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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am

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Speaker 1: or watch us live on YouTube.

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Speaker 2: Alex Steel, Paul Sweeny. Here we do have some breaking

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Speaker 2: news from the Supreme Court. The Supreme Court upholds US

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Speaker 2: gun ban in domestic violence cases. Whether to strike down

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Speaker 2: this federal gunban for people subject to domestic violence restraining

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Speaker 2: orders was the point in question. Let's go right now

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Speaker 2: to June Grasso, who covers everything law and legal for

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Speaker 2: us for Bloomberg Television and Radio.

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Speaker 3: June, can you walk us through this? Yeah?

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Speaker 4: Sure.

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Speaker 5: So this is a case where a man who was

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Speaker 5: subject to a domestic violence order wanted to get a gun,

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Speaker 5: and there is a federal ban on that. But the

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Speaker 5: Fifth Circuit, which has been pushing the law farther to

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Speaker 5: the right than even the Supreme Court likes, said that's unconstitutional.

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Speaker 5: And during the oral arguments this is not so much

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Speaker 5: of a surprise because during the oral arguments a majority

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Speaker 5: of the justices seemed to think that it was this

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Speaker 5: kind of restraint on owning a gun is logical.

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Speaker 3: I mean, this is the guy.

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Speaker 5: The case was really bad for the gun lobby because

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Speaker 5: the guy had gun out into public and shot the

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Speaker 5: gun off and there was this restraining order. So what

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Speaker 5: they're saying is, in this case, you can stop someone

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Speaker 5: from having a gun. Gun restrictions have been up in

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Speaker 5: the air for years since the Bruin case, the New

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Speaker 5: York case where the Supreme Court sort of toppled the

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Speaker 5: way the courts analyzed gun restrictions and they base it

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Speaker 5: on historical So you'll see gun cases where they're talking about, well,

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Speaker 5: was there something like this in the eighteen hundred? You know,

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Speaker 5: it's it's sort of a crazy way for me, it's

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Speaker 5: a crazy way to do it.

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Speaker 6: Does this open path for common sense gun legislation then,

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Speaker 6: because you one could argue this seems like pretty good

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Speaker 6: common sense. I would want someone who's convicted of domestic

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Speaker 6: violence thing having a gun. So if that's okay, can't

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Speaker 6: we also say someone who has I don't know, criminal rumstock.

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Speaker 3: Maybe yes, I see, that's what I mean.

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Speaker 5: I don't think I don't think it translates with this court.

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Speaker 5: I think this is sort of an exceptional situation because

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Speaker 5: we had that bump stock decision where they said where

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Speaker 5: they said, even though it operates like a machine gun,

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Speaker 5: the way it functions, you know, they use the term

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Speaker 5: function and they use the dictionary to analyze what function meant.

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Speaker 3: Justice comments, So.

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Speaker 5: You know, it would be nice to think that that

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Speaker 5: was the way that we have common sense gun regulations,

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Speaker 5: but I'm not sure that that's what this stands for.

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Speaker 2: I mean, at the end of the day, it says

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Speaker 2: that right the Second Amendment isn't so broad that it

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Speaker 2: protects the gun rights of those found to be dangerous.

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Speaker 2: So now are we going to get into his situation

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Speaker 2: where we have to define dangerous and like what what

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Speaker 2: constitutes a human being dangerous?

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Speaker 3: Is that what is going to come up now?

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Speaker 5: I mean, I have I really have no idea how

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Speaker 5: this is going to play out, because you know, it's

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Speaker 5: this it's a it's one case. It's a case where

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Speaker 5: the Fifth Circuit went out on a limb, and there

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Speaker 5: are set there are like more than ten cases. I

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Speaker 5: think this term where the Fifth Circuit went on a

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Speaker 5: limb and the Supreme Court almost has to take the case,

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Speaker 5: even if they don't want to take the case because

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Speaker 5: otherwise you have this you know, sort of abnormal law

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Speaker 5: in place, so it's hard to say what the what

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Speaker 5: the effect will be. I'm sure that that you know,

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Speaker 5: in other gun restriction cases, they'll use this to try

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Speaker 5: to show that there are, you know, there are ways

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Speaker 5: to get around it. I'll have to read the decision

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Speaker 5: to see to see exactly, you know, how it came down,

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Speaker 5: and it's by the Chief Justice. So that's a sign

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Speaker 5: that it's not going to be one of those you know, radical,

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Speaker 5: hard to understand decisions by Clarence Thomas, or it's going

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Speaker 5: to be sort of down as down the middle as

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Speaker 5: you can get so because he writes.

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Speaker 3: Sort of reasoned opinions.

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Speaker 5: So I think that and I think that, you know,

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Speaker 5: this is one that we expected, but still a big case.

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Speaker 3: It's eight to one.

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Speaker 5: I noticed Justice Thomas dissenting. There is not a gun

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Speaker 5: law that Justice Thomas wants to see. No, really, he

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Speaker 5: is consistently he's the one who wrote that opinion. As

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Speaker 5: I mentioned on the Second Amendment that broadened the Second

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Speaker 5: Amendment to you know, being able to carry handguns and

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Speaker 5: the restrictions that New York put into place, throwing them

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Speaker 5: out so I mean, he just there's just not a

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Speaker 5: gun law that he will ever say, is all right.

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Speaker 6: We should note that Michael Bloomberg, the founder and majority

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Speaker 6: owner of Bloomberg LP, the parent company oft Bloomberg Radio,

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Speaker 6: is a donor to groups that support gun control, including

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Speaker 6: Every Town for Gun Safety. So, again, as you mentioned

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Speaker 6: June eight to one ruling, does that surprise.

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Speaker 3: You not really?

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Speaker 5: I mean, the surprise that Thomas didn't he the surprise

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Speaker 5: is that even in this situation where you have a

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Speaker 5: guy with a domestic violence restraining order threatening people, even

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Speaker 5: then he said that, you know, he doesn't want it restriction.

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Speaker 3: That's the only surprise.

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Speaker 5: Otherwise, from the oral arguments, it seemed pretty clear that

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Speaker 5: there were a majority of the justices that were going to,

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Speaker 5: you know, allow this particular ban.

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Speaker 2: And we've been talking to June Grasso right now about

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Speaker 2: the Supreme Court upholding the US gun ban on domestic

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Speaker 2: violent cases. It's an eight one ruling, as Paul was

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Speaker 2: just mentioning, the Justice is saying the constitutional Second Amendment

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Speaker 2: isn't so broad that it protects the gun rights of

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Speaker 2: those found to be dangerous. Just as Clarence Thomas was

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Speaker 2: the lone dissenter. Okay, Jun, what do we learn anything

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Speaker 2: else today from the Supreme Court? They're like time five

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Speaker 2: days in taking.

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Speaker 5: When we were talking before, I said, there are nineteen

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Speaker 5: cases and basically fourteen of them are the controversial, and

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Speaker 5: so today they came out with five decisions, four of

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Speaker 5: which were not controversial at all that we're really not tracking.

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Speaker 3: I mean, some of them are interesting.

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Speaker 5: One was about whether a US citizen has a constitutional

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Speaker 5: right to have her spouse.

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Speaker 3: You know, declared a citizen.

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Speaker 5: So that that's an interesting case, particularly in light of

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Speaker 5: what Joe Biden did this week relating to allowing spouses

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Speaker 5: who are married to US citizens who came to this

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Speaker 5: country illegally to stay in the country while they go

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Speaker 5: through the process. Normally they'd have to go back to

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Speaker 5: their home country, which is really risky. So it's interesting.

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Speaker 5: But still, so we have one week left so far,

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Speaker 5: one decision day on Wednesday. I'm sure they'll have more

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Speaker 5: coming up, they'll set more, but so we have all

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Speaker 5: the cases left. Presidential immunity, the January obstruction charges, the

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Speaker 5: Idaho abortion ban, the homelessness issue, Chevron case, which you

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Speaker 5: mentioned before, the case is on social media, the case

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Speaker 5: on Purdue Pharma air Pollution sec.

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Speaker 6: Why are they waiting? Do you think is typical?

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Speaker 5: All right, so it is typical. But so talking to

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Speaker 5: a professor yesterday, because I was questioning why they're all

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Speaker 5: and I always feel like they're waiting until the end

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Speaker 5: and they get them all out at once, and it

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Speaker 5: gets lost in the ether. You can't cover everything at once.

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Speaker 5: But what people say is that, well, the more complicated

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Speaker 5: cases with like six to three, they'll be dissents, there'll

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Speaker 5: be concurrences, and then they have to pass those around

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Speaker 5: the justices and so it takes longer.

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Speaker 3: But this professor I was talking to, Harold.

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Speaker 5: Krantz, said, you know, he thinks that the chief is

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Speaker 5: holding them. And because if you notice yesterday there were

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Speaker 5: four cases, three of them were about criminal procedure, they

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Speaker 5: were grouped together. So's it's odd to me that this

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Speaker 5: is just haphazard random they all come out. And the

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Speaker 5: Raheemi case, the case that we had heard today, was

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Speaker 5: one of the oldest cases. It was heard in November,

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Speaker 5: and usually you can tell how the cases come by

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Speaker 5: when they're heard.

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Speaker 3: So think about the Trump case. It took about.

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Speaker 5: Twenty days on the less Trump case.

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Speaker 3: Having to do with the ballot.

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Speaker 5: We're up to like forty something now on the Trump case,

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Speaker 5: it's so it's it's.

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Speaker 6: A we'll be stretched next week.

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Speaker 3: Okay, oh we'll be here, we'll be here. Well, you're

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Speaker 3: off Friday, off Friday.

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Speaker 5: Oh, that's going to be a big day.

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Speaker 2: Maybe you don't want to take prep now, I got

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Speaker 2: a double prep now, all right, Dune, thanks a lot,

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Speaker 2: June Grass joining us to help break it down. Just

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Speaker 2: to reiterate the Supreme Court upholds the US gun ban

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Speaker 2: and domestic violence cases. I should point out Smith and

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Speaker 2: Western shares are sliding over twelve percent, but that's also

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Speaker 2: because they said sales in the first quarter would be

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Speaker 2: ten percent lower a year on year than originally thought.

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Speaker 2: So if you're just looking at the market for that

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Speaker 2: kind of reaction, all right, let's get more on this

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Speaker 2: with Andrew Willinger. He's executive director Duke Center for Firearms Law. Andrew,

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Speaker 2: thank you for joining us. We appreciate it. Can we

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Speaker 2: get your reaction to this ruling?

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Speaker 7: Absolutely?

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Speaker 4: Yeah, So I think you know the big takeaway, of course,

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Speaker 4: is that the court here upholds a federal law that

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Speaker 4: restricts people who are under domestic violence restraining orders from

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Speaker 4: possessing firearms. It's an eight to one decision, so you

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Speaker 4: have eight justices in favor of that outcome. Justice Thomas

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Speaker 4: is the sole the center. And I think, you know,

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Speaker 4: what we were watching for, at least what I was

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Speaker 4: watching for with this case is sort of how broad

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Speaker 4: the decision would be. And the Court seems to settle

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Speaker 4: on something akin to a dangerousness principle, where they, you know,

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Speaker 4: the majority basically says that when there's some evidence that

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Speaker 4: a person poses a threat of harm to another person,

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Speaker 4: then that individual can be barred from possessing guns, consistent

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Speaker 4: with history.

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Speaker 6: Andrew, is there any reason for any gun protection advocates

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Speaker 6: to maybe read into this that, hey, this may create

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Speaker 6: an opening for you know, more common sense gun legislation.

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Speaker 4: So I think, having just had a chance to briefly

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Speaker 4: skim the decision, my read is that it's somewhat narrow

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Speaker 4: and that the court doesn't squarely confront you know, even

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Speaker 4: other related issues like banning convicted felons from possessing guns,

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Speaker 4: for example, you know, those convicted of non violent felonies,

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Speaker 4: and and sort of leaves those for another day. I'll

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Speaker 4: have to dig a little bit more into the various opinions,

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Speaker 4: because there are some concurrences as well that might shed

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Speaker 4: light on where some of the specific justices are. Well, I.

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Speaker 2: Think it just raises the question, then then what is dangerous?

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Speaker 2: So if you can't sell a firearm to someone who's dangerous,

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Speaker 2: how are we going to be interpreting that through legislation

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Speaker 2: and then through the courts?

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Speaker 4: Yeah, and my my initial reaction to the decision is

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Speaker 4: that again the court, the majority, sort of leaves that

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Speaker 4: question a little bit open. You know, there was some

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Speaker 4: discussion at the oral argument that this specific law doesn't

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Speaker 4: really pose a difficult case because there has to be

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Speaker 4: a finding by a state court judge that somebody is

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Speaker 4: dangerous is likely to commit domestic violence. So, in other words,

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Speaker 4: this would sort of be a case in the heartland

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Speaker 4: of that principle.

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Speaker 7: But there might be edge cases.

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Speaker 4: With regard to other types of gun regulation that the

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Speaker 4: court will have to confront. And one takeaway I think

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Speaker 4: one initial takeaway from this decision is it wouldn't surprise

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Speaker 4: me if in the coming terms, the court did confront

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Speaker 4: some of those issues and decide those questions.

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Speaker 6: Andrew, what is the Duke Center for Firearms Law?

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Speaker 1: Yeah?

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Speaker 4: Absolutely, The Duke Center for Firearms Law is an academic

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Speaker 4: organization that how is that the law school here at Duke,

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Speaker 4: and we seek to grow and build the scholarly field

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Speaker 4: of firearms law in the legal academy. We also have

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Speaker 4: a variety of resources on a Second Amendment cases and

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Speaker 4: other issues related to gun regulation that we host through

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Speaker 4: our website, blog, and database of historical gun laws for example.

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Speaker 6: Go ahead, Andrew, I just with that background, and given

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Speaker 6: what I know is you know, the majority of US

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Speaker 6: citizen's favorite common sense gun law. I think that's a fact.

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Speaker 6: What's from your perspective at the Duke Center for Firearms Law?

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Speaker 6: Why can't more legislation common sense gun laws? Why can't

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Speaker 6: they be enacted here in this country?

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Speaker 7: Yeah?

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Speaker 4: So, I mean, I think one one obstacle to to

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Speaker 4: some of these laws has been the tests, the legal

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Speaker 4: tests that the Supreme Court set for two years ago,

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Speaker 4: almost to the day in a case called Bruin, which

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Speaker 4: essentially says that the way courts are to evaluate Second

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Speaker 4: Amendment challenges is by determining whether a law is consistent

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Speaker 4: with historical tradition. And that you know that this case,

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Speaker 4: this decision today is the first, the first we've heard

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Speaker 4: from the Supreme Court since then on the Second Amendment,

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Speaker 4: so their first sort of chance to clarify what that

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Speaker 4: test should look like, and you have today a justice

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Speaker 4: is saying pretty clearly that, you know, we're not requiring

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Speaker 4: a twin, We're not requiring any kind of exact replica

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Speaker 4: in the historical record to support a modern gun law.

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Speaker 4: So I think that's important and consequential, and maybe maybe

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Speaker 4: to some extent, the justices in the majority are are

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Speaker 4: concerned that their their prior decision was interpreted by that

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Speaker 4: way by at least some lower court judges.

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Speaker 2: How do you how do you think gun laws or

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Speaker 2: the reaction to them evolve as it continues to seem

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Speaker 2: more politicized. And I know that's even crazier to say,

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Speaker 2: because it was already so politicized, but so many more

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Speaker 2: of the issues are now politicized. How do you think

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Speaker 2: this evolves in this country?

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Speaker 1: Yeah?

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Speaker 4: Absolutely, you know, again to take it back to the

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Speaker 4: to the Raheemi decision, I actually think this, this is uh,

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Speaker 4: this sort of illustrates maybe less of an ideological or

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Speaker 4: political divide as to certain types of gun laws. You know,

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Speaker 4: this is this is UH made maybe a law that

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Speaker 4: has you know, we know it has very broad public

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Speaker 4: support based on polling that that restrictions on domestic violence offenders.

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Speaker 4: Most the vast majority of people in the country support

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Speaker 4: those types of laws. And so today we have a

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Speaker 4: decision upholding that that regular at the federal level.

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Speaker 7: And so, you know, I think there will certainly be.

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Speaker 4: Other cases down the road that will be more of

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Speaker 4: a stark, you.

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Speaker 7: Know, ideological divide.

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Speaker 4: If you think about something like a restriction on semi

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Speaker 4: automatic rifles, so called assault weapons, that would be an

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Speaker 4: example where I would expect the court to really fracture

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Speaker 4: along ideological lines.

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Speaker 7: But that wasn't the case today.

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Speaker 6: When I was getting my MBA at Duke Alex, I

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Speaker 6: took one class at the Duke Law School. Big mistake,

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Speaker 6: do you run away? The kids work super super hard

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Speaker 6: like I had to work. In that case. My little

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Speaker 6: study group wouldn't let me just skate by. They weren't

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Speaker 6: like the business school. We were just punching our ticket

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Speaker 6: to go back to Wall Street. That's amazing. These kids

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Speaker 6: were like serious. So anyway, appreciate that.

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Speaker 3: S thanks for that and see you guys later.

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Speaker 6: Yeah, exactly, all right, Andrew, thank you so much for

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Speaker 6: joining us. Andrew Willinger, He's executive director of the Duke

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Speaker 6: Center for Firearms a lot.

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Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple car Play and

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Speaker 2: Okay, So I was mentioning that we have the whole

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Speaker 2: triple witching Vin Signerella Poop poove that, so did Paul Sweeney.

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Speaker 2: We have another thing today, and that is ETF a rebalancing.

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Speaker 2: So here's like the broad Strokes, the State Street Global

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Speaker 2: Advisors Tech. ETF has to rebalance. It has about seventy

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Speaker 2: one billion dollars in that and the idea is that

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Speaker 2: you're going to have to buy some Nvidia and sell

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Speaker 2: Apple and it could kind of move individual stocks around.

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Speaker 2: So we wanted to see if this was actually a

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Speaker 2: big deal, not like the triple Witching thing. James Seffert

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Speaker 2: is Bloomberg Intelligence ETF research analyst and he joins us, Now, okay,

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Speaker 2: is it a big deal that's rebalancing?

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Speaker 8: I mean, I think it's a big deal. It showed

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Speaker 8: some of the issues with passive indexing. And there's a

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Speaker 8: lot of things that people like to complain about with

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Speaker 8: passive investing and passive indexing and things like that, and

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Speaker 8: we spend a lot of our time pushing back saying

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Speaker 8: it's not as big of a deal as people are

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Speaker 8: making it out to be. That said, I like to

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Speaker 8: go back and kind of point out times where sometimes

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Speaker 8: rules can be a little dumb and situations happen, where

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Speaker 8: wonky things happen in the markets, and I think this

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Speaker 8: is one of them. I mean, the after market closed today,

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Speaker 8: our estimates are somewhere around that this XLK ETF is

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Speaker 8: going to have to sell are almost thirteen billion dollars

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Speaker 8: worth of Apple and buy about eleven billion dollars of Nvidia. So,

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Speaker 8: I mean, that's just wonky in itself, I guess I

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Speaker 8: would say, but I'll stop there.

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Speaker 6: So, James, how do we get to this position? Doesn't

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Speaker 6: XLK this this ETF? Doesn't it do this stuff every day?

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Speaker 6: Like if in Vidia is going up, don't they buy

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Speaker 6: more in Vidia? I don't know how that works.

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Speaker 8: Yeah, So say most of these passive industries work is

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Speaker 8: they just hold these stocks in proportion to their market cap,

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Speaker 8: so the size of the company, that's how much they hold.

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Speaker 8: It's actually we can get into the wonky parts of

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Speaker 8: this a little bit too, but it's more about free

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Speaker 8: float market cap, which we can get into in a bit.

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Speaker 8: But essentially, theoretically, as the prices of these the values

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Speaker 8: of these stocks go up, the waiting in the hall

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Speaker 8: in the fund will go up. But there's things that

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Speaker 8: happen where you have to rebalance, so they rebalance quarterly.

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Speaker 8: Different stocks get moved from different sectors, so they'll come

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Speaker 8: out of the sector ETF. But theoretically, the way XOLK

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Speaker 8: works is it takes all the S and P five

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Speaker 8: hundred stocks that are in the tech sector and should

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Speaker 8: market cap weight them.

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Speaker 7: But there's these.

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Speaker 8: Rules from the SEC that have to do with registered

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Speaker 8: investment companies, So all mutual funds ETFs for the most

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Speaker 8: part fall under this registered investment company's ruling, and they

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Speaker 8: have diversification requirements. The problem is, if you just allowed

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Speaker 8: these things to be market cap weighted, you have the

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Speaker 8: three largest companies in the world in Microsoft, Apple and Nvidia,

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Speaker 8: all around three over three trillion dollars in market cap valuation,

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Speaker 8: and you'd end up with this fund being sixty plus

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Speaker 8: percent just in those three stocks, and the diversification rules

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Speaker 8: and the index rules don't allow that. And the way

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Speaker 8: they do that in this case is they just cap

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Speaker 8: the smallest one. So if you're over a certain weight

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Speaker 8: five percent ish and if all of those stocks over

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Speaker 8: five percent add up to over fifty percent, you cut

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Speaker 8: the bottom one to four and a half percent in

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Speaker 8: the fund. So essentially that meant for the last six quarters,

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Speaker 8: despite in Video should have had a significant weight, every

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Speaker 8: time it rebalanced, it got sold because it got capped

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Speaker 8: at four and a half percent. But last Friday, as

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Speaker 8: of the market closed, which is when this fund looks

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Speaker 8: at this on a free float adjusted basis, in Video

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Speaker 8: was larger than Apple, So all of a sudden, now

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Speaker 8: Apple is that smallest stock, so in Video is going

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Speaker 8: to get a bunch of buys and Apple's going to

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Speaker 8: get a bunch of sales. Ironically enough, today, with the

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Speaker 8: way in Video is trading down over four percent, it's

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Speaker 8: actually smaller than Apple. So if the date was today,

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Speaker 8: we wouldn't be having this rebalance.

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Speaker 3: So okay, I'm still confused it.

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Speaker 2: So can we attribute any of the price action too

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Speaker 2: of Apple and Nvidia in the past to this.

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Speaker 8: So it's hard for me to know exactly what's going on. Right,

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Speaker 8: So there was a massive inflow that went into this

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Speaker 8: fund that's in. There's rebalance flows. Money comes in and

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Speaker 8: goes out, and there's It's kind of happens over days

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Speaker 8: as far as the rebouance goes. So when you it's

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Speaker 8: called a reference date, that's the date. We're going to

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Speaker 8: look at all the information from this date and we're

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Speaker 8: going to use that information to do the rebalance. So

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Speaker 8: in that case, it was last Friday, June fourteenth. The

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Speaker 8: actual rebalance is going to happen today after market close.

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Speaker 8: But the people making markets like, no, this is going

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Speaker 8: to happen, right, It's not like this stuff happened and

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Speaker 8: it closed on Friday last Friday, and then no one's

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Speaker 8: paying attention to this or trading around. What's going to

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Speaker 8: happen with these tens of billions of dollars being traded

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Speaker 8: like things were happening Friday last week and all along

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Speaker 8: this week they were preparing for these trades. So it's

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Speaker 8: most likely that like Spider and anyone else that's tracking

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Speaker 8: this index has the trade set up and lined up

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Speaker 8: so they can match the underlying index. That's the ultimate

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Speaker 8: goal of these passive funds. They want to track the

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Speaker 8: underlying index. In this case, ex it's the large cap

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Speaker 8: stocks and the S and P five hundred that are

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Speaker 8: in the tech sector.

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Speaker 6: Have we seen this before? If this feels like I

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Speaker 6: haven't read this scene this dealt with this before? Is

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Speaker 6: this new need?

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Speaker 8: Yes and no. So there are instances where wonky things

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Speaker 8: like this happen in many cases there with smaller stocks though.

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Speaker 8: So I've written in the past about some dividend funds,

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Speaker 8: and there's there's wonky issues with dividend funds where if

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Speaker 8: you're waiting it by dividend yield rather than market cap,

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Speaker 8: like this fund is weighted, as the price of the

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Speaker 8: stock goes down, your dividend yield goes up. So basically

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Speaker 8: what happens in some cases with those dividend yield funds

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Speaker 8: or some other funds, some cash flow type funds as

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Speaker 8: like they'll do cash flow yields and things like that.

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Speaker 8: As the price of the stocks go down, it looks

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Speaker 8: like their valuation metrics are getting better, but it's partially

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Speaker 8: because the stock price is going down. So much, and

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Speaker 8: there's often times reasons for that, and then many of

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Speaker 8: these funds have like limitations, so if it goes below

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Speaker 8: a certain market cap, we can't hold it. So all

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Speaker 8: of a sudden they build up these massive positions and

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Speaker 8: then it gets too small and then they're forced to

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Speaker 8: dump it. And that's happened in the past, but it's rare.

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Speaker 8: This is the first time I've ever seen it happen

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Speaker 8: with a large cap ETF and a spund of this size,

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Speaker 8: a grand seventy one billion dollars, like Alex said at

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Speaker 8: the beginning of this, So yes, it's it's it's rare.

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Speaker 8: So that's why I said, I like to point it

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Speaker 8: out when it happens, but it doesn't usually happen. And

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Speaker 8: the only reason it's happening is because we have this

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Speaker 8: unique situation where they've taken a bunch of names that

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Speaker 8: used to be in the technology sector and move them

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Speaker 8: out in a like reclassification. So Visa and mastercarda no

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Speaker 8: longer in there, which are big funds. Obviously, Google and

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Speaker 8: Meta and other ones have left, So all of a sudden,

438
00:22:34,640 --> 00:22:37,120
Speaker 8: you left with this really top heaviness at the top

439
00:22:37,160 --> 00:22:39,600
Speaker 8: of the tech sector. In these three stocks, and that's

440
00:22:39,640 --> 00:22:42,520
Speaker 8: causing a lot of wonky things to happen. Now, the

441
00:22:42,600 --> 00:22:44,920
Speaker 8: thing I'm watching is right now. Like I said, if

442
00:22:44,960 --> 00:22:48,320
Speaker 8: the reference date was today, this this rebalance wouldn't be

443
00:22:48,359 --> 00:22:50,359
Speaker 8: happening and Video would be the one being capped at

444
00:22:50,359 --> 00:22:53,080
Speaker 8: four and a half percent. The next rebalance is September,

445
00:22:53,400 --> 00:22:56,040
Speaker 8: So if Apple manages to stay larger than in Vidia

446
00:22:56,160 --> 00:22:58,440
Speaker 8: on a float adjusted basis in September, we're going to

447
00:22:58,520 --> 00:23:01,840
Speaker 8: have the exact reverse of this. So usually these index

448
00:23:01,880 --> 00:23:05,480
Speaker 8: providers in this case SMP and the ETF is ETF

449
00:23:05,520 --> 00:23:09,360
Speaker 8: providers in this case Spider or State Street, they try

450
00:23:09,400 --> 00:23:11,720
Speaker 8: to keep the indexes exactly the same because they want

451
00:23:11,720 --> 00:23:14,640
Speaker 8: continuity over time. I wouldn't be surprised if they look

452
00:23:14,640 --> 00:23:16,400
Speaker 8: at kind of changing the rules about how they meet

453
00:23:16,400 --> 00:23:20,720
Speaker 8: those diversification requirements rather than just arbitrary capping chopping off

454
00:23:20,760 --> 00:23:23,480
Speaker 8: the third largest here. So that'll be something to watch

455
00:23:23,480 --> 00:23:24,919
Speaker 8: in the next few months. But if they don't, we

456
00:23:24,960 --> 00:23:27,480
Speaker 8: could come to the September and see like a reversal

457
00:23:27,520 --> 00:23:30,639
Speaker 8: of this, or if Microsoft is somehow smaller than Nvidia

458
00:23:30,640 --> 00:23:32,440
Speaker 8: and Apple, that will be the one that get sold

459
00:23:32,960 --> 00:23:35,000
Speaker 8: and Apple will be bought. It'll be very interesting to

460
00:23:35,000 --> 00:23:36,879
Speaker 8: watch what's going to happen. And this is like, this

461
00:23:36,960 --> 00:23:38,800
Speaker 8: is an area that hedge funds are paying very close

462
00:23:38,800 --> 00:23:41,600
Speaker 8: attention to and making markets. You asked if it's actually

463
00:23:41,600 --> 00:23:43,520
Speaker 8: impacting markets. There are a whole teams out there that

464
00:23:43,600 --> 00:23:46,239
Speaker 8: are watching for what these behemoth passive products are doing

465
00:23:46,280 --> 00:23:47,680
Speaker 8: and what they're going to have to do in rebound

466
00:23:47,800 --> 00:23:49,480
Speaker 8: dates and basically prepping for it.

467
00:23:49,640 --> 00:23:51,520
Speaker 2: I want to see what like water cooler talk is

468
00:23:51,560 --> 00:23:56,359
Speaker 2: with him and Eric Beltuna's oh gee, and they're like, hey, bro,

469
00:23:56,480 --> 00:23:58,400
Speaker 2: let's check out this ETF and look at this flow.

470
00:23:58,440 --> 00:23:59,119
Speaker 3: It's so cool.

471
00:23:59,560 --> 00:24:01,720
Speaker 2: I just I just joke, because you guys are are

472
00:24:01,920 --> 00:24:04,560
Speaker 2: so smart and so insane when it comes to all

473
00:24:04,560 --> 00:24:06,719
Speaker 2: of these details with ets. But this is really helpful

474
00:24:06,920 --> 00:24:09,000
Speaker 2: and we appreciate it and thank you very much. And

475
00:24:09,040 --> 00:24:11,480
Speaker 2: it really helps to understand what happens with the Nvidia

476
00:24:11,520 --> 00:24:13,400
Speaker 2: and an Apple when you have this kind of reshuffling.

477
00:24:13,440 --> 00:24:16,840
Speaker 2: Right twice seventy one billion dollars that etf reshuffling. That's

478
00:24:16,880 --> 00:24:19,159
Speaker 2: not nothing. And I'm looking forward to the Russell two thousand.

479
00:24:19,160 --> 00:24:20,040
Speaker 3: I feel like we should.

480
00:24:19,800 --> 00:24:22,280
Speaker 2: Definitely talk about that next week too. Just like a

481
00:24:22,359 --> 00:24:24,560
Speaker 2: small caps have just not been able to keep up,

482
00:24:24,560 --> 00:24:26,920
Speaker 2: and any keep up they have is like super micro

483
00:24:27,040 --> 00:24:28,520
Speaker 2: at that point exactly.

484
00:24:29,600 --> 00:24:33,480
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch US Live

485
00:24:33,560 --> 00:24:36,199
Speaker 1: weekdays at ten am Eastern on Apple card Play and

486
00:24:36,240 --> 00:24:38,840
Speaker 1: then Broud Auto with the Bloomberg Business app. Listen on

487
00:24:38,920 --> 00:24:42,200
Speaker 1: demand wherever you get your podcasts, or watch US Live

488
00:24:42,320 --> 00:24:43,680
Speaker 1: on YouTube.

489
00:24:44,840 --> 00:24:47,960
Speaker 2: Another headline that crossed earlier today is that Canada is

490
00:24:48,000 --> 00:24:51,840
Speaker 2: apparently preparing tariffs on Chinese evs after the US and

491
00:24:51,920 --> 00:24:55,119
Speaker 2: the EU did something relatively similar. We wanted to get

492
00:24:55,160 --> 00:24:57,560
Speaker 2: more on that with Steve Man, Bloomberg Intelligence, Global Autos

493
00:24:57,560 --> 00:25:00,560
Speaker 2: and Industrials research analysts. Hey, Steve Walker, us through so

494
00:25:00,600 --> 00:25:01,479
Speaker 2: far what we know on this?

495
00:25:02,960 --> 00:25:09,160
Speaker 9: Yeah, so Canada is basically following what the US and

496
00:25:09,520 --> 00:25:13,399
Speaker 9: the Europeans have done, which is to slap potentially one

497
00:25:13,440 --> 00:25:17,200
Speaker 9: hundred percent tariff another one hundred percent tariff on Chinese

498
00:25:17,240 --> 00:25:23,640
Speaker 9: made cars coming into Canada. Now, the impact is very

499
00:25:23,760 --> 00:25:27,960
Speaker 9: is muted. First of all, Canada sells about one point

500
00:25:28,040 --> 00:25:33,480
Speaker 9: seven million vehicles a year compared to around sixteen million

501
00:25:33,520 --> 00:25:37,320
Speaker 9: in the US thirty million in Canada in China, so

502
00:25:37,400 --> 00:25:40,640
Speaker 9: the market is relatively small. I think the overall purpose

503
00:25:41,040 --> 00:25:43,840
Speaker 9: of doing that is really to close the back door

504
00:25:45,240 --> 00:25:49,640
Speaker 9: in the US Mexico Canada Free Trade Agreement to make

505
00:25:49,680 --> 00:25:54,399
Speaker 9: sure that you know, Chinese cannot bring cars into the

506
00:25:54,520 --> 00:25:56,120
Speaker 9: US through Canada.

507
00:25:56,920 --> 00:26:03,320
Speaker 6: Okay, talkers about the Chinese EV market, Steve, how big

508
00:26:03,400 --> 00:26:05,600
Speaker 6: is it? You say, you have a SAR there thirty

509
00:26:05,640 --> 00:26:09,679
Speaker 6: million cars a year. What's the share of EV's today

510
00:26:09,680 --> 00:26:11,119
Speaker 6: and kind of where do you think it's going to go?

511
00:26:12,200 --> 00:26:14,960
Speaker 9: Yeah, it's it's it's pretty big. It's as much as

512
00:26:15,359 --> 00:26:19,960
Speaker 9: twenty five percent now of annual sales. So you know,

513
00:26:20,040 --> 00:26:24,400
Speaker 9: they've also, as you know, there's a lot of capacity

514
00:26:25,080 --> 00:26:29,080
Speaker 9: in China. EV production capacity in China, and there's a

515
00:26:29,080 --> 00:26:31,680
Speaker 9: lot of players out there. You know, a few of

516
00:26:31,720 --> 00:26:35,239
Speaker 9: them trade here actually, Neo x pun Le Auto uh

517
00:26:35,359 --> 00:26:38,000
Speaker 9: and so you know the government, you know, just to

518
00:26:38,080 --> 00:26:43,320
Speaker 9: prop up consumer spending, actually rolled out some incentives to

519
00:26:43,440 --> 00:26:46,879
Speaker 9: sell more battery electric vehicles in China. And some of

520
00:26:46,880 --> 00:26:49,960
Speaker 9: the incentives are you know, on trade ins, you know,

521
00:26:50,840 --> 00:26:54,120
Speaker 9: extra credit on trade in trading in their ice vehicles

522
00:26:54,440 --> 00:26:57,680
Speaker 9: for the battery electric vehicles. So you know, twenty five

523
00:26:57,680 --> 00:27:01,720
Speaker 9: percent now probably expected to row through the remainder of

524
00:27:01,760 --> 00:27:02,160
Speaker 9: this year.

525
00:27:02,680 --> 00:27:05,440
Speaker 2: So here's my question, if I'm a Chinese EV company,

526
00:27:05,600 --> 00:27:08,560
Speaker 2: Can I then just go through Mexico because I appreciate

527
00:27:08,600 --> 00:27:10,720
Speaker 2: this closes the window from Canada, so I can no

528
00:27:10,800 --> 00:27:13,159
Speaker 2: longer really important to Canada and then through to the

529
00:27:13,280 --> 00:27:16,119
Speaker 2: US because the tariffs will hit. But in Mexico I

530
00:27:16,160 --> 00:27:18,199
Speaker 2: still can, right, So why not just ship all the

531
00:27:18,200 --> 00:27:20,760
Speaker 2: EV's in there free trade agreement, ship all the EV's

532
00:27:20,800 --> 00:27:21,440
Speaker 2: into the US.

533
00:27:22,160 --> 00:27:25,840
Speaker 9: That is true, But just like what Canada did, I

534
00:27:25,880 --> 00:27:28,000
Speaker 9: think they're going to close that back door as well

535
00:27:28,040 --> 00:27:32,600
Speaker 9: at some points. But but look, the Chinese automakers, especially

536
00:27:32,600 --> 00:27:36,320
Speaker 9: like BYD, has made it clear, uh that you know,

537
00:27:36,359 --> 00:27:40,119
Speaker 9: they don't have any interest in entering the US market

538
00:27:40,160 --> 00:27:40,720
Speaker 9: at the moment.

539
00:27:40,880 --> 00:27:42,119
Speaker 10: And it's difficult.

540
00:27:42,200 --> 00:27:45,159
Speaker 9: It's not it's not like they you know, you can say, oh,

541
00:27:45,200 --> 00:27:47,320
Speaker 9: I'm coming in and selling cars in the US, and

542
00:27:47,359 --> 00:27:50,439
Speaker 9: then you know you're you're able to be able to

543
00:27:50,480 --> 00:27:52,720
Speaker 9: get a lot of gain a lot of customers just

544
00:27:52,760 --> 00:27:54,400
Speaker 9: by doing that. You know they're gonna have to build

545
00:27:54,400 --> 00:27:56,920
Speaker 9: a distribution network, they have to build a service network,

546
00:27:57,440 --> 00:28:02,240
Speaker 9: and more importantly, given the geopolitic goal wrangling that's happening

547
00:28:02,280 --> 00:28:06,240
Speaker 9: between the US and China, I'm not sure if a

548
00:28:06,280 --> 00:28:10,200
Speaker 9: lot of the US car consumer are ready to buy

549
00:28:10,240 --> 00:28:11,520
Speaker 9: a Chinese car at the.

550
00:28:11,440 --> 00:28:15,400
Speaker 6: Moment, What do the Chinese automakers say, Steve about these

551
00:28:15,440 --> 00:28:19,280
Speaker 6: tariffs in the US and the EU Canada. I mean

552
00:28:20,080 --> 00:28:23,440
Speaker 6: to what extent, how impactful are these to their sales

553
00:28:23,600 --> 00:28:25,960
Speaker 6: and what are we hearing from these Chinese automakers.

554
00:28:26,680 --> 00:28:32,159
Speaker 9: Yeah, I think at the moment zero impact from the

555
00:28:32,200 --> 00:28:34,000
Speaker 9: tariffs in the US and Canada.

556
00:28:35,040 --> 00:28:39,480
Speaker 10: There will be some impact from the tariffs in the EU.

557
00:28:39,640 --> 00:28:44,440
Speaker 9: They do have about two three percent market share in

558
00:28:44,600 --> 00:28:48,440
Speaker 9: the in the in the European Union. But you know,

559
00:28:48,520 --> 00:28:51,479
Speaker 9: the tariffs is not as as big as it is

560
00:28:51,520 --> 00:28:54,680
Speaker 9: in the US. It's it's upwards of you know, thirty

561
00:28:54,720 --> 00:28:58,320
Speaker 9: eight to fifty percent, and it really depends on the allmaker.

562
00:28:58,480 --> 00:28:59,840
Speaker 10: For example St. Lentists.

563
00:29:00,240 --> 00:29:04,240
Speaker 9: You know, they do plan to import some Chinese made

564
00:29:04,280 --> 00:29:07,920
Speaker 9: evs into Europe through their new joint menture with Leap

565
00:29:07,960 --> 00:29:08,400
Speaker 9: and Motor.

566
00:29:09,120 --> 00:29:09,239
Speaker 10: Uh.

567
00:29:09,480 --> 00:29:14,040
Speaker 9: But uh, you know so because you know Stulentis also

568
00:29:14,120 --> 00:29:18,400
Speaker 9: has plans to with this h with Leap Motor within

569
00:29:18,440 --> 00:29:21,719
Speaker 9: this joint mensure to build cars in Europe, the terrorists

570
00:29:21,760 --> 00:29:24,440
Speaker 9: is a little bit lower. So terrorists are different for

571
00:29:24,520 --> 00:29:30,000
Speaker 9: different automakers within the EU. So uh, you know, the

572
00:29:30,080 --> 00:29:34,240
Speaker 9: penetration rate, you know, will be impacted. But I think

573
00:29:34,840 --> 00:29:37,280
Speaker 9: over at the end of the day, Chinese will be

574
00:29:38,040 --> 00:29:40,320
Speaker 9: able to still able to sell cars in the EU,

575
00:29:40,800 --> 00:29:44,040
Speaker 9: but at a higher cost, and it gives the the

576
00:29:44,040 --> 00:29:47,680
Speaker 9: incumbents some room to to actually grow.

577
00:29:48,400 --> 00:29:50,240
Speaker 2: What what do you think the differential will would be

578
00:29:50,440 --> 00:29:53,440
Speaker 2: Like an E a Chinese EV into Europe would cost

579
00:29:53,800 --> 00:29:58,000
Speaker 2: X and and Volkswagen EV would cost y. Like what

580
00:29:58,120 --> 00:30:00,000
Speaker 2: do we think that differential will actually wind up?

581
00:30:01,320 --> 00:30:05,840
Speaker 9: Yeah, it ranges I think between thirty to fifty percent cheaper.

582
00:30:06,160 --> 00:30:08,880
Speaker 9: The Chinese EV will be thirty to fifty percent cheaper.

583
00:30:08,960 --> 00:30:10,800
Speaker 3: Even with the tariffs or without the tariffs.

584
00:30:11,160 --> 00:30:13,640
Speaker 9: No, without the tariffs. So first of all, without the tariffs,

585
00:30:13,640 --> 00:30:15,680
Speaker 9: and I think what the terriffs are trying to do,

586
00:30:16,360 --> 00:30:19,360
Speaker 9: and not only the tariffs, any cars that actually comes

587
00:30:19,400 --> 00:30:22,200
Speaker 9: into the EU from China will have to meet the

588
00:30:22,280 --> 00:30:26,560
Speaker 9: local safety requirements. So there's going to be some changes

589
00:30:26,600 --> 00:30:29,360
Speaker 9: that the Chinese automakers will have to make to their

590
00:30:29,400 --> 00:30:34,080
Speaker 9: cars to meet those requirements. So overall, you know, with

591
00:30:34,160 --> 00:30:38,560
Speaker 9: the changes of vehicles with the tariffs, what the EU

592
00:30:38,680 --> 00:30:42,120
Speaker 9: is trying to do is make, you know, ensure that

593
00:30:42,160 --> 00:30:45,280
Speaker 9: the prices of the Chinese car when they do hit

594
00:30:45,320 --> 00:30:49,920
Speaker 9: the ground, will be very competitive to the EV's made

595
00:30:49,920 --> 00:30:51,600
Speaker 9: by the local automakers there.

596
00:30:52,480 --> 00:30:55,240
Speaker 6: Hey see, what's the latest thinking coming out of Detroit

597
00:30:55,560 --> 00:30:59,560
Speaker 6: about electric vehicles? Obviously, you know, a couple of years

598
00:30:59,600 --> 00:31:03,680
Speaker 6: ago they really started ramping up aggressively. Then demand seems

599
00:31:03,680 --> 00:31:06,080
Speaker 6: to have faded here, so they're they're pulling back on

600
00:31:06,240 --> 00:31:10,480
Speaker 6: some of their plans. What's the latest thinking from our

601
00:31:10,720 --> 00:31:12,840
Speaker 6: US automakers about their move to EV's.

602
00:31:13,840 --> 00:31:18,160
Speaker 9: Yeah, I was just at in Detroit last week, and

603
00:31:20,080 --> 00:31:22,680
Speaker 9: you know, every I think the consensus is that EV

604
00:31:22,960 --> 00:31:26,640
Speaker 9: battery evs are here to stay. You know, some of

605
00:31:26,680 --> 00:31:30,800
Speaker 9: the estimates that we saw a few years ago when

606
00:31:30,800 --> 00:31:33,640
Speaker 9: we you know, when we're thinking about BV is gonna

607
00:31:33,720 --> 00:31:36,240
Speaker 9: hit you know, seventy five eighty percent on the market

608
00:31:36,480 --> 00:31:41,520
Speaker 9: is not unlikely to get there anytime soon. And and

609
00:31:42,080 --> 00:31:44,320
Speaker 9: if you look at global market, especially in the US,

610
00:31:44,440 --> 00:31:45,640
Speaker 9: we're going to have a mix.

611
00:31:45,440 --> 00:31:47,880
Speaker 10: Of powertrain, but BV will grow.

612
00:31:48,760 --> 00:31:52,120
Speaker 9: I think some of the estimates out there, including ours

613
00:31:52,120 --> 00:31:55,320
Speaker 9: at BI, we think the US market will probably hit

614
00:31:55,920 --> 00:31:59,240
Speaker 9: you know, twenty five to thirty percent penetration rate by

615
00:31:59,400 --> 00:32:02,240
Speaker 9: the end of the day decade, so from about nine

616
00:32:02,280 --> 00:32:07,480
Speaker 9: percent today. So at different ominae kids are taking different strategies.

617
00:32:08,320 --> 00:32:11,040
Speaker 9: If you look at the Lentis, you look at GM,

618
00:32:11,200 --> 00:32:14,240
Speaker 9: they're fro on, They're still launching a lot of EV's

619
00:32:14,280 --> 00:32:15,000
Speaker 9: the next couple.

620
00:32:14,840 --> 00:32:19,160
Speaker 10: Of years more affordable EV's four is taking a step back, right.

621
00:32:19,200 --> 00:32:22,880
Speaker 9: I think they it's not a bad strategy. They know

622
00:32:23,000 --> 00:32:27,040
Speaker 9: the technology, they know how to build evs, so it

623
00:32:27,040 --> 00:32:32,040
Speaker 9: doesn't hurt. It saves cash for the time being until

624
00:32:32,120 --> 00:32:35,760
Speaker 9: they see critical mass and they can easily come back

625
00:32:35,760 --> 00:32:36,440
Speaker 9: to the market.

626
00:32:36,640 --> 00:32:38,680
Speaker 3: All right, Steve, we appreciate it. Thank you so very much.

627
00:32:38,680 --> 00:32:43,760
Speaker 2: Steve Mann, Bloomberg Intelligence, Global Autos and Industrials research analysts.

628
00:32:44,120 --> 00:32:47,000
Speaker 3: You have to wonder what policy though.

629
00:32:47,680 --> 00:32:50,480
Speaker 2: We were talking to the Tahlion right, and they used

630
00:32:50,480 --> 00:32:54,360
Speaker 2: to make basic trucks like EV trucks, right, And they said, look,

631
00:32:54,400 --> 00:32:57,040
Speaker 2: the policy just wasn't there, and the demand just wasn't there,

632
00:32:57,080 --> 00:32:59,480
Speaker 2: and we just couldn't sustain that part of the business.

633
00:32:59,800 --> 00:33:03,400
Speaker 2: If we get a different administration, does that change, If

634
00:33:03,440 --> 00:33:05,840
Speaker 2: we get different ruling in the EPAID does different things?

635
00:33:05,960 --> 00:33:08,560
Speaker 2: Is that also change? Like what part of policy plays

636
00:33:08,560 --> 00:33:09,200
Speaker 2: in demand?

637
00:33:09,440 --> 00:33:09,640
Speaker 1: Yeah?

638
00:33:09,680 --> 00:33:13,320
Speaker 6: I think what we learned and what we're still learning

639
00:33:13,440 --> 00:33:18,600
Speaker 6: is it's got to be priced competitive. Yes, the charging

640
00:33:18,640 --> 00:33:24,080
Speaker 6: storage situation is going to be vastly improved. And you know,

641
00:33:25,560 --> 00:33:27,760
Speaker 6: I also think there's still a political thing there that

642
00:33:27,800 --> 00:33:29,240
Speaker 6: I'm not sure they're going to be able to get over.

643
00:33:29,680 --> 00:33:29,920
Speaker 3: Yeah.

644
00:33:29,960 --> 00:33:31,440
Speaker 6: I think there's going to be some kind of political

645
00:33:31,440 --> 00:33:32,440
Speaker 6: divide there where people are.

646
00:33:33,520 --> 00:33:35,240
Speaker 3: Right, it's going to be like a political stance.

647
00:33:36,800 --> 00:33:40,720
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple car Play and

649
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Speaker 1: Android Auto with the Bloomberg Business. You can also listen

650
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651
00:33:50,680 --> 00:33:55,640
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652
00:33:55,520 --> 00:33:58,160
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653
00:33:58,200 --> 00:34:00,600
Speaker 6: Brook Christinia. We're streaming live on YouTube, so you can

654
00:34:00,640 --> 00:34:03,000
Speaker 6: head over to YouTube dot com and search Bloomberg Podcast

655
00:34:03,040 --> 00:34:04,360
Speaker 6: and that's where we go find this. We just heard

656
00:34:04,440 --> 00:34:07,160
Speaker 6: Vinie and Charlie talking about existing home sales four point

657
00:34:07,240 --> 00:34:10,600
Speaker 6: one one million. That's off slightly from the prior period.

658
00:34:10,880 --> 00:34:13,160
Speaker 6: I went back and did the old GP function and

659
00:34:13,320 --> 00:34:15,279
Speaker 6: set the tab to max to see how far back

660
00:34:15,320 --> 00:34:16,880
Speaker 6: we could go, just to put that four point one

661
00:34:17,040 --> 00:34:21,080
Speaker 6: one million homes sold in the month in context, and

662
00:34:21,080 --> 00:34:25,239
Speaker 6: we usually do since like two thousand, about five point

663
00:34:25,320 --> 00:34:27,919
Speaker 6: three million, so it's definitely below kind of where we were,

664
00:34:28,239 --> 00:34:30,080
Speaker 6: and you know, hire interst rates and all that kind

665
00:34:30,080 --> 00:34:32,359
Speaker 6: of stuff, and just people getting priced out. I wonder

666
00:34:32,360 --> 00:34:36,239
Speaker 6: what that means for mortgage backed securities market. Mortgage backed securities,

667
00:34:36,239 --> 00:34:41,359
Speaker 6: the Bloomberg Index of mortgage backed securities total return off

668
00:34:41,400 --> 00:34:44,520
Speaker 6: about zero point one four percent here year to date.

669
00:34:44,600 --> 00:34:46,319
Speaker 6: So what do we do here in the back half

670
00:34:46,360 --> 00:34:48,319
Speaker 6: of the year. Let's check in with Erica Adelberg. She

671
00:34:48,400 --> 00:34:51,000
Speaker 6: covers all this MBS stuff for Bloomberg Intelligence. She joins

672
00:34:51,080 --> 00:34:54,120
Speaker 6: us here in our Bloomberg Interactive Broker studio. So as

673
00:34:54,200 --> 00:34:57,360
Speaker 6: we sit here year mid year, Erica, how do you

674
00:34:57,400 --> 00:34:59,120
Speaker 6: think about the back half of the year for mortgage

675
00:34:59,120 --> 00:34:59,840
Speaker 6: back securities.

676
00:35:00,040 --> 00:35:02,120
Speaker 11: Well, it's been a pretty interesting first half of the year,

677
00:35:02,160 --> 00:35:04,160
Speaker 11: so let's just talk about that for a minute. As

678
00:35:04,160 --> 00:35:07,759
Speaker 11: of two months ago, mortgages were down more than two

679
00:35:07,760 --> 00:35:11,040
Speaker 11: percent in total return and on an access return basis

680
00:35:11,080 --> 00:35:14,279
Speaker 11: versus treasury is about seventy five basis points. And since

681
00:35:14,360 --> 00:35:18,319
Speaker 11: the FED reinstated, they're kind of one sided market where

682
00:35:18,360 --> 00:35:20,600
Speaker 11: they probably won't tighten, but they're hoping to ease at

683
00:35:20,640 --> 00:35:24,200
Speaker 11: some point this year. The markets were covered great, so

684
00:35:24,360 --> 00:35:26,400
Speaker 11: you know, we're back to almost flat as you said

685
00:35:26,440 --> 00:35:29,200
Speaker 11: for the year on total return, we're almost plad in

686
00:35:29,239 --> 00:35:31,640
Speaker 11: excess returns too. So what happens for.

687
00:35:31,600 --> 00:35:32,319
Speaker 3: The rest of the year.

688
00:35:32,560 --> 00:35:34,279
Speaker 6: We think we could probably.

689
00:35:33,960 --> 00:35:36,880
Speaker 11: Hold on to this. We don't think there's tremendous momentum

690
00:35:36,960 --> 00:35:38,600
Speaker 11: right now. You would think there would be given the

691
00:35:38,640 --> 00:35:41,000
Speaker 11: two months, but the problem is we're still on hold

692
00:35:41,000 --> 00:35:45,680
Speaker 11: awaiting the FED and supplies great because there's not a

693
00:35:45,719 --> 00:35:48,880
Speaker 11: lot of new homes, but net supply is actually increasing

694
00:35:48,960 --> 00:35:51,680
Speaker 11: because what's not happening in existing homes is getting put

695
00:35:51,719 --> 00:35:54,439
Speaker 11: into the new home market a little bit. So we're

696
00:35:54,440 --> 00:35:58,480
Speaker 11: actually seeing some increase in net supply of mortgages, especially

697
00:35:58,480 --> 00:36:00,800
Speaker 11: when you take into account the fact that the FED

698
00:36:00,960 --> 00:36:03,359
Speaker 11: is you know, not buying. In fact, they're allowing their

699
00:36:03,360 --> 00:36:06,280
Speaker 11: portfolio to run off, which contributes effectively more supply.

700
00:36:06,400 --> 00:36:08,560
Speaker 3: Well, it's what I was wondering, who's buying these things.

701
00:36:09,160 --> 00:36:11,840
Speaker 11: It's mostly money managers right now, and they're not the

702
00:36:11,880 --> 00:36:15,919
Speaker 11: most reliable buyer inasmuch as if as friends get too tight,

703
00:36:15,960 --> 00:36:16,960
Speaker 11: for instance, they may.

704
00:36:16,840 --> 00:36:17,879
Speaker 3: Pull back a little bit.

705
00:36:18,080 --> 00:36:20,359
Speaker 11: We're seeing some of the largest money managers right now

706
00:36:20,360 --> 00:36:22,840
Speaker 11: being quite overrated the sector, So that might limit the

707
00:36:22,880 --> 00:36:25,880
Speaker 11: amount of dry powder they have, you know, should they

708
00:36:25,880 --> 00:36:28,400
Speaker 11: get concerned about the sector for one reason or another,

709
00:36:28,480 --> 00:36:30,560
Speaker 11: or even just if that supply does pick up.

710
00:36:31,239 --> 00:36:33,240
Speaker 6: Someone comes up to you in a COCTA party and says,

711
00:36:33,480 --> 00:36:34,919
Speaker 6: and when someone comes up to you to Cockta party

712
00:36:34,920 --> 00:36:36,960
Speaker 6: and says, what's a thirty ye mortgage? These days? What

713
00:36:37,000 --> 00:36:38,600
Speaker 6: ticker do you put into Bloomberg terminal?

714
00:36:39,000 --> 00:36:41,279
Speaker 11: I generally put in if I want a very short

715
00:36:41,360 --> 00:36:44,400
Speaker 11: term thing, I put in their fixed thirty or fixed

716
00:36:44,560 --> 00:36:47,520
Speaker 11: MB thirty or the fread. Yeah good, it's all I

717
00:36:47,520 --> 00:36:49,960
Speaker 11: needed And that's the fastest one to type.

718
00:36:50,160 --> 00:36:53,920
Speaker 6: Okay, MB thirty. So how how does the mortgage market

719
00:36:53,960 --> 00:36:56,680
Speaker 6: react to kind of what the Fed's doing? How quickly

720
00:36:56,680 --> 00:36:59,040
Speaker 6: does that work? How tight is it if we're going

721
00:36:59,080 --> 00:37:01,040
Speaker 6: to get the FED start cutting into the back half

722
00:37:01,040 --> 00:37:03,400
Speaker 6: of the year. Does a mortgage market anticipate that?

723
00:37:03,440 --> 00:37:03,640
Speaker 10: Do they?

724
00:37:03,719 --> 00:37:03,919
Speaker 11: Lag?

725
00:37:03,960 --> 00:37:04,480
Speaker 6: How's that work?

726
00:37:04,719 --> 00:37:06,239
Speaker 3: It really doesn't anticipate it much.

727
00:37:06,360 --> 00:37:08,560
Speaker 11: Okay, It's going to be based basically on what happens

728
00:37:08,560 --> 00:37:10,600
Speaker 11: with the tenure, and the tenure will be a little

729
00:37:10,600 --> 00:37:12,439
Speaker 11: bit more forward looking than short term rates.

730
00:37:12,480 --> 00:37:13,359
Speaker 3: You know, it may look to what.

731
00:37:13,320 --> 00:37:17,280
Speaker 11: The Fed's going to do next year, for instance, but basically,

732
00:37:17,400 --> 00:37:19,920
Speaker 11: right now, I think our rate strategist thinks that the

733
00:37:19,960 --> 00:37:22,279
Speaker 11: ten yure is going to finish the yearround three seventy nine.

734
00:37:22,640 --> 00:37:26,040
Speaker 11: That's less than a fifty basis point rally from here,

735
00:37:26,160 --> 00:37:29,160
Speaker 11: So we really don't expect mortgage rates to finish inside

736
00:37:29,160 --> 00:37:31,120
Speaker 11: of six point fifty at the end of the year anymore.

737
00:37:31,320 --> 00:37:33,959
Speaker 2: I go back to who's buying again? Are banks buying

738
00:37:33,960 --> 00:37:36,560
Speaker 2: mortgage backed securities? And like, will that change?

739
00:37:36,880 --> 00:37:40,799
Speaker 11: That's a good question banks. Unusually for the banks who

740
00:37:40,800 --> 00:37:43,439
Speaker 11: are usually a huge fan of mortgage backed securities, they

741
00:37:43,480 --> 00:37:46,520
Speaker 11: when the FED started tightening, they were facing a lot

742
00:37:46,560 --> 00:37:51,280
Speaker 11: of profit and loss unrealized gains losses on their balance sheets,

743
00:37:51,360 --> 00:37:54,520
Speaker 11: and they were worried about volatility as well. So you know,

744
00:37:54,560 --> 00:37:59,120
Speaker 11: after SVB collapsed, for instance, they just stopped buying mortgages altogether.

745
00:37:59,239 --> 00:38:01,520
Speaker 11: In fact, they they didn't even reinvest their paid out

746
00:38:01,640 --> 00:38:03,480
Speaker 11: so they were running off their portfolios too.

747
00:38:03,920 --> 00:38:06,120
Speaker 3: And then you combine that with the fact that.

748
00:38:07,040 --> 00:38:09,120
Speaker 11: You know, the FED, it's a lot of extra supply

749
00:38:09,200 --> 00:38:10,480
Speaker 11: for the rest of the market to absorb.

750
00:38:11,400 --> 00:38:12,919
Speaker 3: They have leveled off.

751
00:38:13,000 --> 00:38:17,400
Speaker 11: Now they've started at least apparently reinvesting their paydowns, so

752
00:38:17,480 --> 00:38:20,200
Speaker 11: that's a little bit of a less negative technical for

753
00:38:20,239 --> 00:38:22,719
Speaker 11: the sector. But they really haven't come in in any

754
00:38:22,760 --> 00:38:26,040
Speaker 11: significant size. We think that, I mean, there are two

755
00:38:26,040 --> 00:38:28,680
Speaker 11: things that might happen. One is they just get more

756
00:38:28,680 --> 00:38:31,160
Speaker 11: confidence once the FED starts to ease or at least

757
00:38:31,160 --> 00:38:33,840
Speaker 11: starts really saying that they're about to ease. But we

758
00:38:33,920 --> 00:38:37,520
Speaker 11: also think they might want a less disinverted yield curve

759
00:38:37,600 --> 00:38:41,440
Speaker 11: or less less inverted yield curve double negatives. Get it

760
00:38:41,480 --> 00:38:44,960
Speaker 11: mixed to right, Yeah, So so they might they you know,

761
00:38:45,000 --> 00:38:47,360
Speaker 11: there's not a lot of incentives to them invest in

762
00:38:47,400 --> 00:38:49,719
Speaker 11: a longer term security if it's yielding less than their

763
00:38:49,760 --> 00:38:50,560
Speaker 11: funding right now.

764
00:38:50,880 --> 00:38:52,759
Speaker 6: When I talk to credit an, I'll say, talk to

765
00:38:52,840 --> 00:38:55,359
Speaker 6: us across about how tight credit spreads are. Is that

766
00:38:55,440 --> 00:38:57,960
Speaker 6: a similar situation in the mortgage backed securities market.

767
00:38:58,480 --> 00:39:00,719
Speaker 11: When you look at like the OS the mortgage market

768
00:39:00,800 --> 00:39:03,560
Speaker 11: right now relative to the corporate market, it looks like

769
00:39:03,719 --> 00:39:06,000
Speaker 11: relative to the past ten years that mortgages are really

770
00:39:06,040 --> 00:39:09,080
Speaker 11: quite cheap. Corporates have done super well. But if you

771
00:39:09,160 --> 00:39:12,319
Speaker 11: look back to pre financial crisis, before the FED held

772
00:39:12,360 --> 00:39:15,600
Speaker 11: as many mortgages as they do on their portfolio. We're actually,

773
00:39:15,719 --> 00:39:17,800
Speaker 11: you know, at a point where you know, maybe mortgages

774
00:39:17,800 --> 00:39:19,960
Speaker 11: don't look so cheap to corporates anymore. They used to

775
00:39:20,000 --> 00:39:22,719
Speaker 11: trade at a wider range. So it kind of all

776
00:39:22,760 --> 00:39:25,279
Speaker 11: depends on your perspective and how much you think you

777
00:39:25,320 --> 00:39:27,600
Speaker 11: know that the FED may come back in or not

778
00:39:27,760 --> 00:39:30,000
Speaker 11: as a buyer of last resort if something goes wrong

779
00:39:30,040 --> 00:39:30,920
Speaker 11: in the mortgage market.

780
00:39:31,120 --> 00:39:33,840
Speaker 2: So at the end of the day, really we have

781
00:39:33,920 --> 00:39:36,600
Speaker 2: to think about the affordability part of this equation, right,

782
00:39:36,640 --> 00:39:37,120
Speaker 2: like it.

783
00:39:37,120 --> 00:39:38,600
Speaker 3: Is who's mining, So that's part of it.

784
00:39:38,600 --> 00:39:40,680
Speaker 2: But the affordability what do you think gets everything more

785
00:39:40,760 --> 00:39:42,960
Speaker 2: affordable and kind of gets this market really moving?

786
00:39:43,400 --> 00:39:45,560
Speaker 11: Yeah, I mean the funny thing is, you know, like

787
00:39:45,560 --> 00:39:48,239
Speaker 11: like any bond investor, you know, I always like to

788
00:39:48,280 --> 00:39:52,319
Speaker 11: say what's good news for consumers, and the economy is

789
00:39:52,360 --> 00:39:55,600
Speaker 11: often bad news for bonds, So you know, the bond's

790
00:39:55,719 --> 00:39:58,720
Speaker 11: rally when the economy is not doing well. And supply

791
00:39:58,840 --> 00:40:02,040
Speaker 11: for mortgages, actual supply, not just net supply, would pick

792
00:40:02,120 --> 00:40:04,600
Speaker 11: up if the housing market got more affordable. So we

793
00:40:04,640 --> 00:40:07,680
Speaker 11: don't necessarily want that, I mean, mortgage originators to do,

794
00:40:07,760 --> 00:40:11,560
Speaker 11: but mortgage investors may not, but I think it's going

795
00:40:11,600 --> 00:40:14,040
Speaker 11: to have to take We're going to have to wait

796
00:40:14,040 --> 00:40:16,439
Speaker 11: for rates to fall down because home price is today

797
00:40:16,520 --> 00:40:18,960
Speaker 11: the existing home prices hit a new record at four

798
00:40:19,000 --> 00:40:20,600
Speaker 11: hundred and nineteen thousand.

799
00:40:20,239 --> 00:40:21,400
Speaker 3: For the median home price.

800
00:40:21,840 --> 00:40:25,080
Speaker 11: And you know, although inventor inventories are building a little bit,

801
00:40:25,120 --> 00:40:27,360
Speaker 11: if anything, they'll probably only build enough to kind of

802
00:40:27,400 --> 00:40:31,680
Speaker 11: stagnate prices, so that what it takes is median incomes,

803
00:40:31,719 --> 00:40:35,960
Speaker 11: you know, overtime growing and you know rates coming down

804
00:40:35,960 --> 00:40:36,479
Speaker 11: over time.

805
00:40:36,800 --> 00:40:38,719
Speaker 6: I mean, this great, great chart about who's buying, who's

806
00:40:38,719 --> 00:40:43,080
Speaker 6: selling the Federal Reserve a year to date minus ninety

807
00:40:43,520 --> 00:40:46,359
Speaker 6: minus ninety two billion or is that a percentage, because

808
00:40:46,400 --> 00:40:48,320
Speaker 6: it then neutral funds are buying, dealers are buying.

809
00:40:49,560 --> 00:40:52,319
Speaker 11: That's minus ninety two billion in the first quarter. But

810
00:40:52,440 --> 00:40:54,239
Speaker 11: you know, if you look at it, I do with chart,

811
00:40:54,239 --> 00:40:54,680
Speaker 11: and I think.

812
00:40:54,520 --> 00:40:55,480
Speaker 3: You're actually looking at it.

813
00:40:56,800 --> 00:41:01,760
Speaker 11: The Z one holdings from the Fed and until now

814
00:41:01,840 --> 00:41:05,000
Speaker 11: from March twenty two, March twenty two until now, when

815
00:41:05,000 --> 00:41:08,640
Speaker 11: the Fed and the banks are running off their portfolios, households,

816
00:41:08,760 --> 00:41:12,000
Speaker 11: it's called households, we're the only ones buying. Actually, they

817
00:41:12,000 --> 00:41:14,440
Speaker 11: were really making up the difference. But the problem with

818
00:41:14,480 --> 00:41:17,200
Speaker 11: that household number is it's a little inscrutable because it's

819
00:41:17,239 --> 00:41:20,279
Speaker 11: actually the plug that the FED puts in there for

820
00:41:20,320 --> 00:41:22,960
Speaker 11: anybody who doesn't fit into the insurance or the money

821
00:41:23,080 --> 00:41:26,319
Speaker 11: manager or the redial fund. So we know it's a

822
00:41:26,320 --> 00:41:28,920
Speaker 11: lot of private net well they call it households. We

823
00:41:29,000 --> 00:41:32,080
Speaker 11: know it's a lot of a few hedge funds. But yeah,

824
00:41:32,080 --> 00:41:35,080
Speaker 11: they let their portfolios run off last month, which is interesting.

825
00:41:35,120 --> 00:41:36,800
Speaker 11: It's a trend to watch, but not a trend to

826
00:41:36,840 --> 00:41:37,920
Speaker 11: be too concerned about yet.

827
00:41:38,000 --> 00:41:40,080
Speaker 6: All Right, so I'm not I got the NB thirty

828
00:41:40,160 --> 00:41:42,760
Speaker 6: year mortgage six point ninety four percent, so the bodinesses

829
00:41:42,760 --> 00:41:46,680
Speaker 6: were below seven percent, but we're nowhere near me refinancing

830
00:41:46,760 --> 00:41:49,560
Speaker 6: my six percent. I'm holding on to this thing. Eric

831
00:41:49,600 --> 00:41:53,000
Speaker 6: Adelberg a Chief mortgage back security Strategies for Bloomberg Intelligence.

832
00:41:53,200 --> 00:41:57,719
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833
00:41:57,920 --> 00:42:00,840
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834
00:42:00,920 --> 00:42:04,520
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835
00:42:04,640 --> 00:42:08,040
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836
00:42:08,160 --> 00:42:11,160
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837
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