Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Earnings coming up. We've
Speaker 1: had the banks, we've had some tech. Tech wasn't very good,
Speaker 1: Thank you very much, Silicon Valley. Now we're gonna get
Speaker 1: in some of the big insurance companies and let's get
Speaker 1: a preview what we might see. Matt Palozoli, he's a
Speaker 1: senior analyst covering insurance for Bloomberg Intelligence. He's here in
Speaker 1: our Bloomberg Interactive Broker studio because he is a professional.
Speaker 1: He is in the office. Matt, what do we need
Speaker 1: to look for here in these big insurance companies. We've
Speaker 1: got a rising interest rate environment. How does that play
Speaker 1: through in the earnings? What that you're gonna be seeing?
Speaker 1: So for the insurance companies, UH, they make a lot
Speaker 1: of their income on investment income, So they invest their
Speaker 1: premiums and UH they get the with the float, and
Speaker 1: with rising interest rates, they're invested almost and fixed income.
Speaker 1: So it's kind of just all all upside from here.
Speaker 1: It's all upside from here. Put then the perspective with
Speaker 1: the rate hike that you're now potentially seeing, we're looking
Speaker 1: at seventy five bases points priced into the market. Walk
Speaker 1: us through, at least for the people like me who
Speaker 1: don't know insurance as well as you do, how that
Speaker 1: actually affects the bottom line for likes of Geico for example.
Speaker 1: Sure so, uh, Like I said, they get premiums in,
Speaker 1: they invest them in high quality fixed income and generate
Speaker 1: investment income. So the average duration of the portfolios is
Speaker 1: about four years, so it's not instant. It takes time
Speaker 1: for the portfolio to run over um, but the investment
Speaker 1: income goes up, you know, pay taxes on it and
Speaker 1: go straight to the bottom line. All right, Our good
Speaker 1: buddy out in Omaha, Nebraska, Warren Buffett, uh Bertrad Hathaway.
Speaker 1: They're reporting numbers. They do it on a Saturday. First
Speaker 1: of all, what's up with that? Why did they do
Speaker 1: it on a Saturday? Paul, You are a cell side
Speaker 1: analysts like we were, are used to working on the weekend.
Speaker 1: They do it on the weekend so that there's kind
Speaker 1: of no market reaction until one day. I guess they
Speaker 1: could do it after the close on a day, but
Speaker 1: they like to do it and give quote, you know,
Speaker 1: give the market time to digest. So he still does
Speaker 1: the big rents out the arena and and all the
Speaker 1: Warren Buffett acolytes go out there to kind of hear
Speaker 1: him and Mr Munger speak and all that kind of stuff.
Speaker 1: Is that's still the case. That is the case that
Speaker 1: happened already, so that that's the annual meeting. That's with
Speaker 1: earlier results. So we're just talking third quarter results because
Speaker 1: there's no no call or anything anything anything there that
Speaker 1: we should been to look out for. Like I mean,
Speaker 1: for war Buffet, it's always what are you gonna do
Speaker 1: with the cash? Where's the next big deal? Now? I
Speaker 1: know they bought this reinsurance company, Allegheny. They just closed
Speaker 1: a week or so ago, So that closed that was
Speaker 1: announced earlier. I don't think they're doing anything big in
Speaker 1: the near term. They've been bulking up on Occidental stock,
Speaker 1: so with the warrants that they have in the ownership already,
Speaker 1: they have about thirty of the company, and they've got
Speaker 1: approval to own for my favorite Berkshire Hathaway company because
Speaker 1: they own a lot in in a massive portfolio into
Speaker 1: every sector. Sorry, Darry Queen, do they really Yeah? Oh
Speaker 1: I didn't know that. Okay, well it's not Terry Queen
Speaker 1: is not my favorite candy mine is. Are you gonna
Speaker 1: keep guessing all of the compass? This could take out
Speaker 1: the rest of the show. BNSF Railway that is I
Speaker 1: think the most fascinating. When we were covering the rail strike,
Speaker 1: one of the companies at the heart of the issue
Speaker 1: was BNSF. Any any thoughts there. It's interesting to me
Speaker 1: that they're investing more in the kind of occidental BNSF.
Speaker 1: It's kind of investing stuff, you know. Well, it's very industrials.
Speaker 1: It's very it's very warm, Buffett, very wet. So so
Speaker 1: they have a big energy business besides their investments in
Speaker 1: Chevron and oxy um so on the insurance analyst. But
Speaker 1: I know a little bit about railroads. Um. The thing
Speaker 1: about um their volumes went down this quarter, so they
Speaker 1: were moving less stuff. But uh, their revenue gets boosted
Speaker 1: by fuel search arches, right, which seems a little uh paradoxical.
Speaker 1: But they actually can. Their revenue will go up because
Speaker 1: they pass across that that fuel costs. So I think
Speaker 1: revenue goes up, but volumes were down for Burlington Northern.
Speaker 1: Hey man, I'm looking at the SMP five Property and
Speaker 1: casualty insurance sub industry gets level four index. So the
Speaker 1: insurance stocks have done they're really at perform the market.
Speaker 1: What's the when you talk to institutional investors today, what
Speaker 1: are they saying. They are saying, we've kind of made
Speaker 1: our money, we're done, or we have more room to go.
Speaker 1: So I was like coming out of the third quarter,
Speaker 1: I wasn't I wasn't inspired. Um, these stocks have done well,
Speaker 1: they're kind of good inflation hedges. Generally for commercial insurance,
Speaker 1: people have to buy it no matter what. UM. But
Speaker 1: that story may have played out a little bit through
Speaker 1: the year. UM the margin outlook is not if anything,
Speaker 1: it's it's negative revisions going forward. So I can see
Speaker 1: why it might have stalled out. What about the impact
Speaker 1: of Hurricane Ian very quickly, how much damage does that do?
Speaker 1: That was big? We think about sixty billion dollars for
Speaker 1: the industry. It's gonna cause Berkshire several billion UM, but
Speaker 1: very manageable and it might actually re accelerate some pricing.
Speaker 1: What's the explained to me? The reinsurance business, I'll give
Speaker 1: you twenty seconds to reinsurance business is insurance for insurance companies. Uh.
Speaker 1: It protects you, protects your top layer if you have
Speaker 1: a giant loss. So you say, okay, if I lose
Speaker 1: a billion dollars and I want the reinsurance company to
Speaker 1: take five hundred of it and I pay them a fee.
Speaker 1: And companies need that, specifically smaller ones in Florida, but
Speaker 1: everyone can use it as a bit of capital management.
Speaker 1: And is there any backup for the reinsurer or is
Speaker 1: that the government? There's retro reinsurance, which is reinsurance for reinsurance.
Speaker 1: Do we cover those companies? We cover some of those
Speaker 1: two most of them sell both of it. All right,
Speaker 1: gets done at insurance business. All I know is I
Speaker 1: just it just comes out of my check and I'm like, okay, whatever,
Speaker 1: I guess I'm insured. I guess I'm covered at the
Speaker 1: extent of my knowledge of instecturance. Is it so anyway?
Speaker 1: Matt Palozola, he knows it a lot better. Thank thankfully,
Speaker 1: he's a senior annalyst coming the property casualty insurance sector
Speaker 1: for Bloomberg Intelligence looking at this market here kind of
Speaker 1: just really not much conviction one way or the other. Uh.
Speaker 1: Kind of punched on the SP five today. Uh, and
Speaker 1: we'll see how well we get out of the FED tomorrow.
Speaker 1: All right. Sam Fazelli, he's in the Bloomberg Interactive Broker
Speaker 1: studio that is caused for celebration. He's the head of
Speaker 1: European Research. He's a pharmaceutical analysts. But the only time
Speaker 1: Critty we've ever wanted to talk to him over the
Speaker 1: last three years has been about COVID. But he actually
Speaker 1: has a day job. He actually does stuff. Yes, he
Speaker 1: actually has a day job. He's like one of the
Speaker 1: best pharmaceutical analysts in Europe. Uh, he's been doing it
Speaker 1: for decades. So now we can get back to just
Speaker 1: nuts and bolts pharmaceutical analysis. And these are mega companies.
Speaker 1: They do deals all the time. Another deal got done today.
Speaker 1: Let's talk about Sam. Some of the big companies reporting
Speaker 1: numbers here, So let's talk about Eli, Lily Viser. What
Speaker 1: are you seeing from some of these big companies. Because
Speaker 1: they they are global companies, they have to deal with
Speaker 1: the stronger dollar. UM what are you seeing from some
Speaker 1: of these big farmer companies. Yes, so all of them
Speaker 1: are obviously suffering is perhaps the right or wrong phrase,
Speaker 1: but suffering from the strength of the dollar. But but
Speaker 1: you saw that in Viser's case, it didn't really matter
Speaker 1: because it seems like governments wants to still soak up
Speaker 1: as much COVID vaccines as possible. So if you look
Speaker 1: at their beat today and look at their guidance rays
Speaker 1: which of course has got the stock up about three percent,
Speaker 1: is pretty much all to do with the community vaccine
Speaker 1: um and that's through government orders. Let's not forget this
Speaker 1: is not available to you and I to go and
Speaker 1: just buy in the shop. So which vaccine is community?
Speaker 1: It's called these covid vaccina. Okay, it's a catchy name,
Speaker 1: community rights better than some random exactly unpronounceable drug names.
Speaker 1: So that's been what's driving that stock. I mean, the
Speaker 1: dollar was really not a story for them, of course
Speaker 1: it is. It is impacted where it's a story for them.
Speaker 1: Lily was interesting because the stocks down four it was
Speaker 1: down a bit more the earliest up and the only
Speaker 1: reason they missed or they've reduced guidance is because of dollar.
Speaker 1: Now I would usually see through that, right, Whereas the
Speaker 1: base business for Lily is amazing. They've done a phenomenal
Speaker 1: job in bringing new drugs one after the other. And
Speaker 1: of course today Munjaro is the one that everyone's looking at.
Speaker 1: What is actual new diabetes drug with the best efficacy
Speaker 1: you've ever seen and it also helps you drop twenty pounds.
Speaker 1: So this is the drug that everyone's figured trying to
Speaker 1: figure out is it a ten billion or a fifteen
Speaker 1: or a twenty and some people have got some random
Speaker 1: numbers out there are a hundred billion market potentially for this.
Speaker 1: Such best advocacy you've ever seen for diabetes drugs yet
Speaker 1: interesting phenomenal, phenomenal HD and something science related, So I
Speaker 1: guess something sciences. Yes, But that stock poll, if you
Speaker 1: look at the multiple and you look at how far
Speaker 1: it's up this year and what the expectations are, I'm
Speaker 1: not surprised it's giving up a little today, but at
Speaker 1: the end of the day it is one of the
Speaker 1: best growth stories, similar to what we also see for
Speaker 1: astro Centco in Europe across farmer Alright. So when I
Speaker 1: look at so that that's Lily and we'll get to
Speaker 1: a big big sector column a second, but fightser with
Speaker 1: it's got such a big lift in their sales from
Speaker 1: the COVID drug. I'm looking at the f A function
Speaker 1: on the Bloomberg terminal, forty two billion of revenue in
Speaker 1: exploiting to eight billion, going to a close to a
Speaker 1: hundred billion this year, and then it drops pretty significantly.
Speaker 1: So if I'm an investor in Fighter, do I want
Speaker 1: to be anywhere near a story where I've got revenue
Speaker 1: declined significant declines. So that's the toughest thing. I've just
Speaker 1: come off the call, which is still going on, okay,
Speaker 1: and that is the question what's gonna happen in three Now.
Speaker 1: I put my neck on the line saying that I
Speaker 1: think vaccines are not going to do anywhere near the
Speaker 1: numbers have done this year next year, partly because I
Speaker 1: think people are just going to get over the idea.
Speaker 1: But they are doing clever things. Are you're combining it
Speaker 1: with the flu vaccines who just get one shot, and
Speaker 1: they're talking about pricing which is five or six times
Speaker 1: higher than numbers that have been charging governments, so you
Speaker 1: can make up for a lot of volume loss so
Speaker 1: I don't have to pay for they if I get
Speaker 1: a COVID shot next year. Next year. I mean, do
Speaker 1: you mind taking five to one percent of the cash
Speaker 1: you carry with you and pay you a hundred bucks
Speaker 1: for it? Probably not no, okay, but but you and
Speaker 1: I are not the people who catch for this. Right
Speaker 1: at the end of the day, you need the volume.
Speaker 1: And this is the problem that most people have right now.
Speaker 1: They don't know how to model. They've been saying, look,
Speaker 1: we'll give you as much of a guy that's possible.
Speaker 1: We have to wait till the twelfth of December when
Speaker 1: they have their they have an R and dcoll or
Speaker 1: the Endless Day. So okay. Well, speaking of the COVID vaccine,
Speaker 1: one of the major drivers this morning, at least in
Speaker 1: the pre market, was rumors that potentially China might be
Speaker 1: reconsidering their COVID's real policy. At some point, um tom
Speaker 1: Orlick a Bloomer Economics came up Bloomber Surveillance and said,
Speaker 1: the timeline of that is not going to be tomorrow,
Speaker 1: is not gonna be next week, It's going to be
Speaker 1: at the early if this is indeed true once again
Speaker 1: on UH confirmed rumors at the at the moment will
Speaker 1: be the first quarter of is that the time frame
Speaker 1: you would agree with. Yeah, I mean, look, the president
Speaker 1: ge doubled down or the company of the country has
Speaker 1: doubled down on the on the zero COVID. The problem
Speaker 1: they have is you cannot avoid deaths and infections even
Speaker 1: if you vaccinate the people, because not everybody responds to
Speaker 1: the vaccine. And also you have a situation where some
Speaker 1: of the vaccines will never give you the kind of
Speaker 1: protection that you want, even the ones that we have here.
Speaker 1: So whether I don't think that's driving the vaccine names here,
Speaker 1: because they've had the opportunity to have these vaccines in
Speaker 1: China for two years, over two years with BioNTech or Moderna,
Speaker 1: I think the Chinese are likely to be waiting to
Speaker 1: get something more regional, something that they have made, get
Speaker 1: that through to the market. So to that end, let
Speaker 1: me ask you a science question. Um, can't they just
Speaker 1: go and get a Visor vaccine, moderna vaccine they've being
Speaker 1: a Chinese government and scientists and just reverse engineer it
Speaker 1: and say, hey, we've now got our Chinese vaccine. Yeah,
Speaker 1: I mean, I don't think it's as easy as that
Speaker 1: because so there's so many steps involved in this manufacturer.
Speaker 1: You could try and make something similar to it. But
Speaker 1: what it will be identical or not? Who knows. I
Speaker 1: mean even the two vaccines are not identical between fis
Speaker 1: it right? Right? All right? So let's step back here.
Speaker 1: You're talking to your big institutional investor clients all over
Speaker 1: the world. What are they saying about Big Farmer? Do
Speaker 1: I buy it as a or is this something that
Speaker 1: it's already been a nice safe haven for me. I'm
Speaker 1: going to rotate out into some more maybe cyclical stuff. Yes,
Speaker 1: So really I want to bounce that back at you.
Speaker 1: Do you see the cyclical stucks moving? Because if that's
Speaker 1: the if the day that that people start making that decision.
Speaker 1: The defensives, including Parma Industrial, just put up its best
Speaker 1: month of October since nineteen seventy six, so there was
Speaker 1: a lot of like Caterpillar had some great numbers last week,
Speaker 1: you know, and and conversely the big tech companies, uh
Speaker 1: that I know well had some disappointing numbers. So maybe
Speaker 1: it's already starting to happen a little bit. Um you know.
Speaker 1: I don't know, but I think if I'm a big Farmer,
Speaker 1: I just think it's such a great place to be
Speaker 1: because they're big, they're growing um, lots of free cash flow,
Speaker 1: dividends and things like that. I'm just not sure what's
Speaker 1: the bear case for Big Farmer is always a part
Speaker 1: of my portfolio. I think that that pretty much makes
Speaker 1: sense to me because they have a phenomenal innovation that's
Speaker 1: going on, which is feeding off the fantastic work that
Speaker 1: scientists have been doing. That is, that is not the issue.
Speaker 1: The thing is, if you're talking five to ten years,
Speaker 1: there's very little doubt for me that that you need
Speaker 1: to have some exposure to Farmer because that is, there's
Speaker 1: always been cash generative. Even if the Inflation Reduction Act
Speaker 1: eventually bites the way that it's been doing, they have
Speaker 1: ways of getting away from its impacts. But really, I
Speaker 1: think this is definitely the case short term trading. Is
Speaker 1: that for the discussion, what are you drinking in the
Speaker 1: bordo these days? What did I have? I had a
Speaker 1: nice bottle of Villefery. Alright, two thousand and one sounds
Speaker 1: good to me. San Fazelli had of European Economic Research,
Speaker 1: Bloomberg Intelligence. All right, let's talk banks. Pretty We love
Speaker 1: talking banks and big global banks. We've seen some pretty
Speaker 1: solid numbers out of most of them. Uh, certainly the
Speaker 1: U S banks, But I want to break it down
Speaker 1: a little bit. I also want to talk about Credit
Speaker 1: Swiss my former employer, Alison Williams, senior global banks analysts. Also,
Speaker 1: what's the latest on Credit Swiss here? I mean yet
Speaker 1: another restructuring here. I kind of hear some M and
Speaker 1: A noise out there? What's the latest? Yeah, it's interesting.
Speaker 1: I mean I'm not I'm not sure why the M
Speaker 1: and A noise is surfacing today when they've you know,
Speaker 1: sort of made their announcements. They've they've already made the
Speaker 1: choice to UM dilute the current shareholders, shore of capital
Speaker 1: and sort of move on. And I think it's going
Speaker 1: to be a tough slog for the bank from here. UM.
Speaker 1: But you know, if if not now, I'm not sure
Speaker 1: when I guess if you will on on M and A. UM.
Speaker 1: I think that just given it a restructuring and things
Speaker 1: are chopping, maybe there continues to be UM noise around
Speaker 1: the bank. But I think that a lot of the
Speaker 1: rumors that sort of get circulated are UM. You know,
Speaker 1: it would be very difficult to come through fruition. So
Speaker 1: for example, credit suits combining with any other major bank,
Speaker 1: you know, there's the regulation. The regulations, especially involving crossboater
Speaker 1: regulations would really make it. Um, you know, it's not impossible,
Speaker 1: but close to that, Alison. I heard an analogy this morning,
Speaker 1: I believe I Charlie Wells over our London office, and
Speaker 1: he kind of said the way the buyers may be
Speaker 1: looking at credit sweez or potential buyers, I should say,
Speaker 1: was kind of like going into a suit shop and
Speaker 1: really just going to buy a tie, but then ending
Speaker 1: up buying the whole suit. Is that the way to
Speaker 1: think about this? I mean, I think that you're maybe
Speaker 1: one step farther than that today. Um, you know that
Speaker 1: I think that was the case. And why uh, you know,
Speaker 1: going sort of going into the announcement and so much
Speaker 1: speculation about what will they keep, what will they get
Speaker 1: rid of, what will they keep? You know? Um, but
Speaker 1: I think what what they sort of made clear is
Speaker 1: that you know, they're finally stepping away from some businesses
Speaker 1: that you know are not you know, adjacent to the chie.
Speaker 1: So you need you need a shirt and a collar
Speaker 1: to wear with the tie. Maybe the shirt is very
Speaker 1: integral with how the tide looks, but who cares about
Speaker 1: the pants? The pants are something that you wear but
Speaker 1: don't really impact how the tide looks. And so some
Speaker 1: of the businesses that they are getting rid of, the
Speaker 1: Security chie Product Group for example. You know, it's a
Speaker 1: great profitable business over time, but it tends to have
Speaker 1: its its worst performance in bad time, so that you know, always, uh,
Speaker 1: is not good to to sort of be made more
Speaker 1: that vulnerable and it really has nothing to do with
Speaker 1: their core wealth business. So you know, moving that out,
Speaker 1: moving ownership of that out. You know that it's still
Speaker 1: not finalized in terms of what the terms are going
Speaker 1: to be. I think those are kind of the things
Speaker 1: that people are waiting on, um. But I think they
Speaker 1: are you know, really trying to take a bigger step
Speaker 1: to hone the one the focus. We hear this from.
Speaker 1: You know, we've been hearing this from you know, banks
Speaker 1: like Deutsche Bank and Credit Suites for for multiple years.
Speaker 1: Deutsche Bank finally made the tough move, got rid of
Speaker 1: equities trading, focused on what they're good at, finally getting
Speaker 1: some benefit from the environment. Things are working out for them, um,
Speaker 1: you know, Credit Suites finally making some tougher choices. Like
Speaker 1: I said that the business is good, and I think
Speaker 1: that's why they didn't want to move away from it,
Speaker 1: but they really had to focus on, you know, protecting
Speaker 1: the core at this point, Alison, just real quick thirty
Speaker 1: seconds the Saudi National Bank now it's Credit Swiss as
Speaker 1: the bankrucy pushed back from the U S or Swiss
Speaker 1: governments on this. You know, there's there's obviously a lot
Speaker 1: of headlines around it. I'm not gonna go down that path,
Speaker 1: but um, you know that that's certainly something that's gotten
Speaker 1: intention in terms of who the shareholder is. Yeah, it's
Speaker 1: interesting to see how that plays out. But I guess
Speaker 1: at this point Credit Swiss needs the capital, uh and
Speaker 1: they know the Saudi National Bank. So good to get
Speaker 1: an update on Credit Swiss. Always seems to be in
Speaker 1: the in the news here today. Alison Williams, senior bank
Speaker 1: analyst for Bloomberg Intelligency is based in our Princeton office.
Speaker 1: Jolts numbers can be hire expected. We also had some
Speaker 1: ECO data coming out of the I s M kind
Speaker 1: of showing can continued I guess slow down in some
Speaker 1: of the manufacturing sector from the prior month. So all this,
Speaker 1: I guess adds up for the market saying hey, this
Speaker 1: fed you can keep raising rates. Here a little bit
Speaker 1: here to about that, So, lindsay, Pegsa. She does this
Speaker 1: for a living. She's the chief economist managing director at Stephle.
Speaker 1: So lindsay, again, some eco data today that seems to
Speaker 1: give maybe the Fed some more cover to continue to
Speaker 1: raise rates. How how do you think the next twenty
Speaker 1: four hours you're going to play out for our freed
Speaker 1: to reserve. Well, I think, as you mentioned, the decision
Speaker 1: this week is pretty much already baked into the cake,
Speaker 1: or baked into market expectations. The bigger question is how
Speaker 1: does the Fed frame the economic outlook for future policy adjustments,
Speaker 1: particularly as we come up with that final December summary
Speaker 1: of economic projections. Now, the Fed has consistently revised higher
Speaker 1: its forecast for rates and inflation by nearly two basis points,
Speaker 1: and I do expect that, given the backdrop of a
Speaker 1: still solid labor market, a five decade low in the
Speaker 1: unemployment rate, and a near four decade high and inflation,
Speaker 1: the Fed will continue to revise higher expectations beyond what
Speaker 1: the market is anticipating in terms of that terminal rate
Speaker 1: come twenty twenty three. Well, lindsay, if you're starting to
Speaker 1: see the market really hit consensus, which I want to
Speaker 1: say they did a couple of weeks ago, really, and
Speaker 1: all these investment banks are just now catching up. Cough
Speaker 1: cough Goldman. But I have to ask about why you're
Speaker 1: seeing so much bond market volatility. Then if the consensus
Speaker 1: is tomorrow fifteen December, February in March, well, it could
Speaker 1: be that the market consistently underestimates inflation. We look at
Speaker 1: the Bloomberg data and we see that forecasts are typically
Speaker 1: about fifty to even a hundred basis points below the
Speaker 1: reality of inflation. And looking right now, we're well above
Speaker 1: what the Fed anticipated would be the year end level
Speaker 1: of prices, and even further above, of course, the FEDS
Speaker 1: two target range. So it may be that the market
Speaker 1: is more looking at what it hopes to happen as
Speaker 1: opposed to what the Fed will need to do to
Speaker 1: realistically rain in price pressures, which, if we take the
Speaker 1: Fed at their word, they say that is their primary
Speaker 1: turn right now, their primary focus, willing to take more
Speaker 1: pain now in order to ensure longer run price stability
Speaker 1: for the economy. The bedrock, as German Powell tells us,
Speaker 1: of the economy, lindsay what's your recession and call here
Speaker 1: and a lot of folks are just wondering as are
Speaker 1: going to happen? Be how long will it be? See
Speaker 1: how deep wi it be? How do you frame that
Speaker 1: for your clients? Well, I think it's a pretty difficult
Speaker 1: outlook for the economy at this point. Should the Fed
Speaker 1: remain on this more aggressive pathway? I think a recession
Speaker 1: is all but ensured. But that being said, I do
Speaker 1: think the consumer is starting from a relatively stronger position
Speaker 1: than in previous cycles, and so we may have a
Speaker 1: bit more leeway or a bit more stability on the
Speaker 1: part of the consumer going forward, still at very low levels,
Speaker 1: but still in positive territory. That translates to me to
Speaker 1: a prolonged period of negative activity, but very minimal negative
Speaker 1: activity through before potentially getting back into a more robust
Speaker 1: position of economic strength as we come out in Lindsay,
Speaker 1: I've been asking all the guests this. You specifically mentioned
Speaker 1: how the commodities trade is perhaps baked into the market.
Speaker 1: Is it worth reconsidering the market consensus given that we
Speaker 1: have a potential windfall tax on oil companies that historically
Speaker 1: has shown to halt production, or I should at least
Speaker 1: stymy it and put make prices higher. At the same time,
Speaker 1: you have issues in the grains market. When it comes
Speaker 1: to Ukraine, we're talking about peak inflation being in the
Speaker 1: rare view mirror. But can we be sure of that? Oh,
Speaker 1: absolutely not. I think the risk to inflation is certainly
Speaker 1: to the upside. You talk about windfall taxes, international conflict,
Speaker 1: political and certainty overseas. All of these factors leave a
Speaker 1: lot of question marks when we talk about the longer
Speaker 1: term trajectory of agricultural commodity energy costs, all playing into
Speaker 1: how that's going to affect broader based inflation here in
Speaker 1: the US. So the notion that we're going to see
Speaker 1: this nice, steady downward trajectory of prices allowing the FED
Speaker 1: too nice and neatly back off from rate increases, that
Speaker 1: seems a bit too easy, if you will, and certainly
Speaker 1: premature relative to what we're seeing in terms of market volatility.
Speaker 1: So I am not quite on board yet that the
Speaker 1: worst of that the scenario in terms of price pressures
Speaker 1: is behind us. Lindsay, what's your call on the consumer here?
Speaker 1: We're going to obviously get some jobs data on Friday.
Speaker 1: How resilient is this is this consumer in your mind
Speaker 1: going forward? Well, I do think the consumer has a
Speaker 1: certain number of variables are adding that are adding temporary support.
Speaker 1: Consumers are increasingly willing to eat through the remaining savings
Speaker 1: that they have. They've also been benefited by some additional
Speaker 1: state and local stimulus that has come down the pipeline,
Speaker 1: with nearly a dozen states or large governments to the
Speaker 1: large cities implementing another round of direct payments. We also
Speaker 1: see consumers increasingly turn learning to credit card debts or
Speaker 1: other sources of debt to supplement their spending. So all
Speaker 1: of these factors together have been able to provide some
Speaker 1: temporary support that is likely to linger for some time,
Speaker 1: maybe one to three months, maybe longer. Now it's certainly
Speaker 1: not enough to provide robust consumer activity. We're not talking
Speaker 1: about four or five six percent growth, but we are
Speaker 1: still talking about positive activity in the range of one
Speaker 1: to two percent real spending, which should be enough to
Speaker 1: help provide again at least a floor to economic growth
Speaker 1: as we fall back into negative territory presumably in the
Speaker 1: fourth quarter. All right, lindsay, really good stuff, really really
Speaker 1: appreciate getting your time, your perspective. That's Lindsay Peza, chief
Speaker 1: economist and managing director over at Stifle. Well, we're a
Speaker 1: week away from mid term elections. There's several key states
Speaker 1: that have some competitive races, and that's obviously going to
Speaker 1: have an impact on control of the House and Senate.
Speaker 1: One of the swing votes, or one of the areas
Speaker 1: that you know these politicians are trying to attract, is
Speaker 1: the labor vote. So we want to get a sense
Speaker 1: of how that might break. So we welcome Kip Iberg,
Speaker 1: Senior vice president of Government and Industry Relations for the
Speaker 1: Association of Equipment Manufacturers. Kim, thanks so much for joining
Speaker 1: us here. I guess it's my working assumption that labor
Speaker 1: typically supports the Democratic Party. Is is that generally true?
Speaker 1: And is that expected to be true here in these midterms? Well,
Speaker 1: thanks for having me on, Paul, and and it might
Speaker 1: have been true once upon a time, but it is
Speaker 1: h not true today. And and in fact, the manufacturing vote,
Speaker 1: the labor vote, as you refer to it, is very
Speaker 1: much up for swing with one week out to the election,
Speaker 1: and what our industry are looking for two point eight
Speaker 1: million voters is concrete proposals from candidates up and down
Speaker 1: the ballot on how to write are economic ship, how
Speaker 1: to get the economy back up and running, and how
Speaker 1: to make sure that our industry, manufacturing, US manufacturing continue
Speaker 1: to drive the US economy. So, Kip, there was a
Speaker 1: lot of, I guess discussion that during the beginning of
Speaker 1: pandemic about reassuring or on shoring some of the manufacturing
Speaker 1: that had been off short and we really felt the
Speaker 1: pain when China shut down, for example, and we couldn't
Speaker 1: get you know, chips and things like that. Is that
Speaker 1: something that your members feel like it's a reality. Can
Speaker 1: some of that manufacturing be brought back to the US.
Speaker 1: It can? And And to address your your first point,
Speaker 1: you know, we recently surveyed hundred top manufacturing CEOs and
Speaker 1: they said that there is still an urgent need to
Speaker 1: boast American competitiveness by addressing supply chain challenges still labor shortages,
Speaker 1: and trade and balances. And if you do not address
Speaker 1: those three things, it's going to continue to be difficult
Speaker 1: for you as manufacturers to make things in America, you know,
Speaker 1: in a competitive way. And so we have seen some
Speaker 1: great improvements since the pandemic, but we are still not back, Paul,
Speaker 1: to where we were in late and you know the
Speaker 1: only way to do that is to again invest in
Speaker 1: the American work or right shore up our supply chains.
Speaker 1: We've seen some progress through some legislation that Congress passed
Speaker 1: earlier this year, the Chips Act at the Oceanship were formact,
Speaker 1: but you know, supply chains are still squishy, uh, And
Speaker 1: you know we still have you know, shortages of skilled labor,
Speaker 1: and you know we're still dealing with tariffs. So all
Speaker 1: those three things are opportunities for candidates out on the
Speaker 1: stump right now, you know, to talk to voters about
Speaker 1: how they plan to address that. And unfortunately we're still
Speaker 1: seeing a whole lot of polemics and not enough policy.
Speaker 1: What about the f X picture of it, There seems
Speaker 1: to be a lot of questions about whether or not
Speaker 1: it actually makes sense to have a lot more near
Speaker 1: shoring or manufacturing if there is still this long term
Speaker 1: bowl case for the dollar. How does FEX play into
Speaker 1: all of this? But that's a that's a great question
Speaker 1: creating and I think look, anytime you can locate, in
Speaker 1: our case, suppliers close to the manufacturing operations, that's always
Speaker 1: going to be good news for our industry and for
Speaker 1: US manufacturing as a whole. And I think the one
Speaker 1: lesson that we've learned certainly as an industry coming out
Speaker 1: of the pandemic is that, you know, there's been a
Speaker 1: lot of advantages to global supply chains over the years
Speaker 1: in terms of competitive pricing and being able to source
Speaker 1: components from from different markets. So if one market is down,
Speaker 1: you can pivot easily to another one. But that only
Speaker 1: works if we can actually move goods seamlessly, you know,
Speaker 1: from one part of the world to another, and I
Speaker 1: think right now the jury on whether we can continue
Speaker 1: to do so it's still out. So we are very
Speaker 1: much looking as an industry at how can we both
Speaker 1: the relationships with suppliers more locally, whether it's down the road,
Speaker 1: whether it's you know, within the state, or whether it's
Speaker 1: within the country. And French shoring certainly you know, placed
Speaker 1: into that as well, but particularly with the sort of
Speaker 1: geopolitical realignment that we're seeing right now, what going on Ukraine,
Speaker 1: questions about China are the long term partner. You know,
Speaker 1: more and more of our industries looking to move operations,
Speaker 1: whether it's you know, manufacturing or suppliers from you know, Asia,
Speaker 1: from other parts of Eastern Europe, Russia, back to the
Speaker 1: US or back to friendly countries where we had long
Speaker 1: term strategic relationships with kept talking us about the labor
Speaker 1: situation in your industry among your members. Here we here
Speaker 1: just time and time again from companies across the economic
Speaker 1: spectrum and many different industries that it's just really really
Speaker 1: difficult to attract and retain talent. How's it in your industries? Well,
Speaker 1: looking at the next decade, Paul, we're facing up to
Speaker 1: depending on again on obviously on the economic outlook for
Speaker 1: our industry, but we could be facing a shortage of
Speaker 1: up to a million UH, skilled laborers in our industry.
Speaker 1: And you know, as you're trying to get back to
Speaker 1: where we were before the pandemic. And by the way,
Speaker 1: I should say demand for many of our members products,
Speaker 1: it's through the roof. Many of them have all sold
Speaker 1: out all their inventory for next year. UH. And the
Speaker 1: only way that we can continue to to expand and
Speaker 1: to capitalize on strong demand is through you know, the
Speaker 1: skilled labor force. And it's just not there. And and
Speaker 1: this is a big problem not just for our industry
Speaker 1: but for US manufacturing. Not enough young people want to
Speaker 1: explore careers in manufacturing and we've got to figure this
Speaker 1: out as a country. How do we put a premium
Speaker 1: on skilled labor, on learning a trade versus you know,
Speaker 1: going through a four year you know, college degree. It
Speaker 1: is not for everyone, and you know, if we pursue
Speaker 1: that path, we're going to continue to be in a
Speaker 1: world of hurt. So you're you you represent a trade
Speaker 1: group that represents off road heavy equipment manufacturers across North America.
Speaker 1: So would an example be a Caterpillar or a Deer
Speaker 1: or something like that. Yeah, that's correct. We have a
Speaker 1: thousand member companies ranging from those two that you just
Speaker 1: mentioned all the way down to a lot of small
Speaker 1: family owned companies that make both equipment and parts. So
Speaker 1: is that I mean in terms of feeling that labor need,
Speaker 1: is that you know, you know, may be increasing support
Speaker 1: for trade schools or just the trades within the high
Speaker 1: school situation, because we hear the same thing from lots
Speaker 1: of other industries, whether it's a transportation industry or others. Yeah,
Speaker 1: it's it's all above right, It's it's more support, more
Speaker 1: investment in community coologists, in trade schools, um in apprenticeship
Speaker 1: program we our industry has had some success with that,
Speaker 1: but we need more of it. But I think it's
Speaker 1: also shift uh in in people's outlook on education, what
Speaker 1: it means to have a good education. And I think
Speaker 1: you know, what was true two decades, three decades, four
Speaker 1: decades ago is no longer true. You can have a
Speaker 1: great career in manufacturing our industry past above the national
Speaker 1: average UM, and you can get a job right now, Paul,
Speaker 1: if you walked into a member company and you said
Speaker 1: you wanted to become a welder, they will train you
Speaker 1: while paying your full salary and benefits, and you will
Speaker 1: have a guarantee job after a year when you know
Speaker 1: how to well. I mean, those are the kinds of
Speaker 1: jobs that we need to create more of in this country.
Speaker 1: All right, Kip, good stuff. They're appreciate getting your perspective there.
Speaker 1: Kip Idberg a senior vice president Government and industry Relations
Speaker 1: for the Association of Equipment Manufacturers again the off road
Speaker 1: heavy equipment that's across North America. Again, they have over
Speaker 1: one thousand company members across two product lines, so they
Speaker 1: represent a pretty big swath of the labor force in
Speaker 1: industrial America. Thanks for listening to the Bloomberg Markets podcast.
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
Speaker 1: on Twitter at Matt Miller three. Put on fall Sweeney
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Speaker 1: can always catch us worldwide at Bloomberg Radio