Speaker 1: This is Bloomberg Business Week. I'm Carole Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanovk. We're here every day bringing
Speaker 1: you the latest news from the world to business and finance,
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Speaker 1: Bloomberg Business Week and iTunes, SoundCloud, or Bloomberg dot Com.
Speaker 1: You can also listen to our radio show at two
Speaker 1: pm Eastern Time on Bloomberg Radio or watch us on
Speaker 1: YouTube search Bloomberg Global News. Here back with what's going
Speaker 1: on and just talk about some of the big macro
Speaker 1: stories that are going on in the world. But also
Speaker 1: in the luxury auto industry is Stefan Vinkelman. He is
Speaker 1: chairman and CEO of Lamborghini, and he's with us in
Speaker 1: our interactive broker studio right here in New York City.
Speaker 1: How are you. I'm very good, Thank you, I say
Speaker 1: lightly um. There is so much going on in the
Speaker 1: world that I am always curious Tim and I are
Speaker 1: when it comes to whether it's luxury automobiles or the
Speaker 1: luxury space in general, how it impacts your buyers, whether
Speaker 1: it's the war in Ukraine, whether it's supply chain constraints,
Speaker 1: volatility in the financial markets. Been a crazy first quarter.
Speaker 1: What what jumps out? I can tell you that since
Speaker 1: two and a half years we are in crisis more
Speaker 1: more or less the pandemic than the chip shortage. Now
Speaker 1: the war in Ukraine. What I can tell you, and
Speaker 1: which is for us very surprising, that already in the
Speaker 1: second part of the market, our type of market was
Speaker 1: coming back stronger than expected. And as we speak, we
Speaker 1: are selling every day more cars that we are able
Speaker 1: to produce. So we have an order bank which is
Speaker 1: longer than one year of waiting time. Is that typical?
Speaker 1: This is before let's say, beforeies or before the pandemic,
Speaker 1: it was between six seven, eight, maximum nine months, depending
Speaker 1: on the model and on the launches. And now this
Speaker 1: is very good and healthy for a company like ours.
Speaker 1: But that the market came back so strong and so sudden,
Speaker 1: this was unexpected. The short that the chip shortage for us,
Speaker 1: being part of the Volkswan group, was less an issue.
Speaker 1: We were lucky because we have small manufacturers or low volumes,
Speaker 1: high margins, so we got a priority line from from
Speaker 1: the Volkswan group and now the war in Ukraine. For sure,
Speaker 1: we we put our um operations on hold in Russia,
Speaker 1: so we stopped it. And we have an important supplier
Speaker 1: in the in the West Ukraine, so we had stopping
Speaker 1: goals and production for the Huracan, which is one of
Speaker 1: our models. But now we are let's say, on in
Speaker 1: our face where we have five six days of view
Speaker 1: of what is happening and we are not losing any
Speaker 1: production at I mean, so this is for us pretty
Speaker 1: pretty okay. Then it's clear stock market did anything slow
Speaker 1: down that first quarter because of the molty No, as
Speaker 1: we speak, I have to tell you, and I'm unable
Speaker 1: to make let's say, a forecast for the year two.
Speaker 1: But as we speak, there is no slowing down on
Speaker 1: the request for our cars and this is very positive.
Speaker 1: We have also to say that they are more people
Speaker 1: with the money at their disposal in comparison to a
Speaker 1: decade ago, so the the words is increasing and they're
Speaker 1: more benefiting forments. We have a very young customer base
Speaker 1: and they're very proud of owning a LAMBORGINI. We have
Speaker 1: to keep the promise of always delivering dream cards. This
Speaker 1: is par amount for this suc because of inflationary pressures
Speaker 1: supply chain. You mentioned the chip shortage, labor casts, all
Speaker 1: the inflationary pressures that we see happening around the world
Speaker 1: right now. How much have you had to race prices
Speaker 1: so far? We have not, let's say, transfer the cost
Speaker 1: of of the material cost roll materials to customers. We
Speaker 1: have a price increase between one and two per cent,
Speaker 1: which is not something which is unusual. Why haven't you
Speaker 1: why haven't you passed that along? If the consumers will
Speaker 1: need to wait for a year for a Lamborghini, they're
Speaker 1: probably willing to pay more more from the Let's say,
Speaker 1: if if this is going to continue, there is a
Speaker 1: further increase on the materials, certainly we are we will
Speaker 1: be forced to do so. At time being, we have
Speaker 1: it under control and I'm happy to say so. But
Speaker 1: for the future, as they said that, it's very difficult
Speaker 1: to to make a forecast uh the future. So the
Speaker 1: new models, they will have higher material cost due to
Speaker 1: hybridizations or batteries and combustion engines together, so there will
Speaker 1: be a slight price increase, but only due to that.
Speaker 1: How is the supply chain it? Although impacting your roll
Speaker 1: out this year, right, You've got a bunch of new
Speaker 1: models coming. Um, is any of that being impacted now
Speaker 1: a time being not. It's clear that it's early to
Speaker 1: speak about the new geopolitical situation because today we are
Speaker 1: not in the new normal, so we have to wait
Speaker 1: until the conflict is over and what is going to happen.
Speaker 1: For sure, we are acting global. So we are a
Speaker 1: company which is only good when we are able to
Speaker 1: sell worldwide. So we have high investments, little volumes, so
Speaker 1: we cannot flood one market and think that this is
Speaker 1: the the idea of the future, so we have to
Speaker 1: act global. On the other hand, acting global means also
Speaker 1: that our supply chain. We cannot just say that we
Speaker 1: stay in one country. So we will see how this
Speaker 1: is going to happen. Also, the pandemic with all the
Speaker 1: logistic chain was messed up and it took a lot
Speaker 1: of time to go back to normal, so we have
Speaker 1: to see how this is going to be once Uh, yeah,
Speaker 1: there is a new normal in place. You did suspend
Speaker 1: sales to Russia, correct, Um, how much of an impact
Speaker 1: is that for you guys? But luckily we can divert
Speaker 1: the production of the order bank or that the cars
Speaker 1: which we are going to produce or we wanted to
Speaker 1: produce for Russia into other markets. So we have no
Speaker 1: losses and the due to the fact that we have
Speaker 1: this long order bank, we don't have a negative impact.
Speaker 1: Will you stay out of Russia? We will see after
Speaker 1: after the war. As I said, it's very difficult now
Speaker 1: to make a forecast about what the geo political situation
Speaker 1: is going to be. The longer the wall last, and
Speaker 1: more difficult it would be to go back now, I'm
Speaker 1: sure about that. We know the incredibly some incredibly wealthy
Speaker 1: oligarchs in Russia have had sanctions and posted down them
Speaker 1: not by the interest the United States, but the UK
Speaker 1: and the European Union as well. If they were to
Speaker 1: approach you in another country to buy a vehicle, would
Speaker 1: you sell them a vehicle? But we have a list,
Speaker 1: a blacklist of people, and this is part of the
Speaker 1: business we had also before and there are all some
Speaker 1: of these guys on the list and we will not
Speaker 1: sell them cards. Have you been approached but not to
Speaker 1: my knowledge, but we have We have our dada's all
Speaker 1: partners worldwide, So at time being I don't see that
Speaker 1: there's anybody all right, the hard parts over. I got
Speaker 1: one more question. Uh, it's similar to what Carol was asking.
Speaker 1: You know, right now you suspended you've suspended vehicle sales
Speaker 1: in Russia. What would have to happen for you to
Speaker 1: start vehicle sales in Russia? Up again, Frank you speaking,
Speaker 1: I don't know, because once the war is going to
Speaker 1: be over, that there will be a new situation and
Speaker 1: we have to see how the European Union, because we
Speaker 1: are part of the union. European Union is going to
Speaker 1: react in terms of sanctions, and we will we are
Speaker 1: we will be aligned on what the government is going
Speaker 1: to tell us. But does it make you nervous? Because
Speaker 1: it does feel like it's a new Russia right now.
Speaker 1: But this was something which nobody was expecting and U,
Speaker 1: or at least very few people were expecting. And I
Speaker 1: think that this is something which in in the twenty
Speaker 1: first century or something which should not happen. Therefore, we
Speaker 1: will see. But okay, it's a pity. It's a pity
Speaker 1: also for the Russian customers in my opinion, Yeah, yeah, absolutely,
Speaker 1: in Russian citizens and certainly the Ukrainian citizens. Hey, okay,
Speaker 1: hard part over, So tell us why you're in New York.
Speaker 1: We do have the New York Orders show you guys
Speaker 1: have a global debut. Tell us what's coming up? Yes,
Speaker 1: on Friday there will be UM the view of the
Speaker 1: new version of a Hurakan. It's called Hurakan Technica. Um.
Speaker 1: It's a perfect bridge between let's say the weeks the
Speaker 1: two week stremes. We have not the Evil, which is
Speaker 1: a really drive cary and d ST which is the
Speaker 1: closest to a race car we have done on the
Speaker 1: Ura Can. So this is a perfect mix of driving pleasure, lifestyle.
Speaker 1: It's a world car, right, It's a broadcast which is
Speaker 1: very easy and very good also to drive on the racetract.
Speaker 1: So it's like which is a new front and new rear,
Speaker 1: real real seering, more down force, less drag, more holespower.
Speaker 1: So it's like, which is very easy and fun to drive.
Speaker 1: Who's this for? You mentioned were wheel steering. I've never
Speaker 1: driven a car with rear wheel steering. A lot of
Speaker 1: the super sports cars yes about acceleration longitudinal performance, but
Speaker 1: this is something which in my opinions, are given. It's
Speaker 1: much more about the lateral acceleration, how you get into
Speaker 1: the corner, out of the corner. The way to power ratio,
Speaker 1: the breaking, so the handling in one word, which is
Speaker 1: part of how we define performance. And therefore the real
Speaker 1: reseeing is enabling you and and different types of speed
Speaker 1: to be more performing. The reaction time is less. Well, Lamborghini,
Speaker 1: you know it goes hand in hand in terms of design, innovation, speed, performance. Um,
Speaker 1: how is it your customer in particular, what is it
Speaker 1: they increasingly want, especially as the auto industry, whether it's
Speaker 1: through e v S and so on and so forth,
Speaker 1: it is changing. So they want to buy into a
Speaker 1: brand which is including So there's something which they want
Speaker 1: to be part of their loyal right they're loyal to.
Speaker 1: One is the brands or events. In a very easy words,
Speaker 1: it's about sustainability more and more, it's about digitalization. These
Speaker 1: are the main things which people look into. And due
Speaker 1: to the fact that our customer base is becoming younger
Speaker 1: and younger, we are forecasting that by five we will
Speaker 1: we have seventy of our customers younger than forty in Russia. Sorry,
Speaker 1: in China for example, we already have an average h
Speaker 1: so we have very young customers. I just want to know,
Speaker 1: did Matt Miller give you a hard time about a campaign.
Speaker 1: Ev you got to hear the roar of the engine.
Speaker 1: Did he do it? No? Yeah, somehow, somehow he would ask,
Speaker 1: But I convinced him that this could be still a
Speaker 1: good time for us. You are such a good sport
Speaker 1: and we wish you well and good luck with the launch.
Speaker 1: Stefan Fie Colman he of course as chairman CEO of Lamborghini,
Speaker 1: and we are delighted have had him here in our
Speaker 1: studio on this Tuesday. You're listening to Bloomberg Business Week
Speaker 1: with Carol Messer and Bloomberg Quick Takes Tim Stinovic on
Speaker 1: Bloomberg Radio. Let's not go to Leona Baker. We've talked
Speaker 1: a lot in the past well week, Carol about what
Speaker 1: exactly Twitter is going to look like under Elon Musk.
Speaker 1: Who knows, but now it's not necessarily under Elon Musk.
Speaker 1: He is the largest individual shareholder with more than nine
Speaker 1: percent stake in the company. But what could he do
Speaker 1: to Twitter exactly? And so that's what our deals team
Speaker 1: looked at. Specifically, let's get that story from Blueberg News
Speaker 1: deal team reporter and leader, I should say leader, Leanna Baker.
Speaker 1: She joins us via zoom in New York City, Leanna,
Speaker 1: good to have you here with us. Uh day doesn't
Speaker 1: go by without some kind of reporting on what Ellen
Speaker 1: is up to, especially when it comes to Twitter. Uh
Speaker 1: So tell us what you guys set out to do
Speaker 1: and what you thought about it in terms of what
Speaker 1: a Twitter takeover how it might work. So usually my
Speaker 1: team is trying to find out about takeovers that we
Speaker 1: know are going to happen. This is sort of a
Speaker 1: theoretical exercise to understand if Elon Musk wanted to buy Twitter,
Speaker 1: how would you do it? So there's a few ways. Um.
Speaker 1: One way is that you can keep a quiet shares
Speaker 1: of the company, because you mentioned that he's already the
Speaker 1: largest individual shareholder, so why could be not, you know,
Speaker 1: by even bigger chunks of the company. One thing we
Speaker 1: looked at is that that's a possibility, but Twitter calways
Speaker 1: put in a poison pill to prevent Mosk or any
Speaker 1: shareholder from getting an even bigger steak. That's so old school, right,
Speaker 1: That is so old school, it feels it's true, but
Speaker 1: poison bills are still used a lot when there is
Speaker 1: a big shareholder trying to kind of get control of
Speaker 1: a company by acquiring shares in the open market. Twitter
Speaker 1: we've heard hasn't done one yet, but it's something they're
Speaker 1: you know, monitoring to see if they might need to
Speaker 1: to pull that maneuver. Another way that Musk could try
Speaker 1: to buy the company is doing a tender offer. This
Speaker 1: seems sort of unlikely, but what this would mean is
Speaker 1: that he would um put out a statement saying if
Speaker 1: any share olds the Twitter want to sell to me
Speaker 1: with this price, UM, you know, please go ahead. This
Speaker 1: uh would also be pretty hard from us because you
Speaker 1: have to get a certain amount of shareholders on board,
Speaker 1: usually more than Another thing he could do is what
Speaker 1: he tried to do a few years ago with the
Speaker 1: funding secured story tablot take privates that ever happened. He
Speaker 1: could go to the regular route of working with investment
Speaker 1: bankers and trying to get square to the Negli. That's
Speaker 1: something I want to talk to you about, Leona, because
Speaker 1: we had Mandy singing here a week ago Monday, and
Speaker 1: that was this was before we even found out that
Speaker 1: he would be offered a board seed and then were
Speaker 1: not rejecting that board seed. And he mentioned silver Lake
Speaker 1: is a potential partner UH that could team up potentially
Speaker 1: with Elon Musk to actually make a play for the company.
Speaker 1: How would that work? Like UM already put in a
Speaker 1: billion dollars in Twitter, and they have a board seat.
Speaker 1: Their post CEO, E Jun Survant puts on the board,
Speaker 1: so really also had a history with Musk. They were
Speaker 1: one of the names that Mosk had spoken to about
Speaker 1: the potential test like take private that never happened. That said,
Speaker 1: it would be pretty tough for them to maybe partner
Speaker 1: with Moss because the silver Lake is now associated with
Speaker 1: the board and Musk rejected the board seat. So we
Speaker 1: don't know if there's any tension there. I don't want
Speaker 1: be speculating, but certainly that is a private actuality partner
Speaker 1: that believes in in Twitter. So it's something to think
Speaker 1: about a side pool for. Like there's so many private
Speaker 1: equity firms out there that are always looking at opportunities.
Speaker 1: So we're trying to keep it up in mind, Hey
Speaker 1: just got thirty seconds, So there's like when all of
Speaker 1: a said and done, there's just a chance he just
Speaker 1: sells it all and walks away right just quickly. That
Speaker 1: seems like a really good option for him. UM personally,
Speaker 1: I just think bus might be too busy to be
Speaker 1: pulling off a huge emin a deal a farm twitter
Speaker 1: would still take a lot of time and focus. And
Speaker 1: he has so many other projects and public companies he's
Speaker 1: evolved in so uh. But if he were to sell
Speaker 1: his steak, he probably used to work with an investment bank.
Speaker 1: It's such a big steak you have to sell them
Speaker 1: the block trade. So we're looking at all these options,
Speaker 1: and he's still gonna work out that human robots so like,
Speaker 1: you know, that might just take up too much of
Speaker 1: his time. Hey what about self driving robot? Or there's
Speaker 1: the boring hole that we need in all our major
Speaker 1: cities and the neink Long can we go just naming
Speaker 1: other things that Elon Musk is working. Oh my god,
Speaker 1: Leanna Baker, thank you so much. Steals Team leader U
Speaker 1: Bloomberg News via zoom in New York City. You're listening
Speaker 1: to Bloomberg Business Week with Carol Messer and Bloomberg Quick
Speaker 1: Takes Tim Stinovic on Bloomberg Radio. This is Bloomberg Business
Speaker 1: Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic
Speaker 1: on Bloomberg Radio. All right, SPACs heard of them? Yeah,
Speaker 1: I have? You know, you don't hear hibout as much
Speaker 1: in two as you did in late uh. These special
Speaker 1: purpose acquisition companies continue to the very much be part
Speaker 1: of our market conversations, are also part of the conversation
Speaker 1: when it comes to concerns that are on the radar
Speaker 1: of regulators. This story Bloomberg Big Take, and it's also
Speaker 1: in the upcoming new issue of Bloomberg business Week. The
Speaker 1: story by Noah boo Hire and Matt Robinson. Noah's a
Speaker 1: finance reporter for Bloomberg News. He joins us on the
Speaker 1: phone from Seattle. Joel Webber is editor at Bloomberg Business Week.
Speaker 1: He's with this in the Bloomberg Interactive Broker's studio. Joel,
Speaker 1: what did your team, the team at Bloomberg Business Week
Speaker 1: find when they crunched the data when it came to
Speaker 1: perhaps interesting activity in SPACs before a SPAC goes and
Speaker 1: acquires a company, well in ongoing propaganda for a return
Speaker 1: to office stories. Um. No, it was in New York
Speaker 1: last weekend. We rubbed shoulders and he was like, Hey,
Speaker 1: I've been working on this back thing. You should you
Speaker 1: guys should take a look at it. And we looked
Speaker 1: at it and we're like, oh, this is really interesting.
Speaker 1: So the way that UM spack works is there's something
Speaker 1: called a stock warrant that gets basically issued in advance
Speaker 1: of a SPACK happening, and it gives holders the right
Speaker 1: to buy shares at a specific price. And when Noah
Speaker 1: started digging into that data, he found some interesting stuff.
Speaker 1: Right now, Yeah, UM, you know, as you mentioned there,
Speaker 1: there are these warrants out there that are that are
Speaker 1: traded UM ahead of time, and and they're they're interesting
Speaker 1: to look at because they're pretty volatile. They tend to
Speaker 1: spike on deal news. UM. And the reason we even
Speaker 1: started poking around this is that several months ago there
Speaker 1: were some some well timed trades in the warrant of
Speaker 1: the SPAC that that uh that is UM merging with
Speaker 1: Donald Trump's media platform. And we know that regulators were
Speaker 1: poking around that one. So we asked the question, like
Speaker 1: how common was this there there there you know, literally
Speaker 1: been hundreds of SPACs that have I POD in recent
Speaker 1: years and and and um you know, hundreds that have
Speaker 1: announced or completed mergers and and so we started looking
Speaker 1: back through the data and UM, we're looking particularly for
Speaker 1: instances when UM the volume of warrant trading spiked uh
Speaker 1: in in in the days and weeks ahead of a
Speaker 1: merger announcement. Now, UM, I should say that there are
Speaker 1: a lot of really benign reasons for that. UM. A
Speaker 1: lot of these merger talks leak early in the press,
Speaker 1: which is a which is a good reason for for
Speaker 1: why trading would pick up UM. But a lot of
Speaker 1: the spikes in trading that we uncovered, UH weren't so
Speaker 1: easily explained, And so the story was really about that.
Speaker 1: And as we started poking around, we realized that you know,
Speaker 1: we weren't the only ones who who who found this
Speaker 1: kind of activity interesting. UM. We understand that the sec
Speaker 1: UM and other regulators are are examining trades ahead of
Speaker 1: these the all announcements to figure out if if the
Speaker 1: trades were based at all on inside information. Well, and
Speaker 1: one of the it looks like inquiries by regulators includes dwack,
Speaker 1: which I just love to say, and that is a
Speaker 1: dwack one more time. It's like walking into a door
Speaker 1: or it happens to be a spack connected to former
Speaker 1: President Donald Trump. Tell us about that. Yeah, so what
Speaker 1: happened there is UM, the warrants for for that spack
Speaker 1: started started UM trading freely. I believe it was late
Speaker 1: September of last year, very shortly after they started trading.
Speaker 1: There was just a pronounced pop in in the volume
Speaker 1: of those warrants UM. And then about two three weeks later,
Speaker 1: the merger gets announced and the value of those warrants
Speaker 1: just stores I think they were, you know, before the deal,
Speaker 1: we're under fifty cents apiece. They eventually climbed to more
Speaker 1: than thirty seven dollars each. They've moderated some, but but
Speaker 1: the potential was there for someone to uh make a
Speaker 1: very quick and hafty UM profit. Now we don't no
Speaker 1: one has alleged wrongdoing in that case. We don't know
Speaker 1: UM what the outcome of the SEC and FINRA's information
Speaker 1: requests is going to be, but we know they are interested.
Speaker 1: What about when it comes to Vecto i Q Acquisition
Speaker 1: corporations purchase of the EV maker Nicola, because that shows
Speaker 1: how quickly, as you write, investors can profit. Yeah. Look,
Speaker 1: that's that's an example we call out in the story UM.
Speaker 1: And you know what we we found there is that
Speaker 1: there was there was a pickup and warrant trading about
Speaker 1: two weeks prior to that UM merger getting announced. And uh,
Speaker 1: you know, the warrants quickly went um from under a
Speaker 1: dollar to more than more than four dollars. They later
Speaker 1: you know, as as the deal got closer to completion,
Speaker 1: rose significantly higher. And so really the question here, what
Speaker 1: what what all of this raises is you know, how
Speaker 1: leaky were these deals? And we're people who were involved
Speaker 1: in them, um doing enough to safeguard the material non
Speaker 1: public information? UM. Insider trading cases are extremely hard for
Speaker 1: regulators to prove. Uh, but um, you know, the data
Speaker 1: is is suggestive of you know, a potential for people
Speaker 1: to be trading on inside information. And one of the
Speaker 1: bits of reporting that I thought was interesting is, uh,
Speaker 1: you too. You spoke to a professor at New York
Speaker 1: University School of Law who has written a ton about spacks,
Speaker 1: Michael oldreg Uh what did he have to say? Because
Speaker 1: there's the law firm component who's working on spots but
Speaker 1: SPACs but uh, and you know, obviously lawyers are going
Speaker 1: to be a key part of this, but not every
Speaker 1: law firm is top tier, right, yeah, I mean SPACs
Speaker 1: historically we're we're a bit of a backwater in the
Speaker 1: financial world. So UM, the companies that were big in
Speaker 1: this at the outset were not not your um, you know,
Speaker 1: most well known firms. Um. That professor you know said,
Speaker 1: a lot of these these law firms we're taking um
Speaker 1: uh this business on sort of a you know, uh,
Speaker 1: they were turning through a lot of these deals and um.
Speaker 1: The question is whether you know folks didn't dot the
Speaker 1: i's and crossed the teas and um. You know there's
Speaker 1: there's a lot bigger firms that are the deal with
Speaker 1: M and A more frequently, probably have more controls and
Speaker 1: um rules around how information gets shared. And and his
Speaker 1: point was really just this is a world that that
Speaker 1: that didn't attract the you know, most top flight law firms.
Speaker 1: So maybe there was a potential that things weren't done right.
Speaker 1: You know, just in the last thirty seconds that we
Speaker 1: have with you, iswy one. Was that the peak when
Speaker 1: it comes to SPACs at least in this cycle or
Speaker 1: are they kind of a thing for the rear view
Speaker 1: mirror right now? Yeah, I'm glad you raised that. So
Speaker 1: UM look uh, yes there was a burst of this
Speaker 1: in one as as time went on, you saw, um
Speaker 1: you see in the data less of a pop um
Speaker 1: when these deals get announced. UM. So to the extent
Speaker 1: this was happening, you know, I think it was. It
Speaker 1: was something that that that may have happened a while ago,
Speaker 1: and um, but it takes a while for regulators to
Speaker 1: dig into this stuff. Remember that cover that we did
Speaker 1: the But there you go, there you go, dack. That's
Speaker 1: all I'm gonna say. Jill Weber, editor of Business Week
Speaker 1: and Nobu hire financial porter at Bloomberg News. Check out
Speaker 1: the story. This is Bloomberg. I'm yeah, but you let
Speaker 1: me drive. Oh no, no, no, who's right? Please? I
Speaker 1: want to drive. It's a good question. This is the
Speaker 1: Drive to the Clothes on Bloomberg Radio. All right, just
Speaker 1: about ten minutes left in today's trading session. It's been
Speaker 1: an interesting day. We of course got that CPI print,
Speaker 1: that core number coming in a little bit light, and
Speaker 1: initially we saw some enthusiasm uh and risk on trade
Speaker 1: when it comes to the equity markets, but that is
Speaker 1: not the story. Now we are seeing equities just as
Speaker 1: we heard from Charlie, just off our loads of the session.
Speaker 1: So let's talk about the markets. Let's get into it.
Speaker 1: Veronica willis investment strategy analyst at Wells Fargo Investment Institute.
Speaker 1: She joined us on the phone from St. Louis, Veronica.
Speaker 1: How are you. I'm doing well, how are you guys?
Speaker 1: We're doing okay. It's been it's been a kind of
Speaker 1: a wild figure. Yeah. UM, I do want to talk
Speaker 1: a little bit about what's what's going on with the markets,
Speaker 1: because well, if we look at the SMP five, we're
Speaker 1: pretty much at levels that we were last at back
Speaker 1: in mid March, depending on where you look March sevent
Speaker 1: or so. I'm wondering how you explained the volatility that
Speaker 1: we've been seeing. I think there's a lot of volatility
Speaker 1: around what's going on with inflation, a lot of volatility
Speaker 1: related to geopolitics, and you know, we're off of those
Speaker 1: loads from you know, the worst of the correction in
Speaker 1: the SMP five hundred, and you know, we're really seeing
Speaker 1: some confusion around this inflation data that's come out. You know,
Speaker 1: the headline numbers were a little bit worse than what
Speaker 1: we were expecting, but then looking at the core CPI,
Speaker 1: UM some encouraging data there, just in terms of you know,
Speaker 1: could this be the peak with energy prices a little
Speaker 1: bit lower than what we've seen last month, and so
Speaker 1: could we expect maybe next month some releasing that inflation number,
Speaker 1: and I think the market is taking all of this
Speaker 1: information into consideration and that's why we're seeing a lot
Speaker 1: of volatility here. I feel like there's just so many unknowns.
Speaker 1: There was a great column that I read on the
Speaker 1: Bloomberg today and basically it just said, when it comes
Speaker 1: to the FED, you know understand that they there's no
Speaker 1: clear voyance from the Federal Reserve. Don't expect it. They
Speaker 1: are going to take each meeting, look at the situation
Speaker 1: in front of them, and make a decision based on that.
Speaker 1: And if that means being more aggressive as a FED,
Speaker 1: they'll do it. If it means backing off because they're
Speaker 1: concerned about either doing too much or the economic data
Speaker 1: starts to come undone that's we're going to get is
Speaker 1: that how we need to kind of think about it.
Speaker 1: That understand the FED is going to be doing this
Speaker 1: in real time. Absolutely, the FED takes into consideration everything
Speaker 1: that's going on with the economy, everything that's going on
Speaker 1: with inflation, and they're being very transparent with us and
Speaker 1: letting us know exactly what they're thinking and what they're
Speaker 1: path forward that they see at that moment. Is each
Speaker 1: time that the notes come out each time that they
Speaker 1: have a meeting, and so I think that that transparency
Speaker 1: from the feed is a very good thing. The FET
Speaker 1: knows what's going on with the economy, and they know
Speaker 1: what they have to do, and they've told us, you know,
Speaker 1: what their plans are each step of the way. But
Speaker 1: plans don't mean anything. It doesn't matter until they set
Speaker 1: it down right at the FED Reserve the day of
Speaker 1: a meeting and say okay, where are we absolutely and
Speaker 1: you know, as of now, we're thinking that there's going
Speaker 1: to be a fifty basis point rate hike in May,
Speaker 1: maybe another fifty in June, but of course all of
Speaker 1: that can change. A lot can happen between now and May. Well,
Speaker 1: let's talk about where you should be deploying money right now,
Speaker 1: at least in your opinion. Thanks for the notes that
Speaker 1: you sent before, and to our producer Paul Brent Brennan
Speaker 1: who who got these to US um US large cap
Speaker 1: in US mid cap over US small cap. Why is that? So?
Speaker 1: We think that right now we're in that portion of
Speaker 1: the economic cycle where we're shifting from kind of mid
Speaker 1: to late cycle, and that's where we think that large
Speaker 1: and mid cap can really shine over something like small
Speaker 1: cap that's more cyclical, that tends to do better in
Speaker 1: that earlier part of the economic cycle when we're seeing
Speaker 1: that stronger economic growth. The large and MidCap stocks are
Speaker 1: higher quality, so we're expecting to see a little bit
Speaker 1: more return on equity there in those spaces as opposed
Speaker 1: to something like small cap, which, as I said, is
Speaker 1: a little bit more cyclical, and certainly with um better
Speaker 1: expectation for US box over international stocks, just you stemmed
Speaker 1: in our expectation for US economic growth to be the
Speaker 1: outperformer on the global stage. Ravonica. It's a big week
Speaker 1: for the big bank earnings, right, and we're all going
Speaker 1: to be all over them starting tomorrow. UM. I've been
Speaker 1: looking at the KBW Bank index. It's down about another
Speaker 1: one point four percent today, down eleven percent year today,
Speaker 1: but down from the January high. I find that a
Speaker 1: little perplexing considering the move up in rates, which we've
Speaker 1: all been saying as soon as we start to see
Speaker 1: moving up in rates, this is going to be good
Speaker 1: for the net interest margin at all of these big banks.
Speaker 1: What do you make of the pressure that we're seeing
Speaker 1: in those big bank names, UM, I think that expectations
Speaker 1: are that earnings might be a little bit underwhelming for
Speaker 1: the first quarter. We have seen a move up in rates,
Speaker 1: but it wasn't widespread throughout the entire first quarters, so
Speaker 1: we might not start to see that benefit for financials
Speaker 1: until the second quarter comes out. And so I think
Speaker 1: that's what we're seeing right now in this data that um,
Speaker 1: there could be some disappointments in those first quarter earnings
Speaker 1: for these banks. UM. So I think that's what the
Speaker 1: markets watching out for. Is it already priced in now?
Speaker 1: Then at this point, considering how much pressure has been
Speaker 1: on these names, I would think that it's been priced
Speaker 1: ben But the market is pretty unpredictable. Um, they're looking
Speaker 1: very closely at what the what they're expecting the banks
Speaker 1: to come out with. We'll see some earnings tomorrow to
Speaker 1: see what that picture really looks like. What about picture
Speaker 1: of the economy. One of the reasons we love talking
Speaker 1: or hearing from the banks is because we get a
Speaker 1: good take on their read on the economy. Sometimes, uh,
Speaker 1: and I'm wondering what we should be looking for from
Speaker 1: the banks when it comes to their commentary around that. Well,
Speaker 1: I think right now, looking at the US we're expecting
Speaker 1: two point six p m GDP growth, which is a
Speaker 1: little bit higher than average but pretty close to an
Speaker 1: average economic growth, but much lower than the high growth
Speaker 1: that we've seen. We're looking very closely at signs that
Speaker 1: are signaling a slowdown in that economic growth in the US,
Speaker 1: but not expecting a recession this year for the US.
Speaker 1: Outside of the US a little bit next Sorry, what
Speaker 1: about next year in the US? UM next year in
Speaker 1: the US that the risks that there might be a
Speaker 1: recession are rising. UM, we haven't made an official call
Speaker 1: on whether or not they're will be your recession, but
Speaker 1: it's something in consideration with move higher in rates. But
Speaker 1: thet you pretty much has no choice to do with
Speaker 1: what's going on with inflation, and it'll be really key
Speaker 1: to see whether or not they can orchestrate this soft
Speaker 1: landing UM to give us a better sense of what
Speaker 1: might happen in three with economic growth. All Right, we're
Speaker 1: gonna leave it on that note. Covered a lot of ground.
Speaker 1: Thank you, Veronica Willis. She is investment strategy analyst at
Speaker 1: Wells Fargo Investment Institute, joining us on the phone from St. Louis.
Speaker 1: Thanks for listening to Bloomberg Business Week. Download the podcast
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