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Speaker 3: Interesting on those isms expansionary territory here ism manufacturing coming
Speaker 3: in at over fifty. So let's get to the man
Speaker 3: behind the data. Tim Fioria's chair for the Institute of
Speaker 3: Supply Management's Manufacturing Business Survey Committee. Tim we knew we
Speaker 3: were in the trough. Is this legit expansion here?
Speaker 4: Yeah?
Speaker 5: Absolutely, Alex, Good morning, Paul, Good morning Alex. So this
Speaker 5: is the third month for covering demand and there's not
Speaker 5: a lot to complain about in this report. I mean,
Speaker 5: we've got good demand to beat the seasonals expanded for
Speaker 5: it's on average the last three months, it's an expansionary period.
Speaker 5: We had production go up, which is output pretty significantly.
Speaker 5: We were continuing to have layoffs, which I think is good,
Speaker 5: but that should probably end soon. Suppliers are starting to
Speaker 5: stiffen up. So overall, this is a very good report.
Speaker 5: Remember last time we spoke August September, we declared that
Speaker 5: we thought we were in the manufacturing trough. In January
Speaker 5: we indicated that we thought we're starting to climb out.
Speaker 5: We climbed out in January, a little bit of February,
Speaker 5: even more now in March. So we're well on our
Speaker 5: path here to a good manufacturing recovery.
Speaker 6: And Tim you always tell us to kind of focus
Speaker 6: on the new orders, and new orders showed some expansion
Speaker 6: as well.
Speaker 5: Yeah, they sure did. They pop back above fifty. We
Speaker 5: also had pretty significant new expert orders. There were a
Speaker 5: flat expansion to the prior month, but they're expanding. Nonetheless,
Speaker 5: backlog was stable, which is okay, it's in the mid forties.
Speaker 5: That's all right. That'll come back probably in the early summer.
Speaker 5: And cuss Er inventories went way too low again, which
Speaker 5: is very good. So we've got demand increasing, we've got
Speaker 5: production increasing, we've got staffing being finalized.
Speaker 7: Here.
Speaker 5: We still had a one to one hired a fire ratio,
Speaker 5: which means that we still have a lot of companies
Speaker 5: letting people go. Seventy percent of our layoffs attrition freeze
Speaker 5: activities were actually layoffs, so you know, people have been
Speaker 5: getting a little bit more urgent on the tool to use,
Speaker 5: and like I said, on the input side, we had
Speaker 5: inventory still contracting by getting very close to fifty. Across
Speaker 5: all the industry sectors.
Speaker 7: They all did well.
Speaker 5: None of them did exceptionally well, but most of them
Speaker 5: came in above fifty of the top six. If they
Speaker 5: didn't come in above fifty, they were like forty nine. So,
Speaker 5: you know, March is a big manufacturing month. We have
Speaker 5: seasonal factors that hit us. We overcame the seasonal factors.
Speaker 5: We only had thirty percent of manufacturing GDP declining in
Speaker 5: the month, down from forty percent to prior month. And
Speaker 5: even more importantly, only one percent of manufacturing GDP contracted
Speaker 5: below forty five.
Speaker 3: Yes, alex So Tim, so you were mentioning the layoffs,
Speaker 3: like legit layoffs. Do we expect that to end if
Speaker 3: we wind up seeing manufacturing truly recover? So, like you
Speaker 3: mentioned recovery, and I'm wondering what that looks like, and
Speaker 3: then what the reflection is on the job market.
Speaker 5: So you know, a couple of reasons I think companies
Speaker 5: are cleaning up their staffing. You know, we did a
Speaker 5: lot of urgent things over the last couple of years
Speaker 5: to get headcount, probably hired some people that we don't
Speaker 5: really want to keep, so some of that cleansing is
Speaker 5: going on. But we are going to cross that conversion
Speaker 5: line where you need the labor regardless of whether it's
Speaker 5: one hundred percent productive or ninety five percent production. So
Speaker 5: I think we're going to see that layout activity start
Speaker 5: to diminish. In fact, I'm going to start to reverse
Speaker 5: symmetric and start to look for hiring activities. So I
Speaker 5: would guess that probably by June we'll see that slow down,
Speaker 5: especially for the second half of the year.
Speaker 6: Tim thanks so much for joining us. As always, always
Speaker 6: appreciate getting your insights here for this data. Tim Fury,
Speaker 6: chairman of the Manufacturing Business Survey at the Institute for
Speaker 6: Supply Management. Again, the ISM manufacturing headline number came into
Speaker 6: fifty point three, signaling expansion above fifty. The consensus was
Speaker 6: for forty eight point three, so a well above consensus
Speaker 6: and last period a last month was forty seven point eight.
Speaker 6: So it's TIMO saying a good momentum there for the
Speaker 6: manufacturing site.
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Speaker 3: The avenue is It's interesting. Is UPS as well as FedEx?
Speaker 8: Two things to watch one.
Speaker 3: FedEx won a contract to be the cargo carrier for
Speaker 3: the USPS. FedEx, on the other hand, failed to come
Speaker 3: up with a deal at a container deal for the
Speaker 3: government as well, So a little bit of divergence between
Speaker 3: the two.
Speaker 8: So who do we go to?
Speaker 3: Lee Clasgow, Bloomberg Intelligence senior transport logistics and shipping analyst
Speaker 3: who was off last week during the biggest shipping logistic
Speaker 3: nightmare that we've.
Speaker 6: Seen quite a long time.
Speaker 8: That nicely, Yeah, Lee, did you get a vacation or
Speaker 8: not so much?
Speaker 7: Not so much. I got woken up pretty early with
Speaker 7: one US coast time, so it was a fun day
Speaker 7: for me.
Speaker 8: Yeah, I can imagine that.
Speaker 7: Hence the beard.
Speaker 8: Now, hence the beard.
Speaker 3: He just got a lot older over the last week
Speaker 3: or so. So there's a lot to kind.
Speaker 8: Of get through.
Speaker 3: Let's get to the positive UPS news about being that
Speaker 3: cargo carrier for USPS.
Speaker 7: Yeah, so you know, This is somewhat of a surprise.
Speaker 9: I think most people were expecting the FedEx would lose
Speaker 9: maybe about half of that business, but they ended up
Speaker 9: losing all of it. It's about one point seven to
Speaker 9: one point nine billion dollars in revenue, makes up roughly
Speaker 9: around four to five percent of their express business, maybe
Speaker 9: two percent of their total business.
Speaker 7: So it's a.
Speaker 9: Big loss for FedEx. And you know, while FedEx is losing,
Speaker 9: Ups is gaining. What's great about this is maybe not
Speaker 9: so much the revenue and.
Speaker 7: The yields that it provides.
Speaker 9: It's the stability of the freight that it's going to
Speaker 9: be getting into its network. And when you have any
Speaker 9: sort of freight network, you want equilibrium. You want you
Speaker 9: want to be able to predict what you're going to
Speaker 9: to need in terms of resources, and this provides a
Speaker 9: good level set of predictability for them, and they can
Speaker 9: build density onto these routes where the US Postal Service
Speaker 9: will be leveraging.
Speaker 6: Why is the Postal Service making the switch, that's a
Speaker 6: great question.
Speaker 9: They were negotiating with fed X. I guess the two
Speaker 9: parties couldn't come to a conclusion in terms of an agreement,
Speaker 9: so therefore they just decided to part ways. You know,
Speaker 9: one would guess that this isn't maybe not the most
Speaker 9: high margin business for whether it's UPS or fed X.
Speaker 9: But again, I think there is a benefit to having
Speaker 9: this because it does create a lot of density in
Speaker 9: their network.
Speaker 6: Let me ask a silly question. When I'm looking to
Speaker 6: mail package, the United States Postal Service does not even
Speaker 6: come into my mindset.
Speaker 8: Oh god, no, no, who still.
Speaker 6: Uses the US Postal Service versus FedEx? Or or you
Speaker 6: know a UPS store that's right next to the Starbucks
Speaker 6: in town. I can go, you know, get my cafe
Speaker 6: mocha there. I'm not going to the post office. Who
Speaker 6: uses a post office these days?
Speaker 7: I mean I do?
Speaker 9: I guess I'm you do, but I do sometimes. But
Speaker 9: but the reality is the Postal service. You know, obviously
Speaker 9: you were not sending letters to Grandma anymore. But you
Speaker 9: know what we are doing is we're ordering stuff online
Speaker 9: and the US Postal Service provides a lot of the
Speaker 9: final mile delivery.
Speaker 7: So you might be.
Speaker 9: Ordering from a department store or you know, a dot
Speaker 9: com etailer, and you know they might be using UPS
Speaker 9: and FedEx for the line haul, but they might be
Speaker 9: leveraging the postal service for that final mile deliver because
Speaker 9: the postal service at the end of the day has
Speaker 9: to go to everyone's address, and it's it's a cheap
Speaker 9: way to do it, you know. And as more and
Speaker 9: more people are willing to maybe you don't need something,
Speaker 9: maybe you don't need that T shirt overnight, you can
Speaker 9: wait a couple of days, you know, injecting that freight
Speaker 9: into the postal service.
Speaker 7: That makes sense.
Speaker 9: And Amazon's is a big user of that final mile
Speaker 9: delivery as well.
Speaker 8: My daughter does send letters to her grandmother.
Speaker 3: I'm just putting that out there on the flip side,
Speaker 3: and I should point out they mentioned the margin part
Speaker 3: of it. So we talked to the UPS CEO last
Speaker 3: week on television, and their whole pitch is that going
Speaker 3: forward they want to focus on margin and pricing over volume.
Speaker 8: Does this fit into that strategy.
Speaker 7: Yes and no.
Speaker 9: So yes, because so what they're going to be focusing
Speaker 9: on are verticals like small to mid sized shippers, and
Speaker 9: those shippers come with very high margins relative to you know,
Speaker 9: large enterprise companies that are out there, so they're going
Speaker 9: to be really focused on that type of that type
Speaker 9: of business.
Speaker 7: But you know, what the what the.
Speaker 9: Volumes from the postal service brings is a level of
Speaker 9: density that you can leverage because it's all about operational leverage, right.
Speaker 9: You know, no matter what you are in transportation, operational
Speaker 9: leverage is pretty high. Because you add like one more
Speaker 9: piece of freight, that piece of freight tends to have
Speaker 9: higher margins than the first twenty pieces of freight. And
Speaker 9: so what this will do is this will probably help
Speaker 9: them provide a base level of cost coverage and you
Speaker 9: know what a profitable cost coverage at that and then
Speaker 9: all these additional volumes that they're getting from higher margin
Speaker 9: might even carrier, might even carry higher.
Speaker 7: Incremental margins for UPS.
Speaker 9: So long term it could have a very positive impact
Speaker 9: on margins. Near term, it might have somewhat of a mix,
Speaker 9: a negative mixshift, if you will, but you know, we
Speaker 9: think that it does make sense for them to take
Speaker 9: this volume. And other verticals also that they talked about
Speaker 9: during their analyst day were the healthcare vertical, which tends
Speaker 9: to be highly profitable just because of the high touch
Speaker 9: nature and the high service level of that freight that
Speaker 9: goes through their network.
Speaker 6: So Lee looking at the air freight companies to the FedEx,
Speaker 6: the UPS, how is business? How are volumes these days
Speaker 6: that they kind of peeled off from the pandemic or
Speaker 6: how is volume?
Speaker 9: Yeah, so, you know, we're coming off those highs that
Speaker 9: we reached during the pandemic when everyone was sitting at
Speaker 9: home and ordering toilet paper online or at least trying
Speaker 9: to get some toilet paper online.
Speaker 7: You know, we're back to a more normalized level. You know.
Speaker 9: But the reality is what the pandemic has done, is
Speaker 9: it really increased that e commerce penetration. It kind of
Speaker 9: kind of brought brought the penetration forward by three to
Speaker 9: five years.
Speaker 7: Which is a net positive.
Speaker 9: But you know, we have to go back to this
Speaker 9: quote unquote normalization process, which feels like a negative, but
Speaker 9: it's really not because once we get this space, which
Speaker 9: I think we're building right now, you know, we should
Speaker 9: see positive growth from here on out.
Speaker 3: Well, now since you're back, I can also ask you
Speaker 3: about Baltimore. What is the news today?
Speaker 7: Like?
Speaker 3: Where are we I know that there's some salvage ships
Speaker 3: that are coming in to try and get the stuff.
Speaker 8: Off the bottom of the port. Where are we here?
Speaker 8: How's it going?
Speaker 9: I'm not there, and I'm not My hands won't get
Speaker 9: dirty because I just I don't have those kind of hands.
Speaker 9: But you know, it could take four to six weeks
Speaker 9: to clean up the channel area to get the port reopened.
Speaker 9: You know, obviously to rebuild the bridge, we're talking two
Speaker 9: to four years, probably closer to four than two, and.
Speaker 7: So that's going to take time.
Speaker 9: The freight that is going to be impacted can be
Speaker 9: moved to other ports, whether it's coal going to the
Speaker 9: Port of Norfolk versus you.
Speaker 7: Know, going out of Baltimore.
Speaker 9: A lot of roll on roll off equipment, whether it's
Speaker 9: ag or commercial equipment in addition to automotives could go
Speaker 9: to Philly or New York, New Jersey ports. So there's
Speaker 9: going to be you know, there's going to be other
Speaker 9: ports that can pull the slack what you're going to see.
Speaker 9: Because we track weekly rail volumes, you're probably can see
Speaker 9: some volatility and the rail volumes, especially for Norfolk, Southern
Speaker 9: and CSX, the two eastern railroads, and that might make
Speaker 9: earnings maybe a little lumpy or a little lighter than
Speaker 9: what expectations were. But this is not like a huge
Speaker 9: dislocation like we saw, whether it's during the pandemic, and
Speaker 9: it's probably even less of.
Speaker 7: Of a big deal if you will.
Speaker 9: Then what we saw in what we're seeing right now
Speaker 9: in the Red Sea in terms of the impact, I
Speaker 9: think we're gonna this is really like a from a
Speaker 9: supply chain standpoint, It is really a short term negative
Speaker 9: impact where we'll find the new normal. I guess you know,
Speaker 9: I do say that a lot in my job, what
Speaker 9: the new normal is. But we will find a new
Speaker 9: normal as freight finds other ports to go short term
Speaker 9: until the Port of Baltimore opens up, which hopefully will
Speaker 9: be in less than two months time.
Speaker 7: Hey.
Speaker 6: Lee, when you talk to your institutional investor clients and
Speaker 6: you're talking about the transportation space broadly defined, where are
Speaker 6: people most excited?
Speaker 7: Is it the rails?
Speaker 6: Is it the trucks? Is it the marine shippers?
Speaker 7: Yeah, so that's a great question.
Speaker 9: I don't really think it's it's it's on a mode
Speaker 9: basis right now.
Speaker 7: I think it's really by a company's story.
Speaker 9: You know, you have a Norfolk Southern where you have
Speaker 9: a lot of activist investor activists activity going on there,
Speaker 9: so there's a lot of excitement about, you know, how
Speaker 9: that company can improve its margins.
Speaker 7: Uh.
Speaker 9: In the West, you have a new Pacific on on
Speaker 9: the rail side, where you have a new CEO that
Speaker 9: comes in with a lot of precisions scheduling, railroading experience
Speaker 9: and uh, you know, expectations are he's going to be
Speaker 9: able to improve margins. And then on the growth side
Speaker 9: of things in the rail industry, you have a Canadian
Speaker 9: Pacific uh Kansas City, which is uh, you know, the
Speaker 9: byproduct of a merger that happened last year, and they
Speaker 9: had some great growth opportunities because you know, they're the
Speaker 9: only railroad that touches Canada.
Speaker 7: The US and Mexico. And as you know, near.
Speaker 9: Shoring is a long term, slow, but long term secular
Speaker 9: growth story that you know, we're looking at and they're
Speaker 9: they're they're expected to benefit the most from from there.
Speaker 9: And then broadly speaking, I think people are just waiting
Speaker 9: to see the truckload cycle rate cycle start to turn.
Speaker 7: We believe it's going to.
Speaker 9: Happen this quarter. We believe we're bouncing along the bottom.
Speaker 9: What happened in Baltimore could kind of give a boost
Speaker 9: to certain kind of equipment types like flatbed equipment near
Speaker 9: term here, which could be a great base to work
Speaker 9: on positive pricing, which the truckload industry.
Speaker 8: Does really needs before we let you go.
Speaker 3: I mean on that point, we had the ISM manufacturing
Speaker 3: data coming in really strong, and you have been expansionary
Speaker 3: territory for the first time since July of twenty twenty two.
Speaker 3: It has been bouncing along the bottom and troughing for
Speaker 3: like five or six months. You're saying something similar for
Speaker 3: the transportation sector in some ways, does it reaccelerate, Like
Speaker 3: what does the upturn look like?
Speaker 9: So the ISM index is probably a great precursor to
Speaker 9: less than truckload demand. So think companies like XPO, Old Dominion,
Speaker 9: even FedEx Freight is the largest LTL carrier out there.
Speaker 9: Tonnage has been in decline h broadly speaking, and what
Speaker 9: the ISM usually is, it kind of leads demand.
Speaker 7: By by three to six months.
Speaker 9: So the fact that it inflected into expansion territory is
Speaker 9: a positive.
Speaker 7: Sign for the LTL space. You know, That's how we
Speaker 7: look when we're looking at the is m all right?
Speaker 6: Lee great Stuff has always appreciated, uh bringing it as
Speaker 6: he always does. Leek Clasicow, senior Transportation Logistics and shipping
Speaker 6: analysts for Bloomberg Intelligence coming to us from our Princeton
Speaker 6: studio via that technology, the kids call zoom. So that
Speaker 6: worked out worst. Yeah, just looking at the logistics, it
Speaker 6: seems like we're back to normalized logistics, getting up, you know,
Speaker 6: our product from point A to point B. Kind of
Speaker 6: back to where we were. I guess, I guess. My
Speaker 6: My question is what happens to justin time inventory? Is
Speaker 6: that still thing? Or do people learn their lesson like
Speaker 6: that just in time that's a little too dice meat, right.
Speaker 8: But it's not like a huge build up of inventory, right.
Speaker 3: It's like you have enough but not too much and
Speaker 3: kind of finding that sweet spot as I feel like
Speaker 3: retailers have been trying to find for a bit can
Speaker 3: be quite tricky, you know, but it will be interesting.
Speaker 3: I know that we're writing off what happened in Baltimore
Speaker 3: in terms of logistics.
Speaker 8: I know, I know we're doing that.
Speaker 3: There's space, there's capacity at different ports, railroads have capacity,
Speaker 3: et cetera. We have to wonder, though, if it doesn't
Speaker 3: take any shorter than four to six weeks, do we
Speaker 3: have to rethink the disinflationary trend that we're seeing, Like
Speaker 3: not inflation, not something crazy, but just.
Speaker 8: You know, stops the stops the decline.
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Speaker 3: But we're looking to sell off all across the bond
Speaker 3: market here, particularly in the long end, and it seems
Speaker 3: like the good data is going to be bad then
Speaker 3: for the market.
Speaker 8: Are we seeing actually a re ex of the economy.
Speaker 8: I think that's going to be my question of the.
Speaker 6: Day, Pall, I like that.
Speaker 8: Let's do it.
Speaker 3: Carol Pepper is founder and CEO at Pepper International and
Speaker 3: she joins us. Now, Carol, are we seeing a reacceleration.
Speaker 4: Now?
Speaker 10: I think we're seeing a steady, continuing good performance. Reacceleration
Speaker 10: would imply that it's going to get a lot hotter
Speaker 10: too quickly and it will not allow the FED to cut.
Speaker 10: I don't believe that's the case. I think we're just
Speaker 10: going to continue to see a good, strong, muscular market
Speaker 10: that's doing well. I don't see it as a reacceleration.
Speaker 10: I see it as fairly a steady state, almost a
Speaker 10: goldilocks market, not too hot, not too cold.
Speaker 6: So if that back. With that background, Carol, what do
Speaker 6: you think are Feeder Reserve is going to do in
Speaker 6: the upcoming meetings.
Speaker 10: I'm definitely in the camp that says they're going to
Speaker 10: cut in June because they have no reason to keep the.
Speaker 4: Rates so high.
Speaker 10: I mean, there's just there's not a lot of justification
Speaker 10: if we don't have rampant inflation and the rates being
Speaker 10: so high do threaten the real estate markets, which in
Speaker 10: turn threaten the banks. So you know, a lot of
Speaker 10: people have been holding on by their fingernails, and a
Speaker 10: lot of banks don't want to take back all that
Speaker 10: real estate, so they really need to start cutting.
Speaker 3: Okay, So if we just do so things are just
Speaker 3: humming along and doing all right. As you were just saying,
Speaker 3: is that enough for equities to keep going up?
Speaker 10: Well, remember, we're going to have the stimulus coming, a
Speaker 10: real stimulus, which is the cut of interest rates.
Speaker 4: That will help real estate.
Speaker 10: That will help banks, That will help consumers because the
Speaker 10: credit card rates will go down.
Speaker 3: But if we don't get that, Carol, if we don't
Speaker 3: get the cuts, or if that gets pushed off even
Speaker 3: by a month, et cetera, can stocks will go up?
Speaker 4: Yes? I think so.
Speaker 10: Because again we're at the beginning of another level of
Speaker 10: secular change. I was around trading the Internet when it
Speaker 10: first launched, and everybody said it was too expensive, don't
Speaker 10: buy it.
Speaker 4: And look where we are today. You know, will there be.
Speaker 10: Blips, yes, but the AI revolution really is going to
Speaker 10: be another huge leg up in productivity. And that's why
Speaker 10: you see the NASDAC running as strongly as it is,
Speaker 10: because people, a lot of people you know, still around
Speaker 10: to remember how it worked out last time. So AI
Speaker 10: is a secular change. The money that's been poured in
Speaker 10: by the Inflation Reduction Act is a secular change. These
Speaker 10: are real things that are causing real things to happen
Speaker 10: in the real world, and those are additional boosts even
Speaker 10: if we don't.
Speaker 4: Get the rate cuts. So there are very positive headwinds.
Speaker 10: And certainly if you compare what's going on here to
Speaker 10: the threat of Russia looming over Europe, the threat of
Speaker 10: China looming over Asia, you know, where do you go
Speaker 10: in the world, Middle East or here.
Speaker 4: Really that's why you see a lot of people moving.
Speaker 10: To you know, Ua, and people bringing their money to
Speaker 10: the United States, lots of international clients.
Speaker 4: As you know, I work with family offices.
Speaker 10: I manage money for people with over one hundred million
Speaker 10: who are who have single family offices, and they're all
Speaker 10: looking at the US as a safe haven. And that's
Speaker 10: going to continue because on a relative basis, the US
Speaker 10: looks fantastic if you think about going to other regions
Speaker 10: of the world.
Speaker 6: So do I stick with my large cap growth stocks, Carol,
Speaker 6: that have been working for me? Or do I try
Speaker 6: try to go out there and find some value?
Speaker 2: No?
Speaker 10: No, no, forget value in my opinion, I mean you
Speaker 10: can honestly value has I've been hearing about the renaissance
Speaker 10: of value for forty years.
Speaker 4: Okay, it just never happens. It's like waiting for goodo.
Speaker 10: I mean, the the United States is a leader in
Speaker 10: technology globally. And if you stick with the large cap
Speaker 10: growth stocks, particularly ones with lots and lots of cash
Speaker 10: on their.
Speaker 4: Balance sheet, which you can easily see if you look
Speaker 4: on you know, any any online.
Speaker 10: System you're a trader on Bloomberg channel wherever you can
Speaker 10: see how much cash they have on their balance sheet.
Speaker 4: That means they can weather any storm.
Speaker 10: So you know, Microsoft, Amazon, Google, these big names are
Speaker 10: going to continue powering upward.
Speaker 3: So okay, to that point if I didn't own though,
Speaker 3: say the mag four Fab four. Is it too late
Speaker 3: to do that or do I need to sort of
Speaker 3: play the themes that you're talking about that are real
Speaker 3: structural shifts in different ways.
Speaker 4: No way, you have to play the big guys.
Speaker 10: This is the leader's market and there are lots of
Speaker 10: fear days coming.
Speaker 4: Don't think we're done with fear days.
Speaker 10: Fear days of the days when something spooks the market.
Speaker 10: Let's say Paul says something that makes the traders fret that.
Speaker 4: Oh he really isn't going to cut. Oh my god,
Speaker 4: what's going to happen?
Speaker 10: And everything will drop like a stone, and you smart
Speaker 10: trader are waiting on the sidelines, and you'll get into
Speaker 10: those big names. There will be fear days, there will
Speaker 10: be fear events. That's just the way things roll these days.
Speaker 10: So on those days you can get in if you
Speaker 10: want to get a better entry point. But frankly, you know,
Speaker 10: I remember when Amazon first came out and everybody said
Speaker 10: it was too expensive. Event it's you know or Microsoft.
Speaker 10: These are up two hundred three hundred thousand percent. I mean,
Speaker 10: there's no waiting for the exact right day. Isn't the answer.
Speaker 10: The answer is get into those stocks, particularly for your
Speaker 10: retirement accounts or your kids college stick the stick them somewhere,
Speaker 10: don't look at them every day, and.
Speaker 4: Just know that you've made a great, solid investment for
Speaker 4: years to come.
Speaker 6: Em XC What is EMXC and why should we buy it?
Speaker 10: Okay, EMXC is the Emerging Markets Mexico Fund. So I've
Speaker 10: been spending a lot of time lately in Mexico. Mexico
Speaker 10: is the destination for a lot of the near shoring activity,
Speaker 10: meaning people are moving their operations out of China's sphere,
Speaker 10: not only China, but anywhere China for example, like Hong Kong,
Speaker 10: anywhere where China has undue influence, They're moving those operations
Speaker 10: to Mexico. Mexico is on fire. If you go to Monterey,
Speaker 10: the building is unbelievable. If you go to Tijuana, the
Speaker 10: building is incredible. Why because all these both European and
Speaker 10: US corporations are moving operations there.
Speaker 4: So that country is doing extremely well. Of course, they have,
Speaker 4: like a lot of countries.
Speaker 10: Right now, they're a little nervous about the presidential election
Speaker 10: coming up, but once we get past that, that country
Speaker 10: is going to continue to do extremely well. So that's
Speaker 10: a way the small percentage of your money to play
Speaker 10: a trend that's going to only get bigger over time.
Speaker 8: Do that also go to Canada, Carol? Or is that
Speaker 8: purely in Mexico?
Speaker 7: You know?
Speaker 10: Because the wages are too high in Canada, so that's
Speaker 10: why they go to Mexico. So it's sort of you
Speaker 10: get emerging market wages and labor in a market that
Speaker 10: where you can literally, like Canada, drive into the US.
Speaker 10: But unfortunately Canada doesn't have enough labor to take all
Speaker 10: of our near shoring, and they're they're more like US,
Speaker 10: they have high wage structure, So that's why people go
Speaker 10: to Mexico.
Speaker 6: Do people Are people going to increasingly go to India
Speaker 6: if China is less investible here? A lot of folks
Speaker 6: have been suggesting that's the next trend in emerging markets.
Speaker 4: Absolutely.
Speaker 10: I mean, for example, two important things happen in February
Speaker 10: MSCI the index for the Rest of the World. If
Speaker 10: you will increase the waiting for India and decrease the
Speaker 10: waiting for China, India.
Speaker 4: Up two points, China down a point.
Speaker 10: JP Morgan this coming month is going to be adding
Speaker 10: India bonds for the first time into their International Bond Index.
Speaker 4: So India is.
Speaker 10: Muscling in and China is falling behind because they're just
Speaker 10: not playing ball with the rest of the world.
Speaker 4: So, yes, India is a great trend right now. It's
Speaker 4: easier to buy India through some emerging market ETFs that
Speaker 4: are equity focused.
Speaker 10: There's really not a lot of great debt options yet,
Speaker 10: but I think those will come because what tends to happen,
Speaker 10: the street gets excited when when a country is included
Speaker 10: an index is now it's worthwhile to go and build
Speaker 10: products around that country. So that's why there's Ida, which
Speaker 10: is a great ETF that you can look at, and
Speaker 10: there's gli In. Both of these you know, gli In
Speaker 10: was up fifty three percent last year. It's smaller, but
Speaker 10: Ida is nine billion dollars already and.
Speaker 4: It was up over thirty percent last year.
Speaker 3: So yeah, here Before we let you go, though, I
Speaker 3: just want to get one day, like, what's the biggest question?
Speaker 3: Like we covered a lot of ground, what's the biggest
Speaker 3: question you're getting right now from your clients?
Speaker 10: Well, it's really will this good time last? And I
Speaker 10: say yes, I say this year it's an election year,
Speaker 10: the good time will last. Don't be too frightened and
Speaker 10: jump out because you're scared, and don't try to time
Speaker 10: the market. Look for long term trends that will work
Speaker 10: for you in the right proportion for your portfolio, and
Speaker 10: stick with them. Don't go crazy unless you have a
Speaker 10: day trading account. That's a whole other story. But if
Speaker 10: you're investing, bind the right trends and ride them over
Speaker 10: the long term.
Speaker 8: Carol, thanks a lot.
Speaker 3: We really appreciated Carol Pepper, a founder and CEO over
Speaker 3: at Pepper International. So interesting because it just flies in
Speaker 3: the face of like my philosophy, which is gold and
Speaker 3: soup canes kind of under the bed, but speaking of
Speaker 3: gold at a record high, but that you know, like,
Speaker 3: don't get scared, we'll have down days and sort of
Speaker 3: buy the dip in the large guys.
Speaker 8: I always wonder what the first member.
Speaker 3: Advantage is for the AI trade, Like do you want
Speaker 3: to buy the first guys or do you want to
Speaker 3: buy the fourth derivative fourth guys?
Speaker 6: I don't know. I mean a lot of Apple investors
Speaker 6: are suggesting, you know, Apple may arguably has missed the
Speaker 6: early move, but they often missed the early move. They
Speaker 6: wait for people and so don't worry that Apple will
Speaker 6: be there. There'll be an AI play there, maybe as
Speaker 6: soon as their June Developer meeting. But the chip makers
Speaker 6: have been the ones that are just the clear winners.
Speaker 6: Obviously in Vidio, but just a chip sector broadly defined
Speaker 6: has been I guess, the initial winners for the AI
Speaker 6: and then the questions get brought that out to software
Speaker 6: like a Microsoft and yeah, so on and so forth.
Speaker 3: And then also I liked your question about value because
Speaker 3: I feel like the theme of the second quarter is rotation, rotation,
Speaker 3: broadening out of the rally, broadening out of the rally
Speaker 3: the rally. And then she's like, no, not gonna happen. Yeah,
Speaker 3: I just go by the big guys, which is quite interesting.
Speaker 6: It's a very aggressive call. I would say, it's even
Speaker 6: a little out of consensus call, sticking with and kind
Speaker 6: of you know, literally in her notes she's saying, go
Speaker 6: out and buy Nvidia today, basically in her notes. So
Speaker 6: we'll have to see. So Carol Pepper's some bold call,
Speaker 6: staying aggressive.
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Speaker 6: T s l A Tesla as mister musklakes to pronounce
Speaker 6: it stops down twenty seven percent year to date. There's
Speaker 6: a million cross currents there, So let me just bring
Speaker 6: in someone who kind of think can clear it up
Speaker 6: for us, Alex Steve Man. He's global autos analyst for
Speaker 6: Bloomberg Intelligence. A Steve stocks down twenty seven percent. You know,
Speaker 6: I'm sorry, stucks on thirty percent year to date. What's
Speaker 6: the rub on Tesla right now? What's the big bear
Speaker 6: case for Tesla?
Speaker 11: Hey, Paul, thanks for having me on the big bearcas
Speaker 11: is really you know, how are they going to do
Speaker 11: this year? You know, EV sales and the US markets
Speaker 11: slowing down, China sales have slowed down as well as
Speaker 11: you know, even with steep price cuts in both regions,
Speaker 11: and then you know they have the cyber truck ramping up,
Speaker 11: and you know it's not the most easiest product to build,
Speaker 11: so that you're facing some challenges there. So earnings, you know,
Speaker 11: I think earning is going to growth is going to
Speaker 11: slow down this year. Free cash flow growth is going
Speaker 11: to slow down this year, So that's the main overhang
Speaker 11: on that stock right now.
Speaker 8: Well, also we're waiting for first quarter deliveries.
Speaker 3: I'm totally unclear as to when we get that number,
Speaker 3: but it does look like Wall Street analysts are getting
Speaker 3: more negative and more negative and what they'll actually be
Speaker 3: able to deliver.
Speaker 6: What are you modeling?
Speaker 11: Yeah, so their number is supposed to come out tomorrow.
Speaker 11: But if you look at yeah, if you look at
Speaker 11: the Chinese auto sales like Neo X Punk BYD they
Speaker 11: all have reported they have really strong March sales number,
Speaker 11: but that's on the back of really steep price cuts
Speaker 11: over the past few weeks. So if you look at
Speaker 11: those number, you kind of infer that probably, you know,
Speaker 11: Tesla is going to report you know, probably low single
Speaker 11: digit growth, may flat to slightly up year on year
Speaker 11: in the first quarter. That's that's pretty much in line
Speaker 11: with consensus because consensus estimates have come down over the
Speaker 11: past few months already.
Speaker 6: So you know, Steve, what do you what's your view
Speaker 6: of you know, overall demand for electric vehicles. It seems
Speaker 6: a lot of folks feel like, boy that it's kind
Speaker 6: of peaked. The early adopters, they're done. The tree huggers
Speaker 6: like Matt Miller, they're done. What's the ultimate demand for EV's?
Speaker 11: Do you think I'm actually optimistic about ev I think
Speaker 11: ev that ship have sailed, and I think we're just
Speaker 11: seeing a cyclical downturn. Part of it is because the
Speaker 11: product that's available to the masses is still not there yet.
Speaker 11: A lot of the EV's that are on sale today
Speaker 11: are over fifty thousand dollars. A lot of people cannot
Speaker 11: afford fifty thousand dollars cars, especially in a high interest
Speaker 11: rate environment. So I think a lot of the automakers,
Speaker 11: including Tesla, G and the rest, are introducing more affordable
Speaker 11: evis in twenty twenty five and twenty twenty six. I
Speaker 11: think that's going to expand the market of a little
Speaker 11: bit more and hopefully my hope is that you know,
Speaker 11: sales will come back at that.
Speaker 8: Time well to that point.
Speaker 3: And this ties into Tesla delivery sales because Elon Musk
Speaker 3: has talked about the facts that getting from their sexy
Speaker 3: models now to the affordable models later, there will be
Speaker 3: a sales slump as they kind of fix production and
Speaker 3: they ramp it up et cetera. How long do you
Speaker 3: think that gap slump, et cetera is going to last?
Speaker 11: For Well, Tesla's going to introduce to the compact vehicle
Speaker 11: that's supposed to be supposedly under thirty thousand dollars. They're
Speaker 11: going to start production in the second half of next year,
Speaker 11: and we probably don't see any contribution to profitability and
Speaker 11: cash flow until twenty twenty six and twenty twenty seven.
Speaker 11: So it's not that too far. It's not that far
Speaker 11: are from now. And you know, GM is doing the
Speaker 11: same thing. They're reintroducing the cheaper version or less lower
Speaker 11: cost version of the Bolt in twenty twenty five as well.
Speaker 11: So I think it's it's it's it's not that far away.
Speaker 11: Twenty twenty four. Like I've always said, it's gonna be
Speaker 11: an adjustment year for for a lot of automakers. They
Speaker 11: gotta they gotta reevaluate the cost structure, reevaluate the portfolio,
Speaker 11: and uh, you know again, this is why I think
Speaker 11: it's a cyclical downturn. In twenty twenty five twenty twenty six,
Speaker 11: you're gonna have cheaper cars, lower costs, and hopefully better
Speaker 11: earnings for the EV market. EV automakers.
Speaker 6: So, Steve, do we know whether the industry I'm even
Speaker 6: gonna call out TESLA or GM. Can the industry replicate
Speaker 6: the profitability it has on its internal combustion engine vehicles,
Speaker 6: which I understand now the unit economics are very good.
Speaker 6: Can you replicate that? Or in the EV space.
Speaker 11: It's very possible because battery lithium prices have come down
Speaker 11: quite a bit, destabilizing at a lower level. The whole
Speaker 11: auto industry is re evaluating their manufacturing, how they build cars.
Speaker 11: So vertical integration has become a very important kind of
Speaker 11: strategy for automakers to cut costs across the supply chain.
Speaker 11: That will take time. And then thirdly, the IRA, the
Speaker 11: Inflation Reduction Act is supposedly on shore a lot of
Speaker 11: the battery manufacturing. Again, that is supposed to cut costs
Speaker 11: for automakers. And that's why I think in twenty twenty five,
Speaker 11: twenty twenty six they're able to roll out more affordable
Speaker 11: evs at a lower price and hopefully, you know, if
Speaker 11: volume does get there, it's going to be a lower
Speaker 11: cost per unit.
Speaker 6: A Steve thirty seconds, why is GM at a fifty
Speaker 6: two week high today?
Speaker 11: Well, they've done a great job in managing the investors
Speaker 11: by buying stock, you know, a very spending a lot
Speaker 11: of money to buystock and an accelerated rate, and you
Speaker 11: know investors love that on that return of cash to.
Speaker 6: That nice all right, you can't, you know, beat him,
Speaker 6: join them. That's a good thing. Steve Man covers all
Speaker 6: the auto stuff for Bloomberg Intelligence. We've got a great
Speaker 6: global team following the global auto of business. Steve just
Speaker 6: relocated from Hong Kong back to the US to Princeton,
Speaker 6: New Jersey, so he knows that global auto space, including
Speaker 6: the Chinese market, which is such a key market for
Speaker 6: the global auto manufacturers, particularly Tesla, who's got a big
Speaker 6: commitment there.
Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 2: Say Alexa playing Bloomberg eleven thirty again.
Speaker 6: Heck of a first quarter four equity markets up ten
Speaker 6: percent for the S and P five hundred looking at
Speaker 6: that October low, up over just over twenty five percent,
Speaker 6: so a big, big move just in the last five
Speaker 6: to six months, I've gone too far? Do we still
Speaker 6: have more room to grow? Let's check out with Christina Hooper.
Speaker 6: She's a chief Global market strategist for Invesco. Christina, again,
Speaker 6: a lot of people, I think are kind of looking
Speaker 6: back at this first quarter we had and looking back
Speaker 6: up to October and say, boy, that was a nice move.
Speaker 6: Now what do we do? What are you telling them?
Speaker 1: Well, I think it's important to keep our focus on
Speaker 1: the longer term. Yes, it seems likely that stocks will
Speaker 1: take something of a breather after such a strong quarter
Speaker 1: and such a strong rally since October. But the reality
Speaker 1: is that we are still waiting for the start of
Speaker 1: rake cuts, which could very well be a positive catalyst
Speaker 1: for stocks. We also have a very significant cash sitting
Speaker 1: on the sidelines that could easily start to move into
Speaker 1: equities as well as fixed income as rates start to
Speaker 1: go down. So what we're saying is don't overreact to
Speaker 1: the environment, but be well diversified, because we could very
Speaker 1: well see a rotation. For example, one more unnoticed development
Speaker 1: last week was the Russell two thousand, surpassing the high
Speaker 1: hit in early March, and I think it's a reminder
Speaker 1: that there are opportunities outside of large cap US stocks
Speaker 1: if we go across the pond, if we look internationally,
Speaker 1: as well as if we look into the smaller capped space.
Speaker 1: But again, the key is to be well diversified across
Speaker 1: the major asset classes and within them.
Speaker 8: So Christina does that?
Speaker 3: Is that a value call or is that just own
Speaker 3: lots of different things because we don't know what form
Speaker 3: the economy will really take in what the FED will do.
Speaker 10: Well.
Speaker 1: I would argue that it's a call on expectations of
Speaker 1: what is going to happen later this year and next year.
Speaker 1: So what I think we're going to see is a
Speaker 1: rather brief and mild slowed down for the global economy
Speaker 1: followed by a reacceleration. And typically asset classes discount these
Speaker 1: events before they happen, which is why I think we're
Speaker 1: starting to see improvement in small caps, why we're seeing
Speaker 1: a broadening of the stock market.
Speaker 6: Does a broadening of the stock market include China? There's
Speaker 6: a lot of folks out there that say China, for
Speaker 6: a variety of reasons, is uninvestable. What do you think?
Speaker 1: So I would argue that sentiment has gotten far too
Speaker 1: negative on Chinese equities, and it really creates a situation
Speaker 1: in which we could see some very positive Chinese equity
Speaker 1: market performance with a little positive surprise. And an example
Speaker 1: of that is the some data we saw, the pm
Speaker 1: I data better than expected and of course no surprise
Speaker 1: that we saw positive reaction because China is just Chinese
Speaker 1: equities have been over sold. There are opportunities there.
Speaker 8: Hmm, that's an interesting call. How do you head?
Speaker 3: I mean, do you go internal stocks like small caps
Speaker 3: that might get a boost from any government stimulus, or
Speaker 3: is it you still want to own US companies with
Speaker 3: exposure just maybe we have to be selective on what
Speaker 3: kind of exposure a lah apple.
Speaker 1: I think there's there's a case for both, but certainly
Speaker 1: Chinese equities, you know, getting in there, especially areas like
Speaker 1: China Tech. I think there's there's significant potential there. I
Speaker 1: think what we're hearing from Chinese policy makers is a
Speaker 1: willingness to be you know, an interest in being very
Speaker 1: business friendly, and I think there's upside potential there.
Speaker 6: How About on the fixed income side here, just broadly speaking,
Speaker 6: do I want to just stick with my two year
Speaker 6: treasury at four point seven percent or all I want
Speaker 6: to go out and take some credit risk here.
Speaker 1: So I think in this environment with an expectation of
Speaker 1: a pretty soft slow down, what I would argue is
Speaker 1: that it is a time to take credit risk and
Speaker 1: also move out in terms of duration locking in rates
Speaker 1: because we know what is likely to happen in the
Speaker 1: future in terms of rate cuts.
Speaker 3: So is that a price appreciation play or is it
Speaker 3: an absolute yield play?
Speaker 1: It's a little of both.
Speaker 3: Interesting and is the U So how do I then
Speaker 3: think about the economy and relation to the FED cuts?
Speaker 3: I mean, just today, right, we get that nice and
Speaker 3: hot im manufacturing data at the top of the ten
Speaker 3: o'clock hour, and we see a pretty sturdy sell off,
Speaker 3: particularly in the back end, like higher for longer there
Speaker 3: for growth will be impacted later, et cetera.
Speaker 8: How do you view that?
Speaker 1: So, I think there was a real overreaction on the
Speaker 1: part of the market to today's data, and understandably so.
Speaker 1: There are a lot of jitters out there. We are
Speaker 1: certainly getting conflicting messages in terms of FED speak. But
Speaker 1: the reality is I don't think anything in that print
Speaker 1: today changes my view that we will see a rake
Speaker 1: cut before the end of the second quarter. Yes, hotter
Speaker 1: than expected, but we didn't see anything dramatic, and in fact,
Speaker 1: employment remains tepid. That's sub index. The price sub index
Speaker 1: went up, but it's largely a result of commodities. So
Speaker 1: I understand why we saw, why we're seeing the reaction
Speaker 1: we are, but I don't believe that's going to change
Speaker 1: the Fed's mind. I mean, we've seen very very significant
Speaker 1: progress on disinflation, and core PC on Friday underscores that.
Speaker 6: So Christina, you know, I'm just guessing thinking about an
Speaker 6: environment where interest rates are coming down, what does that
Speaker 6: mean for real estate?
Speaker 1: I think that takes some of the pressure off real estate,
Speaker 1: and we're likely seeing a bottom for the real estate market,
Speaker 1: certainly for you know, for refinancings that are to come.
Speaker 1: That will certainly certainly be a positive. And we also know,
Speaker 1: of course that there is a pretty strong correlation between
Speaker 1: real estate prices and interest rates. So I think this
Speaker 1: is this is a very positive development. The sooner the
Speaker 1: better in terms of ray cuts starting for real estate.
Speaker 3: You sound like a very engaged goldilockser. I'm just going
Speaker 3: to coin that term goldilockser. What are you then most
Speaker 3: worried about? Because if we go with the way you're
Speaker 3: talking about, this could be very good for many different assets,
Speaker 3: et cetera.
Speaker 8: What do you worry about?
Speaker 1: So I worry about the FED weighing too heavily the
Speaker 1: ghost of Paul Voker. I work about the FED having
Speaker 1: egg on its face from being late to react to
Speaker 1: higher inflation, and as a result of being more more
Speaker 1: hawkish in rate cuts this year, or deciding to forego them,
Speaker 1: or having a reduced number. I think that could be
Speaker 1: really problematic, first of all, because markets are expecting some
Speaker 1: level of rate cuts this year, but also because what
Speaker 1: we know is that there are long and variable legs
Speaker 1: between when monetary policy is implemented and when it shows
Speaker 1: up in the economy. So we could still very well
Speaker 1: see damage from what the Fed has done thus far.
Speaker 1: So to compound that by keeping rates at high levels
Speaker 1: for longer would be a mistake in my opinion.
Speaker 6: All right, Christina, thank you so much.
Speaker 7: We appreciate it.
Speaker 6: Christina Hooper, Chief Global market Strategist for Investco.
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