Senate Votes, Stagflation and Dividends

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. The ys are fifty, the names are fifty, the Senate being equally divided, the Vice President votes in the affirmative, and the bill as amended is past. All right, of course, you can hear the clapping after Vice President Kamala Harris taking that vote, and after a weekend marathon legislative session, the US Senate passing

a tax, climate and energy bill. This is a big piece of the Democratic economic agenda and a big win for them as well. So let's get to it. What does it mean? What does it mean for the mid terms. Let's bring in Joe Matthew. He's Bloomberg Washington correspondent, host of Bloomberg Sound On at five pm Wall Street Time

right here on Bloomberg Radio. Joe joining us from our Bloomberg nine and I One studio in Washington, d C. Joe, I always want to say, it's nothing like an August recess deadline to perhaps get the U. S. Congress to get something done legislatively. But I feel like there were a lot of forces at work. As you kind of

think about what happened this weekend, what are your big takeaways? Well, I mean, look, Chuck Schumer called it a long and winding road, and I've been I've been humming Paul McCartney all day today, even though we're not quite done yet. The House votes at the end of this week. But I mean, really, if you stop and think about, uh, the the evolution this is goes back over a year. This is back what we called build back Better. There were this was a five trillion dollars something or other

idea when it first emerged. Then it was three, then it was one and a half, then it was child tax credits. There were so many different version of this, different names, different contents, but Yeah, this has been just remarkable, and it had been left for dead of course at the end of last year, left for dead multiple times, even this year when Joe Manchin saw the most recent CPI UH numbers. So you know, frankly, it seemed to

defy gravity. To be honest with you, the question about whether this helps anyone on the mid terms, you know, ask me on Halloween what the price of gases? That's the best answer I think I have for you. Well, Joe, you stole my question. That's what I wanted to ask. Whether this is do it again any bearing on the midterm elections or like you said, is this all about the price of gas and the cost of living right now? Yeah, inflation is it's it's gonna be pretty hard to beat

as issue number one. But then again, look at Kansas last week. You know, we saw this this abortion vote that blew people out of the water. It defied all expectations. So there are some unquantifiable UH factors in this mid term election that may or may not mobilize Democrats to hit the polls. For instance, will will progressives reward Democrats for the biggest climate spend in history? This bill has that. It also extends Obamacare and keeps several million people from

losing their coverage. So, you know, there are different ways to look at this, but the history is still on the side of the Republicans. One of the questions that we've had, if I can get a little bit more geeky, is you know, is this gonna be a washout for Dems or can they in fact hold the Senate or even gain a seat. That conversation is becoming a lot more real right now. It's likely they will lose the House, but it's not likely at this point at least that

they lose both. That is really interesting. I guess what I find also interesting? Maybe I just don't understand politics. It's just, you know, it seemed like nothing could get done. What what happened on the Republicans. I mean, although Kamala Harris had to really do the deciding vote. But is there a change in tone at all in terms of the Republicans? Okay, or the or the influence of of Donald Trump. It's really incredible to hear the talking points, Carol.

I mean, I don't know what people who don't follow us every day must think. It's called They called it the inflation Reduction Act, and every Republican who has spoken around it, including on the Sunday morning shows yesterday, said it'll in fact make inflation worse. So wait a minute, someone's lying to me here. I mean to be that far apart on talking points is partly why people hate Washington. It's also why they don't understand what goes on here.

And Republicans will try to hang this around the next of Democrats saying that you know, we had inflation, they just spent another seven hundred and fifty billion dollars, even though that's not accurate. Rick Scott, the Senator from Florida Republican, yesterday said it should be renamed the War on Seniors Act. Even though we're lowering. This bill lowers the price of prescription drugs for those on Medicare. So just got about thirty seconds here. Is is this a movement forward for Americans?

For citizens? I let others make that determination. But look, there is deficit reduction in here we were supposed to like at right, there will be lower drug prices. Whether you think that eats into the R and D accounts of major pharma that has yet to be determined. I guess having several million people not lose their health insurance is probably a good thing. Doing it with only one party, though, is pretty tough, and it really reinforces the divisions in

this country. Well, bottom line, I heard somebody I think, talking with David Weston earlier on Bloomberg TV talking about this is another trillion dollars that gets essentially pumped into the economy. I mean, right, this is more money that gets pumped in, and so you do wonder what impact that will have on kind of our pricing. Just to keep in mind though, it does pay for itself. That we know from the CBO. It raises enough money to

cover the programs and to lower the deficits. So this is not as opposed to, for instance, the tax bill in seventeen we keep hearing about that was entirely deficit spending. So if this lowers the deficit, you know, the econ one on one guy in my head would tell me that's good. Okay, I'm gonna leave it there. Jill Matthew, thank you so much. Hosted Bloomberg Sound On. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes.

Tim Stinovic on Bloomberg Radio on Bloomberg Radio. As Carol said earlier, we're really at the tail end of earning season, and I want to talk about that with Brendan Case. He's a big box retail reporter for Bloomberg News. He joins us on the phone from Dallas, and Brendan the words stagflation. Sometimes. I used to tweet about it and I'd get a lot of snarky replies. It used to be sort of a taboo sort of word. But in your latest piece for Bloomberg Business Week, you write that

stagflation puts stamp on earnings of US consumer giants. What did we learn this past reporting season? Yeah, you know, one of the big lessons coming out of the earning season for consumer goods companies is that a lot of them are starting to report declines in unit volumes, and so their sales typically you know, in dollar terms, are going up, uh, fairly moderately. Um. Their prices are going

up lot, but their volumes are going down. Um. And what I think you're starting to see there is just the kind of demand destruction from rising prices, with consumers starting to say, you know, what can't happen anymore? I got to spend more on food and fuel and I'm just going to have to buy less stuff. So bottom line, it's the dollar amount of stuff being sold is going out, but that's because of higher prices, but the individual units being sold are going down, which is an indication of

consumers backing off. Is that fair? Yeah, that's fair. And if you take a look at a company like let's say, canagraa craft hinds um, you know, they don't break it out by product line, but what could be the case, just to take hypothetical example of the product is that maybe um, you know, a box of mac and cheese mix costs more than it did a year ago by quite a lot, and some customers are saying, I'm gonna have to buy a little bit less of that because

of the price increase. And so Brendon earning season is so important, not just because we get the numbers, but we also hear from the executives themselves, the c suites, uh sort of voices And when it comes to stagflation in this dynamic you're describing where you know the dollar amount is going up, but you know the actual number of units sold as going down. What has the messaging been like, Well, the messaging so far is not it? You don't you don't hear many people hitting the panic.

But let's let's let's say that these are all companies that recorded big gains in sales during the pandemic. You know, people staying at home, buying a lot more stuff, a lot more consumer goods, UM, and you know, many cases. The last couple of years, the challenge for the companies was just to keep up with demand. Now that you see demand coming down, UM, you're not quite at the point yet where companies are saying this is gonna be a huge problem for us, because they can still raise prices.

You know, for twenty years, there was almost kind of a taboo against raising prices, and now that's long gone. Um, and a company can pretty easily raise prices right now. And the decline in the unit volumes is not really serious enough yet for companies to start saying, wow, this

is gonna be a big problem for us. You could start seeing that next year, but for now, they that they seem pretty content, and investors seem pretty content accepting that these companies are just going to pull the pricing lever a little bit. Even if that means volumes will come down, it does don't feel like um Brendan And it's a tale of two retail sectors because it does

seem at the lower end. We've seen some of this, and maybe it's not fair to say lower end, but Walmart certainly plays to a certain you know, economic um spectrum in our world. Target to like they have both you know, cut some of their prices, slash prices if you would, as you say in your story for some of their product lines. So that's not not everybody, Not

every retailer is able to kind of keeping raising prices. Yeah, and you know what, we'll we'll get a little more insight next week because Walmart and Target will report their full results. Um, sort of at the very tail end of the earning season. UM. I think what you're seeing with them is that they're very busily raising a lot

of prices throughout the store. However, there are some particular areas Walmart cited apparel, Target cited kitchen appliances and patio furniture, some areas where they have had to be aggressive, a lot more aggressive than they wanted to be in in cutting prices. UM. It's hard to figure out exactly how

that all nets out. UM. I do think that you know, probably when it comes to grocery, UM, you know, consumers are paying more than they were, and those companies are able to raise prices more than has typical UM in the past. Will probably learn a little bit more about it next week, But I do think that your characterization is very accurate. UM. Walmart, you know, says that it serves basically a broad cross section of the US population.

I take that to be true, but I do think that their clientele skews a little towards the lower end of the spectrum, and they've been pretty candid about how general merchandise sales especially are really starting to suffer. And Brendon talk about sort of the other end of the spectrum, the wealthier customers, because you do write that there is a rare breed of consumer companies that have been able to boost both prices and their unit sales. That's right.

You know, you're seeing you're seeing some luxury retailers that are doing fine, if not quite well in many cases, UM, and even you see that, UM, you know, outside of of of luxury. But if you take a company like Costco, UM, you know, Costco's clientele very definitely skews a little more

towards the higher end of respect drum. They up until July had been reporting double digit gains in comparable sales excluding gasoline, and so clearly they're you know, selling a lot of stuff and able to to to raise prices for it. It was in a costco parkinglat I did not go in, but it was a little hectic. Um. Hey, Brendon, Sue, Okay, we have a really smart audience, investor audience who's listening

to what you're saying. So I'm trying to figure out what does this mean for these consumer based companies potentially going forward, and what does it, if anything, kind of tell us more broadly about the US consumer and the

US economy. Yeah, fact, And I think when you think about it in in broad terms, I think what it tells us is that many consumers, certainly at the lower end but really throughout the entire income spectrum, are starting to notice price increases and starting to um to take action their start and to pull back a little bit. That is probably more and more true the lower that you get on the income scale, where people you know, just don't have the funds to keep buying the way

they did during the pandemic. What it means for the company's Well, you know, that's going to be something that we'll have to see because that just sort of feeds into the whole debate on what kind of a you know, could you get a soft landing, what's going to happen with the economy. Job creation is so robust that if you know, you could imagine a scenario where price increases start to start to moderate and get a situation where maybe you get stable volumes as opposed to declining volumes

with a little less price infection. Great story among the most right on the Bloomberg Today. Brendan Kase, big box retail reporter up Bloomberg News on the phone from Dallas. It's also a story you can find in the current issue of Bloomberg Business Week. This is Bloomberg Journal. Yeah, but you let me drive? No, no, no, who's home? Oh right, please, I'll do the riding gravels. I want

to drive. It's good question to drive. This is the drive to the Clothes to think Well Drier up down on Bluebird Radio, and we've got just about ten and a half minutes left to end the Monday trading session. It is time for the Drive to the close. David Deet's managing principal and senior portfolio strategist at Peapack Private Wealth Management, roughly not in a half billion of assets under management. He joined us on the phone from Summit, New Jersey. David, nice to have you here with Katie

and myself on this Monday. Interesting trade tech really under some pressure, although I should even say that right now it's just little change. Um, what's on your mind on this Monday? Well, Carol, good to be with you and Katie this afternoon. Gee. You know I still think in inflation and the Fed is issue number one. Um. We were looking at, of course that second quarter in a row of week GDP growth or negative GDP growth, and

some indicators showed that the economy was slowing. But then of course everything changed on Friday when we had the lowest joblessness in nine and very strong um increases in earnings and so forth, which has put inflation back in the forefront. It doesn't seem that we were seating, and that means what does the FED do? And now of course people are ramping up bets that we'll see another three quarter uh point increase UM in the FED fund trate come September one bank is to talk about one percent.

And so we're in this period where you know, you still have a very aggressive FED and that puts a lot of uncertainty as to where interest rates are going and therefore what valuation should be on stocks. Yeah, and I mean I was going to ask, within that environment, all of that uncertainty and just watching every data point, how do you structure portfolio around that? Where do you find opportunity? Right now? So we're you know, what we're trying to you know, on a monthly basis here rebounds

to our longer term targets. Were not trying to make a short term bet last month, of course, with the big sell off UH following some very strong metrics on inflation the prior month, we added to equities. Right now, we're pulling back where we're a little cautious here. I mean, we've seen the SMP five rio just since mid June. I think the NASTAC one at one point today was up twenty from that low. So this is the time

to probably take some chips off the table. I think all eyes are going to be on Wednesday's inflation report. If that's hotter that expected, expect to pull back, particularly amongst on those megacaph tech socks, and maybe a rotation back into some of those materials energy names which have not participated as much in July. So you said, so you would recommend investors do some selling when it comes to the pretty trade right now, we would take some

chips off the table. Yeah, yeah, that that that means selling rebalanced. I mean, we had one of the best months we've seen in many, many years in July. To take advantage of that, because these uncertainties are still here. I mean, you know, for example, in Video, which is our largest chip maker, came in with a big warning in terms of expectations, taking down the whole chip sector. That's a major component of tech, which is a major component of the economy. So therefore, I think investors have

to be cautious. It sounds like you need to be a pretty active trader. So when do you, David, I get back to, okay, long term fundamentals. I mean, you know, most of you guys say, if you're you're investing for the long term, so ride out these bumps. Why is it now not a time to ride out the bumps? And as you said, take some chips off the table versus if you believe in these long term strategies, just

you know, kind of hold it. Yeah, well, I mean, uh, you know, certainly we're looking for excessive swings in terms of sentiment up and down. I think I appreciate what you're you're saying. We're very long term. We're not talking about selling out an entire portfolio or jumping in with all of our cash. We're just trimming on the edges here that gives ourselves just a little bit of dry powder.

We have a number of names in for example, energy, in financial services, even some gold companies that we'd like, we'd like to build up just a little bit of cash there so we can take advantage of it. If we remain fully invested at all times. Uh, you know, how do we take advantage of opportunities? And there will be you know, we're August in September historically have been tough months, so you know, we'll probably see stock prices lower than they are today at some point over the

next sixty days. And I'm suious. So when you're you know, taking chips off the table, keeping powder dry to maybe sees on some opportunities, are you sitting in cash? I mean, what does the other side of maybe you know, selling out of the margins of your port folio looked like yes, so that's a that's a great question. You know, typically not cash because it's yielding so little, although that's changed dramatically over the last twelve months. But I think short

term dated fixed income. I mean, we know the headline here is that the two year treasury is yielding substantially more than the ten year treasury, So why would you go out to the ten year if you're taking chips off the table to ultimately read deploy. So depending on the amount of cash you're talking about, to make sure the transaction costs aren't excessive, you might be going into the into the twelve month or twenty four month treasury

um waging things out. We don't want to take a lot of risk in our bond portfolio because we like to be taking that risk in stocks when the opportunities present themselves. We don't want all of a sudden say hey, the stock markets down, let's do something, and then have a bunch of junkie bombs that are also under pressure for the same reasons. All right, So the names that you do like and you you kind of refer to them more broadly. I think before um capital one, Newmont,

and Heuser Busch. Intel is our common theme among these names dividends. Hey, you know, let's take a look. Let's let's take a look at Numon here. You know, it's basically a gold investment, is the only one. The s is down about half from its high. You know, everyone says gold doesn't pay a dividend. True, Newmon pays close to five and they have almost no debt. I mean, goal's been out of favor for so long. Why there's been no inflation, and now you have cryptos that take

the place of fiat curtsies. Guess what we have inflation? Guess what cryptos aren't doing so well? So people could come back to gold and collect that four point nine percent dividend while you're weighing their diverse side over four comes. And of course they also have exposure to other base materials like copper, which could uh seem to be playing a role in evs and so forth. So that's from one example. And I you said, you're not really taking

risks in your bond portfolio. We only have about thirty seconds left foot. What does that look like? Is that just treasuries. Yeah, So first of all, we like to put the fixed income and the tax sheltered portfolios so that we don't have to deal with lesser yielding muties. We like taxable muties a lot because they give more yield than taxis have ones because you have to pay tax down if we hold in the I RA s, no taxes, um and so um. That's that's a favorite agencies.

Some treasuries. We do own some corporates, but guess what stocks are all issued by corporations. So to get into enhanced diversification, we take a lighter touch in terms of corporate bombs in our portfolios. All right, Can I leave it on that note, Hey, David, thanks so much. David Deeds he senior Portfolio Strategies at Pepack Private Wealth Management, joining us once again on the phone from Summit, New Jersey.

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