Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day, we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moving news.
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Speaker 1: All right, so we had the CPI print today pretty
Speaker 1: much I think what most people were looking for. Certainly consensus,
Speaker 1: certainly gives some more credence to the argument that the
Speaker 1: Fed can pause if it wants to. Let's check in
Speaker 1: with somebody who pays close attention to this stuff, Ira Jersey,
Speaker 1: chief US interest rate strategist for Bloomberg Intelligence. So, Ira,
Speaker 1: what's your takeaway from the inflation print we saw today?
Speaker 3: Yeah, obviously, you've know, you guys have talked about it
Speaker 3: at nauseum here a little bit. Pretty much as expected.
Speaker 3: It doesn't really leave a whole lot of doubt as
Speaker 3: to what's going to happen tomorrow. I think that, you know,
Speaker 3: if we had seen something where you get a point
Speaker 3: five or a point six print on uh on on
Speaker 3: the core numbers, then maybe the Fed would would hike tomorrow,
Speaker 3: but they've signaled that they're probably going to skip tomorrow's meeting.
Speaker 3: I think the bigger the bigger thing that today's data
Speaker 3: does for us is really leaves in doubt what then
Speaker 3: is going to happen in July, so that you know,
Speaker 3: the market was pricing for a near certainty that they
Speaker 3: were going to skip June and then hike in July.
Speaker 3: But now you know, I think that we have to
Speaker 3: reassess that uh, that the certainty that the Fed is
Speaker 3: going to go in UH in July, and the market
Speaker 3: started to kind of move away at least a little
Speaker 3: bit from that possibility at this point.
Speaker 4: So irauld talk to us about when we're looking at
Speaker 4: this speculation that's happening in the bond market and how
Speaker 4: it's at a record when you are looking at treasury
Speaker 4: features ahead of the FED meeting, break it down as
Speaker 4: far as what is happening with the positioning there.
Speaker 3: Yeah, there's a lot of so so there's record short
Speaker 3: positioning by speculators and UH in the treasury market basically
Speaker 3: everyone short duration. So the so the fact that you
Speaker 3: actually have a little bit of a selloff going on
Speaker 3: right here right now is a little bit surprising, But
Speaker 3: typically what happens is that you know, this positioning data
Speaker 3: doesn't necessarily give you a lot of information about what
Speaker 3: direction the market's going to go. You know that the
Speaker 3: fact that people are very short just means in particular
Speaker 3: that as the market sells off that you could see
Speaker 3: some short covering, and that it just gets harder and
Speaker 3: harder for moves in the direction that the future's positioning is.
Speaker 3: But we have to keep in mind too that that
Speaker 3: these some of this positioning in a way could be
Speaker 3: a hedge to another risk that some of these levered
Speaker 3: investors that that are primarily short have on. So for example,
Speaker 3: if their long corporate bonds, for example, they could be
Speaker 3: short some treasuries as and and treasury futures as kind
Speaker 3: of a hedge to that. Or could be that they're
Speaker 3: short equities or long equities rather and you know short
Speaker 3: rates as well. You know that that's possible too. So
Speaker 3: so it's a little bit hard to discern with this
Speaker 3: future's positioning exactly what's going on with the overall strength
Speaker 3: of the market. But I do think that it means
Speaker 3: it's going to get harder and harder to for the
Speaker 3: market to sell off on as dramatically as it has,
Speaker 3: and you could wind up seeing on a rally, You
Speaker 3: could wind up seeing massive rallies because a lot of
Speaker 3: these shorts could get covered very quickly.
Speaker 1: Shorting US treasures isn't that kind of un American? How
Speaker 1: often does that happen? I mean, what who does that?
Speaker 3: There's been been a lot of people short treasuries, you know,
Speaker 3: for the better part of you know, two years now, really,
Speaker 3: you know, just and you know part of part of
Speaker 3: the reason is that when interest rates are going up,
Speaker 3: you don't want to be long, right, and you know,
Speaker 3: there's there's ways to make money. And if you look
Speaker 3: at that, even though you know, the Bloomberg Treasury Index
Speaker 3: has been had record losses over the last eighteen months,
Speaker 3: even worse than nineteen seventies and eighties, even though interest
Speaker 3: rates have went up way more back then, right back
Speaker 3: during the you know, nineteen seventy eight to nineteen eighty one,
Speaker 3: you actually had interest rates go up ten percent, right,
Speaker 3: and we've only seen interest rates go up you know,
Speaker 3: four and a half five percent now here. But there's
Speaker 3: some bond math involved, because the relationship between the price
Speaker 3: of a bond and the yield and yield moves is
Speaker 3: much much higher now, so you get a little move
Speaker 3: in in a yield of a bond, and it's more
Speaker 3: in dollar price today than it was back in the
Speaker 3: nineteen nineteen seventies and eighties. So even though we've had
Speaker 3: these massive losses, a lot of people have outperformed. So
Speaker 3: when you look at active managers in bond funds, both
Speaker 3: bond mutual funds and actively managed ETFs, you actually see
Speaker 3: significant outperformance compared to disease. Even though you now have
Speaker 3: some people you know, still moving to passive. Within the
Speaker 3: ETF world, the active managers have have done very well
Speaker 3: by being short treasuries or underweight treasury securities in their portfolios.
Speaker 4: Hey, Ira, I've had some traders talk to me about
Speaker 4: how whenever they're shorting treasuries, especially if you're looking at
Speaker 4: the tenure, it was more of the expectations that yield
Speaker 4: to move higher, but then the caveat being so extreme
Speaker 4: position may have the counter effect and then end up
Speaker 4: having to push yield lower. Do you think that's plausible?
Speaker 3: Well, I think it has more to do with the
Speaker 3: volatility and in the directionality of the market. So, like
Speaker 3: I mentioned, if if people weren't as short as they
Speaker 3: are now with things like treasury futures, we might have
Speaker 3: seen even even a bigger sell off today than we've
Speaker 3: seen so far. You know, ten years yields, you know,
Speaker 3: higher by five ish basis points on the day. But
Speaker 3: I think it's when you go the other way and
Speaker 3: you get that short covering that you wind up really
Speaker 3: seeing like position squaring and uh and and you know
Speaker 3: what would be you think would be a five base
Speaker 3: point move can turn into a ten or twelve basis
Speaker 3: point move in a hurry. And we've seen quite a
Speaker 3: lot of that over the over the last couple of years,
Speaker 3: where you get this these extreme positioning and then you
Speaker 3: get this massive snapbacks as as the market kind of
Speaker 3: recalibrates their their thinking and and you know, again like
Speaker 3: if if you know, I think a big part of
Speaker 3: the reason why you see some of the short base
Speaker 3: and in things like duration is I do suspect that
Speaker 3: there's a lot of people who are in interest rates steepeners.
Speaker 5: Now.
Speaker 3: People were in flattening trades for a very long time
Speaker 3: where they were long say ten years or thirty year
Speaker 3: securities and then they were short twos and fives. I
Speaker 3: think I think that's starting to flip as we get
Speaker 3: toward the end of the fed's hiking cycle, because the
Speaker 3: next move, and I do concur with this, the next
Speaker 3: move is likely to be a very significant steepening of
Speaker 3: the yield or un inversion of the yield curve at least,
Speaker 3: so you wind up with an environment where people are
Speaker 3: going to be buying two year, three year, five year
Speaker 3: notes and then want to be short or or underweight
Speaker 3: ten year and thirty year securities.
Speaker 1: Hira, what would surprise you tomorrow from FED Chairman jpal
Speaker 1: As comments, I.
Speaker 3: Think if he's I think if he's extremely hawkish, would
Speaker 3: would surprise me, you know, given some of the some
Speaker 3: of the data that we've received. Yes, the employment data
Speaker 3: was pretty solid, but a lot of the other data
Speaker 3: that we've seen everywhere, from some sales data as well
Speaker 3: as some of the ism surveys and the leading economic
Speaker 3: indicator something all been pretty poor and actually are very
Speaker 3: close to recessionary type levels. So so so I think
Speaker 3: if he was very hawkish tomorrow, that would be a surprise,
Speaker 3: certainly if he was more hawkish than he was last month.
Speaker 3: So I'm looking very closely at our at at at
Speaker 3: our FED sentiment indicator. So after he after J. Powell
Speaker 3: gives his opening remarks from the press conference, you know
Speaker 3: we're going to run our natural language processing model and yeah,
Speaker 3: you know take a.
Speaker 1: Look as known as your juniors, Well.
Speaker 3: Our data science team will.
Speaker 1: Yeah, I know we've got one of those MBA.
Speaker 4: How much fun was it to see Ira last week
Speaker 4: and the suspenders with the soccer all over?
Speaker 6: Great?
Speaker 1: He comes out of his cam every once in a while,
Speaker 1: so we would be appreciate that, Ira Jersey, thanks so much.
Speaker 1: I he covers all the interest rate strategy work for
Speaker 1: Bloomberg Intelligence. I got a whole team, uh doing that
Speaker 1: kind of stuff, and they've got some serious models. He's
Speaker 1: got a model that kind of covers on a day
Speaker 1: to day basis the receipts and the spending of the
Speaker 1: US government. Amazing, Like I don't even have that for myself.
Speaker 1: He's got it for the entire US government. So we
Speaker 1: knows when and if the US can afford to pay
Speaker 1: their bill. So keep an eye on that.
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Speaker 1: Jess Matt and Paul Sweeney Here in the Bloomberg Interactive
Speaker 1: Brokers studio, Boy attention is going to be this afternoon
Speaker 1: down in Miami, Florida, where President Trump will be arranged. Yeah,
Speaker 1: we want to get the kind of a roundtable this
Speaker 1: discussion here and kind of catch it from a couple
Speaker 1: of different angles. So we welcome Wendy Schuler Brown University professor.
Speaker 1: She joins us here, as does Kaylee Lines. She joins us.
Speaker 1: She is in Miami at the courthouse. Of course, she
Speaker 1: covers the White House for Bloomberg Television. We appreciate her
Speaker 1: time on a busy, busy day. Wendy, let's start with you.
Speaker 1: I mean, it doesn't happen every day that former president
Speaker 1: gets arraigned on federal charges.
Speaker 6: Here.
Speaker 1: Do you expect this to mean for President Trump and
Speaker 1: potentially another run for the presidency?
Speaker 8: Well, good morning. In the short term, it's it's good
Speaker 8: for Donald Trump with his base and donations. They expect
Speaker 8: they're holding a fundraiser, I believe, even this evening, and
Speaker 8: they expect to raise a lot of money off this
Speaker 8: and really continue to keep his name in the news.
Speaker 8: I mean, there is no publicity that Donald Trump doesn't like,
Speaker 8: and so I think in the short run, you know,
Speaker 8: he'll benefit in some way from this, But in the
Speaker 8: longer run, it's just another or an additional liability to
Speaker 8: his candidacy, particularly the broader Republican Party, and I don't
Speaker 8: see where it does him any favors with the key
Speaker 8: independent voters he'd need to win the general. But even
Speaker 8: in state primaries across the country, you can register and
Speaker 8: change your party registration from independent to Republican. So the
Speaker 8: independents wanted to shape the Republican nomination process. They can
Speaker 8: do that and haven't been big fans of the president
Speaker 8: in recent the former president in recent elections. So that's
Speaker 8: it's a liability. I think that's sort of deep and
Speaker 8: persistent for Donald Trump's longer term prospects.
Speaker 4: Kaylee, I want to bring you into this conversation set
Speaker 4: the scene for us. What are things shaping up heading
Speaker 4: into this afternoon.
Speaker 9: Well, I'm at the outside the courthouse right now, and
Speaker 9: there are dozens and dozens of media tents like the
Speaker 9: one I am in for Bluebert. There is a very
Speaker 9: high police presence, but there isn't yet at this point.
Speaker 9: It seems to be a lot of protesters, but they
Speaker 9: are prepared for potentially a lot to be here over
Speaker 9: the course of today. The Miami Police Chief is that
Speaker 9: it could be anywhere between five thousand and fifty thousand
Speaker 9: supporters of President Trump who show out today, as he
Speaker 9: had calls on them to do. He of course had
Speaker 9: posted on true social over the weekend, I'll see you
Speaker 9: in Miami on Tuesday. He had in an interview with
Speaker 9: Roger Stone on radio over the weekend as well, so
Speaker 9: that people need to come out and keep fully protest.
Speaker 9: So we'll be on watch for that. And of course
Speaker 9: it's at three pm Eastern time, so about four and
Speaker 9: a half hours from now. I think, if my math
Speaker 9: is right, that the President will be showing up here,
Speaker 9: although we may not see him. He may enter under
Speaker 9: grown to be arraigned on these federal charges.
Speaker 1: What, Wendy, what do you make of some of the
Speaker 1: I guess responses we've had from members of Congress. Some
Speaker 1: have come out and supporting the president pretty wholeheartedly, and
Speaker 1: some have not supported him. Some have been, like cenatored Romney,
Speaker 1: been critical here. How do you expect this to play out.
Speaker 8: Well, they're sort of dancing around it, right, They wanted
Speaker 8: to can't alienate the Trump base, either whether you're currently
Speaker 8: holding office and running or president you're just currently holding
Speaker 8: office trying to get reelected, if you're a House member
Speaker 8: in particular in twenty four, you're dancing around it. On
Speaker 8: the other hand, you see that they're sort of trying
Speaker 8: not to talk about the severity of the classification level
Speaker 8: of the documents that were badly handled. So these are
Speaker 8: really highly sensitive national security documents, and it gets to
Speaker 8: the point of do you want this man in charge
Speaker 8: of our national security? And then it's a legitimate point
Speaker 8: and question to ask. People will get confused about the
Speaker 8: number of indictments and the scope of authority, but at
Speaker 8: the end of the day, he's got, you know, military
Speaker 8: plans and nuclear secrets lying around the ballroom. You know,
Speaker 8: that does not say I'm going to be responsible with
Speaker 8: national security. And the Republicans want to keep the edge
Speaker 8: that they think they have on national security. So there
Speaker 8: does come a point, except for maybe through Jim Jordan
Speaker 8: of Ohio, where you say, I can't really defend compromising
Speaker 8: our national security from my own re election prospects.
Speaker 4: Kayleie, how has the Biden administration responded so far?
Speaker 9: Well, they really haven't at all. The President has really
Speaker 9: tried to keep him his distance from this. When he's
Speaker 9: been asked about that, he has set no comment on
Speaker 9: the indictment because, of course, one of the narratives that
Speaker 9: President former President Trump as well as Republicans have been
Speaker 9: pushing is that this is politically motivated, that this is
Speaker 9: a weaponization of the Justice Department. President Trump has said
Speaker 9: that this is a corrupt Biden administration election interference at
Speaker 9: the highest level. So to this point, President Biden has
Speaker 9: tried to stay far away from this, let the Justice
Speaker 9: Department do its work, and not really try to be
Speaker 9: involved in this.
Speaker 1: In any way, Kaylee Done in Miami, is there an
Speaker 1: expectation that the president will be public here? Will there
Speaker 1: be a public I'm not going to say a purp walk,
Speaker 1: but will there be some public appearance by the president today?
Speaker 1: Is part of this process? Do we know?
Speaker 9: It really could go either way. The expectation though, is
Speaker 9: that he will not be walking through the usual lobby
Speaker 9: of this courthouse, that he's going to enter be an
Speaker 9: underground garage and then head into the courthouse, so we
Speaker 9: may not actually see him here physically. Where we will
Speaker 9: see the president is after he finishes these proceedings in
Speaker 9: Miami today. He's going to get back on his private plane,
Speaker 9: fly from Miami back up to Bedminster in New Jersey,
Speaker 9: and speak at his golf club there this evening at
Speaker 9: eight fifteen pm Eastern time, and bold a donor event
Speaker 9: as Wendy talks about his campaign is hoping celebrates two
Speaker 9: million dollars at that event tonight, just hours after he
Speaker 9: made history by being arraigned on federal criminal charges. This
Speaker 9: is something we have never seen happen before, but it
Speaker 9: could have the same effect as the indictments previously in
Speaker 9: Manhattan earlier this year, that what it really accomplishes is
Speaker 9: galvanizing his base and ultimately being away for him to thundering.
Speaker 4: Wendy, what's the timetable here that we're talking about when
Speaker 4: it comes to a potential indictment obviously like this, As
Speaker 4: far as how long this could drag out for.
Speaker 8: Well, that's a great question just because it gets to
Speaker 8: the judge, right, this is the judge that appointed a
Speaker 8: special master, you know, to sort of go over what
Speaker 8: the Justice barman had done. In terms of the raid
Speaker 8: the documents. You know, this judge got chastised for the
Speaker 8: way she handled this case before by her you know,
Speaker 8: sort of higher level judges on a panel. The question is,
Speaker 8: you know, does she go buy the book here or
Speaker 8: does she compromise the case in some way and does
Speaker 8: she have to be removed from the case. I mean,
Speaker 8: there's still a question mark about whether she actually ends
Speaker 8: up being the presiding judge. You know, you've got setting
Speaker 8: trial dates, you've got jury selection. You you know, these
Speaker 8: trials and I mean multiple trials to the former president
Speaker 8: will go, we'll move on, and you know they'll take
Speaker 8: a long time. They'll drag out, which was good good
Speaker 8: for Trump in terms of his ability. As Kelly's you know,
Speaker 8: absolutely rightly suggesting, but there's a weariness, particularly among core voters,
Speaker 8: and as I said, mechanically in the primaries next year,
Speaker 8: you can have a lot of people who aren't core
Speaker 8: Trump's supporters actually sign up to vote in the Republican primary.
Speaker 8: Since Biden, if he's the nominee, you know, as he
Speaker 8: stays healthy and all that stuff that we talk about,
Speaker 8: there's not gonna be much of a contest on the
Speaker 8: Democratic side. So You're going to see some shifting of
Speaker 8: voters in that primary and this, I think this will
Speaker 8: become a liability, particularly if he gets a lot of
Speaker 8: really rowdy, slash violent people to protest this. That just
Speaker 8: reminds people of January sixth, and I don't think that
Speaker 8: does anybody good on the Republican side.
Speaker 1: Wendy, If I'm running for the Republican nomination, how do
Speaker 1: I play this thing that Trump has been in ditona
Speaker 1: of federal crimes?
Speaker 8: You know, you play it by basically trying and especially
Speaker 8: in digital advertising on social media platforms, to saying, look,
Speaker 8: I support everything this guy you know did, I'm loyal,
Speaker 8: but he's not the guy anymore. It's too chaotic, it's
Speaker 8: too disruptive, you can't usin with national security. Try to
Speaker 8: get that one in and just really, if they can
Speaker 8: get the kind of big money, you know, blanket the
Speaker 8: Republican party base in the next couple of months saying
Speaker 8: I am really the better alternative and try to sort
Speaker 8: of erode that thirty four to thirty five percent base
Speaker 8: that we think he has in the Republican primary voting
Speaker 8: electorate and steal nine to fifteen percent of that voting
Speaker 8: populist elsewhere, and I think that needs to be The
Speaker 8: strategy is the slow and steady, but it needs to
Speaker 8: happen now, and it needs to say, you know, I'm
Speaker 8: the better alternative. You can still like this guy, but
Speaker 8: vote for me if you really want to win in
Speaker 8: twenty twenty four.
Speaker 4: Hey, kayleie, we only have about a minute left. How
Speaker 4: does this impact other potential cases that Trump is having
Speaker 4: to deal with as well?
Speaker 9: Well, that's a really good question, because of course this
Speaker 9: isn't the first time that he has been arranged or
Speaker 9: case criminal charges that already happened in New York. But
Speaker 9: this also may not be the only indictment we see
Speaker 9: stemming from investigations by Special Counsel Jacksmith. He is also
Speaker 9: investigating Trump's role in January sixth. There is a district
Speaker 9: attorney in County Georgia that is also looking at his
Speaker 9: attempts to overturn the results of the twenty twenty election.
Speaker 9: So this doesn't necessarily mean the end of Trump's legal woes,
Speaker 9: and potentially related to January sixth, we could actually see
Speaker 9: even more serious charges than the one he's facing here.
Speaker 9: And I have to apologize if you hear this rooster.
Speaker 4: Guys.
Speaker 9: I know you've been talking about there are literally wild
Speaker 9: chickens and roosters walking around the courthouse right now.
Speaker 1: All right, we'll leave that to you. You're in charge
Speaker 1: of that down there. Bloomberg TD anchor Kaylee Lines definitely
Speaker 1: on location down in Miami with the chickens in the
Speaker 1: Hends and Wendy Schiller Brown University, a professor joining us
Speaker 1: to get some just some smart analysis of how this
Speaker 1: is all going to play out down in Miami today
Speaker 1: and what it might mean for President former President Trump
Speaker 1: gung Ford, particularly as we prepare for the twenty twenty
Speaker 1: four election. A lot of moving pieces there.
Speaker 5: You're listening to the tape Cancher Live program Bloomberg Markets
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Speaker 1: Bes min and Paul Swaite here in the Bloomberg Interactive
Speaker 1: Broker Studio. Our Inflation Day, Today's CPI Day Today. Here's
Speaker 1: a kind of the headline stuff on an annualized basis CPI.
Speaker 1: The headline print four percent. That's kind of right in
Speaker 1: line with a four point one percent expectation, but it's
Speaker 1: down big from last month when it was four point
Speaker 1: nine percent.
Speaker 4: Eight was talking about those egg prices and the index
Speaker 4: for eggs falling close to fourteen percent, the largest decrease
Speaker 4: in that index since January nineteenth, big one of that
Speaker 4: CPI report.
Speaker 1: Yeah, I'm a big expedited guy. So that's that's chickens
Speaker 1: outside the courthouse. Chickens outside of the court house with
Speaker 1: Kaylee Lines, she's in charge.
Speaker 10: All right.
Speaker 1: Let's so they seem pretty good to me. But let's
Speaker 1: go to somebody who does this stuff for a living.
Speaker 1: Jeffrey Cleveland. He's a director and chief e commerce that
Speaker 1: paid it in regal So, Jeff, you know, the print
Speaker 1: seemed good to me. What's your takeaway from our inflation
Speaker 1: out local here in the United States?
Speaker 11: Well, I'm self interested. So when I look at the
Speaker 11: index for food away from home, it's up eight point
Speaker 11: three percent in the last twelve months.
Speaker 1: Okay, so that's you.
Speaker 11: Know, dining now, that's it's too much for me. Food
Speaker 11: at home is up six percent year on year and
Speaker 11: I think if I remember correctly, I flipped through the
Speaker 11: report for the LA area, So the La Metro area
Speaker 11: headline CPI was up point seven percent month to month.
Speaker 11: So I'm not seeing this slow down in prices that
Speaker 11: everyone is so cheerful.
Speaker 1: Well, your problem out there, Jeff's gasoline price is what
Speaker 1: are you guys doing out there? I mean it's it's
Speaker 1: all your taxes also.
Speaker 4: Use vehicle prices picked up in the MADE data.
Speaker 11: That's correct too. Yeah, I think people drive too much here, Paul.
Speaker 11: That's that's the problem in Los Angeles. It's a that's
Speaker 11: a driving culture. Taxes and regulations don't help. That's the
Speaker 11: short version of the story.
Speaker 1: All right, So what does this all mean for the FED?
Speaker 1: They're in lockdown. MOAD done in DC today and tomorrow.
Speaker 1: We'll hear from the FED chairman Jpal tomorrow afternoon. How
Speaker 1: do you think he and you know, the FED board
Speaker 1: in general, how are they going to view some of
Speaker 1: this data?
Speaker 11: Well, I think they've communicated pretty clearly that they would
Speaker 11: like to pause so or at least maybe skip this meeting.
Speaker 11: So I think that's the plan here. Does this report
Speaker 11: give them cover to do so?
Speaker 6: Yes?
Speaker 11: You know, the headline inflation was softer, coming into point one,
Speaker 11: lowest year on year reading in a few years. So
Speaker 11: that that's fine. I think, though, when I look at
Speaker 11: the guts of the report, all jokes aside about about
Speaker 11: food away from home here, I look at that core
Speaker 11: CPI number. It has been point four or point five
Speaker 11: month to month four by mic count six I think,
Speaker 11: six consecutive months now. So to me, that's important because
Speaker 11: that that's giving you a sense of the underlying trend
Speaker 11: when you when you filter through a lot of the noise,
Speaker 11: and that shows no signs of really really slowing down.
Speaker 11: I think if you're a policy maker, your hope is
Speaker 11: that rents in the al in the shelter component slows
Speaker 11: further as the year progresses. But at this point I
Speaker 11: think that's more hope than anything. So I would yeah,
Speaker 11: maybe they skip, but there there's still there's gonna be
Speaker 11: some discomfort here. I think if we keep getting point
Speaker 11: four percent core CPI ratings through the summer.
Speaker 4: Would we look in the warp function in the terminal
Speaker 4: world interest rate probability? Still to your point, Jeffrey, when
Speaker 4: you're thinking about that July meeting, a potential skip, maybe
Speaker 4: tomorrow but still sixty percent odds there that there will
Speaker 4: be a hike next month. What do you think we
Speaker 4: need to see happen in the data in particular between
Speaker 4: now and then further to maybe continue this pause, or
Speaker 4: maybe on the flip side of that, if the data
Speaker 4: comes in still a little bit more persistently stubbornly high
Speaker 4: on the inflation front, to where they might have to
Speaker 4: continue with these rate increases.
Speaker 11: Yeah, we think they will, you know, so they'll skip
Speaker 11: then in July they could hike, and it's possible I
Speaker 11: wouldn't rule it out that they hike even another time
Speaker 11: later this year, and it goes down to the I
Speaker 11: would say inertia in the core inflation data. You need
Speaker 11: a much bigger slowdown. In my view, point four percent
Speaker 11: month a month is not going to cut it. So
Speaker 11: you need something like point one or even flat readings,
Speaker 11: which tend to be pretty rare historically. I think that's
Speaker 11: the key takeaway. So I don't really see scope for that.
Speaker 11: In fact, we may see rent slow down. I think
Speaker 11: there's a lot of forecaster expectation of that, given what
Speaker 11: we've seen in house prices and given what we've seen
Speaker 11: in maybe some private sector rent metrics, So the investors
Speaker 11: or investors and forecast is already expecting that we could
Speaker 11: see some offset, though other categories which have been weak
Speaker 11: all year could surprise the upsie layer this year. So
Speaker 11: one that I would point out is medical care services.
Speaker 11: Medical care services have been negative, so there's been a
Speaker 11: drag on inflation since last fall. I think a lot
Speaker 11: of that has to do with how the CPI is
Speaker 11: calculating the health insurance figures. So we've been pretty negative,
Speaker 11: dragging down over all inflation. That could change as we
Speaker 11: get into the fall, and then it could be a positive.
Speaker 11: So all in all, you might get a slow down rents,
Speaker 11: but that could be offset by a pickup in medical
Speaker 11: care services and then your overall core inflation won't slow
Speaker 11: that much at all, and that's going to be problematic
Speaker 11: for the Fed in the second half.
Speaker 4: Jeffrey, you have to get your take on the recession debate.
Speaker 4: If you look at the ECFC function in the terminal
Speaker 4: where you can see these projections for economists pulled by Bloomberg,
Speaker 4: if you look annually, you aren't seeing that contraction there,
Speaker 4: and growth prelate quarter of requard continues to get pushed out.
Speaker 4: Now it's just slightly about like five tens of percent
Speaker 4: contraction in the third quarter, a little bit around the
Speaker 4: same ballpark in the fourth quarter. But it seems like
Speaker 4: investors are even economists in particular, still keep being pushing
Speaker 4: back those recession expectations. What's your call there, Yeah.
Speaker 11: I think you have to push out your recession expectations.
Speaker 6: Again.
Speaker 11: We've been joking. This is the most forecast in recession ever.
Speaker 11: Everyone says it's imminent, and then another month of data
Speaker 11: goes by and we see that it's not. I think,
Speaker 11: to be fair to my bearish colleagues, you look at
Speaker 11: leading indicators, if you look at the yield curve, if
Speaker 11: you look at how much the feed is tightened in
Speaker 11: the last fifteen months or so, I think it is
Speaker 11: it is is correct, you know, or it is good
Speaker 11: to be prudent, to be cautious. However, for us, simple,
Speaker 11: simple way to look at it. Look at the jobs report.
Speaker 11: Look at the spending power that the consumer has. When
Speaker 11: you think about how many people are employed and how
Speaker 11: much they're earning in aggregate, that's growing around seven percent
Speaker 11: year on year through the latest set of data. You
Speaker 11: know from the Jobs report that we got a week
Speaker 11: or so ago. So right there, that tells you the
Speaker 11: consumer still has spending power. That's really key for us.
Speaker 11: So that means the recession is not imminent. I think
Speaker 11: if you want to push it out in your forecast,
Speaker 11: maybe sometime in the middle of next year would be
Speaker 11: a better It doesn't seem like it's going to be
Speaker 11: a Q three or a Q four occurrence in our view.
Speaker 1: Hey, Jeff, we know you hang out with the Hollywood crowd.
Speaker 1: What's going on with the writers strike out there? What's
Speaker 1: the status?
Speaker 11: You know, I don't hang out with the hall of
Speaker 11: this crowd. I appreciate you trying to loop me in
Speaker 11: with the cool kids, but I don't get those invites.
Speaker 11: Somehow they don't want to hang out and talk about CPI.
Speaker 1: So that is, uh, that's a real issue for that's
Speaker 1: a real issue for that area out there.
Speaker 11: Yeah, in the past it has been, you know, I
Speaker 11: would say in California in general, we're already feeling I
Speaker 11: would say a bigger slowdown. If you look at the
Speaker 11: unemployment rat in California, it's already up half a percentage
Speaker 11: or more since the lows so and so part of
Speaker 11: that could be due to Hollywood I think the bigger story.
Speaker 1: Paul right now is tech.
Speaker 11: Yeah, we definitely felt the the you know, the very
Speaker 11: near effects of the layoffs that you've seen in tech,
Speaker 11: especially in Q one. So I think that is a
Speaker 11: bigger factor than the Hollywood writers strike a at this
Speaker 11: point for me.
Speaker 1: All right, all right, well until we start missing our
Speaker 1: fall shows and then we're all going to be worried
Speaker 1: about it. Jeffrey Cleveland, director and chief economists at Peydon Rigal.
Speaker 1: He is based in Los Angeles, with getting some la
Speaker 1: color from him when we.
Speaker 4: Can, definitely and also bring in the sunshine.
Speaker 5: You're listening to the Team Cancer Live program Bloomberg Markets
Speaker 5: weekdays at ten am Eastern on Bloomberg dot Com, the
Speaker 5: iHeartRadio app, and the Bloomberg Business App, or listen on
Speaker 5: demand wherever you get your podcasts.
Speaker 1: Chris Whalen, he's a founder whaling Global Advisors. Hey, Chris,
Speaker 1: we got the CPI print today. Kind of how does
Speaker 1: that inform I don't know your view of what we'll
Speaker 1: hear from the FED tomorrow. How does that inform kind
Speaker 1: of your view of markets? Any change there?
Speaker 6: Well, I think it's given you know, the manager class
Speaker 6: reasons to go out and buy stocks. My banks are
Speaker 6: running very well, all green other than Deutsche Bank. We
Speaker 6: want to pay attention to them. So the managers want
Speaker 6: to buy it. They will. You know, people don't realize
Speaker 6: that the lesson of the first quarter was it banks
Speaker 6: or not really stocks. They're actually heavily levered credit trades.
Speaker 6: But it doesn't matter. They want to own them and
Speaker 6: they will. I mean, so far is the best performer
Speaker 6: last year? Well, the ubs and Discover.
Speaker 4: There you were, Chris, what are you buying?
Speaker 1: What are you selling?
Speaker 6: Well? I did buy a little bit of a New
Speaker 6: York Community Bank. We've talked about that because I know
Speaker 6: the guys at Flagstar very well. I'm a mortgage guy.
Speaker 6: We're going to wait on that one, though, because obviously
Speaker 6: rates aren't going to fall for a while, and that's
Speaker 6: a bull market housing trade. Even though you think of
Speaker 6: it as a New York regional bank, it's now a
Speaker 6: national mortgage bank, so you're gonna have to It's funny
Speaker 6: they actually use the flag Star name outside of New
Speaker 6: York because he can't say New York Community Bank in
Speaker 6: California exactly. It wouldn't work. But you know, it's now
Speaker 6: one hundred plus billion dollar mortgage specialist, and meanwhile Comerica
Speaker 6: is tiptoeing out of the mortgage space. This morning, very
Speaker 6: interesting report I saw. So I guess what I would
Speaker 6: tell you is the inflation numbers are making people feel better,
Speaker 6: but they want to feel better. You know. The bias
Speaker 6: of the entire audience in finance in the United States
Speaker 6: is long. Yeah, that's how we get paid, so you know.
Speaker 1: Chris, I mean, I mean, is it time for me
Speaker 1: to go out and buy some quality regional banks? I
Speaker 1: don't know, an M and T bank, something like that.
Speaker 1: I mean, I felt like so many banks are thrown
Speaker 1: out kind of with the bathwater over the last four
Speaker 1: or five six weeks. Is it okay to go out
Speaker 1: there and buy them or do we still have some
Speaker 1: real concerns out there about the sector?
Speaker 6: Well, there are real fundamental concerns about the sector. Everyone
Speaker 6: knows this. The FED took the pistol out of our
Speaker 6: mountains by putting the funding facility out there. That brought
Speaker 6: us some time, but it doesn't change the negative cash flow.
Speaker 6: I wrote about this in the blog yesterday. The amount
Speaker 6: of paper that people are sitting on that they're losing
Speaker 6: money on every day is growing. You know, Bill Nelson
Speaker 6: at Bank Policy Institute writes great stuff on the FED,
Speaker 6: and he talked about the fact that they're losing a
Speaker 6: billion dollars a day at the FED because of the
Speaker 6: difference between what they earn and what they're paying out.
Speaker 6: Same thing with the banks. So depending on who it is,
Speaker 6: and depending on your willingness to sit with it all
Speaker 6: year until the real fundamentals for banks improve. That's really
Speaker 6: the question you got to ask. Are they cheap?
Speaker 7: Yes?
Speaker 6: US Bank at one time's book my god, But I
Speaker 6: just made a decision in twenty to move up the
Speaker 6: capital structure into preferreds until I had a little more
Speaker 6: visibility on banks because the FED took so much earning
Speaker 6: power away from banks during QI, and they're now trying
Speaker 6: to readjust their cost structure and what they earn on
Speaker 6: their assets for the future. But that means a year
Speaker 6: from that. So if you buy banks, you got to
Speaker 6: be patient.
Speaker 1: How important are management teams when I'm looking at a
Speaker 1: bank stock, Oh, very crucial?
Speaker 5: Yeah.
Speaker 6: Do they understand duration number one? And do they understand credit?
Speaker 6: Because if you look at Silicon Valley Bank, these guys
Speaker 6: basically shot themselves in the head they kept buying more
Speaker 6: mortgage backs, and then half the book prepaid, they bought
Speaker 6: more and by twenty one, end of twenty one, that
Speaker 6: bank is dead. They just didn't know it yet. So,
Speaker 6: you know, credit is the second thing we're going into.
Speaker 6: Maybe a recession. I don't know, guys, So we haven't
Speaker 6: a recession. I think this economy is going to ignore
Speaker 6: the Fed. What do we do then? What do we
Speaker 6: do if we just continue to chug along the way?
Speaker 6: We are no recession? Think about what the FED has done.
Speaker 6: They have increased the cost of credit for the front
Speaker 6: end of the economy, the productive part, but the long end. No,
Speaker 6: are we going to die because mortgage rates are at
Speaker 6: seven percent? No, We're going to do business. So I
Speaker 6: think the private sector is incredibly strong in this country,
Speaker 6: and maybe those rate cuts during COVID were unnecessary.
Speaker 4: Chris coming out just a few months after a lot
Speaker 4: of those concerns about some of those regional bank stresses
Speaker 4: in March, what are deposit flows telling us at this point?
Speaker 6: Well, they kind of came back by the end of
Speaker 6: the quarter. In other words, the outflows slowed down. This
Speaker 6: was partly because Treasury wasn't selling any paper and The
Speaker 6: delay with the debt ceiling now forces them to go
Speaker 6: out and basically refund about a trillion dollars, and they
Speaker 6: are outflows constantly during this period, so they'll end up
Speaker 6: with six seven hundred billion sitting in the TGA. But unfortunately,
Speaker 6: every dollar they raise means that a bank deposits going
Speaker 6: to disappear because Treasury is indeficit. Every time a bond
Speaker 6: on the books of the FED matures, Treasury has to
Speaker 6: refinance that bond immediately, So that's why banks are under
Speaker 6: so much pressure. Now. We're hoping that the difference between
Speaker 6: the reverses that the FED has been maintaining for money
Speaker 6: market funds to help them are going to run off.
Speaker 6: We're hoping that that problem is going to leave and
Speaker 6: the FED is going to be able to simplify policy
Speaker 6: going forward by not having to support banks and the
Speaker 6: GSS and the money market funds with the reverse repurchase agreements.
Speaker 6: That would simplify life a little bit for Chairman Powell.
Speaker 6: But other than that, I think they got to run
Speaker 6: off the bounce sheet. My hope is they're going to
Speaker 6: pause and start selling more bonds. What I would do
Speaker 6: if I were Powells is I would tell the FETE
Speaker 6: of New York, make sure you hit the cap every
Speaker 6: month for the runoff of the mortgage backed security. So
Speaker 6: if the natural runoff is half of the cap, that
Speaker 6: means they got to sell some bonds.
Speaker 4: You're when you're talking about money market funds specifically, because
Speaker 4: so much money has been plowed into those, At what
Speaker 4: point you can see even more of that money go
Speaker 4: toward equities?
Speaker 6: Well, that's the thing it was. It was rising over
Speaker 6: the last couple of months, so over two trillion dollars.
Speaker 6: Now that if half of that money went back in act,
Speaker 6: what he's going to be a tremendous boot to the market.
Speaker 6: But I think more likely it's going to go into
Speaker 6: T bills because these are not risky funds, these are
Speaker 6: money markets.
Speaker 4: Is it because of just being able to deald more
Speaker 4: than five for sure?
Speaker 6: Sure? If youre going to pick up thirty BIPs by
Speaker 6: going out of money market funds and the T bills,
Speaker 6: you're going to do it. Absolutely. I just took a
Speaker 6: big pile off the table on a video I had
Speaker 6: gone in in twenty twenty one. I was staring at
Speaker 6: a one hundred and fifty percent game. I had to
Speaker 6: take it I put it in T bills, you know exactly.
Speaker 6: And remember if you sell a money market fund and
Speaker 6: buy a T bill, but deposit disappears, it's a producery deposit,
Speaker 6: but it still disappears. So the system is going to
Speaker 6: be running off cash banking system as the FED balance
Speaker 6: sheet shrinks. How far can we go?
Speaker 7: Yep?
Speaker 6: That's the real that's the big question, all.
Speaker 1: Right, Chris, Chris, always good stuff. We love, We appreciate
Speaker 1: getting few minutes of your time. Chris Whalen. He's a
Speaker 1: chairman of Whaling Global Advisors and just one of the
Speaker 1: top I think bank analysts out there that like talking to.
Speaker 1: And it was just great, you know, over the last
Speaker 1: couple three months when we're having those real big stories
Speaker 1: about some of those regional banks, he was just critical
Speaker 1: for us kind of getting a handle on that. So
Speaker 1: good touching base with Chris Wayll and a Whale and
Speaker 1: Global Advisors.
Speaker 5: You're listening to the tape. Ken's are Live program Bloomberg
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 5: tune in app, Bloomberg dot Com, and.
Speaker 7: The Bloomberg Business app.
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Speaker 5: flagship New York station. Just say Alexa play Bloomberg eleven.
Speaker 1: Thirty, Jess Men and Paul Sweeney here in the Bloomberg
Speaker 1: Interactive Brokers Studio. Want to get right to our next guest,
Speaker 1: because I'm going to talk about markets and where to
Speaker 1: go here, because there's a lot of economic data flying out,
Speaker 1: flying around out there. It's a big week. I want
Speaker 1: to know what the pros are doing and what they're
Speaker 1: telling their clients. Tim Pagliarra joins, and he is the
Speaker 1: CIO of cap Wealth based down in Tennessee. Our good
Speaker 1: friends down in Tennessee. Tim, thanks so much for joining
Speaker 1: us here. We're in Tennessee. Are you Franklin?
Speaker 12: Franklin, Tennessee?
Speaker 7: All right?
Speaker 1: You have to answer one question from him? Dying to
Speaker 1: know this about Nashville. Why has Nashville become the bachelorette
Speaker 1: party capital of the world.
Speaker 4: What about Austin? Austin's a lot of fun.
Speaker 1: I think, I don't know what. Tell me Nationals where
Speaker 1: the youngest leaders are going.
Speaker 4: Yeah, that's where the kids go.
Speaker 12: I think, because they facilitate it, they'll let them do
Speaker 12: just about anything.
Speaker 1: All right. I just I went down there on a
Speaker 1: business trip and they were all over the place.
Speaker 13: You're not wrong.
Speaker 12: It used to be Vegas, but now it's what happens
Speaker 12: in Nashville, all right.
Speaker 1: Good to know. And Franklin is just outside of Nashville,
Speaker 1: so hopefully safely outside there. So Tim, you know, we've
Speaker 1: had a nice run in this market. But I want
Speaker 1: to get your thoughts on. If I look at SPX,
Speaker 1: I see a nice story up, you know, eleven twelve percent.
Speaker 1: If I look at SPW the equal weighted, it's kind
Speaker 1: of flat. So I got the magnificent seven stocks kind
Speaker 1: of ruling the day here. Is that a concern for you?
Speaker 6: Very much? So?
Speaker 12: I mean, it's frothy, and it is a sign that
Speaker 12: you know it can't continue, you know, because we were
Speaker 12: pushing valuations before, and the seven stocks are accounting for
Speaker 12: about ninety five ninety six percent of their turn the index.
Speaker 4: I got to ask, though, because looking month to date,
Speaker 4: you're starting to see some of these other sectors beginning
Speaker 4: to pick up, whether you're looking at industrials, energy, financials,
Speaker 4: also small caps auditear up more than eight percent this month.
Speaker 4: What do you need to see happen to give you
Speaker 4: more conviction that this is broadening.
Speaker 12: Out, I think guidance from the Fed about what they're
Speaker 12: going to do and how much time they are going
Speaker 12: to allow us to get to that two percent inflation target.
Speaker 12: Bloomberg had a good survey that was out this week,
Speaker 12: and fifty four percent of the respondents felt like it
Speaker 12: was going to take a little over two years to
Speaker 12: get to that two percent inflation target. About eleven percent
Speaker 12: of the respondents felt like it would take five years.
Speaker 12: So it's just a question of how much patience the
Speaker 12: FED is going to have and how concerned they are
Speaker 12: that they may break something if they push too hard.
Speaker 12: And there's a lot of signs of stress in the
Speaker 12: system right now.
Speaker 4: So given that backdrop, how are you positioning very very
Speaker 4: defensively really, and even even after eight months, systems below
Speaker 4: in October and just have to.
Speaker 12: Be you have to be disciplined and this and the
Speaker 12: first time in I think it's twelve fourteen years, we've
Speaker 12: got a fifteen percent position in treasuries. The FAD, you know,
Speaker 12: they've got problems that they have to fix. And even
Speaker 12: this past week where you saw the park turned the
Speaker 12: keys back over to their properties in Union Square and
Speaker 12: walk away from you know too magnificent hotel property. Yep,
Speaker 12: that has a ripple effect through the system. It's not
Speaker 12: just that property and it's not just San Francisco, and
Speaker 12: so those are the things that you have to watch
Speaker 12: and be conser learned about in the contagion what it
Speaker 12: could cause for the rest of the markets.
Speaker 1: You know, we're just looking. Abigail Doolittle, who covers the
Speaker 1: markets for Bloomberg, she mentioned earlier today that you know,
Speaker 1: this market's starting to broaden out a little bit in
Speaker 1: the last couple of weeks, and she point out to
Speaker 1: like the Russell two thousand up one point one today
Speaker 1: outperforming the S and P five hundred. Is small mid
Speaker 1: cap a place where you think people should be looking
Speaker 1: to the extent that maybe they missed them that big
Speaker 1: cap rally.
Speaker 12: Absolutely. I mean we take an all cap approach, and
Speaker 12: I think you can find some some great values, you know,
Speaker 12: in that sector right now. But it is an individual
Speaker 12: stock market, and so people that own individual securities and
Speaker 12: that are not you know, dependent on the indexes for
Speaker 12: their returns, they're the they're going to be the beneficiaries
Speaker 12: of all of us.
Speaker 4: What are your top stock picks?
Speaker 12: Yeah, and very broadly, we still Likeshire halfaway because of
Speaker 12: the cash position.
Speaker 4: You know, that's actually getting close class B shares close
Speaker 4: to a record, and obviously they have a very hefty
Speaker 4: steak in Apple as.
Speaker 12: We know, right, But you know, so I would be
Speaker 12: I like Berkshire, I like CBS. We like a company
Speaker 12: that I really can't mention it because it's below five
Speaker 12: dollars and they're in transition, but they're in the they're
Speaker 12: in the technology space, yeah, in fighting internet, high speed fiber.
Speaker 12: So I think you just have to look at those
Speaker 12: companies that have been hit really hard because of maybe
Speaker 12: their balance sheet and was overreacting, you know to that,
Speaker 12: because we believe it's important to have strong balance sheets
Speaker 12: and not have to depend on the capital markets. But
Speaker 12: you can also take that a little too far. And
Speaker 12: so those are some of the companies we're looking at.
Speaker 12: Regional banks. There are some that you know that have
Speaker 12: come up on the radar.
Speaker 4: Which which regionals do you like?
Speaker 12: Well, I'm in an acquisition period on some of them,
Speaker 12: so I can't. Okay, I can't say, but but that's
Speaker 12: in a general way, that's what I would that's what
Speaker 12: I would look at.
Speaker 1: So you were.
Speaker 4: Buying the dip then on those banks that potential ones
Speaker 4: that obviously were seeing their stock prices for all the
Speaker 4: last couple.
Speaker 12: Of months, we're shuffling the deck. So I like to
Speaker 12: compare it to, you know, being the general manager of
Speaker 12: a football team and we're trying to improve the team
Speaker 12: that we've got on the on the field. So that
Speaker 12: might be peeling off some Apple and buying something else
Speaker 12: that we like in that space without abandoning Apple.
Speaker 4: You know, is it just because a little pricey after
Speaker 4: the record run it's been on.
Speaker 12: Yeah. And you know, fortunately, when you buy something at
Speaker 12: a at a cheap price and it gets to a
Speaker 12: client's portfolio and it's up to six or seven or
Speaker 12: eight percent, then you you know, you have an obligation
Speaker 12: really to to look at what you put seven or
Speaker 12: eight percent of a client's money in a single company
Speaker 12: to start out, and the answer is generally no. So
Speaker 12: then you have to go through the process of selling
Speaker 12: and then looking for things that you know represent a
Speaker 12: better value and a longer runway for success.
Speaker 1: Tim just about thirty seconds this AI hype boy. It's
Speaker 1: moving a lot of names. How do you think about it?
Speaker 12: I mean, if you know, if you've just used Navidia
Speaker 12: as an example. You know, forty times sales is a
Speaker 12: you know, it's an alarm bell. And I think what
Speaker 12: in the end, at the end of the day, it's
Speaker 12: not the chip. It is the software applications. It's the
Speaker 12: use of those of that technology that's ultimately going to
Speaker 12: have the value. You know, It's like Maverick, it's not
Speaker 12: the it's not the plane, it's the pilot, right, you know,
Speaker 12: it's going to be the software. You know, company like
Speaker 12: paland here for example, is one of our you know,
Speaker 12: one of the companies, right, greatly from that.
Speaker 1: All right, Tim, thanks very much. Tim Pagley, our CIO
Speaker 1: of cap Wealth, giving us his latest. This is Bloomberg.
Speaker 5: You're listening to the tape. Can's our live program Bloomberg
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the
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Speaker 5: flagship New York station, just say Alexa playing Bloomberg eleven thirty.
Speaker 1: Let's do retail. What are you consumers buying in terms
Speaker 1: of clothing? That's a big part. Yeah, exactly, Dnim, I'm
Speaker 1: all in on that. I mean Scott Baxter joints his
Speaker 1: Contour brands. That is a publicly traded symbol. Kt is
Speaker 1: the ticker.
Speaker 4: Yeah, I know, host a six percent today.
Speaker 1: So all right, So Scott Baxter joins us, he's the CEO.
Speaker 1: He joins us here in our Bloomberg and Active Broker studio.
Speaker 1: They're based in where, North Carolina, Greensboro, Greensboro on a
Speaker 1: beautiful place down there in Greensboro. Scott talked to us
Speaker 1: about Contour brands. You've got the ones. I really know
Speaker 1: what everybody knows what is Lee Jeans, Wrangler Wrangler, which
Speaker 1: is if you're a cowboy Texas, that's it.
Speaker 7: There you go.
Speaker 4: If you're all the regulars in Texas, let me tell you.
Speaker 1: Justice from Texas. What to Texas, A and M. Cowboys
Speaker 1: only wear Wrangler, right, I.
Speaker 4: Mean that's the predominant one, that.
Speaker 10: Is true cowboys exactly.
Speaker 1: So Scott talk to us about these brands you have
Speaker 1: Lee and Wrangler and the rest of the brands you're managing.
Speaker 13: So so, Wrangler have been around since nineteen oh four.
Speaker 13: Lee has been around for over one hundred years. Both
Speaker 13: brands global brands, both brands strong in China, Europe, North
Speaker 13: America of course, and then we have a few other
Speaker 13: brands that are prominent for us, like All Terrain Gear
Speaker 13: and also Rock and Republic denim. So we have a
Speaker 13: nice portfolio, but the predominant piece of our portfolio is
Speaker 13: both Wrangler and Lee.
Speaker 4: So you're expanding out to China and other areas in Asia.
Speaker 4: Tell us more about that.
Speaker 13: Yeah, So we've done some really nice licensing deals around Asia,
Speaker 13: and then we have a direct business in China which
Speaker 13: is fairly significant, so it's a big part.
Speaker 10: Of our portfolio. It's mostly Lee with a.
Speaker 13: Little bit of Wrangler, but we have been there over
Speaker 13: thirty years, so we have a real strong consumer base
Speaker 13: there that know our product really well.
Speaker 1: So what's going on over there for your business?
Speaker 10: You know, it's opened back up, thank god.
Speaker 13: Right, So, we went through a period like everybody did,
Speaker 13: where China was closed and a lot of retail was closed,
Speaker 13: and it's opened back up here recently.
Speaker 10: So for us, it's been how do you so you.
Speaker 1: Do you license your you said early? Do you license
Speaker 1: or do you manufacture and export?
Speaker 13: We license our brand to some parts of Asia, but
Speaker 13: we actually own our operations in China.
Speaker 10: Okay, and we make our product. You know, in China
Speaker 10: face we're comfortable with that.
Speaker 1: He you gotta be less comfortable you were of a
Speaker 1: few years ago.
Speaker 13: Right now everything's okay, okay, So for us right now
Speaker 13: is everything's just fine.
Speaker 10: And what does this.
Speaker 4: Tell us about the consumer more broadly? Not just obviously
Speaker 4: we're not talking about just the US nsumer here. Obviously,
Speaker 4: when you're looking at these other markets, what is it
Speaker 4: telling us about the global economy?
Speaker 13: You know, the global economy I think is treading water
Speaker 13: right now. You know, you saw some of the news
Speaker 13: here out of Europe. Not recently China has opened back
Speaker 13: up so a little bit stronger, and I think here
Speaker 13: in the US, the consumer is it's tough for the
Speaker 13: consumer right now. Right all they're borrowing is a little
Speaker 13: bit more expensive than it has been, so that takes
Speaker 13: a little bit out of a family's budget.
Speaker 1: So the for your you do most of your manufacturing,
Speaker 1: right you don't contract that out.
Speaker 10: About thirty five to forty percent.
Speaker 13: We own our manufacturing in Mexico and then the rest
Speaker 13: is outsourced throughout the globe.
Speaker 1: And how's that versus your competitors.
Speaker 13: We're really the only ones and while we're you know,
Speaker 13: we've owned those for so long. We think of it
Speaker 13: as a competitive advantage. It's speed to market, it's innovation,
Speaker 13: so we can control our own destiny. It's been a
Speaker 13: really good deal for us. And think about the time
Speaker 13: during the pandemic. Owning our own manufacturing during the pandemic
Speaker 13: was clearly a positive.
Speaker 4: So having that competitive advantage there.
Speaker 13: Oh absolutely, I mean we were keeping our factories open,
Speaker 13: we were rolling product in the whole time, So really
Speaker 13: good position.
Speaker 1: All right, what's the just generic market share? Wrangler, Lee, Levi's,
Speaker 1: and maybe other I don't know how many.
Speaker 13: Yeah, so Wranglers two, Lee is three, and and Levi's
Speaker 13: is number one.
Speaker 1: Okay, yeah, interesting, Okay, So what's the growth for I mean,
Speaker 1: these are brands, as you said, around more than one
Speaker 1: hundred years. How do you grow your brands? How do
Speaker 1: you how does how does somebody do that?
Speaker 13: In the stand it's new categories, new channels, new geographies,
Speaker 13: and that's kind of what we've been doing.
Speaker 10: So excuse me.
Speaker 13: When we spun off from VF, we were kind of
Speaker 13: landlocked in a couple of categories and channels because they
Speaker 13: used us for a cash cow standpoint, And now we've
Speaker 13: opened that up to across the globe, different channels and categories.
Speaker 13: So we're selling the high end boutiques, you know, we're
Speaker 13: selling to the Western group, we're selling in China. So
Speaker 13: we're doing things like that and also creating new opportunities
Speaker 13: like our outdoor line altering gear.
Speaker 4: Who do you consider to be some of your rivals?
Speaker 13: Oh, Levi's would be a rival of ours, But I
Speaker 13: consider anybody that sells denim and or apparel arrival.
Speaker 1: So, I mean, you know, I was on wallsterer for
Speaker 1: thirty years. We're in a suit now this is a
Speaker 1: you know, kind of a dress update for me having khakis.
Speaker 1: How's the world changed in God's very academic changed for
Speaker 1: you guys helping.
Speaker 10: Me out out.
Speaker 13: So the world has gotten extremely casual. And if you
Speaker 13: see me today in a blazer and a pair of
Speaker 13: pair of jeens, it's become the standard, you know, for everybody,
Speaker 13: and it's allowed everywhere you go. You can wear this
Speaker 13: to weddings, you can wear this to parties, you can
Speaker 13: wear this to the theater. Didn't used to be able
Speaker 13: to do it, but now it is totally acceptable.
Speaker 4: As far as looking more ahead, what is your outlook
Speaker 4: moving forward? For the company this year.
Speaker 13: I think that we get through this little you know,
Speaker 13: shock with the consumer right now. I think things will
Speaker 13: get better with time. Interest rates will come down over time,
Speaker 13: the consumer will be in a better place, and then
Speaker 13: we'll continue to go ahead and do what we've been
Speaker 13: doing as far as working through a very difficult time,
Speaker 13: but in an elegant way.
Speaker 4: From your perspective and how you're viewing things, all of
Speaker 4: these recession calls with what you're doing with your business.
Speaker 4: Do you think that's actually likely in the next couple
Speaker 4: of quarters?
Speaker 10: Could be? I do worry about it.
Speaker 13: There's no quest about it. So yeah, I give it
Speaker 13: a fifty to fifty chance that we could go there.
Speaker 13: But for us, our product is used for work in
Speaker 13: a very significant way, and right now, as you know,
Speaker 13: unemployment is very good, especially in North America. So the
Speaker 13: consumer uses our product for a workplace. So we sit
Speaker 13: in a pretty good place and we're very value oriented.
Speaker 13: You can buy our product at a very reasonable price,
Speaker 13: and it's a trusted brand.
Speaker 1: E commerce. How does that work for you? How does
Speaker 1: that distribution channel work for you?
Speaker 13: Big opportunity for us because we didn't capitalize on it
Speaker 13: or spend any time and money on it when we
Speaker 13: were part of another company. It's been part of our
Speaker 13: strategic spin off move and we've been investing in it
Speaker 13: heavily since the day we.
Speaker 1: Spun When did you spend off?
Speaker 10: Four years and one month ago?
Speaker 5: Okay?
Speaker 1: And why was that?
Speaker 13: Wasn't part of the portfolio that the parent company wanted.
Speaker 13: They wanted to focus on outdoor and action sports and
Speaker 13: we weren't part of that, so we were a logical
Speaker 13: spin Okay?
Speaker 4: Is there We always like to talk about these. See
Speaker 4: with McDonald's it has their fry indicators. One of their
Speaker 4: last starting reports, they were talking about how not as
Speaker 4: many people were adding that on to their meals planned.
Speaker 4: I'm curious when it comes to denim, are there particular
Speaker 4: indicators like you like to look at that can give
Speaker 4: you a tell?
Speaker 7: We do.
Speaker 13: We love to look at share data, So NPD share
Speaker 13: data for us is extremely important. Most of our retailers
Speaker 13: are aligned and also are part of that process, so
Speaker 13: we find out exactly what's rang through the register and
Speaker 13: that is really important to us. In our share for
Speaker 13: both brands has been growing significantly.
Speaker 4: Interesting, Okay, So that would be an optimistic sign.
Speaker 13: Right, very optimistic for us. Yes, and it's real data.
Speaker 13: It's hard data.
Speaker 1: Fourteen thou four hundred employees is what we have for you.
Speaker 7: Guys.
Speaker 1: Talk to us about the labor market for you. How
Speaker 1: tough is it? How because we've heard from every CEO
Speaker 1: and every line of business over the last several years,
Speaker 1: really tough to get and keep good people.
Speaker 13: Yeah, it's tough in certain areas. So it's tough in
Speaker 13: our retail environment, in our stores, it's tough in distribution,
Speaker 13: it's tough in it So there are pockets that are
Speaker 13: tougher than others. But remember Warren Greensboro, North Carolina, one
Speaker 13: of the biggest publicly traded companies. We've been there for
Speaker 13: one hundred years. We have a very loyal base, and
Speaker 13: we're a very good proposition for people that want to
Speaker 13: work for a publicly traded big company.
Speaker 10: But in Greensboro, right, and what.
Speaker 1: Are the alternatives?
Speaker 10: I mean there aren't. There aren't nearly as many as
Speaker 10: some other large cities.
Speaker 7: Ye.
Speaker 1: All right, So you know you're sitting front of a
Speaker 1: group of investors. What's the number one question you get
Speaker 1: these days?
Speaker 13: Mostly about whether we're going to go ahead and pop
Speaker 13: into a recession or how are things going in China.
Speaker 13: That's an example of two of the most recent ones.
Speaker 1: How do you keep a pulse on China? Really?
Speaker 6: Oh?
Speaker 13: We have We have a sourcing office in Hong Kong,
Speaker 13: and we have a front end office marketing, sales and
Speaker 13: design in Shanghai. We have a leaders there, we have
Speaker 13: a general manager. They report right into US, and we
Speaker 13: travel and move back and forth with people. Were there
Speaker 13: a lot and they come here a lot?
Speaker 1: And Chinese like their denim.
Speaker 13: Oh love it, absolutely love it. And it's and it's
Speaker 13: a big marketplace too.
Speaker 1: Oh yeah, it is a big I mean. And are
Speaker 1: the local competitors there?
Speaker 6: Oh?
Speaker 10: Absolutely?
Speaker 13: Yeah, yeah, local and also global, right, because everybody's in.
Speaker 4: The market, right, So not just Texas with the wranglers, Paul, No.
Speaker 1: I guess that's how watch that Yellowstone. Yes, all those
Speaker 1: guys are wearing the ranguage.
Speaker 10: Huge win for us.
Speaker 13: Yeah, number one rated show on cable TV. Most of
Speaker 13: the characters are wearing our product. But also the show
Speaker 13: is centered around rodeos and the cowboy culture. Our brand
Speaker 13: is in all those rodeo venues. You see our signs.
Speaker 13: We've gotten advertising that way. But the single biggest win
Speaker 13: for us is if you follow the show, you know
Speaker 13: Landy Wilson's or country artists on there. Well, we just
Speaker 13: signed her as our global spokesperson for women women Wrangler.
Speaker 13: Huge wen for our first our first ever global spokesperson.
Speaker 1: For really Brian a few years ago, and that's talented
Speaker 1: and got back to the superstars. She's great. Scott Baxter,
Speaker 1: thank you so much, CEO of Contour brands, Think Wrangler
Speaker 1: and Lee gens Fro.
Speaker 5: You're listening to the tape Cat's our live program Bloomberg
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Speaker 1: Let's continue our C suite conversations today. We're now we're
Speaker 1: gonna talk about it, the distribution of electronics, huge huge business,
Speaker 1: Global business. Sean Karens joins us. He's the CEO of
Speaker 1: Arrow Electronics symbol a r W. The stock is up
Speaker 1: thirty two percent year to date, up about one point
Speaker 1: six percent today, all time high for the stock. Sean,
Speaker 1: thanks so much for joining us. Why is ARW at
Speaker 1: an all time high today?
Speaker 14: Well, thank you, Paul, thanks for having me. You know,
Speaker 14: i'd say that the long term outlook for electronics is
Speaker 14: very promising. You know, not long ago, the use cases
Speaker 14: for electronics were pretty narrow. It was things like compute,
Speaker 14: maybe personal electronics including your smartphone. But today, you know,
Speaker 14: we talk about the electrification of everything, and so you're
Speaker 14: seeing all walks of life and homes, cars, factories, you
Speaker 14: name it. They're all becoming electrified and they all require
Speaker 14: more and more semiconductor and electronic technology.
Speaker 4: So we like that Sean talk to us more about
Speaker 4: what aero electronics does in your global reach.
Speaker 14: So, Jess, we live in the middle of the electronics
Speaker 14: and the information technology supply chain, which basically means we
Speaker 14: help the makers of all those technologies get to market,
Speaker 14: and then we help the commercial customers of those technologies design, build, supply,
Speaker 14: and even manage the products that embed them. You know,
Speaker 14: we like to say it Aro that if it takes
Speaker 14: an electronic charge, we probably had something to do with
Speaker 14: designing it, provisioning it, getting it to market.
Speaker 1: So you know, whenever we talk to folks in a
Speaker 1: technology supply chain, we have to just ask about the
Speaker 1: chip business, where are we Are we back to quote
Speaker 1: unquote normal in terms of the supply and demand of
Speaker 1: chips out there.
Speaker 14: You know, I'd say, Paul, the lead times are improving,
Speaker 14: but we're certainly not back to pre pandemic levels. The
Speaker 14: improvement has been fairly broad based, but there's still a
Speaker 14: handful of categories that are in shorter supply in lies.
Speaker 14: The you know, the golden screw dynamic that I'm sure
Speaker 14: you've heard the industry talk about on many occasions.
Speaker 4: When it comes to the different markets and industries that
Speaker 4: your company is heavily involved in, which can you talk
Speaker 4: more specifically if it's a automotive and and D industrials,
Speaker 4: things like that, and how they're being impacted by the
Speaker 4: trajectory of the economy.
Speaker 14: So just I'd say the markets are broadly mixed, and
Speaker 14: it does vary by region throughout the world, But you know,
Speaker 14: we compete very heavily in the industrial markets, which means
Speaker 14: you know, lots of manufacturing. We have significant exposure to
Speaker 14: the automotive and transportation industries more broadly, and that obviously
Speaker 14: puts us right in the middle of the transition to
Speaker 14: electric vehicles. But we also participate in aerospace and defense, medical, compute,
Speaker 14: and a good handful of others. And i'd say, you know,
Speaker 14: we're seeing relative strength in industrial and automotive and maybe
Speaker 14: aerospace and defense. They're faring better at the moment than
Speaker 14: what we see happening in the world of compute, communications, infrastructure,
Speaker 14: you know, mobility, and even things related to the Internet
Speaker 14: of Things. I think those demand trends are temporary. I
Speaker 14: think again, the long term outlook is going to get better.
Speaker 1: So you know, we can't talk to anybody again within
Speaker 1: the technology stack without talking about AI, because it seems
Speaker 1: like every company in the world feels like they're a
Speaker 1: play on AI. But how does artificial intelligence impact you,
Speaker 1: your business, your outlook, your customers. How do you guys
Speaker 1: think about that?
Speaker 14: So, like most companies were paying very close attention to it,
Speaker 14: I'd say we're in the early days of the hype cycle,
Speaker 14: as with many other big tech transitions you know, throughout history.
Speaker 14: But there's no doubt it represents a compelling opportunity for
Speaker 14: us and for the industry, And so we think about
Speaker 14: it on two fronts. One is internal because it will
Speaker 14: certainly help, you know, help us redefine work and workload
Speaker 14: and streamline a lot of processes that today you know,
Speaker 14: require lots and lots of effort. But more importantly, I think,
Speaker 14: you know, as we speak, there's a whole ecosystem developing
Speaker 14: around AI and generative AI, and so back to you know,
Speaker 14: our role in the middle of the you know, the
Speaker 14: electronics and the IT supply chain. We're going to help
Speaker 14: bring that ecosystem to life and will help the makers
Speaker 14: of all those related technologies get to market. And so
Speaker 14: we think it's just one more of the bigger demand
Speaker 14: trends that you know, make the long term outlook as
Speaker 14: promising as it is.
Speaker 4: This bounce back that we've been seeing more broadly in
Speaker 4: chip stocks this year. Looking at the Philadelphia Semiconductor Index
Speaker 4: ticker Symbole Socks SOX, that's a paul almost fifty percent.
Speaker 4: It's a forty six percent year to date after that
Speaker 4: index lost clover thirty five percent last year. So sean
Speaker 4: from your view, and obviously given a large part of
Speaker 4: your business is tied to obviously the design and building
Speaker 4: of these chips and it comes to the semiconductor sector,
Speaker 4: what's your tell and you're reading on what this means
Speaker 4: for the global economy, because if you see ship makers
Speaker 4: performing well like this, wouldn't that be more of an
Speaker 4: optimistic sign?
Speaker 14: You know, I would tend to agree with you. We've
Speaker 14: been you know, talking amongst ourselves for some time now
Speaker 14: that we're you know, there's an argument to be made
Speaker 14: for a softer landing. As you might know, there's a
Speaker 14: cyclical nature to this industry, and so when demand is strong,
Speaker 14: you know, supply rants up to serve it, and that
Speaker 14: all works great until demand softens and that leads to
Speaker 14: you know, a build up of inventory throughout the industry
Speaker 14: that takes a little bit of time to sell through.
Speaker 14: I'd say the industry is right in the middle of
Speaker 14: that now. However, you know, backlogs are still fairly significant
Speaker 14: due to all the shortages over the past couple of years,
Speaker 14: and I'd say demand has softened, but it's not you know,
Speaker 14: falling sharply. You know, I think we're in the midst
Speaker 14: of a market that's moving sideways, and hence we sort
Speaker 14: of feel like, you know, a software landing is in store,
Speaker 14: and I think, you know, the market is probably reflecting that.
Speaker 1: So shaw I see aout a third of your revenue
Speaker 1: comes from Asia, Pacific. I don't know what's your exposure
Speaker 1: to China, what's your either as a customer or supplier,
Speaker 1: and how are you guys dealing with that.
Speaker 14: Well, we serve the Asia Pacific market, of which you know,
Speaker 14: China is the biggest piece. Like in the West, we
Speaker 14: tend to focus on the transportation and industrial markets and
Speaker 14: so you know, demand in China is software at the moment,
Speaker 14: but you know, we do anticipate that that will improve
Speaker 14: at some point in the near future.
Speaker 7: You know.
Speaker 14: We we like that market, we like our position in
Speaker 14: that market, and we think that there's still a lot
Speaker 14: of good opportunity for us in store. Having said that,
Speaker 14: we're a global company and we have lots of relative
Speaker 14: strength throughout the West. So regardless of how the you know,
Speaker 14: the semiconductor industry shakes out, I think we're well positioned
Speaker 14: regardless of how that how that looks.
Speaker 4: When we have about twenty seconds left. Other areas in
Speaker 4: the global economy that you want to push into, well.
Speaker 14: We certainly like all the trends in transportation and industrial
Speaker 14: and medical as I mentioned, we certainly see great opportunities
Speaker 14: in our IT business for the notion of information technology
Speaker 14: as a service and We're certainly going to play an
Speaker 14: important role in helping you know, customers benefit from it.
Speaker 1: All right, Hey, Shan, thanks so much for taking the
Speaker 1: time to check in with us. Sean Karns, he's the
Speaker 1: CEO of Arrow Electronics, the New York Stock Exchange. Tickers
Speaker 1: a RW to put into your Bloomberg terminal, and what
Speaker 1: you'll find when you put up the prices stocks an
Speaker 1: all time Hi, so participating in that tech move.
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
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Speaker 2: I'm on Twitter at Matt Miller nineteen seventy three.
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