Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg terminal. We need to recalibrate,
Speaker 1: as you do. We know the surveillance heads are spinning.
Speaker 1: Over all the different opinions, it would be good to
Speaker 1: get a strategy grounded in first order condition mathematics. That's
Speaker 1: Alicia Levina, head of Equities and Capital Market Advisory at
Speaker 1: b n y Mellon, with some serious math chops out
Speaker 1: the end of the algebraic function. There's an epsilon. It's
Speaker 1: a Greek letter. You and I used to look at
Speaker 1: it like, what's that mean? Now it really means something.
Speaker 1: What does the systemic risk we see right now? So
Speaker 1: the systemic risk is that we've priced in the Goldilocks scenario,
Speaker 1: which is that the FED manages to do the soft
Speaker 1: landing with inflation that's coming down on its own, so
Speaker 1: it doesn't have to go that last mile from the
Speaker 1: four to the two percent, and that the consumer more
Speaker 1: or less stays healthy even as the FED hits the
Speaker 1: labor market job openings but not actual jobs. That's the
Speaker 1: goldilocks scenario. It is possible, but that's what we're priced for.
Speaker 1: We've now got the s Impeach rating at eighteen times
Speaker 1: forward earnings as the tenure move lower, and you know,
Speaker 1: the risk is, of course, that that stickiness of inflation
Speaker 1: that you've talked about this morning is going to make
Speaker 1: things a lot more difficult. So Alicia, how do you
Speaker 1: want to use that strength over the last couple of months?
Speaker 1: How do you reposition? What do you fade? Where do
Speaker 1: you fight what's vulnerable? So I think that the what's
Speaker 1: vulnerable here are the are the stocks that have rallied
Speaker 1: the most. So when you think about the long duration
Speaker 1: text sucks and the growth names, they've bounced back the most.
Speaker 1: And they've bounced back because tens have that ten years
Speaker 1: have moved lower. So I think there's going to be
Speaker 1: some sort of reversion to the meme there, and I
Speaker 1: think that's what we've seen really all year. When sectors
Speaker 1: have become over bought or um oversold, they tend to
Speaker 1: bounce back. We're coming into the most seasonally difficult time
Speaker 1: of the year September and October, with the with the
Speaker 1: Goalilocks scenario priced in. Now, our investors stayed fully invested
Speaker 1: all the time. We don't trade around the market, so
Speaker 1: they've participated in this rally, but we do think that
Speaker 1: the inflation stickiness is not going away anytime soon. So
Speaker 1: the minutes today, I don't think we're going to add
Speaker 1: anything necessarily new because you've had this panoply of FED
Speaker 1: speakers that have come out over the last three weeks
Speaker 1: essentially trying to talk down expectations of a pivot, and
Speaker 1: all we've gotten is the tenure moving lower and lower
Speaker 1: and lower, financial conditions going going, UM easier, and the
Speaker 1: and tech stocks rallying. And find America touched on this yesterday,
Speaker 1: and I'd like you to put it in English for us.
Speaker 1: They talked about us no longer being apocalyptically bearish, but
Speaker 1: we were still too bearish to get an immediate turnaround
Speaker 1: in the bear market rally. Can you translate that west
Speaker 1: sentiment and what does that mean for the prospect of
Speaker 1: a further move high here? So I think this rally
Speaker 1: took most strategists off guard. UM because the market was
Speaker 1: and strategists were essentially pricing in a recession as the
Speaker 1: base case scenario with earnings going lower. And what that
Speaker 1: means is that the risk is still higher because investors
Speaker 1: are still defensively positioned, meaning not buying duration and and
Speaker 1: not really going all in on risk trades. And so
Speaker 1: with that you could see a squeeze higher simply because
Speaker 1: you've had such a huge structural shift to the defensive side.
Speaker 1: The real pain in this market, as terrible as the
Speaker 1: first five and a half months were, where where the
Speaker 1: accounts that were defensively positioned starting in mid noon, because
Speaker 1: those positions got destroyed. So, you know, we tend to
Speaker 1: be very neutral. We tend to be you know, we
Speaker 1: tell our clients stay, stay, stay fully invested because you
Speaker 1: can't trade it because when it turns, you're not going
Speaker 1: to get those upward moves. Alicia, you mentioned earnings there,
Speaker 1: and of course we're at the tail end now of
Speaker 1: the second quarter earning season. There's only about thirty companies
Speaker 1: in the S and P five left to report, and
Speaker 1: by and large, it's been pretty decent, at least relative
Speaker 1: to expectations. Average revenue growth of fourteen percent earnings growth
Speaker 1: of eight point four percent. Both have been surprising to
Speaker 1: the upside more often than not. Looking forward, though, are
Speaker 1: we too optimistic about the trajectory of earnings through the
Speaker 1: back half of the year. So look, earning season has
Speaker 1: definitely come in better than feared. I think some of
Speaker 1: that was definitely um the impact of inflation, because earnings
Speaker 1: are nominal so much better. And I think some of
Speaker 1: the retail reports we've gotten over the last couple of
Speaker 1: days have actually come in better than feared. And then
Speaker 1: with some optimism looking forward, i'd say that as I
Speaker 1: think that the falling gas prices is really something very
Speaker 1: interesting because while in one sense it's it's disinflationary, on
Speaker 1: the other hand, if you're putting lower gas prices on
Speaker 1: top of an economy where workers are getting five point
Speaker 1: five percent wage increases, you do see that there's more
Speaker 1: spending power there um. And if July is better than
Speaker 1: June because of falling energy prices, then you have to
Speaker 1: wonder whether what direction inflation really is going in. If
Speaker 1: you look at new orders on the I s M,
Speaker 1: that tends to be predictive of where SMP earnings are going.
Speaker 1: By about six months, we've been under fifty for a
Speaker 1: couple of months, and at forty eight, it tends to
Speaker 1: mean that your SMP earnings will be moving lower in
Speaker 1: the next six months. We're just not there yet. Oh
Speaker 1: you and I are reminiscing you were too young for it.
Speaker 1: But when you were talking about the joys of turkey
Speaker 1: tetrazini with a can of cream of Campbell's cream of celery.
Speaker 1: So there's a whole analysis going on now, the Dow
Speaker 1: Jones Industrial average of the inflation now versus the inflation
Speaker 1: back when I was eating turkey tetrazzini at school. This
Speaker 1: inflation is different than that inflation, right, This inflation is
Speaker 1: different because essentially it's been driven one by commodities, but
Speaker 1: also on the service sector and the wage side. It's
Speaker 1: a different America, a different economy, right, totally different economy.
Speaker 1: We're not manufacturing based anymore. We're a service based economy,
Speaker 1: and so when the inflation is on the services side,
Speaker 1: it's going to be harder to get it down. And
Speaker 1: also we're more heterogeneous. I mean, back then it was
Speaker 1: a more aggregated analysis and you can't do that now,
Speaker 1: which is our factor analysis is more important. It is
Speaker 1: more important I think the interesting thing to hear to
Speaker 1: watch is, even as we've talked about the lower end
Speaker 1: consumer struggling, it is completely obvious that the higher end
Speaker 1: consumer is not just doing fine spending, you know, in
Speaker 1: a profligate way, supporting the economy and supporting corporate America.
Speaker 1: And so I think that's different that the range and
Speaker 1: income and what that the effect of top line nine
Speaker 1: percent inflation means is very different. John, do you know
Speaker 1: Turkey Tutrasini? John was wasn't familiar with that something. The
Speaker 1: big debate we had that, Yeah, the big debate with
Speaker 1: Turkey Tutrasini is do you do put the soup in
Speaker 1: before the parmesan cheese or after trying to wind out
Speaker 1: what account? Which part of this is winding me up something?
Speaker 1: The Mail of the Doubt John's reference with the mail
Speaker 1: back then, that's all there was. In fact, still there
Speaker 1: is no town. Wasn't down now down? Yeah, thousand within
Speaker 1: the gloom out there. Alicia Levin is put pushed against
Speaker 1: the gloom. We're two thousand dow points away from Nirvana.
Speaker 1: Point change on the Doubt song, You're killing me, wag,
Speaker 1: Turkey will kill you to have you with us in
Speaker 1: a studio Michael Collins with us. Now this is an
Speaker 1: important conversation senior portfolio manager at p JAM and steeped
Speaker 1: in the mathematics of Binghamton and other good universities. Was
Speaker 1: all Michael Love talking to you about the dynamics of
Speaker 1: the moment. There's a major core debate on the glide
Speaker 1: path of disinflation. How does it fold into owning and
Speaker 1: a husbanding yield right now? Yeah? Well, Tom, one thing
Speaker 1: we're seeing is this big tug of war between growth
Speaker 1: and inflation, right, and growth globally actually seems to be
Speaker 1: holding up pretty well. We've seen European GDP continue to
Speaker 1: be actually a little bit stronger than expected. In in
Speaker 1: the US, you know, we saw it in the labor market.
Speaker 1: We'll get retail sales UH in an hour, and real
Speaker 1: retail sales will probably continue to be really weak, are
Speaker 1: slightly negative, but obviously nominal retail sales are really strong UH.
Speaker 1: And And inflation, right, inflation, as you've all pointed out,
Speaker 1: especially in places like Europe, in the UK, UH and
Speaker 1: to some extent the US are really sticky. But that disinflation,
Speaker 1: every trend is beginning to re emerge. We are seeing
Speaker 1: goods inflation. We are seeing leading indicators of goods inflation
Speaker 1: pointing towards zero goods inflation, and I would bet in
Speaker 1: the next six twelve months you see zero goods inflation
Speaker 1: globally in the US, and I think that's a big deal. Obviously,
Speaker 1: services inflation is sticky, but I think that will give
Speaker 1: the FED some optatism to slow down the pace of John.
Speaker 1: This is like Michael Collins is writing the speech for
Speaker 1: Jerome Pale, the separation your services and goods. How many
Speaker 1: people John are expecting the massive disinflation of goods. I'd
Speaker 1: say it's a lonely crowd. So how much more work
Speaker 1: does this FED need to do with that in mind?
Speaker 1: I think this is so important. Mike, You've been in
Speaker 1: the camp that we've seen the high of the year
Speaker 1: on a tenure yield. I wonder if that same theory
Speaker 1: applies to the two years. Something's happening quietly here for
Speaker 1: the two year yield. It peeps back in the middle
Speaker 1: of June, two days before the equity market bottomed at
Speaker 1: then it faded away and equities were off to the
Speaker 1: racist and we ran it really hard as we faded
Speaker 1: that real yield as well we've seen that two year Ye,
Speaker 1: the nominal yield just pick up pick up a fair
Speaker 1: bit as well, Mike. I just wonder what you think
Speaker 1: about that back at three four on a two year
Speaker 1: in America and the way US bond geeks look at it,
Speaker 1: as you know, Jonathan and Tom and Kaylee to we
Speaker 1: look at those forward rates and what's priced into the
Speaker 1: market right now with this jump in in the front
Speaker 1: end of the curve, the markets are pricing in obviously
Speaker 1: a higher terminal funds rate of getting close to three
Speaker 1: and three quarters. So the question is is the Fed
Speaker 1: actually going to be able to engineer another you know,
Speaker 1: hundred and fifty basis points of rate hikes from here
Speaker 1: and and that is not clear. I mean, I don't
Speaker 1: have a lot of conviction either way on that. I mean,
Speaker 1: even if goods inflation goes to zero and services inflation
Speaker 1: is at five, that's still a three and a half percent,
Speaker 1: you know, core PC or core c P. I I
Speaker 1: don't know if the Fed stops hiking at three and
Speaker 1: a half percent unless growth is probably below two. So
Speaker 1: I think it's this balancing act between growth and inflation.
Speaker 1: I'd like to think about it in nominal GDP terms.
Speaker 1: You know, if you add those two up, If those
Speaker 1: two added up are below four, let's say, maybe that's
Speaker 1: enough for the Fed to to pause. But if they
Speaker 1: remain above for I think the Fed probably keeps going. Well,
Speaker 1: John was talking about the work being done at the
Speaker 1: short end and where that leaves to the two year
Speaker 1: yield is about forty five basis points above that of
Speaker 1: the ten year yield. How much further can this inversion go?
Speaker 1: What will the depths ultimately be and how does your
Speaker 1: assumption of what the height of the FED funds rate
Speaker 1: factor into that? Yeah, you know that that curve inversion
Speaker 1: has has been you know, not totally unsurprising in a
Speaker 1: world where inflation is sticky, central banks all over the
Speaker 1: world of raising rates and and growth is moderating and slowing,
Speaker 1: you do see these flat inverted curves. The question is
Speaker 1: how deep can that inversion go? It's you know, negative
Speaker 1: call it two's tens can go to negative eighty or
Speaker 1: negative a hundred. Sure, I mean if the funds rate
Speaker 1: ends up at four this cycle, certain, probably, Bryan Weinstein
Speaker 1: Morgan Stanley said the same thing last week too. Sure,
Speaker 1: I mean, I mean we're actually thinking over the next.
Speaker 1: You know, we're long term thinkers, as you all know,
Speaker 1: and long term investors. Over the next three years, what
Speaker 1: is the curve going to look like? And I think
Speaker 1: it's gonna be back to the old you know, bull
Speaker 1: steepener where the FED. By that point, we'll be cutting
Speaker 1: rates and you'll have this big bull steepener. But in
Speaker 1: the meantime, you know, it's really unclear which direction that
Speaker 1: that curve shape is going. We're pretty flat right now
Speaker 1: in terms of the curve positioning because of the uncertainty.
Speaker 1: But but yeah, I mean, if the FED keeps going,
Speaker 1: the curve continues to invert. So, Mike, given that what
Speaker 1: business to how your spreads have being down at forms
Speaker 1: the basis points. Yeah, where we are in the camp,
Speaker 1: you know that that you're supposed to really take some
Speaker 1: chips off the table here. I mean, ye, credit quality
Speaker 1: has been sound. We've just started to see the first
Speaker 1: sign of some downgrades, uh in the high old market
Speaker 1: and some very specific sectors cruise lines and healthcare. But
Speaker 1: by and large the upgrades continue to out number downgrades.
Speaker 1: Credit quality is good. These companies are flushed with cash.
Speaker 1: They've done a great job managing liquidity, managing the bottom lines,
Speaker 1: but valuations I don't think right now. And maybe you
Speaker 1: could apply this to the stock market as well. The
Speaker 1: investment great corporate market may not be fully compensating investors
Speaker 1: for these for these big kind of tail riffs that
Speaker 1: are still out there, right I mean, we could have
Speaker 1: a deepening recession globally that that is certainly in the
Speaker 1: cards as well. Mike Colon is just awesome to get
Speaker 1: you on the show. Let's catch up against suit. Mikelin's
Speaker 1: there with PHM on the nicest inness bond market. Right now,
Speaker 1: we're going to digress and move to Norway. Nicola Tangan
Speaker 1: his chief executive officer of the Norwegian Sovereign Wealth Fund.
Speaker 1: They are challenged by his target mentions the uncertainty that
Speaker 1: is out there, and we are thrilled. He joins us
Speaker 1: today with an up date. Nikolai, you know there on
Speaker 1: the back end of the core algebraic function as a
Speaker 1: Greek letter epsilon for uncertainty, What is the level of
Speaker 1: uncertainty your Sovereign Wealth Fund sees as you drift to
Speaker 1: two thousand twenty three. Well, I would say it's a
Speaker 1: continuation of the uncertainty we've seen for for a year
Speaker 1: or so. Now it consists of the inflation, the energy prices,
Speaker 1: and the geopolitics, and so it's a continuation of what
Speaker 1: we've seen for some time. With the situation that we're in.
Speaker 1: Leads to diversification. You people are to using American phrase
Speaker 1: ser ginormous. How do you diversify or choose bets given
Speaker 1: this uncertainty? Well, first of all, we have a very
Speaker 1: long term view on what we do, so we um
Speaker 1: you know, invest with kind of a generation hats on.
Speaker 1: We spread over investments across the world. We are we
Speaker 1: have ownership in the nine thousand companies across the world.
Speaker 1: We have both equities and bonds and VTA sate so
Speaker 1: well verse of out portfolio for the long term. What
Speaker 1: do you think of the American growth technology companies? Are
Speaker 1: you overweighting them? Do you own too much of them?
Speaker 1: I know the Swiss National Bank has a little bit
Speaker 1: of Apple as well, But is there the opportunity there
Speaker 1: in the TUMBL to reaffirm large cap growth. Well, these
Speaker 1: companies are of course very very big parts of the index,
Speaker 1: and so we would have big holdings in these companies. Uh.
Speaker 1: The USA companies typically be amongst the top down holdings,
Speaker 1: and and we continue to think the well positioned And
Speaker 1: clearly we have seen a bit of a recovery in
Speaker 1: the equity markets in recent weeks. Nikolai, there is a
Speaker 1: bet on the part of the markets that we're going
Speaker 1: to see a more devish tilt from federal reserve. How
Speaker 1: are you positioning potentially for Fed policy and how ultimately
Speaker 1: do you think they will react? How does that inform
Speaker 1: your decision making going forward? Well, it's uh, that's a
Speaker 1: really really tough one. We came into this year with
Speaker 1: with some underweighting shares and and uh, you know, a
Speaker 1: less risky bond portfolio. We've taken off some of that underweight,
Speaker 1: but we remain slightly cautious on the oklak care. You know,
Speaker 1: clearly markets don't go down in a straight line, and
Speaker 1: and we are in certain in terms of whether we've
Speaker 1: seen a bit of a bottoming hair or whether we'll
Speaker 1: see a continuation of that of the tough market. And
Speaker 1: of course, in addition to the monetary policy picture, there's
Speaker 1: a number of risks that the market has to weigh
Speaker 1: as well, including the ongoing war in Ukraine which is
Speaker 1: now approaching six months. Have you come to any decisions
Speaker 1: around strategies of what your endgame with your Russian assets is. Well,
Speaker 1: when it comes to the Russian assets, we have been
Speaker 1: instructed by by the government to to exit these for
Speaker 1: the time being, they don't really trade and also we
Speaker 1: can't be certain about where they where they end up,
Speaker 1: so so they are still frozen and we we haven't
Speaker 1: sold them yet. Nicola I'd like you to step away
Speaker 1: from the huge mass and the different responsibilities you have
Speaker 1: with your sovereign wealth fund and look at the heritage
Speaker 1: you have of hedge funds. It has been an absolute
Speaker 1: battle for hedge funds in timing the market. Obviously they've
Speaker 1: got a much more shorter term mandate than what you
Speaker 1: have now. And then there's a question of long short
Speaker 1: and the different formulas or that is the alternative investment
Speaker 1: game over? Is the two and twenty game over? Well,
Speaker 1: it's a tough one to say. I mean it's over
Speaker 1: for me personally in that by network for the Someone
Speaker 1: Love Fund, but now it's it's it's difficult to say,
Speaker 1: I mean the returns from that as Claus goes up
Speaker 1: and down. Um for the moment, they are having a
Speaker 1: tough time. They have previously bounced back from these tip
Speaker 1: of situations. But but I haven't really got a storm
Speaker 1: on this. I must ask Nikolai the view from Oslo
Speaker 1: of the rest of continental Europe. I've been working through
Speaker 1: the morning and natural gas equivalences in dollar and in
Speaker 1: Brent crude barrels that directly involves Norway. Your comments on
Speaker 1: how Norway and your investment fund will withstand what we're
Speaker 1: seeing in hydrocarbon prices. Yeah, now energy prices are high,
Speaker 1: guess price high, but unfortunately for some sad reasons. The
Speaker 1: result is that we have big influence into the fund,
Speaker 1: and we have big influence into the fund at a
Speaker 1: time where bondsen and in equities are cheaper than they
Speaker 1: have been. So from that point of view, that's a
Speaker 1: bit of a silver lining from this fund. Nikolai always
Speaker 1: enjoy hearing from you, and what a time to hear
Speaker 1: from you. A wound difficult complex the future with Nikolai's
Speaker 1: hanging there to see of the Norwegian self or in
Speaker 1: Wealth Fund. Michael Dart joins its chief economists and micro
Speaker 1: strategist at M Camp Partners, and what's wonderful about his
Speaker 1: work is how he synthesizes the economic view into the
Speaker 1: equity belief. Michael, I'm not going to mince words, and
Speaker 1: my umpteen years of doing this, I've never seen the
Speaker 1: raging debate about the stock market linked to the mysteries
Speaker 1: of our economy. Do you feel the same way? Do
Speaker 1: you see record uncertainty out there? Well, Tom. One of
Speaker 1: the last times I was on in the dark days
Speaker 1: of mid June, one of my messages for your retail
Speaker 1: investors was not to get too negative, even though the
Speaker 1: SMP five was down almost twenty four percent, and the
Speaker 1: reason for that was it's notoriously difficult, probably impossible, to
Speaker 1: time market bottoms, and what we were seeing with the
Speaker 1: big decline in equity markets in the first six months
Speaker 1: of the year was mostly a rate shock, the ten
Speaker 1: year yield going from one and a half to almost
Speaker 1: three and a half percent. But we're well off the
Speaker 1: highs in terms of the ten year treasury yield, even
Speaker 1: though the rates bumped up today with a good data
Speaker 1: and the stock market is now up seventeen plus percent
Speaker 1: from the lows. So the first six months of the year,
Speaker 1: the equity market decline really wasn't about negative GDP or
Speaker 1: recession or a big earnings crash. It was about evaluation
Speaker 1: adjustment as the ten year yield moved up, and that
Speaker 1: adjustment is now mostly in their rear view mirror. I
Speaker 1: looked Michael at the view forward, and the view forwards
Speaker 1: ends with the thud. I believe it's on Thursday or Friday,
Speaker 1: Friday next week at Jackson Hole. What does Chairman Powell
Speaker 1: not want to do in his speech at Jackson Hall. Well,
Speaker 1: we've seen a bevy of recent FETE speakers out there
Speaker 1: with essentially the same message, which is that they're going
Speaker 1: to continue to persist in pushing the front end of
Speaker 1: the curve up, meaning the policy rates and those rates
Speaker 1: most closely tied to it, and they're not going to
Speaker 1: be deterred. They expect some economics loaning, but they want
Speaker 1: to be very certain and inflation comes down and stays down,
Speaker 1: and that inflation expectations stay anchored at low levels. So
Speaker 1: they're going to persist with the rate hikes. They're going
Speaker 1: to persist at a slower pace, though, and that's what
Speaker 1: the market has gotten wind of, and I think that's
Speaker 1: the main reason that we've seen this big equity market
Speaker 1: move off of the lows in the stabilization and the
Speaker 1: long end of the curve. If that can do whatever
Speaker 1: it wants with short rates, it doesn't mean the long
Speaker 1: rates are going to go along with it. So we're
Speaker 1: seeing an increasing array of yield curves move into inversion
Speaker 1: now and that is a cautionary tale about three. But
Speaker 1: I think the mistake that some people made with the
Speaker 1: yield curve is that it's not an immediate indicator of
Speaker 1: imminent recession. It tends to be a long leading indicator.
Speaker 1: The bond market is simply saying the short rates are
Speaker 1: going to go up above three, but they're not going
Speaker 1: to persist there for years and years and years because
Speaker 1: the economy to take it. So, Mike, do you think though,
Speaker 1: that the using of financial conditions we have seen are
Speaker 1: underminding well Fedish trying to achieve And how do you
Speaker 1: think this fat chair is going to address some of
Speaker 1: that next week in Jackson Hope. Yeah, that seems to
Speaker 1: be the perception of some of the FED speakers that
Speaker 1: are trying to push pretty hard against this idea of
Speaker 1: rate cuts, but they really have no idea what the
Speaker 1: economy is going to look like. I would say this,
Speaker 1: if financial conditions are easying because credit spreads are narrowing
Speaker 1: now from the highs, and equities are off the lows
Speaker 1: very strongly. Does that warrant more FED tighten than what
Speaker 1: other wise be the case? I would say only if
Speaker 1: inflation expectations are also rising in sympathy. But bond market
Speaker 1: inflation expectations are well off the highs, and they've recently stabilized,
Speaker 1: and so I don't think that the recent so called
Speaker 1: easing of financial conditions necessarily means the FED has to
Speaker 1: be a whole lot more aggressive. If they choose to
Speaker 1: do so, then you know, certainly that simply amplifies the
Speaker 1: risks of a of a downturn in three You know,
Speaker 1: that's the f O m C S see fafor m
Speaker 1: C seems willing to take here because they really do
Speaker 1: want to ensure that inflation comes down stays down at
Speaker 1: the at those inflation expectations stay anchor at low levels.
Speaker 1: Well on the point of those inflation expectations, Mike, which
Speaker 1: you've mentioned a few times now, we know a lot
Speaker 1: of that caters on the price of oil, which has
Speaker 1: come down, and that is reflected in those inflation expectations
Speaker 1: moving lower and in the retail sales data today, with
Speaker 1: what we're seeing with the x auto and gas and
Speaker 1: control figures, is too much predicated on pricing at the
Speaker 1: pump staying low. When we had the OPEC new Secretary
Speaker 1: General telling Bloomberg earlier today that he sees the likelihood
Speaker 1: of a supply squeeze this year. Yeah, it's possible. Um.
Speaker 1: You know, those break even spreads do move around based
Speaker 1: on shocks on energy prices in gasoline, but it's not
Speaker 1: entirely driven by that, so there certainly is some interplay there.
Speaker 1: I really think the best thing the FED could do
Speaker 1: here is to watch the evolution of nominal spending in
Speaker 1: the second half of the year. In the first half,
Speaker 1: nominal GDP was very strong, high single digits, but we
Speaker 1: didn't have much real GDP growth. I think that is
Speaker 1: going to change because it's not just energy. You see
Speaker 1: metals down very sharply from the highs I mentioned the
Speaker 1: break events. We have a whole array of yield curves
Speaker 1: going into inversion, much slower money supply growth. So the
Speaker 1: whole front edge of the reflation in inflation and nominal
Speaker 1: GDP surge has rolled over, and so I think in
Speaker 1: the second half of the year we're going to see
Speaker 1: slower in more appropriate nominal GDP growth on the back
Speaker 1: of tighter monetary policy like the path forward. What a
Speaker 1: complex one miked out of that of m campound Us,
Speaker 1: off the back of the REFS house house print. He
Speaker 1: is the chemical Engineer of Queensland, greatly assodassiated with Brisbane
Speaker 1: where he will lead the Olympic effort of ten years out.
Speaker 1: Andrew Levers you know him from Dobt Chemical of course
Speaker 1: and now and one of as many of affiliations Lucid
Speaker 1: Group Chairman. He'll be interviewed by David Rubinstein. You'll see
Speaker 1: that tonight at nine pm peer to peer conversations with
Speaker 1: Mr Rubinstein, and he joins us this morning to speak
Speaker 1: of this really most interesting guy. And what's great about
Speaker 1: Andrew liver is is he's really hardwired into the hopes
Speaker 1: and beliefs the prayers of an American renaissance in manufacturing.
Speaker 1: Is it for real? Well, he thinks so. He thinks
Speaker 1: that the manufacturing loss we had in textiles and other
Speaker 1: kinds of things that were dependent on labor costs is
Speaker 1: not relevant for the future of high tech manufacturing. He
Speaker 1: thinks we can be a leader in high tech manufacturing
Speaker 1: because that depends on supply chain and other related things,
Speaker 1: not so much on the cost of labor. But Andrew
Speaker 1: is an incredibly diverse person in his interests. He's from
Speaker 1: Australia of Greek immigrant background. He Randal Chemical as president
Speaker 1: for and CEO for fourteen years, merged into DuPont. Now
Speaker 1: he's a chairman of Lucid Motors, which is an electric
Speaker 1: vehicle ups ale car. He's also an advisor to the
Speaker 1: Saudia Sovereign Wealth Fund. He's also on the board of
Speaker 1: Saudi a Ramco and as you note, he is also
Speaker 1: the chairman of the Olympics for a Brisbane in twenty two.
Speaker 1: And I can't think of that far right. We're gonna
Speaker 1: be here for it though, where Kayle, you know, I
Speaker 1: I look at this and so much for me, Andrew
Speaker 1: Liver's is about process. He's the process guy in American business. Yeah,
Speaker 1: and he's trying to build something with this EV company
Speaker 1: in particular. But David, obviously, when we talk about evs,
Speaker 1: the comparison always is to Tesla, who, in many ways
Speaker 1: Elon Musk was the first mover on this. How does
Speaker 1: he see them competing, whether or not they realistically can well.
Speaker 1: Tesla is designed to produce cars. I won't say for
Speaker 1: the average person, they're they're not inexpensive, but they're not
Speaker 1: going after the luxury market at the moment. Lucid is
Speaker 1: really going after the luxury market. It's cars begin at
Speaker 1: over a hundred thousand dollars per vehicle and they go
Speaker 1: up from there. Um. They will address the lower call
Speaker 1: market later on, but right now their focused on the
Speaker 1: upscale market and that's why they're not directly competing with Tesla. Well,
Speaker 1: and of course, the US has been looking at making
Speaker 1: more investments into the EV infrastructure space. That's part of
Speaker 1: what we see with the Clean Energy spending in the
Speaker 1: Inflation Reduction Act that the President just signed yesterday. What
Speaker 1: were his thoughts on US infrastructure policy what it ultimately
Speaker 1: needs to look like. Well, Andrew Liberes has been involved
Speaker 1: involved advising several presidents when infrastructure spending. And now that
Speaker 1: we have a bill, hopefully it'll be appropriations behind the bill.
Speaker 1: Remember the bill was early only to authorize spending. We
Speaker 1: have to actually appropriate the money. But assuming it's app appropriated,
Speaker 1: we can begin to redo some of our big bridges
Speaker 1: and roads and toll roads, airports and things like that,
Speaker 1: which should make um e V cars more accessible too,
Speaker 1: because they're going to build out a fair amount of
Speaker 1: electric charging stations throughout the country. David, I have to
Speaker 1: turn to the issue at hand, and I know these
Speaker 1: are delicate discussions. You don't want to talk specifically about
Speaker 1: the Carlisle Group, but I do want to talk about
Speaker 1: scale and heritage. Doubt chemical of Andrew Liver's is thirty
Speaker 1: five thousand employees, and I've never bought the idea that
Speaker 1: big companies have smooth transitions. It can be as challenging
Speaker 1: as any Carlisle Group is, roughly people. One of the
Speaker 1: great challenges we've seen in smaller projects hedge funds, alternative investment,
Speaker 1: private equity, venture capital is a generational shift. What's your
Speaker 1: best practice on that? What's the best practice to say
Speaker 1: I want to move on and do this this this
Speaker 1: this your your exceptional philanthropy to the American people and
Speaker 1: our history. How do you make a generational shift? There's
Speaker 1: no perfect model. Each of the firms have gone through
Speaker 1: it in different ways. I think a good thing to
Speaker 1: do is to have somebody who's been at a firm
Speaker 1: for a long time part of the culture, they know
Speaker 1: the ethos of the organization, and gradually they come in
Speaker 1: and take over control and the founders step back. But
Speaker 1: it's more complicated than a typical situation. So let's suppose
Speaker 1: your lou Gerstner, you're the CEO of IBM, and you retire.
Speaker 1: When you retire, you don't own twenty or thirty percent
Speaker 1: of the company still and you're not still you know,
Speaker 1: a major investor in the funds. It's a different situation.
Speaker 1: You're not a founder. So all the founders of the
Speaker 1: large privately firms are still involved, uh largely with some exceptions,
Speaker 1: still involved in as owners, investment committee members and as
Speaker 1: big shareholders. And it's a little different than the lou
Speaker 1: Gersner situation or Jack Wells situation when they retire and
Speaker 1: they don't really control the company through the ownering ownerships
Speaker 1: large shares shares in the company. Thanks for those comments.
Speaker 1: David Rubinstein here of course, continuing the Bloomberg coverage of
Speaker 1: what we see and all of these different firms as
Speaker 1: they make generational moves. Mr Rubenstein with the full interview
Speaker 1: Lucid Groups chairman Andrewlivers. This is the Bloomberg Surveillance Podcast.
Speaker 1: Thanks for listening, Join us live weekdays from seven to
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