WEBVTT - UPS, Fed, Oil, Streaming, and ETFs (Podcast) 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:05.240 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moving news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets podcast called Apple Podcasts or wherever 0:00:17.400 --> 0:00:20.000 you listen to podcasts, and at Bloomberg dot com slash 0:00:20.040 --> 0:00:25.599 podcast ups United Parcel Service. This stock is up, but 0:00:25.640 --> 0:00:27.400 it's off two hundred quarter percent today. It's only up 0:00:27.400 --> 0:00:29.440 about three percent year to date, one hundred and fifty 0:00:29.480 --> 0:00:31.880 five billion dollar market cap. But we got some problems 0:00:31.880 --> 0:00:36.120 there potentially later this month with the labor contract there. 0:00:36.159 --> 0:00:39.400 Kritty Gupda Markets editor and host of Bloomberg Surveillance Early 0:00:39.520 --> 0:00:42.080 Edition ge joins us here in our Bloomberg Interactive Broker 0:00:42.120 --> 0:00:44.080 studio Krity. What are you looking at UPS? Talk to 0:00:44.159 --> 0:00:45.600 us about the labor situation there. 0:00:45.680 --> 0:00:48.840 Oh, there's so much going on. Look, remember when last 0:00:48.840 --> 0:00:52.600 fall we had those massive rail strikes where the essentially 0:00:52.600 --> 0:00:54.840 the government had to get involved and say, look, we're 0:00:54.840 --> 0:00:57.880 shutting down these negotiations because you clearly can't seem to 0:00:57.880 --> 0:01:00.360 come to some sort of reasonable conclusion. It looks like 0:01:00.360 --> 0:01:02.080 we're on the cusp of that happening again, except this 0:01:02.120 --> 0:01:05.120 time with ups. The shares are down about two point 0:01:05.160 --> 0:01:07.440 two percent in the pre market over the weekend. They 0:01:07.440 --> 0:01:09.920 were supposed to have some pretty good negotiations and they 0:01:10.000 --> 0:01:13.280 were going well until now it looks like they've collapsed. 0:01:13.280 --> 0:01:15.319 And what's important to keep in mind here is that 0:01:15.560 --> 0:01:18.319 the contract is coming up pretty quickly to end, So 0:01:18.400 --> 0:01:21.040 July thirty four first is when it ends. And this 0:01:21.080 --> 0:01:24.720 is why we care. Three hundred and thirty thousand workers 0:01:24.840 --> 0:01:28.600 in this country. This is the largest private sector union agreement. 0:01:28.800 --> 0:01:31.440 That's the reporting that got my attention. I didn't think 0:01:31.440 --> 0:01:33.280 about that, but it's massive, yes it is. 0:01:33.319 --> 0:01:35.840 It's even bigger than the rail strikes. And this has 0:01:35.880 --> 0:01:38.680 even as a bigger implication for supply chains, the match 0:01:38.720 --> 0:01:41.200 of the folks who who can't get their packages. So 0:01:41.560 --> 0:01:43.080 that's kind of what we're dealing with here. They're going 0:01:43.120 --> 0:01:45.080 through the nitty gritty. It looks like the union itself 0:01:45.120 --> 0:01:48.200 has walked away from talks this time around, but some 0:01:48.280 --> 0:01:51.200 pretty huge implications that this market is really reacting to. 0:01:51.480 --> 0:01:53.320 Ye I wanted to ask you more about the supply chain, 0:01:53.320 --> 0:01:55.440 their creedy, So of course, like no, one wants to 0:01:55.440 --> 0:01:58.800 get their packages late. That's frustrating. We all experience that 0:01:58.880 --> 0:02:02.280 during COVID. But what is there like a bigger takeaway here, 0:02:02.400 --> 0:02:05.040 bigger problem besides delace. 0:02:04.840 --> 0:02:05.920 There is a bigger problem. 0:02:05.920 --> 0:02:06.120 Look. 0:02:06.240 --> 0:02:09.040 So, so the way to think about the shipping industry 0:02:09.120 --> 0:02:11.480 right now is everyone's kind of tackling a little bit differently. 0:02:11.480 --> 0:02:14.880 There's three different players here. There's UPS, FedEx, DHL, and 0:02:14.919 --> 0:02:16.720 they all kind of do a little bit of everything. 0:02:17.120 --> 0:02:19.800 So they will take your package or a business's package 0:02:19.880 --> 0:02:24.160 or a freight package via plane, train, automobile, thrown a 0:02:24.160 --> 0:02:26.840 ship in there. And what's important to keep in mind 0:02:26.919 --> 0:02:29.280 is that FedEx and DHL have taken a very different 0:02:29.320 --> 0:02:32.919 approach than UPS has post pandemic, when everyone was kind 0:02:32.919 --> 0:02:36.600 of paying top dollar to get their shipments, FedEx and 0:02:36.680 --> 0:02:39.400 DHL really invested in their labor and that's something that 0:02:39.400 --> 0:02:41.600 FedEx is now paying for. They're saying, we over hired. 0:02:41.919 --> 0:02:43.840 Now we're pulling back. So we've see all these layoffs. 0:02:43.919 --> 0:02:46.240 DHL they're not doing layoffs, but they are kind of 0:02:46.280 --> 0:02:50.280 dealing with that crunch now that packages are declining through 0:02:50.400 --> 0:02:52.280 kind of attrition, and they're saying, we're just not going 0:02:52.320 --> 0:02:56.200 to replace roles. UPS is a completely different ballgame because 0:02:56.240 --> 0:02:58.280 they never invested in labor in the first place, and 0:02:58.280 --> 0:03:00.280 that's a big problem. And a big part of that 0:03:00.320 --> 0:03:03.120 was because they're unionized, whereas FedEx has more kind of 0:03:03.160 --> 0:03:05.679 an independent contractor network, which they are kind of now 0:03:05.720 --> 0:03:08.520 dealing with as well. UPS said, we're going to focus 0:03:08.560 --> 0:03:11.320 on margins. We're going to increase prices, They're going to 0:03:11.400 --> 0:03:14.040 focus on the smaller consumer and make up our margins 0:03:14.080 --> 0:03:16.920 from there. And you really saw that strategy work because 0:03:17.160 --> 0:03:19.079 if you look at the stock of the three companies, 0:03:19.760 --> 0:03:22.400 UPS has won out. They've outperformed over and over and 0:03:22.440 --> 0:03:25.880 over again. Except now because of those margins. They're saying, look, 0:03:25.919 --> 0:03:29.079 we can't pay up, whereas the union is saying, well, 0:03:29.200 --> 0:03:32.000 our wages aren't rising in line with profits, so why 0:03:32.000 --> 0:03:34.280 should we work if we're not getting that. So they 0:03:34.320 --> 0:03:37.680 are making some concessions UPS to these drivers of things 0:03:37.760 --> 0:03:40.160 like part time drivers changing a little bit of a shift. 0:03:40.160 --> 0:03:44.160 They're now getting MLKDA as a paid holiday, no more 0:03:44.200 --> 0:03:47.920 mandatory over time. There's no two tier system anymore. Basically, 0:03:48.000 --> 0:03:50.160 part time workers, we're making about five dollars less an 0:03:50.160 --> 0:03:52.880 hour than full time workers. So there are pieces of 0:03:52.880 --> 0:03:55.400 the equation, but it's still not at the salary level 0:03:55.800 --> 0:03:57.240 that a lot of these workers want. 0:03:57.320 --> 0:03:59.800 Well, I mean the old contract full time, they can 0:03:59.840 --> 0:04:03.920 make up the thirty nine dollars per hour. That seems 0:04:04.000 --> 0:04:07.600 like a good number. But are they saying, yeah, but 0:04:08.200 --> 0:04:10.360 you guys, being the company made so much money during 0:04:10.400 --> 0:04:13.080 the pandemic, we want some of that pretty much. 0:04:13.080 --> 0:04:15.560 And look, it's also because of the overtime policy, because 0:04:15.560 --> 0:04:18.719 a lot of these kind of shipping constraints require some 0:04:18.800 --> 0:04:21.160 of these workers to go over time. And I think 0:04:21.160 --> 0:04:23.720 it's better perhaps because from an hourly perspective, thirty nine 0:04:23.720 --> 0:04:25.600 dollars an hour sounds pretty juicy. Let's talk about it 0:04:25.640 --> 0:04:29.080 from an annual perspective. Full time delivery drivers making about 0:04:29.160 --> 0:04:31.680 ninety five thousand a year, even though they're doing it 0:04:31.720 --> 0:04:35.640 through kind of rain, hail storm, through COVID, through all 0:04:35.680 --> 0:04:37.200 of these kind of issues. 0:04:37.800 --> 0:04:41.280 Did they ever get anything for COVID working through COVID? 0:04:41.520 --> 0:04:43.520 They didn't. And this is I think where a lot 0:04:43.560 --> 0:04:46.240 of the parallels with the rail worker story came because remember, 0:04:46.320 --> 0:04:49.800 for the rail strikes last fall, they weren't getting paid 0:04:50.040 --> 0:04:53.120 time off, they weren't getting a sick leave for example, 0:04:53.120 --> 0:04:55.360 they weren't even getting access to benefits. So it's a 0:04:55.440 --> 0:04:58.520 lot of these same issues. Essentially, these are industries rail 0:04:58.720 --> 0:05:02.920 or shipping that are very intensive. Truck drivers really have 0:05:02.400 --> 0:05:05.080 to have to kind of sacrifice a lot physically but 0:05:05.200 --> 0:05:07.440 also in terms of family and how much time they 0:05:07.440 --> 0:05:09.320 get off as well, so they want to be compensated 0:05:09.320 --> 0:05:11.720 for it, especially with the overtime. And I think that's 0:05:11.720 --> 0:05:14.240 where they're struggling here, and they're basically saying, look, we've 0:05:14.600 --> 0:05:16.720 we've made some concessions, but really you got to meet 0:05:16.800 --> 0:05:18.720 us on the pay and ups just isn't budget here. 0:05:18.920 --> 0:05:19.080 Yeah. 0:05:19.080 --> 0:05:21.120 I saw with the West Coast dock workers too, even 0:05:21.120 --> 0:05:23.880 more recently this spring, and as you've mentioned, you know 0:05:23.920 --> 0:05:27.080 that the government did have to intervene it that we 0:05:27.120 --> 0:05:29.559 don't think a lot of us probably remember Joe Biden 0:05:29.680 --> 0:05:31.440 taking a nice trip out there, yeah, to visit. 0:05:31.920 --> 0:05:33.720 And I'll say this isn't really quickly. This is an 0:05:33.720 --> 0:05:36.560 international story too, because Canada also now dealing with with 0:05:36.640 --> 0:05:39.479 port strikes as well, so you're seeing this all over. 0:05:39.640 --> 0:05:41.920 I want to say the world, what's GPS saying. Are 0:05:41.920 --> 0:05:46.000 they what's their bargaining position? Are they saying we pay competitively. 0:05:46.040 --> 0:05:47.120 What are they saying here? 0:05:47.160 --> 0:05:50.200 So UPS is saying that, look, we are negotiating, we've 0:05:50.240 --> 0:05:52.240 already made a lot of concessions, which, to be fair, 0:05:52.279 --> 0:05:54.960 they have a normal mandatory overtime, they've changed their two 0:05:55.000 --> 0:05:57.799 tier payment system. But they're saying that the team stars 0:05:57.839 --> 0:06:00.360 kind of have to give some sort of lead here. 0:06:00.400 --> 0:06:02.400 And if you look at this last round of negotiations 0:06:02.560 --> 0:06:05.760 which collapsed this morning, by the way, they're saying that 0:06:05.760 --> 0:06:07.680 the teamsters are the ones who walked away from the 0:06:07.720 --> 0:06:09.760 bargaining table, so you have to They're saying, you have 0:06:09.800 --> 0:06:12.600 to continue this dialogue. Of course, we're going to keep 0:06:12.600 --> 0:06:14.679 you updated on because this is not over yet. But 0:06:14.680 --> 0:06:15.599 but we'll see how this is. 0:06:15.680 --> 0:06:17.560 What have we heard from the administration is like, I 0:06:17.560 --> 0:06:19.720 haven't heard anything like President Biden talking about this. Is 0:06:19.760 --> 0:06:21.719 this just because we've got, you know, three weeks to 0:06:21.760 --> 0:06:24.000 go before it really gets pretty much? 0:06:24.120 --> 0:06:26.760 Look, I don't I think the Biden administration, and Molly 0:06:26.839 --> 0:06:29.320 correct me if I'm wrong. You're here on the Economics team, 0:06:29.640 --> 0:06:32.400 they really want to not intervene until they really have to. 0:06:32.480 --> 0:06:34.080 When you saw this with the rail strike, I keep 0:06:34.080 --> 0:06:35.880 bringing this back to the real strikes because we just 0:06:35.960 --> 0:06:38.440 went through this a couple of months ago. Marty Walsh, 0:06:38.600 --> 0:06:42.320 the Labor Secretary at the time, got involved at the 0:06:42.440 --> 0:06:45.080 very last minute, and it ended up being because Congress 0:06:45.600 --> 0:06:47.760 had to intervene. It was some sort of very old 0:06:47.960 --> 0:06:51.760 rail laft nineteen twelve that only applied to rail for 0:06:52.120 --> 0:06:55.359 some reason, and that's what they ended up instigating. But 0:06:55.520 --> 0:06:57.040 you kind of want to make this work on its 0:06:57.080 --> 0:06:59.440 own before the Biden administration gets involved, especially because of 0:06:59.440 --> 0:07:00.599 the political consequences. 0:07:00.800 --> 0:07:04.160 Absolutely, I mean, yeah, that is definitely the eleventh hour, 0:07:04.279 --> 0:07:06.880 Hail Mary. We need to call in the top guns 0:07:06.960 --> 0:07:09.760 to make this happen. So, yeah, it doesn't seem like 0:07:09.800 --> 0:07:12.680 we're quite there yet, but it certainly would be concerning 0:07:13.120 --> 0:07:16.120 over the next three weeks if it does escalate to 0:07:16.160 --> 0:07:19.240 that point. Does is there an indication that this could 0:07:19.320 --> 0:07:21.600 be drawn out? For it could? Yeend, it could. 0:07:21.640 --> 0:07:23.840 So I think what was kind of the difference again, 0:07:23.840 --> 0:07:25.240 I'm gonna bring them back to the real strikes, because 0:07:25.240 --> 0:07:27.160 it's a little bit of deja vous here, is that 0:07:27.200 --> 0:07:30.119 the voting periods were longer, So you had kind of, Okay, 0:07:30.200 --> 0:07:32.160 we're going to go to the eleventh hour and then 0:07:32.160 --> 0:07:34.360 we're going to have three or six weeks to vote 0:07:34.440 --> 0:07:35.960 and then come back, So it was kind of a 0:07:36.000 --> 0:07:39.040 drawn out process, specifically because of that law that dayed 0:07:39.080 --> 0:07:41.440 back to like nineteen twelve or whatever. This time around, 0:07:41.520 --> 0:07:44.640 that's not true. It has been voted ninety seven percent 0:07:44.680 --> 0:07:46.920 by the union that if this agreement isn't hit by 0:07:47.000 --> 0:07:50.360 July thirty first, which is when the contract ends August first, 0:07:50.440 --> 0:07:52.720 they are going on strike. So we're still about two 0:07:52.880 --> 0:07:54.720 three weeks away, but it's certainly something you want to 0:07:54.760 --> 0:07:56.640 keep an eye on because there is no long drawn 0:07:56.640 --> 0:07:59.160 out process here. It's very simple. 0:07:59.720 --> 0:08:01.520 And Marty Walsh is not going to come in and 0:08:01.600 --> 0:08:04.040 save the day because he is no longer the Secretary 0:08:04.040 --> 0:08:06.080 of Labor. I'm just looking at me. He's the director 0:08:06.400 --> 0:08:08.600 of the National Hockey League Players Association. 0:08:08.640 --> 0:08:09.920 Oh yeah, he traded up. 0:08:10.240 --> 0:08:13.560 Okay, interesting, all right, So UPS will keep on the 0:08:13.720 --> 0:08:16.440 lookout for that, because who doesn't receive a package every 0:08:16.520 --> 0:08:18.400 day at home? I mean every day. 0:08:18.480 --> 0:08:21.240 So, and I'll give you an added piece of kind 0:08:21.240 --> 0:08:24.680 of trivia here. One of UPS's biggest customers is Amazon. 0:08:24.880 --> 0:08:27.200 So Amazon has their own logistics company, but they're kind 0:08:27.200 --> 0:08:29.160 of leftover. Goes through UPS. 0:08:28.960 --> 0:08:32.440 Really because again I see the Amazon trucks everywhere. Yeah, 0:08:32.480 --> 0:08:34.800 I mean they've got to have to ask Lee Klascal. 0:08:34.880 --> 0:08:36.559 This's a Bloomberg Intelligence. They got to be one of 0:08:36.600 --> 0:08:39.160 the biggest trucking companies in the country. Amazon. Yeah, I 0:08:39.200 --> 0:08:41.480 think they're headed that way. Yeah, that it's extorting. All right, 0:08:41.480 --> 0:08:43.720 pretty Goop that thanks so much for joining us. Pretty 0:08:43.720 --> 0:08:47.240 good to markets report. It does all that Bloomberg TV stuff. 0:08:47.240 --> 0:08:51.240 We appreciate getting some reporting there on UPS. Again, huge company. 0:08:51.280 --> 0:08:53.840 I didn't know. This is the largest private sector union 0:08:54.840 --> 0:08:56.839 agreement there is. The team starts with the UPS, so 0:08:56.880 --> 0:08:59.000 we'll keep an eye on that. This is Bloomberg. 0:09:01.640 --> 0:09:05.079 You're listening to the team. Ken's are live program Bloomberg 0:09:05.120 --> 0:09:08.480 Markets weekdays at ten am Eastern on Bloomberg dot Com, 0:09:08.559 --> 0:09:11.720 the iHeartRadio app and the Bloomberg Business App, or listen 0:09:11.760 --> 0:09:13.920 on demand wherever you get your podcasts. 0:09:16.080 --> 0:09:18.000 All right, let's get right down to it here. Lots 0:09:18.040 --> 0:09:20.559 of economic data coming out this week. We got to 0:09:20.640 --> 0:09:24.160 fed you gonna be making some decision later on here 0:09:24.320 --> 0:09:25.959 in the month, So that means we need to check 0:09:25.960 --> 0:09:28.640 in with Ira Jersey does all of that interest rate 0:09:28.720 --> 0:09:32.160 stuff for Bloomberg Intelligence, Chief US interest rate Strategist Ira, 0:09:32.200 --> 0:09:34.240 Thanks so much for joining us here via zoom here 0:09:34.920 --> 0:09:38.080 give us a sense of I don't know where the 0:09:38.120 --> 0:09:40.559 FED is leaning. Let let's start this way. Here's my 0:09:40.960 --> 0:09:43.400 question about the FED, and I just I've been asking 0:09:43.440 --> 0:09:46.400 it from for some smart people, and this is not 0:09:46.440 --> 0:09:48.880 a smart question. The optics of it. It just doesn't 0:09:48.880 --> 0:09:51.240 look good when my FED is raising interest rates every 0:09:51.240 --> 0:09:54.400 single quarter over five hundred basis points. Then it pauses 0:09:54.840 --> 0:09:57.559 because maybe that's what you do after you've raised rates 0:09:57.559 --> 0:09:59.679 so much. Are they really going to get back on 0:09:59.800 --> 0:10:01.240 and start raising rates again? 0:10:01.800 --> 0:10:05.000 Yeah, seems good. It seems like they really want to, Paul, 0:10:05.240 --> 0:10:07.560 and and you know, they they made it pretty clear 0:10:07.600 --> 0:10:10.040 at the last meeting that that that you still want 0:10:10.040 --> 0:10:12.440 to be hawkish. They wanted to make sure that the 0:10:12.480 --> 0:10:15.079 market knew that if nothing else, they weren't cutting interest 0:10:15.160 --> 0:10:17.920 rates too early. So I think the bar at this 0:10:18.040 --> 0:10:22.400 point is actually reasonably Uh, the bar for them to 0:10:22.400 --> 0:10:25.520 to hike is actually very low. So you really, as 0:10:25.559 --> 0:10:28.199 long as you don't have like an absolutely crazy low 0:10:28.280 --> 0:10:30.840 employment number, if you don't have wages that you know, 0:10:30.880 --> 0:10:34.440 fall significantly more than than the market expects, and and 0:10:34.440 --> 0:10:38.600 and if we if we get anywhere near Consensus CPI report. 0:10:39.160 --> 0:10:40.840 Then I think the Fed's gonna hike. I think it's 0:10:40.840 --> 0:10:44.040 that second Fed hike that the dots suggested might occur. 0:10:44.480 --> 0:10:46.559 That's much more in doubt at this point because you 0:10:46.559 --> 0:10:49.559 you are seeing a moderation of inflation, just not as 0:10:49.640 --> 0:10:52.240 quickly as they want so so I think that was 0:10:52.240 --> 0:10:55.199 a signal that that was signaling a little bit more 0:10:55.240 --> 0:10:57.160 that the FED wants to be hawkish if they need 0:10:57.160 --> 0:11:00.559 to be so. So so yeah, so this I think 0:11:00.559 --> 0:11:03.000 that they'll hike. You know, the market, the market is 0:11:03.040 --> 0:11:05.960 now almost fully priced for that and also priced for 0:11:06.280 --> 0:11:09.360 some chance of a of a second hike as well. 0:11:09.440 --> 0:11:12.640 So so the market's already there regardless, So you won't 0:11:12.679 --> 0:11:15.480 see any more, you know, major moves unless the data 0:11:15.520 --> 0:11:16.920 really shocks one way or the other. 0:11:17.120 --> 0:11:19.800 Yeah. So, Ira, We've heard from Powell as well as 0:11:19.800 --> 0:11:23.760 a few other FED speakers, uh since that June meeting, 0:11:23.840 --> 0:11:26.640 and I think the market is still fairly confused as 0:11:26.679 --> 0:11:29.320 to what's going on here. Do we really think the 0:11:29.360 --> 0:11:32.400 minutes are going to give the answer that everyone's been 0:11:32.400 --> 0:11:32.880 looking for. 0:11:34.040 --> 0:11:36.280 I think that the minutes are going to be probably 0:11:36.320 --> 0:11:39.800 pretty mixed, you know. Interestingly, even though the dot plot 0:11:39.880 --> 0:11:43.120 and some of the rhetoric out of j Powell at 0:11:43.160 --> 0:11:47.440 the last press conference. Overall, our our natural language processing 0:11:47.480 --> 0:11:48.920 model suggested that actually. 0:11:49.880 --> 0:11:53.040 Let's let's take a step back. I know you're a 0:11:53.080 --> 0:11:55.440 model geek. You have a natural what is it again, 0:11:55.480 --> 0:11:56.400 a language. 0:11:56.000 --> 0:12:00.360 Model, natural language processing. So so we take every cents 0:12:00.920 --> 0:12:05.200 within the opening remarks of the of Chair Powell's opening 0:12:05.240 --> 0:12:08.120 statement at the press conference, and then try to determine 0:12:08.160 --> 0:12:11.520 whether or not that statement is is hawkish or duvish, 0:12:11.880 --> 0:12:14.959 modestly hawkish or modestly dubvish, and then we combine that 0:12:15.080 --> 0:12:18.480 into into an index. And what we actually found was 0:12:18.520 --> 0:12:21.840 that he was still pretty neutral overall, So he was 0:12:21.880 --> 0:12:25.400 pretty balanced in talking both hawkish and duvish, even though 0:12:26.200 --> 0:12:29.160 the dots and some of his rhetoric suggested that the 0:12:29.200 --> 0:12:31.800 FED is going to hike again. Now, the fact that 0:12:31.840 --> 0:12:33.760 they're going to hike again doesn't mean that they're going 0:12:33.800 --> 0:12:35.560 to hike another one hundred and fifty or two hundred 0:12:35.600 --> 0:12:37.520 basis points. So it kind of makes sense that, yes, 0:12:37.559 --> 0:12:40.160 they're getting to the top of the cycle. The question 0:12:40.360 --> 0:12:42.880 is that they're trying to calibrate exactly where they think 0:12:43.120 --> 0:12:46.559 the FED funds rate should be in order for inflation 0:12:46.640 --> 0:12:48.599 to continue to come down and maybe come down a 0:12:48.640 --> 0:12:50.720 little bit faster than it has in the recent past. 0:12:51.640 --> 0:12:54.640 Yeah, so you're so it sounds like, like you said, 0:12:55.000 --> 0:12:58.400 July seems almost like a given at this point. And 0:12:58.840 --> 0:13:01.000 Powell even said, you know, he would not rule out 0:13:01.080 --> 0:13:05.120 consecutive hikes at you know, concurrent meetings. So do we 0:13:05.240 --> 0:13:08.400 are we already maybe even thinking what's the bar for September? 0:13:09.240 --> 0:13:09.440 Yeah? 0:13:09.679 --> 0:13:11.240 I think we do have to think about what the 0:13:11.240 --> 0:13:13.640 bar for September would be, and I think that bar 0:13:13.800 --> 0:13:17.440 is higher than the bar for July. And it's also 0:13:17.480 --> 0:13:20.400 one of the reasons why so a very smart investor 0:13:20.440 --> 0:13:23.760 actually suggested this, and this is an interesting concept, was 0:13:24.040 --> 0:13:25.880 that the FED was hiking at seventy fives and they 0:13:25.920 --> 0:13:27.880 hiking in then they were hiking in fifties, and they 0:13:27.880 --> 0:13:30.160 were hiking in twenty fives. Now they might be hiking 0:13:30.160 --> 0:13:32.840 in twelve and a half's and in order, and the 0:13:32.880 --> 0:13:34.680 FED doesn't do that, right, They're not the Bank of 0:13:34.720 --> 0:13:41.040 Japan hiking in decimals, So basically every other meeting they 0:13:41.080 --> 0:13:43.800 could be hiking in quarter point increments. And again it 0:13:43.880 --> 0:13:47.560 makes sense in that regard from it because it's because 0:13:47.600 --> 0:13:51.080 they're in this calibration mode. You know, they don't want 0:13:51.120 --> 0:13:52.760 to go too fast, and they also want to have 0:13:52.800 --> 0:13:56.040 the ability to stop hiking at any moment, which was 0:13:56.080 --> 0:13:58.040 harder to do when they were hiking at fifties. Right 0:13:58.040 --> 0:14:00.719 now that they're hiking in twenty five, they've skipped now 0:14:00.720 --> 0:14:03.440 a meeting. It makes it a little bit easier for 0:14:03.480 --> 0:14:06.320 them to do that calibration. And nobody knows right. So 0:14:06.360 --> 0:14:08.800 the problem is is that ex ante, it's difficult to 0:14:08.800 --> 0:14:11.560 know exactly where the FED funds rate should be. I 0:14:11.559 --> 0:14:13.840 think that they've probably done enough in order for inflation 0:14:13.880 --> 0:14:15.520 to come down now they just need to give it 0:14:15.600 --> 0:14:18.600 time to occur. But they don't see it that way. 0:14:18.640 --> 0:14:21.280 And you know, until they they wind up with a 0:14:21.360 --> 0:14:23.880 with a real funds rate that is, you know, significantly 0:14:23.920 --> 0:14:28.800 higher than headline inflation, that they're gonna still think about hiking, 0:14:28.840 --> 0:14:31.080 even if they actually don't do it every meeting. 0:14:31.520 --> 0:14:33.760 All right, Lisa Promise says, I have to ask this question. 0:14:33.840 --> 0:14:36.560 She just emailed in from her vacation. Yield curve still 0:14:36.560 --> 0:14:39.360 inverted one hundred and three basis points. Do we care? 0:14:39.440 --> 0:14:41.040 Do you care? What's the market telling you? 0:14:41.720 --> 0:14:45.040 Yeah, it's just telling us. It's just telling us that 0:14:44.520 --> 0:14:48.800 that the market is expecting the interest rates to be 0:14:48.840 --> 0:14:50.800 lower in the future. I mean, that's the whole reason 0:14:50.840 --> 0:14:52.800 why you get the inversions in the yield curve, is 0:14:52.880 --> 0:14:55.920 just the expectation that, yes, we're going to have five 0:14:56.000 --> 0:14:58.680 percent interest rates now, but we might have three percent 0:14:58.720 --> 0:15:01.400 interest rates, you know, to or three four years from now, 0:15:01.680 --> 0:15:03.440 and because of that you get this inversion of the 0:15:03.480 --> 0:15:03.920 yield curve. 0:15:03.960 --> 0:15:04.080 You know. 0:15:04.120 --> 0:15:06.680 The fact that it's lasted now for the better part 0:15:06.720 --> 0:15:10.280 of eighteen months, you know, does suggest that the market 0:15:10.360 --> 0:15:12.880 thinks that we might be heading into a recession or 0:15:12.920 --> 0:15:15.520 if not a recession and then at least a very 0:15:15.560 --> 0:15:19.240 significant reduction and inflation over the over the medium term. 0:15:19.320 --> 0:15:22.560 And it you know, at some point we're going to 0:15:22.600 --> 0:15:26.800 start to really uninvert quite aggressively, I think, but the 0:15:26.840 --> 0:15:29.360 timing of that is probably not until it's very clear 0:15:29.440 --> 0:15:32.720 that the federal reserves done hiking. Until then, the two 0:15:32.760 --> 0:15:35.200 year yield is probably going to keep on hovering, you know, 0:15:35.320 --> 0:15:38.760 kind of just a little bit below where where the 0:15:38.840 --> 0:15:42.080 high the highest Fed fundrate might actually be, you know. 0:15:42.040 --> 0:15:45.000 And it really took until the last Fed meeting for 0:15:45.080 --> 0:15:47.800 the market expectations to kind of be more in sync 0:15:48.200 --> 0:15:50.600 with what Powell and the Fed have been saying. Looking 0:15:50.640 --> 0:15:54.320 at the world interest rate probability function now on the terminal, 0:15:54.960 --> 0:15:57.080 you know, it looks like those you know, prop those 0:15:57.120 --> 0:16:00.840 expectations for rate cuts this here dramatically have come down. 0:16:01.000 --> 0:16:03.600 So you know, what, does the market have some of 0:16:03.640 --> 0:16:06.920 that natural language processing model that you do, or what 0:16:07.360 --> 0:16:09.280 is it that they finally believe the Fed? 0:16:10.160 --> 0:16:10.440 Yeah? 0:16:10.520 --> 0:16:12.760 Yeah, I think that a lot of people thought that 0:16:12.800 --> 0:16:16.080 the Fed didn't have the resolve to continue to hike 0:16:16.120 --> 0:16:19.400 interest rates beyond beyond June. So you had a lot 0:16:19.440 --> 0:16:22.960 of people thinking, oh, the economy is going to fall apart. 0:16:23.000 --> 0:16:25.400 They've hiked five hundred basis points. We're going to wind 0:16:25.480 --> 0:16:28.120 up seeing a recession later this year. But a lot 0:16:28.200 --> 0:16:30.480 of the data that's been coming in suggested even if 0:16:30.480 --> 0:16:33.120 we do have a recession, it'll be very shallow and 0:16:33.200 --> 0:16:37.960 won't necessarily be enough to pull inflation down significantly more So, therefore, 0:16:38.040 --> 0:16:40.480 the Fed Reserve is not going to be cutting interest 0:16:40.560 --> 0:16:42.720 rates later this year. Now, Now keep in mind that 0:16:43.200 --> 0:16:45.920 is not that we've priced out cuts. We actually still 0:16:45.920 --> 0:16:49.040 have a cut price for six months from now, right, 0:16:49.080 --> 0:16:52.360 So the market keeps pricing for a cut six months 0:16:52.400 --> 0:16:55.000 after the last hike, a cut six months after last hike. 0:16:55.200 --> 0:16:58.480 The problem is is that we've pulled forward now when 0:16:58.520 --> 0:17:00.840 that last hike is going to be, because now if 0:17:00.880 --> 0:17:03.640 the last hike is in July, then they're gonna wind up, 0:17:03.840 --> 0:17:05.800 you know, the first cut is now priced for January, 0:17:06.119 --> 0:17:07.760 and then if they you know, wind up hiking again 0:17:07.800 --> 0:17:10.680 in September, like Paul was suggesting, if that happens, then 0:17:10.720 --> 0:17:13.359 maybe the first cuts not priced then until March. So 0:17:13.400 --> 0:17:16.280 it's always this kind of rolling six month window for 0:17:16.760 --> 0:17:17.320 the first Cup. 0:17:17.440 --> 0:17:20.080 A Ramali and I, let's be honest, we're focused entirely 0:17:20.119 --> 0:17:22.320 on Wimbledon for the next two weeks. But if I 0:17:22.359 --> 0:17:24.280 had a spare moment, is there anything in the world 0:17:24.320 --> 0:17:25.879 of soccer that we should be paying attention to? 0:17:26.960 --> 0:17:28.879 Well, the Gold Cup's going on right now. We're in 0:17:28.880 --> 0:17:32.160 the semifinals or quarterfinals, excuse me. So the US plays 0:17:32.200 --> 0:17:35.359 Canada and and you have to Later this month starts 0:17:35.359 --> 0:17:37.879 the Women's World Cup out in New Zealand and Australia. 0:17:37.960 --> 0:17:42.000 So the roster drops for that are are pretty interesting. 0:17:42.040 --> 0:17:43.600 You know, especially in the US, we have a lot 0:17:43.640 --> 0:17:46.359 of younger, younger women's who are going to be headed 0:17:46.359 --> 0:17:49.120 down to to down Under to play some football. 0:17:49.320 --> 0:17:51.080 All right, good stuff. You ask a question, you'll get 0:17:51.080 --> 0:17:54.520 an answer from this guy, Ira Jersey. He is our 0:17:54.560 --> 0:17:56.880 soccer guru, is off O or I think he does 0:17:56.960 --> 0:17:59.320 interest rates and stuff like that for Bloomberg Intelligence. That's 0:17:59.359 --> 0:18:01.840 what gets the paycheck, so I'm told. So he's our 0:18:01.840 --> 0:18:05.359 go to guy on the FED and on global soccer 0:18:05.400 --> 0:18:07.480 as well. So again we'll keep an eye on that. 0:18:07.680 --> 0:18:11.240 S and P five hundred basically unchanged on the day, 0:18:11.640 --> 0:18:13.639 we've got to dow off about four tens a one percent. 0:18:13.680 --> 0:18:15.879 That's one hundred and twenty five points. For those of 0:18:15.880 --> 0:18:17.360 you keeping scored at home. 0:18:17.560 --> 0:18:20.679 You're listening to the tape catch are live program Bloomberg 0:18:20.720 --> 0:18:24.320 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:18:24.359 --> 0:18:27.600 tune in app, Bloomberg dot Com, and the Bloomberg Business App. 0:18:27.640 --> 0:18:30.439 You can also listen live on Amazon Alexa from our 0:18:30.480 --> 0:18:35.480 flagship New York station. Just say Alexa play Bloomberg eleven thirty. 0:18:36.720 --> 0:18:39.600 Paul Sweeney here in the Bloomberg Interactive Broker Studio. Boy, 0:18:39.600 --> 0:18:42.560 you think about twenty twenty two, that was just ugly 0:18:42.600 --> 0:18:46.240 for asset allocators. That sixty to forty portfolio did not 0:18:46.560 --> 0:18:48.879 work out at all for anybody. See think about it 0:18:48.880 --> 0:18:51.399 here here to date twenty twenty three. Heck of a 0:18:51.480 --> 0:18:55.359 first half when you look at particular the equity markets, 0:18:55.400 --> 0:18:58.680 but also fixed income, so brings into question asset allocation. 0:18:58.840 --> 0:19:00.800 What do you do here second half of the year 0:19:00.840 --> 0:19:04.320 going into twenty twenty four? Fortunate? Our next guest does 0:19:04.359 --> 0:19:08.560 that stuff for living Nimerick Kang co Cio, Senior portfolio 0:19:08.840 --> 0:19:12.320 manager at north Star Asset Management. He gets his chemical 0:19:12.320 --> 0:19:14.920 engineering degree. I mean, who does that at Virginia Tech? 0:19:15.000 --> 0:19:17.000 Really good tech school. Then he gets an NBA from 0:19:17.000 --> 0:19:20.720 some trade school up in Boston. Yeah exactly. Hey, Nimrit, 0:19:20.840 --> 0:19:24.359 thanks much for joining us here. Asset allocation. Where are 0:19:24.440 --> 0:19:27.520 you guys these days after what's been I think for 0:19:27.560 --> 0:19:31.040 a lot of people, surprisingly strong first half of the year. 0:19:31.920 --> 0:19:35.760 Yeah, thank you for having me. Yes, Going into twenty 0:19:35.800 --> 0:19:40.119 twenty three, we were very cautious on the markets, you know, 0:19:40.560 --> 0:19:44.960 like everyone else. We expected this lag between monetary policy 0:19:45.000 --> 0:19:49.159 and economic effects, which has which is really still a 0:19:49.200 --> 0:19:52.560 missing in action. Equity markets have been strong. We had 0:19:52.600 --> 0:19:57.080 been underweight equities going into twenty twenty three, and we 0:19:57.160 --> 0:20:02.200 remain underweight equities slightly versus targets. And the reason there 0:20:02.359 --> 0:20:07.959 is that just history shows there are considerable lags between 0:20:08.000 --> 0:20:11.760 monetary policy and economic effects. We have never had this 0:20:11.920 --> 0:20:16.439 kind of steep rice in interest rates over such a 0:20:16.480 --> 0:20:20.320 short period. Yes, we've seen some effects of that, from 0:20:20.359 --> 0:20:23.280 the regional bank crisis to you know, the busting of 0:20:23.320 --> 0:20:26.440 the crypto acids, but we think these are effects that 0:20:26.440 --> 0:20:29.080 are going to bear out over a much longer time. 0:20:29.880 --> 0:20:32.360 And in general, we just feel like we're in this 0:20:32.920 --> 0:20:36.280 period where, you know, a lot of people are calling 0:20:36.320 --> 0:20:38.520 this a poly crisis age. There are a number of 0:20:38.560 --> 0:20:42.399 things that are coming together, but generally all that means 0:20:42.480 --> 0:20:45.600 is higher level of uncertainty and volatility in the markets. 0:20:46.040 --> 0:20:48.159 That to us just says that, you know, we just 0:20:48.200 --> 0:20:51.320 need to be very risk aware and focused on running 0:20:51.400 --> 0:20:55.000 very diversified portfolios for our clients. 0:20:55.600 --> 0:20:59.040 When I hear acid allocators talk about higher volatility, it 0:20:59.160 --> 0:21:02.840 sounds like more opportunities. So where are you finding those 0:21:02.840 --> 0:21:04.440 pockets right now to invest in? 0:21:05.359 --> 0:21:09.440 Yeah? Yeah, no, really good question. So when we think 0:21:09.440 --> 0:21:12.800 about higher volatility, of course, you know, right away we 0:21:12.840 --> 0:21:16.879 think about just going back to the basics investing in 0:21:16.960 --> 0:21:20.480 those companies where we have pretty strong conviction on the 0:21:20.520 --> 0:21:23.879 cash flows going forward. And if we have conviction on 0:21:23.920 --> 0:21:27.160 the strong cash flows and we don't pay too much 0:21:27.200 --> 0:21:30.800 for those stocks, we know that over the longer time, 0:21:30.880 --> 0:21:33.560 those companies are going to hold up both in down 0:21:33.600 --> 0:21:36.320 markets and up markets. They can be both offensive and 0:21:36.359 --> 0:21:39.920 defensing foldings. And then of course on the fixed income side, 0:21:39.920 --> 0:21:45.560 we are taking the opportunity to extend maturities for our clients, 0:21:45.640 --> 0:21:48.879 getting locking in higher interest rates where we can. And 0:21:48.960 --> 0:21:51.199 if down the road there is an end to this 0:21:51.359 --> 0:21:55.639 monetary tightening cycle and we do see interest rates come down, 0:21:55.840 --> 0:21:58.200 there is that appreciation potential as well. 0:21:59.160 --> 0:22:01.600 I'd love to get some on the equity space here. 0:22:01.640 --> 0:22:03.360 What are some names that you're looking at, What are 0:22:03.359 --> 0:22:06.160 some themes that you guys pursue when you're when you're 0:22:06.200 --> 0:22:09.360 looking to you know, invest on the equity side. 0:22:09.960 --> 0:22:14.520 Absolutely, So, the way we build our portfolios is we've 0:22:15.240 --> 0:22:18.760 it's intersection of a number of different factors, but really 0:22:18.800 --> 0:22:22.040 our process starts with identifying some of those long term 0:22:22.080 --> 0:22:26.679 societal challenges that we feel are going to need a 0:22:26.720 --> 0:22:30.520 tremendous innovation to solve. So, for example, we have been 0:22:30.600 --> 0:22:34.679 in that digital transformation space for a while, and you know, 0:22:34.720 --> 0:22:39.120 we did not expect this new boom coming from artificial intelligence. 0:22:39.480 --> 0:22:42.800 That has basically been the big story for twenty twenty three. 0:22:43.119 --> 0:22:45.880 But several of those companies have been benefiting from that. 0:22:46.359 --> 0:22:50.920 You know, that's your Bellweather, Microsoft, Adobe, CRM, all those 0:22:50.960 --> 0:22:54.000 types of stocks. So that's a theme that's been in 0:22:54.040 --> 0:22:56.480 the portfolio for a while. We just see that these 0:22:56.520 --> 0:22:59.360 companies are going to continue to solve the problem related 0:22:59.400 --> 0:23:03.480 to productivity, labor, productivity, and some of the other challenges 0:23:03.520 --> 0:23:06.160 that we see. But then on the other side, there 0:23:06.200 --> 0:23:10.639 are other examples. For example, you know, all the challenges 0:23:10.720 --> 0:23:15.000 related to climate change and some of the things that 0:23:15.000 --> 0:23:19.040 we're coming to see. They're coming together very quickly relating 0:23:19.160 --> 0:23:25.080 to you know, very high temperatures, hotter summers, draw outs, floods, 0:23:25.119 --> 0:23:28.720 all types of issues that we're seeing. There some of 0:23:28.760 --> 0:23:30.840 the companies that we think are going to be at 0:23:30.840 --> 0:23:34.960 the forefront of challenging them, especially related to water efficiency. 0:23:35.480 --> 0:23:38.960 You know, lately we've heard a lot about the Colorado 0:23:39.160 --> 0:23:42.840 River levels drying up, creating all kinds of challenges there. 0:23:43.320 --> 0:23:45.760 We have been investing it in a number of stocks. 0:23:45.960 --> 0:23:49.160 There's some smaller cap companies that are not your household 0:23:49.200 --> 0:23:54.760 names like Badger Meter or Asylum. These companies provide instruments, meters, valves, 0:23:55.720 --> 0:23:59.840 all kinds of other solutions to help drive water conservation 0:24:00.080 --> 0:24:03.960 measurement and efficiency, and we think the demand for those 0:24:04.040 --> 0:24:07.720 products and solutions is only going to increase over time. 0:24:08.520 --> 0:24:11.080 So nimrate, you're just saying that you came into twenty 0:24:11.119 --> 0:24:14.840 twenty three underweight equities, looking at the S and P 0:24:14.920 --> 0:24:18.840 five hundred up sixteen percent year to date, you rethinking 0:24:19.119 --> 0:24:21.000 going into the second half of the year if that's 0:24:21.040 --> 0:24:23.440 still where you want to be or sticking to your 0:24:23.440 --> 0:24:25.600 guns and that and those lags are going to kick in. 0:24:26.520 --> 0:24:31.080 Yes, yes, So you know, it's interesting. There's an adage 0:24:31.080 --> 0:24:34.240 in the stock market nobody knows nothing right, and twenty 0:24:34.280 --> 0:24:37.720 twenty three definitely proved that by spades if you had 0:24:37.760 --> 0:24:40.159 to ask anyone. It was interesting. I was reviewing my 0:24:40.280 --> 0:24:43.400 notes and across the board, you know, there's no way 0:24:43.440 --> 0:24:46.040 you can have continue to have the kind of interest 0:24:46.119 --> 0:24:50.159 rate normalization going on as we did, like five hundred 0:24:50.160 --> 0:24:52.760 basis points on the low end over the last eighteen 0:24:52.800 --> 0:24:56.679 months and not have a major slowdown in that economy. 0:24:57.040 --> 0:25:00.720 Yet the economy has defied all those odds or especially 0:25:00.760 --> 0:25:03.720 the resiliency of the economy. So I think there's so 0:25:03.840 --> 0:25:07.040 many different puts and takes that are affecting the economy 0:25:07.080 --> 0:25:11.160 in general. It's hard to really understand when that inflection 0:25:11.320 --> 0:25:15.880 point happens between the negatives i e. The credit tightening 0:25:15.920 --> 0:25:19.960 cycle that we're expecting, just you know, the pressure overall. 0:25:20.560 --> 0:25:25.679 Going from a very easy monetary policy, an era almost 0:25:25.760 --> 0:25:28.119 a decade more than a decade of where there was 0:25:28.359 --> 0:25:31.639 basically money, there was no cost related to money, to 0:25:31.840 --> 0:25:36.760 actually having higher interest rates. That's a sizable shift in regime. 0:25:37.240 --> 0:25:40.160 I was just reading a study which showed that one 0:25:40.240 --> 0:25:43.000 third of an increase in profit margins for S and 0:25:43.040 --> 0:25:46.199 P five hundred has come from lower interest rates and 0:25:46.359 --> 0:25:49.720 reduce taxes. Nothing about the taxes yet, but we know 0:25:49.840 --> 0:25:54.679 interest rates are definitely changing. So when we look further out, 0:25:54.840 --> 0:25:59.320 it's hard to ascern when that inflection does happen. But 0:25:59.720 --> 0:26:02.960 it's it's hard to imagine that we will not start 0:26:03.000 --> 0:26:06.240 to see some impact from this type of a sea 0:26:06.400 --> 0:26:11.840 change in monetary policy. That's just really on the financial side. Now, 0:26:11.960 --> 0:26:14.199 let me talk about some of the social issues that 0:26:14.200 --> 0:26:17.679 we're talking about. Yes, you know, despite all the different 0:26:17.680 --> 0:26:21.640 things that we're talking about, economic inclusion is probably at 0:26:21.680 --> 0:26:25.120 its lowest levels that we've seen. It's hard and harder 0:26:25.200 --> 0:26:29.320 for low income families to meet daily needs. How does 0:26:29.359 --> 0:26:33.720 that all translate into the broad based ramification. So when 0:26:33.760 --> 0:26:37.720 we put all that together, Molly, we're still staying underweight 0:26:37.840 --> 0:26:41.880 equities and again staying underweight but remaining very much invested 0:26:41.920 --> 0:26:43.399 in these high quality names. 0:26:43.400 --> 0:26:45.200 Ah Rightnimmer, thank you so much for joining us. Nimrick 0:26:45.240 --> 0:26:49.040 Kank coc Cio and senior portfolio manager at Northstar Asset Management, 0:26:49.040 --> 0:26:49.600 and joining us. 0:26:51.119 --> 0:26:54.960 You're listening to the Team Cancer Live program Bloomberg Markets 0:26:55.000 --> 0:26:58.080 weekdays at ten am Eastern on Bloomberg dot Com, the 0:26:58.160 --> 0:27:01.679 iHeartRadio app, and the Bloomberg Business or listen on demand 0:27:01.760 --> 0:27:03.320 wherever you get your podcasts. 0:27:05.760 --> 0:27:08.600 All right, let's switch gears. Let's go global energy here. 0:27:08.600 --> 0:27:11.320 I'm gonnat WTI crude oil. It's about two point two 0:27:11.359 --> 0:27:13.920 percent today, just above seventy one dollars A brow gets 0:27:13.920 --> 0:27:16.840 my opinion, it gets my attention. I'd been trading below seventy. 0:27:16.920 --> 0:27:19.640 Let's bring in a couple smart people who know about 0:27:19.720 --> 0:27:23.440 global energy. That would be Mike mcgloone, senior macro strategist 0:27:23.480 --> 0:27:28.119 with Bloomberg Intelligence, and Fernando Ali, senior analysts with Bloomberg Intelligence. 0:27:28.160 --> 0:27:31.600 Mike Joints Is from Miami via zoom and Fernandez here 0:27:31.600 --> 0:27:34.000 in our Bloomberg Interactive Brokers studio. Mike, let's start with 0:27:34.040 --> 0:27:38.640 you down in in Miami dealing with the heat down there? 0:27:38.680 --> 0:27:39.080 Good for you? 0:27:39.119 --> 0:27:40.720 How is it now? 0:27:41.920 --> 0:27:43.680 Oh, it's nice and humid, but I hear it's much 0:27:43.680 --> 0:27:45.600 warmer up north. It just colder nights. 0:27:46.000 --> 0:27:47.600 I'm gonna I'm gonna give you a hard time all 0:27:47.600 --> 0:27:49.920 summer here because I know you enjoyed in a water time. Hey, Mike, 0:27:50.000 --> 0:27:51.679 just give us a CeNSE here. What's you know? Just 0:27:51.720 --> 0:27:55.720 from commodity trading perspective, what do you what do you 0:27:55.720 --> 0:27:57.280 think about oil? Right here? 0:27:58.080 --> 0:27:59.920 It's a bear market? What stops it to me? That 0:28:00.000 --> 0:28:04.200 it's the bottom line? The question is has the market plateaued? 0:28:04.200 --> 0:28:08.800 And typically there's no indications that at all. Typically, what 0:28:08.800 --> 0:28:11.840 it takes for a broad commodity market to bottom you 0:28:11.960 --> 0:28:16.359 need some form of significant lag to significant feeda reserve easing, 0:28:16.440 --> 0:28:19.680 and maybe, as Vince pointed at, maybe a week hour 0:28:19.840 --> 0:28:23.480 and a pretty significant pickup in China demand. They're all 0:28:23.520 --> 0:28:25.200 going the wrong way right now. The only thing that's 0:28:25.200 --> 0:28:27.360 going and really cheap price is the only thing that's 0:28:27.400 --> 0:28:30.239 going the right right ways. Prices have gotten low. So 0:28:30.600 --> 0:28:32.840 let's look at let's start with we're talking about WTI. 0:28:32.840 --> 0:28:35.120 It's around seventy bucks a barrel, and it's almost half 0:28:35.200 --> 0:28:36.960 last year's price, but it's the same price as it 0:28:36.960 --> 0:28:39.320 first started to trade in two thousand and five. The 0:28:39.360 --> 0:28:43.320 bottom line is natural gas, its cousin has already collapsed. 0:28:43.440 --> 0:28:45.320 It got really cheap, and it's bounced. It got down 0:28:45.360 --> 0:28:47.480 to two, it's bounced up to near three. It's in 0:28:47.480 --> 0:28:49.840 the middle there now, and I think that's the trajectory 0:28:50.000 --> 0:28:51.840 for crude oil. And the key thing I asked myself 0:28:51.880 --> 0:28:55.000 is what stops this? As we tilt towards the second half. 0:28:55.280 --> 0:28:57.960 As Vince pointed out, these long and variable legs, the 0:28:58.000 --> 0:29:02.200 federal reserve is still tightening, and I don't and our 0:29:02.320 --> 0:29:04.360 chief economists on along says we're going to get a 0:29:04.400 --> 0:29:07.280 recession likely in the second half. Yes, it's been delayed, 0:29:07.440 --> 0:29:09.880 and US unemployments to start picking up around four point 0:29:09.880 --> 0:29:11.920 three percent. None of that, to me is good for 0:29:12.000 --> 0:29:15.800 crude all to sustain a bounce. It might have bounces, 0:29:15.800 --> 0:29:17.920 but none of that's good for to sustain a new 0:29:17.920 --> 0:29:20.080 bull market for NATO. 0:29:20.120 --> 0:29:22.760 I want to bring you in your your senior analysts 0:29:22.760 --> 0:29:26.520 with Bloomberg Intelligence here, Fernando Valet, let's talk about so 0:29:26.600 --> 0:29:30.040 this lot that the Saudis and Russia are extending these 0:29:30.040 --> 0:29:33.560 oil supply cuts to prop up the market. So do 0:29:33.600 --> 0:29:35.440 you think it's going to work. This isn't the first time, 0:29:36.720 --> 0:29:38.360 and like we said, prices are so low. 0:29:38.880 --> 0:29:41.040 Well, I think part of the bounce today is that 0:29:41.120 --> 0:29:44.120 these cuts, the additional cuts started in July, and today 0:29:44.200 --> 0:29:47.000 is really the first real trading day with volume because 0:29:47.000 --> 0:29:51.320 we had the holiday yesterday in the US. But even then, 0:29:51.560 --> 0:29:54.280 you're not seeing the huge jump up in prices. You're 0:29:54.320 --> 0:29:58.200 seeing a relative strong but nothing really to write home about. 0:29:58.960 --> 0:30:00.959 And you know, a lot out of the bulcase that 0:30:01.040 --> 0:30:04.320 was predicated on the lack of spare capacity in global 0:30:04.320 --> 0:30:07.000 oil production. And when you cut production, what do you 0:30:07.080 --> 0:30:10.440 make you create spare capacity? So we don't think that 0:30:10.480 --> 0:30:13.760 this is necessarily a bullish signal. As Mike was alluding to, 0:30:15.240 --> 0:30:17.760 Demand is really the biggest driver that we're looking for 0:30:18.240 --> 0:30:21.840 China demands still not there. We're seeing some weaknesses in 0:30:22.280 --> 0:30:25.120 the US as well, and on the housing side, on 0:30:25.160 --> 0:30:28.920 the office real state side. Those are the big concerns 0:30:29.480 --> 0:30:32.840 for the summer. And when we looked at the inventory 0:30:32.880 --> 0:30:36.880 report from last week from the EIA, we saw lower 0:30:37.000 --> 0:30:41.520 refinery utilization, lower refinery consumption of crude oil. And that's 0:30:41.680 --> 0:30:45.120 weird when you have crack spreads. The margin that refiners 0:30:45.160 --> 0:30:48.360 make at nearly two and a half times the average 0:30:48.400 --> 0:30:51.520 for the past fifteen years, why aren't they running that 0:30:51.840 --> 0:30:55.200 to just maybe the physical market is not as as 0:30:55.280 --> 0:30:56.640 tight as we expected. 0:30:57.320 --> 0:31:00.240 Well John Tucker, I mean he moves the needlebimes off 0:31:00.280 --> 0:31:02.280 just on a daily basis, how much he drives back 0:31:02.280 --> 0:31:04.560 every fifty at the wah wall three fifty at the 0:31:04.560 --> 0:31:06.440 wah Wah and Route thirty six in Jersey, just to 0:31:06.440 --> 0:31:10.719 get your price checked there for noan. What are your 0:31:10.720 --> 0:31:13.480 companies telling you? What are the big majors telling you 0:31:13.560 --> 0:31:17.360 about what they're doing? Where were they think energy is going? 0:31:17.400 --> 0:31:18.760 Where are they investing these days? 0:31:19.320 --> 0:31:23.760 Well, there's a big bifurcation between the Europeans and the 0:31:23.800 --> 0:31:27.000 American major oil companies. When you look at the major 0:31:27.040 --> 0:31:30.400 oil companies, they're saying, we're investing oil is our business, 0:31:30.400 --> 0:31:33.160 and we're going to continue to invest, and we're going 0:31:33.160 --> 0:31:36.760 to invest in reducing the carbon emissions from existing production 0:31:36.840 --> 0:31:39.760 as opposed to investing in new ways of energy, and 0:31:39.880 --> 0:31:42.760 so far it's proven to be the right call as 0:31:42.760 --> 0:31:46.320 far as as a return standpoint. We've seen some of 0:31:46.320 --> 0:31:49.920 the Europeans like BP and Shell acquiesce before they said 0:31:49.920 --> 0:31:52.960 they were they were going to let their production fall 0:31:53.200 --> 0:31:56.240 by as much as thirty percent, and now they're saying, well, well, 0:31:56.480 --> 0:31:58.600 the prices are too good, the returns are too good, 0:31:58.640 --> 0:32:01.200 and the returns on the renewables side are not nearly 0:32:01.240 --> 0:32:03.760 as good as we expected them to be. So we're 0:32:03.800 --> 0:32:06.080 going to invest on our oil side. 0:32:06.120 --> 0:32:06.400 Again. 0:32:07.120 --> 0:32:10.280 The question is where do you invest now, Mike. 0:32:10.120 --> 0:32:11.600 I want to bring you back in here. You were 0:32:11.600 --> 0:32:14.120 talking to us before about these different factors right now 0:32:14.120 --> 0:32:17.040 that are keeping prices low, that we've got the China 0:32:17.160 --> 0:32:20.240 demand pictures and so great. The FED is obviously not easing. 0:32:21.000 --> 0:32:23.080 Which one of these are you know you think could 0:32:23.760 --> 0:32:25.720 among the other factors you mentioned too, what do you 0:32:25.720 --> 0:32:29.600 think could turn first and really get things moving in 0:32:29.600 --> 0:32:30.240 the other direction. 0:32:31.480 --> 0:32:35.080 That's the big problem, Mollie. Typically for the FED in 0:32:35.080 --> 0:32:37.160 this case, I think it's one of those most unique 0:32:37.160 --> 0:32:39.440 cases I've seen in my career in this business of 0:32:39.560 --> 0:32:42.520 almost four decades, and that is the FED is unlikely 0:32:42.640 --> 0:32:45.560 to pivot or start easing until markets tell them to, 0:32:45.960 --> 0:32:48.280 i e. Stock market going down. And this is somewhat 0:32:48.280 --> 0:32:51.960 the view from our chief economists because the measures they 0:32:51.960 --> 0:32:55.960 watch for inflation are very sticky. Personal consumption expenditure is still, 0:32:56.240 --> 0:32:59.840 howevering just below five percent, and FED funds are heading higher, 0:32:59.880 --> 0:33:03.080 so I don't see what it's gonna take. And to me, 0:33:03.240 --> 0:33:05.480 the biggest risk for the second half is something I 0:33:05.560 --> 0:33:08.480 started really worried about starting pointing out a year agoes. 0:33:08.520 --> 0:33:11.360 This is probably be one of the biggest economic resets 0:33:11.400 --> 0:33:13.520 of a lifetime. And we've had a bounce and we've 0:33:13.560 --> 0:33:16.720 had all the markets, equity markets think that we're not 0:33:16.760 --> 0:33:19.600 gonna have a US recession now if we do tilt 0:33:19.640 --> 0:33:22.240 towards that in the second half, just the normal lag 0:33:22.280 --> 0:33:25.560 to the most aggressive federal rate hike easing tightening. Ever, 0:33:25.920 --> 0:33:27.960 Crudel could just be a pawn in that space. 0:33:28.000 --> 0:33:28.120 Now. 0:33:28.160 --> 0:33:29.840 Crude oil is down ten percent on the year, is 0:33:29.880 --> 0:33:33.040 not a big deal, but it's Brethren copper. The medal 0:33:33.080 --> 0:33:37.400 with the PhD in economics. Is it's wiped out a 0:33:37.400 --> 0:33:39.640 pretty good rally in January. Now it's down in the 0:33:39.720 --> 0:33:42.320 year two and gold is the best performing commodity. So 0:33:42.360 --> 0:33:46.560 from a commodity standpoint, gold up, crude oil, and industrial 0:33:46.600 --> 0:33:49.520 metals down. That's a recessionary trajectory. And then I look 0:33:49.560 --> 0:33:52.280 over at the yield curve. Okay, that's tilting towards inversion, 0:33:52.480 --> 0:33:55.280 recessionary trajectory. And I look at the FED still tightening. 0:33:55.480 --> 0:33:58.280 There's nothing good in there except some kind of surprise. 0:33:58.360 --> 0:34:02.200 I can't predict for the commodity market to end, all right. 0:34:02.240 --> 0:34:03.800 So, Mike, when people come up to me at cocktail 0:34:03.800 --> 0:34:06.400 parties and ask me for my commodities call, because they 0:34:06.440 --> 0:34:08.920 never do, I just quote you and just say, am 0:34:09.000 --> 0:34:10.799 I still long gold? Short everything else? 0:34:12.160 --> 0:34:16.000 Well, I think gold is much likely to continue the rally, 0:34:16.080 --> 0:34:18.279 to break out above this two thousand level and never 0:34:18.320 --> 0:34:20.920 look back. It's a matter of time, and crude oils 0:34:20.960 --> 0:34:22.840 and most commids are going to continue to do what 0:34:22.880 --> 0:34:26.040 they normally do. They get too expensive and then pendulum 0:34:26.040 --> 0:34:28.000 swings to too cheap, and it has to get too 0:34:28.080 --> 0:34:30.640 cheap before they can bounce again. And we're nowhere near 0:34:30.760 --> 0:34:33.239 that too cheat phase. As Fernando says, there's still a 0:34:33.239 --> 0:34:35.520 lot of profits to be made. The average cost of 0:34:35.560 --> 0:34:39.600 production from US producers is around fifty dollars a barrow, 0:34:39.640 --> 0:34:42.480 So I just look at forty as the key level 0:34:42.560 --> 0:34:44.879 should go back to. That was a key level in 0:34:45.120 --> 0:34:47.319 nineteen ninety I was in the trading pits. Then when 0:34:48.120 --> 0:34:52.040 Sodom's saying invaded Kuwait, it bounced to forty. And get this, 0:34:52.160 --> 0:34:54.359 the bounce at the bottom. The ultimate body didn't come 0:34:54.480 --> 0:34:58.719 until ten until about ten until nineteen ninety eight. Now 0:34:58.719 --> 0:35:00.880 things have really changed. Now is the biggest one of 0:35:00.880 --> 0:35:03.680 the net one of the biggest net energy producers on 0:35:03.719 --> 0:35:05.360 the planet in the net export. 0:35:05.320 --> 0:35:08.239 Yep, Hey, Fernanda, real quick thirty seconds? What do you think? 0:35:08.480 --> 0:35:10.359 Which company think is the best position here? These big 0:35:10.480 --> 0:35:11.160 energy companies? 0:35:11.800 --> 0:35:14.440 Well, I think Excellent has done a terrific job in 0:35:14.480 --> 0:35:18.200 turning around as investments by US growing in Guiana by 0:35:18.239 --> 0:35:23.480 acquiring the Permian Chevron equally has a sizeable permium position 0:35:23.520 --> 0:35:25.759 and it's in good position. So I think the US 0:35:25.800 --> 0:35:26.760 over Europe overall. 0:35:26.920 --> 0:35:29.839 Okay, great stuff. As always, always get the nice, clean, 0:35:29.880 --> 0:35:32.359 concise call from both of you, guys. Mike McLoone, senior 0:35:32.400 --> 0:35:36.920 micro macro strategists with the Bloomberg Intelligence from the Miami office. 0:35:36.920 --> 0:35:38.960 Some folks referred to now as Miami Mike. I don't 0:35:38.960 --> 0:35:41.480 know if that's going to stick. Fernando Vallei, senior analyst 0:35:41.560 --> 0:35:45.360 with Bloomberg Intelligence. He covers the global energy space, covers 0:35:45.400 --> 0:35:48.160 all the big major oil companies. So we'd like to 0:35:48.160 --> 0:35:50.759 speak to these two folks get a good view of 0:35:50.880 --> 0:35:51.880 global energy. 0:35:52.320 --> 0:35:55.440 You're listening to the tape Can's are Live program Bloomberg 0:35:55.520 --> 0:35:59.040 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:35:59.160 --> 0:36:02.359 tune in Appoomberg dot Com, and the Bloomberg Business App. 0:36:02.440 --> 0:36:05.239 You can also listen live on Amazon Alexa from our 0:36:05.239 --> 0:36:10.280 flagship New York station, Just Say Alexa play Bloomberg eleven thirty. 0:36:12.040 --> 0:36:14.240 Molly Smith and Paul Sweeney here in a Bloomberg Interactive 0:36:14.239 --> 0:36:16.440 Broker studio. I want to get right to our next guest, 0:36:16.760 --> 0:36:19.759 Jerry Smith, mediate reporter for Bloomberg News, one of the 0:36:19.760 --> 0:36:22.960 top media reporters out there, breaking lots of news, and 0:36:23.200 --> 0:36:25.800 we got him here in studio. All right, So Jerry, 0:36:25.880 --> 0:36:29.640 I want to start with ESPN. Back on my banking days, 0:36:29.640 --> 0:36:32.000 we pitched to spin that thing out. We thought we 0:36:32.040 --> 0:36:34.359 could get forty times earnings, double the value back when 0:36:34.400 --> 0:36:37.120 Disney was trading at twenty times. We always got laughed 0:36:37.120 --> 0:36:39.239 out of the office, if not physically thrown out of 0:36:39.239 --> 0:36:42.800 the office by the CFO of Disney. What is ESPN 0:36:42.880 --> 0:36:44.120 going to do? What is Disney to do with the 0:36:44.200 --> 0:36:46.640 ESPN these days? What do you think going forward? 0:36:46.920 --> 0:36:49.120 I think that's one of the biggest questions in the 0:36:49.160 --> 0:36:51.960 media in business right now, is the future of ESPN. 0:36:53.000 --> 0:36:55.040 You know, it still makes a lot of money for Disney, 0:36:55.080 --> 0:36:57.799 and that's important to think about because Disney also has 0:36:57.840 --> 0:37:01.320 this whole streaming business with Disney Plus, where that loses 0:37:01.320 --> 0:37:04.160 a lot of money. So the money that ESPN and 0:37:04.200 --> 0:37:06.880 the cable network business makes is used to fund the 0:37:06.880 --> 0:37:10.160 streaming business. So you get rid of ESPN and suddenly 0:37:10.239 --> 0:37:11.799 you have to ask, where are you going to fund 0:37:11.880 --> 0:37:16.520 your streaming business? But yeah, ESPN is dealing with the 0:37:16.560 --> 0:37:18.600 same thing that a lot of cable networks are dealing with, 0:37:18.640 --> 0:37:21.319 which is cord cutting. The number of subscriptions keeps going 0:37:21.360 --> 0:37:24.240 down and down, and they have a lot They're spending 0:37:24.280 --> 0:37:26.680 billions of dollars on sports rights, and they have a 0:37:26.680 --> 0:37:30.600 lot of high profile talent. Last Friday we saw about 0:37:30.600 --> 0:37:34.080 twenty of those people who appear on Camber. Jeff and Gundhy, 0:37:34.160 --> 0:37:36.880 Jalen Rose, Susi Kolber were three of the big names 0:37:37.560 --> 0:37:40.719 who were laid off as part of a cost cutting initiative. 0:37:40.760 --> 0:37:44.040 And part of that is really because ESPN is going 0:37:44.040 --> 0:37:46.600 to be under bigger scrutiny from Wall Street than ever before. 0:37:46.640 --> 0:37:49.600 Coming up. They are Disney for the first time in 0:37:50.000 --> 0:37:52.600 one of the next few quarters is going to break 0:37:52.600 --> 0:37:55.960 out ESPN's financial numbers for the first time. So that 0:37:56.080 --> 0:38:00.200 is clearly ESPN wants those numbers to look good. They 0:38:00.200 --> 0:38:02.640 are going to you know, they made some cuts to 0:38:02.680 --> 0:38:04.200 some of the high profile talent. 0:38:04.520 --> 0:38:07.000 At least they've kept the high profile tennis talent. I 0:38:07.040 --> 0:38:10.040 will vouch for that. They're all very much informed at Wimbledon, 0:38:10.239 --> 0:38:14.080 so happy from my perspective. But I'm wondering, Jerry, because 0:38:14.400 --> 0:38:17.680 isn't so much of the value of you know, cable 0:38:17.760 --> 0:38:20.680 right now sports right Isn't that so much of like 0:38:20.719 --> 0:38:23.360 where people have been saying, this is why cable is 0:38:23.400 --> 0:38:27.319 still around and why streaming has not completely overtaken it 0:38:27.719 --> 0:38:28.960 the whole picture. 0:38:29.080 --> 0:38:31.040 That's right, Yeah, I mean if the people who subscribe 0:38:31.080 --> 0:38:34.200 to cable right now are in large part sports fans, 0:38:34.440 --> 0:38:36.759 some news fans as well, but live sports is really 0:38:36.800 --> 0:38:39.279 what's keeping the whole industry together. So one of the 0:38:39.320 --> 0:38:42.120 big questions with ESPN is when do they make that 0:38:42.200 --> 0:38:47.040 flagship channel available as a streaming service. And the day 0:38:47.080 --> 0:38:49.680 that they do that could really, you know, unravel the 0:38:49.719 --> 0:38:52.080 whole business because you could see more people cut the 0:38:52.120 --> 0:38:55.319 cord to sign up for this ESPN service. And how 0:38:55.400 --> 0:38:58.239 much you price it as an open question, but yeah, 0:38:58.239 --> 0:39:00.279 I mean live sports is really what's keeping and it's 0:39:00.320 --> 0:39:01.759 the whole business together right now. 0:39:02.080 --> 0:39:05.000 And you know, you say that live sports absolutely that's 0:39:05.040 --> 0:39:07.120 always been the case. But you think about the regional 0:39:07.120 --> 0:39:11.640 sports network business. The number one player out there's in bankruptcy. 0:39:12.000 --> 0:39:13.560 You know, a lot of teams aren't even having their 0:39:13.600 --> 0:39:17.480 games broadcast anymore. So that whole model is really under pressure. 0:39:18.280 --> 0:39:22.680 ESPN model under pressure. In that background, the rights keep 0:39:22.719 --> 0:39:24.959 going up. I mean, who's going to pay these thirty 0:39:25.000 --> 0:39:27.920 forty fifty increase in rates if it's not ESPN. 0:39:27.960 --> 0:39:29.920 Right, I think we're really heading towards a cliff with 0:39:29.960 --> 0:39:33.200 this whole business, where at some point some sports league 0:39:33.320 --> 0:39:35.600 is not going to be able to command the kind 0:39:35.640 --> 0:39:38.440 of increase in their rights fees that they have in 0:39:38.480 --> 0:39:42.319 the past. That hasn't happened yet. It's the amount that 0:39:42.800 --> 0:39:45.360 live sports costs just keeps going up and out. But 0:39:45.600 --> 0:39:47.400 I think there's going to be a point where some 0:39:47.440 --> 0:39:49.360 of these sports leagues are going to take a haircut. 0:39:49.920 --> 0:39:51.440 I don't think it's going to be the really high 0:39:51.520 --> 0:39:53.640 profile leagues. The big one coming up is the NBA, 0:39:53.760 --> 0:39:55.799 and I think everyone expects the NBA is still going 0:39:55.840 --> 0:39:58.319 to get a nice premium from what they got. But 0:39:58.920 --> 0:40:00.919 people I talk to in the end industry to say, look, 0:40:00.960 --> 0:40:04.640 watch for some of those middle tier sports that are 0:40:04.640 --> 0:40:06.160 really going to get squeezed right now. 0:40:06.760 --> 0:40:09.080 So if it's not if ESPN, you know, you would 0:40:09.080 --> 0:40:11.040 think this is going to be like the channel here. 0:40:11.080 --> 0:40:13.920 They can obviously weather whatever's going on in the sports industry. 0:40:14.280 --> 0:40:16.600 If they're not able to put it together, you know, 0:40:16.600 --> 0:40:20.000 how are the networks fairing? Obviously ABC still part of 0:40:20.000 --> 0:40:23.360 the Disney Empire. But when you look at NBC, CBS, 0:40:23.360 --> 0:40:26.360 some of the other ones that will you know, broadcast 0:40:26.400 --> 0:40:29.080 live sports, how are they holding up well? 0:40:29.239 --> 0:40:32.759 Those broadcast channels? I mean, one interesting trend we've seen 0:40:32.760 --> 0:40:34.359 with cord cutting is a lot of people who not 0:40:34.400 --> 0:40:37.080 only cancel their cable for Netflix, but they also get 0:40:37.080 --> 0:40:39.560 the digital antennas and you can actually get a lot 0:40:39.560 --> 0:40:43.239 of programming on that, including CBS, NBC, Fox, So those 0:40:43.320 --> 0:40:47.360 channels are are weathering the storm better. And in fact, 0:40:47.760 --> 0:40:49.600 you know the NBA, when they're looking for this next 0:40:49.600 --> 0:40:51.560 sports right deal, they really want to find a media 0:40:51.600 --> 0:40:55.200 partner that can offer them streaming and also a broadcast 0:40:55.280 --> 0:40:58.480 channel like an ABC or an NBC or a CBS 0:40:58.560 --> 0:41:01.239 or Fox, because those channels have a lot more reach. 0:41:01.320 --> 0:41:03.920 We're seeing with these regional sports networks. Just a few 0:41:03.960 --> 0:41:06.640 weeks ago, the Utah Jazz did a deal where they 0:41:07.080 --> 0:41:09.400 their games are going to be available over an antenna 0:41:09.520 --> 0:41:12.000 over a free over the air channel and they did 0:41:12.040 --> 0:41:15.080 away with their cable deal. They had a cable network 0:41:15.280 --> 0:41:17.440 that aired their games. That's not going to happen anymore. 0:41:17.480 --> 0:41:19.239 So that's something that we're starting to see in the 0:41:19.239 --> 0:41:22.760 sports business, is the cable channels because of cord cutting, 0:41:23.000 --> 0:41:27.040 their reach is diminishing, and you're seeing a combination of 0:41:27.239 --> 0:41:30.040 more free over the air channels and streaming channels to 0:41:30.120 --> 0:41:33.360 kind of reach the widest audience. Possible. The real question 0:41:33.440 --> 0:41:36.520 there is at what point can those leagues still command 0:41:36.520 --> 0:41:38.760 the same kind of money they got from the cable channels. 0:41:39.280 --> 0:41:41.080 Right now they're not getting the same kind of money, 0:41:41.200 --> 0:41:42.640 So how do they make up that loss? 0:41:42.760 --> 0:41:44.759 Yeah, if I'm a I think it's some point just 0:41:44.760 --> 0:41:46.719 going to trickle down to the athletes themselves. If I 0:41:46.719 --> 0:41:49.800 were somebody, I'd be locking up a long term contract now, know. 0:41:49.880 --> 0:41:52.400 Yeah, That's what's fascinating about the sports media business is 0:41:52.400 --> 0:41:55.560 everything's connected. Everything from how much the sports player is 0:41:55.560 --> 0:41:58.839 getting paid to the person at home who's canceling their 0:41:58.880 --> 0:42:01.880 cable service. There's a a chain link and everybody's connected, 0:42:01.880 --> 0:42:04.000 and so more and more people cut the cord and 0:42:04.040 --> 0:42:06.560 that trickles down all the way to the teams how 0:42:06.600 --> 0:42:08.600 much they can play their pay their players. 0:42:09.200 --> 0:42:11.520 Does that mean that people are even maybe, you know, 0:42:11.560 --> 0:42:14.720 if they're not paying to watch this stuff on cable anymore, 0:42:15.040 --> 0:42:17.719 does it even say like, if you still really want 0:42:17.719 --> 0:42:19.520 to watch these games, you're going more in person. 0:42:20.520 --> 0:42:21.240 That's a good question. 0:42:21.320 --> 0:42:24.759 I think attendance and in sports has actually been doing 0:42:24.760 --> 0:42:27.359 pretty well. I think Major League Baseball attendants is doing well. 0:42:27.719 --> 0:42:29.719 They actually made an interesting change this year where they 0:42:29.719 --> 0:42:32.000 made the game shorter, which I think has helped both 0:42:32.040 --> 0:42:35.880 the viewership and the attendance. But yeah, I mean, that's 0:42:36.000 --> 0:42:38.920 that's something that years and years ago there were these 0:42:38.920 --> 0:42:42.279 blackout rules where you could watch sporting events because they 0:42:42.280 --> 0:42:44.200 wanted to make sure that enough people actually went to 0:42:44.239 --> 0:42:47.480 the games. But yeah, I mean, if you think about 0:42:47.520 --> 0:42:50.640 the business of owning a sports franchise, media rights are 0:42:50.640 --> 0:42:52.839 a huge piece of it, but also people go into 0:42:52.880 --> 0:42:56.239 the games, the attendance ticket costs, things like that. So yeah, 0:42:56.280 --> 0:42:58.960 that's an excellent question. I'm not sure what the answer isre. 0:42:58.560 --> 0:43:01.040 You cover the whole media based soup the nuts here, 0:43:02.200 --> 0:43:05.439 Have we reached peak Hollywood in a sense that boy, 0:43:05.520 --> 0:43:10.400 the spending on TV shows and movies just exploded due 0:43:10.440 --> 0:43:13.160 to Netflix and all the other streaming competitors. But now 0:43:13.200 --> 0:43:15.040 we're seeing companies like Disney saying, oh, we got to 0:43:15.080 --> 0:43:19.319 cut costs, including production costs. Your colleague at Bloomberg News, 0:43:19.400 --> 0:43:22.680 Lucashaw's got a story out about Amazon CEO wants to 0:43:22.719 --> 0:43:24.920 know why they're spending so much money on program So 0:43:24.960 --> 0:43:28.400 if Amazon's asking that question, have we maybe had peak 0:43:28.440 --> 0:43:29.640 spending in Hollywood? 0:43:30.400 --> 0:43:33.360 Yeah, I think that's an interesting question. And I'd encourage 0:43:33.360 --> 0:43:36.880 everyone to read Lucas's story because it's it's really one 0:43:36.920 --> 0:43:40.680 of the first times we've seen Amazon really look at 0:43:40.719 --> 0:43:43.520 the cost of their Hollywood studio. I think it helps 0:43:43.560 --> 0:43:47.240 to think of these streamers as different kinds of companies 0:43:47.239 --> 0:43:51.040 with different priorities. You have Apple and Amazon who just 0:43:51.080 --> 0:43:56.320 have such enormously deep pockets that the losses that everyone's 0:43:56.360 --> 0:43:59.280 losing money on streaming, but they can sustain the losses 0:43:59.800 --> 0:44:03.359 much easier than some of these other companies that where 0:44:03.440 --> 0:44:06.239 media is their whole business, someone like a Disney or 0:44:06.280 --> 0:44:10.680 Comcast or Paramount, where they're having real cost cutting issues. 0:44:11.080 --> 0:44:15.239 Again getting back to the whole cord cutting phenomenon, but yeah, 0:44:15.239 --> 0:44:17.839 we're starting to see even someone like Amazon. I mean, 0:44:18.120 --> 0:44:22.480 they're spending seven billion dollars a year on streaming on programming, 0:44:22.560 --> 0:44:24.960 and then that's a drop in the bucket for them, 0:44:25.120 --> 0:44:27.240 but they're still looking at these losses. 0:44:27.760 --> 0:44:30.120 Hey, you know it's reading a research note by Laura 0:44:30.200 --> 0:44:32.520 Martin at Needham and Company, and she was talking about 0:44:32.600 --> 0:44:34.719 Paramount and her question She was saying, Hey, here are 0:44:34.760 --> 0:44:37.200 the questions I'm getting from institutional investors, and then what 0:44:37.280 --> 0:44:39.719 came up to Paramount the question was, what are they 0:44:39.760 --> 0:44:42.040 going to sell? Is that really a story? Is there 0:44:42.200 --> 0:44:44.880 a belief out there, Jerry that maybe they're you know, 0:44:44.960 --> 0:44:48.040 Sherry Redstone and the Redstone family and the trust whatever 0:44:48.120 --> 0:44:48.840 sell Paramount. 0:44:49.920 --> 0:44:52.400 I think that's something that people have been talking about 0:44:52.440 --> 0:44:54.040 for as long as I've been covering this beat. I 0:44:54.040 --> 0:44:58.200 mean it's years and years. I think that the you know, 0:44:58.239 --> 0:45:01.120 this is an industry about scale, how big you can be, 0:45:01.400 --> 0:45:05.040 and I think Paramount, even after they combined Viacom with CBS, 0:45:05.080 --> 0:45:09.279 has always been seen as being undersized and everyone's always wondering, well, 0:45:09.280 --> 0:45:12.560 when is someone going to buy them? But you know, 0:45:12.920 --> 0:45:15.279 there's also the companies that can afford to buy them, 0:45:15.320 --> 0:45:18.560 are companies like an Apple or an Amazon. Everyone always wonders, 0:45:18.600 --> 0:45:21.400 but do those companies really want to get into the 0:45:21.440 --> 0:45:24.400 cable channel business with all the challenges that they're facing 0:45:24.480 --> 0:45:26.960 right now? You know, maybe they could just sell off 0:45:26.960 --> 0:45:29.960 the studio. That might be attractive, But yeah, it's a 0:45:29.960 --> 0:45:32.799 scale business and they've always been seen as undersized. So 0:45:32.880 --> 0:45:35.560 I think that's something everybody's always wondering. I think the 0:45:35.600 --> 0:45:38.880 Allen and Company Sun Valley conference is coming up. Oh yeah, 0:45:38.920 --> 0:45:41.239 everybody loves to talk about how there's deals being done. 0:45:41.239 --> 0:45:42.640 There's this month. 0:45:42.520 --> 0:45:43.680 Right, I believe that's coming up. 0:45:43.760 --> 0:45:44.480 Yeah, so that's I. 0:45:44.480 --> 0:45:47.040 Didn't get my invite. I'm still waiting, all right, all right, 0:45:47.440 --> 0:45:49.399 New York Times, we talked about it. The New York 0:45:49.400 --> 0:45:51.799 Times still cranking it out. It's got a six point 0:45:51.840 --> 0:45:54.279 five billion dollar market cap. Everybody thought The New York 0:45:54.320 --> 0:45:55.879 Times was going out of business. A lot of other 0:45:55.920 --> 0:45:58.759 papers have unfortunately, but just locks up twenty two percent 0:45:59.000 --> 0:46:01.640 to date. Because content is king. So as long as 0:46:01.680 --> 0:46:04.200 you got the premium content, they'll figure out a way 0:46:04.280 --> 0:46:05.720 to get paid for it. In the New York Times, 0:46:05.719 --> 0:46:09.200 their app has been extraordinary. Their digital advertising has been great. 0:46:09.239 --> 0:46:11.120 So there's my little plug. I've been found New York 0:46:11.120 --> 0:46:13.160 Times company for like, you know, forty. 0:46:12.960 --> 0:46:15.600 Years cooking in games. Those are the big ones exactly. 0:46:15.880 --> 0:46:19.000 You're listening to the tape. Can's are live program Bloomberg 0:46:19.040 --> 0:46:22.640 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:46:22.680 --> 0:46:25.919 tune in app, Bloomberg dot Com, and the Bloomberg Business app. 0:46:25.960 --> 0:46:28.759 You can also listen live on Amazon Alexa from our 0:46:28.800 --> 0:46:33.200 flagship New York station, Just Say Alexa playing Bloomberg eleven thirty. 0:46:35.000 --> 0:46:38.359 Let's check about the fixed income business. Twenty twenty two 0:46:38.440 --> 0:46:41.200 a year two ford get for pretty much everybody in 0:46:41.239 --> 0:46:43.080 the fixed income space a little bit better this year. 0:46:43.360 --> 0:46:45.320 So we want to check in with Ward Borts. He 0:46:45.600 --> 0:46:48.600 is Ward bots. He is the ETF portfolio manager, head 0:46:48.600 --> 0:46:52.440 of Distribution public Strategies at Angel Oak. So Ward, you know, 0:46:52.480 --> 0:46:55.040 I'm looking at the two year treasury, I don't know, 0:46:55.239 --> 0:46:57.400 four point nine one percent. I'll put some money in 0:46:57.440 --> 0:46:59.440 there and I think I'll be quite happy. You know, 0:46:59.719 --> 0:47:02.279 what do you think about fixed to come space these days? 0:47:02.640 --> 0:47:05.719 Yeah, to your point, I think twenty twenty two it 0:47:05.760 --> 0:47:06.880 was painful. 0:47:06.400 --> 0:47:09.480 Getting there after years of really getting no yield, no 0:47:09.640 --> 0:47:10.839 return in the in. 0:47:10.760 --> 0:47:12.400 The fixed income markets. 0:47:12.840 --> 0:47:15.520 But twenty twenty three has been off to a decent 0:47:15.520 --> 0:47:17.640 start in fixed income. You know, our view at the 0:47:17.680 --> 0:47:20.759 beginning of the year was you could get equity like 0:47:20.840 --> 0:47:25.160 returns in fixed income, and you know, in our head 0:47:25.200 --> 0:47:28.400 that's kind of called it eight to twelve percent, depending 0:47:28.400 --> 0:47:30.359 on what interest rates do throughout the year. 0:47:30.719 --> 0:47:34.160 We're about halfway there now, right around four percent. 0:47:34.280 --> 0:47:37.200 I think high yield so far this year is up 0:47:37.239 --> 0:47:41.560 five and a half percent, So you know, thus far. 0:47:41.440 --> 0:47:43.480 It's been pretty good and our expectation is through the 0:47:43.480 --> 0:47:44.000 rest of the year. 0:47:44.040 --> 0:47:46.280 It's it's not a bad place to be a positioned, 0:47:46.520 --> 0:47:50.239 particularly given what you've seen on the equity market so 0:47:50.280 --> 0:47:50.879 far this year. 0:47:51.120 --> 0:47:53.120 Yeah, we're you know, I used to cover credit and 0:47:53.360 --> 0:47:55.560 you know a lot of this. I'm really just scratching 0:47:55.560 --> 0:47:58.200 my head here because rates have still gone up this year. 0:47:58.640 --> 0:48:01.040 We are hearing that rates are going to stay high 0:48:01.040 --> 0:48:04.040 this year, and yet you're seeing high yield, like you 0:48:04.040 --> 0:48:06.520 said up close, around five and a half percent, investment 0:48:06.560 --> 0:48:10.040 grade up three percent. Where is the where is this 0:48:10.120 --> 0:48:10.720 coming from? 0:48:11.560 --> 0:48:14.319 It's it's the first time in you know, I don't 0:48:14.360 --> 0:48:17.640 know how long where carry actually matters. The coupon that 0:48:17.680 --> 0:48:20.360 you're getting from bonds, you know, or able to offset 0:48:21.120 --> 0:48:24.160 the increases in yields. So you know, to the point 0:48:24.200 --> 0:48:27.879 made earlier, if you can get five percent in short 0:48:27.960 --> 0:48:31.320 term treasuries, even if yields go up one hundred basis points, 0:48:31.800 --> 0:48:33.040 it's going to be offset. 0:48:32.719 --> 0:48:35.839 By the yield you're getting in bonds. And that's really 0:48:35.920 --> 0:48:37.360 what we're seeing with investors. 0:48:37.680 --> 0:48:39.799 We're seeing investors kind of doing the math on that 0:48:40.040 --> 0:48:41.960 and saying, you know what, I'm going to increase my 0:48:42.000 --> 0:48:45.600 allocation to bonds a bit to really take advantage of 0:48:45.680 --> 0:48:48.279 what historically, or for at least for the last ten years, 0:48:48.280 --> 0:48:49.800 has really been no opportunities. 0:48:50.600 --> 0:48:54.080 So how do you play this in the ETF space war. 0:48:55.719 --> 0:49:00.000 On? So what we think is attractive, So maybe i'll 0:49:00.120 --> 0:49:02.400 answer that slightly different. Where do the risk to this? 0:49:03.080 --> 0:49:05.640 So if we think about our outlook for the rest 0:49:05.640 --> 0:49:07.640 of the year, we think that the economy is going 0:49:07.640 --> 0:49:11.040 to start to slow down, So the impact of the 0:49:11.080 --> 0:49:13.360 FED raising rates over the last year is going to 0:49:13.360 --> 0:49:16.719 start to be felt and you'll see an economic slow down. 0:49:17.000 --> 0:49:23.000 Right now in traditional corporate credit, spreads are very tight, 0:49:23.600 --> 0:49:29.080 and so we are encouraging investors to underweight corporate credit 0:49:29.520 --> 0:49:31.880 because if we do see a slow down in the economy, 0:49:31.880 --> 0:49:37.480 that's going to feed into corporations, feed into earnings. Potentially 0:49:37.520 --> 0:49:40.600 you can see defaults start to increase, if not late 0:49:40.640 --> 0:49:44.320 this year, then early next year. And so we're saying 0:49:44.440 --> 0:49:47.920 underweight corporate credit where you've already had decent returns. 0:49:47.480 --> 0:49:49.360 For the year, as it's been highlighted. 0:49:49.960 --> 0:49:52.839 And what we really like is mortgage backed securities, So 0:49:53.200 --> 0:49:54.840 we call this securitized credit. 0:49:54.960 --> 0:49:55.479 So these are. 0:49:55.400 --> 0:49:59.319 Bonds that you know are issued by Fanny and Freddy. 0:50:00.120 --> 0:50:03.160 Or those that aren't backed by the government. 0:50:03.400 --> 0:50:05.960 Here, you're able to get similar yields to what you 0:50:06.040 --> 0:50:09.840 get in the corporate space, if not higher, and we 0:50:09.920 --> 0:50:12.720 think a lot more upside because these are actually priced 0:50:12.760 --> 0:50:16.680 a lot wider than historical levels relative to to corporate 0:50:16.719 --> 0:50:19.480 So we really think that's the attractive place to play 0:50:19.640 --> 0:50:23.360 in the marketplace. So from an ETF standpoint, if you 0:50:23.360 --> 0:50:29.799 look at agency mortgage backed ETFs like MVB is A 0:50:29.960 --> 0:50:34.399 is a big one. You know you're gonna benefit both 0:50:34.400 --> 0:50:37.800 if rates start to decline and if the the yields 0:50:37.800 --> 0:50:40.560 and spreads of these mortgage backed securities start to define. 0:50:40.840 --> 0:50:44.640 In addition, we have a non agency ETF c A 0:50:44.920 --> 0:50:47.239 r Y and this is kind of a little bit 0:50:47.239 --> 0:50:49.360 more bang through your book, a little bit higher yield, 0:50:49.680 --> 0:50:52.920 but still investing in that mortgage backed security opportunity that 0:50:53.000 --> 0:50:53.759 we see right now. 0:50:54.360 --> 0:50:57.279 And per that, yeah, that what you're talking about here 0:50:57.320 --> 0:51:01.680 with MPs. What's your view then on mortgages and how 0:51:01.719 --> 0:51:03.439 does that filter into this. 0:51:03.440 --> 0:51:08.200 Call on the mortgage market generally. So that's going to 0:51:08.200 --> 0:51:10.799 be driven by a couple of things. So one is, 0:51:11.080 --> 0:51:12.840 you know, home prices, So what do we think is 0:51:12.840 --> 0:51:16.040 going to happen with home prices, and what you've seen 0:51:16.120 --> 0:51:20.000 so far this year is generally a stabilization in home prices. 0:51:20.080 --> 0:51:23.480 After you know, what everybody knows was an incredible two thousand, 0:51:24.080 --> 0:51:26.759 twenty twenty one, and even twenty two in terms of 0:51:26.760 --> 0:51:29.640 home price appreciation, we think you'll start to see a 0:51:29.680 --> 0:51:34.520 stabilization in home priss, but not really a significant appreciation. 0:51:35.080 --> 0:51:38.000 So we think from a credit standpoint, those mortgage bonds, 0:51:38.040 --> 0:51:41.320 those mortgage backed securities are actually in really great shape 0:51:41.320 --> 0:51:45.359 because the houses that back them are doing great from 0:51:45.640 --> 0:51:46.759 a price standpoint. 0:51:47.880 --> 0:51:48.520 Ward, what do you. 0:51:48.440 --> 0:51:52.080 Think about private credit? It's a business, it's a market. 0:51:52.080 --> 0:51:54.120 It's an asset class that has really has come on 0:51:54.160 --> 0:51:56.920 to the scene in the last I don't know decade 0:51:57.000 --> 0:51:58.759 or so, and it's gotten so popular. How do you 0:51:58.800 --> 0:52:01.319 guys think about that? You've ex bosure there. What do 0:52:01.320 --> 0:52:02.000 you think about that? 0:52:02.760 --> 0:52:06.799 So we do not so. Number one, it has been 0:52:06.800 --> 0:52:07.560 an explosion. 0:52:08.200 --> 0:52:08.600 Uh. 0:52:08.680 --> 0:52:11.040 You know, we kind of thought, given the increase in 0:52:11.160 --> 0:52:14.400 yields that you've seen in traditional public markets over the 0:52:14.480 --> 0:52:17.560 last year, that there would be a decline in growth 0:52:17.680 --> 0:52:21.719 in UH in private credit, but but it hasn't worked 0:52:21.719 --> 0:52:26.200 out the way people continue to demand private credit significantly. 0:52:26.239 --> 0:52:31.239 And this is really uh, you know, backed by corporation, 0:52:31.560 --> 0:52:35.640 similar to corporate bonds, except you know, private loans. We 0:52:35.760 --> 0:52:37.840 think that, you know, from everything we've seen, they'll be 0:52:38.000 --> 0:52:42.680 continued growth there. Our concern is whenever you see an 0:52:42.719 --> 0:52:47.040 asset class explode in growth, as you've seen in private credit, uh, 0:52:47.440 --> 0:52:50.720 you can see lending standards starts at the climb, and 0:52:50.840 --> 0:52:54.560 the private credit asset class really has not been tested yet. 0:52:55.000 --> 0:52:58.120 And so our concern about it is when you start 0:52:58.120 --> 0:53:01.560 to see that economics slow down, you've seen significant growth 0:53:01.560 --> 0:53:04.239 in the size of the asset class, have the underwriting 0:53:04.280 --> 0:53:07.319 standards held up as much as you know, as much 0:53:07.320 --> 0:53:10.160 as they were historically where you've got very low default 0:53:10.200 --> 0:53:13.440 rates and high recovery rates and private right, so you know, 0:53:14.040 --> 0:53:16.120 in our head, the jury is still out on whether 0:53:16.200 --> 0:53:19.200 or not private credit is able to withstand the first 0:53:19.200 --> 0:53:21.160 down tournament the seeds. 0:53:20.880 --> 0:53:22.640 All right ward, Thanks so much for joining us, Really 0:53:22.680 --> 0:53:25.720 appreciate it getting some of your time here. War Borts. 0:53:25.760 --> 0:53:29.480 He's a ETF portfolio manager, head of Distribution Public Strategies 0:53:29.520 --> 0:53:32.200 at angel O. Before that, he was a dimensional fund 0:53:32.200 --> 0:53:35.319 Advisors trade er trading at RBC capital markets, all kinds 0:53:35.360 --> 0:53:38.640 of stuff there at black Rock as well, so lots 0:53:38.680 --> 0:53:41.479 of experience out there in the space getting his thoughts 0:53:41.560 --> 0:53:44.239 on fixing him much better year in twenty twenty three. 0:53:44.960 --> 0:53:47.799 And the high yield, you know, return of over five 0:53:47.800 --> 0:53:49.719 percent or about five percent this year so far as 0:53:49.800 --> 0:53:50.920 it's pretty done, impressive. 0:53:51.040 --> 0:53:53.560 I was just looking even Triple C's up about ten 0:53:53.640 --> 0:53:56.480 percent this year, so could not seeing the stress yet. 0:53:56.640 --> 0:54:00.239 Yeah, definitely not exactly, but that's after a brutal twenty 0:54:00.280 --> 0:54:02.719 twenty two so a lot of room, a lot of 0:54:02.960 --> 0:54:04.759 still digging needs to be done to get out of 0:54:04.800 --> 0:54:05.200 that hole. 0:54:07.920 --> 0:54:11.040 Thanks for listening to the Bloomberg Markets podcasts. You can 0:54:11.080 --> 0:54:14.840 subscribe and listen to interviews at Apple Podcasts or whatever 0:54:14.920 --> 0:54:18.640 podcast platform you prefer. I'm Matt Miller. I'm on Twitter 0:54:18.840 --> 0:54:20.960 at Matt Miller nineteen seventy three. 0:54:21.239 --> 0:54:23.600 And I'm fall Sweeney. I'm on Twitter at pt Sweeney. 0:54:23.719 --> 0:54:26.400 Before the podcast, you can always catch us worldwide at 0:54:26.400 --> 0:54:28.160 Bloomberg Radio