Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moving news.
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Speaker 1: podcast ups United Parcel Service. This stock is up, but
Speaker 1: it's off two hundred quarter percent today. It's only up
Speaker 1: about three percent year to date, one hundred and fifty
Speaker 1: five billion dollar market cap. But we got some problems
Speaker 1: there potentially later this month with the labor contract there.
Speaker 1: Kritty Gupda Markets editor and host of Bloomberg Surveillance Early
Speaker 1: Edition ge joins us here in our Bloomberg Interactive Broker
Speaker 1: studio Krity. What are you looking at UPS? Talk to
Speaker 1: us about the labor situation there.
Speaker 3: Oh, there's so much going on. Look, remember when last
Speaker 3: fall we had those massive rail strikes where the essentially
Speaker 3: the government had to get involved and say, look, we're
Speaker 3: shutting down these negotiations because you clearly can't seem to
Speaker 3: come to some sort of reasonable conclusion. It looks like
Speaker 3: we're on the cusp of that happening again, except this
Speaker 3: time with ups. The shares are down about two point
Speaker 3: two percent in the pre market over the weekend. They
Speaker 3: were supposed to have some pretty good negotiations and they
Speaker 3: were going well until now it looks like they've collapsed.
Speaker 3: And what's important to keep in mind here is that
Speaker 3: the contract is coming up pretty quickly to end, So
Speaker 3: July thirty four first is when it ends. And this
Speaker 3: is why we care. Three hundred and thirty thousand workers
Speaker 3: in this country. This is the largest private sector union agreement.
Speaker 1: That's the reporting that got my attention. I didn't think
Speaker 1: about that, but it's massive, yes it is.
Speaker 3: It's even bigger than the rail strikes. And this has
Speaker 3: even as a bigger implication for supply chains, the match
Speaker 3: of the folks who who can't get their packages. So
Speaker 3: that's kind of what we're dealing with here. They're going
Speaker 3: through the nitty gritty. It looks like the union itself
Speaker 3: has walked away from talks this time around, but some
Speaker 3: pretty huge implications that this market is really reacting to.
Speaker 4: Ye I wanted to ask you more about the supply chain,
Speaker 4: their creedy, So of course, like no, one wants to
Speaker 4: get their packages late. That's frustrating. We all experience that
Speaker 4: during COVID. But what is there like a bigger takeaway here,
Speaker 4: bigger problem besides delace.
Speaker 3: There is a bigger problem.
Speaker 5: Look.
Speaker 3: So, so the way to think about the shipping industry
Speaker 3: right now is everyone's kind of tackling a little bit differently.
Speaker 3: There's three different players here. There's UPS, FedEx, DHL, and
Speaker 3: they all kind of do a little bit of everything.
Speaker 3: So they will take your package or a business's package
Speaker 3: or a freight package via plane, train, automobile, thrown a
Speaker 3: ship in there. And what's important to keep in mind
Speaker 3: is that FedEx and DHL have taken a very different
Speaker 3: approach than UPS has post pandemic, when everyone was kind
Speaker 3: of paying top dollar to get their shipments, FedEx and
Speaker 3: DHL really invested in their labor and that's something that
Speaker 3: FedEx is now paying for. They're saying, we over hired.
Speaker 3: Now we're pulling back. So we've see all these layoffs.
Speaker 3: DHL they're not doing layoffs, but they are kind of
Speaker 3: dealing with that crunch now that packages are declining through
Speaker 3: kind of attrition, and they're saying, we're just not going
Speaker 3: to replace roles. UPS is a completely different ballgame because
Speaker 3: they never invested in labor in the first place, and
Speaker 3: that's a big problem. And a big part of that
Speaker 3: was because they're unionized, whereas FedEx has more kind of
Speaker 3: an independent contractor network, which they are kind of now
Speaker 3: dealing with as well. UPS said, we're going to focus
Speaker 3: on margins. We're going to increase prices, They're going to
Speaker 3: focus on the smaller consumer and make up our margins
Speaker 3: from there. And you really saw that strategy work because
Speaker 3: if you look at the stock of the three companies,
Speaker 3: UPS has won out. They've outperformed over and over and
Speaker 3: over again. Except now because of those margins. They're saying, look,
Speaker 3: we can't pay up, whereas the union is saying, well,
Speaker 3: our wages aren't rising in line with profits, so why
Speaker 3: should we work if we're not getting that. So they
Speaker 3: are making some concessions UPS to these drivers of things
Speaker 3: like part time drivers changing a little bit of a shift.
Speaker 3: They're now getting MLKDA as a paid holiday, no more
Speaker 3: mandatory over time. There's no two tier system anymore. Basically,
Speaker 3: part time workers, we're making about five dollars less an
Speaker 3: hour than full time workers. So there are pieces of
Speaker 3: the equation, but it's still not at the salary level
Speaker 3: that a lot of these workers want.
Speaker 1: Well, I mean the old contract full time, they can
Speaker 1: make up the thirty nine dollars per hour. That seems
Speaker 1: like a good number. But are they saying, yeah, but
Speaker 1: you guys, being the company made so much money during
Speaker 1: the pandemic, we want some of that pretty much.
Speaker 3: And look, it's also because of the overtime policy, because
Speaker 3: a lot of these kind of shipping constraints require some
Speaker 3: of these workers to go over time. And I think
Speaker 3: it's better perhaps because from an hourly perspective, thirty nine
Speaker 3: dollars an hour sounds pretty juicy. Let's talk about it
Speaker 3: from an annual perspective. Full time delivery drivers making about
Speaker 3: ninety five thousand a year, even though they're doing it
Speaker 3: through kind of rain, hail storm, through COVID, through all
Speaker 3: of these kind of issues.
Speaker 1: Did they ever get anything for COVID working through COVID?
Speaker 3: They didn't. And this is I think where a lot
Speaker 3: of the parallels with the rail worker story came because remember,
Speaker 3: for the rail strikes last fall, they weren't getting paid
Speaker 3: time off, they weren't getting a sick leave for example,
Speaker 3: they weren't even getting access to benefits. So it's a
Speaker 3: lot of these same issues. Essentially, these are industries rail
Speaker 3: or shipping that are very intensive. Truck drivers really have
Speaker 3: to have to kind of sacrifice a lot physically but
Speaker 3: also in terms of family and how much time they
Speaker 3: get off as well, so they want to be compensated
Speaker 3: for it, especially with the overtime. And I think that's
Speaker 3: where they're struggling here, and they're basically saying, look, we've
Speaker 3: we've made some concessions, but really you got to meet
Speaker 3: us on the pay and ups just isn't budget here.
Speaker 6: Yeah.
Speaker 4: I saw with the West Coast dock workers too, even
Speaker 4: more recently this spring, and as you've mentioned, you know
Speaker 4: that the government did have to intervene it that we
Speaker 4: don't think a lot of us probably remember Joe Biden
Speaker 4: taking a nice trip out there, yeah, to visit.
Speaker 3: And I'll say this isn't really quickly. This is an
Speaker 3: international story too, because Canada also now dealing with with
Speaker 3: port strikes as well, so you're seeing this all over.
Speaker 1: I want to say the world, what's GPS saying. Are
Speaker 1: they what's their bargaining position? Are they saying we pay competitively.
Speaker 1: What are they saying here?
Speaker 3: So UPS is saying that, look, we are negotiating, we've
Speaker 3: already made a lot of concessions, which, to be fair,
Speaker 3: they have a normal mandatory overtime, they've changed their two
Speaker 3: tier payment system. But they're saying that the team stars
Speaker 3: kind of have to give some sort of lead here.
Speaker 3: And if you look at this last round of negotiations
Speaker 3: which collapsed this morning, by the way, they're saying that
Speaker 3: the teamsters are the ones who walked away from the
Speaker 3: bargaining table, so you have to They're saying, you have
Speaker 3: to continue this dialogue. Of course, we're going to keep
Speaker 3: you updated on because this is not over yet. But
Speaker 3: but we'll see how this is.
Speaker 1: What have we heard from the administration is like, I
Speaker 1: haven't heard anything like President Biden talking about this. Is
Speaker 1: this just because we've got, you know, three weeks to
Speaker 1: go before it really gets pretty much?
Speaker 3: Look, I don't I think the Biden administration, and Molly
Speaker 3: correct me if I'm wrong. You're here on the Economics team,
Speaker 3: they really want to not intervene until they really have to.
Speaker 3: When you saw this with the rail strike, I keep
Speaker 3: bringing this back to the real strikes because we just
Speaker 3: went through this a couple of months ago. Marty Walsh,
Speaker 3: the Labor Secretary at the time, got involved at the
Speaker 3: very last minute, and it ended up being because Congress
Speaker 3: had to intervene. It was some sort of very old
Speaker 3: rail laft nineteen twelve that only applied to rail for
Speaker 3: some reason, and that's what they ended up instigating. But
Speaker 3: you kind of want to make this work on its
Speaker 3: own before the Biden administration gets involved, especially because of
Speaker 3: the political consequences.
Speaker 4: Absolutely, I mean, yeah, that is definitely the eleventh hour,
Speaker 4: Hail Mary. We need to call in the top guns
Speaker 4: to make this happen. So, yeah, it doesn't seem like
Speaker 4: we're quite there yet, but it certainly would be concerning
Speaker 4: over the next three weeks if it does escalate to
Speaker 4: that point. Does is there an indication that this could
Speaker 4: be drawn out? For it could? Yeend, it could.
Speaker 3: So I think what was kind of the difference again,
Speaker 3: I'm gonna bring them back to the real strikes, because
Speaker 3: it's a little bit of deja vous here, is that
Speaker 3: the voting periods were longer, So you had kind of, Okay,
Speaker 3: we're going to go to the eleventh hour and then
Speaker 3: we're going to have three or six weeks to vote
Speaker 3: and then come back, So it was kind of a
Speaker 3: drawn out process, specifically because of that law that dayed
Speaker 3: back to like nineteen twelve or whatever. This time around,
Speaker 3: that's not true. It has been voted ninety seven percent
Speaker 3: by the union that if this agreement isn't hit by
Speaker 3: July thirty first, which is when the contract ends August first,
Speaker 3: they are going on strike. So we're still about two
Speaker 3: three weeks away, but it's certainly something you want to
Speaker 3: keep an eye on because there is no long drawn
Speaker 3: out process here. It's very simple.
Speaker 1: And Marty Walsh is not going to come in and
Speaker 1: save the day because he is no longer the Secretary
Speaker 1: of Labor. I'm just looking at me. He's the director
Speaker 1: of the National Hockey League Players Association.
Speaker 3: Oh yeah, he traded up.
Speaker 1: Okay, interesting, all right, So UPS will keep on the
Speaker 1: lookout for that, because who doesn't receive a package every
Speaker 1: day at home? I mean every day.
Speaker 3: So, and I'll give you an added piece of kind
Speaker 3: of trivia here. One of UPS's biggest customers is Amazon.
Speaker 3: So Amazon has their own logistics company, but they're kind
Speaker 3: of leftover. Goes through UPS.
Speaker 1: Really because again I see the Amazon trucks everywhere. Yeah,
Speaker 1: I mean they've got to have to ask Lee Klascal.
Speaker 1: This's a Bloomberg Intelligence. They got to be one of
Speaker 1: the biggest trucking companies in the country. Amazon. Yeah, I
Speaker 1: think they're headed that way. Yeah, that it's extorting. All right,
Speaker 1: pretty Goop that thanks so much for joining us. Pretty
Speaker 1: good to markets report. It does all that Bloomberg TV stuff.
Speaker 1: We appreciate getting some reporting there on UPS. Again, huge company.
Speaker 1: I didn't know. This is the largest private sector union
Speaker 1: agreement there is. The team starts with the UPS, so
Speaker 1: we'll keep an eye on that. This is Bloomberg.
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Speaker 1: All right, let's get right down to it here. Lots
Speaker 1: of economic data coming out this week. We got to
Speaker 1: fed you gonna be making some decision later on here
Speaker 1: in the month, So that means we need to check
Speaker 1: in with Ira Jersey does all of that interest rate
Speaker 1: stuff for Bloomberg Intelligence, Chief US interest rate Strategist Ira,
Speaker 1: Thanks so much for joining us here via zoom here
Speaker 1: give us a sense of I don't know where the
Speaker 1: FED is leaning. Let let's start this way. Here's my
Speaker 1: question about the FED, and I just I've been asking
Speaker 1: it from for some smart people, and this is not
Speaker 1: a smart question. The optics of it. It just doesn't
Speaker 1: look good when my FED is raising interest rates every
Speaker 1: single quarter over five hundred basis points. Then it pauses
Speaker 1: because maybe that's what you do after you've raised rates
Speaker 1: so much. Are they really going to get back on
Speaker 1: and start raising rates again?
Speaker 8: Yeah, seems good. It seems like they really want to, Paul,
Speaker 8: and and you know, they they made it pretty clear
Speaker 8: at the last meeting that that that you still want
Speaker 8: to be hawkish. They wanted to make sure that the
Speaker 8: market knew that if nothing else, they weren't cutting interest
Speaker 8: rates too early. So I think the bar at this
Speaker 8: point is actually reasonably Uh, the bar for them to
Speaker 8: to hike is actually very low. So you really, as
Speaker 8: long as you don't have like an absolutely crazy low
Speaker 8: employment number, if you don't have wages that you know,
Speaker 8: fall significantly more than than the market expects, and and
Speaker 8: and if we if we get anywhere near Consensus CPI report.
Speaker 8: Then I think the Fed's gonna hike. I think it's
Speaker 8: that second Fed hike that the dots suggested might occur.
Speaker 8: That's much more in doubt at this point because you
Speaker 8: you are seeing a moderation of inflation, just not as
Speaker 8: quickly as they want so so I think that was
Speaker 8: a signal that that was signaling a little bit more
Speaker 8: that the FED wants to be hawkish if they need
Speaker 8: to be so. So so yeah, so this I think
Speaker 8: that they'll hike. You know, the market, the market is
Speaker 8: now almost fully priced for that and also priced for
Speaker 8: some chance of a of a second hike as well.
Speaker 8: So so the market's already there regardless, So you won't
Speaker 8: see any more, you know, major moves unless the data
Speaker 8: really shocks one way or the other.
Speaker 4: Yeah. So, Ira, We've heard from Powell as well as
Speaker 4: a few other FED speakers, uh since that June meeting,
Speaker 4: and I think the market is still fairly confused as
Speaker 4: to what's going on here. Do we really think the
Speaker 4: minutes are going to give the answer that everyone's been
Speaker 4: looking for.
Speaker 8: I think that the minutes are going to be probably
Speaker 8: pretty mixed, you know. Interestingly, even though the dot plot
Speaker 8: and some of the rhetoric out of j Powell at
Speaker 8: the last press conference. Overall, our our natural language processing
Speaker 8: model suggested that actually.
Speaker 1: Let's let's take a step back. I know you're a
Speaker 1: model geek. You have a natural what is it again,
Speaker 1: a language.
Speaker 8: Model, natural language processing. So so we take every cents
Speaker 8: within the opening remarks of the of Chair Powell's opening
Speaker 8: statement at the press conference, and then try to determine
Speaker 8: whether or not that statement is is hawkish or duvish,
Speaker 8: modestly hawkish or modestly dubvish, and then we combine that
Speaker 8: into into an index. And what we actually found was
Speaker 8: that he was still pretty neutral overall, So he was
Speaker 8: pretty balanced in talking both hawkish and duvish, even though
Speaker 8: the dots and some of his rhetoric suggested that the
Speaker 8: FED is going to hike again. Now, the fact that
Speaker 8: they're going to hike again doesn't mean that they're going
Speaker 8: to hike another one hundred and fifty or two hundred
Speaker 8: basis points. So it kind of makes sense that, yes,
Speaker 8: they're getting to the top of the cycle. The question
Speaker 8: is that they're trying to calibrate exactly where they think
Speaker 8: the FED funds rate should be in order for inflation
Speaker 8: to continue to come down and maybe come down a
Speaker 8: little bit faster than it has in the recent past.
Speaker 4: Yeah, so you're so it sounds like, like you said,
Speaker 4: July seems almost like a given at this point. And
Speaker 4: Powell even said, you know, he would not rule out
Speaker 4: consecutive hikes at you know, concurrent meetings. So do we
Speaker 4: are we already maybe even thinking what's the bar for September?
Speaker 7: Yeah?
Speaker 8: I think we do have to think about what the
Speaker 8: bar for September would be, and I think that bar
Speaker 8: is higher than the bar for July. And it's also
Speaker 8: one of the reasons why so a very smart investor
Speaker 8: actually suggested this, and this is an interesting concept, was
Speaker 8: that the FED was hiking at seventy fives and they
Speaker 8: hiking in then they were hiking in fifties, and they
Speaker 8: were hiking in twenty fives. Now they might be hiking
Speaker 8: in twelve and a half's and in order, and the
Speaker 8: FED doesn't do that, right, They're not the Bank of
Speaker 8: Japan hiking in decimals, So basically every other meeting they
Speaker 8: could be hiking in quarter point increments. And again it
Speaker 8: makes sense in that regard from it because it's because
Speaker 8: they're in this calibration mode. You know, they don't want
Speaker 8: to go too fast, and they also want to have
Speaker 8: the ability to stop hiking at any moment, which was
Speaker 8: harder to do when they were hiking at fifties. Right
Speaker 8: now that they're hiking in twenty five, they've skipped now
Speaker 8: a meeting. It makes it a little bit easier for
Speaker 8: them to do that calibration. And nobody knows right. So
Speaker 8: the problem is is that ex ante, it's difficult to
Speaker 8: know exactly where the FED funds rate should be. I
Speaker 8: think that they've probably done enough in order for inflation
Speaker 8: to come down now they just need to give it
Speaker 8: time to occur. But they don't see it that way.
Speaker 8: And you know, until they they wind up with a
Speaker 8: with a real funds rate that is, you know, significantly
Speaker 8: higher than headline inflation, that they're gonna still think about hiking,
Speaker 8: even if they actually don't do it every meeting.
Speaker 1: All right, Lisa Promise says, I have to ask this question.
Speaker 1: She just emailed in from her vacation. Yield curve still
Speaker 1: inverted one hundred and three basis points. Do we care?
Speaker 1: Do you care? What's the market telling you?
Speaker 8: Yeah, it's just telling us. It's just telling us that
Speaker 8: that the market is expecting the interest rates to be
Speaker 8: lower in the future. I mean, that's the whole reason
Speaker 8: why you get the inversions in the yield curve, is
Speaker 8: just the expectation that, yes, we're going to have five
Speaker 8: percent interest rates now, but we might have three percent
Speaker 8: interest rates, you know, to or three four years from now,
Speaker 8: and because of that you get this inversion of the
Speaker 8: yield curve.
Speaker 2: You know.
Speaker 8: The fact that it's lasted now for the better part
Speaker 8: of eighteen months, you know, does suggest that the market
Speaker 8: thinks that we might be heading into a recession or
Speaker 8: if not a recession and then at least a very
Speaker 8: significant reduction and inflation over the over the medium term.
Speaker 8: And it you know, at some point we're going to
Speaker 8: start to really uninvert quite aggressively, I think, but the
Speaker 8: timing of that is probably not until it's very clear
Speaker 8: that the federal reserves done hiking. Until then, the two
Speaker 8: year yield is probably going to keep on hovering, you know,
Speaker 8: kind of just a little bit below where where the
Speaker 8: high the highest Fed fundrate might actually be, you know.
Speaker 4: And it really took until the last Fed meeting for
Speaker 4: the market expectations to kind of be more in sync
Speaker 4: with what Powell and the Fed have been saying. Looking
Speaker 4: at the world interest rate probability function now on the terminal,
Speaker 4: you know, it looks like those you know, prop those
Speaker 4: expectations for rate cuts this here dramatically have come down.
Speaker 4: So you know, what, does the market have some of
Speaker 4: that natural language processing model that you do, or what
Speaker 4: is it that they finally believe the Fed?
Speaker 6: Yeah?
Speaker 8: Yeah, I think that a lot of people thought that
Speaker 8: the Fed didn't have the resolve to continue to hike
Speaker 8: interest rates beyond beyond June. So you had a lot
Speaker 8: of people thinking, oh, the economy is going to fall apart.
Speaker 8: They've hiked five hundred basis points. We're going to wind
Speaker 8: up seeing a recession later this year. But a lot
Speaker 8: of the data that's been coming in suggested even if
Speaker 8: we do have a recession, it'll be very shallow and
Speaker 8: won't necessarily be enough to pull inflation down significantly more So, therefore,
Speaker 8: the Fed Reserve is not going to be cutting interest
Speaker 8: rates later this year. Now, Now keep in mind that
Speaker 8: is not that we've priced out cuts. We actually still
Speaker 8: have a cut price for six months from now, right,
Speaker 8: So the market keeps pricing for a cut six months
Speaker 8: after the last hike, a cut six months after last hike.
Speaker 8: The problem is is that we've pulled forward now when
Speaker 8: that last hike is going to be, because now if
Speaker 8: the last hike is in July, then they're gonna wind up,
Speaker 8: you know, the first cut is now priced for January,
Speaker 8: and then if they you know, wind up hiking again
Speaker 8: in September, like Paul was suggesting, if that happens, then
Speaker 8: maybe the first cuts not priced then until March. So
Speaker 8: it's always this kind of rolling six month window for
Speaker 8: the first Cup.
Speaker 1: A Ramali and I, let's be honest, we're focused entirely
Speaker 1: on Wimbledon for the next two weeks. But if I
Speaker 1: had a spare moment, is there anything in the world
Speaker 1: of soccer that we should be paying attention to?
Speaker 8: Well, the Gold Cup's going on right now. We're in
Speaker 8: the semifinals or quarterfinals, excuse me. So the US plays
Speaker 8: Canada and and you have to Later this month starts
Speaker 8: the Women's World Cup out in New Zealand and Australia.
Speaker 8: So the roster drops for that are are pretty interesting.
Speaker 8: You know, especially in the US, we have a lot
Speaker 8: of younger, younger women's who are going to be headed
Speaker 8: down to to down Under to play some football.
Speaker 1: All right, good stuff. You ask a question, you'll get
Speaker 1: an answer from this guy, Ira Jersey. He is our
Speaker 1: soccer guru, is off O or I think he does
Speaker 1: interest rates and stuff like that for Bloomberg Intelligence. That's
Speaker 1: what gets the paycheck, so I'm told. So he's our
Speaker 1: go to guy on the FED and on global soccer
Speaker 1: as well. So again we'll keep an eye on that.
Speaker 1: S and P five hundred basically unchanged on the day,
Speaker 1: we've got to dow off about four tens a one percent.
Speaker 1: That's one hundred and twenty five points. For those of
Speaker 1: you keeping scored at home.
Speaker 7: You're listening to the tape catch are live program Bloomberg
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Speaker 1: Paul Sweeney here in the Bloomberg Interactive Broker Studio. Boy,
Speaker 1: you think about twenty twenty two, that was just ugly
Speaker 1: for asset allocators. That sixty to forty portfolio did not
Speaker 1: work out at all for anybody. See think about it
Speaker 1: here here to date twenty twenty three. Heck of a
Speaker 1: first half when you look at particular the equity markets,
Speaker 1: but also fixed income, so brings into question asset allocation.
Speaker 1: What do you do here second half of the year
Speaker 1: going into twenty twenty four? Fortunate? Our next guest does
Speaker 1: that stuff for living Nimerick Kang co Cio, Senior portfolio
Speaker 1: manager at north Star Asset Management. He gets his chemical
Speaker 1: engineering degree. I mean, who does that at Virginia Tech?
Speaker 1: Really good tech school. Then he gets an NBA from
Speaker 1: some trade school up in Boston. Yeah exactly. Hey, Nimrit,
Speaker 1: thanks much for joining us here. Asset allocation. Where are
Speaker 1: you guys these days after what's been I think for
Speaker 1: a lot of people, surprisingly strong first half of the year.
Speaker 9: Yeah, thank you for having me. Yes, Going into twenty
Speaker 9: twenty three, we were very cautious on the markets, you know,
Speaker 9: like everyone else. We expected this lag between monetary policy
Speaker 9: and economic effects, which has which is really still a
Speaker 9: missing in action. Equity markets have been strong. We had
Speaker 9: been underweight equities going into twenty twenty three, and we
Speaker 9: remain underweight equities slightly versus targets. And the reason there
Speaker 9: is that just history shows there are considerable lags between
Speaker 9: monetary policy and economic effects. We have never had this
Speaker 9: kind of steep rice in interest rates over such a
Speaker 9: short period. Yes, we've seen some effects of that, from
Speaker 9: the regional bank crisis to you know, the busting of
Speaker 9: the crypto acids, but we think these are effects that
Speaker 9: are going to bear out over a much longer time.
Speaker 9: And in general, we just feel like we're in this
Speaker 9: period where, you know, a lot of people are calling
Speaker 9: this a poly crisis age. There are a number of
Speaker 9: things that are coming together, but generally all that means
Speaker 9: is higher level of uncertainty and volatility in the markets.
Speaker 9: That to us just says that, you know, we just
Speaker 9: need to be very risk aware and focused on running
Speaker 9: very diversified portfolios for our clients.
Speaker 4: When I hear acid allocators talk about higher volatility, it
Speaker 4: sounds like more opportunities. So where are you finding those
Speaker 4: pockets right now to invest in?
Speaker 9: Yeah? Yeah, no, really good question. So when we think
Speaker 9: about higher volatility, of course, you know, right away we
Speaker 9: think about just going back to the basics investing in
Speaker 9: those companies where we have pretty strong conviction on the
Speaker 9: cash flows going forward. And if we have conviction on
Speaker 9: the strong cash flows and we don't pay too much
Speaker 9: for those stocks, we know that over the longer time,
Speaker 9: those companies are going to hold up both in down
Speaker 9: markets and up markets. They can be both offensive and
Speaker 9: defensing foldings. And then of course on the fixed income side,
Speaker 9: we are taking the opportunity to extend maturities for our clients,
Speaker 9: getting locking in higher interest rates where we can. And
Speaker 9: if down the road there is an end to this
Speaker 9: monetary tightening cycle and we do see interest rates come down,
Speaker 9: there is that appreciation potential as well.
Speaker 1: I'd love to get some on the equity space here.
Speaker 1: What are some names that you're looking at, What are
Speaker 1: some themes that you guys pursue when you're when you're
Speaker 1: looking to you know, invest on the equity side.
Speaker 9: Absolutely, So, the way we build our portfolios is we've
Speaker 9: it's intersection of a number of different factors, but really
Speaker 9: our process starts with identifying some of those long term
Speaker 9: societal challenges that we feel are going to need a
Speaker 9: tremendous innovation to solve. So, for example, we have been
Speaker 9: in that digital transformation space for a while, and you know,
Speaker 9: we did not expect this new boom coming from artificial intelligence.
Speaker 9: That has basically been the big story for twenty twenty three.
Speaker 9: But several of those companies have been benefiting from that.
Speaker 9: You know, that's your Bellweather, Microsoft, Adobe, CRM, all those
Speaker 9: types of stocks. So that's a theme that's been in
Speaker 9: the portfolio for a while. We just see that these
Speaker 9: companies are going to continue to solve the problem related
Speaker 9: to productivity, labor, productivity, and some of the other challenges
Speaker 9: that we see. But then on the other side, there
Speaker 9: are other examples. For example, you know, all the challenges
Speaker 9: related to climate change and some of the things that
Speaker 9: we're coming to see. They're coming together very quickly relating
Speaker 9: to you know, very high temperatures, hotter summers, draw outs, floods,
Speaker 9: all types of issues that we're seeing. There some of
Speaker 9: the companies that we think are going to be at
Speaker 9: the forefront of challenging them, especially related to water efficiency.
Speaker 9: You know, lately we've heard a lot about the Colorado
Speaker 9: River levels drying up, creating all kinds of challenges there.
Speaker 9: We have been investing it in a number of stocks.
Speaker 9: There's some smaller cap companies that are not your household
Speaker 9: names like Badger Meter or Asylum. These companies provide instruments, meters, valves,
Speaker 9: all kinds of other solutions to help drive water conservation
Speaker 9: measurement and efficiency, and we think the demand for those
Speaker 9: products and solutions is only going to increase over time.
Speaker 4: So nimrate, you're just saying that you came into twenty
Speaker 4: twenty three underweight equities, looking at the S and P
Speaker 4: five hundred up sixteen percent year to date, you rethinking
Speaker 4: going into the second half of the year if that's
Speaker 4: still where you want to be or sticking to your
Speaker 4: guns and that and those lags are going to kick in.
Speaker 9: Yes, yes, So you know, it's interesting. There's an adage
Speaker 9: in the stock market nobody knows nothing right, and twenty
Speaker 9: twenty three definitely proved that by spades if you had
Speaker 9: to ask anyone. It was interesting. I was reviewing my
Speaker 9: notes and across the board, you know, there's no way
Speaker 9: you can have continue to have the kind of interest
Speaker 9: rate normalization going on as we did, like five hundred
Speaker 9: basis points on the low end over the last eighteen
Speaker 9: months and not have a major slowdown in that economy.
Speaker 9: Yet the economy has defied all those odds or especially
Speaker 9: the resiliency of the economy. So I think there's so
Speaker 9: many different puts and takes that are affecting the economy
Speaker 9: in general. It's hard to really understand when that inflection
Speaker 9: point happens between the negatives i e. The credit tightening
Speaker 9: cycle that we're expecting, just you know, the pressure overall.
Speaker 9: Going from a very easy monetary policy, an era almost
Speaker 9: a decade more than a decade of where there was
Speaker 9: basically money, there was no cost related to money, to
Speaker 9: actually having higher interest rates. That's a sizable shift in regime.
Speaker 9: I was just reading a study which showed that one
Speaker 9: third of an increase in profit margins for S and
Speaker 9: P five hundred has come from lower interest rates and
Speaker 9: reduce taxes. Nothing about the taxes yet, but we know
Speaker 9: interest rates are definitely changing. So when we look further out,
Speaker 9: it's hard to ascern when that inflection does happen. But
Speaker 9: it's it's hard to imagine that we will not start
Speaker 9: to see some impact from this type of a sea
Speaker 9: change in monetary policy. That's just really on the financial side. Now,
Speaker 9: let me talk about some of the social issues that
Speaker 9: we're talking about. Yes, you know, despite all the different
Speaker 9: things that we're talking about, economic inclusion is probably at
Speaker 9: its lowest levels that we've seen. It's hard and harder
Speaker 9: for low income families to meet daily needs. How does
Speaker 9: that all translate into the broad based ramification. So when
Speaker 9: we put all that together, Molly, we're still staying underweight
Speaker 9: equities and again staying underweight but remaining very much invested
Speaker 9: in these high quality names.
Speaker 1: Ah Rightnimmer, thank you so much for joining us. Nimrick
Speaker 1: Kank coc Cio and senior portfolio manager at Northstar Asset Management,
Speaker 1: and joining us.
Speaker 7: You're listening to the Team Cancer Live program Bloomberg Markets
Speaker 7: weekdays at ten am Eastern on Bloomberg dot Com, the
Speaker 7: iHeartRadio app, and the Bloomberg Business or listen on demand
Speaker 7: wherever you get your podcasts.
Speaker 1: All right, let's switch gears. Let's go global energy here.
Speaker 1: I'm gonnat WTI crude oil. It's about two point two
Speaker 1: percent today, just above seventy one dollars A brow gets
Speaker 1: my opinion, it gets my attention. I'd been trading below seventy.
Speaker 1: Let's bring in a couple smart people who know about
Speaker 1: global energy. That would be Mike mcgloone, senior macro strategist
Speaker 1: with Bloomberg Intelligence, and Fernando Ali, senior analysts with Bloomberg Intelligence.
Speaker 1: Mike Joints Is from Miami via zoom and Fernandez here
Speaker 1: in our Bloomberg Interactive Brokers studio. Mike, let's start with
Speaker 1: you down in in Miami dealing with the heat down there?
Speaker 7: Good for you?
Speaker 1: How is it now?
Speaker 6: Oh, it's nice and humid, but I hear it's much
Speaker 6: warmer up north. It just colder nights.
Speaker 1: I'm gonna I'm gonna give you a hard time all
Speaker 1: summer here because I know you enjoyed in a water time. Hey, Mike,
Speaker 1: just give us a CeNSE here. What's you know? Just
Speaker 1: from commodity trading perspective, what do you what do you
Speaker 1: think about oil? Right here?
Speaker 6: It's a bear market? What stops it to me? That
Speaker 6: it's the bottom line? The question is has the market plateaued?
Speaker 6: And typically there's no indications that at all. Typically, what
Speaker 6: it takes for a broad commodity market to bottom you
Speaker 6: need some form of significant lag to significant feeda reserve easing,
Speaker 6: and maybe, as Vince pointed at, maybe a week hour
Speaker 6: and a pretty significant pickup in China demand. They're all
Speaker 6: going the wrong way right now. The only thing that's
Speaker 6: going and really cheap price is the only thing that's
Speaker 6: going the right right ways. Prices have gotten low. So
Speaker 6: let's look at let's start with we're talking about WTI.
Speaker 6: It's around seventy bucks a barrel, and it's almost half
Speaker 6: last year's price, but it's the same price as it
Speaker 6: first started to trade in two thousand and five. The
Speaker 6: bottom line is natural gas, its cousin has already collapsed.
Speaker 6: It got really cheap, and it's bounced. It got down
Speaker 6: to two, it's bounced up to near three. It's in
Speaker 6: the middle there now, and I think that's the trajectory
Speaker 6: for crude oil. And the key thing I asked myself
Speaker 6: is what stops this? As we tilt towards the second half.
Speaker 6: As Vince pointed out, these long and variable legs, the
Speaker 6: federal reserve is still tightening, and I don't and our
Speaker 6: chief economists on along says we're going to get a
Speaker 6: recession likely in the second half. Yes, it's been delayed,
Speaker 6: and US unemployments to start picking up around four point
Speaker 6: three percent. None of that, to me is good for
Speaker 6: crude all to sustain a bounce. It might have bounces,
Speaker 6: but none of that's good for to sustain a new
Speaker 6: bull market for NATO.
Speaker 4: I want to bring you in your your senior analysts
Speaker 4: with Bloomberg Intelligence here, Fernando Valet, let's talk about so
Speaker 4: this lot that the Saudis and Russia are extending these
Speaker 4: oil supply cuts to prop up the market. So do
Speaker 4: you think it's going to work. This isn't the first time,
Speaker 4: and like we said, prices are so low.
Speaker 10: Well, I think part of the bounce today is that
Speaker 10: these cuts, the additional cuts started in July, and today
Speaker 10: is really the first real trading day with volume because
Speaker 10: we had the holiday yesterday in the US. But even then,
Speaker 10: you're not seeing the huge jump up in prices. You're
Speaker 10: seeing a relative strong but nothing really to write home about.
Speaker 10: And you know, a lot out of the bulcase that
Speaker 10: was predicated on the lack of spare capacity in global
Speaker 10: oil production. And when you cut production, what do you
Speaker 10: make you create spare capacity? So we don't think that
Speaker 10: this is necessarily a bullish signal. As Mike was alluding to,
Speaker 10: Demand is really the biggest driver that we're looking for
Speaker 10: China demands still not there. We're seeing some weaknesses in
Speaker 10: the US as well, and on the housing side, on
Speaker 10: the office real state side. Those are the big concerns
Speaker 10: for the summer. And when we looked at the inventory
Speaker 10: report from last week from the EIA, we saw lower
Speaker 10: refinery utilization, lower refinery consumption of crude oil. And that's
Speaker 10: weird when you have crack spreads. The margin that refiners
Speaker 10: make at nearly two and a half times the average
Speaker 10: for the past fifteen years, why aren't they running that
Speaker 10: to just maybe the physical market is not as as
Speaker 10: tight as we expected.
Speaker 1: Well John Tucker, I mean he moves the needlebimes off
Speaker 1: just on a daily basis, how much he drives back
Speaker 1: every fifty at the wah wall three fifty at the
Speaker 1: wah Wah and Route thirty six in Jersey, just to
Speaker 1: get your price checked there for noan. What are your
Speaker 1: companies telling you? What are the big majors telling you
Speaker 1: about what they're doing? Where were they think energy is going?
Speaker 1: Where are they investing these days?
Speaker 10: Well, there's a big bifurcation between the Europeans and the
Speaker 10: American major oil companies. When you look at the major
Speaker 10: oil companies, they're saying, we're investing oil is our business,
Speaker 10: and we're going to continue to invest, and we're going
Speaker 10: to invest in reducing the carbon emissions from existing production
Speaker 10: as opposed to investing in new ways of energy, and
Speaker 10: so far it's proven to be the right call as
Speaker 10: far as as a return standpoint. We've seen some of
Speaker 10: the Europeans like BP and Shell acquiesce before they said
Speaker 10: they were they were going to let their production fall
Speaker 10: by as much as thirty percent, and now they're saying, well, well,
Speaker 10: the prices are too good, the returns are too good,
Speaker 10: and the returns on the renewables side are not nearly
Speaker 10: as good as we expected them to be. So we're
Speaker 10: going to invest on our oil side.
Speaker 7: Again.
Speaker 10: The question is where do you invest now, Mike.
Speaker 4: I want to bring you back in here. You were
Speaker 4: talking to us before about these different factors right now
Speaker 4: that are keeping prices low, that we've got the China
Speaker 4: demand pictures and so great. The FED is obviously not easing.
Speaker 4: Which one of these are you know you think could
Speaker 4: among the other factors you mentioned too, what do you
Speaker 4: think could turn first and really get things moving in
Speaker 4: the other direction.
Speaker 6: That's the big problem, Mollie. Typically for the FED in
Speaker 6: this case, I think it's one of those most unique
Speaker 6: cases I've seen in my career in this business of
Speaker 6: almost four decades, and that is the FED is unlikely
Speaker 6: to pivot or start easing until markets tell them to,
Speaker 6: i e. Stock market going down. And this is somewhat
Speaker 6: the view from our chief economists because the measures they
Speaker 6: watch for inflation are very sticky. Personal consumption expenditure is still,
Speaker 6: howevering just below five percent, and FED funds are heading higher,
Speaker 6: so I don't see what it's gonna take. And to me,
Speaker 6: the biggest risk for the second half is something I
Speaker 6: started really worried about starting pointing out a year agoes.
Speaker 6: This is probably be one of the biggest economic resets
Speaker 6: of a lifetime. And we've had a bounce and we've
Speaker 6: had all the markets, equity markets think that we're not
Speaker 6: gonna have a US recession now if we do tilt
Speaker 6: towards that in the second half, just the normal lag
Speaker 6: to the most aggressive federal rate hike easing tightening. Ever,
Speaker 6: Crudel could just be a pawn in that space.
Speaker 7: Now.
Speaker 6: Crude oil is down ten percent on the year, is
Speaker 6: not a big deal, but it's Brethren copper. The medal
Speaker 6: with the PhD in economics. Is it's wiped out a
Speaker 6: pretty good rally in January. Now it's down in the
Speaker 6: year two and gold is the best performing commodity. So
Speaker 6: from a commodity standpoint, gold up, crude oil, and industrial
Speaker 6: metals down. That's a recessionary trajectory. And then I look
Speaker 6: over at the yield curve. Okay, that's tilting towards inversion,
Speaker 6: recessionary trajectory. And I look at the FED still tightening.
Speaker 6: There's nothing good in there except some kind of surprise.
Speaker 6: I can't predict for the commodity market to end, all right.
Speaker 1: So, Mike, when people come up to me at cocktail
Speaker 1: parties and ask me for my commodities call, because they
Speaker 1: never do, I just quote you and just say, am
Speaker 1: I still long gold? Short everything else?
Speaker 6: Well, I think gold is much likely to continue the rally,
Speaker 6: to break out above this two thousand level and never
Speaker 6: look back. It's a matter of time, and crude oils
Speaker 6: and most commids are going to continue to do what
Speaker 6: they normally do. They get too expensive and then pendulum
Speaker 6: swings to too cheap, and it has to get too
Speaker 6: cheap before they can bounce again. And we're nowhere near
Speaker 6: that too cheat phase. As Fernando says, there's still a
Speaker 6: lot of profits to be made. The average cost of
Speaker 6: production from US producers is around fifty dollars a barrow,
Speaker 6: So I just look at forty as the key level
Speaker 6: should go back to. That was a key level in
Speaker 6: nineteen ninety I was in the trading pits. Then when
Speaker 6: Sodom's saying invaded Kuwait, it bounced to forty. And get this,
Speaker 6: the bounce at the bottom. The ultimate body didn't come
Speaker 6: until ten until about ten until nineteen ninety eight. Now
Speaker 6: things have really changed. Now is the biggest one of
Speaker 6: the net one of the biggest net energy producers on
Speaker 6: the planet in the net export.
Speaker 1: Yep, Hey, Fernanda, real quick thirty seconds? What do you think?
Speaker 1: Which company think is the best position here? These big
Speaker 1: energy companies?
Speaker 10: Well, I think Excellent has done a terrific job in
Speaker 10: turning around as investments by US growing in Guiana by
Speaker 10: acquiring the Permian Chevron equally has a sizeable permium position
Speaker 10: and it's in good position. So I think the US
Speaker 10: over Europe overall.
Speaker 1: Okay, great stuff. As always, always get the nice, clean,
Speaker 1: concise call from both of you, guys. Mike McLoone, senior
Speaker 1: micro macro strategists with the Bloomberg Intelligence from the Miami office.
Speaker 1: Some folks referred to now as Miami Mike. I don't
Speaker 1: know if that's going to stick. Fernando Vallei, senior analyst
Speaker 1: with Bloomberg Intelligence. He covers the global energy space, covers
Speaker 1: all the big major oil companies. So we'd like to
Speaker 1: speak to these two folks get a good view of
Speaker 1: global energy.
Speaker 7: You're listening to the tape Can's are Live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 7: tune in Appoomberg dot Com, and the Bloomberg Business App.
Speaker 7: You can also listen live on Amazon Alexa from our
Speaker 7: flagship New York station, Just Say Alexa play Bloomberg eleven thirty.
Speaker 1: Molly Smith and Paul Sweeney here in a Bloomberg Interactive
Speaker 1: Broker studio. I want to get right to our next guest,
Speaker 1: Jerry Smith, mediate reporter for Bloomberg News, one of the
Speaker 1: top media reporters out there, breaking lots of news, and
Speaker 1: we got him here in studio. All right, So Jerry,
Speaker 1: I want to start with ESPN. Back on my banking days,
Speaker 1: we pitched to spin that thing out. We thought we
Speaker 1: could get forty times earnings, double the value back when
Speaker 1: Disney was trading at twenty times. We always got laughed
Speaker 1: out of the office, if not physically thrown out of
Speaker 1: the office by the CFO of Disney. What is ESPN
Speaker 1: going to do? What is Disney to do with the
Speaker 1: ESPN these days? What do you think going forward?
Speaker 11: I think that's one of the biggest questions in the
Speaker 11: media in business right now, is the future of ESPN.
Speaker 11: You know, it still makes a lot of money for Disney,
Speaker 11: and that's important to think about because Disney also has
Speaker 11: this whole streaming business with Disney Plus, where that loses
Speaker 11: a lot of money. So the money that ESPN and
Speaker 11: the cable network business makes is used to fund the
Speaker 11: streaming business. So you get rid of ESPN and suddenly
Speaker 11: you have to ask, where are you going to fund
Speaker 11: your streaming business? But yeah, ESPN is dealing with the
Speaker 11: same thing that a lot of cable networks are dealing with,
Speaker 11: which is cord cutting. The number of subscriptions keeps going
Speaker 11: down and down, and they have a lot They're spending
Speaker 11: billions of dollars on sports rights, and they have a
Speaker 11: lot of high profile talent. Last Friday we saw about
Speaker 11: twenty of those people who appear on Camber. Jeff and Gundhy,
Speaker 11: Jalen Rose, Susi Kolber were three of the big names
Speaker 11: who were laid off as part of a cost cutting initiative.
Speaker 11: And part of that is really because ESPN is going
Speaker 11: to be under bigger scrutiny from Wall Street than ever before.
Speaker 11: Coming up. They are Disney for the first time in
Speaker 11: one of the next few quarters is going to break
Speaker 11: out ESPN's financial numbers for the first time. So that
Speaker 11: is clearly ESPN wants those numbers to look good. They
Speaker 11: are going to you know, they made some cuts to
Speaker 11: some of the high profile talent.
Speaker 4: At least they've kept the high profile tennis talent. I
Speaker 4: will vouch for that. They're all very much informed at Wimbledon,
Speaker 4: so happy from my perspective. But I'm wondering, Jerry, because
Speaker 4: isn't so much of the value of you know, cable
Speaker 4: right now sports right Isn't that so much of like
Speaker 4: where people have been saying, this is why cable is
Speaker 4: still around and why streaming has not completely overtaken it
Speaker 4: the whole picture.
Speaker 11: That's right, Yeah, I mean if the people who subscribe
Speaker 11: to cable right now are in large part sports fans,
Speaker 11: some news fans as well, but live sports is really
Speaker 11: what's keeping the whole industry together. So one of the
Speaker 11: big questions with ESPN is when do they make that
Speaker 11: flagship channel available as a streaming service. And the day
Speaker 11: that they do that could really, you know, unravel the
Speaker 11: whole business because you could see more people cut the
Speaker 11: cord to sign up for this ESPN service. And how
Speaker 11: much you price it as an open question, but yeah,
Speaker 11: I mean live sports is really what's keeping and it's
Speaker 11: the whole business together right now.
Speaker 1: And you know, you say that live sports absolutely that's
Speaker 1: always been the case. But you think about the regional
Speaker 1: sports network business. The number one player out there's in bankruptcy.
Speaker 1: You know, a lot of teams aren't even having their
Speaker 1: games broadcast anymore. So that whole model is really under pressure.
Speaker 1: ESPN model under pressure. In that background, the rights keep
Speaker 1: going up. I mean, who's going to pay these thirty
Speaker 1: forty fifty increase in rates if it's not ESPN.
Speaker 11: Right, I think we're really heading towards a cliff with
Speaker 11: this whole business, where at some point some sports league
Speaker 11: is not going to be able to command the kind
Speaker 11: of increase in their rights fees that they have in
Speaker 11: the past. That hasn't happened yet. It's the amount that
Speaker 11: live sports costs just keeps going up and out. But
Speaker 11: I think there's going to be a point where some
Speaker 11: of these sports leagues are going to take a haircut.
Speaker 11: I don't think it's going to be the really high
Speaker 11: profile leagues. The big one coming up is the NBA,
Speaker 11: and I think everyone expects the NBA is still going
Speaker 11: to get a nice premium from what they got. But
Speaker 11: people I talk to in the end industry to say, look,
Speaker 11: watch for some of those middle tier sports that are
Speaker 11: really going to get squeezed right now.
Speaker 12: So if it's not if ESPN, you know, you would
Speaker 12: think this is going to be like the channel here.
Speaker 12: They can obviously weather whatever's going on in the sports industry.
Speaker 12: If they're not able to put it together, you know,
Speaker 12: how are the networks fairing? Obviously ABC still part of
Speaker 12: the Disney Empire. But when you look at NBC, CBS,
Speaker 12: some of the other ones that will you know, broadcast
Speaker 12: live sports, how are they holding up well?
Speaker 11: Those broadcast channels? I mean, one interesting trend we've seen
Speaker 11: with cord cutting is a lot of people who not
Speaker 11: only cancel their cable for Netflix, but they also get
Speaker 11: the digital antennas and you can actually get a lot
Speaker 11: of programming on that, including CBS, NBC, Fox, So those
Speaker 11: channels are are weathering the storm better. And in fact,
Speaker 11: you know the NBA, when they're looking for this next
Speaker 11: sports right deal, they really want to find a media
Speaker 11: partner that can offer them streaming and also a broadcast
Speaker 11: channel like an ABC or an NBC or a CBS
Speaker 11: or Fox, because those channels have a lot more reach.
Speaker 11: We're seeing with these regional sports networks. Just a few
Speaker 11: weeks ago, the Utah Jazz did a deal where they
Speaker 11: their games are going to be available over an antenna
Speaker 11: over a free over the air channel and they did
Speaker 11: away with their cable deal. They had a cable network
Speaker 11: that aired their games. That's not going to happen anymore.
Speaker 11: So that's something that we're starting to see in the
Speaker 11: sports business, is the cable channels because of cord cutting,
Speaker 11: their reach is diminishing, and you're seeing a combination of
Speaker 11: more free over the air channels and streaming channels to
Speaker 11: kind of reach the widest audience. Possible. The real question
Speaker 11: there is at what point can those leagues still command
Speaker 11: the same kind of money they got from the cable channels.
Speaker 11: Right now they're not getting the same kind of money,
Speaker 11: So how do they make up that loss?
Speaker 1: Yeah, if I'm a I think it's some point just
Speaker 1: going to trickle down to the athletes themselves. If I
Speaker 1: were somebody, I'd be locking up a long term contract now, know.
Speaker 11: Yeah, That's what's fascinating about the sports media business is
Speaker 11: everything's connected. Everything from how much the sports player is
Speaker 11: getting paid to the person at home who's canceling their
Speaker 11: cable service. There's a a chain link and everybody's connected,
Speaker 11: and so more and more people cut the cord and
Speaker 11: that trickles down all the way to the teams how
Speaker 11: much they can play their pay their players.
Speaker 4: Does that mean that people are even maybe, you know,
Speaker 4: if they're not paying to watch this stuff on cable anymore,
Speaker 4: does it even say like, if you still really want
Speaker 4: to watch these games, you're going more in person.
Speaker 10: That's a good question.
Speaker 11: I think attendance and in sports has actually been doing
Speaker 11: pretty well. I think Major League Baseball attendants is doing well.
Speaker 11: They actually made an interesting change this year where they
Speaker 11: made the game shorter, which I think has helped both
Speaker 11: the viewership and the attendance. But yeah, I mean, that's
Speaker 11: that's something that years and years ago there were these
Speaker 11: blackout rules where you could watch sporting events because they
Speaker 11: wanted to make sure that enough people actually went to
Speaker 11: the games. But yeah, I mean, if you think about
Speaker 11: the business of owning a sports franchise, media rights are
Speaker 11: a huge piece of it, but also people go into
Speaker 11: the games, the attendance ticket costs, things like that. So yeah,
Speaker 11: that's an excellent question. I'm not sure what the answer isre.
Speaker 1: You cover the whole media based soup the nuts here,
Speaker 1: Have we reached peak Hollywood in a sense that boy,
Speaker 1: the spending on TV shows and movies just exploded due
Speaker 1: to Netflix and all the other streaming competitors. But now
Speaker 1: we're seeing companies like Disney saying, oh, we got to
Speaker 1: cut costs, including production costs. Your colleague at Bloomberg News,
Speaker 1: Lucashaw's got a story out about Amazon CEO wants to
Speaker 1: know why they're spending so much money on program So
Speaker 1: if Amazon's asking that question, have we maybe had peak
Speaker 1: spending in Hollywood?
Speaker 11: Yeah, I think that's an interesting question. And I'd encourage
Speaker 11: everyone to read Lucas's story because it's it's really one
Speaker 11: of the first times we've seen Amazon really look at
Speaker 11: the cost of their Hollywood studio. I think it helps
Speaker 11: to think of these streamers as different kinds of companies
Speaker 11: with different priorities. You have Apple and Amazon who just
Speaker 11: have such enormously deep pockets that the losses that everyone's
Speaker 11: losing money on streaming, but they can sustain the losses
Speaker 11: much easier than some of these other companies that where
Speaker 11: media is their whole business, someone like a Disney or
Speaker 11: Comcast or Paramount, where they're having real cost cutting issues.
Speaker 11: Again getting back to the whole cord cutting phenomenon, but yeah,
Speaker 11: we're starting to see even someone like Amazon. I mean,
Speaker 11: they're spending seven billion dollars a year on streaming on programming,
Speaker 11: and then that's a drop in the bucket for them,
Speaker 11: but they're still looking at these losses.
Speaker 1: Hey, you know it's reading a research note by Laura
Speaker 1: Martin at Needham and Company, and she was talking about
Speaker 1: Paramount and her question She was saying, Hey, here are
Speaker 1: the questions I'm getting from institutional investors, and then what
Speaker 1: came up to Paramount the question was, what are they
Speaker 1: going to sell? Is that really a story? Is there
Speaker 1: a belief out there, Jerry that maybe they're you know,
Speaker 1: Sherry Redstone and the Redstone family and the trust whatever
Speaker 1: sell Paramount.
Speaker 11: I think that's something that people have been talking about
Speaker 11: for as long as I've been covering this beat. I
Speaker 11: mean it's years and years. I think that the you know,
Speaker 11: this is an industry about scale, how big you can be,
Speaker 11: and I think Paramount, even after they combined Viacom with CBS,
Speaker 11: has always been seen as being undersized and everyone's always wondering, well,
Speaker 11: when is someone going to buy them? But you know,
Speaker 11: there's also the companies that can afford to buy them,
Speaker 11: are companies like an Apple or an Amazon. Everyone always wonders,
Speaker 11: but do those companies really want to get into the
Speaker 11: cable channel business with all the challenges that they're facing
Speaker 11: right now? You know, maybe they could just sell off
Speaker 11: the studio. That might be attractive, But yeah, it's a
Speaker 11: scale business and they've always been seen as undersized. So
Speaker 11: I think that's something everybody's always wondering. I think the
Speaker 11: Allen and Company Sun Valley conference is coming up. Oh yeah,
Speaker 11: everybody loves to talk about how there's deals being done.
Speaker 1: There's this month.
Speaker 11: Right, I believe that's coming up.
Speaker 10: Yeah, so that's I.
Speaker 1: Didn't get my invite. I'm still waiting, all right, all right,
Speaker 1: New York Times, we talked about it. The New York
Speaker 1: Times still cranking it out. It's got a six point
Speaker 1: five billion dollar market cap. Everybody thought The New York
Speaker 1: Times was going out of business. A lot of other
Speaker 1: papers have unfortunately, but just locks up twenty two percent
Speaker 1: to date. Because content is king. So as long as
Speaker 1: you got the premium content, they'll figure out a way
Speaker 1: to get paid for it. In the New York Times,
Speaker 1: their app has been extraordinary. Their digital advertising has been great.
Speaker 1: So there's my little plug. I've been found New York
Speaker 1: Times company for like, you know, forty.
Speaker 4: Years cooking in games. Those are the big ones exactly.
Speaker 7: You're listening to the tape. Can's are live program Bloomberg
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Speaker 1: Let's check about the fixed income business. Twenty twenty two
Speaker 1: a year two ford get for pretty much everybody in
Speaker 1: the fixed income space a little bit better this year.
Speaker 1: So we want to check in with Ward Borts. He
Speaker 1: is Ward bots. He is the ETF portfolio manager, head
Speaker 1: of Distribution public Strategies at Angel Oak. So Ward, you know,
Speaker 1: I'm looking at the two year treasury, I don't know,
Speaker 1: four point nine one percent. I'll put some money in
Speaker 1: there and I think I'll be quite happy. You know,
Speaker 1: what do you think about fixed to come space these days?
Speaker 5: Yeah, to your point, I think twenty twenty two it
Speaker 5: was painful.
Speaker 13: Getting there after years of really getting no yield, no
Speaker 13: return in the in.
Speaker 5: The fixed income markets.
Speaker 13: But twenty twenty three has been off to a decent
Speaker 13: start in fixed income. You know, our view at the
Speaker 13: beginning of the year was you could get equity like
Speaker 13: returns in fixed income, and you know, in our head
Speaker 13: that's kind of called it eight to twelve percent, depending
Speaker 13: on what interest rates do throughout the year.
Speaker 5: We're about halfway there now, right around four percent.
Speaker 13: I think high yield so far this year is up
Speaker 13: five and a half percent, So you know, thus far.
Speaker 5: It's been pretty good and our expectation is through the
Speaker 5: rest of the year.
Speaker 13: It's it's not a bad place to be a positioned,
Speaker 13: particularly given what you've seen on the equity market so
Speaker 13: far this year.
Speaker 4: Yeah, we're you know, I used to cover credit and
Speaker 4: you know a lot of this. I'm really just scratching
Speaker 4: my head here because rates have still gone up this year.
Speaker 4: We are hearing that rates are going to stay high
Speaker 4: this year, and yet you're seeing high yield, like you
Speaker 4: said up close, around five and a half percent, investment
Speaker 4: grade up three percent. Where is the where is this
Speaker 4: coming from?
Speaker 13: It's it's the first time in you know, I don't
Speaker 13: know how long where carry actually matters. The coupon that
Speaker 13: you're getting from bonds, you know, or able to offset
Speaker 13: the increases in yields. So you know, to the point
Speaker 13: made earlier, if you can get five percent in short
Speaker 13: term treasuries, even if yields go up one hundred basis points,
Speaker 13: it's going to be offset.
Speaker 5: By the yield you're getting in bonds. And that's really
Speaker 5: what we're seeing with investors.
Speaker 13: We're seeing investors kind of doing the math on that
Speaker 13: and saying, you know what, I'm going to increase my
Speaker 13: allocation to bonds a bit to really take advantage of
Speaker 13: what historically, or for at least for the last ten years,
Speaker 13: has really been no opportunities.
Speaker 1: So how do you play this in the ETF space war.
Speaker 13: On? So what we think is attractive, So maybe i'll
Speaker 13: answer that slightly different. Where do the risk to this?
Speaker 13: So if we think about our outlook for the rest
Speaker 13: of the year, we think that the economy is going
Speaker 13: to start to slow down, So the impact of the
Speaker 13: FED raising rates over the last year is going to
Speaker 13: start to be felt and you'll see an economic slow down.
Speaker 13: Right now in traditional corporate credit, spreads are very tight,
Speaker 13: and so we are encouraging investors to underweight corporate credit
Speaker 13: because if we do see a slow down in the economy,
Speaker 13: that's going to feed into corporations, feed into earnings. Potentially
Speaker 13: you can see defaults start to increase, if not late
Speaker 13: this year, then early next year. And so we're saying
Speaker 13: underweight corporate credit where you've already had decent returns.
Speaker 5: For the year, as it's been highlighted.
Speaker 13: And what we really like is mortgage backed securities, So
Speaker 13: we call this securitized credit.
Speaker 5: So these are.
Speaker 13: Bonds that you know are issued by Fanny and Freddy.
Speaker 5: Or those that aren't backed by the government.
Speaker 13: Here, you're able to get similar yields to what you
Speaker 13: get in the corporate space, if not higher, and we
Speaker 13: think a lot more upside because these are actually priced
Speaker 13: a lot wider than historical levels relative to to corporate
Speaker 13: So we really think that's the attractive place to play
Speaker 13: in the marketplace. So from an ETF standpoint, if you
Speaker 13: look at agency mortgage backed ETFs like MVB is A
Speaker 13: is a big one. You know you're gonna benefit both
Speaker 13: if rates start to decline and if the the yields
Speaker 13: and spreads of these mortgage backed securities start to define.
Speaker 13: In addition, we have a non agency ETF c A
Speaker 13: r Y and this is kind of a little bit
Speaker 13: more bang through your book, a little bit higher yield,
Speaker 13: but still investing in that mortgage backed security opportunity that
Speaker 13: we see right now.
Speaker 4: And per that, yeah, that what you're talking about here
Speaker 4: with MPs. What's your view then on mortgages and how
Speaker 4: does that filter into this.
Speaker 13: Call on the mortgage market generally. So that's going to
Speaker 13: be driven by a couple of things. So one is,
Speaker 13: you know, home prices, So what do we think is
Speaker 13: going to happen with home prices, and what you've seen
Speaker 13: so far this year is generally a stabilization in home prices.
Speaker 13: After you know, what everybody knows was an incredible two thousand,
Speaker 13: twenty twenty one, and even twenty two in terms of
Speaker 13: home price appreciation, we think you'll start to see a
Speaker 13: stabilization in home priss, but not really a significant appreciation.
Speaker 13: So we think from a credit standpoint, those mortgage bonds,
Speaker 13: those mortgage backed securities are actually in really great shape
Speaker 13: because the houses that back them are doing great from
Speaker 13: a price standpoint.
Speaker 3: Ward, what do you.
Speaker 1: Think about private credit? It's a business, it's a market.
Speaker 1: It's an asset class that has really has come on
Speaker 1: to the scene in the last I don't know decade
Speaker 1: or so, and it's gotten so popular. How do you
Speaker 1: guys think about that? You've ex bosure there. What do
Speaker 1: you think about that?
Speaker 5: So we do not so. Number one, it has been
Speaker 5: an explosion.
Speaker 6: Uh.
Speaker 13: You know, we kind of thought, given the increase in
Speaker 13: yields that you've seen in traditional public markets over the
Speaker 13: last year, that there would be a decline in growth
Speaker 13: in UH in private credit, but but it hasn't worked
Speaker 13: out the way people continue to demand private credit significantly.
Speaker 13: And this is really uh, you know, backed by corporation,
Speaker 13: similar to corporate bonds, except you know, private loans. We
Speaker 13: think that, you know, from everything we've seen, they'll be
Speaker 13: continued growth there. Our concern is whenever you see an
Speaker 13: asset class explode in growth, as you've seen in private credit, uh,
Speaker 13: you can see lending standards starts at the climb, and
Speaker 13: the private credit asset class really has not been tested yet.
Speaker 13: And so our concern about it is when you start
Speaker 13: to see that economics slow down, you've seen significant growth
Speaker 13: in the size of the asset class, have the underwriting
Speaker 13: standards held up as much as you know, as much
Speaker 13: as they were historically where you've got very low default
Speaker 13: rates and high recovery rates and private right, so you know,
Speaker 13: in our head, the jury is still out on whether
Speaker 13: or not private credit is able to withstand the first
Speaker 13: down tournament the seeds.
Speaker 1: All right ward, Thanks so much for joining us, Really
Speaker 1: appreciate it getting some of your time here. War Borts.
Speaker 1: He's a ETF portfolio manager, head of Distribution Public Strategies
Speaker 1: at angel O. Before that, he was a dimensional fund
Speaker 1: Advisors trade er trading at RBC capital markets, all kinds
Speaker 1: of stuff there at black Rock as well, so lots
Speaker 1: of experience out there in the space getting his thoughts
Speaker 1: on fixing him much better year in twenty twenty three.
Speaker 1: And the high yield, you know, return of over five
Speaker 1: percent or about five percent this year so far as
Speaker 1: it's pretty done, impressive.
Speaker 4: I was just looking even Triple C's up about ten
Speaker 4: percent this year, so could not seeing the stress yet.
Speaker 1: Yeah, definitely not exactly, but that's after a brutal twenty
Speaker 1: twenty two so a lot of room, a lot of
Speaker 1: still digging needs to be done to get out of
Speaker 1: that hole.
Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can
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Speaker 2: at Matt Miller nineteen seventy three.
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