Speaker 1: This is Bloomberg Business Wait inside from the reporters and
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Speaker 1: global business finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2: So we just talked with the team, right Tim, about
Speaker 2: KBW Bank Index down almost four percent and it's lows
Speaker 2: today still down about one point three percent, so we've
Speaker 2: definitely bounced off the worst levels of the day. Same
Speaker 2: thing for the SMP Regional Banking ETF. We're talking about
Speaker 2: the KRE, which was down about four and a half
Speaker 2: percent of its lows now down about one and a
Speaker 2: quarter percent.
Speaker 3: And of course this was.
Speaker 2: All following Moody's lowering its ratings for ten small and
Speaker 2: mid sized lenders and talking about downgrading maybe some other firms.
Speaker 2: So a lot going on, reminding us that maybe wait
Speaker 2: out of the woods yet when it comes to banking here.
Speaker 4: Yeah, I think that's certainly fair to say the concerns
Speaker 4: are higher funding costs, potential regulatory capital weaknesses, rising risks
Speaker 4: tied to commercial real estate. Those are among the strains
Speaker 4: that are prompting the review. That's according to what Moody
Speaker 4: said late yesterday with more very pleased to have with us.
Speaker 4: Bloomberg Intelligence senior analyst for US Regional Banks, Herman Chan,
Speaker 4: who joins us in the Bloomberg Interactive broke.
Speaker 3: We actually call him King of Regional Banks. And didn't
Speaker 3: you know that was he anointed March happened?
Speaker 4: Okay, king of regional Banks. I'm sorry, sir, I bowed down.
Speaker 5: You gotta get the title, right.
Speaker 4: Well, it's good to have you. I it was nice
Speaker 4: to uh to get to meet you a little earlier
Speaker 4: too in person finally, because I was gone for the
Speaker 4: regional bank crisis. But I guess I get my own
Speaker 4: little mini crisis here to you.
Speaker 5: That's the question of you're getting the after shocks.
Speaker 4: So to what extent is this tied to what we
Speaker 4: saw in March?
Speaker 5: Yeah, I think it's. It's it's double barreled in terms
Speaker 5: of the failout, the fallout from the banking failures from
Speaker 5: SBB Signature First Republic, and also it's the aftermath of
Speaker 5: the higher rate environment that we're currently operating in the
Speaker 5: Moody's rapport. It's noted in the higher counting funding costs
Speaker 5: as you're articulated so that's really crimping the profitability of
Speaker 5: these banks. And also you're seeing a tougher regulatory environment.
Speaker 5: The FED is already proposing tougher capital rules and tougher
Speaker 5: and expected to offer some tougher liquidity rules for the
Speaker 5: regional banks. So these are all things the banking space
Speaker 5: has to contend with, and the upshot is just weaker
Speaker 5: earnings and weaker first line of defense against the expected
Speaker 5: potential higher charge offs from commercial real estate.
Speaker 4: It's a little puzzling to me because and I mentioned
Speaker 4: this on with our TV colleagues a few minutes ago,
Speaker 4: this shouldn't surprise anyone, right, So it shouldn't. So we've
Speaker 4: been talking about the struggles in the commercial real estate
Speaker 4: market for months, and rates have been high for better
Speaker 4: part of a year.
Speaker 5: Right, it shouldn't surprise folks. We've been writing about all
Speaker 5: these issues ever since April and May, so it's been
Speaker 5: on the radar screen of all the folks that cover
Speaker 5: banks and write about them on a daily basis. I
Speaker 5: guess it's just more of a of a recall that
Speaker 5: the stocks have rallied a bits ever since the May
Speaker 5: time frame, and this is just a call that's saying
Speaker 5: we're not totally out of the woodjet, but in my view,
Speaker 5: it does seem like the issues facing the banks that
Speaker 5: Moody's articulated it should be pretty manageable, all right, So.
Speaker 2: March April, May June like, oh okay, so almost five
Speaker 2: months for five months later. So I don't know, how
Speaker 2: do I I have mixed feelings coming if I go
Speaker 2: back to the Great Financial Crisis and when finally the
Speaker 2: ratings agencies kind of caught up to all that ailed us, right,
Speaker 2: so how are we as investors supposed to kind of
Speaker 2: be like, wait, is most of this still priced in run?
Speaker 2: Or is it just again like you said, hey, we'll
Speaker 2: slow down a little bit, Like how how do you
Speaker 2: read a call like this?
Speaker 5: I just go back to some of the clients that
Speaker 5: we've talked to today and they've mentioned that there isn't
Speaker 5: really anything new in terms of the call, but it's
Speaker 5: just reiterating the fact that there are a number of
Speaker 5: issues in hurdles and headwinds that the banks need to
Speaker 5: contend with going forward for the next six months, a year,
Speaker 5: two years.
Speaker 2: What are the banks that you most specifically keep on
Speaker 2: your radar? I think about and you know, just to
Speaker 2: kind of give you some background, Tim, Like, I feel
Speaker 2: like during we were leaning on Herman constantly during the
Speaker 2: regional bank crisis. And what was interesting is I felt
Speaker 2: like it was a few names that kept popping up.
Speaker 2: Obviously Silicon Valley, Blinton Bank, and you know, kind of
Speaker 2: the ones that really were on everybody's radar, but there
Speaker 2: were others, whether it was pack West, and obviously we
Speaker 2: know what happened there, you know, But right, what are
Speaker 2: the ones you now keep on your radar, either out
Speaker 2: of concern as possible acquisition targets or what.
Speaker 5: Right, So, really, in terms of acquisition targets, the only
Speaker 5: bank that really is a media on the radar screen
Speaker 5: after the Packwest announcement is Home Streets HMST is the
Speaker 5: ticker Bloomberg wrote about them put to atually shopping themselves
Speaker 5: a couple weeks back. So that's the one that's still
Speaker 5: sort of floating out there. But the others that were
Speaker 5: potentially you know, tougher hit a bit harder during that
Speaker 5: banking turmoil earlier in the year, like a Western Alliance.
Speaker 5: They've actually done a really solid job of shoring up
Speaker 5: their balance sheet and improving their capital ratios, improving their
Speaker 5: deposit base, so not expecting anything they're going forward because
Speaker 5: I think they've they've laid out a very credible path
Speaker 5: of regaining that balance sheet strength that they lost a
Speaker 5: bit in March.
Speaker 4: What's a little surprising to me, Hermann, is that in
Speaker 4: the S and P five hundred, regional banks are down
Speaker 4: one point two percent as a whole, but diversified banks,
Speaker 4: the huge ones Jakie Morgan's, the Bank of Americas like
Speaker 4: those are down one point one percent. This is it connected?
Speaker 4: Is it related? Why are they getting hit too?
Speaker 5: I think it just shows the fact that there are
Speaker 5: headwinds across the group going forward. The capital ratios issue
Speaker 5: and the tougher regulatory environment is something that all of
Speaker 5: the banks, the largest banks in the United States and
Speaker 5: the regionals will have to convent tend with with varying degrees,
Speaker 5: And we're actually not sure.
Speaker 2: The city's down one and a half percent. She put
Speaker 2: Morgan down about two thirds. Yeah, and off their lows.
Speaker 2: But nonetheless, right.
Speaker 3: These are the ones we think, okay, we should be okay.
Speaker 5: Yeah, that's right, they should be fine. But we're just
Speaker 5: in sort of some uncertainty and involved in what's going
Speaker 5: to happen. Next in terms of how these capital rules
Speaker 5: really shake out.
Speaker 3: Is the real estate exposure still a big deal? Like,
Speaker 3: what's the top of mind? Is it the interest rate exposure?
Speaker 3: Is it real estate? Commercial real estate, office real estate?
Speaker 3: What is it?
Speaker 5: Over the next couple quarters, it's it will continue to
Speaker 5: be the deposit costs on how fast they arise and
Speaker 5: the mix of deposits are. Will they continue the remix
Speaker 5: into higher cost forms like CDs. So that's the the
Speaker 5: earnings pressure that banks are facing. Over the next couple
Speaker 5: of years. You're going to see the commercial real estate
Speaker 5: become more and more of an issue. Everybody's talking about
Speaker 5: it now, but the actual repercussions of credit losses really
Speaker 5: hasn't shown up yet at all. For the regional the
Speaker 5: loans aren't due yet, because the loans aren't due yet,
Speaker 5: and they can do a little bit of restructuring and
Speaker 5: kick the can down the road, that sort of thing.
Speaker 5: So there's some maneuvering that's happening in some tough conversations
Speaker 5: that are going on today, but the actual losses just
Speaker 5: haven't hit, So that's going to take some time to
Speaker 5: really happen for the industry.
Speaker 4: What do the data tell us and what do you
Speaker 4: have at Bloomberg Intelligence that shows where people are keeping
Speaker 4: their money right now? Because if they're keeping their money
Speaker 4: in their traditional quote unquote checking account, you know it's
Speaker 4: paying nothing, right you can quickly move it to one
Speaker 4: of these neo banks. And this was the problem during
Speaker 4: the March banking crisis. Would was like, wait a second,
Speaker 4: if I can get you know, four and a half
Speaker 4: percent over at you know whatever American Express or Wealth
Speaker 4: Front or whatever name the neo bank here, then I'll
Speaker 4: just you know, take all my money from my checking account.
Speaker 4: There is that still an issue for the banks that's happening.
Speaker 5: So the longer we're in this higher rate environment, the
Speaker 5: tougher it is for the regionals because ineviably your customer
Speaker 5: base will start to erode from the traditional checking accounts,
Speaker 5: and quarter by quarter, month after month, you're going to
Speaker 5: see those zero cost deposits continue to move to a
Speaker 5: higher cost rate like the CD or a high yield savings.
Speaker 5: So that's something that frankly, the regional banks would love
Speaker 5: to see rate cuts, you know, potential later this year
Speaker 5: or next year, just to stem that tide.
Speaker 2: We bout down to the King Herman Ted, thank you
Speaker 2: so much, senior alas for US regional banks.
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Speaker 3: In our Bloomberg Sledding segment today, we wanted to get
Speaker 3: into Tesla's new chief financial officer, who's actually kind of
Speaker 3: old when it comes to Tesla.
Speaker 4: Because it's like the chief accounting officer also, so.
Speaker 3: Pretty big jobs now on his plate.
Speaker 4: Huh yeah, yeah, Well, you know, like I said before,
Speaker 4: Elon Musk has more than one job. So it's like
Speaker 4: if he you know, if he's the leader and says, okay,
Speaker 4: well I can be CEO of all these different companies.
Speaker 3: Why can't you do a couple of few doings?
Speaker 1: Right?
Speaker 3: All right, So let's get let's.
Speaker 2: Get too because there was some news yesterday that Tesla
Speaker 2: was replacing its current CFO who was in the job
Speaker 2: for thirteen years. So tracking it all for us, making
Speaker 2: sense of it is our own Bloomberg News senior technology
Speaker 2: reporter downa Hall.
Speaker 3: She is on the phone in San Francisco.
Speaker 2: So, Dana, it does feel like, first of all, backdrop
Speaker 2: a fair amount of movement in the executive suite at Tesla.
Speaker 2: Give us, give us a little bit of background here.
Speaker 6: Yeah.
Speaker 7: So when when you know, we say executive suite, there's
Speaker 7: really only four people, there's only four named executives on
Speaker 7: Tesla's website and in their regulatory filings. And of the four,
Speaker 7: the CFO is one of them. And Zach Kirkhorn had
Speaker 7: been at Tesla for thirteen years. He'd been promoted several
Speaker 7: times internally, and he became CFO four years ago. And
Speaker 7: Zach is really the person who kind of led Tesla
Speaker 7: to profit. He focused a lot on cost, on expanding margins,
Speaker 7: and it was under Zach that the company kind of
Speaker 7: like steered through the pandemic, joined the s and P
Speaker 7: five hundred SADS valuation sore. I mean, he is really
Speaker 7: beloved by investors. So something happened and on Friday he
Speaker 7: basically stepped down as CFO. His replacement is an internal candidate,
Speaker 7: vab Pev viab Pev to today, I'm portraying that NATO policies.
Speaker 2: Okay, we're all trying to figure it out to make sure,
Speaker 2: we get it right, Yeah, fair.
Speaker 7: Enough, But then we didn't learn about this until Monday
Speaker 7: via regulatory filing. So, you know, I think broad strokes,
Speaker 7: a lot of us are still trying to figure out
Speaker 7: what exactly happened with Zach and why he left. But
Speaker 7: we do have a new CFO who's you know, in
Speaker 7: the job now, but he's also still the chief accounting officer.
Speaker 7: So to Tim's point earlier, you know, Musk doesn't really
Speaker 7: think much of having more than one job. He has,
Speaker 7: he's running six companies himself, But it is unusual for
Speaker 7: a company of this size to have the CEO and
Speaker 7: the CFO be the same person.
Speaker 4: Is there any concern about a conflict of interest with
Speaker 4: the person who sort of signs off on the you know,
Speaker 4: accounting docs versus the financial docks. I mean, there is
Speaker 4: a close relationship between accountants and you know, chief financial officers.
Speaker 4: But at the same time, isn't there good to have
Speaker 4: some sort of independence there too, I would think.
Speaker 7: I mean, I haven't heard any like investors making a
Speaker 7: huge cry of this. I mean, that would certainly be
Speaker 7: a concern that I would share, But but I think
Speaker 7: the broader concern is that you know, CFOs typically have
Speaker 7: like pretty broad operational experience in the business. Like Zach
Speaker 7: Kerkorn worked at McKenzie, he studied engineering at Penn. He
Speaker 7: had been you know, always on the finance team at Teessel,
Speaker 7: but was just like very much in the weeds about
Speaker 7: how the company was running. And you know, the new
Speaker 7: guy is more of like an account accounta who came
Speaker 7: up through Price Waterhouse Coopers. And so it'll be interesting
Speaker 7: to me to see how long he stays in the
Speaker 7: CFO role.
Speaker 4: Jana, he just got We just learned about him yesterday.
Speaker 4: I know, this is like flashbacks to twenty seventeen Tesla.
Speaker 4: Remember that when all the it was like every day
Speaker 4: there was an executive turning over.
Speaker 7: Mm hmm, yeah, I do remember, because you were.
Speaker 4: The one breaking that news. That's how I remember.
Speaker 7: Yeah, And this was and this was a surprise to me.
Speaker 7: I mean, you know, it really had had seemed like
Speaker 7: Tesla's bench was pretty stable. Musk was focused on Twitter Slash.
Speaker 7: Now I guess now we call it X. You know,
Speaker 7: the company has just had a quarter after quarter profitability,
Speaker 7: so that the bench at Tesla actually seemed fairly stable.
Speaker 7: I was not expecting a Zech departure this summer at all.
Speaker 2: Is there something about the new CFO and his connection
Speaker 2: to India that maybe makes it make more sense? I
Speaker 2: don't know.
Speaker 7: I mean, so, you know, Tesla obviously has a lot
Speaker 7: of markets to expand into. India has always been top
Speaker 7: of the list all of South America. Another possibility, and
Speaker 7: we've always been trying to figure out, you know, is
Speaker 7: Tesla going to enter the India market. His name is
Speaker 7: on like a filing in India around creating some kind
Speaker 7: of office there, so he probably has been involved. But
Speaker 7: I wouldn't read too much into that.
Speaker 4: Okay, Well, oh sorry, Carol, go ahead. I was gonna
Speaker 4: ask against about the backdrop here if we if we
Speaker 4: zoom out and look at Tesla as a company and
Speaker 4: where it is right now. Obviously it's it's come a
Speaker 4: long way, Dana, in the years that you've been covering it,
Speaker 4: But at the same time, despite all of its successes,
Speaker 4: it's still kind of clying its way to being really sustainable.
Speaker 4: I mean, look at the way that the company has
Speaker 4: still dealt with recalls, production delays, and that old cyber
Speaker 4: truck that still isn't on the streets.
Speaker 7: Yeah, I mean, I think I think it depends on
Speaker 7: what you mean by sustainable. Like they have plenty of
Speaker 7: cash on their balance sheet, and you know, they continue
Speaker 7: to be profitable, but they certainly have like cut prices
Speaker 7: in order to move metal, and they are not in
Speaker 7: They don't have a truck, and I mean Americans really
Speaker 7: like trucks, and so the longer it takes to get
Speaker 7: the cyber truck out, the more competitors like Rivian have
Speaker 7: time to kind of really own that market. And you know,
Speaker 7: I mean Elon is sort of famous for introducing products
Speaker 7: that then take years to bring out. You know, we
Speaker 7: all thought we'd see the cyber truck this year. Now
Speaker 7: we kind of learned during the last earnings round that
Speaker 7: the only ones that they've made or released candidates. So
Speaker 7: I mean, we're still pretty far away from anything like
Speaker 7: high volume production.
Speaker 2: Forgive me if if we already talked, I don't think
Speaker 2: we did talk about this, But I mean, Kirk corn
Speaker 2: I want to go back to him for a second.
Speaker 2: What he walked away with about almost six hundred million
Speaker 2: dollars and so as CFO.
Speaker 4: But did you not get that out of your first job, Carol, No.
Speaker 3: Not even close. But that's okay different different worlds.
Speaker 2: But I mean, could it possibly be Dana that he
Speaker 2: walked away from the Sea job just because I'm set,
Speaker 2: I'm good, like I'm going to do something else, or
Speaker 2: could he be ticked off that Meanwhile, what is Elon worth?
Speaker 2: Because the stock has just taken off in the last decade.
Speaker 7: You know, there's always this, there's this sort of joke
Speaker 7: among Tesla executives and employees that we're working at Tesla's
Speaker 7: like dog lears, right, So like one year at Tesla
Speaker 7: is like seven years in a normal company. So Zach
Speaker 7: put in thirteen years, which is this magnificently long run.
Speaker 7: And you know, I think he's about to turn forty.
Speaker 7: I don't know his exact birth date, but he's like Lea,
Speaker 7: you know, he's like thirty eight or thirty nine. On
Speaker 7: the cusp of being forty, I think that. I mean,
Speaker 7: I don't know how old you guys are, but when
Speaker 7: I turned forty, that was a big moment for me
Speaker 7: to kind of take the stock of my life. And
Speaker 7: to your point, he has done a lot for Tesla.
Speaker 7: The company is in a good place financially. He's still
Speaker 7: very young, and I could see him taking on another
Speaker 7: job at some point as a CEO, I think he's
Speaker 7: got the chops to do it. And so there's a
Speaker 7: lot of theories as to why he left, but you know,
Speaker 7: I don't have anything solid to share at the moment.
Speaker 4: I'm sure those are things you're you're still chasing at
Speaker 4: this point, Dana, so so always chasing, always chasing. And
Speaker 4: you know what, if you know why he left, you
Speaker 4: know how to get in touch with Dana. She's on
Speaker 4: she's on the platform formally known as X as well.
Speaker 4: But I don't know not much Dana anymore.
Speaker 2: I'm not well. One thing I wanted to ask you
Speaker 2: we just got about a minute left here, Dana, is
Speaker 2: I do wonder, like you just said, you know, you
Speaker 2: turn as individuals, we turn a certain age and we
Speaker 2: like do sometimes take stock of our of our lives
Speaker 2: and is there somewhere where Tesla, which is really you know,
Speaker 2: had the field to itself for a long time and
Speaker 2: now there's a lot more competition. We were talking earlier
Speaker 2: with Rivian earnings. You know, I saw two Rivians this
Speaker 2: past weekend. I have not ever, i think, seen them
Speaker 2: on the road. So it's like I feel like, all
Speaker 2: of a sudden, they're out there there's more competition for Tesla.
Speaker 2: Is Tesla kind of maybe taking stock a little bit
Speaker 2: of kind of where its world is now, kind of
Speaker 2: where it needs to go in a very different environment
Speaker 2: from where it's been the last decade or so. Yeah.
Speaker 7: Probably, I mean it's pret you know, I think I
Speaker 7: think for so long Tesla Tesla is all about proving
Speaker 7: to the world that it could make a profitable electric
Speaker 7: car that consumers really wanted. And they have done that.
Speaker 7: They have proven that, and now they're you know, they're expanding,
Speaker 7: They're building a new factory in Mexico, They're going to
Speaker 7: come out with the cyber truck and the next generation
Speaker 7: vehicle platform, and they've kind of like they're they're done
Speaker 7: being this kind of like scrappy startup. They're part of
Speaker 7: the S and P five hundred. Now they need to
Speaker 7: sort of mature as a as an organization. And you know,
Speaker 7: I think Zach has a lot of institutional knowledge that's
Speaker 7: kind of going out the door. But you know, his
Speaker 7: successor also has a lot of inside knowledge. So it's
Speaker 7: it's not a dramatic change, but the CFO is a
Speaker 7: big deal. It's a big deal for a company like Tesla.
Speaker 2: Yeah, and as you said, the executive suite really only
Speaker 2: for people.
Speaker 3: So it's again some perspective. Hey Dana, thank you.
Speaker 2: As always, Bloomberg News Senior Technology put her down a
Speaker 2: hall on the phone in San Francisco. Shere's a Tesla
Speaker 2: by the way, app one hundred and two percent so
Speaker 2: far here in twenty twenty three.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 3: You guys talked about Zoom yesterday, right, Yeah.
Speaker 4: I mean if you think about perhaps the company that
Speaker 4: most epitomizes working from home, yeah, it's Zoom. I mean
Speaker 4: it was not just a you know, a COVID stock,
Speaker 4: but it was also what we were all learning how
Speaker 4: to use in the early days of the pandemic.
Speaker 1: Right.
Speaker 4: We talked about it yesterday because even they're telling employees
Speaker 4: to get back to the office. Carol, Yeah, I know, Zoom.
Speaker 4: If you live near a of Zoom office, you got
Speaker 4: to come in a couple days a week. So we've
Speaker 4: seen Amazon, Chipotle, black Rock, companies as varied as those
Speaker 4: telling hey, workers, workers, Hey, you got to come back
Speaker 4: to the office.
Speaker 2: Yeah, it's interesting, right, we're seeing that post COVID several
Speaker 2: years out and how that is kind of yep, they're
Speaker 2: coming back to the office. The other thing at play,
Speaker 2: right we see when it comes to how we are
Speaker 2: working going forward.
Speaker 3: Is just the explosion of what the think about AI
Speaker 3: around artificial intelligence generative AI and what does it mean
Speaker 3: eventually for work.
Speaker 4: Well, fortunately McKenzie is out with a new report that
Speaker 4: says twelve million workers are going to move into new
Speaker 4: lines of work by twenty thirty. I guess I'm not
Speaker 4: saying fortunately that's fortunately there's a report. You know, we'll
Speaker 4: see if it's fortunately unfortunately that AI is forcing people
Speaker 4: to move to new lines of work. Very pleased to
Speaker 4: have with us this afternoon, Quaylon Ellen, Grude, partner at
Speaker 4: McKinsey Global Institute, joins us via zoom from Minneapolis. A
Speaker 4: director and senior partner at the McKinsey Global Institute. Quailan,
Speaker 4: how are you great?
Speaker 8: Great to be with you today.
Speaker 4: Well, it's great to have you join us on this.
Speaker 4: So you know, when did you guys start thinking about
Speaker 4: the impact of AI on workers? Because I think for
Speaker 4: a lot of people this is relatively new phenomenon with
Speaker 4: the explosion of chat GBT last fall.
Speaker 8: Absolutely, we've been thinking about the future of work now
Speaker 8: for about a decade and modeling what does automation due
Speaker 8: to jobs which are biggest gaining jobs, losing occupational categories.
Speaker 8: And then to your point, just about six months ago,
Speaker 8: start a delayer on to automation and COVID nineteen impact
Speaker 8: the impact of GENAI. So now we've put all of
Speaker 8: those three things together to say, what do the future
Speaker 8: of jobs look like in the United States?
Speaker 3: All right, so play it out for us, what do
Speaker 3: they look like? I am a robot, absolutely, yeah, I
Speaker 3: am a robots indeed.
Speaker 8: I think the bottom line is about thirty percent of
Speaker 8: the activities that US workers do today could be automated
Speaker 8: away by the end of twenty thirty, so over the
Speaker 8: next seven years. And that again is through automation, COVID
Speaker 8: nineteen impact, mostly affecting interpersonal interactions, and THENI GENAI alone,
Speaker 8: if you just isolate that piece, increase that percentage by
Speaker 8: about nine or state or nine percent, so up until
Speaker 8: about thirty percent of overall activities. There are a lot
Speaker 8: of jobs that will be fewer, and there will be
Speaker 8: quite a few more overall. I think it's good news
Speaker 8: to your point earlier. We will have more jobs in
Speaker 8: the future, I think is the great news, and those
Speaker 8: jobs will be higher paying jobs. They will be also
Speaker 8: higher skilled jobs that on average require higher average education.
Speaker 8: The tough news, or the tough transition to get there,
Speaker 8: is we don't necessarily have the workforce today that is
Speaker 8: best suited for those jobs of the future. So first,
Speaker 8: where are we gaining Where are we losing? We are
Speaker 8: gaining jobs in healthcare, in STEM categories, and in transportation delivery,
Speaker 8: all of those other areas. We are losing jobs in
Speaker 8: primarily four big occupations, and those four occupations make up
Speaker 8: about eighty percent of the job losses between now and
Speaker 8: twenty thirty. That is customer service, food service, and sales
Speaker 8: production or manufacturing and office services or assistants. And you've
Speaker 8: all seen kind of food chiosks, that fast food restaurants, right,
Speaker 8: We've seen all of these different elements. But when you
Speaker 8: add them together, those four our occupations make up eighty
Speaker 8: percent of the occupational switches, which is about twelve million
Speaker 8: of them between now and twenty thirty.
Speaker 2: So before we get into that, it's a lot. But
Speaker 2: I've also seen it. I've done it right. I'm at
Speaker 2: an airport, I order on an iPad and then stuff
Speaker 2: just gets delivered. I've gone to a retailer here.
Speaker 3: Sorry, but I'm what you and I've done this before
Speaker 3: and sometimes it works.
Speaker 4: It's sometimes it's also just terrible, not all the time.
Speaker 4: Maybe I'm just thinking of Newark Airport. I don't know,
Speaker 4: no offense.
Speaker 3: Oh, come on, I know, pick on the New Jersey.
Speaker 4: We've had some fun times there, we have.
Speaker 3: But kind of works. O.
Speaker 4: God, I don't know.
Speaker 3: It doesn't always work.
Speaker 4: It's like, no, it doesn't always work.
Speaker 3: But I'm amazed at that.
Speaker 2: I think how many times I check out at a supermarket,
Speaker 2: I just and I go there a target, a retailer,
Speaker 2: tzar you good, Azara, you drop it.
Speaker 1: In a bin.
Speaker 4: That's amazing.
Speaker 3: It shows up. That blows my mind.
Speaker 4: It shows up on like unicloide does that too, It's amazing. Yeah,
Speaker 4: And you.
Speaker 2: Check out and you take off the safety you know
Speaker 2: whatever they what do they call them?
Speaker 8: That?
Speaker 2: You know what I mean, yeah, the anti theft things,
Speaker 2: the anti theft things, like I do it all and
Speaker 2: like somebody's watching you, but it's like WHOA.
Speaker 3: So I don't know.
Speaker 4: Is the experience better though? That's the thing, like, you know,
Speaker 4: if speaking of airports, we've done this, you know, we've
Speaker 4: gone airports together where there's nobody to actually check us in, right,
Speaker 4: and we're like, you know, we know it's because of
Speaker 4: cost cuts.
Speaker 3: And we're flying business, thank you Blue Berk. We do everything.
Speaker 4: But what's the balance here, Quaylon that of actually having
Speaker 4: like an experience it's better because who cares? If not,
Speaker 4: who cares? But it's like it's one thing to replace people,
Speaker 4: it's another thing to replace them with, you know, an
Speaker 4: inferior product.
Speaker 3: And I thought all the companies are about customer service
Speaker 3: customers first.
Speaker 8: Not apparently, And there is absolutely a balance, and there's
Speaker 8: also a bit of a transition pain point to get there.
Speaker 8: But I think the alternative is not always great customer
Speaker 8: service in person. It could be they're understaff, they don't
Speaker 8: actually have the people, and so the alternative is do
Speaker 8: you want to wait for ten fifteen minutes to flag
Speaker 8: somebody down to get your order or do you want
Speaker 8: to enter it into the iPad or do you want
Speaker 8: to pay two dollars more for that sandwich or not?
Speaker 8: And so I think those are the trade offs that
Speaker 8: we're really wrestling.
Speaker 3: Well, when does the cost come to us?
Speaker 2: Because I've go to the supermarket and man, I'm doing
Speaker 2: all the work, and or I go to the airport and.
Speaker 3: They're like, you want an extra bag?
Speaker 1: Yeah?
Speaker 3: You know, So when does that cost come back to
Speaker 3: the customer?
Speaker 8: I think we've already started to see it right on
Speaker 8: so many different products. Some of that has been passed along,
Speaker 8: some of the costs have been kind of captured and
Speaker 8: improved better efficiency and effectiveness, part which has not then
Speaker 8: been passed on in higher prices, even though supply chains
Speaker 8: have been challenged and prices across many categories have gone up,
Speaker 8: most notably in service and gas areas. I think some
Speaker 8: of that will flow through over the next few years.
Speaker 8: We'll see where it all settles out. But I do
Speaker 8: think there are automation improvements that are being made and
Speaker 8: then consumers do stand to benefit from some of that.
Speaker 2: Hey, really quickly, thirty seconds, because we've got to story
Speaker 2: coming up about the lack of workers in the healthcare area.
Speaker 2: You said we are seeing gains in health healthcare thirty
Speaker 2: seconds what specifically.
Speaker 8: Yeah, frankly across the board, given consumer spending aging in
Speaker 8: the United States and frankly in many developed countries around
Speaker 8: the world. So nursing tech in healthcare as well. Overall,
Speaker 8: I think we'll need quite a few more jobs in
Speaker 8: those areas well.
Speaker 2: That certainly fits into the story that we're going to
Speaker 2: talk about. Quailan, thank you so much. Quaylan and Ellen Gruge.
Speaker 2: She is director and senior partner at mckensey Global Institute
Speaker 2: on Zoom for Minneapolis. Their latest report, Generative AI in
Speaker 2: the Future of Work in America. It wasn't so bad
Speaker 2: in new work.
Speaker 4: Please please enter your symptoms on this iPad.
Speaker 2: Exactly Who do I complain to? That's the thing that
Speaker 2: bothers me. There's no one ever to complain you.
Speaker 4: Please to meet Carol.
Speaker 3: All right, I will. This is Blomberg.
Speaker 2: Muckle a journal now about you.
Speaker 5: Let me drive?
Speaker 3: No, no, no, honry please, I'll do the gravel wat I
Speaker 3: want to try.
Speaker 2: It's a good question.
Speaker 1: This is the drive to the globe. Well, ja don
Speaker 1: on Bluebird Radio.
Speaker 2: All right, everybody's safe to say we thought the closes
Speaker 2: is going to be a little bit different, certainly earlier today.
Speaker 2: We're well off our lows of the session on the
Speaker 2: equity trade, still down across the board, tim, but yeah,
Speaker 2: like I said, not as bad as it looked earlier today.
Speaker 2: And yields have definitely bounced a little bit off their low,
Speaker 2: especially the two year. But we're still looking at a
Speaker 2: ten year at about four point zero one two year
Speaker 2: note with the other four seventy five.
Speaker 4: Okay, a lot on the agenda, Carol. We got with
Speaker 4: today's trade, right, We got the banks, we talked about
Speaker 4: the move and yields ups. Earnings not so great. Some
Speaker 4: pharmaceutical company earnings those were pretty good. A couple FED
Speaker 4: We heard from a couple FED presidents, one voting, one
Speaker 4: non voting. The big question, what does it mean for tomorrow?
Speaker 4: What does it mean for the rest of the year,
Speaker 4: What does it mean for the FED?
Speaker 2: I am curious about clarity, and we've got a perfect
Speaker 2: voice to do it. Understands market cycles has seen several
Speaker 2: many like like us. Sam Stovel is cfre's chief investment
Speaker 2: strategist on zoom on this Tuesday in Allentown, Pennsylvania. Sam
Speaker 2: It is good to have you back. And I do
Speaker 2: really appreciate the way you analyze the market. We all do,
Speaker 2: and you know, relate it to different cycles. So when
Speaker 2: you look at this cycles, this cycle, excuse me, you
Speaker 2: know what matters in a day where we feel like
Speaker 2: we had a dump of news on China and Italy,
Speaker 2: US banks, a lot of stuff going on.
Speaker 3: What matters?
Speaker 6: Well, I think a lot of that stuff matters, Carol,
Speaker 6: But good to talk to you and Tim today. I
Speaker 6: think investors have been getting the feeling that maybe we've
Speaker 6: gone a little bit too far with the market advance.
Speaker 6: The SMP is up twenty eight percent since the October
Speaker 6: twelfth low. The Nasdaq was up forty six percent through
Speaker 6: the end of July, and being a reader of this
Speaker 6: Stock Trader's Almanac and doing my own research, realize that
Speaker 6: August is the third worst month of the year, second
Speaker 6: worst for the NASDAK. But then we have September, which
Speaker 6: is the worst of the year for both indices. Just
Speaker 6: from a seasonal perspective, maybe we are entering into a
Speaker 6: digestion phase, because, let's face it, the Nasdaq was trading
Speaker 6: at twenty six percent above it's two hundred day moving average,
Speaker 6: which is a statistical extreme.
Speaker 4: So you're saying this is more about seasonality and technicals
Speaker 4: than actual fundamentals.
Speaker 6: I wouldn't go that far, because when you look to
Speaker 6: the fundamentals, you're seeing, yes, the second quarter earnings did
Speaker 6: come in a little bit better than expected, meaning they
Speaker 6: fell a little less than was anticipated. Nine of the
Speaker 6: eleven sectors are actually showing an improvement in what will
Speaker 6: probably end up being the conclusion for the second quarter
Speaker 6: versus their June thirtieth estimates. And when you look to
Speaker 6: twenty twenty four, we're still focusing on about a twelve
Speaker 6: percent year on year rise for the S and P
Speaker 6: five hundreds. So should we finally get the last rate hike,
Speaker 6: I think investors will be feeling good because we tend
Speaker 6: to see a hike, skip, and a jump that takes
Speaker 6: place after the FED is finally finished.
Speaker 2: What about sam about the impact of potentially it seems
Speaker 2: like the one narrative that feels fairly consistent is higher
Speaker 2: for longer from the FED, so that even if they
Speaker 2: stop raising rates, they're going to keep them there for
Speaker 2: a while. What's the longer term impact of that on
Speaker 2: the equity trade?
Speaker 6: Well, I think You're absolutely right that normally there is
Speaker 6: a nine month differential between the last rate hike and
Speaker 6: the first rate cut, and the market traditionally has risen
Speaker 6: about thirteen percent, along with all sizes, styles, sectors, and
Speaker 6: ninety nine percent of the sub industries. But if the
Speaker 6: FED decides to keep rates elevated for longer, I think
Speaker 6: they will be doing so if we do not end
Speaker 6: up falling into recession, and if we do end up
Speaker 6: with a soft land, which is exactly what they would
Speaker 6: be hoping for, because the higher rates would ensure that
Speaker 6: we would end up with a decline in the core
Speaker 6: PCEE that will likely stick around rather than simply touch
Speaker 6: the low point and then bounce once again. So I
Speaker 6: would tend to say that the FED would be very
Speaker 6: happy to keep rates higher for longer. But if we
Speaker 6: don't end up getting thrown into recession, that would be
Speaker 6: icing on the cake, because if we did fall into recession,
Speaker 6: the FED would have to reverse course and start to cut.
Speaker 2: But is it more likely that we fall into recession
Speaker 2: if we keep higher for longer, or we'll investors see
Speaker 2: that like, okay, we're done. We're just kind of marking
Speaker 2: time until the FED feels comfortable enough to start cutting rates.
Speaker 6: Well, I think actually you can say yes to both
Speaker 6: of those partial questions. First off, if the FED does
Speaker 6: raise rates for longer, then it increases the likelihood of recession.
Speaker 6: But at the same time, if the investors realize that
Speaker 6: the FED will be cutting interest rates, then that could
Speaker 6: be a reason that the recession might end up being
Speaker 6: shallower than anticipated. I mean, when we look to all
Speaker 6: of the other historical reference points, we should be in
Speaker 6: recession by now. Whenever inflation has been above six percent,
Speaker 6: we've fallen into recession. Year on year declines and leading
Speaker 6: economic indicators have signaled recession earnings, recessions have signaled economic recessions,
Speaker 6: and so forth. So basically, this would be a one
Speaker 6: of the few times in which a majority of the
Speaker 6: fairly reliable indicators did not work.
Speaker 4: So it raises the question, Well, actually, I want to
Speaker 4: go back to something that you said that I've been
Speaker 4: thinking about a hike, skip and a jump. That's what
Speaker 4: you said, right, Yes, so we've had the hike, we've
Speaker 4: had a skip, but we had another hike were you anticipating?
Speaker 4: So where does the h Where does this end? In
Speaker 4: your opinion, we think.
Speaker 6: It ends in September, they will hike rates one more time,
Speaker 6: and then they will be on hold until twenty twenty four.
Speaker 6: Our expectation right now is that they probably will start
Speaker 6: to cut rates by the end of the first quarter
Speaker 6: or into the second quarter, and then gradually do so
Speaker 6: maybe two or three times next year, But that certainly
Speaker 6: is dependent upon the data. Maybe we do end up
Speaker 6: staying higher for longer. But even when we have had
Speaker 6: a hike a skip, we've had had the jump in
Speaker 6: the markets, Even with a subsequent hike in interest rates,
Speaker 6: the market continues to rise, primarily because they realize that
Speaker 6: the end is year, the end of the hiking process
Speaker 6: is almost over.
Speaker 3: So, Sam, I'm going to go back to what you said.
Speaker 2: You know, you talked about earnings of recession usually precedes
Speaker 2: an economic recession. There are other indicators out there that
Speaker 2: all point to that we're going to get into a recession.
Speaker 2: And then you kind of said, but this could be
Speaker 2: potentially one of those times when the regular signals.
Speaker 3: Don't bear out.
Speaker 2: Do you actually believe it could be different this time around?
Speaker 2: And forgive me, I've only got about thirty five seconds.
Speaker 6: Left, Okay, I hate to say say this time is different.
Speaker 6: I do think that maybe we do end up a recession,
Speaker 6: but it ends up materializing in twenty twenty four rather
Speaker 6: than when most people had been anticipating it to occur
Speaker 6: in the second half of this year.
Speaker 3: Okay, so in case we get there, but just different
Speaker 3: in terms of timing, I think.
Speaker 6: So I'll add to that all of the plethora of
Speaker 6: inverted Buel curves and the weight of the potential recession
Speaker 6: is over one.
Speaker 8: All right, cool?
Speaker 2: Great, Oh my god, so glad we got some time
Speaker 2: with you, Sam b Wile Sam Stowell, Chief Investment Strategers
Speaker 2: over at CFRA. Joining us on zoom in Allentown, Pennsylvania.
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