Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. I don't know I
Speaker 1: got my Paul Sweeney personal inflation meter, otherwise known as
Speaker 1: unletted gas. It's continues to roll over. There's students, especially
Speaker 1: if you're at sheets in Newark, Ohio. First exactly, they're
Speaker 1: giving it away. Practically, we're seeing in other parts of
Speaker 1: the economy inflation A lot of people tell me has peaked.
Speaker 1: If that's in fact the case, why doesn't Ira Jersey's
Speaker 1: feed to reserve just put the brakes on it. Let's ask, right,
Speaker 1: he's chief US interest rate strategist for Bloomberg Intelligence, and
Speaker 1: we need to save some time to talk about World
Speaker 1: Cup here. Matt remind me on that. I know, but
Speaker 1: we're not going to talk about Amazon because Ira has
Speaker 1: such a cushy job. All he focuses on in sector, Ira,
Speaker 1: why don't you broaden your remit a little bit. I mean,
Speaker 1: the whole rate space is there for you. Well, my, well,
Speaker 1: so we have a credit strategist named Noel Hebert who
Speaker 1: covers corporates, so you can talk to him about what's
Speaker 1: going on in the text space and all the other
Speaker 1: sectors within within the corporate landscape. So also, I think
Speaker 1: it's fair actually, now that I think about it, considering
Speaker 1: the amount of FED speak out there, we need one
Speaker 1: guy that's just focused on that. Like, why did they
Speaker 1: come out and talk so much? Doesn't that annoy J? Powell? Uh, yeah,
Speaker 1: it would have annoyed down in Greenspan for sure. Um. Yeah.
Speaker 1: You know, the FED over the last twenty years has
Speaker 1: gotten very democratized and and there's just I think there's
Speaker 1: just been this push that all the members are um,
Speaker 1: you know, wanted to say things, and then they when
Speaker 1: they once they started too, it was hard to kind
Speaker 1: of put the genie back in the bottle. J. Powell. Certainly,
Speaker 1: it's still the mouthpiece for the entire Federal Reserve, and
Speaker 1: I think that his what he says matters obviously the most.
Speaker 1: And then um, but every member you know, wants to
Speaker 1: have their say, and you know from from an analysis perspective,
Speaker 1: it's a little bit easier for us too to determine
Speaker 1: things like where the dots are and and maybe who's
Speaker 1: who's really hawkish and dobbish visa be what you could
Speaker 1: do before Alan Greenspan or you know, left the Fed Reserve,
Speaker 1: because back then it was like, okay, it's whatever Alan
Speaker 1: Greenspan says. And but every once in a while you
Speaker 1: had some members that were more hawkish or dovish than him,
Speaker 1: and they would dissent and we didn't necessarily know in
Speaker 1: advance if they would. And now it's it's a little
Speaker 1: bit easier to determine, you know what, what the leaning
Speaker 1: of a majority or of the or or a significant
Speaker 1: minority of the Fed Reserve is going to be. Well.
Speaker 1: And now then to Paul's point, um, it does seem
Speaker 1: it's not just him, right. A lot of people think
Speaker 1: inflation has peaked now, even though we've only gotten a
Speaker 1: very small set of numbers to corroborate that. But the
Speaker 1: speakers for the most part are talking about a step down,
Speaker 1: a reduction in the rate hike increases that we've seen.
Speaker 1: So have we reached that point? I mean, are we
Speaker 1: looking at something of a pivot. Yeah, so you know,
Speaker 1: this is something that actually that J. Powell has been
Speaker 1: mentioning since uh since July. Right, So it's not this
Speaker 1: isn't a new concept, and that this step down in
Speaker 1: the pace of hikes. They weren't going to hike at
Speaker 1: seventy five basis points every single meeting forever, right, So
Speaker 1: at some point they were going to have to slow
Speaker 1: the pace or just stop. And and I think in
Speaker 1: December they're only going to go fifty. I think they'll
Speaker 1: go then after that, And and I mentioned to you
Speaker 1: guys before you know, they're going to go to the
Speaker 1: basis point. UM moved again, probably starting in at the
Speaker 1: February meeting, the February first meeting, because it allows them
Speaker 1: just to calibrate just a little bit more like should
Speaker 1: they go to five on the upper round of the
Speaker 1: Fed funds target? Should they go to five and a
Speaker 1: quarter like some people, UM think they should go. So
Speaker 1: by by going in twenty five, they can just calibrate
Speaker 1: towards the end of hikes. But but I think the
Speaker 1: important point there is that to paulse question is that, yes,
Speaker 1: inflation seems like it's rolled over, the economy is slowing
Speaker 1: a bit and because of that that the FED is
Speaker 1: nearing the end of their hikes. Whether or not they
Speaker 1: go another another fifty seventy five hundred basis points, it's
Speaker 1: still the end is still in sight. And I think
Speaker 1: that that's the important part point for the markets right now.
Speaker 1: All right, that's enough on the rates market. Let's get
Speaker 1: the important stuff. Two pm. Wall Street Time today, US Iran.
Speaker 1: How do you think this is going to go? Especially
Speaker 1: in a World Cup where literally anyone can win. Yes,
Speaker 1: it seems like it. So I think for Iran, given
Speaker 1: that they they beat Whales, they're gonna probably play pretty
Speaker 1: defensively against US and try to put you know, nine
Speaker 1: or ten guys behind the ball and just trying and
Speaker 1: try to beat us on on a counter attack. And
Speaker 1: and historically, if you go look at what the US
Speaker 1: has done against other countries in North and Central America
Speaker 1: that they play that that we play in the Gold Cup,
Speaker 1: we we tend to have a pretty hard time breaking
Speaker 1: down very what we call bunker defenses. So um so
Speaker 1: I think that that you know, I hate to say this,
Speaker 1: but this is gonna be probably a one goal game,
Speaker 1: and I think it will be, you know, maybe one
Speaker 1: nail to the US and in the end, um, but
Speaker 1: and and if we do score early, I think that
Speaker 1: that will get that will get I ran out of
Speaker 1: their bunker, because they're in order for them to continue
Speaker 1: and actually make it to the next round, they're going
Speaker 1: to have to then play to to at least draw
Speaker 1: the US. And how much does historically matter? I mean,
Speaker 1: in a in a contest where Saudi Arabia beats Argentina,
Speaker 1: is that because Saudi Arabia historically is great at soccer
Speaker 1: and Argentina is horrible? No? Not, not not at all,
Speaker 1: I think I Well, in rewatching, that's the percentage history,
Speaker 1: you know, I mean, um, compared to chance. Well, well,
Speaker 1: let me say this firstly, I think any of these
Speaker 1: teams could be any any other team on a on
Speaker 1: any given day. I mean, that's one of the that's
Speaker 1: like almost every sport, right, especially when you're talking about
Speaker 1: high level professional athletes. I think in that Argentina Sordi
Speaker 1: Arabia game, I think Argentina came out a bit flat.
Speaker 1: I think that their defense has some holes in it.
Speaker 1: That um that you know, Saudi Arabia certainly exploited and um,
Speaker 1: so you know, but that's a one off game. I think,
Speaker 1: you know, taking the games the afternoon, um as in
Speaker 1: a bubble. I think the US has the more talented players,
Speaker 1: but I Ran does play very compact. They are very
Speaker 1: organized defensively, and and that's going to create problems for
Speaker 1: the US. All Right, it's good stuff. I think it's
Speaker 1: gonna be musty TV for a lot of sports fans today,
Speaker 1: even if you're not a Soccer World Cup fan. Our
Speaker 1: Jersey chief US Interest rate strategist and Chief Soccer strategists
Speaker 1: slash football strategist for Bloomberg Intelligence. Over the last few days,
Speaker 1: you know, surprised me. To me, I guess it's just
Speaker 1: I've really been kind of moving in response to kind
Speaker 1: of some of the news we're getting out of China,
Speaker 1: and I guess that goes to the whole global economic
Speaker 1: you know, reopening, recession risk, all those types of things
Speaker 1: on global scale is obviously economy. So we wait to
Speaker 1: talk to people who have got some experience thinking about
Speaker 1: investing in that part of the world. Uh Hans Dout
Speaker 1: is one of those people who's the CEO of Mitchell
Speaker 1: Madison Group, and I think that his claim to fame
Speaker 1: as he is an undergraduate from the University of Michigan,
Speaker 1: who have had a an extraordinarily successful weekend. So Hans,
Speaker 1: let me get your your thoughts here on the Higher
Speaker 1: State Michigan game. You guys know what went to Dartmouth, right, Yes,
Speaker 1: you got your m right, but I thought you got
Speaker 1: your b A from the university. I did not. I
Speaker 1: did not about that, thank god. Okay, so you know
Speaker 1: we had a Michigan guy coming on, and I will
Speaker 1: say you know that Michigan played an incredible game on Saturday,
Speaker 1: and Ohio State simply did not show up. I don't
Speaker 1: know where our defensive coordinator was. He didn't seem to
Speaker 1: be working that day, even though I thought that's why
Speaker 1: we hired him. All of this means nothing to Hans
Speaker 1: Doll because he didn't go to Michigan. No, but he
Speaker 1: got his NBA qualified. Alright, let's let's pivot to the
Speaker 1: China first. Let's talk about your China bona fides then,
Speaker 1: because I know that you have made uh substantial contributions
Speaker 1: to the tang In Song law and um you have
Speaker 1: helped US government officials understand China and Chinese legal history.
Speaker 1: How did you get into China going to school in Germany?
Speaker 1: And then UM in Vermont. Well, well, we basically a
Speaker 1: consulting firm, right, so we most of what we did
Speaker 1: over the last decade or so, it's help American companies
Speaker 1: established UM production of China, sourcing from China, right, So
Speaker 1: my main business has been strategic sourcing, helping Western companies
Speaker 1: established you know, production and uh, you know sourcing agreement
Speaker 1: all over the world. Of course in China in particular lately,
Speaker 1: we've actually helped a lot of Chinese companies be more
Speaker 1: efficient within China. And of course since COVID, that whole
Speaker 1: business does nothing going on. I mean, you and I
Speaker 1: spent a lot of time going to China before COVID.
Speaker 1: I was actually part of the UM. I was in
Speaker 1: Hong Kong doing the protests and everything, and I thought
Speaker 1: that was going to actually result in something, but it didn't.
Speaker 1: Right in, the Chinese clearly clamped down on this, And
Speaker 1: I think we're just living in the world that looks
Speaker 1: quite different from from the world that you know existed
Speaker 1: before COVID, because you know, China is on number one
Speaker 1: too political rival, there's no doubt about that. And you're
Speaker 1: looking at the zero COVID policies causing you know, lots
Speaker 1: of issues politically, and you know, the staw, the protests,
Speaker 1: the markets up a little bit. I guess people are
Speaker 1: more optimistic, but still um. You know, you look at
Speaker 1: at the policy response and it seems to me that
Speaker 1: they are. There's an element of political obsession, you know,
Speaker 1: with zero COVID policy, of course, but there's also maybe
Speaker 1: an element of the fact that China has to flatten
Speaker 1: the curve more than we had to do, right, because
Speaker 1: the vaccination rates aren't very good, especially among people, and
Speaker 1: maybe the hospital capacity and the medical system isn't as
Speaker 1: good as as they make us believe, right, So that's
Speaker 1: going going to continue a thing. Can you help us
Speaker 1: understand why j and ping Um continues to stick to
Speaker 1: this COVID zero policy. Why not you know, mass vaccinations.
Speaker 1: They have the supply chains to make stuff, right, they
Speaker 1: have the authority to order people to take stuff. Why
Speaker 1: not deal with it that way rather than this way.
Speaker 1: I mean they have done to certain extent, right, So
Speaker 1: you have about ninety ciment population is vaccine it twice
Speaker 1: the lowest vaccination rates are among people over eighty, which
Speaker 1: is very concerning. I think they're old enough to remember
Speaker 1: the good old base and they don't trust the government. Uh.
Speaker 1: And and you have the vaccine is you know, far
Speaker 1: less effective than than than MR and A technology. It's
Speaker 1: not style vaccine. Um. And I think you have the
Speaker 1: I mean, you can't really trust the numbers are China, right,
Speaker 1: I mean, I do not believe that the hospital capacity
Speaker 1: is as good as they claim it would be. And
Speaker 1: if they have a major outbreak with the with the
Speaker 1: more you infectious variants, um, you know, one to two
Speaker 1: million people would die and would make the leadership look
Speaker 1: really bad, right, And I think that's why they're not
Speaker 1: doing it. They're they're easing us a little bit. I
Speaker 1: think they're walking this fine line between you know, protests
Speaker 1: and and and people you know, sense of complaining and
Speaker 1: and and all that. But it's the old flatan in
Speaker 1: the curve that you're going to get it right eventually.
Speaker 1: So over the long haul, you're gonna get it. Yeah,
Speaker 1: of course. Well look Miracle said that right at the
Speaker 1: very beginning of the pandemic before when we all thought
Speaker 1: it was crazy. She said, I think sixty people are
Speaker 1: going to end up getting COVID and we thought this
Speaker 1: is in March of that's nuts. And she turned out there. So, Hans,
Speaker 1: how do you we we've all recognized that the Chinese
Speaker 1: governments in a very difficult position here. How do you
Speaker 1: actually think this ultimately plays out? It's hard to say.
Speaker 1: I think we have to understand that China is this
Speaker 1: ultimate surveillance state, right and with enormous powers, right, and
Speaker 1: so drawing any parallels from the past, I think it
Speaker 1: is very dangerous because that's just that's just not how
Speaker 1: it was. Right. You might have protests, but the degree
Speaker 1: to which China is monitoring its population, you know, through
Speaker 1: the phones and through cameras and all this stuff, makes
Speaker 1: it pretty very effective at putting any kind of protests down.
Speaker 1: And I think, you know, you the models we've me
Speaker 1: have used in the past, and you know, in terms
Speaker 1: of like German square and even Hong Kong and to
Speaker 1: US nineteen may not apply, I think that will be
Speaker 1: quite successful in keeping the population under control. It's very interesting, indeed,
Speaker 1: what do you think in terms of you know, Apple,
Speaker 1: for example, is now UM accelerating its quest to produce
Speaker 1: more iPhones elsewhere UM. A lot of companies have, as
Speaker 1: you know at Mitchell Madison UM looked for ways to
Speaker 1: untangle themselves from the Chinese supply chain web. Is that
Speaker 1: going to happen or are we gonna all chill out
Speaker 1: and they're gonna keep making all this stuff by well,
Speaker 1: I certainly hope not right. I mean, I think you've
Speaker 1: seen some some elements of this. You saw you guys
Speaker 1: reported that Mexico had the absolute largest monthly export to
Speaker 1: the United States and there were some pretty sophisticated you know,
Speaker 1: product automotive parts and so forth. I think it's happening.
Speaker 1: The private sector as usual will drive this shift away
Speaker 1: from China. This is not going to be a top
Speaker 1: down thing, um, And I think there's alternatives, right, Obviously,
Speaker 1: there's huge capital investment in the country that have to
Speaker 1: be replicated. I think, you know, Taiwan was probably the
Speaker 1: most dangerous situation that from the private sector of perspective
Speaker 1: that could happen. What a dangerous for both parties. I
Speaker 1: think people will be hopefully be be cool about it, right,
Speaker 1: cool aheads. But I think the private sector has taken
Speaker 1: lead on this, and the name of the game is diversification. Diversisification, diversification.
Speaker 1: You cannot relye when this thing that's even Apple like
Speaker 1: the most sophisticated supply Cheam company on the in the
Speaker 1: history of humanity, you got hit pretty hard, right, Yea,
Speaker 1: it's a it's an extraordinary situation, seemingly fluid changing by
Speaker 1: the day there in China, with as you mentioned, Hans,
Speaker 1: this broad broad implications for the global economy, hansdo CEO
Speaker 1: of Weight, Hans Dow. Where did you study? Which university
Speaker 1: in Germany? You know? I think I studied in Mannheim,
Speaker 1: which sounded a little bit like Michigan. Maybe that's that's
Speaker 1: what happened. Oh, that's like a Weinheimer. That's like an
Speaker 1: engineering school. Right, it's a cool place, you know. Yeah.
Speaker 1: I love Monheim and we use their used car indexes.
Speaker 1: Oh we do. That's right, good stuff, all right, exactly.
Speaker 1: We're gonna round table a little bit right now. Our
Speaker 1: topic is going to be this railroad potential strike that's
Speaker 1: out there. I've got a couple of weeks kind of
Speaker 1: deal with that. Now, I would have big implications for
Speaker 1: this economy. So we need to get a couple of
Speaker 1: smart people on here. Bloomberg Intelligence Senior Transportation analyst Lead
Speaker 1: class now who joins us on the phone, and Jody
Speaker 1: Schneider here on O Bloomberg inter actor Broker Studio. She's
Speaker 1: a political news director for Bloomberg TV and Radio. So
Speaker 1: let's start with you. I'd love to get a sense
Speaker 1: of what you're hearing from the big railroad companies that
Speaker 1: you talked to. What are they saying here, Hey, Paul,
Speaker 1: thanks for having me. Um. You know, I think that
Speaker 1: you know, I think they remain relatively optimistic that that
Speaker 1: our agreement can can come before the December ninth deadline. Obviously,
Speaker 1: the closer you get to that deadline, the rails will
Speaker 1: have to start shutting down their networks to ensure that um,
Speaker 1: you know, fraid it's not going to get lost in
Speaker 1: the system. Uh and also to make sure that their
Speaker 1: employees are home, um, you know when when the strike happens. Um,
Speaker 1: So you know, you could see a disruption before the
Speaker 1: December and ninth deadline. Uh, as as we get closer
Speaker 1: to that deadline. If in fact, um, you know, the companies,
Speaker 1: the railroads feel that they can't get to an agreement.
Speaker 1: But but obviously noise out of Washington looks like, you know,
Speaker 1: the federal government, the administration and Congress is working pretty
Speaker 1: hard to make sure that doesn't happen. Just because of
Speaker 1: the you know, the impact the economy which the American
Speaker 1: trucking or is to start the Association of American Railroads
Speaker 1: are putting out around two billion dollars a day. Are
Speaker 1: we still looking at the same problems we were back
Speaker 1: in August September, where you know, railroad employees can't get
Speaker 1: a day off to go to the doctor, or where
Speaker 1: you know one woman or man is in charge of
Speaker 1: an entire freight train along a route. Yeah, you know,
Speaker 1: it's it's really not about pay. Uh, you know, the
Speaker 1: pay aspect, they're getting a pretty nice bump. They're getting
Speaker 1: raises over a four or four or five year period. Um.
Speaker 1: It's really about to your point to work rules. You know,
Speaker 1: how easy or difficult is it for a rail employee
Speaker 1: to you know, call and sick to go to a
Speaker 1: doctor's appointment? You know, are they going to be penalized
Speaker 1: for that? You know, there's about thirteen groups that are
Speaker 1: negotiating as part of this National Railway Railway Labor Conference.
Speaker 1: Four of them have not ratified the agreement. The others, uh,
Speaker 1: seven have ratified the agreement. Um. And so it's really
Speaker 1: those those score holdouts that could really snag things up. Now,
Speaker 1: what's what's the problem here on the side of the
Speaker 1: railroad operators. I mean, why not give your employees um
Speaker 1: days off to deal with healthcare issues. I mean, you
Speaker 1: wouldn't insist that a locomotive work every day. If it's
Speaker 1: broken down, you're not gonna put it in service, right right.
Speaker 1: And I'm not definitely here to defend the railroads any
Speaker 1: stretch of imagination, but you know, this is something that's
Speaker 1: typically negotiated at the local level. That's what the rails
Speaker 1: are saying. So they're not necessarily saying that we're mean
Speaker 1: and we don't want our employees to take off. We're
Speaker 1: saying that this is typically dealt at the local level,
Speaker 1: and that's where it should be a negotiated opposed to
Speaker 1: this national broad contract for all the railroads. Um, you know.
Speaker 1: And the problem also becomes, you know a lot of
Speaker 1: railroads are operating a lot more efficiently because they've implemented
Speaker 1: precision scheduling railroading, which is pretty much six stigma for
Speaker 1: the rail industry. Uh. And you know they're trying to
Speaker 1: operate lean and mean, and you know, when if if if,
Speaker 1: if you're scheduled to work and someone's calling out, that
Speaker 1: put a wrench in the whole system. Uh. But the
Speaker 1: rails need to probably realize, well, maybe we need to
Speaker 1: resource our systems a little more. Uh. And you know,
Speaker 1: if that's going to cost tend basis in operating ratio,
Speaker 1: so be it. But you know, that's that's an argument
Speaker 1: that the railroads will have to have, uh, not only
Speaker 1: you know, discussion with the unions, but also discussions with
Speaker 1: the shareholder as well, because you know, because rail investors
Speaker 1: are probably myopically focused on the operating ratio, which is
Speaker 1: an inverse of an EVA margin, So lower the better. Hey, Jody,
Speaker 1: want to bring you in here. What can this administration do?
Speaker 1: What should they do? What do you think they can
Speaker 1: get done? Well? President Biden says, now he was going
Speaker 1: to go to Congress. Uh, and yesterday in his statement
Speaker 1: expressing concern about this potential strike now that it's coming closer,
Speaker 1: that he said lawmakers should immediately codify the agreement that
Speaker 1: he helped of course broker in September between the unions
Speaker 1: and the railroads. Uh. It looks like then the House
Speaker 1: they're getting ready to do that, outgoing Speaker Nancy Pelosi,
Speaker 1: so she will move to do that to codify that
Speaker 1: this week. The Senate is a little trickier because they
Speaker 1: have other things on the agenda, and the Senate always
Speaker 1: takes longer to do things. Things like the intervening day
Speaker 1: pop up, so it's unclear whether that will happen. There
Speaker 1: By the way Congress has acted, we went and looked.
Speaker 1: They've acted eighteen times to prevent strikes. Um. They but
Speaker 1: the last time they did this was so Um, it's
Speaker 1: been a while. You could say that again. Yes, it's
Speaker 1: been twenty six years, eight years. Um. So hey, while
Speaker 1: we have you here, Jody, when are we gonna know
Speaker 1: the full composition of the Senate? Yeah? So next Tuesday
Speaker 1: we have a big runoff between Herchel Walker and the
Speaker 1: Republican side and sitting Senator Raphael Warnock on the Democratic side.
Speaker 1: Early voting has been a record in that so a
Speaker 1: lot of people have already gotten out there. Uh, it's
Speaker 1: still polls and there are a ton of polls, but
Speaker 1: the polls are showing them pretty neck and neck. Uh.
Speaker 1: It won't determine obviously, the majority in the Senate, because
Speaker 1: we already knew that. Um, the Democrats have picked that up.
Speaker 1: But it will give them a little bit of breathing
Speaker 1: room the Democrats if they do win that seat. And
Speaker 1: so it looks neck and neck. Lots of you know
Speaker 1: issues there, And of course herschel Walker was somebody who
Speaker 1: Donald Trump had supported. Brian Kemp, the governor who just
Speaker 1: was reelected, is now supporting uh Walker. He hadn't done
Speaker 1: a whole lot for him in the general campaign, but
Speaker 1: is now appearing on the stage with him. Interesting fact
Speaker 1: and another fun fact here, two hundred thousand voters voted
Speaker 1: for Kemp who did not vote for Walker in the
Speaker 1: general election. So the question is are they are those
Speaker 1: people likely to show up or some who voted for
Speaker 1: him likely to show up. It's all going to be
Speaker 1: about turn out, all right, Jody, great stuff, Thanks so
Speaker 1: much for joining us here in our Bloomberg and Director
Speaker 1: Broker studio, Lee Glasgow. He's a senior transportation analyst focusing
Speaker 1: on the rails and the trucks and all that logistics stuff,
Speaker 1: so certainly the perfect guy to get on the phone
Speaker 1: here and talk to us about what could be a
Speaker 1: strike for the nation's railroads beginning December ninth. So that's
Speaker 1: a big issue. We will keep on top of that.
Speaker 1: I got the argument why the Amazons and the Microsoft
Speaker 1: would come to the debt market to race that even
Speaker 1: though they don't need it because interest rates are zero.
Speaker 1: But interest rates aren't zero anymore yet, Amazon coming to
Speaker 1: the market with maybe a seven billion dollar deal. Matt
Speaker 1: Miller's deal. It's a big deal, Matt. It's like a
Speaker 1: huge deal in a year where there's nothing going on
Speaker 1: for a lot of these investment banks. So we got
Speaker 1: to bring in, Matt says, we gotta get the uh
Speaker 1: somebody in here, and we do. We have our friend
Speaker 1: here to talk to us about what is going on
Speaker 1: here from Bloomberg Intelligence. What is going on here? Why
Speaker 1: is Amazon rob Why are they coming to market? Now? Well, listen,
Speaker 1: others might take credit for this phrase, but I think
Speaker 1: I created it. You borrow when you can, not when
Speaker 1: you need to. It sounds like Jack Reacher. I think
Speaker 1: Jack Reacher said that. So listen. The ten years rallied
Speaker 1: fifty basis points. In the last two months, spreads are just,
Speaker 1: you know, really haven't moved that much. The cost of
Speaker 1: capital for Amazon isn't that much. And by the way,
Speaker 1: they've spent a lot of money over the last couple years.
Speaker 1: Their cash numbers are down thirty odd billion dollars, their
Speaker 1: free cash flow negative for the year UM, so they're
Speaker 1: just fortifying their balance sheet. I think it could be
Speaker 1: two things. UM. One is there could be more M
Speaker 1: and A coming or two as they could be joining
Speaker 1: their large cap brethren UM and start start to participating
Speaker 1: in this capitol return game and start buying a back
Speaker 1: a lot more stock. You know, they've pretty much stayed
Speaker 1: out of the capital return market. So all right, rob
Speaker 1: Shift and bloomber Intelligence. My question is, is this just
Speaker 1: like I don't know on the M and A front,
Speaker 1: It feels like there's a lot of places they could go,
Speaker 1: but and they do do some smaller deals, but is
Speaker 1: there any call out there that they could do a big, big,
Speaker 1: big deal. You know, it's pretty hard to make transformation
Speaker 1: on trades these days. One is Amazon is so big,
Speaker 1: there's nothing that they could actually buy that would they
Speaker 1: would meaningfully change their their top or bottom line. It's
Speaker 1: like regulatory issues. And the secondly, listen, you've got guys
Speaker 1: like Microsoft going after activision UM and they might not
Speaker 1: be able to get get away with it, and they're
Speaker 1: willing to spend you know, close to seventy billion dollars
Speaker 1: in cash, So Listen, there's a lot of things Amazon
Speaker 1: can buy. Um, they can get much deeper into the movie, uh,
Speaker 1: TV production, theatrical businesses. You know, there could be more
Speaker 1: in terms of of um, you know, health and healthcare.
Speaker 1: You know, there's always a peloton sitting out there. Listen.
Speaker 1: In theory, maybe they want to buy a Netflix, but
Speaker 1: it's it's probably unlikely. I think, you know, M and
Speaker 1: A for a name like this is really around the edges.
Speaker 1: What matters to Amazon is growth in aws and people
Speaker 1: buying a lot of stuff online, and that's ultimately what's
Speaker 1: going to drive the business. And they have the might
Speaker 1: to command a decent rate in markets, right, I mean
Speaker 1: I was looking at the story. It said they're going
Speaker 1: for a hundred fifteen basis points over treasuries. That's pretty good.
Speaker 1: Is that good for Amazon? Listen? They actually trade meaningfully
Speaker 1: tighter than their and above tech comparables. But they do
Speaker 1: trade wider, uh than they're real they're the biggest comps Apple, Microsoft, Alphabet,
Speaker 1: so they surely not wider than Netflix, Disney, no Or
Speaker 1: or Meta. UM. But are are they? Are they attractive
Speaker 1: to people because one, they offer incremental yield versus the
Speaker 1: super high quality names, and because credit quality is still
Speaker 1: actually on the rise. I mean, even though this is
Speaker 1: a double A name, they could be high double A.
Speaker 1: I don't think anyone really is concerned about Amazon's credit
Speaker 1: quality going forward. And in fact, sort of all the
Speaker 1: noise that you've seen in the equity market really hasn't
Speaker 1: played into Amazon. You know, when I talked to clients
Speaker 1: and most of them say to me, I'm surprised they
Speaker 1: haven't widened out a lot more. And and the reason
Speaker 1: why they haven't is that, you know, most people know
Speaker 1: what Amazon is. It's very easy to pick through this
Speaker 1: bouncy and think, you know, over the long term, the
Speaker 1: cash flow trajectory for this name is going to be enormous.
Speaker 1: They have also the ability to control what their free
Speaker 1: cash flow. It looks like we pretty much know what
Speaker 1: the man is going to be plus or minus certain
Speaker 1: amounts regardless of a recession. So what's gonna drive free
Speaker 1: cash flow is going to be spending. And what you've
Speaker 1: heard them say recently is, hey, you know what, we're
Speaker 1: taking the pedal off of our spending. We're gonna fire
Speaker 1: a bunch of people ten thousand. It's not it's not
Speaker 1: that much relative to a million and a half employs
Speaker 1: that they have. But they if they if they take
Speaker 1: the pedal off and they spend ten or fifteen billion
Speaker 1: dollars less next year, that'll go right to the to
Speaker 1: the bottom line and free cash. Unlike Meta who constantly
Speaker 1: said we're just gonna spend more, We're gonna blow another
Speaker 1: ten or fifteen billion dollars on the metals because because
Speaker 1: Zuckerberg can do that, Amazon is not acting that way.
Speaker 1: So they have in the past. But but Bezos has
Speaker 1: in the past, right they can turn off. Yeah, well, listen,
Speaker 1: they haven't had to turn it off in the past.
Speaker 1: You know, they've they've only spent money. And as we
Speaker 1: went both as we went into COVID for instance, you know,
Speaker 1: they spent a lot more. The demand for Amazon products
Speaker 1: went way up eight h asked was still was still
Speaker 1: printing cash, but the demand for for delivery of products
Speaker 1: went way way up. So they build out a ton
Speaker 1: more in terms of distribution facilities um uh, the the
Speaker 1: actual distribution and buying more trucks um and they hired
Speaker 1: a ton more people. So they're just slowing down as
Speaker 1: the economy slows down a little bit. So they really
Speaker 1: haven't had to take their foot off the pedal. They're
Speaker 1: gonna do it now for a little bit. They'll protect
Speaker 1: their bountet, and then as soon as things picked up again,
Speaker 1: I think that they could, They'll be able to meet
Speaker 1: demand whenever they right, I'm a salesperson. Isn't Barclays or
Speaker 1: Bank of America one of the other underwriters who am
Speaker 1: I calling today to buy this issue? Well, listen, he
Speaker 1: really wants to know. Yeah, you know, listen, Mom and
Speaker 1: pops are not the ones who are buying seventy billion
Speaker 1: dollars worth Amazon. Pension funds, mutual funds, and insurance companies.
Speaker 1: Those those who have you know, long want long lived assets.
Speaker 1: They've got long lived obligation. You know. This bond deal,
Speaker 1: in fact, is actually reasonably short duration. It's two to
Speaker 1: ten years, and it sort of goes to show that. Listen,
Speaker 1: Amazon's much more comfortable about short dated rates than they
Speaker 1: are necessarily about long dated rates. But this is an
Speaker 1: institutional bond. You know, if if for those who are
Speaker 1: looking for yield, you're not necessarily buying Amazon. So it's
Speaker 1: all the largest buyers that buy all this, All the
Speaker 1: rest of these high quality buys good stuff. Rob Schiffman. Uh.
Speaker 1: He covers all things technology from the credit perspective, and
Speaker 1: he's in the office, and he's in the Bloomberg Interactive
Speaker 1: Brooker studio in the office. So that means you get
Speaker 1: a gold star. I know that's big for you. Uh,
Speaker 1: it's big for us here to get folks in the studio.
Speaker 1: I want to bring into Vek Rama Swamy. You know
Speaker 1: him as the co founder and executive chairman of Strive
Speaker 1: Asset Management. He's also the author of the book Woke Inc.
Speaker 1: Inside Corporate America's Social Justice Scam. But he also has
Speaker 1: recently penned an op ed in The Wall Street Journal
Speaker 1: with Mark Lury about the fall the actacular collapse of
Speaker 1: f t X, and so we wanted to get his
Speaker 1: thoughts on this story. Um, that seems to just keep
Speaker 1: on giving. Vek you know that Block five has just
Speaker 1: filed for bankruptcy. We're all watching to see what happens
Speaker 1: with Genesis and Gemini. Anyone who knows about this space
Speaker 1: realizes that other shoes were waiting for other shoes to drop.
Speaker 1: I guess, um, what do you think about the root
Speaker 1: of the problem. Why did we all trust Sam Bankman Freed?
Speaker 1: And what went wrong. Well, I think that there are
Speaker 1: a lot of parallels to the two thousand eight financial crisis,
Speaker 1: which I, um, you know, had the privilege of seeing
Speaker 1: from a front row seat when I graduated from from
Speaker 1: college in two thousand and seven college crisis. I graduate
Speaker 1: from college, I went from Harvard for college, and then
Speaker 1: I worked at a hedge fund in that fall. That
Speaker 1: actually got an honorable mention just say I graduated from college.
Speaker 1: If you went to Harvard, you should say I graduated
Speaker 1: from Harvard, or I went to school in Cambridge. You know,
Speaker 1: I think I got over that around my sophomore year.
Speaker 1: That's that was my experience of that. But you know,
Speaker 1: there's it turns out that it is a separate discussion
Speaker 1: another day. I'm a little bit disappointed that Harvard isn't
Speaker 1: really the place it was when I went there, But
Speaker 1: that's a that's a topic for now. F TX certainly
Speaker 1: isn't the place it was two months ago. What happened exactly.
Speaker 1: So so look, I think that it's worth separating what's
Speaker 1: specific to this being a crypto exchange versus what's actually
Speaker 1: not at all specific to this being a crypto exchange,
Speaker 1: but just a centralized exchange at all. And this is
Speaker 1: the point I made in the piece in the Wall
Speaker 1: Street Journal that I co authored, which is that this
Speaker 1: was a centralized exchange, and a fundamental feature of a
Speaker 1: centralized exchange is that you have to trust someone else,
Speaker 1: another human being, with your money, to take custody over
Speaker 1: your funds. A centralized exchange cannot work unless someone, someone else,
Speaker 1: a human being, take control of your funds. That lends
Speaker 1: itself to fraud. That fraud is illegal, whether or not
Speaker 1: you're operating a cryptocurrency exchange or an exchange that trades
Speaker 1: different securities. Fraud is illegal. Taking someone else's money, customers funds,
Speaker 1: and using it for a different purpose without the permission
Speaker 1: is fraud. I will note that's exactly what happened about
Speaker 1: a decade ago in the MF Global scandal. People lost
Speaker 1: their money because someone broke the law and committed fraud
Speaker 1: gold New Jersey Governor John Corzine exactly. And so it's
Speaker 1: worth seeing with clear eyes that this wasn't that feature
Speaker 1: of this wasn't necessarily specific to cryptocurrencies. It was specific
Speaker 1: to a fraudulent bad actor who used customer funds to
Speaker 1: advance his own hands. Now you ask why wasn't this
Speaker 1: detected earlier? And I think a big underappreciated part of
Speaker 1: the story is that he presented himself to the public effectively,
Speaker 1: quite effectively, I may say, as one of the good guys,
Speaker 1: as the guy who was calling for so called responsible
Speaker 1: regulation of cryptocurrencies, as the guy who was winning good
Speaker 1: E s G scores and saying things that the E
Speaker 1: s G Friendly crowd wanted him to say, making tens
Speaker 1: of millions of dollars I think thirty million dollars plus
Speaker 1: in this cycle alone to Democratic candidates doing the kinds
Speaker 1: of things that the good guys are supposed to do,
Speaker 1: just like by the way, Ralph Wintercoorts or CEO winter Corn,
Speaker 1: I think his name is Ralph Wintercorn Winter Corners, the
Speaker 1: last name the CEO Volkswagen who was caught in the
Speaker 1: emissions cheating only after exactly Martin winter Corn excuse me, is,
Speaker 1: shortly after they had actually won multiple E s G awards,
Speaker 1: Shortly after he had spent years waxing eloquent about the
Speaker 1: climate transition. Guess who turns out to be the bad,
Speaker 1: the worst of the actors of all. It's actually the
Speaker 1: company that pretended to be one of the good guys,
Speaker 1: and so I think we learned this lesson time and
Speaker 1: again that human beings and markets and customers and citizens
Speaker 1: are pretty good at holding bad actors accountable as long
Speaker 1: as you don't throw a trip wire in the system,
Speaker 1: as long as you don't tamper with the smoke detector. Okay,
Speaker 1: but one of the ways some of these guys, be
Speaker 1: from from winter Corn to SBF now, managed to tamper
Speaker 1: with the smoke detector is that they presented this smoke
Speaker 1: screen of virtue that I think otherwise turned off the
Speaker 1: public's radar to picking up on the signal that otherwise
Speaker 1: would have caused them to pick up on on the
Speaker 1: fraud much sooner the vect does crypto broadly defined need
Speaker 1: to be regulated. So I think that a knee jerk
Speaker 1: regulatory response on the back of this, and a catch
Speaker 1: all regulatory approach that did not draw distinctions between centralized
Speaker 1: and decentralized exchanges would be a bad idea. That being said,
Speaker 1: I think the legal regime as it exists in ways
Speaker 1: that prevent fraud for non cryptocurrency based securities non cryptocurrency
Speaker 1: based assets absolutely should and does already apply to cryptocurrency
Speaker 1: as well, it just is a question of the ability
Speaker 1: to enforce those standards evenly. You can't steal someone else's funds,
Speaker 1: that's illegal. If you're a fiduciary, or if you're a
Speaker 1: custodian of someone else's funds, you cannot misuse those for
Speaker 1: your own purposes. So in a certain sense, that's not
Speaker 1: new regulation. That's just the application of basic legal principles
Speaker 1: of trust, principles of fiduciary, principles of non theft, principles
Speaker 1: of non misappropriation, principles that exist in the law for assets,
Speaker 1: have existed in the common law for hundreds of years
Speaker 1: that need to be applied in the same way to
Speaker 1: cryptocurrencies as they are to any other assets. And so
Speaker 1: my view is that crypto doesn't get a special pass
Speaker 1: from those rules just because people call it crypto, But
Speaker 1: nor should we overreact to create a crypto specific regime.
Speaker 1: That's it. That's actually, ironically what SPF was exactly calling for.
Speaker 1: He might make his own wish come true. All right, vac,
Speaker 1: thank you so much once again for joining has always
Speaker 1: learned something there. Ramaswanna, co founder and executive chairman of
Speaker 1: Strive Asset Management, you know that it is Giving Tuesday,
Speaker 1: although I know for you every day is giving twos
Speaker 1: a giar a giver. But we want to talk about education, UM,
Speaker 1: nonprofits things like that, because the pandemic has really done
Speaker 1: a job on the educational UH environment out there and
Speaker 1: particularly for for younger children. So we want to kind
Speaker 1: of break that down and get a little sense of
Speaker 1: what's going on out there. What are some of the
Speaker 1: good stories, what are some of the challenges for that.
Speaker 1: We can get an excellent roundtable here in our Bloomberg
Speaker 1: Interactive Broker studio. Angela Williams c you have Common Denominator
Speaker 1: joins us as well as Marian Scordell with Bourgeville Consulting.
Speaker 1: Close enough, good, awesome, Awesome, I did that again, two
Speaker 1: for two UM. Alright, so angel let's start with you.
Speaker 1: Just talk to us about Common Denominator. What are you
Speaker 1: guys doing at Common Denominator. Well, I think a Common
Speaker 1: Denominator we give the gift that keeps on giving UM,
Speaker 1: and that's the gift of of of math numeracy UH.
Speaker 1: Common Denominator is a nonprofit organization that provides free, holistic
Speaker 1: math tutoring to middle school students who are really struggling
Speaker 1: with basic numeracy, math numeracy UM and and really struggling
Speaker 1: UM in their maths class. You know, our mission is
Speaker 1: to help underserved middle school students improve their math skills,
Speaker 1: build confidence, and enjoy doing So how did it evolve
Speaker 1: devolve during the past two and a half three years? Okay, Well,
Speaker 1: you know, prior to the pandemic, we knew that our
Speaker 1: middle school students were having a significant problem in in math,
Speaker 1: and we knew the causes, and so we were diligent
Speaker 1: about providing a place where we were going to provide
Speaker 1: the resources and tools for them. Of course, unfortunately, the
Speaker 1: COVID nineteen pandemic landed more underserved students on the vulnerable
Speaker 1: side of an even larger achievement gap. So, you know,
Speaker 1: it has been incredible for our organization because as we
Speaker 1: pivoted from in person to online, we've been able to
Speaker 1: open up our program to a wider uh swath of
Speaker 1: students across New York City um and and it has
Speaker 1: been very effective for our students as well as for
Speaker 1: our organization. So, Marian, how do you come into this discussion?
Speaker 1: How did you and Angela meet? How have you got involved? Well,
Speaker 1: we I we met through my neighbors really, but it
Speaker 1: was probably listening to us actually, but I hope so,
Speaker 1: but I shout out your neighbor Andrew, Thanks Andrew. So
Speaker 1: no I came. I came to comment the dominator because
Speaker 1: I have a background in financial services. I worked in
Speaker 1: investment bank. I'm running my own business, and I know
Speaker 1: what education did for me. So I don't come from
Speaker 1: from a private edge background at all, and yet I
Speaker 1: was able to go talk so that I I was able
Speaker 1: to now that I teach sometimes at Yale and at
Speaker 1: other universities, and I know what education can do for you.
Speaker 1: I know how it can get you out of you know,
Speaker 1: it can brought on your horizons, it can open up careers,
Speaker 1: it can open up a future, and then in turn
Speaker 1: you have to help others. So that's that's where I
Speaker 1: fit in. And can I also point out, um, I
Speaker 1: don't want it to be overlooked that it can be
Speaker 1: very helpful for the bank or the organization to have
Speaker 1: a more diverse group of mimes working on problem. Absolutely
Speaker 1: when I was in bank, and even now when I
Speaker 1: we know if I have to recruit, I'm like all
Speaker 1: the candidates come from exactly the same background that or
Speaker 1: exactly all the same, and we're you know, we are
Speaker 1: pushed to bring more diversity into organizations. But the thing is,
Speaker 1: if all the candidates come from the same place, there's
Speaker 1: a very narrow pool of candidates to choose from. So
Speaker 1: I think the problem has to be addressed a lot earlier,
Speaker 1: by the time you know, the past middle school. I'm
Speaker 1: not saying it's too late, because it's never too late,
Speaker 1: but it would help you at an earlier stage. We
Speaker 1: would help students instead of helping them just at university stage.
Speaker 1: So Angela, when when you get these students at a
Speaker 1: young age and you're focusing on maths, it's all part
Speaker 1: of this the stem focus that we hear so much
Speaker 1: about in education. What are some of the key challenges
Speaker 1: for math? Is math just harder for some students than
Speaker 1: others uh skills or other subjects, or is it more
Speaker 1: on the on the instruction side. What's kind of some
Speaker 1: of the challenges. I think the key challenge is that,
Speaker 1: you know, we are all math people, and if we
Speaker 1: start to understand that and gravitate towards that, we won't
Speaker 1: have the challenges that we do imagine being seen as
Speaker 1: part of a group taught to believe that they could
Speaker 1: not excel in math. Uh, imagine the repercussions of believing
Speaker 1: that false notion your entire life, um and and really
Speaker 1: imagine having an additional impediment, you know, to your own
Speaker 1: upward mobility. You're you know, we're potentially from middle school
Speaker 1: students who prior to the pandemic only about thirty six
Speaker 1: percent of them were even fluent in math by eighth grade.
Speaker 1: Now add on the troubles of the pandemic, and we're
Speaker 1: talking about you know, students of color and those in
Speaker 1: low income brackets who are suffering even more from the
Speaker 1: from the inequities and the education gap. So potentially, according
Speaker 1: to to what Mary Anne said, they are not identifying
Speaker 1: with math, and therefore they're cutting off an entire industry
Speaker 1: that could really allow them to become upwardly mobile jobs
Speaker 1: like you know, medical scientists, financial and analysts, the statisticians,
Speaker 1: actuary economists, not even considering them, not considering banking um
Speaker 1: and that is critical, that's critical and some thing that
Speaker 1: we have to really work towards so that our students
Speaker 1: can understand and hoards and sometimes the barriers are really psychological.
Speaker 1: So sometimes they wouldn't even think of an industry that
Speaker 1: is so remote that nobody in their families work in.
Speaker 1: So we are also as part of common denominator, we're
Speaker 1: organizing bank visits. So we're bringing small groups of middle
Speaker 1: school children. We're bringing them to see what the trading
Speaker 1: floor is, you know what. So because in their minds,
Speaker 1: this is just not for them. So that's why they
Speaker 1: wouldn't consider these careers that they feel from the start excluded. Um,
Speaker 1: So that that's one of one of the things we're doing.
Speaker 1: It's not just the education, is also the psychological barriers.
Speaker 1: And I mean I imagine that mentoring would be important
Speaker 1: as well. Right, a lot of these kids, you know,
Speaker 1: their parents are unlikely to be involved in the financial industry.
Speaker 1: Maybe they don't even know anybody in the neighborhood who's
Speaker 1: involved in the financial industry. So I'm sure it would
Speaker 1: help to connect them with Angela was someone like Mary Anne. Absolutely,
Speaker 1: that's exactly what we're doing. So what's what's it like
Speaker 1: in a a New York City public school today? From
Speaker 1: a math perspective? I mean, what are I know when
Speaker 1: other schools, maybe some you know, math is really a focus?
Speaker 1: Is it focus? Does it get the proper you know
Speaker 1: weight do you think you know? That's a great question. UM.
Speaker 1: I actually have the results from the New York State
Speaker 1: Department of Education recently released assessment, and some of their
Speaker 1: key findings UH state that less than half of all
Speaker 1: students in grades three through eight are proficient in math proficiency.
Speaker 1: Rates for students from low income backgrounds continue to lack
Speaker 1: the rates of their more affluent peers. UM. Across all
Speaker 1: the racial groups, there were losses in math proficiency. However,
Speaker 1: the proficiency gaps between racial groups were alarmingly wide. UM.
Speaker 1: And and you know there there's there's year to year
Speaker 1: decline in math preferences proficiency for all students including eighth grade. Yeah,
Speaker 1: so the data is not too supportive at the moment.
Speaker 1: I'm sure the pandemic just made the challenge is more pronounced.
Speaker 1: But four trained. There's good folks out there like YouTube
Speaker 1: kind of doing your best to kind of help out.
Speaker 1: Angela Williams, CEO of Common Denominator and Mary Anne Scoordell
Speaker 1: with Bougeville Consulting, both joining us here boats kind of
Speaker 1: joining powers, if you will, joining resources and trying to
Speaker 1: make a big impact on this issue and about ten
Speaker 1: seconds left. Yeah. Absolutely, this Giving Tuesday, give the gift
Speaker 1: that keeps on giving. Absolutely, thank you very much. Matthcy
Speaker 1: absolutely good, absolutely correct and financial literacy right also very
Speaker 1: key at a young age. Yep, very good stuff. Thanks
Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe
Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast
Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at
Speaker 1: Matt Miller, three pen on Fall Sweeney I'm on Twitter
Speaker 1: at pt Sweeney before the podcast. You can always catch
Speaker 1: us worldwide at Bloomberg Radio