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Speaker 2: Alex Steel, Paul Sweeny. Here we do have some breaking
Speaker 2: news from the Supreme Court. The Supreme Court upholds US
Speaker 2: gun ban in domestic violence cases. Whether to strike down
Speaker 2: this federal gunban for people subject to domestic violence restraining
Speaker 2: orders was the point in question. Let's go right now
Speaker 2: to June Grasso, who covers everything law and legal for
Speaker 2: us for Bloomberg Television and Radio.
Speaker 3: June, can you walk us through this? Yeah?
Speaker 4: Sure.
Speaker 5: So this is a case where a man who was
Speaker 5: subject to a domestic violence order wanted to get a gun,
Speaker 5: and there is a federal ban on that. But the
Speaker 5: Fifth Circuit, which has been pushing the law farther to
Speaker 5: the right than even the Supreme Court likes, said that's unconstitutional.
Speaker 5: And during the oral arguments this is not so much
Speaker 5: of a surprise because during the oral arguments a majority
Speaker 5: of the justices seemed to think that it was this
Speaker 5: kind of restraint on owning a gun is logical.
Speaker 3: I mean, this is the guy.
Speaker 5: The case was really bad for the gun lobby because
Speaker 5: the guy had gun out into public and shot the
Speaker 5: gun off and there was this restraining order. So what
Speaker 5: they're saying is, in this case, you can stop someone
Speaker 5: from having a gun. Gun restrictions have been up in
Speaker 5: the air for years since the Bruin case, the New
Speaker 5: York case where the Supreme Court sort of toppled the
Speaker 5: way the courts analyzed gun restrictions and they base it
Speaker 5: on historical So you'll see gun cases where they're talking about, well,
Speaker 5: was there something like this in the eighteen hundred? You know,
Speaker 5: it's it's sort of a crazy way for me, it's
Speaker 5: a crazy way to do it.
Speaker 6: Does this open path for common sense gun legislation then,
Speaker 6: because you one could argue this seems like pretty good
Speaker 6: common sense. I would want someone who's convicted of domestic
Speaker 6: violence thing having a gun. So if that's okay, can't
Speaker 6: we also say someone who has I don't know, criminal rumstock.
Speaker 3: Maybe yes, I see, that's what I mean.
Speaker 5: I don't think I don't think it translates with this court.
Speaker 5: I think this is sort of an exceptional situation because
Speaker 5: we had that bump stock decision where they said where
Speaker 5: they said, even though it operates like a machine gun,
Speaker 5: the way it functions, you know, they use the term
Speaker 5: function and they use the dictionary to analyze what function meant.
Speaker 3: Justice comments, So.
Speaker 5: You know, it would be nice to think that that
Speaker 5: was the way that we have common sense gun regulations,
Speaker 5: but I'm not sure that that's what this stands for.
Speaker 2: I mean, at the end of the day, it says
Speaker 2: that right the Second Amendment isn't so broad that it
Speaker 2: protects the gun rights of those found to be dangerous.
Speaker 2: So now are we going to get into his situation
Speaker 2: where we have to define dangerous and like what what
Speaker 2: constitutes a human being dangerous?
Speaker 3: Is that what is going to come up now?
Speaker 5: I mean, I have I really have no idea how
Speaker 5: this is going to play out, because you know, it's
Speaker 5: this it's a it's one case. It's a case where
Speaker 5: the Fifth Circuit went out on a limb, and there
Speaker 5: are set there are like more than ten cases. I
Speaker 5: think this term where the Fifth Circuit went on a
Speaker 5: limb and the Supreme Court almost has to take the case,
Speaker 5: even if they don't want to take the case because
Speaker 5: otherwise you have this you know, sort of abnormal law
Speaker 5: in place, so it's hard to say what the what
Speaker 5: the effect will be. I'm sure that that you know,
Speaker 5: in other gun restriction cases, they'll use this to try
Speaker 5: to show that there are, you know, there are ways
Speaker 5: to get around it. I'll have to read the decision
Speaker 5: to see to see exactly, you know, how it came down,
Speaker 5: and it's by the Chief Justice. So that's a sign
Speaker 5: that it's not going to be one of those you know, radical,
Speaker 5: hard to understand decisions by Clarence Thomas, or it's going
Speaker 5: to be sort of down as down the middle as
Speaker 5: you can get so because he writes.
Speaker 3: Sort of reasoned opinions.
Speaker 5: So I think that and I think that, you know,
Speaker 5: this is one that we expected, but still a big case.
Speaker 3: It's eight to one.
Speaker 5: I noticed Justice Thomas dissenting. There is not a gun
Speaker 5: law that Justice Thomas wants to see. No, really, he
Speaker 5: is consistently he's the one who wrote that opinion. As
Speaker 5: I mentioned on the Second Amendment that broadened the Second
Speaker 5: Amendment to you know, being able to carry handguns and
Speaker 5: the restrictions that New York put into place, throwing them
Speaker 5: out so I mean, he just there's just not a
Speaker 5: gun law that he will ever say, is all right.
Speaker 6: We should note that Michael Bloomberg, the founder and majority
Speaker 6: owner of Bloomberg LP, the parent company oft Bloomberg Radio,
Speaker 6: is a donor to groups that support gun control, including
Speaker 6: Every Town for Gun Safety. So, again, as you mentioned
Speaker 6: June eight to one ruling, does that surprise.
Speaker 3: You not really?
Speaker 5: I mean, the surprise that Thomas didn't he the surprise
Speaker 5: is that even in this situation where you have a
Speaker 5: guy with a domestic violence restraining order threatening people, even
Speaker 5: then he said that, you know, he doesn't want it restriction.
Speaker 3: That's the only surprise.
Speaker 5: Otherwise, from the oral arguments, it seemed pretty clear that
Speaker 5: there were a majority of the justices that were going to,
Speaker 5: you know, allow this particular ban.
Speaker 2: And we've been talking to June Grasso right now about
Speaker 2: the Supreme Court upholding the US gun ban on domestic
Speaker 2: violent cases. It's an eight one ruling, as Paul was
Speaker 2: just mentioning, the Justice is saying the constitutional Second Amendment
Speaker 2: isn't so broad that it protects the gun rights of
Speaker 2: those found to be dangerous. Just as Clarence Thomas was
Speaker 2: the lone dissenter. Okay, Jun, what do we learn anything
Speaker 2: else today from the Supreme Court? They're like time five
Speaker 2: days in taking.
Speaker 5: When we were talking before, I said, there are nineteen
Speaker 5: cases and basically fourteen of them are the controversial, and
Speaker 5: so today they came out with five decisions, four of
Speaker 5: which were not controversial at all that we're really not tracking.
Speaker 3: I mean, some of them are interesting.
Speaker 5: One was about whether a US citizen has a constitutional
Speaker 5: right to have her spouse.
Speaker 3: You know, declared a citizen.
Speaker 5: So that that's an interesting case, particularly in light of
Speaker 5: what Joe Biden did this week relating to allowing spouses
Speaker 5: who are married to US citizens who came to this
Speaker 5: country illegally to stay in the country while they go
Speaker 5: through the process. Normally they'd have to go back to
Speaker 5: their home country, which is really risky. So it's interesting.
Speaker 5: But still, so we have one week left so far,
Speaker 5: one decision day on Wednesday. I'm sure they'll have more
Speaker 5: coming up, they'll set more, but so we have all
Speaker 5: the cases left. Presidential immunity, the January obstruction charges, the
Speaker 5: Idaho abortion ban, the homelessness issue, Chevron case, which you
Speaker 5: mentioned before, the case is on social media, the case
Speaker 5: on Purdue Pharma air Pollution sec.
Speaker 6: Why are they waiting? Do you think is typical?
Speaker 5: All right, so it is typical. But so talking to
Speaker 5: a professor yesterday, because I was questioning why they're all
Speaker 5: and I always feel like they're waiting until the end
Speaker 5: and they get them all out at once, and it
Speaker 5: gets lost in the ether. You can't cover everything at once.
Speaker 5: But what people say is that, well, the more complicated
Speaker 5: cases with like six to three, they'll be dissents, there'll
Speaker 5: be concurrences, and then they have to pass those around
Speaker 5: the justices and so it takes longer.
Speaker 3: But this professor I was talking to, Harold.
Speaker 5: Krantz, said, you know, he thinks that the chief is
Speaker 5: holding them. And because if you notice yesterday there were
Speaker 5: four cases, three of them were about criminal procedure, they
Speaker 5: were grouped together. So's it's odd to me that this
Speaker 5: is just haphazard random they all come out. And the
Speaker 5: Raheemi case, the case that we had heard today, was
Speaker 5: one of the oldest cases. It was heard in November,
Speaker 5: and usually you can tell how the cases come by
Speaker 5: when they're heard.
Speaker 3: So think about the Trump case. It took about.
Speaker 5: Twenty days on the less Trump case.
Speaker 3: Having to do with the ballot.
Speaker 5: We're up to like forty something now on the Trump case,
Speaker 5: it's so it's it's.
Speaker 6: A we'll be stretched next week.
Speaker 3: Okay, oh we'll be here, we'll be here. Well, you're
Speaker 3: off Friday, off Friday.
Speaker 5: Oh, that's going to be a big day.
Speaker 2: Maybe you don't want to take prep now, I got
Speaker 2: a double prep now, all right, Dune, thanks a lot,
Speaker 2: June Grass joining us to help break it down. Just
Speaker 2: to reiterate the Supreme Court upholds the US gun ban
Speaker 2: and domestic violence cases. I should point out Smith and
Speaker 2: Western shares are sliding over twelve percent, but that's also
Speaker 2: because they said sales in the first quarter would be
Speaker 2: ten percent lower a year on year than originally thought.
Speaker 2: So if you're just looking at the market for that
Speaker 2: kind of reaction, all right, let's get more on this
Speaker 2: with Andrew Willinger. He's executive director Duke Center for Firearms Law. Andrew,
Speaker 2: thank you for joining us. We appreciate it. Can we
Speaker 2: get your reaction to this ruling?
Speaker 7: Absolutely?
Speaker 4: Yeah, So I think you know the big takeaway, of course,
Speaker 4: is that the court here upholds a federal law that
Speaker 4: restricts people who are under domestic violence restraining orders from
Speaker 4: possessing firearms. It's an eight to one decision, so you
Speaker 4: have eight justices in favor of that outcome. Justice Thomas
Speaker 4: is the sole the center. And I think, you know,
Speaker 4: what we were watching for, at least what I was
Speaker 4: watching for with this case is sort of how broad
Speaker 4: the decision would be. And the Court seems to settle
Speaker 4: on something akin to a dangerousness principle, where they, you know,
Speaker 4: the majority basically says that when there's some evidence that
Speaker 4: a person poses a threat of harm to another person,
Speaker 4: then that individual can be barred from possessing guns, consistent
Speaker 4: with history.
Speaker 6: Andrew, is there any reason for any gun protection advocates
Speaker 6: to maybe read into this that, hey, this may create
Speaker 6: an opening for you know, more common sense gun legislation.
Speaker 4: So I think, having just had a chance to briefly
Speaker 4: skim the decision, my read is that it's somewhat narrow
Speaker 4: and that the court doesn't squarely confront you know, even
Speaker 4: other related issues like banning convicted felons from possessing guns,
Speaker 4: for example, you know, those convicted of non violent felonies,
Speaker 4: and and sort of leaves those for another day. I'll
Speaker 4: have to dig a little bit more into the various opinions,
Speaker 4: because there are some concurrences as well that might shed
Speaker 4: light on where some of the specific justices are. Well, I.
Speaker 2: Think it just raises the question, then then what is dangerous?
Speaker 2: So if you can't sell a firearm to someone who's dangerous,
Speaker 2: how are we going to be interpreting that through legislation
Speaker 2: and then through the courts?
Speaker 4: Yeah, and my my initial reaction to the decision is
Speaker 4: that again the court, the majority, sort of leaves that
Speaker 4: question a little bit open. You know, there was some
Speaker 4: discussion at the oral argument that this specific law doesn't
Speaker 4: really pose a difficult case because there has to be
Speaker 4: a finding by a state court judge that somebody is
Speaker 4: dangerous is likely to commit domestic violence. So, in other words,
Speaker 4: this would sort of be a case in the heartland
Speaker 4: of that principle.
Speaker 7: But there might be edge cases.
Speaker 4: With regard to other types of gun regulation that the
Speaker 4: court will have to confront. And one takeaway I think
Speaker 4: one initial takeaway from this decision is it wouldn't surprise
Speaker 4: me if in the coming terms, the court did confront
Speaker 4: some of those issues and decide those questions.
Speaker 6: Andrew, what is the Duke Center for Firearms Law?
Speaker 1: Yeah?
Speaker 4: Absolutely, The Duke Center for Firearms Law is an academic
Speaker 4: organization that how is that the law school here at Duke,
Speaker 4: and we seek to grow and build the scholarly field
Speaker 4: of firearms law in the legal academy. We also have
Speaker 4: a variety of resources on a Second Amendment cases and
Speaker 4: other issues related to gun regulation that we host through
Speaker 4: our website, blog, and database of historical gun laws for example.
Speaker 6: Go ahead, Andrew, I just with that background, and given
Speaker 6: what I know is you know, the majority of US
Speaker 6: citizen's favorite common sense gun law. I think that's a fact.
Speaker 6: What's from your perspective at the Duke Center for Firearms Law?
Speaker 6: Why can't more legislation common sense gun laws? Why can't
Speaker 6: they be enacted here in this country?
Speaker 7: Yeah?
Speaker 4: So, I mean, I think one one obstacle to to
Speaker 4: some of these laws has been the tests, the legal
Speaker 4: tests that the Supreme Court set for two years ago,
Speaker 4: almost to the day in a case called Bruin, which
Speaker 4: essentially says that the way courts are to evaluate Second
Speaker 4: Amendment challenges is by determining whether a law is consistent
Speaker 4: with historical tradition. And that you know that this case,
Speaker 4: this decision today is the first, the first we've heard
Speaker 4: from the Supreme Court since then on the Second Amendment,
Speaker 4: so their first sort of chance to clarify what that
Speaker 4: test should look like, and you have today a justice
Speaker 4: is saying pretty clearly that, you know, we're not requiring
Speaker 4: a twin, We're not requiring any kind of exact replica
Speaker 4: in the historical record to support a modern gun law.
Speaker 4: So I think that's important and consequential, and maybe maybe
Speaker 4: to some extent, the justices in the majority are are
Speaker 4: concerned that their their prior decision was interpreted by that
Speaker 4: way by at least some lower court judges.
Speaker 2: How do you how do you think gun laws or
Speaker 2: the reaction to them evolve as it continues to seem
Speaker 2: more politicized. And I know that's even crazier to say,
Speaker 2: because it was already so politicized, but so many more
Speaker 2: of the issues are now politicized. How do you think
Speaker 2: this evolves in this country?
Speaker 1: Yeah?
Speaker 4: Absolutely, you know, again to take it back to the
Speaker 4: to the Raheemi decision, I actually think this, this is uh,
Speaker 4: this sort of illustrates maybe less of an ideological or
Speaker 4: political divide as to certain types of gun laws. You know,
Speaker 4: this is this is UH made maybe a law that
Speaker 4: has you know, we know it has very broad public
Speaker 4: support based on polling that that restrictions on domestic violence offenders.
Speaker 4: Most the vast majority of people in the country support
Speaker 4: those types of laws. And so today we have a
Speaker 4: decision upholding that that regular at the federal level.
Speaker 7: And so, you know, I think there will certainly be.
Speaker 4: Other cases down the road that will be more of
Speaker 4: a stark, you.
Speaker 7: Know, ideological divide.
Speaker 4: If you think about something like a restriction on semi
Speaker 4: automatic rifles, so called assault weapons, that would be an
Speaker 4: example where I would expect the court to really fracture
Speaker 4: along ideological lines.
Speaker 7: But that wasn't the case today.
Speaker 6: When I was getting my MBA at Duke Alex, I
Speaker 6: took one class at the Duke Law School. Big mistake,
Speaker 6: do you run away? The kids work super super hard
Speaker 6: like I had to work. In that case. My little
Speaker 6: study group wouldn't let me just skate by. They weren't
Speaker 6: like the business school. We were just punching our ticket
Speaker 6: to go back to Wall Street. That's amazing. These kids
Speaker 6: were like serious. So anyway, appreciate that.
Speaker 3: S thanks for that and see you guys later.
Speaker 6: Yeah, exactly, all right, Andrew, thank you so much for
Speaker 6: joining us. Andrew Willinger, He's executive director of the Duke
Speaker 6: Center for Firearms a lot.
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Speaker 2: Okay, So I was mentioning that we have the whole
Speaker 2: triple witching Vin Signerella Poop poove that, so did Paul Sweeney.
Speaker 2: We have another thing today, and that is ETF a rebalancing.
Speaker 2: So here's like the broad Strokes, the State Street Global
Speaker 2: Advisors Tech. ETF has to rebalance. It has about seventy
Speaker 2: one billion dollars in that and the idea is that
Speaker 2: you're going to have to buy some Nvidia and sell
Speaker 2: Apple and it could kind of move individual stocks around.
Speaker 2: So we wanted to see if this was actually a
Speaker 2: big deal, not like the triple Witching thing. James Seffert
Speaker 2: is Bloomberg Intelligence ETF research analyst and he joins us, Now, okay,
Speaker 2: is it a big deal that's rebalancing?
Speaker 8: I mean, I think it's a big deal. It showed
Speaker 8: some of the issues with passive indexing. And there's a
Speaker 8: lot of things that people like to complain about with
Speaker 8: passive investing and passive indexing and things like that, and
Speaker 8: we spend a lot of our time pushing back saying
Speaker 8: it's not as big of a deal as people are
Speaker 8: making it out to be. That said, I like to
Speaker 8: go back and kind of point out times where sometimes
Speaker 8: rules can be a little dumb and situations happen, where
Speaker 8: wonky things happen in the markets, and I think this
Speaker 8: is one of them. I mean, the after market closed today,
Speaker 8: our estimates are somewhere around that this XLK ETF is
Speaker 8: going to have to sell are almost thirteen billion dollars
Speaker 8: worth of Apple and buy about eleven billion dollars of Nvidia. So,
Speaker 8: I mean, that's just wonky in itself, I guess I
Speaker 8: would say, but I'll stop there.
Speaker 6: So, James, how do we get to this position? Doesn't
Speaker 6: XLK this this ETF? Doesn't it do this stuff every day?
Speaker 6: Like if in Vidia is going up, don't they buy
Speaker 6: more in Vidia? I don't know how that works.
Speaker 8: Yeah, So say most of these passive industries work is
Speaker 8: they just hold these stocks in proportion to their market cap,
Speaker 8: so the size of the company, that's how much they hold.
Speaker 8: It's actually we can get into the wonky parts of
Speaker 8: this a little bit too, but it's more about free
Speaker 8: float market cap, which we can get into in a bit.
Speaker 8: But essentially, theoretically, as the prices of these the values
Speaker 8: of these stocks go up, the waiting in the hall
Speaker 8: in the fund will go up. But there's things that
Speaker 8: happen where you have to rebalance, so they rebalance quarterly.
Speaker 8: Different stocks get moved from different sectors, so they'll come
Speaker 8: out of the sector ETF. But theoretically, the way XOLK
Speaker 8: works is it takes all the S and P five
Speaker 8: hundred stocks that are in the tech sector and should
Speaker 8: market cap weight them.
Speaker 7: But there's these.
Speaker 8: Rules from the SEC that have to do with registered
Speaker 8: investment companies, So all mutual funds ETFs for the most
Speaker 8: part fall under this registered investment company's ruling, and they
Speaker 8: have diversification requirements. The problem is, if you just allowed
Speaker 8: these things to be market cap weighted, you have the
Speaker 8: three largest companies in the world in Microsoft, Apple and Nvidia,
Speaker 8: all around three over three trillion dollars in market cap valuation,
Speaker 8: and you'd end up with this fund being sixty plus
Speaker 8: percent just in those three stocks, and the diversification rules
Speaker 8: and the index rules don't allow that. And the way
Speaker 8: they do that in this case is they just cap
Speaker 8: the smallest one. So if you're over a certain weight
Speaker 8: five percent ish and if all of those stocks over
Speaker 8: five percent add up to over fifty percent, you cut
Speaker 8: the bottom one to four and a half percent in
Speaker 8: the fund. So essentially that meant for the last six quarters,
Speaker 8: despite in Video should have had a significant weight, every
Speaker 8: time it rebalanced, it got sold because it got capped
Speaker 8: at four and a half percent. But last Friday, as
Speaker 8: of the market closed, which is when this fund looks
Speaker 8: at this on a free float adjusted basis, in Video
Speaker 8: was larger than Apple, So all of a sudden, now
Speaker 8: Apple is that smallest stock, so in Video is going
Speaker 8: to get a bunch of buys and Apple's going to
Speaker 8: get a bunch of sales. Ironically enough, today, with the
Speaker 8: way in Video is trading down over four percent, it's
Speaker 8: actually smaller than Apple. So if the date was today,
Speaker 8: we wouldn't be having this rebalance.
Speaker 3: So okay, I'm still confused it.
Speaker 2: So can we attribute any of the price action too
Speaker 2: of Apple and Nvidia in the past to this.
Speaker 8: So it's hard for me to know exactly what's going on. Right,
Speaker 8: So there was a massive inflow that went into this
Speaker 8: fund that's in. There's rebalance flows. Money comes in and
Speaker 8: goes out, and there's It's kind of happens over days
Speaker 8: as far as the rebouance goes. So when you it's
Speaker 8: called a reference date, that's the date. We're going to
Speaker 8: look at all the information from this date and we're
Speaker 8: going to use that information to do the rebalance. So
Speaker 8: in that case, it was last Friday, June fourteenth. The
Speaker 8: actual rebalance is going to happen today after market close.
Speaker 8: But the people making markets like, no, this is going
Speaker 8: to happen, right, It's not like this stuff happened and
Speaker 8: it closed on Friday last Friday, and then no one's
Speaker 8: paying attention to this or trading around. What's going to
Speaker 8: happen with these tens of billions of dollars being traded
Speaker 8: like things were happening Friday last week and all along
Speaker 8: this week they were preparing for these trades. So it's
Speaker 8: most likely that like Spider and anyone else that's tracking
Speaker 8: this index has the trade set up and lined up
Speaker 8: so they can match the underlying index. That's the ultimate
Speaker 8: goal of these passive funds. They want to track the
Speaker 8: underlying index. In this case, ex it's the large cap
Speaker 8: stocks and the S and P five hundred that are
Speaker 8: in the tech sector.
Speaker 6: Have we seen this before? If this feels like I
Speaker 6: haven't read this scene this dealt with this before? Is
Speaker 6: this new need?
Speaker 8: Yes and no. So there are instances where wonky things
Speaker 8: like this happen in many cases there with smaller stocks though.
Speaker 8: So I've written in the past about some dividend funds,
Speaker 8: and there's there's wonky issues with dividend funds where if
Speaker 8: you're waiting it by dividend yield rather than market cap,
Speaker 8: like this fund is weighted, as the price of the
Speaker 8: stock goes down, your dividend yield goes up. So basically
Speaker 8: what happens in some cases with those dividend yield funds
Speaker 8: or some other funds, some cash flow type funds as
Speaker 8: like they'll do cash flow yields and things like that.
Speaker 8: As the price of the stocks go down, it looks
Speaker 8: like their valuation metrics are getting better, but it's partially
Speaker 8: because the stock price is going down. So much, and
Speaker 8: there's often times reasons for that, and then many of
Speaker 8: these funds have like limitations, so if it goes below
Speaker 8: a certain market cap, we can't hold it. So all
Speaker 8: of a sudden they build up these massive positions and
Speaker 8: then it gets too small and then they're forced to
Speaker 8: dump it. And that's happened in the past, but it's rare.
Speaker 8: This is the first time I've ever seen it happen
Speaker 8: with a large cap ETF and a spund of this size,
Speaker 8: a grand seventy one billion dollars, like Alex said at
Speaker 8: the beginning of this, So yes, it's it's it's rare.
Speaker 8: So that's why I said, I like to point it
Speaker 8: out when it happens, but it doesn't usually happen. And
Speaker 8: the only reason it's happening is because we have this
Speaker 8: unique situation where they've taken a bunch of names that
Speaker 8: used to be in the technology sector and move them
Speaker 8: out in a like reclassification. So Visa and mastercarda no
Speaker 8: longer in there, which are big funds. Obviously, Google and
Speaker 8: Meta and other ones have left, So all of a sudden,
Speaker 8: you left with this really top heaviness at the top
Speaker 8: of the tech sector. In these three stocks, and that's
Speaker 8: causing a lot of wonky things to happen. Now, the
Speaker 8: thing I'm watching is right now. Like I said, if
Speaker 8: the reference date was today, this this rebalance wouldn't be
Speaker 8: happening and Video would be the one being capped at
Speaker 8: four and a half percent. The next rebalance is September,
Speaker 8: So if Apple manages to stay larger than in Vidia
Speaker 8: on a float adjusted basis in September, we're going to
Speaker 8: have the exact reverse of this. So usually these index
Speaker 8: providers in this case SMP and the ETF is ETF
Speaker 8: providers in this case Spider or State Street, they try
Speaker 8: to keep the indexes exactly the same because they want
Speaker 8: continuity over time. I wouldn't be surprised if they look
Speaker 8: at kind of changing the rules about how they meet
Speaker 8: those diversification requirements rather than just arbitrary capping chopping off
Speaker 8: the third largest here. So that'll be something to watch
Speaker 8: in the next few months. But if they don't, we
Speaker 8: could come to the September and see like a reversal
Speaker 8: of this, or if Microsoft is somehow smaller than Nvidia
Speaker 8: and Apple, that will be the one that get sold
Speaker 8: and Apple will be bought. It'll be very interesting to
Speaker 8: watch what's going to happen. And this is like, this
Speaker 8: is an area that hedge funds are paying very close
Speaker 8: attention to and making markets. You asked if it's actually
Speaker 8: impacting markets. There are a whole teams out there that
Speaker 8: are watching for what these behemoth passive products are doing
Speaker 8: and what they're going to have to do in rebound
Speaker 8: dates and basically prepping for it.
Speaker 2: I want to see what like water cooler talk is
Speaker 2: with him and Eric Beltuna's oh gee, and they're like, hey, bro,
Speaker 2: let's check out this ETF and look at this flow.
Speaker 3: It's so cool.
Speaker 2: I just I just joke, because you guys are are
Speaker 2: so smart and so insane when it comes to all
Speaker 2: of these details with ets. But this is really helpful
Speaker 2: and we appreciate it and thank you very much. And
Speaker 2: it really helps to understand what happens with the Nvidia
Speaker 2: and an Apple when you have this kind of reshuffling.
Speaker 2: Right twice seventy one billion dollars that etf reshuffling. That's
Speaker 2: not nothing. And I'm looking forward to the Russell two thousand.
Speaker 3: I feel like we should.
Speaker 2: Definitely talk about that next week too. Just like a
Speaker 2: small caps have just not been able to keep up,
Speaker 2: and any keep up they have is like super micro
Speaker 2: at that point exactly.
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Speaker 2: Another headline that crossed earlier today is that Canada is
Speaker 2: apparently preparing tariffs on Chinese evs after the US and
Speaker 2: the EU did something relatively similar. We wanted to get
Speaker 2: more on that with Steve Man, Bloomberg Intelligence, Global Autos
Speaker 2: and Industrials research analysts. Hey, Steve Walker, us through so
Speaker 2: far what we know on this?
Speaker 9: Yeah, so Canada is basically following what the US and
Speaker 9: the Europeans have done, which is to slap potentially one
Speaker 9: hundred percent tariff another one hundred percent tariff on Chinese
Speaker 9: made cars coming into Canada. Now, the impact is very
Speaker 9: is muted. First of all, Canada sells about one point
Speaker 9: seven million vehicles a year compared to around sixteen million
Speaker 9: in the US thirty million in Canada in China, so
Speaker 9: the market is relatively small. I think the overall purpose
Speaker 9: of doing that is really to close the back door
Speaker 9: in the US Mexico Canada Free Trade Agreement to make
Speaker 9: sure that you know, Chinese cannot bring cars into the
Speaker 9: US through Canada.
Speaker 6: Okay, talkers about the Chinese EV market, Steve, how big
Speaker 6: is it? You say, you have a SAR there thirty
Speaker 6: million cars a year. What's the share of EV's today
Speaker 6: and kind of where do you think it's going to go?
Speaker 9: Yeah, it's it's it's pretty big. It's as much as
Speaker 9: twenty five percent now of annual sales. So you know,
Speaker 9: they've also, as you know, there's a lot of capacity
Speaker 9: in China. EV production capacity in China, and there's a
Speaker 9: lot of players out there. You know, a few of
Speaker 9: them trade here actually, Neo x pun Le Auto uh
Speaker 9: and so you know the government, you know, just to
Speaker 9: prop up consumer spending, actually rolled out some incentives to
Speaker 9: sell more battery electric vehicles in China. And some of
Speaker 9: the incentives are you know, on trade ins, you know,
Speaker 9: extra credit on trade in trading in their ice vehicles
Speaker 9: for the battery electric vehicles. So you know, twenty five
Speaker 9: percent now probably expected to row through the remainder of
Speaker 9: this year.
Speaker 2: So here's my question, if I'm a Chinese EV company,
Speaker 2: Can I then just go through Mexico because I appreciate
Speaker 2: this closes the window from Canada, so I can no
Speaker 2: longer really important to Canada and then through to the
Speaker 2: US because the tariffs will hit. But in Mexico I
Speaker 2: still can, right, So why not just ship all the
Speaker 2: EV's in there free trade agreement, ship all the EV's
Speaker 2: into the US.
Speaker 9: That is true, But just like what Canada did, I
Speaker 9: think they're going to close that back door as well
Speaker 9: at some points. But but look, the Chinese automakers, especially
Speaker 9: like BYD, has made it clear, uh that you know,
Speaker 9: they don't have any interest in entering the US market
Speaker 9: at the moment.
Speaker 10: And it's difficult.
Speaker 9: It's not it's not like they you know, you can say, oh,
Speaker 9: I'm coming in and selling cars in the US, and
Speaker 9: then you know you're you're able to be able to
Speaker 9: get a lot of gain a lot of customers just
Speaker 9: by doing that. You know they're gonna have to build
Speaker 9: a distribution network, they have to build a service network,
Speaker 9: and more importantly, given the geopolitic goal wrangling that's happening
Speaker 9: between the US and China, I'm not sure if a
Speaker 9: lot of the US car consumer are ready to buy
Speaker 9: a Chinese car at the.
Speaker 6: Moment, What do the Chinese automakers say, Steve about these
Speaker 6: tariffs in the US and the EU Canada. I mean
Speaker 6: to what extent, how impactful are these to their sales
Speaker 6: and what are we hearing from these Chinese automakers.
Speaker 9: Yeah, I think at the moment zero impact from the
Speaker 9: tariffs in the US and Canada.
Speaker 10: There will be some impact from the tariffs in the EU.
Speaker 9: They do have about two three percent market share in
Speaker 9: the in the in the European Union. But you know,
Speaker 9: the tariffs is not as as big as it is
Speaker 9: in the US. It's it's upwards of you know, thirty
Speaker 9: eight to fifty percent, and it really depends on the allmaker.
Speaker 10: For example St. Lentists.
Speaker 9: You know, they do plan to import some Chinese made
Speaker 9: evs into Europe through their new joint menture with Leap
Speaker 9: and Motor.
Speaker 10: Uh.
Speaker 9: But uh, you know so because you know Stulentis also
Speaker 9: has plans to with this h with Leap Motor within
Speaker 9: this joint mensure to build cars in Europe, the terrorists
Speaker 9: is a little bit lower. So terrorists are different for
Speaker 9: different automakers within the EU. So uh, you know, the
Speaker 9: penetration rate, you know, will be impacted. But I think
Speaker 9: over at the end of the day, Chinese will be
Speaker 9: able to still able to sell cars in the EU,
Speaker 9: but at a higher cost, and it gives the the
Speaker 9: incumbents some room to to actually grow.
Speaker 2: What what do you think the differential will would be
Speaker 2: Like an E a Chinese EV into Europe would cost
Speaker 2: X and and Volkswagen EV would cost y. Like what
Speaker 2: do we think that differential will actually wind up?
Speaker 9: Yeah, it ranges I think between thirty to fifty percent cheaper.
Speaker 9: The Chinese EV will be thirty to fifty percent cheaper.
Speaker 3: Even with the tariffs or without the tariffs.
Speaker 9: No, without the tariffs. So first of all, without the tariffs,
Speaker 9: and I think what the terriffs are trying to do,
Speaker 9: and not only the tariffs, any cars that actually comes
Speaker 9: into the EU from China will have to meet the
Speaker 9: local safety requirements. So there's going to be some changes
Speaker 9: that the Chinese automakers will have to make to their
Speaker 9: cars to meet those requirements. So overall, you know, with
Speaker 9: the changes of vehicles with the tariffs, what the EU
Speaker 9: is trying to do is make, you know, ensure that
Speaker 9: the prices of the Chinese car when they do hit
Speaker 9: the ground, will be very competitive to the EV's made
Speaker 9: by the local automakers there.
Speaker 6: Hey see, what's the latest thinking coming out of Detroit
Speaker 6: about electric vehicles? Obviously, you know, a couple of years
Speaker 6: ago they really started ramping up aggressively. Then demand seems
Speaker 6: to have faded here, so they're they're pulling back on
Speaker 6: some of their plans. What's the latest thinking from our
Speaker 6: US automakers about their move to EV's.
Speaker 9: Yeah, I was just at in Detroit last week, and
Speaker 9: you know, every I think the consensus is that EV
Speaker 9: battery evs are here to stay. You know, some of
Speaker 9: the estimates that we saw a few years ago when
Speaker 9: we you know, when we're thinking about BV is gonna
Speaker 9: hit you know, seventy five eighty percent on the market
Speaker 9: is not unlikely to get there anytime soon. And and
Speaker 9: if you look at global market, especially in the US,
Speaker 9: we're going to have a mix.
Speaker 10: Of powertrain, but BV will grow.
Speaker 9: I think some of the estimates out there, including ours
Speaker 9: at BI, we think the US market will probably hit
Speaker 9: you know, twenty five to thirty percent penetration rate by
Speaker 9: the end of the day decade, so from about nine
Speaker 9: percent today. So at different ominae kids are taking different strategies.
Speaker 9: If you look at the Lentis, you look at GM,
Speaker 9: they're fro on, They're still launching a lot of EV's
Speaker 9: the next couple.
Speaker 10: Of years more affordable EV's four is taking a step back, right.
Speaker 9: I think they it's not a bad strategy. They know
Speaker 9: the technology, they know how to build evs, so it
Speaker 9: doesn't hurt. It saves cash for the time being until
Speaker 9: they see critical mass and they can easily come back
Speaker 9: to the market.
Speaker 3: All right, Steve, we appreciate it. Thank you so very much.
Speaker 2: Steve Mann, Bloomberg Intelligence, Global Autos and Industrials research analysts.
Speaker 3: You have to wonder what policy though.
Speaker 2: We were talking to the Tahlion right, and they used
Speaker 2: to make basic trucks like EV trucks, right, And they said, look,
Speaker 2: the policy just wasn't there, and the demand just wasn't there,
Speaker 2: and we just couldn't sustain that part of the business.
Speaker 2: If we get a different administration, does that change, If
Speaker 2: we get different ruling in the EPAID does different things?
Speaker 2: Is that also change? Like what part of policy plays
Speaker 2: in demand?
Speaker 1: Yeah?
Speaker 6: I think what we learned and what we're still learning
Speaker 6: is it's got to be priced competitive. Yes, the charging
Speaker 6: storage situation is going to be vastly improved. And you know,
Speaker 6: I also think there's still a political thing there that
Speaker 6: I'm not sure they're going to be able to get over.
Speaker 3: Yeah.
Speaker 6: I think there's going to be some kind of political
Speaker 6: divide there where people are.
Speaker 3: Right, it's going to be like a political stance.
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Speaker 6: Alex Steel, Paul Sweeney. We're live here in our Bloomberg Interactive,
Speaker 6: Brook Christinia. We're streaming live on YouTube, so you can
Speaker 6: head over to YouTube dot com and search Bloomberg Podcast
Speaker 6: and that's where we go find this. We just heard
Speaker 6: Vinie and Charlie talking about existing home sales four point
Speaker 6: one one million. That's off slightly from the prior period.
Speaker 6: I went back and did the old GP function and
Speaker 6: set the tab to max to see how far back
Speaker 6: we could go, just to put that four point one
Speaker 6: one million homes sold in the month in context, and
Speaker 6: we usually do since like two thousand, about five point
Speaker 6: three million, so it's definitely below kind of where we were,
Speaker 6: and you know, hire interst rates and all that kind
Speaker 6: of stuff, and just people getting priced out. I wonder
Speaker 6: what that means for mortgage backed securities market. Mortgage backed securities,
Speaker 6: the Bloomberg Index of mortgage backed securities total return off
Speaker 6: about zero point one four percent here year to date.
Speaker 6: So what do we do here in the back half
Speaker 6: of the year. Let's check in with Erica Adelberg. She
Speaker 6: covers all this MBS stuff for Bloomberg Intelligence. She joins
Speaker 6: us here in our Bloomberg Interactive Broker studio. So as
Speaker 6: we sit here year mid year, Erica, how do you
Speaker 6: think about the back half of the year for mortgage
Speaker 6: back securities.
Speaker 11: Well, it's been a pretty interesting first half of the year,
Speaker 11: so let's just talk about that for a minute. As
Speaker 11: of two months ago, mortgages were down more than two
Speaker 11: percent in total return and on an access return basis
Speaker 11: versus treasury is about seventy five basis points. And since
Speaker 11: the FED reinstated, they're kind of one sided market where
Speaker 11: they probably won't tighten, but they're hoping to ease at
Speaker 11: some point this year. The markets were covered great, so
Speaker 11: you know, we're back to almost flat as you said
Speaker 11: for the year on total return, we're almost plad in
Speaker 11: excess returns too. So what happens for.
Speaker 3: The rest of the year.
Speaker 6: We think we could probably.
Speaker 11: Hold on to this. We don't think there's tremendous momentum
Speaker 11: right now. You would think there would be given the
Speaker 11: two months, but the problem is we're still on hold
Speaker 11: awaiting the FED and supplies great because there's not a
Speaker 11: lot of new homes, but net supply is actually increasing
Speaker 11: because what's not happening in existing homes is getting put
Speaker 11: into the new home market a little bit. So we're
Speaker 11: actually seeing some increase in net supply of mortgages, especially
Speaker 11: when you take into account the fact that the FED
Speaker 11: is you know, not buying. In fact, they're allowing their
Speaker 11: portfolio to run off, which contributes effectively more supply.
Speaker 3: Well, it's what I was wondering, who's buying these things.
Speaker 11: It's mostly money managers right now, and they're not the
Speaker 11: most reliable buyer inasmuch as if as friends get too tight,
Speaker 11: for instance, they may.
Speaker 3: Pull back a little bit.
Speaker 11: We're seeing some of the largest money managers right now
Speaker 11: being quite overrated the sector, So that might limit the
Speaker 11: amount of dry powder they have, you know, should they
Speaker 11: get concerned about the sector for one reason or another,
Speaker 11: or even just if that supply does pick up.
Speaker 6: Someone comes up to you in a COCTA party and says,
Speaker 6: and when someone comes up to you to Cockta party
Speaker 6: and says, what's a thirty ye mortgage? These days? What
Speaker 6: ticker do you put into Bloomberg terminal?
Speaker 11: I generally put in if I want a very short
Speaker 11: term thing, I put in their fixed thirty or fixed
Speaker 11: MB thirty or the fread. Yeah good, it's all I
Speaker 11: needed And that's the fastest one to type.
Speaker 6: Okay, MB thirty. So how how does the mortgage market
Speaker 6: react to kind of what the Fed's doing? How quickly
Speaker 6: does that work? How tight is it if we're going
Speaker 6: to get the FED start cutting into the back half
Speaker 6: of the year. Does a mortgage market anticipate that?
Speaker 10: Do they?
Speaker 11: Lag?
Speaker 6: How's that work?
Speaker 3: It really doesn't anticipate it much.
Speaker 11: Okay, It's going to be based basically on what happens
Speaker 11: with the tenure, and the tenure will be a little
Speaker 11: bit more forward looking than short term rates.
Speaker 3: You know, it may look to what.
Speaker 11: The Fed's going to do next year, for instance, but basically,
Speaker 11: right now, I think our rate strategist thinks that the
Speaker 11: ten yure is going to finish the yearround three seventy nine.
Speaker 11: That's less than a fifty basis point rally from here,
Speaker 11: So we really don't expect mortgage rates to finish inside
Speaker 11: of six point fifty at the end of the year anymore.
Speaker 2: I go back to who's buying again? Are banks buying
Speaker 2: mortgage backed securities? And like, will that change?
Speaker 11: That's a good question banks. Unusually for the banks who
Speaker 11: are usually a huge fan of mortgage backed securities, they
Speaker 11: when the FED started tightening, they were facing a lot
Speaker 11: of profit and loss unrealized gains losses on their balance sheets,
Speaker 11: and they were worried about volatility as well. So you know,
Speaker 11: after SVB collapsed, for instance, they just stopped buying mortgages altogether.
Speaker 11: In fact, they they didn't even reinvest their paid out
Speaker 11: so they were running off their portfolios too.
Speaker 3: And then you combine that with the fact that.
Speaker 11: You know, the FED, it's a lot of extra supply
Speaker 11: for the rest of the market to absorb.
Speaker 3: They have leveled off.
Speaker 11: Now they've started at least apparently reinvesting their paydowns, so
Speaker 11: that's a little bit of a less negative technical for
Speaker 11: the sector. But they really haven't come in in any
Speaker 11: significant size. We think that, I mean, there are two
Speaker 11: things that might happen. One is they just get more
Speaker 11: confidence once the FED starts to ease or at least
Speaker 11: starts really saying that they're about to ease. But we
Speaker 11: also think they might want a less disinverted yield curve
Speaker 11: or less less inverted yield curve double negatives. Get it
Speaker 11: mixed to right, Yeah, So so they might they you know,
Speaker 11: there's not a lot of incentives to them invest in
Speaker 11: a longer term security if it's yielding less than their
Speaker 11: funding right now.
Speaker 6: When I talk to credit an, I'll say, talk to
Speaker 6: us across about how tight credit spreads are. Is that
Speaker 6: a similar situation in the mortgage backed securities market.
Speaker 11: When you look at like the OS the mortgage market
Speaker 11: right now relative to the corporate market, it looks like
Speaker 11: relative to the past ten years that mortgages are really
Speaker 11: quite cheap. Corporates have done super well. But if you
Speaker 11: look back to pre financial crisis, before the FED held
Speaker 11: as many mortgages as they do on their portfolio. We're actually,
Speaker 11: you know, at a point where you know, maybe mortgages
Speaker 11: don't look so cheap to corporates anymore. They used to
Speaker 11: trade at a wider range. So it kind of all
Speaker 11: depends on your perspective and how much you think you
Speaker 11: know that the FED may come back in or not
Speaker 11: as a buyer of last resort if something goes wrong
Speaker 11: in the mortgage market.
Speaker 2: So at the end of the day, really we have
Speaker 2: to think about the affordability part of this equation, right,
Speaker 2: like it.
Speaker 3: Is who's mining, So that's part of it.
Speaker 2: But the affordability what do you think gets everything more
Speaker 2: affordable and kind of gets this market really moving?
Speaker 11: Yeah, I mean the funny thing is, you know, like
Speaker 11: like any bond investor, you know, I always like to
Speaker 11: say what's good news for consumers, and the economy is
Speaker 11: often bad news for bonds, So you know, the bond's
Speaker 11: rally when the economy is not doing well. And supply
Speaker 11: for mortgages, actual supply, not just net supply, would pick
Speaker 11: up if the housing market got more affordable. So we
Speaker 11: don't necessarily want that, I mean, mortgage originators to do,
Speaker 11: but mortgage investors may not, but I think it's going
Speaker 11: to have to take We're going to have to wait
Speaker 11: for rates to fall down because home price is today
Speaker 11: the existing home prices hit a new record at four
Speaker 11: hundred and nineteen thousand.
Speaker 3: For the median home price.
Speaker 11: And you know, although inventor inventories are building a little bit,
Speaker 11: if anything, they'll probably only build enough to kind of
Speaker 11: stagnate prices, so that what it takes is median incomes,
Speaker 11: you know, overtime growing and you know rates coming down
Speaker 11: over time.
Speaker 6: I mean, this great, great chart about who's buying, who's
Speaker 6: selling the Federal Reserve a year to date minus ninety
Speaker 6: minus ninety two billion or is that a percentage, because
Speaker 6: it then neutral funds are buying, dealers are buying.
Speaker 11: That's minus ninety two billion in the first quarter. But
Speaker 11: you know, if you look at it, I do with chart,
Speaker 11: and I think.
Speaker 3: You're actually looking at it.
Speaker 11: The Z one holdings from the Fed and until now
Speaker 11: from March twenty two, March twenty two until now, when
Speaker 11: the Fed and the banks are running off their portfolios, households,
Speaker 11: it's called households, we're the only ones buying. Actually, they
Speaker 11: were really making up the difference. But the problem with
Speaker 11: that household number is it's a little inscrutable because it's
Speaker 11: actually the plug that the FED puts in there for
Speaker 11: anybody who doesn't fit into the insurance or the money
Speaker 11: manager or the redial fund. So we know it's a
Speaker 11: lot of private net well they call it households. We
Speaker 11: know it's a lot of a few hedge funds. But yeah,
Speaker 11: they let their portfolios run off last month, which is interesting.
Speaker 11: It's a trend to watch, but not a trend to
Speaker 11: be too concerned about yet.
Speaker 6: All Right, so I'm not I got the NB thirty
Speaker 6: year mortgage six point ninety four percent, so the bodinesses
Speaker 6: were below seven percent, but we're nowhere near me refinancing
Speaker 6: my six percent. I'm holding on to this thing. Eric
Speaker 6: Adelberg a Chief mortgage back security Strategies for Bloomberg Intelligence.
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