FedEx Drops After Pulling Forecast

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube search Bloomberg Global News. Well, talk about Houston. There's a problem FedEx shares. As you know, we've been talking about how they have tumbled today down uh the most and over forty years after pulling its earnings forecast on worsening business conditions potentially worrying signed for the global economy.

And I think about this kind of story twenty four hours ago, tim Essentially we just started to break down this and I wondered about analysis, especially when it comes to our Bloomberg intelligence to you and look at it now. Yeah, really eager to speak to Leak Glasgow, Senior transport logistics and shipping analysts for Blue Brig Intelligence. Lee joins us this afternoon via zoom from Bloomberg Intelligence headquarters in at Princeton, New Jersey. Uh. Lee, good to have you with us.

We were really itching to get you on to talk all about this this afternoon. I think the question that Carol asked sort of rhetorically earlier was about whether this is a company specific story, if it's FedEx specifically, because we're seeing it way on certainly other sectors and uh peers within the sector. But but take us into what exactly the concern is that FedEx has. Yeah, So what I would say is it is a company's specific yes, and is there a read through for the rest of

the broader economy a little? And why we say that is that, you know, in the release, the company mentioned the fact that there are some service challenges in Europe and we view that as mostly dealing with the T and T integration, coupled with the fact that you know, um, Europe is I'm sure you're all aware that Europe having some problems with inflation due to high energy costs and

that's having a major impact in demand. You know, the risk of your going into a recession or if they're not a recession already is a lot higher than here in the US UM and you know that that is probably driving some of the weakness that we saw. And Express Express revenues came in five percent below expectations for

the first quarter when they pre announced yesterday. And then the margins that you know that they showed the the adjusted operating um operating margins were about one point seven percent,

which is very low relative to history. I mean history, historically it's been around about five to six percent UH and and so you've seen a real step down in margins and it probably has to do with higher costs, UH, with the inflationary aspects that we were talking, lower demand, and some integration problems at T and T and and for some background, you know T and T was an acquisition they made two thousand and sixteen, UH and they did it so they could be more competitive in Europe

with UPS and and and Deutsche Post. You know, there's still a third when it comes to Europe, but there are a lot, you know, a lot closer to the number two ups in Europe now. But the problem was in two thousand and seventeen there was a huge um cyber attack on TNT which rendered it pretty much useless. And it wasn't for fed x's capital, the company probably

wouldn't be around today. And then that couple with a couple of management missteps, will call them, really slowed the progress of integrating T n T. And then you know, we had a pandemic and that threw a wrench and everyone's business model. UM. And so we just think that that the benefits, if any, are really going to be kicked down the road as management tries to properly resource

its network in the US and in Europe. Hey Ley, what does this mean for the company's new CEO, who who took over just in June, inherited this and just trying to make it right or is this maybe a first big stumble? Yeah? So um, you know Roger Subramani in UM he's became the CEO and president in June. UM. You know, also Richard Smith became the CEO of its rest in April. Uh So they're relatively new, shall we say, to their role, but they've been long time managers in

the organization. You know what, I would say that's very different than what we're seeing at fed X. Versus UPS. You know, in UPS got a new CEO, Carol Toma, and she was on the board UM. But you know, people were a little skeptical about her because most of UPS senior managers will always used to be able to say that, you know, my first job was when I was in college, loading on loading EPs trucks, and I've been there forever. And so she was like, not quite

an outsider, but kind of an outsider. And she's really done a phenomenal job. She's she's been selling off on profitable businesses. She sold their less than truckload business off to t f I. UM. They're really focused on what they're calling better not bigger strategy, which really seems to be paying off. And UPS had a sales side event on September nine, and they didn't call that any any

glaring issues. They actually reiterated their two guidance. And that's why we think it's mostly a company specific issue for

fed X versus the broader economy. You know, we'd be naive to think, yes, you know, growth has slowed over the last three months, but you know, also you know fed X is has more of exposure in China, uh, and you know the the zero tolerance policy of the Chinese government due to COVID have really restricted economic activity there and that's gone on longer than I think most of us have would have wanted or thought, uh, And that's also something weighing on on FedEx's business as well.

Just want to throw out some numbers. Looking at the d e S page on the Bloomberg when you look at fed X USOV almost sixty five billion international was almost twenty nine. If you pull up ups US is about seventy four billion internationals about twenty three. So that speaks really to your point. So I mean, when we think about ups LEE, that's more of a US play domestic play. Yeah. And when I was also in up s U p SS one integrated network, so they have,

you know, an express in domestic business. But you know, when someone delivers a package to your house, it's not a separate organization. At FedEx. The majority of their packages here on the ground network which are independent contractors, or their express network, which are employees. A lot of people on the street are kind of wondering, you know what the rationale for that is and does it truly make sense, uh,

to not have an integrated network. Well, great, to check in with you, Lee Clascow of our Bloomberg Intelligence team. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. The new issue of Bloomberg Business Week out. It is online at Bloomberg dot com, slash business Week, on the Bloomberg Terminal,

and of course on news stands. One story in the issue takes a look at the biggest US copper mind that may not be able to actually deliver on its good stint. We're talking about Rio Tinto's Resolution Project. It's got enough of the medal for two seventy five million e vs. Some locals say though, it should never be developed. The story by Joe Dough. He is Medals and Agricultural America's deputy team leader for Bloomberg News. He's with us

right now in the Bloomberg Interactive Broker's studio. Joel Weber is going to be joining us to He's editor of Bloomberg Business Week. He's with us in the Bloomberg Interactive Broker Studio. Joe, I want to start with you just because, um, you know, you got to go visit this mine in Arizona,

and what was it like? So, I mean, you're in Phoenix and you drive about forty five minutes east of Phoenix and suddenly you just go from like city to desert to like this beautiful, rolling, hilly, uh kind of cliffy area, and then you kind of go through this crevasse and you enter this beautiful kind of range with these rocks and whatnot. And they're at the top of

all this is this kind of like plane shaft. Right, there's a couple of large pieces of iron that have clear lifts going down to the ground, and but you don't think anything other about it. So that's where the actual mine is located. And I said, well, you know, I want to go down into it because it's the deepest mine in in the Americas. It's about a mile

and a half DP. So we went all the way down there, and you get down there and it's it's kind of like, uh, I don't know, you go to like a new library, right, it's all concrete and lit up by fluorescent lights and everything else. And if you didn't know you were a mile a mile and a half in the ground, you might think you're like a casino or you know, someplace without windows. Uh. But that's where it stops because there is no mind being built because they don't actually have the right to the land

right now to build where the actual copper veins are. Right. So this is gonna be a copper mine. It's gonna have, like you said, be producing the most copper in all of North America. And it sits below this uh Native American site. It is a campground actually owned by the Forest Service, but uh, the San Carlos Apache tribe say,

this has been our land for time and prepeptuity. That I was actually talking to the guy who is one of the former Apache leaders who's now leading the kind of charge to say, you should not give this land over to Rio Tinto. The United States should hold onto this land. And yeah, well so there's tension. I want to bring Joe Webber into because Joel, you know the

reason we this is such an important story. As we talked so much about electrical vehicles EVS, and we talk about Lithian that's so important, but actually copper is really important when it comes to EVS and we need a lot of it, yes, like so much of it, Like you need you need like maybe a big gigantic mind with like the biggest deposit in the US may be visited. Yeah, exactly.

And but you know, I think it does speak to when you mentioned some other materials there, some metals, They're like, look like the US has really never been at the forefront of getting this stuff out of the ground and making it be a supply chain that could end up in electric vehicles. I think that really changed with the new incentives from Washington. And and this shows how, uh, there's this reality that has yet to meet where you know,

we might end up in the future. But but in this specific example, it you know, how likely is rio tend to gonna be even to get this copper out of the ground anytime? Anytimes? I mean, if you assume that the United States government does end up approving the land swap and it is on hold right now because the Biden administration said, wait a minute, we feel like some of the licensing wasn't actually done correctly. We feel like some of the environment and impact studies were not

done correctly, so maybe we should redo those. Even if they suddenly said, you know what, we're going to reverse that and allow for the swap, it would still take ten years before Rio Tinto is actually pulling copper or up out of the ground. So I mean, it just reminds us that mining projects take minimum ten years to get up off the ground. And this is the problem I was I was saying on Twitter just yesterday. You know, the Biden administration has been front and center talking about

the materials being domestically produced. And even though most people don't think, oh, energy transition, we need to talk about the minds. And this is like constantly being talked about in the White House and being talked about around Congress.

Everybody's for this, but you get into complexities of this situation with resolution, and you see why it is so difficult, um and the problem that we have right if we truly want to do this at home, we got to be ready for understanding it's going to take ten twenty years to actually have the ability to do that all domestically. Makes me wonder that idea of what two fifths of passenger cars carsels to be e vs makes me wonder how the heck do we do it, especially if we

want everything to be made domestically or a lot of it. Right, And this wasn't in the story, but I was recently having a conversation with a very big trading firm that actually trades all these medals, and they said, it's just now getting on people's radar exactly how much copper you need. And what is in the story is Goldman's most recent research says we're not going to hit a deficit for three more years, but the price is going to more than double for copper. And that's because the market the

world's going to start. China is very much aware of that, and they are the ones also going out there to secure off take agreements. And by part of minds in all different parts of the world that people like Elon Musk say, you know what, maybe we don't want to touch that copper mine and the Democratic Republic of Congo, maybe we do just want the one that's in Arizona that we can trust, or the one that's in Chile that we can trust. By the way, there was a

proposed land swap. What happened there? Uh? So the land swap was written into law uh in a bill passed during the Obama administration. It was tucked into a defense bill of course, so there's debates over did Obama actually like this thing? Uh? And then by the end of the Trump administration. The Trump administration had enough push going from behind the scenes from lobbyists and whatnot. They said,

let's approve the land swap. Let's go. Biden gets in in the first month, and the Forest Service, the U. S d A, which actually is in charge of all this, come and say, you know, actually we're putting a halt on the land swap. And so that's where we are at right now. The land swap hasn't happen. Uh. The United States government says we still need to do more due diligence on this, and of course Rio says, the

due diligence has been done. We've chosen all the various spots around Arizona to give them, uh, to give the United States government. Um, so let's get this thing moving on. Are there other areas of the United States that have copper veins such as this? I know this is the biggest potential one. But what what if if Riotinto doesn't get access to this? What happens? So where this mine is located is actually like for over a hundred years, been known as one of the great deposits of copper

in the world. I asked one of the geologists there should I've never thought it was the US, but it's I mean right there in Arizona. Right, Arizona is like copper Universe. I asked one of the geologists. Why, why, like, what's interesting? He showed me this weird map with all this crud on it. I said, I don't get this, but I do notice this one spot here that makes no sense to me. The lines all converge. He goes, my job is to make money by getting copper out

of the ground. What makes me love my job is the thing you just pointed out there about the geology, and he said, basically, we're still trying to figure out, after hundreds of years of looking in this area, what happened to the Earth millions of years ago for this to be the spot where copper is found. It's in Jurassic Park. Just watch them. That's all there, which I don't know. I don't know. I only like the first one,

all right. Our Thanks to Joe doo Middleton, a America's deputy team leader of Bloomberg News, this story in the new issue of Bloomberg Business Week magazine. It is out or thanks to the editor of the magazine, Jill Webber, This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Get ready for another likely year weather disasters that destroy homes, ruined crops, disrupt shipping and threatened lives. Yeah, you thought you were

going to have a good Friday. Forget about it. It's not happening here. Check out today is a big take. You can do that by visiting a Bloomberg dot Com slash Big Take. Also type and I Big Take on the Bloomberg Terminal. We've got Elizabeth Elkin with us. She's agricultural reporter for Bloomberg New She's with U right now in the Bloomberg Interactive Broker Studio. Elizabeth, I gotta tell you it's not just you know, the American West, or

what's happening in Australia. Over the last few years. We've got deadly floods in Pakistan. We've got scorching heat all over the western part of the country. In Europe as well, we've got torrential rains in Indonesia than the Mega Droute in Brazil and Argentina to what's going on, Yeah, absolutely absolutely so. La Nina has been the driver behind weather disaster since like mid um, and it's all but guaranteed that we're going to see another year of Ladina at

this point. Um. Now, three years of Laddinia in a row has only happened like twice since nineteen fifty and the last time started in so it's like really rare um. And by the time three finishes, the world could see one trillion dollars in weather disaster damages for these three years of London. So is Landinia getting worse? Like like you just said, it doesn't happen a lot, but we keep talking about that. The current, the warming of the planet. The planet just makes the what we're seeing in terms

of climate imbalances and the impact on our world. It's gotten even worse as a result. Absolutely, Yeah, So I would describe it as La Nina is like the driver behind all of this weather chaos, but climate change just magnifies everything. So like for me, you know, I'm a football fan. Um, if I were to give it a sports analogy, right, uh, La Nina is like setting the

rules of the game. It's like how you play, and then climate change is like if you put in the best quarterback ever and you just watched that guy hurl the ball down the field. Right, that's climate change. What's the atmospheric phenomenon behind Landina? Like how does it work? So I think the atmosphere of the atmospheric phenomenon behind Landinia just it ends up making it so that the ocean is just a little bit cooler, right, It's just a little bit cooler, and that tiny little bit can

just cause all of these massive weather disasters. And I think about right when we have crazy storms like in our world, like when there's a real hot and then you get hit by a cold front. Like it's right, it's the extremes that just magnify everything, whether it's lots of rains or an extreme drought. Absolutely absolutely, and then you know you end up with things like yeah, the droughtout rest, but also like the deadly flog floods in

Pakistan like we were talking about. Um, you know, I know for me, like I love coffee, right, and so like problems growing coffee in places like Brazil that's like super inflationary. Talk to us about this because agriculture, right, we always think about the old economy. You cares about it. But like just like with the rail, just with the rail strikes, we realized getting stuff around, which seems so old. Economy it's important. It's it's how the economy keeps things moving.

Act like, it's so crucial in so many different ways. What are you hearing as you report on this in a daily basis and then as it relates to climate change? Yeah? Absolutely absolutely. I mean, you know, when I talk to farmers, you hear stories about like almond farmers literally ripping out their trees because it's so dry, right, and they just don't have enough rain year after year, which is a real problem for people who like want to eat almonds or you know, the things that almond goes into, like

almond milk and all of that. Like, that's that's going to be a real problem. Um, you know, I covered dairy, so talking to dairy farmers, dairy farmers are talking about whether they can even do what they do in places like California anymore over the next you know, decades or however long. That's pretty remarkable to think about. I mean, California is you know, it's it's it's the agricultural center of the United States. It provides so much produce to

the rest of the country. What does that mean for for all of US Americans. Yeah, it is very, very inflationary. I mean, you know, as it becomes more expensive to grow things, to to grow fruits, to grow vegetables, to grow everything else. Um, it just spins down the supple Hi Chaine, right, So it becomes more expensive for you

to buy it. Um. And in the long term, you know, there could be issues of like can we even grow things in California the way that we have been um, And you know you talk about fruits and veggies, but it's also like dairy. I mean, California is our number one dairy state. R It's like a lot of what we grow comes out of this one area that has so many problems for us. But as you guys started, I think Timmy pointed out, I mean it's a global problem. So whether it's the flooding in Pakistan or you know,

incredible droughts in South America. I mean, we are seeing this globally, this these extremes, and and while it's felt like a really really rough here, it sounds like, you know, get ready for more to come. UM. So important and so much a sign of our times. Elizabeth, thank you so much, really appreciate it. Elizabeth Elkin, agg reporter here at Bloomberg News, joining us in our interactive broker story

Broker studio. This is our Bloomberg Big Take today. Yeah, check it out and I Big Take on the Bloomberg terminal and also at Bloomberg dot Com Slash Big Take Journal. Yeah, but you let me drive? Oh no, no, no, no no home? All right, please, I'll go. I want to drive. It's good question. This is the drive to the clothes on Bloomberg Radio Tik Talk. Everybody. Ten minutes left in today as well, actually nine and a half, let's be exact here.

We like numbers and like being exact on Bloomberg's about nine and a half minutes left in today's trading session, getting ready to wrap up what has been a week, certainly for the equity trade, a bearish one. We're seeing significant losses losses in today's trade, although we are off tim our worst levels of the day today, we are really interested to hear what Brian Railing has to say. He's head of Global fixed income strategy at Wells Farges

Investment Institute. He joins us on the phone from St. Louis this afternoon. Brian, how are you great. Okay, let's talk fixed income here. Um, just give us an overview of where you think we are right now and what the fixed income market is telling us about the economy, because if you look at the equity market, uh, you know, you're pretty much seeing alarm bells across the board. Yeah. Well, the pick thinker market has been giving alarm bells here

since June with the yield curve inverted. And you know that inversion maintains itself. Um. Uh, you know if you look at just twos to tends almost forty basis points inverted there. So, um, you're saying that rough times ahead for the economy. So where's the value and where's the difficulty and figuring out, especially when it comes to the fixed income market, when you're looking at price and yield

right now, where's the value? Where's the right trade? Yeah? Well, I mean the easy trade is just short term because you can get really nice yields there, um, with very little risk. Now, I'm not sure. I don't believe you put in the peak yet in those longer term rates, but I don't think we're too far away from that. So I do think we're gonna come a time when really extending duration and buying long term bonds will pay

off in the long run. You know, the sentiment numbers today we're talking about UM, you know one and I think was a ten year in inflation expectations and coming down. So do you anticipate that we will see a significant UH turnaround when it comes to the rate outlook? Maybe it's next year, Maybe it's late next year, maybe it's early in the following year. It's about the the one year in five year excuse me, inflation expectations as a result of the University of Michigan surveys showed lower than

expect expectations. So how how what's your expectation when it comes to rates? Yeah, I do. I do believe that we're entering a point again. I don't think we've hit the peak yet. We're entering a point where it's a really good buying opportunity for UH longer term duration. UH. Simply for that reason, I do expect that inflation expectations and eventually inflation over the intermediate to long term will go down. I believe that the Fed will win its war and will hit its targets. Now, not over the

near term. There's going to be a lot more. I think fear around inflation a lot more work to fit it's going to have to do. But I think the Fed will do the work that's required. Brian. What's near term though? In your view? I mean, I think what's so crucial and and to be fair, I think no one anticipated the inflationary pressures in terms of the timeline and that they would be so sticky for so long. But do you have a timeline when you think inflation

starts to come down significantly? Well significantly, I think we're gonna probably have to wait until you know, at least the first quarter of next year, if not a little bit beyond that. But you know, significantly still is not down to the feeds target. The markets really have to appreciate. And you know, just because we get inflation maybe down to five percent or four percent, yeah, that's a big move down. But um, I don't look for the Fed

to blink. I think the FED will continue to hold those rates at high level until their confident they're gonna win. Hey Brian, um, what about when it comes to quality of fixed income? What what are you telling clients right now? What should they be focused on? We got we're we're up in quality UM, but the yields are looking more attracted by the day in a lower quality. That's said, uh, buying low quality, buying below investment grade fixed income going

into a recession is not a good strategy. We're likely to see more fear in the markets. See those spreads widen out again. I think there's gonna be great buying opportunities. Uh. And maybe spreads won't widen out to the seven we've seen in past recessions. But I hold off here until it's a little bit more certain exactly. You know that we've entered into a recession and we maybe get to spread wide. So what would be the sign that that

that that that that's happened. I mean, you need the n b ARE to come out and say that we're in a recession. No, no, no, no, I just I would just like to see the spreads UM, you know, widen out six seven hundred uh in those below investment grade indicries. To me, that would be the bottom market saying listen, we've already got the fear with the yield curve, and we get some fear in credit spreads, you know,

it starts to line up. You do not want to wait for a recession to be called or to be obvious, we're in a recession, but waiting for those indicators. Um, you know, those the cheapening prices, it's almost certainly going to happen into a recession. All right, How do you put the US versus maybe overseas? Where are the opportunities? Essentially? How do you play it? Yeah, I mean we're still

US centric for sure. I think Overseas has a lot more issues and uh, you know, their economies are not in as good as shape as ours ours is, uh, even if ours is weakening, and we've got energy crises looming potentially uh this winter, especially over in Europe. And so to me, you know, I would I would definitely stay US centric. I know this depends on you know, a person's risk tolerance and where they are in their lifetimes.

But how do you look at the role of fixed income in two and a portfolio given that rates have been so low for so long? Yeah? Well, I mean in the rough year for all asset classes, including uh fixed income, but number one fixed income, you know you do see less volatility. Uh. So again, as you are an investor looking maybe less on the return side and more on the uh, you know your your stability, You're

gonna continue to add more and more fixed income. But now things are getting very interesting with these higher yields UM. You know, with even very low risk in short term being able to get yields that we have not seen in some time. And if you are specifically in a high tax bracket, you know, muni bonds look particularly attractive to UM. Again, the high quality shorter term, Uh, it's kind of a no brainer. Hey, do you have a

quick thought on mortgage rates and what happens. We certainly saw homebuilders a little bit of a rally in today's overall downward equity trade, and that was because of some of the optimism about longer term inflationary expectations. As we talked about some thoughts on mortgage rates just quickly, again, they're gonna remain elevated. That market is going to remain difficult. It's going to be difficult for people to afford the affordability.

But again kind of with my intermediate to longer term out look, I do expect the inflation expectations and eventually inflation to move lower and that should uh cause those longer term rates to start to take a little bit lower and that will actually bring down mortgage rates. All Right, we gotta run. Hey, have a great weekend. Brian Railing, he's head of Global fixed Income Strategy at Wells Fargo Investment Institute, joining us on the phone from St. Louis

on this Friday. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube. Starch to Bloomberg Global News