Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg business
Speaker 1: Week inside from the reporters and editors who bring you
Speaker 1: America's most trusted business magazine, plus global business, finance and
Speaker 1: tech news. The Bloomberg Business Week Podcast with Carol Messer
Speaker 1: and Tim Stenebeck from Bloomberg Radio.
Speaker 2: I s what we'd like to call kind of a
Speaker 2: well moment happened first in the aftermarket last night.
Speaker 3: Still going on, Tim safe to say today's straight.
Speaker 4: Yeah, we're talking about Lyft, the stock Johns Carroll sixty
Speaker 4: seven percent and after hours trading. After saying margins initially
Speaker 4: we're set to expand this year by an eyewatering five
Speaker 4: hundred at basis points. Well, it turns out Lift did
Speaker 4: have a strong earnings report, just not that strong when
Speaker 4: it came to its forecast on margins.
Speaker 5: Well, look, first of all, it's on me. There are
Speaker 5: a lot of eyes on this press release. But at
Speaker 5: the end of the day, my bad. But look, I
Speaker 5: don't want it to take anything away from the butt
Speaker 5: kicking performance that the business did thanks to all of
Speaker 5: our employees and thanks to millions of drivers. I mean, look,
Speaker 5: we had our financially strongest quarter we have ever had,
Speaker 5: and I'm super excited about with.
Speaker 2: The clerical error around the gig economy and in financial markets.
Speaker 2: Let's get to Bloomberg Technology co host ed La Low
Speaker 2: inner San Francisco Bureau, And first of all, props for
Speaker 2: him saying it's on me, my bad, got it, Love it,
Speaker 2: and far be it from us, because we all make mistakes.
Speaker 4: You have never made a mistake, Carol, so you don't
Speaker 4: know what I've made, many, many, many, But this is important.
Speaker 2: How many eyes saw that release before it went out?
Speaker 2: I mean, how the heck does this kind of happen?
Speaker 2: And I don't know, how are you thinking about it?
Speaker 3: You know, here we are the morning or afternoon after.
Speaker 6: I mean, like I put it straight to David Richer
Speaker 6: and he gave me a straight answer. And you know,
Speaker 6: for our global audience, it's worth noting that David's held
Speaker 6: in high regard. He's a thoroughly nice guy, and you know,
Speaker 6: he fronted up and answered our questions. But it's simply
Speaker 6: human error, you know. And what we went on to
Speaker 6: ask him frankly, is well, what about the CFO, Aaron Brewer?
Speaker 6: Is her job safe? Is the finance team's job safe?
Speaker 6: Because this had a real market impact. But it's as
Speaker 6: simple as the press release and the shareholder debt goes
Speaker 6: out with five hundred basis points on the analysts call
Speaker 6: the CFO reads are prepared and remarks and says fifty
Speaker 6: basis points, and the analysts asked the question and says,
Speaker 6: hold on, you said fifty, but the release said five hundred,
Speaker 6: and they admitted it was a mistake.
Speaker 7: And it's as simple as that.
Speaker 4: Hey, you know, it's interesting. Sec chair Gary Gensler was
Speaker 4: on Bloomberg TV a little earlier, ed with David West,
Speaker 4: and he declined a comment on Lift's clerical error, but
Speaker 4: he did say, quote, public companies are responsible for accuracy
Speaker 4: of filings, so they're responsible.
Speaker 7: They are.
Speaker 6: And look what LIFT will be doing. What David Richard
Speaker 6: told us they're doing. What they are definitely doing is
Speaker 6: the finance in internal order team will have to reflect
Speaker 6: on what happened.
Speaker 7: You know. As part of this exercise, Bloomberg.
Speaker 6: Interviewed a number of securities experts, and I think that
Speaker 6: the general consensuses they moved quickly to correct their mistake. Clearly,
Speaker 6: if this move had been to the downside, I think
Speaker 6: we'd probably be having a bit of a more severe conversation,
Speaker 6: but as it happens, this for.
Speaker 7: Me is the wild part of this story.
Speaker 6: Yes, the stock spike sixty seven percent in after hours,
Speaker 6: but when they corrected their mistake, it held gains at
Speaker 6: seventeen percent.
Speaker 7: In today's session, it has traded.
Speaker 6: Above thirty percent for most of the day, which puts
Speaker 6: Lyft on track for its biggest jump ever. I don't
Speaker 6: think the market is lingering on this clerical mistake. I
Speaker 6: think they're looking at the earnings gone and the forecast
Speaker 6: and saying, actually, lifted pretty well.
Speaker 3: Agreed.
Speaker 2: I totally agreed, because I think when I came in
Speaker 2: this morning and when it started trading, I thought it's
Speaker 2: going to be you know, up, maybe a little bit,
Speaker 2: or maybe it'll be even down, who knows. But to
Speaker 2: see it up still about the threaty one thirty two
Speaker 2: percent as we are speaking, it's pretty impressive. So let's
Speaker 2: talk about Lift's business living up to the expectations of
Speaker 2: what investors wanted, and then some in many ways talk
Speaker 2: to us about the business.
Speaker 6: Yeah, I think that at a minimum that's fair. And
Speaker 6: I'm so glad to be on the show with you guys,
Speaker 6: because we had a great conversation earlier this week about
Speaker 6: the gig economy, and what I was writing about in
Speaker 6: the Tech Daily was that we were worried about Lyft
Speaker 6: because it doesn't have as wide or diverse a business
Speaker 6: as Uber. There's no food component, and Uber seems to
Speaker 6: be doing really, really well. So you can look at
Speaker 6: it one of two ways. Would Lift go through the
Speaker 6: same positive experience the same trends that Uber did, or
Speaker 6: is Uber going to continue taking market share from Lyft?
Speaker 6: But Lift stood up on its own two feet. You know,
Speaker 6: there is evidence that ridership was strong and the demand
Speaker 6: based on their growth booking out Booking's outlook is good.
Speaker 6: But we also talked about this idea of the take rate,
Speaker 6: which is the amount of money that company makes per
Speaker 6: transaction on their platform. And David Risher, since he's come in,
Speaker 6: has made Lift a bit of a mean, not green
Speaker 6: but pink machine, and they are starting now to get
Speaker 6: positive signs around free cash flow. These are boring company things,
Speaker 6: but it's important.
Speaker 4: Isn't there an issue If the take rate ends up
Speaker 4: being too big, then you're not going to attract drivers
Speaker 4: to the same extent that competing company would or competing service.
Speaker 4: I mean these drivers are they're free agents. They can
Speaker 4: go anywhere.
Speaker 6: Yeah, And earlier in the week I said to you guys,
Speaker 6: let's look at the driver supply numbers. So for Uber
Speaker 6: that was up thirty five percent, not to the same
Speaker 6: extent for Lift. But they're seeing drivers flying increase. Where
Speaker 6: are those drivers coming from? Well, there is some evidence
Speaker 6: actually based on a conversation I had with David, that
Speaker 6: they might be people that lost their job but found
Speaker 6: work in the gig economy quickly. But you're on the
Speaker 6: take rate. A part of it as well is also
Speaker 6: the removal of the heavy incentives that Lift had. You know,
Speaker 6: Lift was only able to be competitive with Uber by
Speaker 6: basically saying, we'll cut prices, we'll offer promos, we'll give
Speaker 6: you a gift voucher, we'll give you a credit if
Speaker 6: you use a particular airline. When you scale back on
Speaker 6: those things, you get a better sense of how you
Speaker 6: can make money in that marketplace. And I think Lift
Speaker 6: shows some evidence of that.
Speaker 2: I feel like too, and I want to kind of
Speaker 2: maybe roll Uber into this. And there's some more specific
Speaker 2: stuff that we want to talk about with Uber their
Speaker 2: stock buyback, But it feels like Lift Uber kind of
Speaker 2: growing up, like coming off the pandemic, right, and how
Speaker 2: that impacted them.
Speaker 3: But is that the case, like walk us through in terms.
Speaker 2: Of I like what you said about what's going on
Speaker 2: at Lift that the CEO leaner, meaner machine.
Speaker 3: Here does sound like to some extent they're growing up
Speaker 3: a little bit.
Speaker 6: Yeah, I mean I was a bit unkind about Lift
Speaker 6: saying earlier in the week and today they don't have
Speaker 6: a very diverse business. They do offer other mobility things,
Speaker 6: and Tim made the point on bikes, right, and David
Speaker 6: Risher himself used a Lift bike to get to the
Speaker 6: bureau today for that interview, and they're proving that that
Speaker 6: is working. But the definitive story right now, and maybe
Speaker 6: one reason why the stock is up so much is
Speaker 6: that there is evidence that ride hailing or ride sharing
Speaker 6: is not just a fad, it is a stable market
Speaker 6: in the wake of the pandemic, and Uber spoke to
Speaker 6: the corporate side of that story. Lift is basically resonating
Speaker 6: with a particular age group demographic cities like San Francisco.
Speaker 4: But ed you bring up a really good point that
Speaker 4: we talked a lot about before the pandemic. I remember
Speaker 4: speaking to people twenty eighteen twenty nineteen, as these companies
Speaker 4: were hitting the public markets for the first time, and
Speaker 4: they would say things like people who are millennials and
Speaker 4: Gen Z, they're not going to own cars because they're
Speaker 4: going to be able to get cars anywhere on demand.
Speaker 4: The pandemic shifted that. Are we back to that conversation
Speaker 4: where you know there is this trend of people foregoing
Speaker 4: car ownership and just relying on these services or is
Speaker 4: that not going to happen?
Speaker 6: I think your right to recall those trends from twenty
Speaker 6: eighteen nineteen. I can't even remember what I talked about yesterday.
Speaker 3: He's got a great memory.
Speaker 6: But what you're doing is tying together the whole point
Speaker 6: of this week, which is why is the gig economy
Speaker 6: doing this in a high rate environment. Yes, you're right,
Speaker 6: car sales are under pressure, particularly electric vehicles, because the
Speaker 6: high rate environment makes the financing of those purchases less
Speaker 6: than attractive. Your car payment, not just the buying of
Speaker 6: the car or the leasing, but the running of it
Speaker 6: is the most significant outgoing you have after your mortgage,
Speaker 6: if you have a mortgage or rent. And I do
Speaker 6: think that that's a really good point, and you have
Speaker 6: to take the idea that consumers appear to be willing
Speaker 6: to spend on convenience with other data sets credit card
Speaker 6: data right now is a little bit worrying, you know.
Speaker 6: I think we see that trickling up. So while the
Speaker 6: consumer's strong, let's continue to watch this ridership and willing
Speaker 6: to spend on convenience. And I think we talked about
Speaker 6: earlier this week. Right, well, what if we do have
Speaker 6: a recesson what if Lift and Uber benefit? Right you
Speaker 6: stop spending on big ticket items like vacations and dinners
Speaker 6: out at restaurants. You start getting takeout and delivery, which
Speaker 6: Lift does not have. But you might take a ride
Speaker 6: in a lift rather than I don't know, I don't
Speaker 6: know what the alternative would be, but it's a good
Speaker 6: existential question for them, along with well why doesn't somebody
Speaker 6: that's bigger than them that does other stuff by them?
Speaker 6: And we also got to that in the interview too.
Speaker 2: Yeah, hey listen quick, Uber up about twelve percent here,
Speaker 2: just off its highs at a record first share buy back. Ever,
Speaker 2: it's a big one seven billion dollars share. But what's
Speaker 2: going on here? I mean interesting?
Speaker 6: I certainly got get Bi's man deep sing on the show.
Speaker 6: He's always felt that these gig economy apps are undervalued.
Speaker 6: You know, Uber had its first year of profit. It
Speaker 6: has proved the doubt is wrong on the business model.
Speaker 6: It's free cash flow is improved. What do investors love?
Speaker 6: They love sweeteners, and this is one hell of a
Speaker 6: sweetener to start twenty twenty four.
Speaker 2: Yeah, pretty impressive and like we said, definitely getting noticed
Speaker 2: among investors.
Speaker 4: Part of the S and P five hundred now two.
Speaker 4: Can't forget that it was added just a few.
Speaker 3: Months ago at a record as well.
Speaker 2: Hey listen, Ed, thank you as always, great interview and
Speaker 2: great to be able to talk with you about it.
Speaker 2: Ed Ludlow, he's co host at Bloomberg Technology and Bloomberg Television.
Speaker 2: Catch him and Caroline Hyde at eleven am Wall Street
Speaker 2: Time on Bloomberg TV. For Bloomberg Technology. He of course
Speaker 2: joined us from our San Francisco bureau.
Speaker 4: You know, it's refreshing to see executives make mistakes and
Speaker 4: like this.
Speaker 3: You know, well, you know, stuff happens. What are you
Speaker 3: going to say? Like, what would do?
Speaker 8: Right?
Speaker 2: I agree with you, Like, yep, we messed up. We
Speaker 2: corrected as soon as we noticed it.
Speaker 4: Maybe we stopped saying basis points for certain percentages and
Speaker 4: just you know, stick the percentage of zero.
Speaker 9: Yeah, that would have I don't know, maybe, I don't know.
Speaker 9: I'm not to see it.
Speaker 2: All I know is when that came down last night,
Speaker 2: we saw this a stock reaction understandably, so we're just like, WHOA,
Speaker 2: what's going on?
Speaker 9: My jaw is still dropped for thirty percent increase.
Speaker 3: Today, it's still pretty impressive.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 7: What people have.
Speaker 3: Talked about kind of years of regret over bad calls
Speaker 3: when it.
Speaker 2: Comes to forecasting about the US economy, recession calls, inflation calls,
Speaker 2: transitory anyone.
Speaker 3: By the way, it's not been.
Speaker 2: Easy even for Fedchair J Powell. Remember back in November
Speaker 2: twenty twenty one when Chair Powell addressed the Senate Banking
Speaker 2: Committee about that testy word transitory.
Speaker 10: I think clearly has been met now, you know, you're
Speaker 10: absolutely right, inflation has run well above two percent for
Speaker 10: long enough. The word transitory has different meanings to different people.
Speaker 10: I think it's it's probably a good time to retire
Speaker 10: that word and try to explain more clearly what we mean.
Speaker 3: All Right, it's not easy being the FED chair.
Speaker 7: Really.
Speaker 2: Many the end of zero rates ushering in a new
Speaker 2: era of investment era in particular in Bloomberg Markets, it's
Speaker 2: the mistakes issue. How many missed the market over the
Speaker 2: past two years. I love that you guys are doing
Speaker 2: a mistakes issue with us as the editor of Bloomberg
Speaker 2: Markets magazine, Pat Regne or here in our Bloomberg Directive
Speaker 2: broker studio. A lot of people missed. This was an
Speaker 2: air unlike and most had never seen before.
Speaker 11: Yeah, we we spent a whole issue looking at mistakes,
Speaker 11: but one of the things we wanted to focus on
Speaker 11: was sort of what happened in this time period after
Speaker 11: the liftoff from rates, which seems to have scrambled everybody's compass.
Speaker 11: And it's not just a matter of you know, I
Speaker 11: think at first people weren't sure how bearished to be,
Speaker 11: and then maybe they were wrong about how bullish to be.
Speaker 11: And we've just sort of, uh watched like all of
Speaker 11: these different switchbacks, both for forecasters, economists, traders, I mean
Speaker 11: just kind of you know, how do you get a
Speaker 11: handle on big tech stocks, for example. So we just
Speaker 11: went back and had to look at this and part
Speaker 11: part of the logic of the story, but also the
Speaker 11: whole issue was not to kind of point and laugh,
Speaker 11: although that can be fun.
Speaker 9: Uh I think I think.
Speaker 4: There's a German word for you'd.
Speaker 3: Also be pointing. Get a lot of people.
Speaker 11: Absolutely, you know, it's it's really we have the instinct
Speaker 11: that if you're a trader, if you're in finance, if
Speaker 11: you're in market's, mistakes.
Speaker 7: Are a part of your work.
Speaker 11: And everyone I've ever met who's good at it learns
Speaker 11: from it and they'll talk as much about their mistakes.
Speaker 4: So that's okay. So that's a really good point, and
Speaker 4: that's a big takeaway. Another big takeaway that I had
Speaker 4: after reading this was that there is so much we
Speaker 4: just don't know, and as Carol mentioned, that's what makes
Speaker 4: a market. And we have people come on the program
Speaker 4: every day who talk with conviction that, Okay, this is
Speaker 4: what the Fed's gonna do, this is what rates are
Speaker 4: going to do, this is what inflation is going to do,
Speaker 4: this is what the stock market is going to do
Speaker 4: and they.
Speaker 9: Really seem to believe it.
Speaker 3: It's like they know it got it wrong. I'm like,
Speaker 3: you know what, this is what happens, right like.
Speaker 4: And it's okay, you're saying that's that's the way, that's
Speaker 4: the way this works.
Speaker 8: Yeah.
Speaker 11: You know. The great economist Kenneth Arrow told the story
Speaker 11: and his memoirs about doing weather reports for the army
Speaker 11: and the general wanted to know what's the weather going
Speaker 11: to be like two weeks before the invasion and the
Speaker 11: answer was, we cannot make a forecast two weeks before
Speaker 11: the invasion. And the general said said to him, we
Speaker 11: understand that, but we need it for planning purposes. And
Speaker 11: I love that story because we all need forecasts and
Speaker 11: we all need to have a theory for planning purposes.
Speaker 11: We can't get out of that in the morning if
Speaker 11: we if we don't have if we don't have a forecast.
Speaker 2: I thought that was really interesting, right because we talk
Speaker 2: about forecasts all the time, whether it's whether it's earnings,
Speaker 2: whether it's economic forecast. This idea of like there needs
Speaker 2: you need this to kind of figure out a narrative,
Speaker 2: because within that narrative, there's probably gonna be some really
Speaker 2: truth to the way forward.
Speaker 11: Right, Yes, and then you and or at least it's
Speaker 11: a way of like gaming out catastrophes and kind of
Speaker 11: you know, planning out what are what are going to
Speaker 11: be your contingency plans and kind of trying to think
Speaker 11: think ahead to the future. That having been said, you
Speaker 11: can make some pretty disastrously bad traits.
Speaker 3: That's true, That's very true.
Speaker 9: You know what I'm just thinking care of. But how
Speaker 9: do we open the show?
Speaker 4: In the two o'clock hour, we talked about the error
Speaker 4: that lifts CFO made, right. I don't know if you
Speaker 4: saw this path. This is like a perfect day to
Speaker 4: be talking about this issue.
Speaker 9: And you know, this was an.
Speaker 4: Issue where they said they made an error, you know,
Speaker 4: five hundred basis points versus fifty basis points. They literally
Speaker 4: left another zero on there when they made their projection,
Speaker 4: and it caused the stock to move higher. Like these
Speaker 4: things happen.
Speaker 9: That's right.
Speaker 11: And I've never cursed a deadline as much as when
Speaker 11: right after I've closed the mistakes issue that happened. Okay,
Speaker 11: I'm sorry the heck of a story. Seriously, Seriously, the
Speaker 11: lesson don't talk in basis points.
Speaker 9: That's what I said.
Speaker 4: I said, let's go back to old fashioned percentages exactly.
Speaker 2: Well, it's interesting and you guys kind of in doing
Speaker 2: your coverage, you talk about the bond market, you talk
Speaker 2: about the equity market, you talk about the magnificent stuff
Speaker 2: like you really go through because it really, you know,
Speaker 2: you saw it play out throughout all the different markets
Speaker 2: and all the different asset classes.
Speaker 11: Yeah, all kudos to our newsroom because we really worked
Speaker 11: with a lot of the reporters across the Bloomberg newsroom
Speaker 11: and every one of them, you know, I sent out
Speaker 11: the memo asking for mistakes, and everybody had and every
Speaker 11: you know, everybody had a great tale, you know, and
Speaker 11: some of them were probably surprising to a lot of
Speaker 11: people in the US. I mean, one of the I
Speaker 11: think the most interesting ones is the the huge mistake
Speaker 11: made by SBB, the Swedish housing company. We all know
Speaker 11: about everything that's happened in China with property, but this
Speaker 11: was this is at a smaller scale. The ways that
Speaker 11: you can get in trouble kind of thinking that you know,
Speaker 11: an interest rate situation is going to stay the same,
Speaker 11: and you know, you borrow to the hilt expecting that
Speaker 11: the financing will always be there and then suddenly it's not.
Speaker 4: Can we at this point, though, in your opinion, say
Speaker 4: that the FED has made a mistake.
Speaker 11: Well, we we talk about that. It's interesting the fed's
Speaker 11: forecasts were consistently wrong, and yet they seem to be
Speaker 11: it's at least in contention, and that they'll stick the
Speaker 11: landing here, you know. I you know, we'll know when
Speaker 11: we know. But you know, we so far seem to
Speaker 11: continue to have you know, inflation coming down, maybe not
Speaker 11: as fast as everybody expected, and we've been able to
Speaker 11: do it without you know, having painful unemployment like that
Speaker 11: at the moment, that looks great. Now there's a warning
Speaker 11: in the story, and somebody says, it always looks like
Speaker 11: it's going to be a soft landing until it's not right.
Speaker 2: That's right, you know what it thought also about this,
Speaker 2: that the importance of it. And this is why I
Speaker 2: love talking with people who have reported on or been
Speaker 2: investing in a lot of different market cycles. You learn
Speaker 2: each time we go through some crisis or some some
Speaker 2: anomaly or seemingly anomaly, about when we get to another point,
Speaker 2: you're like, well, remember that time, like we were fooled,
Speaker 2: Like I feel like this is so helpful.
Speaker 3: We do learn from all of this.
Speaker 11: Yeah, yeah, it was.
Speaker 7: It was.
Speaker 11: It was fun to do it and to review all
Speaker 11: of these, all of these there's that professionals make all
Speaker 11: the time, and every journalist in the newsroom can has
Speaker 11: their own stories. I can sympathize.
Speaker 4: I already said this is hard for Caroll relate to
Speaker 4: because she's never made a mistake, so I don't know.
Speaker 4: So congratulations for all the time.
Speaker 8: Yeah, no, Crypto, though you left that to another that
Speaker 8: had to be a whole story all on its own,
Speaker 8: and that's actually a fun one because it's like, what,
Speaker 8: you know, what is it still a mistake at fifty thousand.
Speaker 2: Really thoughtful peace as we try to make sense of
Speaker 2: the environment and where we continue to see a fair
Speaker 2: amount of volatility in the narrative.
Speaker 3: Powry me Or, editor of Bloomberg Markets Magazine.
Speaker 7: Check it out.
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Speaker 4: What do Shanghai day on Precision automobile component company, Suju
Speaker 4: Dongshan Precision Manufacturing, and Xing chang Yinglan Many machinery company
Speaker 4: all have in common?
Speaker 3: Well, I cheated because I read the story.
Speaker 9: Oh okay, but quiz doesn't work.
Speaker 3: Then all are kind of finding a home base in
Speaker 3: the same area.
Speaker 9: Okay, you're right.
Speaker 4: These are all Chinese automobile component companies that have recently
Speaker 4: set up shop on the outskirts of Monterey, Mexico.
Speaker 9: So you're spot on.
Speaker 3: Yeah.
Speaker 2: In fact, Chinese autoparts makers are rapidly setting up plants
Speaker 2: in the region, which is only about one hundred and
Speaker 2: fifty miles from the US border. The value of Chinese
Speaker 2: autoparts made in Mexico specifically and exported to the US
Speaker 2: reached one point one billion last year. That's up fifteen
Speaker 2: percent over the previous year, according to previously unreported preliminary
Speaker 2: data out froma that's Mexico's National Autoparts Industry Association. So
Speaker 2: we're getting some numbers on exactly what's happening.
Speaker 4: Amy Stillman writes all about it. She's Bloomberg News Mexico
Speaker 4: Business reporter, she joins us from Mexico City. Amy, great story.
Speaker 4: It's so funny. Carol and I were literally just talking
Speaker 4: about this yesterday, this exact thing. We spoke to some
Speaker 4: folks who had been in the Monterey area and were
Speaker 4: just shocked at what they saw in terms of auto
Speaker 4: parts manufacturers. So you're reading minds here.
Speaker 9: This is great.
Speaker 4: One thing we didn't talk about with them, though, is
Speaker 4: why the search has set off alarm bells in Washington.
Speaker 9: So give us the details there.
Speaker 12: Sure, thank you, Tim, and I appreciate the effort with
Speaker 12: the names. A very good job on the association. So yeah,
Speaker 12: certainly we're seeing a pretty big surge of investment of
Speaker 12: Chinese auto park companies into Mexico. This is a trend
Speaker 12: that really began around the time of Trump's protectionist teriffs,
Speaker 12: which essentially were designed to keep the Chinese out. We
Speaker 12: started seeing in around twenty twenty one companies starting to
Speaker 12: set up in a bigger way in Mexico in order
Speaker 12: to avoid that twenty five percent tariff. Now, since then,
Speaker 12: we've seen other measures by the US. One for instance,
Speaker 12: is under the Inflation Reduction Act, there are some new
Speaker 12: measures against foreign entities of concern, which also includes uh,
Speaker 12: you know, companies that have China China origin and ownership.
Speaker 12: And so the reason for this is because you know,
Speaker 12: as as a essentially trade war keeps up between the
Speaker 12: US and China, there is a lot of concern over
Speaker 12: the fact that China is sort of winning the race
Speaker 12: on electric vehicles, that they have a very efficient, very
Speaker 12: very large supply chain, and that it will be very
Speaker 12: difficult for US companies to compete. There are some security
Speaker 12: concerns that should vehicles Chinese vehicles enter the US, that
Speaker 12: this could also present a security risk or or spying risk.
Speaker 12: And so really this has been very much a sort
Speaker 12: of lack of mole uh policy where the US is
Speaker 12: trying to keep the Chinese out and the Chinese are
Speaker 12: finding some loopholes.
Speaker 3: So talk to us about those loopholes.
Speaker 2: You kind of get what they're doing, right if the
Speaker 2: if the US imposes a certain policy they're trying to
Speaker 2: I mean, is essentially a go around. But having said that,
Speaker 2: you know the auto supply chain, it's a global one,
Speaker 2: and you understand that their end users need these.
Speaker 12: Parts well exactly, So those sort of way that the
Speaker 12: Chinese have been able to get around some of these
Speaker 12: measures by setting up shop in Mexico. It's just quite
Speaker 12: simply that you know, if they're producing in Mexico, they're
Speaker 12: not producing in China, and so some of these rules
Speaker 12: which are really based on the you know, country of origin,
Speaker 12: won't apply, so they are considered you know, North American content.
Speaker 12: And then I would also say at the same time,
Speaker 12: you know that it's very difficult to implement these measures,
Speaker 12: particularly along the supply chain, because many of these did
Speaker 12: you US automakers rely on Chinese parts makers because the
Speaker 12: parts are considered to be high quality and cheaper, and
Speaker 12: it's very difficult to block them out of that supply chain.
Speaker 3: I want to go back to though.
Speaker 2: It is a key part of the story, and that
Speaker 2: is certainly one of the reasons why people who are
Speaker 2: reading on the Bloomberg are clicking on at big time,
Speaker 2: if you will, Elon Musk's role in maybe advising urging
Speaker 2: suggesting that some of these Chinese suppliers head to Mexico
Speaker 2: to do this.
Speaker 3: Talk to us about what we know on that front.
Speaker 12: Sure well, certainly that has been part of the trend,
Speaker 12: the catalyst. We know that Elon Musk had proposed opening
Speaker 12: a Gigo factory in Mexico, and that you know, as
Speaker 12: as we understand it from from our sources, you know,
Speaker 12: these suppliers were actually asked directly by Tesla to get
Speaker 12: established in Mexico to start supplying to Tesla. Obviously, the
Speaker 12: Gigo factory planned in Mexico is still some time away
Speaker 12: from from kicking off. Construction hasn't really started yet, and
Speaker 12: so a lot of these suppliers are are you know,
Speaker 12: moving to Mexico in this sort of you know, hope
Speaker 12: that they're going to be supplying to Tesla's Mexico factory,
Speaker 12: and some as well are supplying to the factory and
Speaker 12: in Austin. So yeah, certainly Tesla has been a part
Speaker 12: of this. We know that Tesla you know, gets a
Speaker 12: lot of its you know, supply chain from from Chinese
Speaker 12: suppliers in Shanghai, and so what we've really seen is
Speaker 12: that Tesla has really tried to replicate that supply chain
Speaker 12: in Shanghai, you know, to be able to compete more effectively.
Speaker 4: One thing that surprises me though, is it's not necessarily
Speaker 4: an Elon Musk's best interest to have Chinese auto manufacturers
Speaker 4: so close to the US, like BYD for example, they're
Speaker 4: a huge competitor to Tesla. What happens if at some
Speaker 4: point these cars can and be sold in the US,
Speaker 4: that would take market share from Tesla.
Speaker 12: Now that's a great question, and certainly this is the
Speaker 12: concern that that the auto parks companies from China. You
Speaker 12: know that this is a stepping stone that you could
Speaker 12: start to see, you know, these electric vehicle makers from
Speaker 12: China bringing their cars into the US market, which, as
Speaker 12: you point out, would create greater competition with Tesla. Now,
Speaker 12: the aspect of this, you know that that perhaps Elon
Speaker 12: Musk is calculating, is that that is still quite uh,
Speaker 12: you know, quite a way ways off. First, you know,
Speaker 12: the companies will need to establish production plants in Mexico.
Speaker 12: We have heard, you know that YD is looking at
Speaker 12: Sherry and and MG and some of these other electric
Speaker 12: vehicle makers, but as of right now, there are no
Speaker 12: production plants. And so this that whole process, you know,
Speaker 12: analyst estimate could take you know, between five to six years.
Speaker 12: The electric vehicles would need to meet the US sestif case,
Speaker 12: but it certainly is a threat. It just might not
Speaker 12: be the most imminent threat, and perhaps not the most
Speaker 12: imminent threat in Elon Musk's mind, right.
Speaker 2: But you do wonder if you're Mexico and you're balancing
Speaker 2: you want that look at what's going on with China.
Speaker 2: You want that foreign direct investment. You don't want to
Speaker 2: alienate the North American auto manufacturers, the US auto manufacturers,
Speaker 2: who are you know, setting up shop there or some
Speaker 2: of the parts suppliers that are are working there.
Speaker 3: Like it's a delicate balance.
Speaker 2: So it'll be interesting to see how much more of
Speaker 2: a presence we have when it comes to Chinese suppliers
Speaker 2: in Mexico, because right now it does seem like they're
Speaker 2: going to continue to amp up their president presence. Excuse me, Amy,
Speaker 2: thank you so much, Amy Stillman. She's Mexico business reporter
Speaker 2: at Bloomberg News. She's joining us on the phone from
Speaker 2: Mexico City, and this story certainly catching our attention today.
Speaker 3: B Marco.
Speaker 11: Journal.
Speaker 10: Now about you let me drive?
Speaker 1: No, no, honey, please, I'll do the driving travels.
Speaker 2: Excuse me, I want to drive.
Speaker 10: It's a good question to fit time.
Speaker 9: This is the drive to the clothes.
Speaker 13: Communick well drier up Jaga.
Speaker 9: Don on Bloomberg Radio.
Speaker 4: It is about that time we got about what seventeen
Speaker 4: minutes of the close right now, and it's time for
Speaker 4: Drive to the Clothes with Aaron Kennon, co founder and
Speaker 4: chief executive officer at Clear Harbor Asset Management. The firm
Speaker 4: manages over one point five at billion dollars. Aaron joining
Speaker 4: us from Stamford, Connecticut.
Speaker 9: Aaron, good to see you. How are you.
Speaker 13: I'm doing just fine. How are you doing tow.
Speaker 9: Yeah, we're doing pretty well. Thanks.
Speaker 4: Trying to figure out yesterday's sell off in the context
Speaker 4: of today's gains. How are you thinking about the hotter
Speaker 4: than expected CPI print that we got yesterday and whether
Speaker 4: or not all the what all the fuss was about?
Speaker 13: Yeah, well, you know, it's interesting. It all really started
Speaker 13: with the jobs report of a week ago. And you know,
Speaker 13: the January data was was was stronger than anticipation, and
Speaker 13: I think market sentiments started shifting, where we went from
Speaker 13: sort of six to seven rate cuts anticipated by the
Speaker 13: market through FED Fund's futures contracts too. Now it looks
Speaker 13: like closer to the Fed's Summary of Economic Projections otherwise
Speaker 13: known as their dot plot, which is three rate cuts
Speaker 13: for this year. And you know, I think the CPI
Speaker 13: just sort of fed into that narrative. What I will
Speaker 13: say though, is that as we all know that the
Speaker 13: CPI number yesterday was quite noisy because some of the
Speaker 13: owner equivalent rent data is sort of backward looking and
Speaker 13: is more of a survey rather than a reality, and
Speaker 13: so it really oeer is more about, you know, if
Speaker 13: you were to rent your home, what would it rent
Speaker 13: out for, rather than an actual increased CPI number on
Speaker 13: housing itself, which which wasn't too bad. So CPI if
Speaker 13: you strip all that out, is running about two percent,
Speaker 13: and that's pretty much in line with the Fed's PCE
Speaker 13: indicator that they like to look at.
Speaker 2: Having said that, Aaron, I mean markets, we're seeing some
Speaker 2: buying into the clothes here. We're pretty much at our
Speaker 2: best levels of the session. So now up about one
Speaker 2: percent on the Nasdaq, up about eight tens of a
Speaker 2: percent on the S and P. Interesting talking with our
Speaker 2: Ira Jersey earlier and said kind of the trifecta. The
Speaker 2: things that moved the Treasury market is non farm payrolls.
Speaker 3: It's CPI, it's also retail sales data.
Speaker 2: And we'll get that read if we get jobs came
Speaker 2: in hot. CPI, as you said, maybe a little noisy
Speaker 2: in terms of the CPI print, but you know it
Speaker 2: did come in higher than expected overall. If we get
Speaker 2: a hot retail sales number, I don't know, do you
Speaker 2: start to rethink a little bit about what the FED
Speaker 2: is going to have to do And could we get
Speaker 2: a FED that potentially even has to raise rates again.
Speaker 13: Yeah, it's always a possibility, Carol, But I think at
Speaker 13: the end of the day, we're seeing Look at we
Speaker 13: came from nine point one percent headline inflation in June
Speaker 13: of two thousand and twenty two too. Now you know,
Speaker 13: somewhere around three percent on a year of a year
Speaker 13: basis and closer to two percent on a three to
Speaker 13: six months or a rolling basis, depending on which metric
Speaker 13: you look at. I think the Fed is essentially seeing
Speaker 13: what they want to see. Saw Austin Goals will be
Speaker 13: one of the voting members on the FLMC this morning,
Speaker 13: essentially saying we don't need to see two percent inflation
Speaker 13: on an annualized basis to start cutting rates. And so
Speaker 13: I think the risk is still towards cutting rather than
Speaker 13: the possibility of a surprise to the market, which is
Speaker 13: that rates move higher.
Speaker 4: Okay, Erin, I want to dig deeper into the equity
Speaker 4: side of this, and talk a little bit about what
Speaker 4: we've seen in the S and P five hundred, the
Speaker 4: market cap weighted s and P five hundred so far
Speaker 4: this year, versus what we've seen in the equal way
Speaker 4: equal weighted S and P five hundred so far this year,
Speaker 4: there's a dispersion. Once again, the market cap weighted one
Speaker 4: is outperforming the equal weighted index. What story does that
Speaker 4: tell about how the year is going to shake out?
Speaker 13: Well, it's it's interesting, Tim, because this was a dynamic
Speaker 13: that we saw throughout the entire entirety of twenty twenty
Speaker 13: three for the most part, where you had the SMP
Speaker 13: market CAAP Weighted Index, which is the sp index that
Speaker 13: everyone talks about, driven by the Magnificent seven. And you know,
Speaker 13: most of those seven stocks are pushing it higher again
Speaker 13: this year, led by Nvidia again up almost fifty percent.
Speaker 13: In fact, if you look at the SMP last year,
Speaker 13: the seven stocks that I just referenced were up about
Speaker 13: one hundred and ten percent. The rest of the market
Speaker 13: was only up about twelve and a half percent. And
Speaker 13: that's sort of the thematic that's playing out this year.
Speaker 13: With a little bit of a caveat around some strength
Speaker 13: and the healthcare segment of the market. And so, you know,
Speaker 13: I think it's an important reminder that the vast majority
Speaker 13: of stocks really over the last you know, two years,
Speaker 13: if you look back to December of twenty twenty one
Speaker 13: to today, you have the SMP up about seven percent
Speaker 13: over that long two plus year period. You have the
Speaker 13: Russell two thousand down about ten percent, you have the
Speaker 13: Emerging Markets Index down thirteen percent, and you have eighty
Speaker 13: four percent of the S and P five hundred constituents
Speaker 13: that are actually not back towards the twenty twenty one peaks.
Speaker 13: And so that's not necessarily a bad thing that that
Speaker 13: actually means, I think if you look at the glass
Speaker 13: half full, it means that there are lots of opportunities
Speaker 13: in the marketplace for stocks that haven't really been on
Speaker 13: this ride high over the last year or so.
Speaker 2: So where would you put client money new client money
Speaker 2: right now?
Speaker 13: Well, you know, we start with, you know, how do
Speaker 13: we create asset allocations for our clients what makes good sense?
Speaker 13: But within the equity markets, because I think that was
Speaker 13: the question you were asking. You know, we've seen opportunities
Speaker 13: you know, across you know, many different segments of the economy.
Speaker 13: There's been this sort of rolling recession happening, and just
Speaker 13: over the last couple of years, you look at, you know, COVID.
Speaker 13: In the healthcare segment, you had something like syringe use,
Speaker 13: for example, skyrocket because everyone's receiving their shot, and then
Speaker 13: you had it fall off a cliff. And now you
Speaker 13: have the ozempics, you know, the g LP one drug
Speaker 13: impacting that demand. So you know, it's it's it's those
Speaker 13: things that we're looking for. Which is this this sense
Speaker 13: that you know, there are lots of opportunities even in
Speaker 13: in segments of the economy that are that are viewed
Speaker 13: as more defensive. You know, we see opportunities in the
Speaker 13: utility sector, in natural gas distribution companies and water utilities.
Speaker 13: Even within technology, we see, you know, wonderful opportunities there.
Speaker 13: Back over in healthcare, you look at sort of the
Speaker 13: robotic surgical space. You know that the idea that a
Speaker 13: doctor in Los Angeles can can do work and open
Speaker 13: heart surgery work on someone sitting in New York City
Speaker 13: or lying on a bed in New York City. I mean,
Speaker 13: this is going to become much more commonplace. But with that,
Speaker 13: we're also staying away from certain areas of the economy
Speaker 13: at certain moments in time. If you look at elective
Speaker 13: surgeries having surged post COVID, well, what does that mean
Speaker 13: from a win perspective? That means healthcare insurance companies have
Speaker 13: a lot of bills to pay and so, uh, you know,
Speaker 13: we're trying to look at both both sides of the docket.
Speaker 13: There the industrial spending that's coming out of the government,
Speaker 13: we've seen, We've seen those dollars surging coming out of
Speaker 13: COVID and still you know, at six point four trillion
Speaker 13: dollars a year, lots of opportunities on the water infrastructure
Speaker 13: infrastructure front there as well.
Speaker 2: Here, it definitely provides momentum. So good to check in
Speaker 2: with you as always. Aaron Kennon, co founder CEO at
Speaker 2: Clear Harbor Asset Management, joining us from Connecticut.
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