Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moving news.
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Speaker 1: podcast rate and smack in the middle of earning season here,
Speaker 1: lots going on, but we do have a big day
Speaker 1: tomorrow for the market, and then as a Federal Reserve
Speaker 1: is going to meet and we're gonna hear what they're
Speaker 1: gonna do with interest rates and get a little bit
Speaker 1: of a preview. Here, Lydia Bussor joins us. She's a
Speaker 1: senior economist at e Y Parthanachi joins us live here
Speaker 1: in our Bloomberg Interactive Broker studio. So, Lydia, what do
Speaker 1: you guys at Ey, what do you think you're going
Speaker 1: to hear from this Federal Reserve tomorrow when we hear
Speaker 1: from Fed Chairman J Powell.
Speaker 3: Sure? So, I think at this stage the twenty five
Speaker 3: bases front rate hike is pretty much baked in, so
Speaker 3: the focus will really be on the press conference, I
Speaker 3: think Fetcher Palell, we'll want to maintain that hockey Ish
Speaker 3: stilt and keep the options open in terms of you know,
Speaker 3: potentially hiking again before the end of the year. So
Speaker 3: we're likely to see, you know, to still have that
Speaker 3: hockey tone and at the same time also you know,
Speaker 3: sticking to that slower pace of tightening. So in our view,
Speaker 3: we're likely to see the Federal Reserve skipping another rate
Speaker 3: hike in September, and by November, we think that the
Speaker 3: economic activity will have slowed significantly and we will have
Speaker 3: seen inflation also coming back down quite significantly as well,
Speaker 3: and that will you know, lead the Fed to stay
Speaker 3: on the sidelines. And so we think we tomorrow is
Speaker 3: going to be the last rate hike in the cycle.
Speaker 4: When it comes to economies in the recession calls, it's
Speaker 4: really become dicey. If you look at the ECFC function
Speaker 4: in the Bloomberg terminal, the revisions for the second and
Speaker 4: third quarter have been adjusted higher. How do you view
Speaker 4: wherethy economy is projected to go in the US? Because
Speaker 4: even just looking at the IMF this morning, we ended
Speaker 4: up lipping the world out look just based on the
Speaker 4: strength that we have seen in the US and the
Speaker 4: stability there.
Speaker 3: Yeah, I mean, we've seen some encouraging science for the economy.
Speaker 3: When we look at the latest economic data and from
Speaker 3: you know, our conversations also with our clients, we are
Speaker 3: seeing more caution from consumers and businesses, but we're not
Speaker 3: seeing a private sector retrenchment in terms of activity. So
Speaker 3: we are seeing you know, downshifting economic activity. We are
Speaker 3: seeing that moderation and inflation, and we are also seeing
Speaker 3: that you know, soft rebalancing in the label market and
Speaker 3: that's definitely led you know, forecasters to raise their expectations
Speaker 3: for growth this year, and also it has also led
Speaker 3: us to you know, lower our odds of our recession. Now,
Speaker 3: I think in this environment, it's still important to remember
Speaker 3: that there are some strong headwinds currently facing the economy
Speaker 3: and that includes tighter credit conditions and that's going to
Speaker 3: continue to put downward pressure on the economy in the
Speaker 3: second half of the year. So we are expecting to
Speaker 3: see some recession conditions later this year.
Speaker 1: You know, the US Consumer Conference came out as John
Speaker 1: Tucker was just reporting a two year high. I found
Speaker 1: the Federal Reserve and I see that data point, I'm
Speaker 1: like I can raise rates some more.
Speaker 3: Yeah, risk, Yeah, I mean, consumers have showed some resilience.
Speaker 3: We've seen consumers continuing to spend despite higher interest rates,
Speaker 3: despite the fact that you know, credit has become harder
Speaker 3: to access and more expensive. And so that resilience has
Speaker 3: been you know, tied to excess savings and the fact
Speaker 3: that they've been able to draw down on these excess
Speaker 3: savings to continue to spend. And at the same time,
Speaker 3: you know, it's important also to think about some of
Speaker 3: the headwinds facing the consumer. We still have high inflation,
Speaker 3: they can no longer rely on these excess savings to
Speaker 3: support spending. And when we look at you know, the fall,
Speaker 3: we're going to have the restart or the student loan repayments,
Speaker 3: and that's also going to be a headwind for the consumer.
Speaker 3: So the consumers continue to spend, but they are more cautious.
Speaker 3: They are also more selective with their spendings.
Speaker 4: On Friday, we actually get the Employment Costs Index, which
Speaker 4: is quarterly. We all know Pala and other policy makers
Speaker 4: wash up very closely the gauge wage inflation, but also
Speaker 4: their preferre gauge when it comes to PCE. And then
Speaker 4: in between this decision and then the one on September twentieth.
Speaker 4: We still have a batch of other CPI data PPI
Speaker 4: as well as PCE. Will that be enough to where
Speaker 4: if it continues to be enough for the Fed to
Speaker 4: actually conclude this tightening cycle.
Speaker 3: Yes, that's the real question. I mean, the FED has
Speaker 3: become extremely data dependent, and so you know they're going
Speaker 3: to be closely looking at all these incoming data between
Speaker 3: non and September to make a decision. And that's a
Speaker 3: key reason why they really want to keep options open
Speaker 3: to that, you know, to a potential rate hike. When
Speaker 3: it comes to wage growth, we know that the FED
Speaker 3: is going to be closely looking at the ECI. I
Speaker 3: think there are some good reasons to think that we're
Speaker 3: going to see some moderation on the wagefront. We've seen
Speaker 3: that rebalancing in the label market making some progress, and
Speaker 3: at the same time we are also seeing the services
Speaker 3: side of inflation also starting to cool as well. So
Speaker 3: we're expecting, you know, wage growth to moderate, to show
Speaker 3: some slight moderation on Friday, and then also looking at
Speaker 3: the rest of the year.
Speaker 1: LYDIA, can you explain to me and to our listeners
Speaker 1: why inflation in Europe is so much more persistent and
Speaker 1: difficult than it is here in the US.
Speaker 3: I mean, I think in when you look at what's
Speaker 3: been happening in Europe, part of the story has also
Speaker 3: been tied to label markets. So there is some label
Speaker 3: market tightness and that's also what we've seen in the US.
Speaker 3: And then you know, if you look at the economy,
Speaker 3: we've also seen some resilience in the European economy. We've
Speaker 3: seen you know, the europe and European economy performing quite
Speaker 3: well over the winter when we were expecting things to
Speaker 3: get worse, and so part of that, I think is
Speaker 3: also helps explain why, you know, inflation pressures have remained
Speaker 3: persistent in Europe.
Speaker 4: Can the US pull off a soft learning because the
Speaker 4: dynamics with inflation being very different here than overseas.
Speaker 3: If we continue to see some of the dynamics we're
Speaker 3: seeing right now in the economy, I think there is
Speaker 3: a chance that we could see a seft lending. I
Speaker 3: think the runway for the selft lending has become wider
Speaker 3: as we've seen that moderation in inflation, as we've seen
Speaker 3: that you know, resilience in economic activity, the economy is slowing,
Speaker 3: but it's not retrenching, so you know, consumers and businesses
Speaker 3: still spending and hiring, and the label market as well,
Speaker 3: we need to continue to see that rebalancing. I think
Speaker 3: when you look at the label market, what's really encouraging
Speaker 3: as well is that rebound in the labor supply and
Speaker 3: the fact that labor force participation has also been rising
Speaker 3: when you look at primate liber force participation. So if
Speaker 3: we continue to see that rebalancing between supply and demand,
Speaker 3: and we continue to see that moderation in inflation, there
Speaker 3: is a chance that the economy, you know, could you know,
Speaker 3: pull up that self lending.
Speaker 1: I think the economists are going to have to rewrite
Speaker 1: some of these textbooks going forward because I don't understand
Speaker 1: it and can't explain really why our labor market is
Speaker 1: as strong as it is here in the United States.
Speaker 1: Do you have a theory?
Speaker 3: I mean, the tightness we're seeing in the label market
Speaker 3: right now is reflecting some of the label market dislocations
Speaker 3: that we've seen during the pandemic. We had this dramatic
Speaker 3: shock that really led to a huge decline in the
Speaker 3: labor supply, and that came at a time when labor
Speaker 3: demand became very strong, and so that mismatch in the
Speaker 3: label market has really generated a lot of label market tightness,
Speaker 3: and we saw wage growth, you know, raising very rapidly.
Speaker 3: Some of these labor shortages have eased, and so that
Speaker 3: has led to the beginning of moderation in wage growth.
Speaker 3: But some of these labor shortages are also going to
Speaker 3: continue moving forward. And then we also have some demographic
Speaker 3: factor acting in the background as well and pulling down
Speaker 3: on labor force participation.
Speaker 4: So if the Fed does indeed raise rates at least
Speaker 4: two more times this year, could that potentially be the
Speaker 4: policy mistake If we're waiting for those lagged effects after
Speaker 4: the last ten meetings where they raised rates that investors
Speaker 4: in everybody in the US is like projecting where this
Speaker 4: recession could be headed that everyone was waiting for. That
Speaker 4: could actually end up potentially tilting the economy into either
Speaker 4: recession or just a regime of slower growth.
Speaker 3: Yeah, I mean, it's it's really hard to gauge, and
Speaker 3: and that's you know, the key question, you know, how
Speaker 3: to calibrate policy just enough to get that soft landing.
Speaker 3: We do think, you know, given our forecast for inflation
Speaker 3: to come back down quite significantly, significantly. We have head
Speaker 3: on infision at three percent by the end of the year,
Speaker 3: we have core inflation between you know, around three point
Speaker 3: five percent three point three point seven percent by the
Speaker 3: end of the year, and then when we look into
Speaker 3: twenty twenty four, a further moderation in inflation. So we
Speaker 3: do think that given the outlook, you know one, that
Speaker 3: those rate hikes would be unnecessary in this context.
Speaker 1: So just lastly quickly, on the core PCE, we're going
Speaker 1: to get that on Thursday, consensus is four percent, down
Speaker 1: from four point nine percent the prior period. It's going
Speaker 1: in the right direction, yes.
Speaker 3: I mean PC infliction is going in the right direction,
Speaker 3: and core inflation in general. I think if you look
Speaker 3: at the rest of the year, we're likely to see
Speaker 3: headline inflation moving sideways as we got past these base effects,
Speaker 3: and I think it's the action is really going to
Speaker 3: happen on the core inflation side, and we're likely to
Speaker 3: see further on this inflation in core services inflation heading
Speaker 3: into twenty twenty four.
Speaker 1: Sounds good to me. I don't know, Lydia Bussor, she's
Speaker 1: the expert, she's the senior econdomists at ey Parthann kind
Speaker 1: enough to come into our Bloomberg and Actor Broker study.
Speaker 1: We appreciate that, Thank you so much, Lydia. Looking at
Speaker 1: these markets just real quickly, just a little bit of
Speaker 1: green on the screen, I think people are kind of
Speaker 1: sitting on the sidelines waiting for what we're gonna see tomorrow.
Speaker 4: And also on Thursday will be the first reading of
Speaker 4: second quarter GDP that did get revised a bit higher.
Speaker 4: If you're looking at the Alana Fed now though, they're
Speaker 4: thinking it's going to come in around two point four percent. Okay, Yeah,
Speaker 4: so that's something we've got to keep an eye on.
Speaker 1: Verste So some decent GDP growth, moderating inflation. What's not that?
Speaker 3: Like?
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Speaker 1: Let's talk to Dana Peterson because I don't know do
Speaker 1: we have Danna yet? Because I want to get right
Speaker 1: to that data.
Speaker 4: Yeah, she's here, Yeah about that conference consumer confidence, that
Speaker 4: monthly report that obviously came in around a two year high.
Speaker 6: There.
Speaker 1: Yeah, I want to get right to that because it
Speaker 1: came in and really surprising, I think on the upside.
Speaker 1: Dana Peterson joints us here. She is the chief economist
Speaker 1: at the conference board. Dana, talk to us about this
Speaker 1: consumer confidence data we got today. Something really got everybody's attention.
Speaker 7: Absolutely, it was definitely stronger than what markets expected. And
Speaker 7: what's important is that we broke out of that range
Speaker 7: that we had been in for a very long time,
Speaker 7: seeing the highest reading SUNS two years ago. And it
Speaker 7: was not just present situation present confidence being elevated, but
Speaker 7: it was also expectations. So we saw breakouts for both
Speaker 7: of the underlying indicators.
Speaker 3: Here.
Speaker 4: One thing I'm curious about because last week when you
Speaker 4: were talking to us about the monthly report, when it
Speaker 4: comes to the leading economic indicators still pointing toward a
Speaker 4: potential recession in the US, how do you rectify when
Speaker 4: you're looking at that data versus when it comes to
Speaker 4: this sentiment and consumer confidence data.
Speaker 7: Sure, well, the leading index does include expectations, so probably
Speaker 7: in the next reading we'll see the improvement in leading indicators,
Speaker 7: but certainly up through the last measure it's collecting information
Speaker 7: on the yield curve, which has been negative for some time.
Speaker 7: It's also collecting a lot of information on manufacturing. We
Speaker 7: know there is a manufacturing recession going on right now,
Speaker 7: so it's gathering up that info, and it's also collecting
Speaker 7: some of the declines we've seen are rather worsening. We've
Speaker 7: seen in jobless claims, which I mean are still incredibly low,
Speaker 7: but it does capture monthly movements, and so when you
Speaker 7: pull all those things together, it's still flashing red for
Speaker 7: recession at some point over the next year. So it's
Speaker 7: it's not necessarily inconsistent. Consumers are saying that they're not
Speaker 7: as concerned about recession going forward, but there's still that
Speaker 7: risk out there that the leading indicators is showing us.
Speaker 1: So one of the numbers that really jumped out of me,
Speaker 1: Dana was the Conference board expectations came in an eighty
Speaker 1: eight point three. That's versus a revised hire eighty for
Speaker 1: last period. Put into context what an eighty eight point
Speaker 1: three means.
Speaker 7: Yeah, so anything above eighty means that consumers are not
Speaker 7: expecting recession, and anything below means they are expecting recession
Speaker 7: within the next six to twelve months, so we've been
Speaker 7: hanging out below eighty for some time. So it really
Speaker 7: is significant that we had one reading that was right
Speaker 7: on the button and then one reading that's been that
Speaker 7: was notably above.
Speaker 4: Where are the pain points when it comes to consumers?
Speaker 4: Because it looks like when it comes to stay some
Speaker 4: red flags bubbling up, especially when you're looking at auto delinquencies.
Speaker 4: What is that telling us right now? And at what
Speaker 4: threshold does it need to end up happening and hit
Speaker 4: to be more of an issue when it comes to
Speaker 4: a pullback in consumer spending and what that could mean
Speaker 4: for the trajectory of GDP.
Speaker 7: Sure, So I think for you have to break it
Speaker 7: up into goods and services. For goods, consumers have been
Speaker 7: feeling the pressure from higher interest rates, and certainly if
Speaker 7: you're starting to see delinquencies go up, that's because interest
Speaker 7: rates are rising. So anyone who had been financing something,
Speaker 7: but usually not a car because that's usually a five
Speaker 7: year fixed rate, but anything that might be increasing in
Speaker 7: the rate, then that's going to be a weight on
Speaker 7: consumers and they're probably going to pull back on durables.
Speaker 7: So when we look at the six months mooth or
Speaker 7: moving average, of the conference boards buying indicators, but the
Speaker 7: most part they're showing some weakness. But we also ask
Speaker 7: a special question about services and what consumers are saying,
Speaker 7: and services don't usually get affected by the interest rate,
Speaker 7: which is a big challenge for the FED. But they're
Speaker 7: saying there will to buy fewer things that they want
Speaker 7: and more things that they need. And so I think
Speaker 7: that's significant in terms of a shift in what people
Speaker 7: are actually spending on. When it comes to services, they're
Speaker 7: spending on things that they can't live without and less
Speaker 7: on the things that they may just desire.
Speaker 1: Dana, you know the consumer confidence number of one seventeen here,
Speaker 1: the highest in two years. I would think that a
Speaker 1: strong labor market has to be a big component of that.
Speaker 1: Just explain to us how labor kind of weaves into
Speaker 1: that consumer confidence number.
Speaker 7: Absolutely, we ask about labor in a number of places.
Speaker 7: We ask it for the present situation and for the expectations,
Speaker 7: and in both of those measures, consumers are saying, yes,
Speaker 7: we think the labor market's doing well in terms of
Speaker 7: current conditions. There are more jobs out there than we
Speaker 7: even need, so jobs are easy to get. When it
Speaker 7: comes to expectations, they're saying, yes, we still think we're
Speaker 7: going to be employed in the future. And certainly when
Speaker 7: we ask CEOs what they're doing with respect to the
Speaker 7: labor market, many of them are still saying they're hiring,
Speaker 7: and then a lot of them are actually just holding
Speaker 7: on to workers. They're hoarding workers, they're not looking to
Speaker 7: let people go. So I think that's also showing up
Speaker 7: in consumer sentiment of confidence with regard to the labor market.
Speaker 7: And certainly, if you're working and your wages have risen
Speaker 7: a bit and you're seeing inflation come off and your
Speaker 7: real wages a rising, you're going to feel better. And
Speaker 7: I think that's what's being exhibit here, exhibited here in
Speaker 7: today's report.
Speaker 1: Yeah, one of the things that's a new concept to
Speaker 1: me is hoarding workers. I don't think i've heard of
Speaker 1: that before. Is that something you economists have seen before.
Speaker 7: I'm sure that's happened in the past, but this is
Speaker 7: definitely something that is very noticeable now. And I think
Speaker 7: the reason why we're having hoarding is because of labor shortages.
Speaker 7: And many businesses worked really hard to attract labor, and
Speaker 7: they're also working really hard to retain labor, and so
Speaker 7: they don't want to let people go, especially if they
Speaker 7: think that maybe they're might be a recession. But it's
Speaker 7: not going to be that bad. It's not going to
Speaker 7: be that long. So if that's the situation, you hold
Speaker 7: on to your workers, you hold on to your talent,
Speaker 7: and you don't let them all go and then have
Speaker 7: to come back six to nine months later and bring
Speaker 7: them back. We hire them at a higher price point.
Speaker 7: So that's something that is a phenomenon that I mean,
Speaker 7: I can't necessarily say if that's ever happened to before.
Speaker 7: I'm sure it has, but certainly we're seeing it right
Speaker 7: now and it's an important development that's affecting the labor market.
Speaker 4: Dana, as an economist, how many more rate increases do
Speaker 4: you think the US economy can handle as we're waiting
Speaker 4: on those lagged effects.
Speaker 7: Well, that's just the thing. It's the Fed has already
Speaker 7: raised rates by five hundred basis points, and nonetheless, consumers
Speaker 7: are out there spending and businesses aren't letting people go
Speaker 7: very much, so the economy can still handle it. So
Speaker 7: we expect at least two more interest rate hikes from
Speaker 7: the Fed, definitely this week and then potentially in September.
Speaker 7: Although that September hike, maybe later if the FED says
Speaker 7: that they want more time to sit and wait and
Speaker 7: see how those lags play out. But certainly, for the
Speaker 7: most part, the economy has been able to manage the
Speaker 7: increases in interest rates, and it's not clear like how
Speaker 7: far the FED can go before something, well, the economy
Speaker 7: itself breaks.
Speaker 1: So what do you expect or what's what are the
Speaker 1: good folks at the conference board A conference board expect
Speaker 1: to hear from FED Chairman j Pal tomorrow.
Speaker 7: Well, we expect that the chair will say that there
Speaker 7: have been positive developments. I mean, they're looking at these
Speaker 7: consumer confidence measures just like we are. We send them
Speaker 7: to them and they well they get it when everybody
Speaker 7: else does, is to be clear, and they're looking at that.
Speaker 7: They're also looking at the fact that CPI inflation has
Speaker 7: come off. That's not their preferred measure. But they're going
Speaker 7: to get the BEA data later this week and I'm
Speaker 7: sure some of the action that we saw in the
Speaker 7: CPI will be reflected there. So calmer inflation, lower consumer
Speaker 7: inflation expectations, a more upbeat consumer. Also, we're seeing that, yes,
Speaker 7: there is this very weak growth in manufacturing, but services
Speaker 7: are still doing okay. So with all of that, I
Speaker 7: would say the FED would be pleased with the slowing inflation,
Speaker 7: but not happy with the ongoing straight that we've seen
Speaker 7: in the labor market. That's challenging keeping inflation or helping
Speaker 7: inflation to fall further. So I think with that we're
Speaker 7: probably going to see another hike, certainly this week, and
Speaker 7: then another one before year end.
Speaker 4: We only have about twenty seconds left. But the dissents
Speaker 4: when it comes to the FED decision, what are you watching?
Speaker 7: Well, certainly there may be some descents in terms of
Speaker 7: those who think that the FED is done enough and
Speaker 7: we should pause. We've heard that, you know, from a
Speaker 7: number of participants in the FOMC. So it'd be curious
Speaker 7: to see if they actually put that down on paper
Speaker 7: and say, look, we've done enough. We need to sit
Speaker 7: and wait and see how all these lags work through
Speaker 7: the economy.
Speaker 1: I would be one of those people, just so you know.
Speaker 1: Dana Peterson, chief Economists for the Conference Board, joins us here.
Speaker 1: We appreciate getting her thoughts here. We had some good
Speaker 1: consumer confidence data coming out from the Conference Board today.
Speaker 1: One seventeen consensus was for one twelve, so much better
Speaker 1: than that, and it was the best in two years.
Speaker 1: So how about that consumer? Hanging in there tough.
Speaker 5: You're listening to the tape cancer Live program Bloomberg Markets
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Speaker 4: Paul. We have this potential ups strike from workers that
Speaker 4: might be coming up very soon. So joining us now
Speaker 4: is Lee Klascow, who at Bloomberg Intelligence, he's the sector
Speaker 4: head and senior analyst of Free Transportation at BI. Is
Speaker 4: going to walk us through this. Lee talk to us
Speaker 4: about what's happening here, where to stocks, where do talks stand,
Speaker 4: and what should we expect to happen from here out.
Speaker 8: Yeah, so what we know as of right now is
Speaker 8: that the two parties are at the negotiating tables. They
Speaker 8: took a time out because they're really far apart on
Speaker 8: you know, where we can where part time wages should be.
Speaker 8: The teamsters wanted significant raises in the ups put its
Speaker 8: at the time, it's it's best offer on the table,
Speaker 8: and that wasn't good enough for the teamsters, and so
Speaker 8: the teamsters walked away from from the table. They've agreed
Speaker 8: on a lot of a lot of other issues ups also,
Speaker 8: you know, gave up the recognition of a certain type
Speaker 8: of driver, you know, to to make it just one
Speaker 8: class of driver. But it's really now the focus is
Speaker 8: on the part time aspect pay and you know, you know,
Speaker 8: we think that cooler heads will prevail. Obviously, as we
Speaker 8: get closer to that August first deadline, the probability of
Speaker 8: his strike increases. But you know, from our vantage point,
Speaker 8: the company under the leadership of Carol to May truly
Speaker 8: has at least communicated that they're looking for a win
Speaker 8: win win situation in this negotiation. But I would say
Speaker 8: the teamsters, you know, the vehetoric out of their camp
Speaker 8: is a little more aggressive. There's new leadership there, and
Speaker 8: you know, I think he wants to prove that he's
Speaker 8: not like the old leadership, which some people might have
Speaker 8: thought that koutout a little bit too much to the
Speaker 8: management teams that they were negotiating with.
Speaker 1: You know, Lee, I'm probably like a lot of people
Speaker 1: during the pandemic. Every day the UPS guy showed up
Speaker 1: every day, the FedEx woman showed up, you know with
Speaker 1: the packages. Talk about essential workers here, does that factor
Speaker 1: in at all to kind of negotiationship, because I kind
Speaker 1: of feel like I got to throw these guys a
Speaker 1: little something extra.
Speaker 8: Yeah, you know, listen, at the end of the day,
Speaker 8: during the pandemic, we're essential workers to our everyday lives.
Speaker 8: Today they are somewhat essential. You know, they deliver healthcare
Speaker 8: and pharmaceuticals that are important to our everyday life, not
Speaker 8: just you know, ordering rubber bands from Amazon. But you know,
Speaker 8: they do do provide a critical role, not only in
Speaker 8: the economy, but in our lives.
Speaker 3: You know.
Speaker 8: That being said, you know, a UPS part time driver,
Speaker 8: on average, according to the company, makes around twenty bucks
Speaker 8: an hour. And that's not just all they're making. They
Speaker 8: get healthcare and they don't really pay premiums. They get
Speaker 8: to participate in tuition reimbursement and also a retirement plan,
Speaker 8: so you know, there are a lot of benefits. It's
Speaker 8: not just the twenty dollars an hour. You know, currently
Speaker 8: the floor for part time workers fifteen fifty an hour.
Speaker 8: But again, you know, I think the teamsters are looking
Speaker 8: to get that too closer to twenty and you know,
Speaker 8: I think that they're going to find some sort of
Speaker 8: middle ground. You know, I don't really know who if
Speaker 8: there's going to be true winner or a loser. I
Speaker 8: think the part time employees are probably going to be
Speaker 8: earning more, uh. And you know, the union also wants
Speaker 8: to kind of transfer or or create more full time
Speaker 8: jobs and less part time jobs uh for for their member,
Speaker 8: So I think that's something that they're looking to to
Speaker 8: do as well. And you know, the union is also
Speaker 8: looking for maybe you know, kind of like a one
Speaker 8: time benefit for you know, that work that they've done
Speaker 8: during the pandemic that you know, you mentioned a lot
Speaker 8: of them were out there working when when when most
Speaker 8: of us were home, you know, coward in our homes.
Speaker 4: Do we know how close the two sides are at
Speaker 4: potentially reaching a.
Speaker 8: Deal, I mean, I honestly don't.
Speaker 5: You know.
Speaker 8: It really depends on how much either side will bend.
Speaker 8: I'm guessing ups would will will will get closer to
Speaker 8: the twenty dollars mark than you know, uh, than than
Speaker 8: than what uh the team Seris might want. But you know,
Speaker 8: I think they're gonna you know, at the end of
Speaker 8: the day. I don't know, but like I think they're
Speaker 8: gonna they're gonna find some sort of middle ground because
Speaker 8: at the end of the day, you know, while the
Speaker 8: union you know, is threatening a strike, most of the
Speaker 8: workers don't want to strike. It's disruptive for them. You know,
Speaker 8: there are some workers that might cross the picket lines,
Speaker 8: and obviously that that's might not be great from morale.
Speaker 8: They get, you know, a very small stipend when they
Speaker 8: when they strike, something like five or eight five to
Speaker 8: eight hundred dollars a week, which is, you know, not
Speaker 8: not a lot of money, but you know, it's something
Speaker 8: they get and they have families to feed.
Speaker 5: You know.
Speaker 8: If there is a strike, you know, we believe that
Speaker 8: it will be very short in duration. We think anything
Speaker 8: over a week will be extremely disruptive to supply chains.
Speaker 8: Obviously a week strike would still be disruptive to a
Speaker 8: lot of folks, but you know, it could also be
Speaker 8: an opportunity for for UPS's competitors or even other modes
Speaker 8: of transportation to pick up more volumes in an area
Speaker 8: where we're kind of currently in a freight recession because
Speaker 8: freight demand has been down for you know, a least
Speaker 8: a year.
Speaker 4: So then what happens if a deal isn't done by
Speaker 4: August first.
Speaker 8: It depends, Well, there's a couple of things that can happen.
Speaker 8: That the Teamsters can strike like they said they were
Speaker 8: going to, or maybe they can have a cooling off
Speaker 8: period and agree to meet again in a week or two.
Speaker 8: You know, there's a lot of different things that could happen.
Speaker 8: But the rhetoric out of the Teamsters is pretty aggressive
Speaker 8: in terms that you know, they are going to strike
Speaker 8: if there's not an agreement reach. So if there is
Speaker 8: not an agreement reach, I'm assuming that's the likely outcome,
Speaker 8: and you know, politicians, whether it's the Biden administration or
Speaker 8: other organizations, are hard at work making sure that these
Speaker 8: two groups find some sort of common ground and then
Speaker 8: strike doesn't happen. You know, ups touches. It's been estimated
Speaker 8: around five to six percent of of US GDP. I've
Speaker 8: seen some estimates out there on the Bloomberg terminal about
Speaker 8: you know, a strike could add twenty bases points to inflation.
Speaker 8: So obviously, you know, the Biden administration is very cognizant
Speaker 8: of that, and you know they don't want to see
Speaker 8: the derailment of the economy or a soft landing just
Speaker 8: to become a recession. So you know, you know, I'm
Speaker 8: assuming that the Biden administration, through back channels is working
Speaker 8: very hard to try to get the two sides together.
Speaker 1: Leah, I know you also cover the stock of FedEx,
Speaker 1: So what kind of upside would FedEx perhaps see if
Speaker 1: there were or striker? Maybe if there's not a strike,
Speaker 1: I'm just want to hedge my bets here and switch
Speaker 1: my cargo from ups to fed X.
Speaker 8: Yeah, so we all knew, I we all knew this
Speaker 8: negotiation with the team series was coming. So this is
Speaker 8: really is in new news.
Speaker 5: You know.
Speaker 8: FedEx kind of went out to the marketplace and said,
Speaker 8: you know, if you think you're going to need us,
Speaker 8: you better come to us sooner than later. Last month
Speaker 8: and their earnings call, their CMO on the call talked
Speaker 8: about the fact that, you know, while they're not winning
Speaker 8: a lot of share as of right now, it's opening
Speaker 8: a lot of doors to have new conversations with customers
Speaker 8: they might have not talked to. I think net net
Speaker 8: it's going to be a positive for FedEx. You know,
Speaker 8: you're not going to see their volumes jump ten percent,
Speaker 8: you know this quarter because of the strike. Again, assuming
Speaker 8: that it's not a prolonged stripe, because you know, FedEx
Speaker 8: doesn't have like gobs of excess capacity. They're not just
Speaker 8: going to take anything that comes. They have to be
Speaker 8: very choosy about making sure that the freight that they
Speaker 8: do accept into their network is highly profitable freight for them.
Speaker 4: You touched a little bit on what the potential impacts
Speaker 4: could be, but what sort of like rippling effects when
Speaker 4: it comes to package deliveries and things like this could
Speaker 4: end up happening if a deal isn't reached.
Speaker 8: Yeah, So, you know, so if you're if you're a shipper,
Speaker 8: either your stuff is just going to get delayed and
Speaker 8: you're just going to like, Okay, I'm going to wait
Speaker 8: through this.
Speaker 5: You know.
Speaker 8: UPS has has said at least there were press reports
Speaker 8: that they've said that they can handle four million packages
Speaker 8: a day. They do around twenty so and we're talking
Speaker 8: about their domestic business, so you know, we're talking you
Speaker 8: know about you know, twenty percent of their overall volumes.
Speaker 8: You're also going to have people that might be might
Speaker 8: be crossing the picket line, so you know, call that
Speaker 8: five million. So there's there's fifteen, there's fifteen million packages
Speaker 8: a day that are either going to be delayed or loss.
Speaker 8: You know, there's estimates out there that about a third
Speaker 8: of that fifteen million might be lost for good, meaning
Speaker 8: that it might need to find different routes that can
Speaker 8: go through the US Postal Service, you can go through FedEx,
Speaker 8: you can go through there's a lot of regional parcel carriers,
Speaker 8: and it also could benefit truckload and lesson truckload carriers
Speaker 8: because they might be shipping things closer to distribution areas
Speaker 8: and then handing it off to whether the post Office
Speaker 8: or local final mile delivery companies. So you know, a
Speaker 8: disruption would be a benefit to a lot of transportation
Speaker 8: companies that we cover, whether it's you know, the LTL
Speaker 8: space like like an XBO or a Dominion or trucklow
Speaker 8: space like the Knight Swifts of the world, and even
Speaker 8: the brokers, because you know, if you're a shipper and
Speaker 8: you're getting desperate, yeah, to get your free from point
Speaker 8: A to point B, you're going to find all your
Speaker 8: You're going to try to find all your channels. So
Speaker 8: as H Robinson or RXO might might benefit from that.
Speaker 8: And again we're not talking about like there's all going
Speaker 8: to be like a huge jump in volume games. It
Speaker 8: should be like, you know, an incremental positive.
Speaker 1: All right, Lee, great stuff, as always lead classical senior
Speaker 1: transportation analyst for Bloomberg Intelligence.
Speaker 5: You're listening to the Team Ken's line program Bloomberg Markets
Speaker 5: weekdays at ten am Eastern on Bloomberg dot Com, the
Speaker 5: iHeartRadio app and the Bloomberg Business App, or listen on
Speaker 5: demand wherever you get your podcasts.
Speaker 4: I want to move over to our next guest, who's
Speaker 4: in studio with Paul and myself, Scott Kaher, who's head
Speaker 4: of senior Loans at Neuvene, who's joining us to discuss
Speaker 4: the loan activity in the US and the credit quality
Speaker 4: among businesses as well as banks. Talk te us about
Speaker 4: how big the loan asset classes, because I think it's
Speaker 4: something wrong. One and a half trillion dollars when it
Speaker 4: comes to assets. It's actually larger than high yield in
Speaker 4: private credit. And I don't think a lot of people
Speaker 4: actually know what's happening in that space right now, that's correct.
Speaker 9: You know, it's interesting that this is a market that
Speaker 9: has really grown over the last ten years. And if
Speaker 9: you think about what the loan market the broadly syndicated
Speaker 9: loan market really is. It's where US companies that are
Speaker 9: not investment grade go to get financing. And one of
Speaker 9: the things that investors don't really understand about this market
Speaker 9: is if you're investing in this market, you're really buying
Speaker 9: a broad swath of the US economy.
Speaker 4: Right.
Speaker 9: If you think about a lot of the loans that
Speaker 9: are in our portfolios are things you and I touch
Speaker 9: every day, things like Uber, Burger King, Caesar's Entertainment adet.
Speaker 9: You know, if you put in contacts everywhere in BOSH
Speaker 9: and Loan and so you know, these are loans that
Speaker 9: are in many cases public companies, large leading market shares.
Speaker 9: And the other thing that I don't think people really
Speaker 9: understand about the loan market is there two very unique
Speaker 9: qualities that don't exist in other parts of fixed income
Speaker 9: and that they have no duration, right. And so as
Speaker 9: the FED has been raising rates, it has had no
Speaker 9: impact on the price of loans, because as the FED
Speaker 9: raises rates, the overall yield or coupon on loans steps up.
Speaker 9: And the other unique aspect of the loan market is
Speaker 9: that these loans that we're making to these companies are
Speaker 9: first in line to be repaid and so something goes wrong,
Speaker 9: we get paid back first. Just like the mortgage on
Speaker 9: your house. If you choose not to pay back the
Speaker 9: mortgage and the bank comes to get your house, well
Speaker 9: they are going to pay themselves off first to protect themselves.
Speaker 9: And so those very unique factors in the market have
Speaker 9: really allowed for you know, very good volatility in return
Speaker 9: streams over long periods of time.
Speaker 1: So just I've seen, I was fortunate enough to receive
Speaker 1: some of the best credit training on Wall Street and
Speaker 1: that was the Chase Manhattan Bank training program back in
Speaker 1: the day one Chase mant in Plaza, so I can
Speaker 1: handle my own there and I'll end up to six
Speaker 1: times cash flow. About that. What sectors do you guys
Speaker 1: like right now in the senior loan market?
Speaker 3: Sure?
Speaker 9: So you know, what we've really been focused on over
Speaker 9: the last two years is one going back twenty four
Speaker 9: months when inflation was a big problem, right and really
Speaker 9: trying to avoid sectors and sub sectors that were going
Speaker 9: to hit the profitability of certain companies and industries i e. Industrials,
Speaker 9: food and things like that where companies were going to
Speaker 9: get squeezed. And now on the flip side, as we've
Speaker 9: seen inflation really start to abate, come down, and a
Speaker 9: number of those companies, the price of those loans traded
Speaker 9: down because of the rise in inflation and the hit
Speaker 9: to earnings. Really focusing on companies and industries where inflation
Speaker 9: has flipped from a headwind to a tailwind, So think
Speaker 9: about things like industrial food manufacturing companies like that where
Speaker 9: we're really seeing a nice uplift to earnings. But not
Speaker 9: only that, in many cases we've been able to buy
Speaker 9: loans at a discount because again, our market trades. That's
Speaker 9: the other thing I don't think people understand. Our market
Speaker 9: trades every single day. We have transparency on the price
Speaker 9: of our loans, so we can go in if a
Speaker 9: company misses numbers, if there are operational issues and a
Speaker 9: loan trades down five, ten, fifteen points, we can go
Speaker 9: in and buy and sell those loans every single day.
Speaker 9: And so what we were doing going back eight to
Speaker 9: twelve months as we saw the inflection, as we anticipated
Speaker 9: numbers starting to get better, able to buy loans in
Speaker 9: the high eighties, low nineties with very nice yields in
Speaker 9: the double digits, and as inflation has come down and
Speaker 9: earnings that has inflected. We've really been able to find
Speaker 9: some opportunities that have traded up very nicely.
Speaker 4: So then why don't retail investors have exposure to that space?
Speaker 4: Is it just something that's maybe not as sexy of
Speaker 4: an maybe asset class is when you're thinking about some
Speaker 4: of these high flyers in the stock market.
Speaker 9: Yes, it's a great question, and candidly it's a little
Speaker 9: bit of a head scratcher as to why. I think
Speaker 9: one of the reasons is irregular investors cannot go buy
Speaker 9: an individual alone. They have to buy a mutual fund
Speaker 9: or an ETF. And so what I think has happened
Speaker 9: is in the institutional space, what we've seen over the
Speaker 9: last ten years is institutional pension funds, endowments, they've doubled
Speaker 9: their exposure to the loan market. It's gone from just
Speaker 9: over two hundred billion dollars to over four hundred billion dollars.
Speaker 9: Retail investors, on the other hand, their exposure to the
Speaker 9: loan market has essentially flatlined. And so retail investors only
Speaker 9: own about six percent of the loan market. And in
Speaker 9: my opinion, and maybe I'm a little bit biased, but
Speaker 9: if you think about what it offers floating rate zero
Speaker 9: correlation to the Barclays AG very low volatility relative. Yes, yes,
Speaker 9: and so there's zero correlation to that AG right. It's
Speaker 9: also it's outperformed that index by over twenty percent over
Speaker 9: the last two years. But all of the return in
Speaker 9: volatility characteristics are something that we think is incredibly important
Speaker 9: for retail investors to understand and appreciate and add to
Speaker 9: their portfolios, just like institutional investors have recognized and allocated
Speaker 9: to over the last ten years.
Speaker 1: Scott about thirty seconds left. Private credit has been a
Speaker 1: big market. We've seen the so much money flow to
Speaker 1: the private credit business. How does that impact your business?
Speaker 9: You know, it has not impacted it really to any
Speaker 9: large degree. Private credit has Certainly.
Speaker 1: They don't do they syndicate their loans out to you guys.
Speaker 9: No, no, so private credit will put those loans on
Speaker 9: their balance sheets and hold those until maturity. There's also
Speaker 9: they don't those loans don't trade, and so the public
Speaker 9: market in the private market are really learning to coexist.
Speaker 9: There's a lot of important and attractive characteristics of the
Speaker 9: private market just like there are in the public markets,
Speaker 9: and they're very much complementary. So what you're going to
Speaker 9: see going forward. Is the public market in the private
Speaker 9: market really coexisting in offering unique characteristics that we think
Speaker 9: investors will recognize and allocate both to private and to
Speaker 9: public credit.
Speaker 1: Great stuff, Scott, thanks very much for coming in here.
Speaker 1: Really appreciate it. Scott Kahert, head of Senior Loans at
Speaker 1: Neuvene and assa class that we don't talk about enough,
Speaker 1: but it's us near and dear to my heart. I
Speaker 1: love the old credit alms credits hard and equity soft.
Speaker 1: I heard that a number of times. This is Bloomberg.
Speaker 5: You're listening to the tape. Cat's are live program Bloomberg
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 5: tune in app, Bloomberg dot com, and the Bloomberg Business App.
Speaker 5: You can also listen live on Amazon Alexa from our
Speaker 5: flagship New York station, just say Alexa playing Bloomberg eleven thirty.
Speaker 1: Very difficult to be a media investor these days. I
Speaker 1: follow this sector for more than thirty years. Todays is
Speaker 1: as tough as it's ever been. You've got this whole
Speaker 1: business model evolution or you know, switching from the core
Speaker 1: you know, cable TV model now to the streaming model.
Speaker 1: You don't know where those economics are going. And now
Speaker 1: you've got a couple of strikes in the industry, one
Speaker 1: with the writers, another with the actors. We want to
Speaker 1: get kind of the latest on what's going on there,
Speaker 1: what's really some of the fundamental issues here. And we're
Speaker 1: joined by Lisa Takayuchi Cullen, vice president of Film, TV
Speaker 1: and Streaming for the Writer's Guild of America East. So
Speaker 1: I'm basing, I guess, and that's kind of a New
Speaker 1: York thing. Lisa, thanks so much for joining us from
Speaker 1: the writer's perspective. Can you kind of just frame out
Speaker 1: for us what your issues are with the indusue or
Speaker 1: what the issues are with the media companies.
Speaker 6: Sure, our main issue is compensation as the issue for
Speaker 6: I think a lot of workers across America today, our
Speaker 6: compensation has been eroding in a time of what people
Speaker 6: consider peak entertainment, peak television, peak film. There are record
Speaker 6: numbers of people going to see these things and watching
Speaker 6: them on streaming at home and record profits, record revenues,
Speaker 6: while meanwhile, the people who create the content have been
Speaker 6: making less and less. TV writers in particular are making
Speaker 6: and justin for inflation about twenty five percent less than
Speaker 6: they were ten years ago. And this is a time
Speaker 6: when television has been exploding as a medium and as
Speaker 6: companies have been raking in the revenues and profits. So
Speaker 6: all we're asking for, really, just like the actors, just
Speaker 6: like the crew, just like the teamsters, is our fair
Speaker 6: share of the product that we create.
Speaker 4: And what specifically are you when you come to the
Speaker 4: writers are they looking for to get back to work?
Speaker 4: What are the demands right now?
Speaker 6: The demands are that the studios meet our proposals and
Speaker 6: actually engage in negotiation on them. Our proposals remain exactly
Speaker 6: what they were when we began the strike on May first.
Speaker 1: And can you summarize kind of what they are? The
Speaker 1: main proposals?
Speaker 6: Sure, The main one is raised in our minimum rates.
Speaker 6: The contract that we work under is called the Minimum
Speaker 6: Basic Agreement, and essentially it outlines what the minimum rates
Speaker 6: can be for film and TV writing in our industry.
Speaker 6: And we are trying to negotiate a hike in those
Speaker 6: rates because, adjusting again for the spiking inflation, writers are
Speaker 6: making far less than they were to a point that
Speaker 6: it is simply not sustainable. We have members who cannot
Speaker 6: make the rent who are on actual food stamps. People
Speaker 6: don't think of that when they think of Hollywood. They
Speaker 6: think that life is glamorous and that we're all rich
Speaker 6: and we own yachts and private jets, and most of
Speaker 6: are working people are middle class. If that now most
Speaker 6: of them are struggling to maintain a toe hold in
Speaker 6: the middle class. So it is raising our minimum rates.
Speaker 6: It is adjusting residuals for this age of streaming. That
Speaker 6: is a huge issue for both the writers and the actors.
Speaker 6: We are not seeing anywhere close to the residuals that
Speaker 6: kept us afloat for decades back in the days when
Speaker 6: the model was not broken. But all of the studios
Speaker 6: jumped on the streaming bandwagon, and now here we are
Speaker 6: with this broken system where none of us are being
Speaker 6: compensated in a way that allows us to live. We're
Speaker 6: also fighting for some sustainability in our careers in both
Speaker 6: film and television. We have seen our ability to manage
Speaker 6: our work and to create, you know, with our own
Speaker 6: creative licensing road TV writers are no longer allowed on
Speaker 6: sets if they're working on streaming shows because of the
Speaker 6: long delay in between a writer's room and when the
Speaker 6: actual production occurs. We're fighting for growth in the size
Speaker 6: of a writer's room, which is the room that convenes
Speaker 6: before a television show is made in order for writers
Speaker 6: to come up with the plot and to write all
Speaker 6: of the episodes. The rooms are becoming smaller and smaller
Speaker 6: as the streaming budgets for writing shrink. And I say
Speaker 6: for writing because streaming budgets for shows and movies have exploded.
Speaker 6: Studios are spending what nineteen billion dollars a year on
Speaker 6: actually making these shows and movies. But the pie, the
Speaker 6: slices of the pie that writers are getting, is getting
Speaker 6: smaller and smaller. So we're fighting for all of those.
Speaker 1: Things, Lisa. You know, I've covered the media industry as
Speaker 1: a financial analyst for more than thirty years, and I've
Speaker 1: never seen an industry that has so much uncertainty in
Speaker 1: the core business model. If I were an executive at
Speaker 1: a media company, my response might be our model is broken,
Speaker 1: and we don't know what the profitability of streaming is.
Speaker 1: We don't know how people are going to consume media
Speaker 1: going forward. We're trying to adapt from what you mentioned
Speaker 1: correctly before, which is, you know, the traditional model that
Speaker 1: we all grew up with whether it was it was
Speaker 1: supported by cable subscriptions and one hundred million households paying
Speaker 1: money every month. That model's pretty much gone away. Now
Speaker 1: we're trying to replace it with this streaming model, but
Speaker 1: the economics are uncertain. Is there any do you guys?
Speaker 1: Is that an argument that resonates with you guys at all?
Speaker 6: No, that's not our problem, right, I'm not the CEO
Speaker 6: of the company. I'm not the one who chose to
Speaker 6: enter into a major merger with another company or takeover
Speaker 6: of another company that places my company into a great
Speaker 6: amount of debts and now I'm not able to pay
Speaker 6: my bills. The companies are still making profits hand over fists,
Speaker 6: handover fist. They are still breaking in what is it now?
Speaker 6: I think thirty billion dollars in profits from entertainment alone,
Speaker 6: And I'm not talking about Amazon's packaging business or Apple's
Speaker 6: computer business. From the studio companies, from the profits that
Speaker 6: they make just off of the product that we create.
Speaker 6: They're making thirty billion dollars in profits a year. So
Speaker 6: they're the ones who have to lie in the bed
Speaker 6: that they made. But it doesn't excuse them from having
Speaker 6: to pay their labor fairly.
Speaker 3: Right.
Speaker 4: How has the rise of streaming affected writer's compensation.
Speaker 6: It has decimated writers compensation. Streaming has changed the way
Speaker 6: that we work. It used to be that under the
Speaker 6: network broadcast model, that writers could be employed forty forty
Speaker 6: five fifty weeks a year because the television shows would
Speaker 6: run for twenty episodes, twenty two episodes, twenty three and
Speaker 6: the rooms would would convene in the early summer, and
Speaker 6: they would run through the spring, and then there will
Speaker 6: be a short break in between. Not only would we
Speaker 6: make the weekly pay that would sustain a middle class lifestyle,
Speaker 6: we also would make residuals, meaning that when those shows
Speaker 6: were read broadcast in foreign markets or on cable television,
Speaker 6: we would receive checks in the off times that perhaps
Speaker 6: we are not working on a show, or perhaps we're
Speaker 6: on a hiatus, that would pay our bills and continue
Speaker 6: to sustain a decent lifestyle. All of that has gone away.
Speaker 6: Streaming has introduced the idea of what's called a mini room,
Speaker 6: which is a studio concept that is mini in every way,
Speaker 6: mini in size, mini in duration, mini in pay, and
Speaker 6: that means you gather together a very small number of
Speaker 6: writers and you pay them at the minimum rate allowed
Speaker 6: in our contract to produce ten episodes, and I say produced,
Speaker 6: meaning right, they're not actually producing it because again the
Speaker 6: production occurs much later. But they're writing, say, ten episodes
Speaker 6: of television in ten weeks, and then they're sent off
Speaker 6: to you know, to try to fend for themselves for
Speaker 6: the rest of the year, and that is simply not sustainable.
Speaker 1: Lisa, how far apart based on your understanding, how far
Speaker 1: apart are is the union and the industry? And second,
Speaker 1: how long are is the union prepared to stay out?
Speaker 6: Sure? So, as an officer of the guild, I have
Speaker 6: been involved in the negotiations from the start, and I
Speaker 6: will say that that the studios simply refuse to even
Speaker 6: engage with us on our core issues. So I would
Speaker 6: say we're still far apart until they come back to
Speaker 6: us and say, okay, we hear you on your core issues.
Speaker 6: This is our counteroffer, and then we can come back
Speaker 6: with another counter offer. That's what a negotiation is.
Speaker 3: And they have.
Speaker 6: Refused to even negotiate on those points. So we do
Speaker 6: need to get there as far as how long we
Speaker 6: are willing to stay out. I talk to membership every
Speaker 6: single day, as do the other officers. And the other
Speaker 6: members of the negotiating committee and the other elected officials.
Speaker 6: And our unity is strong. Our solidarity is strong now
Speaker 6: that we have had one hundred and sixty thousand reinforcements.
Speaker 6: When say After joined us on the line, the feeling
Speaker 6: is that we have to get what we came for.
Speaker 6: We have to get what we came for or else
Speaker 6: it is an absolutely an existential crisis for us. The
Speaker 6: career of writing for Hollywood will no longer exist. So
Speaker 6: I believe that we are willing to do what it takes.
Speaker 1: All right, Lisa, thank you very much for taking the time.
Speaker 1: Really appreciate. I know what's a contentious issue on both sides,
Speaker 1: and hopefully both sides can come to an agreement sooner
Speaker 1: rather than later. A lot of jobs at stake and
Speaker 1: a lot of folks are depending upon.
Speaker 5: Its you're listening to the tape Can's are Live program
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Speaker 5: Bloomberg eleven thirty.
Speaker 1: Jessy. Here's our next guest. Here's a who's who of
Speaker 1: some of the top names on Wall Street. Salomon Brothers, Oppenheimer, Goldman, Sachs,
Speaker 1: Government of Singapore as we kids call them, one gic
Speaker 1: Lehman Brothers. And now for the last I don't know,
Speaker 1: thirteen fourteen years, Bloomberg Intelligence.
Speaker 4: It's quite the CV hop.
Speaker 1: Top machinery analyst on Wall Street bar none Karen Uberheart,
Speaker 1: and she's here on our Bloomberg Interactive Broker studio. She's
Speaker 1: been covering machinery and all that kind of industrial stuff
Speaker 1: that we make.
Speaker 4: For Helltale Signs of the economy.
Speaker 1: Exactly right, Karen, thanks for joining us here. Let's talk
Speaker 1: about a company that we don't talk about enough, but
Speaker 1: it's one of Tom Keen's favorites, Minnesota Mining and Manufacturing
Speaker 1: three M. They has some good numbers today.
Speaker 10: Yeah, they are. They have a big consumer exposure, so
Speaker 10: they're organic growth was actually down, but down less and expected,
Speaker 10: and they delivered. On the margin side. They've done a
Speaker 10: huge restructuring. It seems to be gaining some traction and
Speaker 10: also expectations are so low for three M now since
Speaker 10: they've had a lot of problems particularly the litigation problems.
Speaker 1: Boy, they're in everything safety and industrial, transportation, electronics, healthcare, consumer.
Speaker 1: This is the conglomerate, right yeah, yeah, which.
Speaker 10: They make everything from the post it's to grinding wheels.
Speaker 3: Yeah.
Speaker 10: Literally our GDP.
Speaker 4: I mean, looking at that stock ticker symbol M up
Speaker 4: about five percent so on Pacepert's best days since the
Speaker 4: beginning of June. You look at it stock though, you're
Speaker 4: to date down close to nine percent. What's the story there?
Speaker 10: They have a tens of billions of dollars litigation problem
Speaker 10: for environmental p Fast is the name of the chemical
Speaker 10: that has been hurting water, and so that's that could
Speaker 10: be twenty twenty five billion dollars. They've got another one
Speaker 10: on a ear plugs for the military. So they've got
Speaker 10: a lingering thirty billion, forty billion plus litigation that potentially
Speaker 10: they would have to pay over a long period of time.
Speaker 10: That's the biggest problem. And then they've also disappointed on
Speaker 10: you know, we're on performance on operating, but we've had
Speaker 10: two quarters now where they beat on revenue and they
Speaker 10: beat a lot on earning. So I think the reason
Speaker 10: it's up is people are saying, oh, is it coming
Speaker 10: together on the operating.
Speaker 1: Side Saint Paul, Minnesota. The home, great town. I love
Speaker 1: Saint Paul. All right, great hotel, I can't remember the
Speaker 1: name of it, but that's where you always stay when
Speaker 1: you go to marketing in Saint Paul. All right, let's
Speaker 1: go to GE. What is GE today? Tell us what
Speaker 1: they own because all I remember, it's been an investment
Speaker 1: banker's dream, just selling off businesses left and right. So
Speaker 1: I'm not sure what's left? And then what do you
Speaker 1: expect from their earnings?
Speaker 10: When I started covering, they were in eight businesses. They're
Speaker 10: now in three, and they're about to be in one.
Speaker 10: What's left is aerospace that will be a standalone company.
Speaker 10: And then what they're calling an energy company, and it's
Speaker 10: basically renewables and their big power business. The turbine is
Speaker 10: a big turbines, that's what's left. Those are going to
Speaker 10: go together, and aerospace is going to stand alone.
Speaker 1: That's what's left. Really, so the GE will just be
Speaker 1: a pure play. Okay, aerospace, all right, So talk to
Speaker 1: about kind of what's left and how's it're performing. And
Speaker 1: they're going to be reporting earnings. What are we looking for?
Speaker 3: Uh?
Speaker 10: They they actually did report this morning and they beat
Speaker 10: by a lot. That's why this sun's up. And you know,
Speaker 10: aerospace is through the roof and people, you know, you're estimate,
Speaker 10: you estimate twenty percent growth, it was up twenty eight percent.
Speaker 10: You know, it's just it's just exploding on both the
Speaker 10: oe east side and also on the commercial after market side.
Speaker 4: Yeah, looking at that stock, I mean, up six percent
Speaker 4: this morning and then you're to date up eighty percent,
Speaker 4: trading around multi year highs.
Speaker 1: You've been waiting a decade a while for that, a
Speaker 1: while for that.
Speaker 10: But the other thing is their other big they've their
Speaker 10: other side. The Vernova piece has really struggled largely because
Speaker 10: of the renewable business, and that came together nicely you
Speaker 10: know today as well, with huge orders, like a tripling
Speaker 10: of orders, and the losses were much less and expected
Speaker 10: because the volumes were up so much. The volumes were
Speaker 10: up twenty seven percent and the street was looking for
Speaker 10: five percent. So that business is the one that's been,
Speaker 10: you know, hanging around their neck that they can they
Speaker 10: fix it. Can it be a good business. I'm not
Speaker 10: sure it can be a good business, but it's a
Speaker 10: lot better business.
Speaker 11: Than than we thought.
Speaker 10: And that's what's really going on.
Speaker 4: So talk to us about this turnaround for Ge after
Speaker 4: it was kicked out of the Dow in twenty eighteen.
Speaker 10: They you know, they they particularly in their power business
Speaker 10: business just fell out of bed and they had way
Speaker 10: too much capacity for the large turbines, you know that
Speaker 10: generate electricity people don't We don't use them anymore. The
Speaker 10: stuff that's there is will still be. The installed base
Speaker 10: is still good, but the growth rate of that market
Speaker 10: and the size of that market has been cut in half.
Speaker 10: Then you've got a win business that they've always lost.
Speaker 10: They've lost money in for a long period of time.
Speaker 3: You know.
Speaker 10: So you had a lot of lingering problems, and the
Speaker 10: fine and the finance UB was a real problem for them,
Speaker 10: and they basically got out of the credit sub and
Speaker 10: there are a lot of rights related to that. So
Speaker 10: it felt like they couldn't get out of their own
Speaker 10: way for a couple of years.
Speaker 1: Actually, there's nobody better to ask this question, which is
Speaker 1: because you've known this company forever, what do you think
Speaker 1: today with hindsight, the legacy of Jack Welch.
Speaker 10: Is I have said, and I've said this a while back,
Speaker 10: that someday they're gonna you know, they wrote the book
Speaker 10: The House that Jack Built. Someday they're going to write
Speaker 10: the book The Straw House that Jack Built. And I
Speaker 10: hope I do not get in.
Speaker 1: Trouble for that, because I mean, there was a time
Speaker 1: when he was building up General Electric, mainly through acquisitions, presumably,
Speaker 1: you know, kind of that conglomerate model, trying to find
Speaker 1: businesses with great returns and all that kind of stuff
Speaker 1: and just building them up and building them up. And
Speaker 1: then GE owned everything from NBC Universal to turbine engines
Speaker 1: and light bulbs, light bulbs exactly, I mean, And that
Speaker 1: was the conglomerates. That was a real business strategy for
Speaker 1: decades in this country. Jack Walsh arguably the most prominent
Speaker 1: proponent of that. Now that's I think probably the market
Speaker 1: has been saying for the last ten fifteen years plus,
Speaker 1: that's not where we want to be.
Speaker 10: Well, they grew, he grew the finance up up to
Speaker 10: be fifty percent of GE's earnings. It was very profitable,
Speaker 10: and they got involved in a lot of financial things
Speaker 10: that they probably should not have been involved in.
Speaker 1: But originally it was set up, Oh, you want to
Speaker 1: buy a hundred billion dollars, I mean one hundred million
Speaker 1: dollar piece of equipment for me, I'll help finance it,
Speaker 1: just like all that. And that's what it's back to.
Speaker 10: That's what it's very small they financed like the big
Speaker 10: turbine equipment, et cetera. But they are out of all
Speaker 10: that other stuff. But they had to take huge write
Speaker 10: offs to.
Speaker 1: Get out of that financial crisis.
Speaker 10: And the other thing is he was, if you know,
Speaker 10: in my opinion, in order to get higher margins every
Speaker 10: single quarter, you know, he you know, I think they
Speaker 10: milked the R and D and they and they had
Speaker 10: to play catch up on that as well, and I
Speaker 10: think that was that was another problem.
Speaker 6: You know.
Speaker 10: So he really was, you know, the king of industrials
Speaker 10: for a while, but Emilt was left with a large headache.
Speaker 4: When you're looking at these earnings results from three M
Speaker 4: to GE, what do you think these corporate profits in
Speaker 4: this particular segment of the S and P five hundred
Speaker 4: tell us about the direction of the economy.
Speaker 10: You know, I don't think the economy is as bad
Speaker 10: as as people are anticipating. You know, people are worried
Speaker 10: about a fallout in the second half. Some markets are slowing,
Speaker 10: but it's a pretty narrow slow down it's certain consumer
Speaker 10: markets and more that that actually is probably spreading. But
Speaker 10: the industrial side is really solid. And if you see
Speaker 10: all the mega projects from on shoring, you know, the
Speaker 10: infrastructure a bild the IRA, which is why Wind is
Speaker 10: doing so well. All this federal money is just going
Speaker 10: to prop up industrials and I don't really see we're
Speaker 10: gonna we're gonna see an industrial recession.
Speaker 1: How about China? And your companies deal with China and
Speaker 1: like nobody's business, So what are they saying?
Speaker 10: It's slow? The recovery is slower than expected? Uh uh?
Speaker 10: Three M actually has a large exposure to China and
Speaker 10: they said it was they're in recovery now and it
Speaker 10: was down eight percent?
Speaker 1: Are they? I mean, what how are they framing the
Speaker 1: geopolitical risk around the US and China or China in
Speaker 1: the West?
Speaker 10: People are you know? I would say that you're not
Speaker 10: going to see more dollars spent there because there is
Speaker 10: some concern about that. It's an important market. It's five
Speaker 10: to eight percent of sales for a lot of these companies.
Speaker 10: They can't pick up and leave, but they are certainly
Speaker 10: rethinking at least whether they're how the business is sized
Speaker 10: because we don't know what's going to happen politically, and
Speaker 10: the recovery just is really taking a while to get going.
Speaker 1: So how did they just thirty seconds? What's kind of
Speaker 1: the top area that you're like, what's the hot.
Speaker 10: The two hottest areas. Aerospace is just on fire, and
Speaker 10: that has a lot of legs. Also, anything climate related,
Speaker 10: like the HVAC business. Residential hvac is down, but the
Speaker 10: rest of the business is strong. And we've got a
Speaker 10: trillion dollars in money tax credits. I mean, well, if
Speaker 10: you it's three hundred million in tax credits and a
Speaker 10: trillion dollars when you gross it up of money as
Speaker 10: a result of the IRA.
Speaker 1: Yep, all right, Karen Great. I've always appreciate getting you,
Speaker 1: getting your insight, you know her, Karen and her companies
Speaker 1: touch everything into this economy. It's amazing something looking at.
Speaker 4: This industrial sector in the s and P five hundred
Speaker 4: trading around records.
Speaker 1: Yeah, yep, good. Everybody wants to talk to Kareny Buhart
Speaker 1: now Coaren hoopmart Senior and also covers some machinery and
Speaker 1: all that industrial stuff for Bloomberg and Talents. Appreciate getting
Speaker 1: a few minutes.
Speaker 5: You're listening to the tape. Cat's are live program Bloomberg
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Speaker 4: Well, we've talked so much about particular industry groups that
Speaker 4: have really rebounded as things continue to reopen from the pandemic.
Speaker 4: And one of those, especially when you're looking at what's
Speaker 4: happening with some of these gym related stocks, looking at
Speaker 4: what's happening with Lifetime Group that's ticker symbol LTCH up
Speaker 4: close to actually more than fifty percent this year alone.
Speaker 4: And who better to join us for our c suite
Speaker 4: conversation than Akarate, CEO at Lifetime Fitness, Who's joining us
Speaker 4: on zoom to discuss this company post the pandemic as
Speaker 4: well as earnings and the outlook when it comes to
Speaker 4: consumers as well as gym goers. And you've talked a
Speaker 4: lot Bachram about how when it comes to Lifetime Fitness,
Speaker 4: this isn't just a gym. It's supposed to be this
Speaker 4: sort of country club experience. Talk to us about what's
Speaker 4: been the key deer success, especially when it comes to
Speaker 4: the reopening that you've had over the past year.
Speaker 11: Fantastic. What we focused on from the time we reopened
Speaker 11: it was desirability for our customer. We worked on programming.
Speaker 11: We worked on much more elevated experiences across all aspects
Speaker 11: of what we offer, whether it's the beach clubs, our food,
Speaker 11: our spas, our personal training, small group training, our rough program,
Speaker 11: all of the different program We added pickleball at the
Speaker 11: sort of an incredible pace. We're almost six hundred courts today.
Speaker 11: We will have at least seven hundred by the year
Speaker 11: year in one thousand by the end of next year.
Speaker 11: So we basically have listened to see what the customer
Speaker 11: wants and offer that at the most experiential level. Everything's
Speaker 11: working beautifully. We are completely happy with our results, right
Speaker 11: where we expect to be. We are doing this without
Speaker 11: any promotions, any sales, any salespeople. We're just focused on
Speaker 11: creating that desirability and the customer is pouring in. Our
Speaker 11: results have been never better. We have the best margins.
Speaker 11: We rewired the company structurally the last year to make
Speaker 11: sure the decisions are made much more rapidly to satisfy
Speaker 11: the customer, and that has also generated massive improvement to
Speaker 11: our margins. So it's all good news, Barram.
Speaker 1: Your stock is down fifteen percent today on your earnings.
Speaker 1: Your sales missed, disappoints. Talk to us about what happened
Speaker 1: with the latest quarter and kind of what your guidance
Speaker 1: is here.
Speaker 11: That's honestly enigma. We didn't miss anything. The analysts have
Speaker 11: missed completely. They have tried to listen to our sort
Speaker 11: of tone about Ebada and they try to get to
Speaker 11: that Ebida by lower margins and just pushing the revenue
Speaker 11: numbers up. Our revenue is exactly where expected to be.
Speaker 11: It's within the range we gave the street. So I
Speaker 11: have no apologies for anyone. Our team is working their
Speaker 11: cans off. Everybody is performing. We're super happy with the
Speaker 11: momentum of the business and where we can take it
Speaker 11: from here.
Speaker 1: Well, it sounds like at the very least you needs
Speaker 1: somebody to manage streets expectations so you don't have that
Speaker 1: volatility in the stock. That would just be an aside
Speaker 1: from a former analyst. Talk to us about what are
Speaker 1: your growth drivers going forward here as you adjust kind
Speaker 1: of a new world where you know, people are getting
Speaker 1: back out again.
Speaker 11: Yeah, you know. Actually the you know, the clubs are
Speaker 11: doing fantastic. Many clubs are at the point where we
Speaker 11: really are putting them on waitlist and then we just
Speaker 11: basically meeter the people in so that we can manage
Speaker 11: that experience. We have ability to basically create the rack
Speaker 11: rate where that we can create optimal experiential for the people.
Speaker 11: We continue to create invent programming. The most recent one
Speaker 11: that we are in the guts of getting it rolled
Speaker 11: out by beginning of first fourth quarter this dynamic stretch.
Speaker 11: We'll have that rolled out to one hundred and fifty
Speaker 11: locations by October one. So we continually think, invent, reinvent
Speaker 11: opportunities to serve the customer in all aspects of their
Speaker 11: healthy living and healthy aging. And so we have many,
Speaker 11: many other initiatives in the works. So I anticipate double
Speaker 11: digit growth for this company top one, bottom line for
Speaker 11: the foreseeable future.
Speaker 4: Let's talk about the demographics, because the average membership is
Speaker 4: over two hundred dollars in some key areas per month,
Speaker 4: and more than forty percent of the members are under
Speaker 4: thirty five years old. So I'm curious when it comes
Speaker 4: to student loan repayments, how that could potentially impact your business.
Speaker 11: Yeah, you know what, Honestly, I don't see that being
Speaker 11: a factor whatsoever. Our memberships are very broad, from very
Speaker 11: very young people to very very old people. We have
Speaker 11: kids from ninety days old in these clubs with their
Speaker 11: families all the way to eighty ninety year old members.
Speaker 11: So no one segment is going to have an impact
Speaker 11: in our business in a way that people think, oh
Speaker 11: my god, you know, the student loan is going to
Speaker 11: make We're not seeing anything. In fact, the number one
Speaker 11: indication to the health of our membership is attrition race, which,
Speaker 11: as I mentioned earlier, June was the first month we
Speaker 11: saw after COVID reopening that we had attrition rates below
Speaker 11: twenty nineteen rates. Now that has fallen through with July
Speaker 11: and August having exactly the same friends, and we take
Speaker 11: attritions today for September, so we already know the numbers
Speaker 11: for July and August attritions. So it's all showing complete
Speaker 11: signs of strength. We're not seeing any weakness in our
Speaker 11: clubs or our performance. So and again the students and
Speaker 11: those who can be impacted by this is going to
Speaker 11: be a small section. Lifetime is so broad in terms
Speaker 11: of our offering, in terms of our demographic that I
Speaker 11: don't think any one sector is going to make a difference,
Speaker 11: and we're us not being able to deliver the numbers
Speaker 11: we guide the street.
Speaker 1: All right, Barron, thanks so much for joining us. Botrom
Speaker 1: ak Rodi, CEO of Lifetime Group Holdings. That is a
Speaker 1: New York stock A change list is stocking on public
Speaker 1: last year. I'm sorry twenty twenty one at eighteen dollars
Speaker 1: to share the symbols lth that's a ticker fload into
Speaker 1: your Bloomberg terminal.
Speaker 2: Thanks for listening to the Bloomberg Mark Kids podcast. You
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Speaker 2: Twitter at Matt Miller nineteen seventy three.
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