Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. We've got pretty groupeda
Speaker 1: here with me because Matt Miller is we have no
Speaker 1: idea where he is. Wes He's in the ocean somewhere.
Speaker 1: He'll be back at some point, but he's missing. An
Speaker 1: all star round table here. Neil Grossman, former c I
Speaker 1: O with t k n G Capital, Danielle di Martino
Speaker 1: Booth Quill Intelligence, both in our Bloomberg Interactive Broker Studio,
Speaker 1: stars from Paul Gold stars for me because you're not
Speaker 1: phoning it in your coming. All right, guys, here's my takeaway.
Speaker 1: I don't know anything, but you guys are the experts.
Speaker 1: But listening to Pal yesterday, I just felt like he's
Speaker 1: over doing. He's over compensating. Danielle, do you agree. I
Speaker 1: don't think he's overcompensating as much as he is. He's
Speaker 1: kind of the new sheriff in town, and he really is.
Speaker 1: I maintained that his aim is to kill the feed PUT.
Speaker 1: And if you want to do that, then you disregard
Speaker 1: any signs of slowing inflation, You disregard any kind of
Speaker 1: anecdotal data on the employment market. You just stick to
Speaker 1: the lad the most lagging data in order to continue
Speaker 1: pushing through with your agenda. If your agenda is to
Speaker 1: kill the FED put, this agenda to kill the FED put,
Speaker 1: or is it? Do we take him out his word? Neil,
Speaker 1: I'm just here to fight inflation. I well, first of all,
Speaker 1: I agree with Danielle. I think the problem is that
Speaker 1: he's doing as little in the sense as he did before.
Speaker 1: I mean, if you want to we had hyper liquidity
Speaker 1: for generation, and in fact, I think it's not only
Speaker 1: killing the fed PUT, but the problem with letting stocks rise.
Speaker 1: I mean, you look, you went from thirty four and
Speaker 1: changed to almost four thousand and week or ten days.
Speaker 1: Ask yourself what four s and P points equates to
Speaker 1: in liquidity. And the bottom line is if they're going
Speaker 1: to reflate the stock market while you still have I
Speaker 1: I don't totally agree. Yes, there are signs inflation is
Speaker 1: coming down. But the real question, by let's let's throw
Speaker 1: back in a really interesting word called transitory. We are
Speaker 1: going to have a transitory period now where prices moderate.
Speaker 1: My guess is by next June or so, we're gonna
Speaker 1: probably at four and a half to five and a
Speaker 1: half six inflation. But the real question is going to
Speaker 1: be where we settle in after that period. And my
Speaker 1: guess is we're gonna be lucky if it's three to five,
Speaker 1: and it's going to have high the upside risk if
Speaker 1: they don't do why did they talk about two? By
Speaker 1: the way, Well, there's their mandate zero. Let's keep that
Speaker 1: in mind, price stability. If anyone has any mathematical training,
Speaker 1: zero rate of change. Well, green Span maintained that zero
Speaker 1: was the absolute ideal rate, and it was not until
Speaker 1: green Span left that Bernanke and Yellen were able to
Speaker 1: tag team and impose that two percent inflation target. That
Speaker 1: became very arbitrary. Well, so I would not agree with
Speaker 1: you with not or I think the problem is they
Speaker 1: have a dual mandate, which is full employment and price
Speaker 1: stability has nothing to do with equities. The problem is
Speaker 1: it becomes a two factor optimization problem and you it's
Speaker 1: almost impossible to get both near zero. The sad thing
Speaker 1: is they actually had it almost perfectly in a sense,
Speaker 1: with one and a quarter one and a half inflation
Speaker 1: and roughly in unemployment at these rates, and and um
Speaker 1: Powell and BERNANKI decided they wanted to say that's not
Speaker 1: good enough. We want to push inflation up, by the
Speaker 1: way the two percent averaging, which they've gone for it,
Speaker 1: so I think he should do. You're gonna have to
Speaker 1: run inflation at one percent or less for almost a
Speaker 1: decade to get back to a two percent average. They've
Speaker 1: let the cat out of the bag, and the distortions
Speaker 1: with this type of inflation are gonna are gonna propagate
Speaker 1: through this economy and for a long time to come. Well, Danielle,
Speaker 1: that brings me to a question on the fiscal role
Speaker 1: that Washington, Washington plays. We're looking at two percent long
Speaker 1: term inflation target? Is that taking into account these massive
Speaker 1: moves from Washington to bring a lot of this manufacturing
Speaker 1: right back here state side, things cost more money. Wage
Speaker 1: spiral is a very real thing. Doesn't that kind of
Speaker 1: throw the two percent long term inflation target out the window?
Speaker 1: The whole idea of on shoring, is that there's an
Speaker 1: implicit agreement to have wages run higher than they have before,
Speaker 1: given what caused off shoring to begin with, which was
Speaker 1: desperately seeking lower wages somewhere in Asia. So, uh, you know,
Speaker 1: if this is really the long term goal, and you
Speaker 1: see in company earnings reports and conference calls that there
Speaker 1: are tons of mentions of freend shoring, reshoring, talking about
Speaker 1: building stronger ties between Canada, Mexico, and the United States,
Speaker 1: all of this is going to be inflationary on a
Speaker 1: long term structural basis in order to reverse years of
Speaker 1: effectively China exporting deflation to the United States via lower
Speaker 1: wage costs. But then why is the Fed still sticking
Speaker 1: to that two inflation target? Then I think right now
Speaker 1: that the two percent inflation target gives j. Powell cover
Speaker 1: because it's such a difficult number to get back to.
Speaker 1: But he keeps repeating the number two, meaning don't get
Speaker 1: your hopes up that that I'm going to pivot if
Speaker 1: it hits four. Maybe. Well, first of all, again, this
Speaker 1: is the problem, and this is my legal side, you know,
Speaker 1: as a lawyer as well, um the shop. Um, the
Speaker 1: the problem is there's there's a statutory authorization. The FED
Speaker 1: is an agency that is created and it's been given
Speaker 1: a legal obligation. It really shouldn't be up to the
Speaker 1: FED to read deefine, which by the way, they have
Speaker 1: been doing for a long time. But for the FED
Speaker 1: to simply say we don't really care and inflation shouldn't
Speaker 1: be that's congress is obligation. Congress can change it. Otherwise,
Speaker 1: the FED should be looking at what the authorization statutes
Speaker 1: say and they should be following it. And that actually,
Speaker 1: again one of the things I like to say about economists,
Speaker 1: they're not really mathematicians. They use the wrong mathematical manifold,
Speaker 1: the manifold they should be using as a five or
Speaker 1: ten year lens. And trying to do things for three
Speaker 1: weeks to have a shorter time span than a tweet
Speaker 1: is a bad idea. Like a true trader, Danielle, are
Speaker 1: we going into recession here? I just had the bunch
Speaker 1: of transportation companies saying they don't see it, but boy,
Speaker 1: everybody else seems to see it. Well, it's ironic that
Speaker 1: you say transportation companies, because truckers are going out of
Speaker 1: business at the fastest pace in two thousand eighteen. Right
Speaker 1: now and transportations in a pickle um. But no, I
Speaker 1: I don't think that there should be a debate anymore
Speaker 1: about whether or not we're going into recession. When the
Speaker 1: conference board queries uh CEO of them say that we
Speaker 1: are or almost in a recession and thereby you know,
Speaker 1: therefore they are in cost cutting mode. I would point
Speaker 1: out that the I S M Services UH survey that
Speaker 1: just came out a few minutes ago showed that that
Speaker 1: employment actually such a contraction last month. So if if
Speaker 1: the employment caboose is finally going to come into the station,
Speaker 1: I mean, that's that's the final nail and the coffin
Speaker 1: of the recession debate. I'm confused, Neil, when it comes
Speaker 1: to what you're actually supposed to do in this environment
Speaker 1: in terms of the trade itself, because it kind of
Speaker 1: felt like the bowl case for the equity market and
Speaker 1: arguably for yields as well, was the idea that the
Speaker 1: terminal rate would stall out at five percent and that
Speaker 1: was going to be the peak policy rate. But it
Speaker 1: keeps kind of shifting higher and higher every every couple
Speaker 1: of months, So it kind of feels like there's this
Speaker 1: consistent upside risk that just doesn't go away. What do
Speaker 1: you trade in that environment? Well, a couple of things.
Speaker 1: Right now, I think UM number one. From a dollar perspective,
Speaker 1: this probably still raises um the strength of the dollar,
Speaker 1: at least in the short term. You're seeing, for example,
Speaker 1: commodities come off today. I think probably commodity prices have
Speaker 1: some pressure, which of course is what they what they want.
Speaker 1: I've been having a rougher time trying to figure out
Speaker 1: what I would do with the yield curve. I'm looking
Speaker 1: for a point where I can actually put on a
Speaker 1: yield curse steep and her. I think the long end
Speaker 1: of the yeld curve is still too low, but you know,
Speaker 1: you're still fighting with the adjustment at the front of
Speaker 1: the curve. And from a broader perspective, what I like
Speaker 1: to in this environment I use I use optionality because
Speaker 1: I think with higher volatility prices, even though we have
Speaker 1: had the haven't had the explosion in volatility that you
Speaker 1: might like to see, volatility is still high enough that
Speaker 1: you can put on trades with very very favorable break even. So, um,
Speaker 1: that's sort of what I've been doing. Um. Hey, Daniel,
Speaker 1: you know, I'm a simple equity guy, and I get
Speaker 1: the inflation talk. I get the recession talk. I think
Speaker 1: I've got that. What else am I missing? What's the
Speaker 1: thing out there that you think maybe investors or people
Speaker 1: in general are just not talking about enough, are thinking
Speaker 1: about enough? So I think I think what is getting
Speaker 1: left behind is any talk or discussion of what's happening
Speaker 1: in the credit markets. You've seen rates volatility, The VIX
Speaker 1: is like subdued, Yes, it's like it under a rock.
Speaker 1: But rates volatility viewed through the move index has just
Speaker 1: gone ballistic. It's at the highest level since two thousand seven,
Speaker 1: and it's basically saying there's a credit event lurking out,
Speaker 1: lurking out there, and we forget that in two thousand eighteen,
Speaker 1: the last time we were trying quantitative tightening that it
Speaker 1: was a credit event that actually bled through into the
Speaker 1: equity market at around this time of the year, heading
Speaker 1: into Thanksgiving in the holidays that caused that that Christmas
Speaker 1: Eve sell off in two thousand eighteen, which by the way,
Speaker 1: prompted the first pal pivot. That's right, That's right, So, Neil,
Speaker 1: I mean again, I'll I'll put it to you. What
Speaker 1: what am I missing? I'm a simple guy. Well, let's
Speaker 1: buy stock. Let's go to things for going back. Let's
Speaker 1: go back to the Fed for one moment. That there
Speaker 1: are two things they're watching, employment and inflation, and the
Speaker 1: employment one is beginning to rise in priority because the
Speaker 1: unemployment rate has stults so low. You have to understand,
Speaker 1: if you went back in history up until COVID and
Speaker 1: what happened afterwards, the single highest twelve month average job
Speaker 1: creation was about three thirty thousand a month. Even after
Speaker 1: last month's number, we're still at four hundred fifty one
Speaker 1: thousand a month. So and and an historical basis, the
Speaker 1: general view has been that a hundred hundred fifty thousand
Speaker 1: is a static employment market. Now, we have a very
Speaker 1: low um job participation rate, and so if you can
Speaker 1: get a large jump that would help bring that, you know,
Speaker 1: push up the unemployment rate. But if we're not going
Speaker 1: to get that, To get a four and a half
Speaker 1: percent unemployment rate, which they're talking about is going to
Speaker 1: take a lot of work, and even that, well you
Speaker 1: just have to look at them. It may happen next
Speaker 1: year this time, but it's not going to happen easily.
Speaker 1: For six months. You're gonna have to lay off, you're
Speaker 1: gonna have to have losing jobs two hundred thousand a
Speaker 1: month for six months net to get there. So I'm
Speaker 1: gonna push back a little bit if you if you
Speaker 1: look into the weekly jobless claims data, which appears to
Speaker 1: be benign on the surface, you'll see that in early
Speaker 1: September that jobless claims nationwide we're down. In the subsequent
Speaker 1: weeks up until this morning's data, now they're down. Continuing
Speaker 1: claims bottomed out in early May. They have continued to
Speaker 1: quietly march upwards. Continuing claims is the one that you
Speaker 1: should follow more closely because that's people actually week after
Speaker 1: week collecting unemployment insurance. So that's an early May low
Speaker 1: point that I think there's an unemployment rate shock building
Speaker 1: in this system right now. Just just what this economy needs.
Speaker 1: Al Right, guys, thank you so much for spending this
Speaker 1: extended a period of time with us. We really appreciated
Speaker 1: smart discussion. That's what we tried to do here. Neo Grossman,
Speaker 1: former CEO of t k n G Capital, and Daniel D.
Speaker 1: Martino Booth of Quill Intelligence, both in the Bloomberg Interactive
Speaker 1: Broker studio. They are not mailing it in so the guys,
Speaker 1: you get gold stars here. Read on the screen for
Speaker 1: your equities. We've got the ten year treasury yielding four
Speaker 1: point one four percent here. I want to check in
Speaker 1: with a professional who does this stuff for a living
Speaker 1: to get a sense of where we go from here,
Speaker 1: because we have a Federal Reserve that is raising rates
Speaker 1: and they may go even higher than market initially anticipated.
Speaker 1: Brent Shooty, he's a chief investment strategist for Northwestern UH Mutual.
Speaker 1: We got an NBA from Chicago, so that means he
Speaker 1: likes numbers. I'm not a real big numbers guy, but
Speaker 1: that's why we talk to these smart people. So, Brett,
Speaker 1: what did you take away from FED Chairman Pal yesterday?
Speaker 1: Because that seemed to move the markets yesterday afternoon and today,
Speaker 1: so I think it's good. I started talking about long
Speaker 1: and variable legs and so they've done a lot already,
Speaker 1: and the economy is weak. We can talk about that
Speaker 1: because I keep hering the economy strong, and I think
Speaker 1: we're one jobs report away from ending that conversation, which
Speaker 1: maybe tomorrow's um but in general, I'm glad they brought
Speaker 1: that conversation in. But to me, the FED is still
Speaker 1: too backwards looking Um, they are looking at the CPI
Speaker 1: data and that's what they're looking at. And they're so
Speaker 1: worried about the US to the nineteen seventies that they're
Speaker 1: going to go too far. I don't. I don't think
Speaker 1: they have to do much more of anything. I think
Speaker 1: you're seeing the economy weekend. I think you're seeing all
Speaker 1: the forward looking variables of inflation coming down. That's why
Speaker 1: I think the market is actually starting to come off
Speaker 1: the boil. Just are starting to rally just a bit
Speaker 1: today or at least erase some the losses because the
Speaker 1: market sees the potential for a week jobs report tomorrow
Speaker 1: and then what happens to me, I think that's gonna
Speaker 1: be done soon. One of the things that stuck out
Speaker 1: to me which Harryan Powell spoke yesterday was he said, well,
Speaker 1: the risk to overtightening is still less than undertightening. And
Speaker 1: the logic he kind of put out was if we overtightened,
Speaker 1: we can use our policy tools a k a. Cutting
Speaker 1: rates to kind of reverse and back pedal a little bit.
Speaker 1: But I have to ask if, if if the Federal
Speaker 1: Reserve has undergone so much scrutiny for perhaps using of
Speaker 1: the idea of cutting rates to the point where created
Speaker 1: kind of a bubble in asset prices, which I think
Speaker 1: is consensus now that it did. Can we really take
Speaker 1: to your power at his word that he's willing to
Speaker 1: cut rates when it has gone too far. I think
Speaker 1: you hit the nail on the head. I mean to me,
Speaker 1: if you recall. So the odd thing about all this
Speaker 1: is that you know, two or three years ago we're
Speaker 1: talking about deflation and talking about getting inflation up, and
Speaker 1: the Federal Reserve would tell you, look, we have all
Speaker 1: the tools necessary, so when inflation rises, we know how
Speaker 1: to stomp it out. But we don't know how to
Speaker 1: create inflation. We don't know how to create recoveries that
Speaker 1: are really robust yet. And so think about what he
Speaker 1: told you yesterday. He told you the exact opposite. What
Speaker 1: just goes to show you how how how kind of
Speaker 1: reactionary this Federal Reserve is. And to me, I don't
Speaker 1: think that's as easy as that. I do think they
Speaker 1: will cut rates. But what I worry about is that
Speaker 1: you have all these people who have been rehired into
Speaker 1: the labor market. I worry that they're going to lose
Speaker 1: their jobs and then become disenfranchised and drop out of
Speaker 1: the labor market for some time, which will hurt our
Speaker 1: economic growth. I don't think the FED needs to eviscerate
Speaker 1: the labor market to get inflation down. I think it's happening,
Speaker 1: and I think it's so um. I don't know what
Speaker 1: the correct word is. I think his comments were a
Speaker 1: little out of line with what reality actually is. Pretty
Speaker 1: guess where Brent in the Northwestern Mutual folks reside is
Speaker 1: the Chicago. No, it's even better than that. Remember my
Speaker 1: favorite financial market that is most overlooked Milwaukee is Milwaukee.
Speaker 1: The wicked smart people Milwaukee. I was there two or
Speaker 1: three times a year when I was a cellsider, because
Speaker 1: there's some smart people there, you know, Northwestern Mutual. We've
Speaker 1: got the strong folks, lots of good I've never been. Oh,
Speaker 1: it's awesome, especially in the winter. You go there for
Speaker 1: the winter car Yeah, we gotta get blue Market Field trip. Yes,
Speaker 1: we'll go to walk and you do it in January,
Speaker 1: go to like the winter festival where it's like twelve
Speaker 1: below and the people like a happy planning out the
Speaker 1: air conditioning all day today. If all not ready for Milwaukee,
Speaker 1: winter comes exactly all right, Brett, So what do you
Speaker 1: guys thinking at Northwestern Mutual? And by the way, you
Speaker 1: have some of my money, so so behave carefully. What
Speaker 1: do you guys think about a recession here? Is it
Speaker 1: gonna are we gonna have one? Is it going to
Speaker 1: be a deep one, a long one? What are your thoughts?
Speaker 1: I mean, I unless the FED decides to keep going
Speaker 1: and tightening into it, I think it's going to be
Speaker 1: mild just given the state of the consumer. And that's
Speaker 1: brought up quite a bit. But the consumers in as
Speaker 1: good as shape as they have been since nineteen seventy
Speaker 1: from a balance sheet perspective and from an income statement perspective, yes,
Speaker 1: rising grates will road that UM. But if you look
Speaker 1: at what mortgages have been delivered the past thirteen years,
Speaker 1: or what mortgages have been chosen by consumers, they're fixed
Speaker 1: and so it will happen with a with a lag
Speaker 1: UM as far as kind of harming that UM that
Speaker 1: income statement. So there's still in good shape. Uh. And
Speaker 1: I think that's an important effect. You know, at the
Speaker 1: beginning year we call for an uneven recession UM, and
Speaker 1: I think you're seeing that right now. I think parts
Speaker 1: of the economy are in recession. You're seeing job losses there,
Speaker 1: which I I do think the jobs market is weakening.
Speaker 1: I can give you a data point here in a second, UM,
Speaker 1: but I think you're seeing the services side kind of
Speaker 1: carry away. It's not a recession yet there, and so
Speaker 1: overall I think it's mild. I think it's uneven. Uh,
Speaker 1: And I'm hopeful that the opposite side of this is
Speaker 1: much better. With the standpoint of both stocks and bonds, which,
Speaker 1: as you mentioned in kind of creating your bubble comments,
Speaker 1: they've both been repriced to more reasonable levels. Right now,
Speaker 1: the Broactly's aggregate yield five, people are hiding in the
Speaker 1: front of the yield curve unnecessarily that began the year one.
Speaker 1: I think people should think about, um not hiding in
Speaker 1: the front and not hiding in cash and beginning to
Speaker 1: potentially lock in some of these rates that are a
Speaker 1: little bit higher longer term as a just in case
Speaker 1: we go back down to based upon the Fed's reactionary
Speaker 1: has pretty kind of opened with the FED actually cutting
Speaker 1: rates back down to again front. What does that then
Speaker 1: mean for the equity market if we have now priced
Speaker 1: in or are pricing in, for example, even higher terminal
Speaker 1: rate than five percent, which, by the way, just a
Speaker 1: couple of months ago was such a contrarian take, especially
Speaker 1: from Anna long over Economics way ahead of the game
Speaker 1: on that call. But if we if the if the
Speaker 1: goal post basically keeps changing, does that just mean that
Speaker 1: the bull case for equities may never resurface, or at
Speaker 1: least that's what it feels like. I'm sure for a
Speaker 1: lot of short term traders. No, I mean, I certainly
Speaker 1: it will. And I think if you've looked, I mean
Speaker 1: the cheaper parts of the market that we've encouraged people
Speaker 1: to invest in network under love, that are unloved for
Speaker 1: the prior four or five years, are the areas of
Speaker 1: the market that are actually doing well, and they're actually
Speaker 1: cheap right now. Um. And so I'm not suggesting that
Speaker 1: earnings might not fall some more. But if you look
Speaker 1: at small caps, the S and P six hundred, not
Speaker 1: the Rustle two thousand, they traded around eleven times earnings,
Speaker 1: eleven and a half times rings cut my earning. Um certainly, Um,
Speaker 1: you know it won't be pleasant, but they're still roomed
Speaker 1: um from that standpoint of margin of safety. And I
Speaker 1: think on the opposite side of this, if we're able
Speaker 1: to get past this inflation without too much damage inflicted
Speaker 1: by the FED, think about the opposite side of that
Speaker 1: and asset class being one that typically performs well earlier
Speaker 1: in an economic cycle. And so I just think it's
Speaker 1: a little bit different position that people aren't used to.
Speaker 1: They're used to buying tech stocks, are used to buying
Speaker 1: growth stocks. UM. I still think value owes opportunities. UM,
Speaker 1: you can own sector neutral value, which we own. You
Speaker 1: can own US UH small caps and dare I say
Speaker 1: at some point UH international stocks after we get past
Speaker 1: the FED talking tough and overtightening. The opposite side of this,
Speaker 1: if you're a US based investor, could have currency strength
Speaker 1: that will that will be a tail wind, not a
Speaker 1: headwind like it has been over the past few months.
Speaker 1: All Right, Brent, great stuff. We appreciate it as always.
Speaker 1: Brent Shooty, chief investment strategist for north Western Mutual based
Speaker 1: in what I think is a financial powerhouse hub of Milwaukee, Wisconsin.
Speaker 1: I'm telling you there's a four or five six really
Speaker 1: good firms in that town. I think it's you know,
Speaker 1: you go to Chicago, yeah, but you gotta go to
Speaker 1: Milwaukee when you're touring the Midwest and seeing the smart
Speaker 1: money managers check it out. Yeah, we'll do it. Do
Speaker 1: it in February when they have their winter carnival. It's
Speaker 1: like twenty below. When the people are happy, they don't
Speaker 1: mind it. It's it's good stuff, Nathan. We've got so
Speaker 1: much tech stories to digest, and but it's the it's
Speaker 1: the I don't want to say tier two companies, but
Speaker 1: not your megacap tech companies, your qual calms, your Twitters,
Speaker 1: your pelotons. We were given strict instructions by our producer
Speaker 1: Slash DJ slash bouncer Eric Molow to run the gambit
Speaker 1: with blah blow. Well, we do have quite a lot
Speaker 1: to talk about with Ed Ludlow or West Coast correspondent
Speaker 1: out there. The are you in the nine sixties studios
Speaker 1: in San Francisco? Their Ed, I am in the nine
Speaker 1: sixties studios. Hello from the nine sixties studios. Gotta flog
Speaker 1: all the frequencies, Ed, what is going on with Twitter?
Speaker 1: How how deep is this ax gonna fall? We heard
Speaker 1: seventy five percent first, now something like fifty. What's going on? Yeah?
Speaker 1: I mean deep? We reported Kurt Wagner and I last
Speaker 1: night that the list was finalized at around thirty seven
Speaker 1: hundred Twitter staffers to be laid off. Um. There was
Speaker 1: a meeting I understand, between Elon Musk and some of
Speaker 1: the allies he's brought in to run the place, Jason
Speaker 1: Callicanis and David Zachs and and Shri ram Um from
Speaker 1: A sixteen and and they are finalizing this. I'm told
Speaker 1: that staff will be informed of their their situation on Friday,
Speaker 1: whether they're laid off or not. But I think it's
Speaker 1: a bit more than that. Remember they Twitter is one
Speaker 1: of these companies that has a sort very broad work
Speaker 1: from home remote working policy, and my understanding is that
Speaker 1: Musk is going to cancel that you have to be
Speaker 1: in the office if you're if you survive. Um And
Speaker 1: the expectation from Twitter insiders is actually a lot of
Speaker 1: people will resign anyway because they don't want to work
Speaker 1: in an office. Should we believe that this kind of
Speaker 1: eight dollar Twitter verification thing is really going to pan
Speaker 1: out in terms of making Twitter a legitimate, uh legitimately
Speaker 1: monetized company. It's really interesting, isn't it. Kurt and I
Speaker 1: also reported yesterday that this change eight dollar Twitter blue
Speaker 1: could happen as soon as Monday, and the big focuses
Speaker 1: on verification, Right, you're paying for the privilege of a
Speaker 1: blue check rather than being verified because you are actually
Speaker 1: who you say you are. There are four hundred and
Speaker 1: fifty thousand ish verified users currently, So you guys do
Speaker 1: the math. Eight dollars a month times four hundred and
Speaker 1: fifty thousand times by twelve months of the year. It's
Speaker 1: a it's a it's a negligible sum of money relative
Speaker 1: to the core advertising business that it stands as it stands.
Speaker 1: But take this as a whole layoffs an eight dollar
Speaker 1: premium subscription service coupled with the existing ad platform, and
Speaker 1: there's a real focused on cost cutting and profitability here
Speaker 1: from Musk. If you think about the debt burden on
Speaker 1: this company as well, which is incredibly important. Yeah, it's
Speaker 1: going to be a long road ahead in terms of
Speaker 1: a turnaround here and the volatility that I think we're
Speaker 1: probably going to see for quite some time when it
Speaker 1: comes to Twitter. But what about Peloton here, we got
Speaker 1: weaker than expected earnings there, but you hear from the
Speaker 1: management they're saying they're well on track to their turnaround plan. Yeah,
Speaker 1: it's fighting talk from from Barry McCarthy. The ship is
Speaker 1: turning around. The data doesn't not back that up. That
Speaker 1: the forecast of the final three months of this year
Speaker 1: seven hundred millions to seven five million dollars of sales
Speaker 1: well below what the street was looking to profit well
Speaker 1: below or the loss wider than expected. I should say,
Speaker 1: the real thing the streets seizing on is that the
Speaker 1: growth doesn't appear to be anywhere. Where is the growth
Speaker 1: coming from. Um subscriber revenue did beat in the court
Speaker 1: had just gone, but the overall number of apps subscribers,
Speaker 1: the people that are using Peloton software dropped off. And
Speaker 1: the story here is supposed to be a company that's
Speaker 1: moving away from bikes and treadmills to that software emphasis.
Speaker 1: But the user base is getting smaller. That's not a
Speaker 1: good sign. I think the other thing as well is
Speaker 1: that we actually have no evidence from Peloton, no matter
Speaker 1: how hard they try to restructure, that the consumer has
Speaker 1: normalized in the post pandemic period on how it uses
Speaker 1: at home fitness technology. We know about people going back
Speaker 1: to Too Jim's, but there is not actually evidence that
Speaker 1: we're getting a picture for the future of how somebody
Speaker 1: uses a peloton piece of hardware, all the classes at home.
Speaker 1: What is the addressable market there? That's the concern from
Speaker 1: the street. I want to ask you about qual Calm
Speaker 1: as well. We got about when it's left. We were
Speaker 1: told to run the gamuts, were running the gambut qual
Speaker 1: Calm as well. What's interesting to me about qual Calm
Speaker 1: is that they're talking about this ass of iPhone deceleration
Speaker 1: and there is this macroeconomic concern, but the bigger exposure
Speaker 1: is to China. I'm curious about how a lot of
Speaker 1: these chip companies, given COVID nineteen lockdowns are kind of
Speaker 1: a regular feature, are navigating some of this. You know,
Speaker 1: according to Qualcom, it's a simple formula that the COVID
Speaker 1: lockdowns in China are impacting handset demand. Um broadly. There
Speaker 1: are two key things to take away from Qualcolm. They
Speaker 1: had said that for four year twenty two hand set
Speaker 1: shipments would drop single digits. They're now saying as of
Speaker 1: last night it will be double digits. Qualcom is the
Speaker 1: biggest maker of smartphone processes and it's the main modem
Speaker 1: maker for iPhone. So pick up your iPhone in your hand.
Speaker 1: Just believe me, there's a little piece of Qualcom in there.
Speaker 1: There are a good lens of what's happening. The other
Speaker 1: thing is what's happening in the chip sector. Supply has
Speaker 1: got better very quickly. Demand has dropped off a cliff,
Speaker 1: largely attributed to China. What does that mean inventories? Customers
Speaker 1: have eight to ten weeks of inventory. What does that
Speaker 1: mean by extension, They're not ordering more chips, They're waiting
Speaker 1: to work through those in and trees, a reverse of
Speaker 1: what we've been talking about for two years. And Calcolm
Speaker 1: see that phenomenon lasting a couple of quarters. It was
Speaker 1: not a good earnings print and a good outlook, and
Speaker 1: the streets worried, but a little bit of sympathy for Qualcolm.
Speaker 1: The third quarter calendar quarter was a record revenue quarter
Speaker 1: for Qualcom, So congratulations to them real quick. And Nicola
Speaker 1: looks like it's going to be a little while longer
Speaker 1: before they get to part the territory. Nicola bad. They
Speaker 1: will not be three trucks this year. They will have
Speaker 1: a much worse year in and then expected. Customers are
Speaker 1: very hesitant. They're not investing in electrification and they're not
Speaker 1: investing in the charging infrastructure that that helps actually move
Speaker 1: towards a battery electric truck, some limited progress on a
Speaker 1: hydrogen fuel cell truck. We're a long way away from
Speaker 1: this company making meaningful money. I had to get you
Speaker 1: electric vehicles one last time before we let you go,
Speaker 1: and thanks for that. We have a truly transnational broadcast
Speaker 1: Eric Coast to coast, San Francisco to d C, New York.
Speaker 1: Very exciting stuff. We just need someone from Milwaukee. Maybe
Speaker 1: Paul Will will call in. Well Ed Ludlaw West Coast correspondent.
Speaker 1: We thank you as always creating a Nathan Hagar filling
Speaker 1: in on a really exciting day. Nathan, I mean like
Speaker 1: this is a post fed You're seeing a very strange
Speaker 1: reaction in the stock market. It feels like there isn't
Speaker 1: really a consensus on whether or not the terminal rate
Speaker 1: could go much much higher. As a chairman, Powell is
Speaker 1: is certainly suggesting in his press conference, never less, bonds
Speaker 1: are selling across across the spectrum, across maturities. There's a
Speaker 1: lot to digest here. And when we have this kind
Speaker 1: of conundrum of where do we even start, there's only
Speaker 1: one person to bring into the conversation, That of course
Speaker 1: is Liz McCormick. She's our chief markets correspondent on the
Speaker 1: effects and rate space, writing a pretty interesting story about
Speaker 1: all the FED is still enemy number one for a
Speaker 1: lot of these Wall Street traders. Liz, thank you as
Speaker 1: always for joy eating us. It's hard to pick a
Speaker 1: place to start because there's so much going on here.
Speaker 1: But if five percent is no longer the terminal rate
Speaker 1: in March of as was price didn't going into the meeting,
Speaker 1: how high can we go? Yeah? Boy, it's like a
Speaker 1: brain spending time, right, Um, it's I think all bets
Speaker 1: are off now, Like how was just so crystal clear? Like, hey,
Speaker 1: the data we saw since last meeting means our rates
Speaker 1: that we're going to project or higher, and so the
Speaker 1: markets pricing the terminal rate, it's interesting creating like out
Speaker 1: to June. It's it's got to have five point TwUI
Speaker 1: ish now, right, So and you don't see barely any
Speaker 1: cuts by the end of the year. So that's like
Speaker 1: FED higher keeps going higher and it's very slow to
Speaker 1: cut rates, you know. So that's kind of a double
Speaker 1: problem for bond investors, right, high rates and sticky high rates. Yeah,
Speaker 1: it keeps getting pushed back and back and back and
Speaker 1: now we're seeing the inversion on the two's ten year
Speaker 1: at fifty five basis point. And so I'm looking at
Speaker 1: a chart on it where it's like a spread that
Speaker 1: we're not we haven't seen since the early days of
Speaker 1: the Reagan administration. It makes you wonder how much further
Speaker 1: the idea of long and deep recession could be going
Speaker 1: in the bond market. Well, yeah, that's totally interesting, and
Speaker 1: I think you know our Jersey and our Blueberg the
Speaker 1: Eye Group had a note saying, you know that that
Speaker 1: inversion is going to go further right beyond these like
Speaker 1: already like you're saying historic levels. And but the Feds
Speaker 1: in a bind, right, I mean, Pal said yesterday the
Speaker 1: kind of path to a soft landing is getting worse.
Speaker 1: But they they're backs to the wall with inflation high.
Speaker 1: So yeah, Nathan, it could be that they have to
Speaker 1: go so far and the recession maybe a worse recession
Speaker 1: than it would have been, right because the system, like
Speaker 1: look at the housing market. Luckily, I'm not buying a
Speaker 1: house now, but over seven percent. Yeah, Les, I asked
Speaker 1: this question to to I think a source of yours actually,
Speaker 1: Danielle DiMartino Booth, who is a favorite of our show.
Speaker 1: We talked a little bit about this comment that Chairman
Speaker 1: Powell had made his press conference. He said, well, the
Speaker 1: risk of overtightening is actually perhaps not that bad. And
Speaker 1: I'm paraphrasing, of course, but he says, we can always
Speaker 1: take a u turn. We can always kind of use
Speaker 1: the tools in our toolbox and and cut rates if
Speaker 1: we if we go too far. But Liz, in an
Speaker 1: environment where the Federal Reserve has gotten a lot of
Speaker 1: scrutiny for using those rates, um and for quantitative easing
Speaker 1: as well, is there perhaps some hurdles for Chairman Powell
Speaker 1: to actually cut rates when the time comes. Yeah, I
Speaker 1: mean that you're right. It's a good point. And I
Speaker 1: really like Danielle like you said too. But yeah, I
Speaker 1: mean it's not so easy, right, you know. Like um,
Speaker 1: he seemed to say, well now, and he said in
Speaker 1: the past it was vice versa. But now, like you said,
Speaker 1: he said, the risks are you know, we let inflation
Speaker 1: stay too long, we can you know, and that's a problem.
Speaker 1: So we can always cut rates. But you're right, Um,
Speaker 1: you know, they they're in a situation where it may
Speaker 1: not be that easy, especially you know, created them to
Speaker 1: kind of redeploy que. There's a lot of political pushback
Speaker 1: against that, right, you know, So I don't think he's
Speaker 1: got it too easy on either way. You know. Yeah,
Speaker 1: if they turn around too soon, and if they were
Speaker 1: to pivot, which they definitely didn't yesterday, and they let
Speaker 1: inflation get too bad, then then they got to double
Speaker 1: down and then hike again. But I think you're right
Speaker 1: that it may not be too easy if they crush
Speaker 1: this economy just to quickly revive it. So could things
Speaker 1: get worse before they get better next year for the Fed,
Speaker 1: laz And Well, I think sounds land. We should all
Speaker 1: not look at our retirement accounts now. I think it's
Speaker 1: going to get worse for everything, Like stocks are obviously
Speaker 1: taking it on the chin, the bond markets down. We've
Speaker 1: we've had that sixty forty. There was no place to
Speaker 1: hide in the last year or two. And if the
Speaker 1: Fed we've got two CPI reports before their next meeting,
Speaker 1: if they're still strong, I mean, nothing will change as
Speaker 1: far as them seeming hawkers. So I think rates could
Speaker 1: go higher. This kind of sixty forty pain could last.
Speaker 1: And I'm not an equity analysts. I'm just saying you
Speaker 1: know what I see on the screens. But yeah, and
Speaker 1: you know, Pal, that's what they need, even though senators
Speaker 1: like Elizabeth Warrener saying we don't want too much pain,
Speaker 1: but Pale saying, sadly, we're going to have to have
Speaker 1: some pain for the American people. Otherwise the pain could
Speaker 1: be worse if we have inflation for years and years entrenched.
Speaker 1: List thirty seconds here the bull case for the dollar.
Speaker 1: Does it turn around or does it decrease the minute
Speaker 1: there is actually some sort of stalling out on the
Speaker 1: terminal rate. Well, wow, the bull case for the dollar,
Speaker 1: which was maybe seeming to kind of falter a little,
Speaker 1: it just got supercharged, right. Um. But I think if
Speaker 1: the terminal rate keeps getting pushed higher, and you have
Speaker 1: other central banks like the B A a B today
Speaker 1: saying hey, pull back your peak rates, you've aout this divergence.
Speaker 1: So I think for now there's not a lot to
Speaker 1: stop the dollar higher unless we get like two really
Speaker 1: soft cpis, which I'm not predicting. Certainly something to watch.
Speaker 1: Liz McCormick, our chief Global Market macro markets correspondent, We
Speaker 1: thank you as always, Okay, Davian Sasaur, the chief e
Speaker 1: M fix income strategist over at Bloomberg Intelligence and fellow
Speaker 1: sports fan joins us right here in studio. And and
Speaker 1: it's a special day because it's the day after the
Speaker 1: Federal Reserve meetings, So naturally we have to talk about
Speaker 1: not just the U S or the UK or whatever
Speaker 1: other country want to talk about. We have talked about
Speaker 1: the emerging markets complex broadly, especially on a day when
Speaker 1: the dollar is actually higher and stronger by about six
Speaker 1: tenths of one percent Damien twenty thousand foot view. If
Speaker 1: that's even high enough. What's going on with e M
Speaker 1: when it comes to the federal reserves? Ripple effect? Okay,
Speaker 1: the ripple effect is this all the US dollar pegs
Speaker 1: are the countries that try to peg their currencies to
Speaker 1: the dollar. I'm talking Hong Kong for example. Have allum
Speaker 1: have all adjusted? Right? So you have banks like HSBC
Speaker 1: and Standard Chartered hiring charging higher rates to depositors on
Speaker 1: the ground there as a result of the FED move.
Speaker 1: And we see the trickle effect. I mean check although
Speaker 1: they left rates on hold. Just this morning, you had
Speaker 1: Malaysia raised rates by tips overnight. So you've got more
Speaker 1: coming and next week is going to be a big week.
Speaker 1: You've got Poland, you've got Mexico, You've got Peru, so
Speaker 1: we expect more central bank rate hikes ahead. However, the
Speaker 1: pace is certainly decelerating. Critty, how much more volatility can
Speaker 1: we expect for e M from China sort of keeping
Speaker 1: us guessing on what they're doing with COVID zero. Nathan. Fundamentally,
Speaker 1: the whole pyramid in China is collapsing as we speak.
Speaker 1: And what I mean by that is what started with
Speaker 1: weak property developers. And this is all about real estate.
Speaker 1: Mind you ever Grand Agile have you know, has really
Speaker 1: moved to stronger hands Country Garden von k and now
Speaker 1: it's pushed into you know, government government backed property developers
Speaker 1: like Cify and Greenland, with potential for spill over into
Speaker 1: the municipal market inch which is the lower local government
Speaker 1: financing vehicle market. So we've got two hundred billion dollars
Speaker 1: of enthore and offshore deet coming due through the end
Speaker 1: of three that's a lot of money of China dollar.
Speaker 1: Property bonds now trade below seventy cents on the dollar. Nathan.
Speaker 1: I mean, we have some real pain there. So fundamentally,
Speaker 1: I think the property crisis is going to get worse,
Speaker 1: and it's got potential for trickle down effect into municipalities,
Speaker 1: into cities and prefectures, and I think that's still playing
Speaker 1: itself out, all right, Damian. We covered e M. We
Speaker 1: covered the US, sort of we covered China. H I.
Speaker 1: We have to talk about some real nerdy stuff here,
Speaker 1: and that of course is Brazil. There is a cross,
Speaker 1: a currency cross that I love to talk about, and
Speaker 1: we don't talk about it enough. We really got to
Speaker 1: learn out about it over on the Market's Live team
Speaker 1: back in the day. The Brazilian Real versus the Mexican pain.
Speaker 1: Love this one, I know, I do love this one
Speaker 1: because the way I was taught it was that this
Speaker 1: is how a lot of at least American traders on
Speaker 1: the Western hemisphere get exposure to em. It's either Brazil
Speaker 1: or its Mexico. It's kind of a seesaw. You kind
Speaker 1: of trade off depending on what exposure you want. Because
Speaker 1: there are the two large economies in Latin America in
Speaker 1: the European kind of a MIA sphere. It used to
Speaker 1: be I think the South African Rand versus the Turkish lear.
Speaker 1: That of course since change. But back to the Brazilian
Speaker 1: Real and Mexican peso. Talk to us about that pair. Well,
Speaker 1: the reason that pair is actually interesting is because they're
Speaker 1: both relatively high yielders. Right, So the cost of funding
Speaker 1: if you've got to go short the rail versus the
Speaker 1: paso or vice versa. You know, the funding cost doesn't
Speaker 1: really penalize you so much for having to short one
Speaker 1: of those currencies. Which is why you hear about lea iran,
Speaker 1: which is what you're referring to. That used to be
Speaker 1: a pretty well traded cross. But the real crust that
Speaker 1: everybody's missing here, and it is the big money maker
Speaker 1: in emerging markets year to date. Next Paso versus the
Speaker 1: Japanese yen. Now I know it's the Japanese yen whatever,
Speaker 1: but I mean it's it's a hugely liquid cross. I'm
Speaker 1: not just talking emerging I'm talking developed markets as well.
Speaker 1: And I mean, my goodness, I know a lot of
Speaker 1: traders are not a p A lot of pms have
Speaker 1: made their mint this year trading that cross while really
Speaker 1: not trading and just buying it and holding it. Right, So, um,
Speaker 1: so that's been a good trade. And look, I mean,
Speaker 1: if you want to talk about Brazil, look we had
Speaker 1: the election. You know, Balsonaro step back, you know, on
Speaker 1: cautiously optimist, optimistic on Brazil. I mean, we had huge, huge,
Speaker 1: foreign influence coming into Brazilian equities in October, with literally
Speaker 1: four million dollars alone coming in on Monday, which was
Speaker 1: the last trading day of the month, on back of
Speaker 1: the election, on the back of the re election of Lula.
Speaker 1: So there's some current surrounding Petro Brass whether whether or
Speaker 1: not Lula is going to look to privatize the you know,
Speaker 1: you know, the state of and oil company. And there's
Speaker 1: some concern on how Lula is gonna basically govern, but
Speaker 1: given the slim margin of victory, cretty, you know, he's
Speaker 1: got to manage from the center. And I believe that's
Speaker 1: what the markets are planning for. And I think there's
Speaker 1: more to coma. You stay positive, Damian on the Brazilian
Speaker 1: rail if the oil volatility continues interesting, I mean yes,
Speaker 1: I do. I mean oil in Brazil. Look at commodity prices.
Speaker 1: Have they used to have a very very large impact
Speaker 1: on commodity producing currencies, but they really haven't had much
Speaker 1: of an impact of late, and certainly not in the
Speaker 1: Brazilian rail. If anything, that's gonna be medals prices. I
Speaker 1: would think that have more like iron Ore for example,
Speaker 1: because Paul he's a huge producer there. But you know,
Speaker 1: for me, I mean, yeah, the Brazilian real, I'm pretty
Speaker 1: optimistic on it. I mean, look, you want to talk
Speaker 1: about currencies you don't want to be optimistic on. I'm
Speaker 1: gonna point out five of them. The Chilean paste, of
Speaker 1: the Philippine paste, of the Malaysian ringing, the Polish slotti,
Speaker 1: and the Hungarian foreigns are all at all time lows
Speaker 1: today right now versus the dollar. So there are more,
Speaker 1: There's more pain out there to come. I wonder if
Speaker 1: Damien has all these physical currencies somewhere in his office.
Speaker 1: I have quite a few of them, actually cool, very
Speaker 1: cool collection dollars too. Damian's as our chief em fixed
Speaker 1: income strategists of Bloomberg Intelligence. We thank you as always
Speaker 1: thanks for listening to the Bloomberg Markets podcast. You can
Speaker 1: subscribe and listen to interviews with Apple Podcasts or whatever
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 1: at Matt Miller. Put on false Sweeney I'm on Twitter
Speaker 1: at pt Sweeney. Before the podcast, you can always catch US,
Speaker 1: worldwide at Bloomberg Radient