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Speaker 2: Let's switch gears here, give a little bit more time
Speaker 2: on this US Steel deer a deal. That's the stock
Speaker 2: tickers X, which I thought it would have been Xerox,
Speaker 2: but it's X for US steal. There you go, President
Speaker 2: Biden blocking that deal. The stock is trading down today.
Speaker 2: Let's get some more news on that. Michael Shepherd, Bloomberg
Speaker 2: Senior editor in Washington, DC, DC. Hey, Michael, why is
Speaker 2: President Biden blocking this deal?
Speaker 3: Is this simply a political move here?
Speaker 4: Well, it is certainly political. He is also invoking national
Speaker 4: security concerns and considerations in the world Order that he
Speaker 4: released and signed today. It was also part of the
Speaker 4: statement that he issued to the public saying that he
Speaker 4: thought it was in the US national security interest to
Speaker 4: keep US Steel domestically owned and headquartered. And this was
Speaker 4: one of the key justifications he had been making for
Speaker 4: months since the deal was announced back in December twenty
Speaker 4: twenty three. This is something he had expressed opposition to
Speaker 4: throughout the past year, but he had never come out
Speaker 4: outright saying that I will block this. President ele like
Speaker 4: Donald Trump of course, has done so, and he said
Speaker 4: that if the deal had ended up on his desk
Speaker 4: in some fashion or had not been completed by the
Speaker 4: time he takes office later this month, he also would
Speaker 4: work to block the transaction, of course, as sending the
Speaker 4: companies back to the drawing board. And we're seeing what
Speaker 4: it's doing to shares of US Steel today, which are
Speaker 4: down seven percent at last.
Speaker 5: Check from last night check. Though, wasn't Japan like an
Speaker 5: ally of ours? So why would an ally present national
Speaker 5: security risk?
Speaker 4: Well, that's a great question, Alex because usually the committee
Speaker 4: that oversees reviews of big transactions like this on national
Speaker 4: security grounds, it's called the Committee on Foreign Investment in
Speaker 4: the US.
Speaker 3: It's secretive.
Speaker 4: It also tends to focus on any transaction that could
Speaker 4: deal more with an adversary rather than a very close
Speaker 4: ally like Japan.
Speaker 3: But the US is.
Speaker 4: Looking at this is perhaps more question of will the
Speaker 4: company's priorities it once merged, diverge from the US national
Speaker 4: interest it's a little bit more subtle, but there is
Speaker 4: a more basic question here at hand, and of course
Speaker 4: that is the political one that Paul raised at the top,
Speaker 4: and that is part of the key argument. Biden also
Speaker 4: said that he is concerned about manufacturing jobs in the US,
Speaker 4: and this is part of another step that he wants
Speaker 4: to take to ensure that they are not jeopardized somehow.
Speaker 2: Is there any sense of what happens next? I mean,
Speaker 2: what does US Steel do do we? I mean, I
Speaker 2: guess they just sit around to wait for another buyer.
Speaker 3: Maybe.
Speaker 4: Well, there are a couple of things that are on
Speaker 4: the table for them. One is going to court, you know,
Speaker 4: a time honored tradition now in the US where we
Speaker 4: see companies taking the government and regulators to court to
Speaker 4: see if they can overturn a government action. We are
Speaker 4: seeing TikTok do this right now, trying to get this
Speaker 4: divestor ban law voided before it takes effect on January nineteenth,
Speaker 4: and we see arguments in that case next week. But
Speaker 4: for US Steel and Nippon Steel, they have signaled that
Speaker 4: they may try to go to court. US Steel if
Speaker 4: a court move somehow fails, they will then be forced
Speaker 4: to reconsider their options.
Speaker 3: Will they look for another buyer.
Speaker 4: Will they have to maybe shed some assets, some plants,
Speaker 4: some production someplace. Will it end up costing jobs in
Speaker 4: some locations. Those are all questions that they're going to
Speaker 4: have to consider.
Speaker 3: Now.
Speaker 4: Both Nippon Steele and US Steel had insisted that this
Speaker 4: transaction was necessary to preserve jobs and to maintain production
Speaker 4: capacity here in the US with some investment coming from Japan.
Speaker 5: So and this also raised the question in Cleveland Cliffs
Speaker 5: if you guys remember, actually tried to make.
Speaker 6: A bid for it. They lost out to Nippon Steel.
Speaker 5: For a moment, there might be a merger possibility there,
Speaker 5: but in the meantime Cleveland Cliffs bought a Canadian producer.
Speaker 5: So now they're waffling back on US steal real quick
Speaker 5: before we let you go do this. The union workers
Speaker 5: steel workers want the deal or not the deal.
Speaker 4: You know, the union leadership was very much against this.
Speaker 4: This is very off brand for them. And in fact,
Speaker 4: there are clips of Biden from back in April standing
Speaker 4: with steel workers in Pittsburgh saying that he was adamantly
Speaker 4: opposed to the transaction. But some in the rank and
Speaker 4: file actually took a more nuanced view, and that was that, Hey,
Speaker 4: if Nippon Steel buys US steel, maybe this will actually
Speaker 4: help us get the kind of investment that we need
Speaker 4: to add jobs or at least preserve the ones that
Speaker 4: we have.
Speaker 2: All Right, so much for the markets deciding what happens
Speaker 2: out there that the government involved. Michael Shepherd, thanks so
Speaker 2: much for joining us, Senior editor, Bloomberg News, joining us
Speaker 2: from Washington, DC.
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Speaker 6: This is Bloomberg Intelligence Radio.
Speaker 5: We are broadcasting to live from our interactive broker studio
Speaker 5: right here in midtown Manhattan.
Speaker 6: I want to go back to that ism.
Speaker 5: So hitting a nine month high new orders the highest
Speaker 5: since January. Employment though did fall, production though jumped, it
Speaker 5: looks all in all to be a relatively solid number.
Speaker 5: So I want to get more on this with Walter Todd, President,
Speaker 5: chief investment officer and managing director at Greenwood Capital. So
Speaker 5: the second I wind up seeing this number. I thought
Speaker 5: back to something that Torres and Slock of Apollo had
Speaker 5: written about, saying that the Fed cuts and the financial
Speaker 5: markets will actually boost GDP over the coming quarters by
Speaker 5: one percentage point and boost inflation by half a percentage point.
Speaker 6: Would you be prepping for that at all?
Speaker 7: Well, Alex, good morning, Happy New year, Thanks for having me. Yeah, so,
Speaker 7: I think this is the dynamic of the market and
Speaker 7: the balancing act here. Going back to that report, you
Speaker 7: just reference the prices paid component of that was higher,
Speaker 7: So we had new orders higher, the top line number higher,
Speaker 7: prices paid higher, but employment lower. That's not a good
Speaker 7: combination of seemingly a slower employment market but yet higher
Speaker 7: inflation and potentially higher GDP. When you look at the
Speaker 7: GDP now forecast for the fourth quarter, it's about two
Speaker 7: and a half to three percent. So the economy seems
Speaker 7: fairly solid on the surface, but the labor market is key,
Speaker 7: and the report we get next Friday is going to
Speaker 7: be a big one for the market.
Speaker 2: So, Walter, how are you guys thinking about this federal
Speaker 2: reserve here in twenty twenty five, It looks like the
Speaker 2: market's kind of discounting maybe two rate hikes.
Speaker 3: Does that seem reasonable to you? What are you guys
Speaker 3: thinking about?
Speaker 7: Yeah, So that's in the fourth quarter of twenty twenty four.
Speaker 7: The biggest shift, obviously was the FED expectations September when
Speaker 7: they cut half a point. We had seven to eight
Speaker 7: cuts baked into twenty twenty five. Now we have, you know,
Speaker 7: less than two baked in, the first one coming in June. Again,
Speaker 7: it goes back to the labor market. If inflation can
Speaker 7: kind of stay where it is to moderate and the
Speaker 7: labor markets stay solid, I think two is probably the
Speaker 7: right number. My guess is that the labor market continues
Speaker 7: to weaken a bit as we move through the course
Speaker 7: of twenty twenty five, and that's going to force the
Speaker 7: FED to maybe shift again their narrative as they did
Speaker 7: in December, and we saw that pretty violent market reaction
Speaker 7: over a twenty four hour period with the S and
Speaker 7: P down four percent. So I think that's one of
Speaker 7: the many unknowns for twenty twenty five is you can
Speaker 7: the FED stick with that that two cut outlook or
Speaker 7: a they going to have to shift again if the
Speaker 7: labor market and the economy weekends as they moved.
Speaker 5: Through in some ways that feels really binary. So how
Speaker 5: do you position for that?
Speaker 7: Well, I think it goes back to a couple of things. Diversification,
Speaker 7: which has been a dirty word for the past two years.
Speaker 7: You wanted to be concentrated in five to ten names
Speaker 7: to outperform the market, but I think having diversification among
Speaker 7: different sectors, different industries, even different geographies again x US
Speaker 7: another dirty word for the past number of years, looking
Speaker 7: outside the US where evaluations are much cheaper as the
Speaker 7: potential opportunity there. I think also rebalancing, being disciplined with
Speaker 7: acid allocation. If you've been fortunate enough to be overweight
Speaker 7: stocks for the past two years, you're more overweight than
Speaker 7: you were two years ago significantly, So using this opportunity
Speaker 7: and strength to rebalance a portfolio and pick up some
Speaker 7: still very attractive fixed income yields, whether you look at
Speaker 7: treasuries or corporate bonds.
Speaker 3: All right, let's go there, Walter.
Speaker 2: I love to get your thoughts on kind of the
Speaker 2: fixed income opportunities again, because an investor can buy a
Speaker 2: two year treasure and get four and a quarter percent,
Speaker 2: it seems like an honest way to make a living.
Speaker 2: Do we take some credit risk above and beyond that,
Speaker 2: how do you think about credit risk?
Speaker 7: Yeah, it's an interesting question because spreads on the surface
Speaker 7: are extremely tight, and the tightest they've almost historically been,
Speaker 7: whether you look at high yield or investment grade bonds.
Speaker 7: At the same time, the argument could be made that
Speaker 7: the balance sheet of Apple or Johnson and Johnson might
Speaker 7: be better than the balanchiet of the US government. So
Speaker 7: I think having a blend, having a blend of high
Speaker 7: grade corporate bonds as well as some treasuries. But I
Speaker 7: think the temptation to stay on that front end, particularly
Speaker 7: with the shift and the Fed narrative, is a big one.
Speaker 7: But we would use the opportunity of the backup in
Speaker 7: rates to extend duration a little bit, and I go crazy,
Speaker 7: not go certainly nothing beyond ten years, but look at
Speaker 7: that three, five and seven year part of the curve
Speaker 7: as an opportunity to lock in some of these yields
Speaker 7: as they backed up almost one hundred basis points since
Speaker 7: the low's in September.
Speaker 5: I'm going to ask the question that I stole from
Speaker 5: Paul yesterday because it was a good one.
Speaker 6: Do you stick with what got you here?
Speaker 2: So?
Speaker 5: Is this going to be another year that you got
Speaker 5: to own big tech.
Speaker 7: Yeah, So I think for us, our opinion is we
Speaker 7: think it's a balance. Right, we will think you abandoned.
Speaker 7: We don't think it's binary. You don't think We don't
Speaker 7: think you abandoned big tech. But at the same time,
Speaker 7: if you've been really concentrated in that area, fortunately for
Speaker 7: the for the past two years, take this opportunity to
Speaker 7: rebalance a bit and look for opportunities outside of those areas.
Speaker 7: Very expensive valuations in those in that part of the market.
Speaker 7: When you go look at energy or healthcare again, nobody
Speaker 7: wanted those in twenty twenty four, very inexpensive valuations. You
Speaker 7: could find good quality companies with good growth prospects that
Speaker 7: are much cheaper than some of those big names. So
Speaker 7: we would advocate for diversifying beyond the top of five
Speaker 7: to ten names.
Speaker 3: Do you what's kind of a model portfolio for you guys?
Speaker 2: I don't know if you have a model portfolio, but
Speaker 2: like stocks, bonds, alternatives, where do you kind of start
Speaker 2: from as ground.
Speaker 3: Zero for maybe your accounts?
Speaker 7: Yeah, So to say, obvious, every investors unique in terms
Speaker 7: of what they're looking for in their allocation. But we
Speaker 7: do like to have a blend of stocks, both large
Speaker 7: cap as well as maybe MidCap and xus allocations there.
Speaker 7: Fixed income, both intermediate and shorter duration fixed income, and
Speaker 7: also alternatives. We're starting to blend alternatives into that. We've
Speaker 7: got two opportunities to do that. We partner with a
Speaker 7: company called First Trust as an alternative suite, but we
Speaker 7: also have ETF based portfolios that we have built that
Speaker 7: utilize alternative asset classes to structure that and incorporate that
Speaker 7: in portfolios. And I think that's another opportunity as we
Speaker 7: look forward again, not looking back at what's worked over
Speaker 7: the past two years, but looking forward, there's an opportunity
Speaker 7: there to incorporate those in two portfolios.
Speaker 2: All Right, Walter, thank you so much for joining us.
Speaker 2: Appreciate getting a few minutes of your time. As Walter Todd, President,
Speaker 2: chief investment Officer, and managing director of Greenwood Capital based
Speaker 2: in Greenwood, South Carolina, which is kind of like great
Speaker 2: smacking in the middle of the state. Looks like a
Speaker 2: nice town there.
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Speaker 5: So again, US seargeon general calling for cancer warnings on
Speaker 5: an alcohol label. Duncan Fox's Bloomberg Intelligence senior consumer staples analyst.
Speaker 5: We're clearly seeing alcohol stocks, Brown Foreman, molten Core's consolation
Speaker 5: brands get hit. What would be the real impact here
Speaker 5: if a label came.
Speaker 8: On, Well, if it came on, I maschreming, it would
Speaker 8: become't similar to what happened in tobacco, where you'd just
Speaker 8: see volume come under a little bit of pressure in
Speaker 8: the short term. Tobacco volume generally is to have about
Speaker 8: sort of three to four percent. It's been a bit
Speaker 8: worse in the US recently, but I would assume that's
Speaker 8: the sort of thing that you would go to if
Speaker 8: it was done globally. At the moment, this seems to
Speaker 8: be something coming out of the US, and I'm assuming
Speaker 8: it would probably just stay in the US at this moment,
Speaker 8: but who knows. I have no idea how long it
Speaker 8: will take to get any regulation through.
Speaker 2: Do I'm going to have the companies talked about this
Speaker 2: at all, or this risk highlighted it? What do the
Speaker 2: companies say about something like this?
Speaker 8: I think there are shocked, as I was when I
Speaker 8: saw it at the screen. I don't think anybody had
Speaker 8: any clue this is going to come from anywhere. Frankly,
Speaker 8: I think I heard your previous person on the radio
Speaker 8: there and they're saying, we all know alcohol is bad
Speaker 8: for you. That God all sorts of warnings already on there,
Speaker 8: but obviously not the one that would say cancer, which
Speaker 8: would be certainly worries on people. So they have drink
Speaker 8: responsibly on there and all those sort of things. So
Speaker 8: this one's come out of nowhere, and I think, to
Speaker 8: be fair, the industry has been trying to do sensible
Speaker 8: things for years, essentially trying to get us to drink
Speaker 8: better quality product and drink less of it. So yeah,
Speaker 8: this one's a bit of a surprise.
Speaker 5: It's also interesting because I wonder what the direct impact
Speaker 5: would be in terms of timelines. Like I mean, clearly,
Speaker 5: there was a world where women drank when they were pregnant,
Speaker 5: and then everyone figured out that wasn't good for them,
Speaker 5: and then it would harm the fetus, and then therefore
Speaker 5: then there was a warning label now on the alcohol bottle,
Speaker 5: which then prevented eventually women from not drinking mostly when
Speaker 5: they're pregnant. So what's like a time lag for stuff
Speaker 5: like this, Like if a label gets slapped on today,
Speaker 5: when do people start paying attention.
Speaker 8: Well, the only thing I can talk about here is
Speaker 8: what happened on tobacco and they started saying it was
Speaker 8: cans in nineteen fifty six, I think somewhere around then
Speaker 8: that it was nineteen sixty four when the US Surgeon
Speaker 8: General put in the saying it actually does cause can
Speaker 8: So then it was nineteen sixty six before you actually
Speaker 8: got the label onto the tobacco packet. It was even
Speaker 8: later in Europe. It was about nineteen seventy one in
Speaker 8: the UK. I think it was two thousand sixteen in Europe,
Speaker 8: so it could take some time. Now people stopped smoking,
Speaker 8: or certainly smoking incident fell from about fifty percent around
Speaker 8: about nineteen sixty and has come down sort of consistently
Speaker 8: ever since. So I guess the talker that would mean
Speaker 8: people would consider switching to soft drinks or to lower
Speaker 8: alcohol stuff, although I'm assuring lower alcohol stuff maybe have
Speaker 8: a similar block on it because it's got some alcohol
Speaker 8: in there, and I couldn't tell you whether the amount
Speaker 8: and whether spirits are worse than beer or not. I
Speaker 8: have absolutely no idea I'm not seeing. The medical data on.
Speaker 2: That alcohol links to cancer have been known since the
Speaker 2: nineteen eighties in clings to Bloomberg's reporting, and the substances
Speaker 2: ranked US a third leading preventable cause of the disease.
Speaker 2: So alcohol causes about one hundred thousand cases of cancer
Speaker 2: in twenty thousand related deaths.
Speaker 3: Each year in the US.
Speaker 2: And that's according to the f the Surgeon General, far
Speaker 2: more than the thirteenty five hundred alcohol related fatalities from
Speaker 2: traffic rashes, just to give you some numbers here. So
Speaker 2: we're seeing a little bit of a sell off in
Speaker 2: the stocks here. Is this kind of in line with
Speaker 2: what you would expect because it doesn't seem like it's
Speaker 2: too traumatic to the stocks at this point.
Speaker 8: Well, I mean the moment it's shock, I think that
Speaker 8: that's sending them down because we just don't know all
Speaker 8: this will get carried on through the rest of the world.
Speaker 8: We have no idea when it will be put on
Speaker 8: or if it will be put on in the US.
Speaker 8: The data, no doubt, the alcohol companies will say some
Speaker 8: of that data may be skewed because there can be
Speaker 8: other things that will be related, you know, showing a
Speaker 8: bad diet and obesity as number two. I think in
Speaker 8: certain generals less hind Tobacca in terms of giving counsel.
Speaker 8: But I'm not hearing anything about them putting counters from
Speaker 8: food packaging, So I mean, I think there could be
Speaker 8: a long way to go before we see anything actually
Speaker 8: happen on the label. But you're right the discussions now,
Speaker 8: so people will start talking about it. I'm sure it'll
Speaker 8: get into the into newspapers and online, and it may
Speaker 8: affect people's consumption habits. I have absolutely no idea. I've
Speaker 8: got nothing to basis on at the moment, so I'm
Speaker 8: just sort of assuming the volume will probably come under
Speaker 8: a little bit of pressure. But my guess is for
Speaker 8: the company's the beverage will probably push prices up a
Speaker 8: little bit more to like tobacco, cop this hat and
Speaker 8: try and not set some of that that.
Speaker 6: Hit well, Duncan, We appreciate the insight.
Speaker 5: Thank you very much, Duncan Fox, Bloomberg Intelligence, Senior Consumer
Speaker 5: Staples Analysts.
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