Speaker 1: This is Bloomberg Business Week. I'm Karl Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanavak. We're here every day bringing
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Speaker 1: You can also listen to our radio show at two
Speaker 1: pm Eastern Time on Bloomberg Radio, or watch us on
Speaker 1: YouTube search Bloomberg Global News. The ys are fifty, the
Speaker 1: names are fifty, the Senate being equally divided, the Vice
Speaker 1: President votes in the affirmative, and the bill as amended
Speaker 1: is past. All right, of course, you can hear the
Speaker 1: clapping after Vice President Kamala Harris taking that vote, and
Speaker 1: after a weekend marathon legislative session, the US Senate passing
Speaker 1: a tax, climate and energy bill. This is a big
Speaker 1: piece of the Democratic economic agenda and a big win
Speaker 1: for them as well. So let's get to it. What
Speaker 1: does it mean? What does it mean for the mid terms.
Speaker 1: Let's bring in Joe Matthew. He's Bloomberg Washington correspondent, host
Speaker 1: of Bloomberg Sound On at five pm Wall Street Time
Speaker 1: right here on Bloomberg Radio. Joe joining us from our
Speaker 1: Bloomberg nine and I One studio in Washington, d C. Joe,
Speaker 1: I always want to say, it's nothing like an August
Speaker 1: recess deadline to perhaps get the U. S. Congress to
Speaker 1: get something done legislatively. But I feel like there were
Speaker 1: a lot of forces at work. As you kind of
Speaker 1: think about what happened this weekend, what are your big takeaways? Well,
Speaker 1: I mean, look, Chuck Schumer called it a long and
Speaker 1: winding road, and I've been I've been humming Paul McCartney
Speaker 1: all day today, even though we're not quite done yet.
Speaker 1: The House votes at the end of this week. But
Speaker 1: I mean, really, if you stop and think about, uh,
Speaker 1: the the evolution this is goes back over a year.
Speaker 1: This is back what we called build back Better. There
Speaker 1: were this was a five trillion dollars something or other
Speaker 1: idea when it first emerged. Then it was three, then
Speaker 1: it was one and a half, then it was child
Speaker 1: tax credits. There were so many different version of this,
Speaker 1: different names, different contents, but Yeah, this has been just remarkable,
Speaker 1: and it had been left for dead of course at
Speaker 1: the end of last year, left for dead multiple times,
Speaker 1: even this year when Joe Manchin saw the most recent
Speaker 1: CPI UH numbers. So you know, frankly, it seemed to
Speaker 1: defy gravity. To be honest with you, the question about
Speaker 1: whether this helps anyone on the mid terms, you know,
Speaker 1: ask me on Halloween what the price of gases? That's
Speaker 1: the best answer I think I have for you. Well, Joe,
Speaker 1: you stole my question. That's what I wanted to ask.
Speaker 1: Whether this is do it again any bearing on the
Speaker 1: midterm elections or like you said, is this all about
Speaker 1: the price of gas and the cost of living right now? Yeah,
Speaker 1: inflation is it's it's gonna be pretty hard to beat
Speaker 1: as issue number one. But then again, look at Kansas
Speaker 1: last week. You know, we saw this this abortion vote
Speaker 1: that blew people out of the water. It defied all expectations.
Speaker 1: So there are some unquantifiable UH factors in this mid
Speaker 1: term election that may or may not mobilize Democrats to
Speaker 1: hit the polls. For instance, will will progressives reward Democrats
Speaker 1: for the biggest climate spend in history? This bill has that.
Speaker 1: It also extends Obamacare and keeps several million people from
Speaker 1: losing their coverage. So, you know, there are different ways
Speaker 1: to look at this, but the history is still on
Speaker 1: the side of the Republicans. One of the questions that
Speaker 1: we've had, if I can get a little bit more geeky,
Speaker 1: is you know, is this gonna be a washout for
Speaker 1: Dems or can they in fact hold the Senate or
Speaker 1: even gain a seat. That conversation is becoming a lot
Speaker 1: more real right now. It's likely they will lose the House,
Speaker 1: but it's not likely at this point at least that
Speaker 1: they lose both. That is really interesting. I guess what
Speaker 1: I find also interesting? Maybe I just don't understand politics.
Speaker 1: It's just, you know, it seemed like nothing could get done.
Speaker 1: What what happened on the Republicans. I mean, although Kamala
Speaker 1: Harris had to really do the deciding vote. But is
Speaker 1: there a change in tone at all in terms of
Speaker 1: the Republicans? Okay, or the or the influence of of
Speaker 1: Donald Trump. It's really incredible to hear the talking points, Carol.
Speaker 1: I mean, I don't know what people who don't follow
Speaker 1: us every day must think. It's called They called it
Speaker 1: the inflation Reduction Act, and every Republican who has spoken
Speaker 1: around it, including on the Sunday morning shows yesterday, said
Speaker 1: it'll in fact make inflation worse. So wait a minute,
Speaker 1: someone's lying to me here. I mean to be that
Speaker 1: far apart on talking points is partly why people hate Washington.
Speaker 1: It's also why they don't understand what goes on here.
Speaker 1: And Republicans will try to hang this around the next
Speaker 1: of Democrats saying that you know, we had inflation, they
Speaker 1: just spent another seven hundred and fifty billion dollars, even
Speaker 1: though that's not accurate. Rick Scott, the Senator from Florida Republican,
Speaker 1: yesterday said it should be renamed the War on Seniors Act.
Speaker 1: Even though we're lowering. This bill lowers the price of
Speaker 1: prescription drugs for those on Medicare. So just got about
Speaker 1: thirty seconds here. Is is this a movement forward for Americans?
Speaker 1: For citizens? I let others make that determination. But look,
Speaker 1: there is deficit reduction in here we were supposed to
Speaker 1: like at right, there will be lower drug prices. Whether
Speaker 1: you think that eats into the R and D accounts
Speaker 1: of major pharma that has yet to be determined. I
Speaker 1: guess having several million people not lose their health insurance
Speaker 1: is probably a good thing. Doing it with only one party, though,
Speaker 1: is pretty tough, and it really reinforces the divisions in
Speaker 1: this country. Well, bottom line, I heard somebody I think,
Speaker 1: talking with David Weston earlier on Bloomberg TV talking about
Speaker 1: this is another trillion dollars that gets essentially pumped into
Speaker 1: the economy. I mean, right, this is more money that
Speaker 1: gets pumped in, and so you do wonder what impact
Speaker 1: that will have on kind of our pricing. Just to
Speaker 1: keep in mind though, it does pay for itself. That
Speaker 1: we know from the CBO. It raises enough money to
Speaker 1: cover the programs and to lower the deficits. So this
Speaker 1: is not as opposed to, for instance, the tax bill
Speaker 1: in seventeen we keep hearing about that was entirely deficit spending.
Speaker 1: So if this lowers the deficit, you know, the econ
Speaker 1: one on one guy in my head would tell me
Speaker 1: that's good. Okay, I'm gonna leave it there. Jill Matthew,
Speaker 1: thank you so much. Hosted Bloomberg Sound On. This is
Speaker 1: Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes.
Speaker 1: Tim Stinovic on Bloomberg Radio on Bloomberg Radio. As Carol
Speaker 1: said earlier, we're really at the tail end of earning season,
Speaker 1: and I want to talk about that with Brendan Case.
Speaker 1: He's a big box retail reporter for Bloomberg News. He
Speaker 1: joins us on the phone from Dallas, and Brendan the
Speaker 1: words stagflation. Sometimes. I used to tweet about it and
Speaker 1: I'd get a lot of snarky replies. It used to
Speaker 1: be sort of a taboo sort of word. But in
Speaker 1: your latest piece for Bloomberg Business Week, you write that
Speaker 1: stagflation puts stamp on earnings of US consumer giants. What
Speaker 1: did we learn this past reporting season? Yeah, you know,
Speaker 1: one of the big lessons coming out of the earning
Speaker 1: season for consumer goods companies is that a lot of
Speaker 1: them are starting to report declines in unit volumes, and
Speaker 1: so their sales typically you know, in dollar terms, are
Speaker 1: going up, uh, fairly moderately. Um. Their prices are going
Speaker 1: up lot, but their volumes are going down. Um. And
Speaker 1: what I think you're starting to see there is just
Speaker 1: the kind of demand destruction from rising prices, with consumers
Speaker 1: starting to say, you know, what can't happen anymore? I
Speaker 1: got to spend more on food and fuel and I'm
Speaker 1: just going to have to buy less stuff. So bottom line,
Speaker 1: it's the dollar amount of stuff being sold is going out,
Speaker 1: but that's because of higher prices, but the individual units
Speaker 1: being sold are going down, which is an indication of
Speaker 1: consumers backing off. Is that fair? Yeah, that's fair. And
Speaker 1: if you take a look at a company like let's say,
Speaker 1: canagraa craft hinds um, you know, they don't break it
Speaker 1: out by product line, but what could be the case,
Speaker 1: just to take hypothetical example of the product is that
Speaker 1: maybe um, you know, a box of mac and cheese
Speaker 1: mix costs more than it did a year ago by
Speaker 1: quite a lot, and some customers are saying, I'm gonna
Speaker 1: have to buy a little bit less of that because
Speaker 1: of the price increase. And so Brendon earning season is
Speaker 1: so important, not just because we get the numbers, but
Speaker 1: we also hear from the executives themselves, the c suites,
Speaker 1: uh sort of voices And when it comes to stagflation
Speaker 1: in this dynamic you're describing where you know the dollar
Speaker 1: amount is going up, but you know the actual number
Speaker 1: of units sold as going down. What has the messaging
Speaker 1: been like, Well, the messaging so far is not it?
Speaker 1: You don't you don't hear many people hitting the panic.
Speaker 1: But let's let's let's say that these are all companies
Speaker 1: that recorded big gains in sales during the pandemic. You know,
Speaker 1: people staying at home, buying a lot more stuff, a
Speaker 1: lot more consumer goods, UM, and you know, many cases.
Speaker 1: The last couple of years, the challenge for the companies
Speaker 1: was just to keep up with demand. Now that you
Speaker 1: see demand coming down, UM, you're not quite at the
Speaker 1: point yet where companies are saying this is gonna be
Speaker 1: a huge problem for us, because they can still raise prices.
Speaker 1: You know, for twenty years, there was almost kind of
Speaker 1: a taboo against raising prices, and now that's long gone. Um,
Speaker 1: and a company can pretty easily raise prices right now.
Speaker 1: And the decline in the unit volumes is not really
Speaker 1: serious enough yet for companies to start saying, wow, this
Speaker 1: is gonna be a big problem for us. You could
Speaker 1: start seeing that next year, but for now, they that
Speaker 1: they seem pretty content, and investors seem pretty content accepting
Speaker 1: that these companies are just going to pull the pricing
Speaker 1: lever a little bit. Even if that means volumes will
Speaker 1: come down, it does don't feel like um Brendan And
Speaker 1: it's a tale of two retail sectors because it does
Speaker 1: seem at the lower end. We've seen some of this,
Speaker 1: and maybe it's not fair to say lower end, but
Speaker 1: Walmart certainly plays to a certain you know, economic um
Speaker 1: spectrum in our world. Target to like they have both
Speaker 1: you know, cut some of their prices, slash prices if
Speaker 1: you would, as you say in your story for some
Speaker 1: of their product lines. So that's not not everybody, Not
Speaker 1: every retailer is able to kind of keeping raising prices. Yeah,
Speaker 1: and you know what, we'll we'll get a little more
Speaker 1: insight next week because Walmart and Target will report their
Speaker 1: full results. Um, sort of at the very tail end
Speaker 1: of the earning season. UM. I think what you're seeing
Speaker 1: with them is that they're very busily raising a lot
Speaker 1: of prices throughout the store. However, there are some particular
Speaker 1: areas Walmart cited apparel, Target cited kitchen appliances and patio furniture,
Speaker 1: some areas where they have had to be aggressive, a
Speaker 1: lot more aggressive than they wanted to be in in
Speaker 1: cutting prices. UM. It's hard to figure out exactly how
Speaker 1: that all nets out. UM. I do think that you know,
Speaker 1: probably when it comes to grocery, UM, you know, consumers
Speaker 1: are paying more than they were, and those companies are
Speaker 1: able to raise prices more than has typical UM in
Speaker 1: the past. Will probably learn a little bit more about
Speaker 1: it next week, But I do think that your characterization
Speaker 1: is very accurate. UM. Walmart, you know, says that it
Speaker 1: serves basically a broad cross section of the US population.
Speaker 1: I take that to be true, but I do think
Speaker 1: that their clientele skews a little towards the lower end
Speaker 1: of the spectrum, and they've been pretty candid about how
Speaker 1: general merchandise sales especially are really starting to suffer. And
Speaker 1: Brendon talk about sort of the other end of the spectrum,
Speaker 1: the wealthier customers, because you do write that there is
Speaker 1: a rare breed of consumer companies that have been able
Speaker 1: to boost both prices and their unit sales. That's right.
Speaker 1: You know, you're seeing you're seeing some luxury retailers that
Speaker 1: are doing fine, if not quite well in many cases, UM,
Speaker 1: and even you see that, UM, you know, outside of
Speaker 1: of of luxury. But if you take a company like Costco, UM,
Speaker 1: you know, Costco's clientele very definitely skews a little more
Speaker 1: towards the higher end of respect drum. They up until
Speaker 1: July had been reporting double digit gains in comparable sales
Speaker 1: excluding gasoline, and so clearly they're you know, selling a
Speaker 1: lot of stuff and able to to to raise prices
Speaker 1: for it. It was in a costco parkinglat I did
Speaker 1: not go in, but it was a little hectic. Um. Hey, Brendon, Sue, Okay,
Speaker 1: we have a really smart audience, investor audience who's listening
Speaker 1: to what you're saying. So I'm trying to figure out
Speaker 1: what does this mean for these consumer based companies potentially
Speaker 1: going forward, and what does it, if anything, kind of
Speaker 1: tell us more broadly about the US consumer and the
Speaker 1: US economy. Yeah, fact, And I think when you think
Speaker 1: about it in in broad terms, I think what it
Speaker 1: tells us is that many consumers, certainly at the lower
Speaker 1: end but really throughout the entire income spectrum, are starting
Speaker 1: to notice price increases and starting to um to take
Speaker 1: action their start and to pull back a little bit.
Speaker 1: That is probably more and more true the lower that
Speaker 1: you get on the income scale, where people you know,
Speaker 1: just don't have the funds to keep buying the way
Speaker 1: they did during the pandemic. What it means for the
Speaker 1: company's Well, you know, that's going to be something that
Speaker 1: we'll have to see because that just sort of feeds
Speaker 1: into the whole debate on what kind of a you know,
Speaker 1: could you get a soft landing, what's going to happen
Speaker 1: with the economy. Job creation is so robust that if
Speaker 1: you know, you could imagine a scenario where price increases
Speaker 1: start to start to moderate and get a situation where
Speaker 1: maybe you get stable volumes as opposed to declining volumes
Speaker 1: with a little less price infection. Great story among the
Speaker 1: most right on the Bloomberg Today. Brendan Kase, big box
Speaker 1: retail reporter up Bloomberg News on the phone from Dallas.
Speaker 1: It's also a story you can find in the current
Speaker 1: issue of Bloomberg Business Week. This is Bloomberg Journal. Yeah,
Speaker 1: but you let me drive? No, no, no, who's home?
Speaker 1: Oh right, please, I'll do the riding gravels. I want
Speaker 1: to drive. It's good question to drive. This is the
Speaker 1: drive to the Clothes to think Well Drier up down
Speaker 1: on Bluebird Radio, and we've got just about ten and
Speaker 1: a half minutes left to end the Monday trading session.
Speaker 1: It is time for the Drive to the close. David
Speaker 1: Deet's managing principal and senior portfolio strategist at Peapack Private
Speaker 1: Wealth Management, roughly not in a half billion of assets
Speaker 1: under management. He joined us on the phone from Summit,
Speaker 1: New Jersey. David, nice to have you here with Katie
Speaker 1: and myself on this Monday. Interesting trade tech really under
Speaker 1: some pressure, although I should even say that right now
Speaker 1: it's just little change. Um, what's on your mind on
Speaker 1: this Monday? Well, Carol, good to be with you and
Speaker 1: Katie this afternoon. Gee. You know I still think in
Speaker 1: inflation and the Fed is issue number one. Um. We
Speaker 1: were looking at, of course that second quarter in a
Speaker 1: row of week GDP growth or negative GDP growth, and
Speaker 1: some indicators showed that the economy was slowing. But then
Speaker 1: of course everything changed on Friday when we had the
Speaker 1: lowest joblessness in nine and very strong um increases in
Speaker 1: earnings and so forth, which has put inflation back in
Speaker 1: the forefront. It doesn't seem that we were seating, and
Speaker 1: that means what does the FED do? And now of
Speaker 1: course people are ramping up bets that we'll see another
Speaker 1: three quarter uh point increase UM in the FED fund
Speaker 1: trate come September one bank is to talk about one percent.
Speaker 1: And so we're in this period where you know, you
Speaker 1: still have a very aggressive FED and that puts a
Speaker 1: lot of uncertainty as to where interest rates are going
Speaker 1: and therefore what valuation should be on stocks. Yeah, and
Speaker 1: I mean I was going to ask, within that environment,
Speaker 1: all of that uncertainty and just watching every data point,
Speaker 1: how do you structure portfolio around that? Where do you
Speaker 1: find opportunity? Right now? So we're you know, what we're
Speaker 1: trying to you know, on a monthly basis here rebounds
Speaker 1: to our longer term targets. Were not trying to make
Speaker 1: a short term bet last month, of course, with the
Speaker 1: big sell off UH following some very strong metrics on
Speaker 1: inflation the prior month, we added to equities. Right now,
Speaker 1: we're pulling back where we're a little cautious here. I mean,
Speaker 1: we've seen the SMP five rio just since mid June.
Speaker 1: I think the NASTAC one at one point today was
Speaker 1: up twenty from that low. So this is the time
Speaker 1: to probably take some chips off the table. I think
Speaker 1: all eyes are going to be on Wednesday's inflation report.
Speaker 1: If that's hotter that expected, expect to pull back, particularly
Speaker 1: amongst on those megacaph tech socks, and maybe a rotation
Speaker 1: back into some of those materials energy names which have
Speaker 1: not participated as much in July. So you said, so
Speaker 1: you would recommend investors do some selling when it comes
Speaker 1: to the pretty trade right now, we would take some
Speaker 1: chips off the table. Yeah, yeah, that that that means
Speaker 1: selling rebalanced. I mean, we had one of the best
Speaker 1: months we've seen in many, many years in July. To
Speaker 1: take advantage of that, because these uncertainties are still here.
Speaker 1: I mean, you know, for example, in Video, which is
Speaker 1: our largest chip maker, came in with a big warning
Speaker 1: in terms of expectations, taking down the whole chip sector.
Speaker 1: That's a major component of tech, which is a major
Speaker 1: component of the economy. So therefore, I think investors have
Speaker 1: to be cautious. It sounds like you need to be
Speaker 1: a pretty active trader. So when do you, David, I
Speaker 1: get back to, okay, long term fundamentals. I mean, you know,
Speaker 1: most of you guys say, if you're you're investing for
Speaker 1: the long term, so ride out these bumps. Why is
Speaker 1: it now not a time to ride out the bumps?
Speaker 1: And as you said, take some chips off the table
Speaker 1: versus if you believe in these long term strategies, just
Speaker 1: you know, kind of hold it. Yeah, well, I mean, uh,
Speaker 1: you know, certainly we're looking for excessive swings in terms
Speaker 1: of sentiment up and down. I think I appreciate what
Speaker 1: you're you're saying. We're very long term. We're not talking
Speaker 1: about selling out an entire portfolio or jumping in with
Speaker 1: all of our cash. We're just trimming on the edges
Speaker 1: here that gives ourselves just a little bit of dry powder.
Speaker 1: We have a number of names in for example, energy,
Speaker 1: in financial services, even some gold companies that we'd like,
Speaker 1: we'd like to build up just a little bit of
Speaker 1: cash there so we can take advantage of it. If
Speaker 1: we remain fully invested at all times. Uh, you know,
Speaker 1: how do we take advantage of opportunities? And there will
Speaker 1: be you know, we're August in September historically have been
Speaker 1: tough months, so you know, we'll probably see stock prices
Speaker 1: lower than they are today at some point over the
Speaker 1: next sixty days. And I'm suious. So when you're you know,
Speaker 1: taking chips off the table, keeping powder dry to maybe
Speaker 1: sees on some opportunities, are you sitting in cash? I mean,
Speaker 1: what does the other side of maybe you know, selling
Speaker 1: out of the margins of your port folio looked like yes,
Speaker 1: so that's a that's a great question. You know, typically
Speaker 1: not cash because it's yielding so little, although that's changed
Speaker 1: dramatically over the last twelve months. But I think short
Speaker 1: term dated fixed income. I mean, we know the headline
Speaker 1: here is that the two year treasury is yielding substantially
Speaker 1: more than the ten year treasury, So why would you
Speaker 1: go out to the ten year if you're taking chips
Speaker 1: off the table to ultimately read deploy. So depending on
Speaker 1: the amount of cash you're talking about, to make sure
Speaker 1: the transaction costs aren't excessive, you might be going into
Speaker 1: the into the twelve month or twenty four month treasury
Speaker 1: um waging things out. We don't want to take a
Speaker 1: lot of risk in our bond portfolio because we like
Speaker 1: to be taking that risk in stocks when the opportunities
Speaker 1: present themselves. We don't want all of a sudden say hey,
Speaker 1: the stock markets down, let's do something, and then have
Speaker 1: a bunch of junkie bombs that are also under pressure
Speaker 1: for the same reasons. All right, So the names that
Speaker 1: you do like and you you kind of refer to
Speaker 1: them more broadly. I think before um capital one, Newmont,
Speaker 1: and Heuser Busch. Intel is our common theme among these
Speaker 1: names dividends. Hey, you know, let's take a look. Let's
Speaker 1: let's take a look at Numon here. You know, it's
Speaker 1: basically a gold investment, is the only one. The s
Speaker 1: is down about half from its high. You know, everyone
Speaker 1: says gold doesn't pay a dividend. True, Newmon pays close
Speaker 1: to five and they have almost no debt. I mean,
Speaker 1: goal's been out of favor for so long. Why there's
Speaker 1: been no inflation, and now you have cryptos that take
Speaker 1: the place of fiat curtsies. Guess what we have inflation?
Speaker 1: Guess what cryptos aren't doing so well? So people could
Speaker 1: come back to gold and collect that four point nine
Speaker 1: percent dividend while you're weighing their diverse side over four comes.
Speaker 1: And of course they also have exposure to other base
Speaker 1: materials like copper, which could uh seem to be playing
Speaker 1: a role in evs and so forth. So that's from
Speaker 1: one example. And I you said, you're not really taking
Speaker 1: risks in your bond portfolio. We only have about thirty
Speaker 1: seconds left foot. What does that look like? Is that
Speaker 1: just treasuries. Yeah, So first of all, we like to
Speaker 1: put the fixed income and the tax sheltered portfolios so
Speaker 1: that we don't have to deal with lesser yielding muties.
Speaker 1: We like taxable muties a lot because they give more
Speaker 1: yield than taxis have ones because you have to pay
Speaker 1: tax down if we hold in the I RA s,
Speaker 1: no taxes, um and so um. That's that's a favorite agencies.
Speaker 1: Some treasuries. We do own some corporates, but guess what
Speaker 1: stocks are all issued by corporations. So to get into
Speaker 1: enhanced diversification, we take a lighter touch in terms of
Speaker 1: corporate bombs in our portfolios. All right, Can I leave
Speaker 1: it on that note, Hey, David, thanks so much. David
Speaker 1: Deeds he senior Portfolio Strategies at Pepack Private Wealth Management,
Speaker 1: joining us once again on the phone from Summit, New Jersey.
Speaker 1: Thanks for listening to Bloomberg Business Week. Download the podcast
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