But it but it truly is that that's
Speaker 1: unique in the sense of large companies like this. But
Speaker 1: we have more questions than we have answers. Right, this
Speaker 1: is what you and I are discussing now. And don't
Speaker 1: shed a tear for me. But it's difficult, you know,
Speaker 1: covering Tesla, you come in for a lot of criticism
Speaker 1: for from Tesla owners test the shareholders to say, oh,
Speaker 1: we get it. You know, why can't you guys report
Speaker 1: on this and that they disbanded disbanded their press team
Speaker 1: in UM But that's the point, you know, there isn't information.
Speaker 1: We don't know what the rationale behind this move was.
Speaker 1: We don't know what the stock split will be in
Speaker 1: terms of the ratio. We just have an idea that
Speaker 1: it will happen if shareholders of appre We don't even
Speaker 1: know where the annual meeting is. You know, last year
Speaker 1: is in October. The year before it was in June.
Speaker 1: It's difficult, all right, So what do we know? Like
Speaker 1: I always think about, you know, God blessed Jina Martin Adams,
Speaker 1: because whenever we're like lost among debates, whether it's about markets,
Speaker 1: rates or blah blah blah, She's like, Okay, here are
Speaker 1: the fundamentals. Here's what folks are saying about earnings and stuff.
Speaker 1: What do we know fundamentally about Tesla in terms of
Speaker 1: its growth trajectory? We just saw, right, the German facility
Speaker 1: being opened up, But so what do we know it? Yeah,
Speaker 1: this is the question. And by the way, you pointed
Speaker 1: out the stock move, it's one fords worth of value gained.
Speaker 1: But until that move today, the stock was down here today, right,
Speaker 1: that's a nice metric, right, But the stock has been
Speaker 1: under pressure. It's caught up in this narrative around the
Speaker 1: outlook for higher rates and the fed um and also
Speaker 1: you know what drives it higher. Well, you're right, Berlin's
Speaker 1: online now, Austin will come on line next month in April.
Speaker 1: That will add to their production. And then in Shanghai
Speaker 1: you have a resurgent COVID nineteen situation that's halted production
Speaker 1: at Testas plant. According to Bloomberg, sources. The cars built
Speaker 1: in China, those are the profit drivers, right, iron margin
Speaker 1: vehicles because they've produced more efficiently there. So you know,
Speaker 1: amongst all the noise, I think you know, Wall Street investors,
Speaker 1: institutional investors will look at this and say, as Tim said,
Speaker 1: it doesn't really fundamentally change much. Thank you. I appreciate that, um,
Speaker 1: because this is something I've been talking about whenever we
Speaker 1: talk Stark splits. Hey, uh, ed you mentioned the shutdown
Speaker 1: in Shanghai, the disruption there in general. How is how
Speaker 1: is Tesla doing managing the supply chain crisis? Yeah, Look,
Speaker 1: Tesla has demonstrated over the duration of the supply chain crisis,
Speaker 1: which from memory has been going on for about two
Speaker 1: and a half years, but they've demonstrated their more nimbles.
Speaker 1: So in the case of semi conductors, they've said, we're
Speaker 1: impacted by a shortage of semi conductors, but what we're
Speaker 1: able to do is use alternative semi conductors and rewrite
Speaker 1: the code on our end. Remember, semi conductors are used
Speaker 1: to transmit electronic single signals essentially, um, what where they
Speaker 1: have less flexibilities on the commodities side, right, you can't
Speaker 1: impact raw price, raw materials prices that degree. But Tesla
Speaker 1: also has long term contracts with a lot of metal
Speaker 1: supplies for example, so they are hurting. They did discuss
Speaker 1: at the prior innings about the potential for margin erosion.
Speaker 1: But what did they do? Guys? They raised prices because
Speaker 1: the demands there and they have pricing power which a
Speaker 1: lot of corporate America can't necessarily say right now with
Speaker 1: higher input costs. It does feel like in terms of visibility,
Speaker 1: we see more and more players getting into this market.
Speaker 1: But it does feel like there's been a lot of
Speaker 1: writing about this that in terms of at least for them,
Speaker 1: maybe mid term, longer term, I mean, Tesla is kind
Speaker 1: of fairly entrenched in this market. Yeah. I would say
Speaker 1: that the most bullish elements of the street would argue,
Speaker 1: and I'm talking about cell side analysts, but people don't
Speaker 1: want an electric vehicle necessarily, they want a Tesla. You
Speaker 1: know that there's two different things here. If you believe
Speaker 1: in the transition, right and so the demand that's out
Speaker 1: there for Tesla products, remember their supply constrained. You go
Speaker 1: on Tesla dot com right now and try and get
Speaker 1: yourself a vehicle. You could be waiting until August or
Speaker 1: you could be rating until October November of this year.
Speaker 1: That's how backlog they are. But that's not really that's
Speaker 1: an outlaw. That's what would have been an outlier in
Speaker 1: a different world. But if you want an electric car
Speaker 1: from Ford right now, you're probably gonna have to wait
Speaker 1: in a similar amount of time. That's true, And so
Speaker 1: let's bring it full circle to Shanghai. In February, Tesla
Speaker 1: delivered fifty six thousand vehicles from that plant, which indicates
Speaker 1: that their stated capacity of food vehicles a year from China,
Speaker 1: they're actually beating that. But now the plant shut down,
Speaker 1: and so what's incredible is that Tesla is able to
Speaker 1: navigate the supply chain crunch, bring new plants online, but
Speaker 1: maintain volumes globally and pull ahead. Whereas you know, you
Speaker 1: see a lot of the other legacy players they argue, well,
Speaker 1: we're having some problems lifting up our production ramp because
Speaker 1: of supply chain constraints. Yeah, it's pretty impressive how he's
Speaker 1: been able to navigate so much, But I go back
Speaker 1: to when he wanted to open up the facility in
Speaker 1: China and how quickly he got the deal done Like
Speaker 1: that just doesn't happen. But Elon must somehow figures it
Speaker 1: out ed Ludlow, so terrific. Thank you so much. We
Speaker 1: appreciate at Blomberg News West Coast correspondent head Ludlow. Let
Speaker 1: me try to try that again, Bloomberg News West Coast
Speaker 1: correspondent Ludlow joining us from Bloomberg nine sixty studio in
Speaker 1: San Francisco. Tesla shares up about eight percent. I was
Speaker 1: doing some quick math. It looks like arc uh in
Speaker 1: terms of their position as at the end of last year,
Speaker 1: maybe about a hundred and forty six million dollar game
Speaker 1: based on that bump in Tesla. If that share position
Speaker 1: is still go look at what ARC is done in
Speaker 1: the last three point four percent today. It's just in
Speaker 1: the last few days. Yeah, yeah, exactly. I'm broad. Yeah,
Speaker 1: but you let me drive. No, no, no, run leaves.
Speaker 1: I want to drive. It's a good question. Good drive
Speaker 1: in the drive to the Clobe on Bloomberg Radio. All right,
Speaker 1: I'm getting to sound like a broken record because we're
Speaker 1: seen buying into the clothes. In fact, folks, we are
Speaker 1: pretty much at our eyes to the session. Go figure SMP.
Speaker 1: As you heard from Charlie right now, just up about
Speaker 1: twenty four points. Not a big move, um, but we're
Speaker 1: seeing buying into the clothes. I always feel like that's
Speaker 1: to some extent significant about the yield curve in version
Speaker 1: which yield curve? Because which which curve do you look at?
Speaker 1: Wells's which curve matters? That's a that's a question for
Speaker 1: Gina mart And Adams or Mike McKinney. Right, we've talked
Speaker 1: to him about like three months in the ten year
Speaker 1: like which want to focus on? Anyway, let's get to
Speaker 1: it in terms of the equity trade. Dave don Obedient,
Speaker 1: let's say, if he's got a yield curve preference. His
Speaker 1: chief investment officer over at CIBC Private Wealth Management on
Speaker 1: the phone from Baltimore. I have to say, Dave, it's
Speaker 1: easy for Tim and I to get like, like, ah,
Speaker 1: there's so many yield curves that people are looking at.
Speaker 1: What do you look at when it comes to figuring
Speaker 1: out where to allocate money for your clients, your institutional
Speaker 1: clients who really for the most part are making long
Speaker 1: term bets. Well, it's a great question. And the divergence
Speaker 1: and what different yield curves or for her thing right
Speaker 1: now is uh, you know, dimergen as I can ever remember,
Speaker 1: I tend to place more emphasis on looking at the
Speaker 1: ten year and then and then comparing it to something
Speaker 1: I would say one year or in now. You know,
Speaker 1: if you look at the FED itself, they place emphasis
Speaker 1: on the FED funds rad of the three months t bill. Uh.
Speaker 1: That's what's used in the Index of Leading Economic Indicators
Speaker 1: as a as an important measure um. And you know
Speaker 1: they're signaling something so different from the twos to tend
Speaker 1: spread now. But but we tend to look one year
Speaker 1: and in and so the message there is that yes,
Speaker 1: the yield curve is h is flattening, but that it's
Speaker 1: more gradual. It's going to continue to flatten, but it's
Speaker 1: pretty far away, um, you know, for from going inverted.
Speaker 1: So two tends to get a lot of a lot
Speaker 1: of the attention we would say today that's overstating recession risk. Okay,
Speaker 1: so what should then? What should? Because they're does seem
Speaker 1: to be like there is this disconnect, dave between what
Speaker 1: the bond market is telling us some of the equity
Speaker 1: market is telling us. How do you make sense of this? Well,
Speaker 1: it's it's tricky. I think a lot of it um
Speaker 1: revolves around commodity prices, where they've already come and where
Speaker 1: they might go because of course, uh, you know, commodity
Speaker 1: prices give us sort of more certainty about the near
Speaker 1: term inflation outlook, which is it's going to stay high
Speaker 1: and probably go higher, and more uncertainty about the negative
Speaker 1: impact it might have on growth later in the year
Speaker 1: if this level of commodity prices sustained or um or
Speaker 1: goes higher. So, guys, I think what we're seeing now, um,
Speaker 1: you know, it's somewhat mystifying to people to see such
Speaker 1: a strong rebound in the equity market since the invasion
Speaker 1: of Ukraine. And it's not because markets decided that was
Speaker 1: a good thing obviously. Um. I think it goes back
Speaker 1: to the Fed and and it just the timing just
Speaker 1: happens to have kind of converged with what happened in
Speaker 1: Ukraine when the FED really clarified that it's an inflation
Speaker 1: fighting mode clearly, and I think that's what the market
Speaker 1: needed to hear. And of course now we'll go through
Speaker 1: the phase of where they're going to do too much
Speaker 1: too soon and and all of that. It just speaks
Speaker 1: to a year of uh, you know, of you know,
Speaker 1: reduced return expectations in the equity market and enhanced volatility expectation.
Speaker 1: I feel like we've got some great reporting on the
Speaker 1: Bloomberg today, Dave and maybe a lot of folks just
Speaker 1: thinking about kind of the last couple of weeks and
Speaker 1: trying to figure out where we go from here. And
Speaker 1: one was about demand destruction, about a world that's more
Speaker 1: expensive starting to destroy demand, and I do think we
Speaker 1: have to think think about that. We need to think
Speaker 1: about we're seeing slowdowns potentially in China or increasingly slowdowns
Speaker 1: because of economic shutdowns, economy cities being shut down once
Speaker 1: again because of COVID, you know. And then we've got
Speaker 1: a story that that talks about the fed's best hope
Speaker 1: increasingly looks like a semi hard landing. They're talking about
Speaker 1: a growth recession, that we will have an economy that's
Speaker 1: expanding but a lot more slowly than everybody anticipated, and
Speaker 1: so we will have an outright contraction, but it's not
Speaker 1: going to feel so great. And I think I think
Speaker 1: your story that you like, because I like them all
Speaker 1: know that ladder scenario is probably closest to where were
Speaker 1: we came into the year with a strong growth three
Speaker 1: and a half to four percent real GDP growth year
Speaker 1: based on what we're seeing in the job market, the
Speaker 1: housing market, etcetera. UM, But I do think that that
Speaker 1: commodity prices are likely to stay elevated. The demand destruction
Speaker 1: that you talked about will start to seep in. What
Speaker 1: do you think the demand destruction happens. I think we'll
Speaker 1: start to see some of it in the second half
Speaker 1: of the year. And we know from prior inflation about
Speaker 1: you do reach a point where you know, here from companies, now, well,
Speaker 1: well we're passing price increases along and our customers are
Speaker 1: paying it. You do get a point where you start
Speaker 1: to get a buyer strike right where they just say no,
Speaker 1: not paying it. Um. And I think that may emerge
Speaker 1: in the in the second half of the year. So
Speaker 1: we've marked our GDP four gast down from a three
Speaker 1: and a half to four change to the two and
Speaker 1: a half, which isn't a hard landing, but it's kind
Speaker 1: of mediocre growth. And um. You know, and I think
Speaker 1: you look at all the variables out there and you
Speaker 1: can't say that there's no chance of procession. We would
Speaker 1: put the odds of procession. You know, things go badly
Speaker 1: in the next year at um at one and three.
Speaker 1: So our base cases the economy grows but more slowly
Speaker 1: than we thought. But tell lists of risen Do you
Speaker 1: feel like that's what we're gonna hear from CEOs? You
Speaker 1: start to report earnings because our Gina Martin Adams, who
Speaker 1: covers the equity markets for US, so that when stocks
Speaker 1: were recently at their lows, that's when you had a
Speaker 1: lot of analysts coming out and raising their earnings estimates,
Speaker 1: and not just for the first quarter, but for the
Speaker 1: second quarter or third quarter. I'm going to sound like
Speaker 1: a broken record, but to me, that's fundamental analysis and
Speaker 1: that gives you some indication and maybe what's to come
Speaker 1: this year. Yeah, I'm really curious on not so much
Speaker 1: the numbers, but the color. You know, CEOs and CFOs
Speaker 1: talk about their at their force Quark results and guidance
Speaker 1: for the future. I would expect them to kind of, uh,
Speaker 1: you know, as usual, have a lot of hedging about
Speaker 1: commodity prices and you know a lot of I think
Speaker 1: statements about how they've been able to pass along price increases,
Speaker 1: but that's you know, that's unknown going going forward. Um
Speaker 1: So I I think that you know, you're putt on.
Speaker 1: Analystis right that the every week the consensus expectation for
Speaker 1: earnings growth this year creeps a little higher. That doesn't
Speaker 1: make sense to me. Uh So, you know, you look
Speaker 1: at that nine kind of consensus earnings expectation, that's I
Speaker 1: think a roll over some at some point this this year.
Speaker 1: And you know another likely source of volatility, Jay, let's
Speaker 1: talk monetary policy here, because a week ago we'd be
Speaker 1: sitting here talking about FED share J Powell's hawkish comments
Speaker 1: at that for at that forum that they and they
Speaker 1: were so much more hawkish than what we heard from
Speaker 1: him just a few days prior when we heard from
Speaker 1: the f O m C. What's what is the FED?
Speaker 1: What should the Fed do? Or what are you banking
Speaker 1: on the FED doing at its next policy meeting? I mean,
Speaker 1: I think they've they've laid out a pretty clear course. UM.
Speaker 1: I expect that the next meeting that we'll get visibility
Speaker 1: on the plan for for quantitative tightening and that will commence,
Speaker 1: you know, shortly um, shortly after the meeting. Um. You know,
Speaker 1: there's a question about do they do a fifty basis
Speaker 1: point increase? I think that's data dependent, data dependent on
Speaker 1: the employment report coming up on this Friday will will
Speaker 1: be an important input. Um. And I also think that
Speaker 1: you know, the the inflation data, that there's a chance
Speaker 1: that the next you know, print on the the c
Speaker 1: p I, you know, could get up close with a
Speaker 1: double digit print. And so I think they'll be evaluating
Speaker 1: all that they Had the Russian aggression not happened, they
Speaker 1: probably would have gone fifty at the last meeting if
Speaker 1: I had to guess CPI double digit, Tim and I
Speaker 1: we just turned up from Mikes and like, did you
Speaker 1: just say CPI double digit? How how much would that
Speaker 1: freak out investors? We know, we understand the reasons why fundamentally,
Speaker 1: but just quickly, you know, was as when you see
Speaker 1: something like that, it doesn't matter, you know, your logical
Speaker 1: side of your brain kind of like like rule pushes
Speaker 1: aside the fundamental reason just quickly. How much might that
Speaker 1: freak out markets? Maybe even just for a day or
Speaker 1: for a few hours. Yeah, I think it would round
Speaker 1: numbers get get a lot more attention. And I think
Speaker 1: if you see very significant acceleration and the say the
Speaker 1: energy and food components, that would be most of the
Speaker 1: reason why you get big acceleration from here. Yeah, but
Speaker 1: you know, we still think we're not seeing the most
Speaker 1: of what we're going to see. See how a service
Speaker 1: extor inflation, uh, shelter related inflation and just the general
Speaker 1: uh you know, kind of core inflation rise due to
Speaker 1: uh uh you know the excess of money and wage growth.
Speaker 1: All Right, we gotta run, Hey, Dave, thank you so much.
Speaker 1: Dave dan obed and he's chief investment officer over at
Speaker 1: CIBC Private Wealth Management on the phone from Baltimore. Thanks
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