1 00:00:02,640 --> 00:00:05,360 Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul Swinge. You, 2 00:00:05,360 --> 00:00:07,680 Speaker 1: along with my co host Lisa Brahma wits each day 3 00:00:07,720 --> 00:00:10,240 Speaker 1: we bring you the most noteworthy and useful interviews for 4 00:00:10,280 --> 00:00:12,520 Speaker 1: you and your money. Whether at the grocery store or 5 00:00:12,560 --> 00:00:15,480 Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple 6 00:00:15,520 --> 00:00:17,959 Speaker 1: Podcast or wherever you listen to podcasts, as well as 7 00:00:17,960 --> 00:00:24,320 Speaker 1: at Bloomberg dot com. March nine will mark the tenth 8 00:00:24,320 --> 00:00:28,240 Speaker 1: anniversary of the market bottom during the global financial crisis. 9 00:00:28,240 --> 00:00:30,440 Speaker 1: On that day, the intra day low and the SMP 10 00:00:30,520 --> 00:00:34,080 Speaker 1: five hundred touch six hundred and sixties six. Since then, 11 00:00:34,120 --> 00:00:37,360 Speaker 1: the market is up over three So to give us 12 00:00:37,360 --> 00:00:38,960 Speaker 1: a sense of kind of what has been driving the 13 00:00:38,960 --> 00:00:41,400 Speaker 1: market and what to look forward to going forward, we 14 00:00:41,400 --> 00:00:44,400 Speaker 1: welcome to Charlie bobrinsko A. Charlie's a vice chairman ahead 15 00:00:44,440 --> 00:00:46,839 Speaker 1: of of the investment group at Ariel Investments with over 16 00:00:47,360 --> 00:00:51,320 Speaker 1: close to fourteen billion dollars under management uh arials based 17 00:00:51,320 --> 00:00:53,400 Speaker 1: in Chicago, but Charlie joins us here in our Bloomberg 18 00:00:53,440 --> 00:00:58,520 Speaker 1: Interactive Broker's studio. Charlie, welcome to our studios. What looking back, 19 00:00:58,920 --> 00:01:02,360 Speaker 1: what were some all the lessons that you guys at Ariel, 20 00:01:02,440 --> 00:01:05,080 Speaker 1: you folks at Ariel, take from the financial crisis and 21 00:01:05,120 --> 00:01:07,399 Speaker 1: then what's happened since over the last ten years. Yeah, 22 00:01:07,440 --> 00:01:10,720 Speaker 1: some of its relearning old lessons. The biggest one is 23 00:01:10,760 --> 00:01:12,720 Speaker 1: that you have to be greedy when others are fearful. 24 00:01:12,920 --> 00:01:15,520 Speaker 1: And people were very fearful in two thousand and nine, 25 00:01:15,560 --> 00:01:17,520 Speaker 1: and it was the best time to be a buyer, 26 00:01:17,840 --> 00:01:20,600 Speaker 1: but boy didn't feel like it at the time. People 27 00:01:20,640 --> 00:01:23,280 Speaker 1: felt great about stocks in two thousand and one, and 28 00:01:23,319 --> 00:01:25,600 Speaker 1: it was a terrible time to invest in stocks. So 29 00:01:26,080 --> 00:01:28,679 Speaker 1: by when others are selling, sell when others are buying, 30 00:01:28,760 --> 00:01:31,000 Speaker 1: be greedy when those are fearful. Those are the lessons 31 00:01:31,040 --> 00:01:36,280 Speaker 1: we relearned so and right now unfortunately possibly for investors, investors, 32 00:01:36,280 --> 00:01:39,560 Speaker 1: for for those who are seeking those values, retail investors 33 00:01:39,560 --> 00:01:42,840 Speaker 1: don't seem either particularly greedy or particularly fearful. They just 34 00:01:42,920 --> 00:01:45,360 Speaker 1: kind of are following what's going on, and they're being 35 00:01:45,400 --> 00:01:48,640 Speaker 1: almost dare I say it, prudent. I'm just wondering, from 36 00:01:48,680 --> 00:01:51,880 Speaker 1: your perspective, is there alpha left? Is there a place 37 00:01:51,920 --> 00:01:55,400 Speaker 1: for an active manager to really generate significant returns? So 38 00:01:55,440 --> 00:01:59,160 Speaker 1: when we make presentations to investment committees at institutional investors, 39 00:01:59,200 --> 00:02:02,680 Speaker 1: they're still pretty nervous. They keep asking questions about when 40 00:02:02,760 --> 00:02:04,760 Speaker 1: is this going to end? Hasn't this rally going on 41 00:02:04,840 --> 00:02:07,880 Speaker 1: too long? We're gonna have a recession here any day. 42 00:02:08,040 --> 00:02:11,240 Speaker 1: There's been a shift to UM fixed income ld I 43 00:02:11,320 --> 00:02:14,840 Speaker 1: investing at pension plans. We think the institutional investor is 44 00:02:14,840 --> 00:02:17,440 Speaker 1: still pretty nervous. A lot of questions we get about 45 00:02:17,440 --> 00:02:20,760 Speaker 1: our earnings recession coming the first two quarters, we don't 46 00:02:20,760 --> 00:02:23,360 Speaker 1: see it. So I'm gonna just say that the market 47 00:02:23,400 --> 00:02:26,919 Speaker 1: in general is still pretty nervous. So, Charlie, it's interesting 48 00:02:26,960 --> 00:02:29,000 Speaker 1: because the markets up. The SMP is up over eleven 49 00:02:29,080 --> 00:02:31,359 Speaker 1: percent this year, and one of the stats that that 50 00:02:31,440 --> 00:02:33,720 Speaker 1: really caught my eye is just that this this round 51 00:02:33,760 --> 00:02:36,720 Speaker 1: trip we've had since early December, that thirty seven percent 52 00:02:36,800 --> 00:02:39,600 Speaker 1: move up roughly in SMP from the So when you 53 00:02:39,600 --> 00:02:43,080 Speaker 1: think about that, one could argue that, gee, maybe today's 54 00:02:43,120 --> 00:02:44,679 Speaker 1: now and now's the time to sell that kind of 55 00:02:44,720 --> 00:02:47,920 Speaker 1: made eleven percent. Isn't that good enough? And what's your 56 00:02:48,000 --> 00:02:50,000 Speaker 1: view for the remainder of this year? For example? Yeah, 57 00:02:50,040 --> 00:02:53,440 Speaker 1: so are the flagship fund of arial is the aerial fund, 58 00:02:53,480 --> 00:02:56,239 Speaker 1: which is actually up eighteen percent when the SMP was 59 00:02:56,320 --> 00:02:59,799 Speaker 1: up eleven on Tuesday, and um, you know, I will 60 00:02:59,800 --> 00:03:03,400 Speaker 1: say it was dirt cheap after the drop last quarter. 61 00:03:03,440 --> 00:03:05,120 Speaker 1: At the beginning of the year we were at thirteen 62 00:03:05,160 --> 00:03:08,040 Speaker 1: times forward earnings. We're not at dirt cheap anymore. We're 63 00:03:08,040 --> 00:03:11,120 Speaker 1: probably close to fair value, but there are still pockets 64 00:03:11,160 --> 00:03:14,960 Speaker 1: of cheapness and there's pockets of overvalued. We think there's 65 00:03:15,000 --> 00:03:20,120 Speaker 1: still a safety bid of stable stocks are considered stable stocks, Utilities, 66 00:03:20,639 --> 00:03:25,080 Speaker 1: high paying UM consumers, staples are still overpriced. What's not 67 00:03:25,720 --> 00:03:28,720 Speaker 1: expensive are anything that's considered cyclical. You still have a 68 00:03:28,720 --> 00:03:31,080 Speaker 1: lot of people thinking and recessions coming that global growth 69 00:03:31,120 --> 00:03:33,240 Speaker 1: is going to close, is going to slow down. So 70 00:03:33,480 --> 00:03:36,960 Speaker 1: we love the alternative asset managers KKR and Blackstone, which 71 00:03:36,960 --> 00:03:41,280 Speaker 1: are considered high beta and cyclical, and they're very cheap 72 00:03:41,360 --> 00:03:43,800 Speaker 1: right now, as are a lot of industrials. So I'm 73 00:03:43,840 --> 00:03:46,040 Speaker 1: looking right now at SP five hundred, that's up more 74 00:03:46,080 --> 00:03:49,920 Speaker 1: than eleven year to date including reinvested dividends. How much 75 00:03:49,920 --> 00:03:51,280 Speaker 1: further does it have to go? What's gonna be the 76 00:03:51,280 --> 00:03:54,680 Speaker 1: full year return? So we think neither we nor anybody 77 00:03:54,720 --> 00:03:57,560 Speaker 1: else can have a good prediction on that. UM. We 78 00:03:57,640 --> 00:03:59,600 Speaker 1: can at any given time give you a view on 79 00:03:59,680 --> 00:04:03,240 Speaker 1: relati of value. But we don't think anybody's any good 80 00:04:03,240 --> 00:04:05,920 Speaker 1: at at predicting the short term. We think of frankly, 81 00:04:05,960 --> 00:04:08,320 Speaker 1: the secret to investing is focusing on the long term 82 00:04:08,320 --> 00:04:10,720 Speaker 1: and not spending too much time worrying about the short term. However, 83 00:04:11,440 --> 00:04:14,640 Speaker 1: at certain times, however, here is an exact number for 84 00:04:14,680 --> 00:04:19,800 Speaker 1: the but it is actually true that that market multiples 85 00:04:19,880 --> 00:04:22,440 Speaker 1: are a pretty good predictor of returns. And so when 86 00:04:22,480 --> 00:04:25,520 Speaker 1: you had at the beginning of the year um our 87 00:04:25,600 --> 00:04:28,840 Speaker 1: value stocks at around thirteen times, that was cheap and 88 00:04:29,320 --> 00:04:33,240 Speaker 1: low p s do tend to produce high returns even 89 00:04:33,240 --> 00:04:35,000 Speaker 1: in the short term. There's a great statistic that when 90 00:04:35,040 --> 00:04:40,520 Speaker 1: the pe ratio drops by in the market, it's often 91 00:04:40,600 --> 00:04:42,960 Speaker 1: a very good period of time to invest for even 92 00:04:43,000 --> 00:04:45,840 Speaker 1: the next twelve months. Does Aerial invest all on I 93 00:04:45,920 --> 00:04:49,599 Speaker 1: P O S uh Not usually UM, And the reason 94 00:04:49,760 --> 00:04:52,839 Speaker 1: is because we want to UM investing companies that have 95 00:04:52,920 --> 00:04:57,159 Speaker 1: a proven sustainable competitive advantage. UH. We're value investors, so 96 00:04:57,200 --> 00:04:58,800 Speaker 1: we look at earnings. A lot of the companies are 97 00:04:58,800 --> 00:05:01,560 Speaker 1: gonna becoming public this year have no earnings. People are 98 00:05:01,560 --> 00:05:05,039 Speaker 1: talking about multiples of sales, So we would be very 99 00:05:05,120 --> 00:05:07,680 Speaker 1: cautious on some of the valuations that we're seeing for 100 00:05:07,760 --> 00:05:10,960 Speaker 1: companies that are coming. Charlie, why do you feel about concentration, 101 00:05:11,000 --> 00:05:13,279 Speaker 1: because I've been hearing about more funds that are going 102 00:05:13,279 --> 00:05:17,080 Speaker 1: in to say fifteen names, and that's it. Yeah, we're 103 00:05:17,160 --> 00:05:20,560 Speaker 1: very concentrated. We believe in focus. Uh. We have in 104 00:05:20,600 --> 00:05:24,200 Speaker 1: the Aerial Fund of forty stocks. Buffett talks about why 105 00:05:24,200 --> 00:05:26,520 Speaker 1: it's so much better to invest in your top twenty 106 00:05:26,640 --> 00:05:30,480 Speaker 1: ideas rather than putting money into your thirties best idea. 107 00:05:30,920 --> 00:05:34,160 Speaker 1: We think it's if you're really diversified with a hundred stocks, 108 00:05:34,279 --> 00:05:37,520 Speaker 1: very hard to beat the indexes after fees. So we 109 00:05:37,560 --> 00:05:41,239 Speaker 1: believe in focus, you can know those names better. Uh. Frankly, 110 00:05:41,320 --> 00:05:43,960 Speaker 1: there's stocks like KKR that are very cheap, and we'll 111 00:05:44,000 --> 00:05:46,359 Speaker 1: put a lot of money into KR five percent of 112 00:05:46,360 --> 00:05:49,720 Speaker 1: a position. When did you start that bet? In two 113 00:05:49,800 --> 00:05:53,720 Speaker 1: thousand and thirteen when the US government downgraded Uh? Uh. 114 00:05:54,320 --> 00:05:56,839 Speaker 1: When S ANDP downgraded the U S government from triple A, 115 00:05:57,320 --> 00:05:59,400 Speaker 1: everybody thought the high yield market was going to close 116 00:05:59,400 --> 00:06:02,200 Speaker 1: and kick Hare's stock went from eighteen to twelve, and 117 00:06:02,240 --> 00:06:04,599 Speaker 1: it became a wonderful opportunity because of the two and 118 00:06:04,640 --> 00:06:08,400 Speaker 1: twenty didn't go away. Um, but the stock got reduced 119 00:06:08,400 --> 00:06:13,000 Speaker 1: in price by it's gone now from twelve to UH three. 120 00:06:13,800 --> 00:06:15,000 Speaker 1: And then one of the reasons was it was a 121 00:06:15,040 --> 00:06:18,839 Speaker 1: partnership that index funds can't buy and kk are converted 122 00:06:18,839 --> 00:06:21,560 Speaker 1: into a sea corps and now everybody can buy them. 123 00:06:21,760 --> 00:06:23,960 Speaker 1: Vanguard just bought eight percent of the company in the 124 00:06:24,040 --> 00:06:26,400 Speaker 1: last quarter. Yeah, and I'm looking at the shares right now. 125 00:06:26,480 --> 00:06:32,960 Speaker 1: KKR shares have risen more than sixty since March. Charlie Bobrinskoy, 126 00:06:33,040 --> 00:06:34,480 Speaker 1: thank you so much for being with us a vice 127 00:06:34,560 --> 00:06:36,839 Speaker 1: chair and head of the investment group and portfolio manager 128 00:06:37,040 --> 00:06:40,400 Speaker 1: at Aerial Investments, which is in New York City, to 129 00:06:40,720 --> 00:06:43,560 Speaker 1: celebrate the ten year anniversary of the financial crisis and 130 00:06:43,640 --> 00:06:47,880 Speaker 1: rather celebrate what's after the financial crisis and the crisis itself. 131 00:07:03,320 --> 00:07:05,440 Speaker 1: It wasn't so long ago that things were starting to 132 00:07:05,480 --> 00:07:07,960 Speaker 1: look up a little bit for General Electric. There was 133 00:07:08,000 --> 00:07:10,840 Speaker 1: a sense that there was going to be a restructuring, 134 00:07:10,960 --> 00:07:15,320 Speaker 1: a path forward. What happened ge the shares having it's 135 00:07:15,480 --> 00:07:19,320 Speaker 1: their biggest two day decline right now since November, in 136 00:07:19,360 --> 00:07:21,720 Speaker 1: the red by more than four percent today. Karen you 137 00:07:21,840 --> 00:07:24,600 Speaker 1: Blhart of Bloomberg Intelligence joining us here in our Interactive 138 00:07:24,600 --> 00:07:30,360 Speaker 1: Broker Studios Karen covers industrials here. What's going on now? Uh, well, 139 00:07:30,400 --> 00:07:33,640 Speaker 1: you know, we've had a lack of disclosure on so 140 00:07:33,840 --> 00:07:36,400 Speaker 1: it has been anybody's guests. We've had no guidance for 141 00:07:36,480 --> 00:07:39,760 Speaker 1: over nine months and we are a long awaiting the 142 00:07:39,760 --> 00:07:42,280 Speaker 1: fourteenth where they would give us twenty nineteen. And yesterday 143 00:07:42,320 --> 00:07:45,040 Speaker 1: Cult gave a little preview of what they're going to 144 00:07:45,080 --> 00:07:48,360 Speaker 1: announce next week and said that negative, that cash flow, 145 00:07:48,400 --> 00:07:50,920 Speaker 1: which was four point eight billion positive this year, was 146 00:07:50,960 --> 00:07:53,280 Speaker 1: going to be in the negative column next year. And 147 00:07:53,320 --> 00:07:57,679 Speaker 1: it was a total surprise. So what's driving this negative? 148 00:07:57,720 --> 00:08:00,320 Speaker 1: Surprising casual? Which of the remaining businesses? I know, I 149 00:08:00,360 --> 00:08:02,320 Speaker 1: know they've sold off a lot of businesses. They've really 150 00:08:02,360 --> 00:08:05,840 Speaker 1: focused what's causing the problems now, good old power. But 151 00:08:05,920 --> 00:08:07,800 Speaker 1: in addition to that, and this is one of the 152 00:08:07,800 --> 00:08:11,200 Speaker 1: problems with the last year, they apparently got a billion 153 00:08:11,240 --> 00:08:14,000 Speaker 1: plus in pre payments from their little renewable business, okay, 154 00:08:14,080 --> 00:08:17,200 Speaker 1: which they didn't mention when cash flow was better than expected. Right, 155 00:08:17,440 --> 00:08:20,320 Speaker 1: this year they have to start delivering that stuff. That business, 156 00:08:20,320 --> 00:08:22,400 Speaker 1: that little tiny business is going to shift from a 157 00:08:22,440 --> 00:08:25,840 Speaker 1: billion positive to probably you know, I don't know up 158 00:08:25,880 --> 00:08:28,320 Speaker 1: to a billion negatives, So that's two billion of the shortfall. 159 00:08:28,360 --> 00:08:30,160 Speaker 1: Why didn't they tell us there was a one time 160 00:08:30,240 --> 00:08:33,559 Speaker 1: last year? But this, but this raises another question. Right, 161 00:08:33,800 --> 00:08:36,760 Speaker 1: one sort of hallmark of general Electrics problems has been 162 00:08:37,200 --> 00:08:40,200 Speaker 1: I don't know if accounting issues is sort of a 163 00:08:40,240 --> 00:08:44,439 Speaker 1: strong way of putting it, but the inaccurate accounting statements 164 00:08:44,600 --> 00:08:47,440 Speaker 1: or statements that have not fully disclosed the depth of 165 00:08:47,480 --> 00:08:50,960 Speaker 1: the problems at the organization for a variety of reasons. 166 00:08:51,160 --> 00:08:53,760 Speaker 1: Does this just sort of confirmed that nothing on that 167 00:08:53,840 --> 00:08:57,920 Speaker 1: front has dramatically changed and that these surprises will keep coming. Well, 168 00:08:58,080 --> 00:09:00,480 Speaker 1: that that is part of it. People are hanging their 169 00:09:00,480 --> 00:09:01,880 Speaker 1: hat on you know, this is a this is a 170 00:09:01,960 --> 00:09:04,040 Speaker 1: you know, an honest guy, a really good operator. He's 171 00:09:04,040 --> 00:09:07,360 Speaker 1: gonna he's gonna, you know, give us, you know, the details, 172 00:09:07,480 --> 00:09:10,280 Speaker 1: and uh, this was like dropping a bomb. And and 173 00:09:10,360 --> 00:09:13,280 Speaker 1: but the second one is power. Power. You know it's 174 00:09:13,280 --> 00:09:15,280 Speaker 1: gonna it's taking him longer to get his arms around it. 175 00:09:15,400 --> 00:09:18,440 Speaker 1: I don't have any doubt that he will. But Power 176 00:09:18,480 --> 00:09:20,800 Speaker 1: is going to be worse this year. And again some 177 00:09:20,840 --> 00:09:23,200 Speaker 1: of that could have been disclosed. These are very long 178 00:09:23,320 --> 00:09:26,240 Speaker 1: term contracts. They did very bad contracts over the last 179 00:09:26,240 --> 00:09:28,640 Speaker 1: two years just to get orders on the books, and 180 00:09:28,679 --> 00:09:30,760 Speaker 1: guess what now they've got to ship them and they're 181 00:09:30,800 --> 00:09:35,120 Speaker 1: shipping very probably some some deals at losses and that's 182 00:09:35,120 --> 00:09:38,040 Speaker 1: going to be a multi year workout, you know, kind 183 00:09:38,080 --> 00:09:39,880 Speaker 1: of like an engineering construction company that gets a bad 184 00:09:39,880 --> 00:09:42,640 Speaker 1: contract and takes years to work through the backlog. Right. Um, 185 00:09:42,679 --> 00:09:45,599 Speaker 1: but then also, um, you know, the cost structure is 186 00:09:45,720 --> 00:09:48,520 Speaker 1: not anywhere near in line with where revenues are today, 187 00:09:48,760 --> 00:09:50,760 Speaker 1: and that's ongoing. He laid they laid off twenty four 188 00:09:50,840 --> 00:09:52,960 Speaker 1: thousand people in that division a loan last year. They've 189 00:09:53,000 --> 00:09:55,400 Speaker 1: cut a number of plants. It's not enough. So that's 190 00:09:55,400 --> 00:09:57,240 Speaker 1: what he's telling us. They have to do more. Okay, 191 00:09:57,280 --> 00:09:59,440 Speaker 1: so let's now they've they've done a lot in terms 192 00:09:59,480 --> 00:10:02,040 Speaker 1: of the the M and A, the restructuring in the company. 193 00:10:02,080 --> 00:10:04,000 Speaker 1: Do you think that they are done with that in 194 00:10:04,080 --> 00:10:06,440 Speaker 1: terms of selling what I guess people would call non 195 00:10:06,440 --> 00:10:08,920 Speaker 1: core assets. Are the assets that g has today is 196 00:10:08,960 --> 00:10:11,880 Speaker 1: that it now they still have about fourteen billion in 197 00:10:12,040 --> 00:10:16,280 Speaker 1: stock ownership of Baker Hughes that that business is already offline, 198 00:10:16,360 --> 00:10:18,640 Speaker 1: it's it's being run independently, but they have a fourteen 199 00:10:18,679 --> 00:10:22,680 Speaker 1: billion dollar ownership there. They have about another four billion 200 00:10:22,720 --> 00:10:24,559 Speaker 1: that they can get out of the web tech business 201 00:10:24,559 --> 00:10:26,680 Speaker 1: that they sold um, and then it's going to be 202 00:10:27,080 --> 00:10:29,280 Speaker 1: smaller units I think from here. But even in the 203 00:10:29,320 --> 00:10:32,959 Speaker 1: power division there's two pieces now that the non gas piece. 204 00:10:32,960 --> 00:10:35,360 Speaker 1: There's stuff in there that they can sell um. But 205 00:10:35,440 --> 00:10:40,160 Speaker 1: I think the big stuff is probably behind us. So alright, 206 00:10:40,240 --> 00:10:43,080 Speaker 1: So of course, I'm sorry. I am very focused on 207 00:10:43,120 --> 00:10:44,920 Speaker 1: the debt side of this, just because that is the 208 00:10:45,000 --> 00:10:47,720 Speaker 1: nature of my d n A. That is I'm sorry, 209 00:10:47,800 --> 00:10:49,680 Speaker 1: it is who I am. I'm looking right now. General 210 00:10:49,720 --> 00:10:54,400 Speaker 1: Electric perpetual bonds UH five debt is the biggest loser 211 00:10:54,520 --> 00:10:57,960 Speaker 1: among the investment grading universe today. Another decline in price 212 00:10:58,080 --> 00:11:01,560 Speaker 1: that means higher implied borrowing call. How crucial is it 213 00:11:01,600 --> 00:11:04,280 Speaker 1: the General Electric gets its act together and is able 214 00:11:04,360 --> 00:11:07,760 Speaker 1: to give better disclosure and frankly, a better view into 215 00:11:07,840 --> 00:11:09,880 Speaker 1: just how much more can sell in the valuations that 216 00:11:09,920 --> 00:11:13,520 Speaker 1: will be able to achieve in order to avoid paying 217 00:11:13,760 --> 00:11:17,680 Speaker 1: criminally high interest rates are prohibitively high interest rates and 218 00:11:17,720 --> 00:11:20,480 Speaker 1: a potential downgrade. Well, I think they bought some time 219 00:11:20,520 --> 00:11:23,160 Speaker 1: with that twenty billion dollar assets sale that they announced 220 00:11:23,240 --> 00:11:27,560 Speaker 1: last week that will significantly help the debt burden. They're 221 00:11:27,600 --> 00:11:29,320 Speaker 1: not going to get the money until the fourth quarter 222 00:11:29,320 --> 00:11:32,120 Speaker 1: of next year. But uh, you know, there's a good 223 00:11:32,120 --> 00:11:34,839 Speaker 1: shot that the credit agency agencies will say, look, we 224 00:11:34,920 --> 00:11:37,760 Speaker 1: gotta get a lot of cash coming. And um, it's 225 00:11:37,920 --> 00:11:40,520 Speaker 1: the deal with Danaher uh. And I think that really 226 00:11:40,600 --> 00:11:43,319 Speaker 1: brought them time the sales at selling something for three 227 00:11:43,360 --> 00:11:45,600 Speaker 1: billion or five billion or four billion, there was still 228 00:11:45,640 --> 00:11:48,160 Speaker 1: a lot of worry. Um, and now this they got 229 00:11:48,200 --> 00:11:50,560 Speaker 1: a chunk of change coming, which will I think alleviate 230 00:11:50,600 --> 00:11:53,440 Speaker 1: some of that those fairs. The one risk is what 231 00:11:53,720 --> 00:11:58,160 Speaker 1: if some of these these unknown liabilities are much bigger 232 00:11:58,160 --> 00:12:01,240 Speaker 1: than we think. Right. There's a lot of lawsuits out there. Um, 233 00:12:01,320 --> 00:12:03,400 Speaker 1: you know, there's a number, there's a long term healthcare 234 00:12:03,440 --> 00:12:05,920 Speaker 1: insurance thing that do they really have their arms around that? 235 00:12:06,240 --> 00:12:09,600 Speaker 1: So I think they're okay with this big asset sail 236 00:12:10,320 --> 00:12:13,960 Speaker 1: if nothing big hits them, you know, unexpectedly. But there's 237 00:12:14,040 --> 00:12:16,320 Speaker 1: room for that. There's room for the unexpected here. All right. 238 00:12:16,400 --> 00:12:18,719 Speaker 1: Let's lastly, let's talk about the dividend. I'm looking on 239 00:12:18,720 --> 00:12:22,360 Speaker 1: the Bloomberg terminal. Now there's a forty two um ascent 240 00:12:22,679 --> 00:12:26,080 Speaker 1: dividend yielding about three point eight percent. Is that safe? No, 241 00:12:26,280 --> 00:12:31,480 Speaker 1: they cut the dividend um to a penny because so 242 00:12:32,800 --> 00:12:35,920 Speaker 1: so it's um they had and they're saving four billion 243 00:12:35,920 --> 00:12:38,400 Speaker 1: dollars by doing that. Well, actually it's an eight billion 244 00:12:38,440 --> 00:12:43,240 Speaker 1: annual cost that's now uh not like millions. So this 245 00:12:43,240 --> 00:12:46,560 Speaker 1: this is not the GE we grew up with, building, growing, 246 00:12:46,640 --> 00:12:50,000 Speaker 1: buying dividends for widows and orphans. That's that those days 247 00:12:50,000 --> 00:12:52,480 Speaker 1: are gone, right. You know, he's said down the road 248 00:12:52,520 --> 00:12:54,200 Speaker 1: he wants to be two and a half times leverage 249 00:12:54,200 --> 00:12:57,120 Speaker 1: and and and a competitive dividend. But that's really quite 250 00:12:57,160 --> 00:12:59,560 Speaker 1: a bit down the road. Count double hard. Thank you 251 00:12:59,600 --> 00:13:03,040 Speaker 1: so much, uh, Karen Uberhart, senior industrial analysts been covering 252 00:13:03,040 --> 00:13:06,000 Speaker 1: GE forever, not the age you She's our our best 253 00:13:06,000 --> 00:13:23,360 Speaker 1: in Bloomberg Intelligence, so thanks so much. As usual, there 254 00:13:23,520 --> 00:13:26,080 Speaker 1: is a lot of news in the healthcare space. First, 255 00:13:26,120 --> 00:13:29,240 Speaker 1: we have the announcement that the FDA has approved Johnson 256 00:13:29,280 --> 00:13:33,000 Speaker 1: and Johnson nasal spray that works to I guess alleviate 257 00:13:33,080 --> 00:13:35,680 Speaker 1: symptoms of depression. We also have news that of the 258 00:13:35,760 --> 00:13:39,760 Speaker 1: sudden resignation of the Food and Drug Administration's Commissioner, Scott 259 00:13:39,800 --> 00:13:42,200 Speaker 1: gott Leaps. Help us break down all that's going on 260 00:13:42,240 --> 00:13:45,080 Speaker 1: in healthcare, We bringing our friend, Max Nis and Max's biotech, 261 00:13:45,120 --> 00:13:49,000 Speaker 1: pharma and healthcare columnist for Bloomberg Opinion. He joins us 262 00:13:49,000 --> 00:13:51,640 Speaker 1: here in our Bloomberg eleven three year studios. Max, welcome 263 00:13:51,679 --> 00:13:55,080 Speaker 1: once again. Uh this Johnson and Johnson News. The story 264 00:13:55,120 --> 00:13:57,800 Speaker 1: seems like a big deal, is it? It definitely is. 265 00:13:57,880 --> 00:14:02,520 Speaker 1: So it's the first kind of real novel depression medicine 266 00:14:02,600 --> 00:14:06,000 Speaker 1: in more than a decade, and it's the first one, 267 00:14:06,240 --> 00:14:08,080 Speaker 1: you know, in an even longer time that has kind 268 00:14:08,080 --> 00:14:11,400 Speaker 1: of a genuinely different way of working on the brain. 269 00:14:11,760 --> 00:14:13,920 Speaker 1: And then kind of the third differentiation factors that it's 270 00:14:13,920 --> 00:14:16,920 Speaker 1: it's fast acting. What we have generally takes you know, 271 00:14:16,960 --> 00:14:19,000 Speaker 1: weeks to kick in. You have to build kind of 272 00:14:19,040 --> 00:14:22,520 Speaker 1: a concentration up over time. So this has the potential 273 00:14:22,560 --> 00:14:25,000 Speaker 1: be used in a lot of interesting different ways for 274 00:14:25,160 --> 00:14:27,200 Speaker 1: people that are kind of in you know, an acute 275 00:14:27,200 --> 00:14:31,600 Speaker 1: moment of crisis or who just don't respond to existing therapies. 276 00:14:31,840 --> 00:14:34,480 Speaker 1: And that that is a pretty big population. So you 277 00:14:34,520 --> 00:14:38,600 Speaker 1: know what else is fast acting cocaine ventanyl? I mean 278 00:14:38,880 --> 00:14:41,680 Speaker 1: is is this is ketamine? Is this potentially the next 279 00:14:41,720 --> 00:14:44,960 Speaker 1: opioid crisis? So you know, it's it's a it's a 280 00:14:45,000 --> 00:14:48,360 Speaker 1: relative of ketamine and a close one. And I think 281 00:14:48,440 --> 00:14:51,240 Speaker 1: the potential for abuse is something that the FDA definitely 282 00:14:52,000 --> 00:14:55,200 Speaker 1: considered as opposed to you know, whether it's the equivalent 283 00:14:55,240 --> 00:14:57,120 Speaker 1: of just giving someone a party drug that they did 284 00:14:57,280 --> 00:15:01,560 Speaker 1: run kind of you know, randomized you know, late stage trials, 285 00:15:01,640 --> 00:15:04,600 Speaker 1: in control trials in really sick patients and it did 286 00:15:04,640 --> 00:15:07,360 Speaker 1: have an impact. Well flipping on its head, right, have 287 00:15:07,480 --> 00:15:10,680 Speaker 1: there been studies done of people who let's say, uh, 288 00:15:10,720 --> 00:15:13,840 Speaker 1: it took katamine or took other party drugs, took ecstasy, 289 00:15:13,920 --> 00:15:16,360 Speaker 1: and that that actually helped with depression? You know that 290 00:15:16,400 --> 00:15:18,600 Speaker 1: there have been a lot of attempts to to study this, 291 00:15:18,680 --> 00:15:21,240 Speaker 1: but not in kind of the scale and riggor of 292 00:15:21,240 --> 00:15:24,760 Speaker 1: of this trial. And you know, beyond the fact that it, 293 00:15:25,000 --> 00:15:27,800 Speaker 1: you know, has this kind of psychoactive effect that that 294 00:15:27,880 --> 00:15:30,920 Speaker 1: people have chased, uh, there does seem to be some 295 00:15:31,040 --> 00:15:34,440 Speaker 1: kind of you know, scientific evidence that there is an 296 00:15:34,480 --> 00:15:36,920 Speaker 1: effect on the brain that you know, there's there's like 297 00:15:36,960 --> 00:15:41,080 Speaker 1: a medical thesis that they're chasing here for why it 298 00:15:41,160 --> 00:15:43,920 Speaker 1: might help people with depression. It's not let's give people 299 00:15:44,080 --> 00:15:46,000 Speaker 1: a happy drug and let's see if they get happy. 300 00:15:46,120 --> 00:15:49,160 Speaker 1: Known some mats, I know, the antidepressant market in general 301 00:15:49,280 --> 00:15:51,760 Speaker 1: is a monster market. Is there a sense of how 302 00:15:51,800 --> 00:15:54,880 Speaker 1: big this sub part of it is, so that that's 303 00:15:54,920 --> 00:15:59,040 Speaker 1: the big question. You know, treatment resistant population is potentially 304 00:15:59,040 --> 00:16:01,400 Speaker 1: millions of people. The question is how many of them 305 00:16:01,440 --> 00:16:04,520 Speaker 1: are are going to end up getting getting Johnson and 306 00:16:04,600 --> 00:16:07,640 Speaker 1: Johnson drugs. And that's that's a trickier question. This isn't 307 00:16:07,720 --> 00:16:09,640 Speaker 1: you know, you just get a pack of pills and 308 00:16:09,680 --> 00:16:12,560 Speaker 1: take them. You have to go to a licensed office, 309 00:16:13,200 --> 00:16:16,280 Speaker 1: take it, and then sit there for two hours while 310 00:16:16,280 --> 00:16:19,680 Speaker 1: you're monitors for symptoms of association and sedition. Then you're 311 00:16:19,680 --> 00:16:22,240 Speaker 1: not supposed to operate heavy machinery for the rest of it. 312 00:16:22,320 --> 00:16:24,200 Speaker 1: It's gotta find someone to give you a ride, so 313 00:16:24,240 --> 00:16:26,320 Speaker 1: that that's a really hard thing for for people that 314 00:16:26,360 --> 00:16:30,320 Speaker 1: are working to do. And then you know, this isn't 315 00:16:30,320 --> 00:16:33,640 Speaker 1: something that your average psychiatrists is equipped to handle, so 316 00:16:33,680 --> 00:16:36,520 Speaker 1: that that is likely to kind of keep it from 317 00:16:36,800 --> 00:16:39,880 Speaker 1: reaching its full addressable market at least anytime soon. And 318 00:16:40,280 --> 00:16:42,000 Speaker 1: I just want to be very clear. I mean, I've 319 00:16:42,000 --> 00:16:44,240 Speaker 1: sort of been talking about this with a light tone, 320 00:16:44,440 --> 00:16:48,680 Speaker 1: but it's really not frankly underscores how much the epidemic 321 00:16:48,720 --> 00:16:53,120 Speaker 1: of suicides in this country has absolutely been exploding, especially 322 00:16:53,160 --> 00:16:55,760 Speaker 1: among the younger populations. I do want to shift gears 323 00:16:55,800 --> 00:16:58,960 Speaker 1: a little bit to the Food and Drug Administration UH 324 00:16:59,280 --> 00:17:02,760 Speaker 1: or just basically the chief of the US Food and 325 00:17:02,840 --> 00:17:06,680 Speaker 1: Drug Administration, UH, Scott Gottlieb resigned suddenly. It seems like 326 00:17:06,720 --> 00:17:09,639 Speaker 1: there was nothing on toward it and why he resigned. 327 00:17:09,680 --> 00:17:12,680 Speaker 1: There was no kind of push, It was a personal issue. 328 00:17:13,520 --> 00:17:15,760 Speaker 1: How big of a loss is this and how much 329 00:17:15,800 --> 00:17:19,680 Speaker 1: does it affect the industries? Yeah, I think it's pretty significant. Um, 330 00:17:20,000 --> 00:17:23,720 Speaker 1: everyone likes Scott. He he you know that there's even you, 331 00:17:24,680 --> 00:17:27,320 Speaker 1: even even me, Um, you know, obviously there's some such 332 00:17:27,520 --> 00:17:30,960 Speaker 1: people that really like, you know, selling tobacco and vape 333 00:17:30,960 --> 00:17:35,000 Speaker 1: pens less fans because he took kind of an aggressive 334 00:17:35,040 --> 00:17:37,600 Speaker 1: regulatory stance on them. But he was seen as someone 335 00:17:37,720 --> 00:17:41,880 Speaker 1: that that understood the industry, worked really hard and pushed 336 00:17:42,240 --> 00:17:44,439 Speaker 1: on a lot of significant public health issues in a 337 00:17:44,440 --> 00:17:48,320 Speaker 1: way that you hadn't really seen from previous commissioners. It 338 00:17:48,359 --> 00:17:50,000 Speaker 1: can be a quiet job, and you know, it's a 339 00:17:50,680 --> 00:17:54,560 Speaker 1: technical administrative post, but he turned into something that was 340 00:17:54,600 --> 00:17:58,200 Speaker 1: a lot more communicative and and active on the policy front. 341 00:17:58,640 --> 00:18:00,840 Speaker 1: So I think he he will bend, and not just 342 00:18:00,920 --> 00:18:03,159 Speaker 1: by by drug makers who saw him as someone that 343 00:18:03,240 --> 00:18:06,440 Speaker 1: was really pushing to modernize the agency and and make 344 00:18:06,440 --> 00:18:08,600 Speaker 1: it easier for innovative therapies to make it to market, 345 00:18:08,840 --> 00:18:11,280 Speaker 1: but but for further country as a whole. You know, Uh, 346 00:18:11,600 --> 00:18:13,840 Speaker 1: it's really the exception when you have kind of a 347 00:18:13,920 --> 00:18:18,200 Speaker 1: relatively drama free and competent um leader of an agency 348 00:18:18,920 --> 00:18:21,320 Speaker 1: in this day and age of relative to the past. 349 00:18:21,600 --> 00:18:25,040 Speaker 1: So is there any sense of who's going to replace Gottlieb? 350 00:18:25,160 --> 00:18:28,520 Speaker 1: And and and just in general, the big farm and 351 00:18:28,600 --> 00:18:30,520 Speaker 1: all their lobbyists, did they have an influence on who 352 00:18:30,600 --> 00:18:34,719 Speaker 1: gets selected? Um? You know, I imagine we're we're not 353 00:18:34,760 --> 00:18:37,280 Speaker 1: going to get someone that they really hate, just because 354 00:18:37,560 --> 00:18:40,040 Speaker 1: that is a big lobby and and it's one that 355 00:18:40,080 --> 00:18:42,640 Speaker 1: has a lot of influence in Congress. But but there 356 00:18:42,720 --> 00:18:45,000 Speaker 1: is a chance that we could get a left field candidate. 357 00:18:45,080 --> 00:18:47,119 Speaker 1: And I'm just thinking of you know, the people that 358 00:18:47,160 --> 00:18:50,720 Speaker 1: were rumored to be considered alongside Scott Gotlieb. One of 359 00:18:50,760 --> 00:18:53,800 Speaker 1: them was kind of a Peter theel affiliated investor who 360 00:18:53,880 --> 00:18:58,560 Speaker 1: um has some some pretty um out of the mainstream 361 00:18:58,800 --> 00:19:01,879 Speaker 1: I'll save views on on regulation of medicines, which is 362 00:19:01,920 --> 00:19:05,479 Speaker 1: to say that they shouldn't be regulated very much. Uh 363 00:19:05,560 --> 00:19:07,560 Speaker 1: that that's um a position that you might think that 364 00:19:07,640 --> 00:19:11,560 Speaker 1: drug makers are in favor of, but actually would potentially 365 00:19:11,560 --> 00:19:15,000 Speaker 1: be pretty chaotic, so that that's a potential negative. But 366 00:19:15,119 --> 00:19:18,879 Speaker 1: we could just get you know, a pretty mainstream bureaucrat 367 00:19:18,920 --> 00:19:20,879 Speaker 1: as well. It won't be as exciting as Gottlie, but 368 00:19:20,960 --> 00:19:22,879 Speaker 1: probably won't cause any harm, So we'll see. You know, 369 00:19:22,920 --> 00:19:25,359 Speaker 1: you started off talking about this with respect that tobacco 370 00:19:25,520 --> 00:19:29,040 Speaker 1: companies and invaping companies were not that excited about him 371 00:19:29,080 --> 00:19:31,480 Speaker 1: being there and are more excited about him leaving. We 372 00:19:31,520 --> 00:19:33,840 Speaker 1: did see a pop in their shares. Do you expect 373 00:19:33,920 --> 00:19:35,960 Speaker 1: that to last or do you think that any successor 374 00:19:36,359 --> 00:19:39,600 Speaker 1: would would adopt the same kinds of policies. Uh, you know, 375 00:19:39,960 --> 00:19:42,640 Speaker 1: I I wouldn't be too surprised if they at least 376 00:19:42,680 --> 00:19:45,840 Speaker 1: continue got Leave's efforts. Maybe they won't be as kind 377 00:19:45,880 --> 00:19:50,040 Speaker 1: of publicly energetic about them. Um, but you know, I 378 00:19:50,280 --> 00:19:55,000 Speaker 1: don't think there's much of a push that these these 379 00:19:55,040 --> 00:19:57,880 Speaker 1: companies can make to to kind of combat the general 380 00:19:58,000 --> 00:20:01,000 Speaker 1: rise of of kind of further regulations industries. On the 381 00:20:01,560 --> 00:20:05,400 Speaker 1: public health impact is is pretty obvious. You don't want 382 00:20:05,400 --> 00:20:09,119 Speaker 1: people getting addicted to tobacco or or Nicktine products, one 383 00:20:09,160 --> 00:20:11,679 Speaker 1: wear another and uh, it's the role of the FDA 384 00:20:11,720 --> 00:20:13,359 Speaker 1: and one wear another to to take a role in that. 385 00:20:13,440 --> 00:20:16,359 Speaker 1: So how is the FDA today? Is it generally perceived 386 00:20:16,520 --> 00:20:20,560 Speaker 1: as a good bipartisan view or is it really And 387 00:20:20,600 --> 00:20:23,160 Speaker 1: then then in the lap of big pharma or on consumers, 388 00:20:23,200 --> 00:20:25,800 Speaker 1: where is you have to kind of proceed right now? Uh? 389 00:20:25,880 --> 00:20:28,680 Speaker 1: You know, I think the god Leave FDA at least 390 00:20:28,760 --> 00:20:31,760 Speaker 1: was was kind of respected to a certain extent by 391 00:20:31,880 --> 00:20:34,000 Speaker 1: by people on both sides of the aisle, which is 392 00:20:34,280 --> 00:20:37,360 Speaker 1: an achievement in itself. I think you'll find people that 393 00:20:37,359 --> 00:20:40,560 Speaker 1: that do feel that it tends to lean too much 394 00:20:40,560 --> 00:20:42,600 Speaker 1: in the way of of pharma. And and that was 395 00:20:42,640 --> 00:20:45,159 Speaker 1: a criticism of god lea who who had some industry experience, 396 00:20:45,280 --> 00:20:47,320 Speaker 1: But at the same time he did things that were 397 00:20:47,440 --> 00:20:49,680 Speaker 1: kind of to the detriment of the industry, calling people 398 00:20:49,680 --> 00:20:54,600 Speaker 1: out for kind of abuses of the generic approval system UM, 399 00:20:54,640 --> 00:20:58,080 Speaker 1: for pricing things like that and UM. But on the 400 00:20:58,119 --> 00:20:59,560 Speaker 1: other hand, you have people that want to push for 401 00:20:59,600 --> 00:21:02,000 Speaker 1: the FT two more of an active role. Sulie Max, 402 00:21:02,040 --> 00:21:03,600 Speaker 1: he said, thank you so much for being with us. 403 00:21:03,640 --> 00:21:06,920 Speaker 1: Max Neson Biotech Fireman, healthcare columnist with Bloomberg Opinion. We 404 00:21:06,920 --> 00:21:26,520 Speaker 1: always value your perspective. Good morning. Well it, as Lisa 405 00:21:26,560 --> 00:21:29,680 Speaker 1: said earlier, the market seems to be discounting that the 406 00:21:29,720 --> 00:21:32,199 Speaker 1: Fed is done raising rates, at least for the New 407 00:21:32,280 --> 00:21:34,879 Speaker 1: York term. But there is an interesting column out this 408 00:21:34,920 --> 00:21:37,840 Speaker 1: morning by former New York Fed President Bill Dudley that said, 409 00:21:38,200 --> 00:21:41,520 Speaker 1: don't assume that there may be room for the Fed 410 00:21:41,560 --> 00:21:44,680 Speaker 1: to perhaps even raise rates at some point later this year. 411 00:21:45,560 --> 00:21:48,400 Speaker 1: Help us dig into this issue and outlooks for rates. 412 00:21:49,240 --> 00:21:51,280 Speaker 1: We bring in Carl Ricka Donna. Carl's the chief US 413 00:21:51,720 --> 00:21:55,199 Speaker 1: economist for Bloomberg Economics. He joins us live barely in 414 00:21:55,240 --> 00:21:58,040 Speaker 1: the Bloomberg leven three studios here in New York. You're 415 00:21:58,040 --> 00:22:02,200 Speaker 1: gonna take that sitting down very much alive. Just he's 416 00:22:02,240 --> 00:22:03,879 Speaker 1: one floor way and he made it with the second 417 00:22:03,880 --> 00:22:06,240 Speaker 1: of spirit. Thanks Carl. So what do you make, Carl 418 00:22:06,400 --> 00:22:09,679 Speaker 1: of Bill Dudley's column about rates and the outlook for 419 00:22:10,040 --> 00:22:12,680 Speaker 1: nineteen I agree with what the former New York Fed 420 00:22:12,720 --> 00:22:17,320 Speaker 1: president is saying, and we've maintained that view as well. Uh, 421 00:22:17,400 --> 00:22:20,200 Speaker 1: this is a pause, not a peak for interest rates. 422 00:22:20,240 --> 00:22:22,479 Speaker 1: We can look at the you know, the the grand 423 00:22:22,560 --> 00:22:26,520 Speaker 1: scope of history and the economy has never rolled over 424 00:22:26,560 --> 00:22:29,680 Speaker 1: with interest rates as accommodative as they are at the moment. 425 00:22:29,720 --> 00:22:32,399 Speaker 1: And so we look at real GDP growth relative to 426 00:22:32,480 --> 00:22:35,560 Speaker 1: real interest rates, and real interest rates are essentially at zero. 427 00:22:36,280 --> 00:22:39,320 Speaker 1: They have to rise significantly higher, maybe two hundred basis 428 00:22:39,320 --> 00:22:42,480 Speaker 1: points higher, to actually be depressing economic growth. Alright, so 429 00:22:42,560 --> 00:22:44,760 Speaker 1: let's take a little bit more into exactly what Bill 430 00:22:44,880 --> 00:22:48,760 Speaker 1: Dudley said. He said that probably the economy would underperform 431 00:22:48,840 --> 00:22:51,240 Speaker 1: for the first half of this year. He thinks that 432 00:22:51,760 --> 00:22:54,879 Speaker 1: patients indicates the Fed won't be raising rates in the 433 00:22:54,880 --> 00:22:58,280 Speaker 1: first half of ten. However, he expects the economy to 434 00:22:58,400 --> 00:23:02,040 Speaker 1: re accelerate in the second half off and basically prompt 435 00:23:02,119 --> 00:23:06,040 Speaker 1: the Fed to rethink its patience. Do you agree with that? 436 00:23:06,240 --> 00:23:10,359 Speaker 1: I agree with that. And here's the story. So the 437 00:23:10,400 --> 00:23:13,480 Speaker 1: economy grew about break it down. The economy grew about 438 00:23:13,520 --> 00:23:16,680 Speaker 1: three percent last year. That's well above trend growth. And 439 00:23:16,720 --> 00:23:20,280 Speaker 1: when you grow above trend, two things happen. One, the 440 00:23:20,359 --> 00:23:24,080 Speaker 1: unemployment rate moves lower, and two you generate inflation pressure, 441 00:23:24,119 --> 00:23:27,080 Speaker 1: so you get an acceleration and inflation. We saw both 442 00:23:27,119 --> 00:23:30,280 Speaker 1: of those things last year. Uh, the economy is moderating 443 00:23:30,280 --> 00:23:32,679 Speaker 1: this year, so we're going from two point nine or 444 00:23:32,680 --> 00:23:35,600 Speaker 1: three percent growth down to my team is expecting something 445 00:23:35,600 --> 00:23:38,679 Speaker 1: close to two point four percent, still above trend. So 446 00:23:38,720 --> 00:23:40,720 Speaker 1: you get exactly what you got last You're just in 447 00:23:40,760 --> 00:23:44,520 Speaker 1: a slightly smaller dose, and so that the expectation is right. 448 00:23:44,560 --> 00:23:46,679 Speaker 1: The earning season is not looking that great. If you 449 00:23:46,720 --> 00:23:51,040 Speaker 1: talk to our chief equity strategist, Gina Martin Adams, she'll 450 00:23:51,080 --> 00:23:53,719 Speaker 1: say that that we may even be potentially contending with 451 00:23:53,760 --> 00:23:57,840 Speaker 1: an earnings recession, not an economic recession, but an earnings recession, 452 00:23:57,920 --> 00:24:00,399 Speaker 1: or at the very least a soft patch in the 453 00:24:00,440 --> 00:24:02,439 Speaker 1: first part of this year. And so we have this, 454 00:24:02,760 --> 00:24:05,520 Speaker 1: you know, equity market correction in Q four, a soft 455 00:24:05,560 --> 00:24:10,800 Speaker 1: patch for corporate earnings, residual seasonality issues with the GDP numbers, 456 00:24:10,800 --> 00:24:14,200 Speaker 1: where we get a soft print in Q one. Once 457 00:24:14,240 --> 00:24:17,120 Speaker 1: we get to mid year and central bankers sit back 458 00:24:17,160 --> 00:24:19,280 Speaker 1: and assess what's happening in the economy, they're going to 459 00:24:19,320 --> 00:24:21,639 Speaker 1: see that we still have growth that is above trend, 460 00:24:22,000 --> 00:24:25,480 Speaker 1: we have an unemployment rate heading into mid three, territory 461 00:24:26,880 --> 00:24:30,160 Speaker 1: pressures running. It's the hottest of the cycles, and they'll say, 462 00:24:30,240 --> 00:24:32,800 Speaker 1: in that environment, we're not done. We have to keep hiking. 463 00:24:32,880 --> 00:24:35,440 Speaker 1: How surprised will markets be if when the Fed? If 464 00:24:35,480 --> 00:24:38,639 Speaker 1: the Fed hikes again this year, well, the Fed doesn't 465 00:24:38,680 --> 00:24:41,000 Speaker 1: want them to be surprised. So while the Fed kind 466 00:24:41,000 --> 00:24:44,040 Speaker 1: of led the market to this point in terms of 467 00:24:44,040 --> 00:24:47,080 Speaker 1: the rate increases we've seen, the Fed got burned in 468 00:24:47,200 --> 00:24:50,120 Speaker 1: Q four. Uh. This means now the Fed is going 469 00:24:50,160 --> 00:24:53,199 Speaker 1: to follow, not lead the market to interest rate. So 470 00:24:53,240 --> 00:24:55,160 Speaker 1: the Fed is gonna let the market beg for it, 471 00:24:55,600 --> 00:24:57,720 Speaker 1: uh and then be happy to oblige them. And by 472 00:24:57,960 --> 00:25:00,560 Speaker 1: letting the market beg for it, it means that we'll 473 00:25:00,560 --> 00:25:03,399 Speaker 1: see a steepening of the yield curve. The Fed lets 474 00:25:03,480 --> 00:25:07,520 Speaker 1: the market price in more inflation expectations. You see a 475 00:25:07,640 --> 00:25:10,480 Speaker 1: bare steepening of the yield curve, and then the Fed 476 00:25:10,560 --> 00:25:13,520 Speaker 1: steps in and says, we'll help you address the inflation 477 00:25:13,560 --> 00:25:16,119 Speaker 1: problem and layer some rate hikes in. Give us a 478 00:25:16,160 --> 00:25:19,520 Speaker 1: sense of timing here, is this a third quarter type environment? 479 00:25:19,680 --> 00:25:20,920 Speaker 1: Because I think if you look at them, I think 480 00:25:20,920 --> 00:25:23,480 Speaker 1: the market's discounting really nothing for twenty nights, right. The 481 00:25:23,480 --> 00:25:26,080 Speaker 1: market is saying nothing. Economists are saying they're still hikes coming. 482 00:25:26,119 --> 00:25:28,359 Speaker 1: I like the market better than economists, but go ahead, 483 00:25:28,480 --> 00:25:31,040 Speaker 1: that's that's you. But they're gonna beg for it. That's 484 00:25:31,040 --> 00:25:34,879 Speaker 1: what they're going to go on. So the way the 485 00:25:34,920 --> 00:25:36,880 Speaker 1: timing of this works out right, we have to wait 486 00:25:36,960 --> 00:25:39,399 Speaker 1: until we have a sense that we're in the clear 487 00:25:39,560 --> 00:25:42,880 Speaker 1: from this earnings recession, which means probably by the time 488 00:25:42,920 --> 00:25:45,800 Speaker 1: we get the Q two GDP numbers, which would be 489 00:25:45,800 --> 00:25:48,480 Speaker 1: the end of July. Uh, that would be the time 490 00:25:48,480 --> 00:25:51,600 Speaker 1: where you'll start to see both market participants and FED 491 00:25:51,640 --> 00:25:55,040 Speaker 1: policymakers say, Okay, the economy is still running a little hot, 492 00:25:55,520 --> 00:25:58,800 Speaker 1: a little bit of additional accommodation is warranted, and so 493 00:25:58,840 --> 00:26:00,920 Speaker 1: I think we see two hikes in the back half 494 00:26:00,960 --> 00:26:02,840 Speaker 1: of the year, probably at the September meeting, in the 495 00:26:02,840 --> 00:26:06,520 Speaker 1: December meeting. The December is a bolder call, and so 496 00:26:06,600 --> 00:26:08,600 Speaker 1: you know, the risk is not symmetric around that. The 497 00:26:08,640 --> 00:26:10,360 Speaker 1: risk is we would only get one hike this year. 498 00:26:10,840 --> 00:26:13,160 Speaker 1: But we do have the view that you know, we're 499 00:26:13,200 --> 00:26:16,200 Speaker 1: going to be contending with a still robust economic environment 500 00:26:16,240 --> 00:26:18,400 Speaker 1: and the Fed's going to have to do more. They'll 501 00:26:18,400 --> 00:26:20,800 Speaker 1: just speak really fast the meeting to indicate that they're 502 00:26:20,800 --> 00:26:23,439 Speaker 1: not patient any longer. I just have to ask you, 503 00:26:23,880 --> 00:26:26,040 Speaker 1: I just have to ask you, really, in thirty seconds, 504 00:26:27,000 --> 00:26:28,879 Speaker 1: how much of the slowdown that we're saying in the 505 00:26:28,880 --> 00:26:31,760 Speaker 1: first half is due to this trade skirmish that's been 506 00:26:31,760 --> 00:26:36,920 Speaker 1: going on. That's an interesting question. I think second element 507 00:26:37,080 --> 00:26:39,840 Speaker 1: to that, I think it's just a confluence of factors. 508 00:26:39,880 --> 00:26:43,440 Speaker 1: I think we're we're blaming trade too much. Uh, and 509 00:26:43,720 --> 00:26:47,000 Speaker 1: we'll realize that domestic economic fundamentals are still very strong. 510 00:26:47,200 --> 00:26:49,720 Speaker 1: And I keep going back to that unemployment rate generating 511 00:26:49,760 --> 00:26:53,280 Speaker 1: wage pressures that is a backstop to consumer spending, and 512 00:26:53,320 --> 00:26:58,240 Speaker 1: the domestic economic outlook is still very robust. Cacadonna telling 513 00:26:58,280 --> 00:27:00,639 Speaker 1: it like it is here in the Bluebergetter Active Broker Studios. 514 00:27:00,800 --> 00:27:04,679 Speaker 1: Cara Kadona, chief you as economist for Bloomberg Economics, talking 515 00:27:04,720 --> 00:27:07,720 Speaker 1: about that Bill Dudley column really interesting to me. Uh, 516 00:27:07,760 --> 00:27:10,359 Speaker 1: the idea that the market right now has completely written 517 00:27:10,359 --> 00:27:13,320 Speaker 1: off rate hikes and yet we have former Fed officials 518 00:27:13,320 --> 00:27:16,200 Speaker 1: coming out and saying, you guys are being a little premature. 519 00:27:16,640 --> 00:27:18,840 Speaker 1: Thanks for listening to the Bloomberg P and L podcast. 520 00:27:19,000 --> 00:27:21,600 Speaker 1: You can subscribe and listen to interviews at Apple Podcasts 521 00:27:21,680 --> 00:27:24,680 Speaker 1: or whatever podcast platform you prefer. I'm Paul Sweeney, I'm 522 00:27:24,720 --> 00:27:27,399 Speaker 1: on Twitter at pt Sweeney. I'm Lisa Abram Woyd's I'm 523 00:27:27,400 --> 00:27:30,320 Speaker 1: on Twitter at Lisa Abram woits one before the podcast. 524 00:27:30,320 --> 00:27:32,920 Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio