CPI, Cruises, Industrials, ETFs, and Cannabis

people would like. Alice Andrews joins us. She's US Interest Rates and FX reporter with Bloomberg News. Alice, what was your takeaway from the print we had today on CPI. Yeah, I really thought that the market reaction, especially on the treasury side, was just really wrong footed this morning. I was very uncomfortable with the bull flattening that we saw after the CPI number. I think that the market really focused on that lower headline number and that drop in

year over year and inflation. But I think that the thing that the market was really missing was that big shelter component. And I really think that the whole thing was about shelter. I mean, I think that either way you slice or dice it, if you take shelter out of your analysis or put it back in. I think that inflation is still rising. So for example, if I mean, if you look at it, inflation is coming down whether

you're looking at the headline, core or supercore. But the fact of the matter is is that the FED really targets the super core that excludes the shelter component of CPI. And if you take a look at it, it's running at five point seven percent year over year, and that surpasses core CPI at five point six percent, And to me, that's just an indicator that inflation is going to stay pretty sticky. Yeah, And I mean, so the core was higher than the headline, and you're saying the supercore is

even higher than the core. That's right. And we're hearing more and more people Alice voice concerns about the stickiness of inflation at these levels black Rock. I heard Wailey this morning on Bloomberg Radio talking about that. But the ECB is also concerned about the stickiness. The Bank of England is also concerned about the stickiness. So is inflation at these levels, you know, five percent here to stay? Oh? I think it could stay there. Easily, if not go higher.

I mean the indicators that things that I really like to look at is something like housing and cars. So what I'm seeing in the housing market is that you know, we have a spring market, right, so that's supposed to bring a lot of supply, but it's not. And the fact of the matter is low supply people still out there wanting to buy houses. It just artificially keeps housing prices strong because there's still so much competition to get

the few houses that are coming on the market. The other thing is that rents, because housing market is staying high, I think that rents are going to stay high. And that's the big, you know, component that wants to take out or put back in of their of their analysis of inflation. And I think, again, anyway you slice it or dice it, with or without shelter, inflation is staying high. The other thing that I've been looking at is transportation,

and actually this month, transportation contributed positively to CPI. And the thing is is that autos I think are going to actually stay high as well. I've noticed that I've noticed a big bag I've noticed resilience in used car prices and carback said that yesterday. Yeah, and you haven't seen you know, Tesla's price cuts. Notwithstanding you haven't seen new car prices come down at all, they continue to rise.

So that's that's gonna be a problem as well. And what is really happening is that incentives are picking up. I don't know if you're noticing this, but you know, watching TV. I actually saw an ad last night on TV and I thought, oh, yeah, no, I haven't seen that in a while. But in doing a little bit analysis, incentives have and about five percent, we're starting to see zero percent financing, three percent financing, and huge double digit

cash back, double digit cash back. Think about that. Those are on like more expensive cars, but still that's just that's a lot. And so I think that because the consumer is so savvy, right prices start to come down, people that are working with cash on hand, boom, they're going in and buying like you know, kind of pouncing like they're doing on housing. It something comes on the market on the right block that you like, Boom, you're

going to buy it. Car prices showing some incentives, cash back, boom, consumers are pouncing. They're very you know, price sensitive and savvy. So I think that new car prices can stay firm with these incentives. But the thing is is that cars new cars are still really expensive, so that shifts a subsector into the used car market, which I think can stay strong. Yep. Absolutely kind of heard that from CarMax yesterday. I'm wondering, Alice, why does a FEDS like to strip

out for this super core data point. Yeah, but doesn't everybody? It affects everybody, doesn't it everybody's got to pay rent or mortgage. Yeah, but I think that you know, it's just an indicator that the FED is targeting. They had talked a lot about, you know, housing prices remaining elevated and rents remaining elevated, and how they think that rents are going to reset lower once these liss come up.

I just don't really get that logic, because if you're a landlord and you know that housing prices are high and you missed an opportunity to raise rents in the last year, I don't understand why you would think that lises are going to reset lower. I don't think that that's really going to happen. In terms of the wrong footed move in the markets, especially in rates, Alice, we saw a drop. I mean, I mean, looking ten year,

we saw a drop in ten year yields. Now it's coming back to unchanged around three forty three forty one. How do you see this reaction and what does that mean the market expects from the Fed? Well, right after the data of the market priced in four percent that's funds rate in January. I mean that's a full point below where we're at right now. I thought that that was just crazy. And I think that you know what happens on these big numbers, right you know, you get

a lot of emotional trading and position trading. And I think that what you're seeing right now is a market coming back a little bit to life. We're pairing some of that steepening that we saw and we're backing off of that rally. Rates are rising a little bit. I think that this is the right move, And you know, do you have to kind of remember sometimes it takes a day or two for you know, big numbers to get digested by the markets. And also participation isn't exactly

that high. The other thing I wanted to mention us, we're gonna have to we'll get that next time because we gotta short on time. We'll get the We're gonna get you at Gang. Yeah, we want you back for sure. Talking about Rachel, you know, she's a former floor clark at bear Stern says she knows all that trading stuff. Alice Andre's US interest rate reporter for Bloomberg News. You're listening to the team ken'ser Line program Bloomberg Markets weekdays at ten amis daring on Bloomberg dot Com, the I

Heart Radio app, and the Bloomberg Business App. We're listening on demand wherever you get your podcast. Story that caught my attention yesterday, Carnivals chief financial This is the cruise business. Carnivals chief financial officer David Bernstein isn't worried about rising interest rates, unlike other finance executives, as the cruise line operator looks to pay down debt rather than finance. And I was when I was reading that, I was saying, boy,

their creditors are happy. Credit analysts must be happy that they're paying down debt. So I figured, let's check in with Jody Lori. She covers. She's a credit analyst for Bloomberg Intelligence covers this industry. Jody joins us here via zoom on her vacation day. Oh, we really appreciate Jody making some time there. Jody talked to us about Carnival

Cruise Lines. Here. This is a company that's focused. I mean, a lot of these cruise operators right at the biding again pandemic mandate, rushed into the market, raised cash, sensing that this could be really bad for their business, and they were. Some of them had to pay like eleven twelve zack percent, right, I mean, some of them sold debt for way too much interest and the sign of

the time. So what's Carnival doing now? Sure, so Carnival is certainly one of the more interesting companies under our coverage these days. I mean, let's let's take a little look back, right, So, the company added about twenty four billion or more to its balance sheet during the pandemic. It's about twenty four billion above where it was at the end of twenty nineteen. So you're talking about thirty five billion dollars sitting on the balance sheet that they

have to deal with. Management is targeting it's going to get down to about thirty three thirty three and a half by the end of the year, which is music to our years, of course, But how they're going to do. That is always key. They're just getting to the precipice of generating free cash flow, and with that, obviously they're going to put it towards paying down debt. But I think there's a lot of finessing that needs to go on, and there's a lot that's dependent on the ability for

them to get customers on their ships. I look at by the way DDIS, Paul, Okay, if you if you put in Carnival Cruise Lines, which I think is CCL equity and look at DDIS, you can see the debt distribution when these things are coming due, and you can see the average coupon is seven percent. So is that high with a weighted average of five years? How does

their debt profile look to you? It's definitely a horse of a different color or a ship of a different color these days than it was at the beginning of the pandemic. They were investment grade rated previously, and so they commanded very good rates at that point. Now you think about this company a year ago, they tapped the debt markets and they actually got a lot of plaque or issuing double di issues, right, So similar coupon to what they issued in June of twenty twenty, during the

depths of the pandemic. And so I think management is being very cautious about how and when they tapped the debt markets and why because even this past fall when they did issue debt, they issued about two billion dollars. They've got a little creative in how they did it. They created a new subsidiary where they put some of their vessels, and they made it a little bit more attractive to keep rates lower. That complicated their balance sheet. So if you're an average bond holder, you don't really

understand which vessels are backing your bonds. You know, you're an insecured holder, so you're really just general company ability to pay. But the complicating factor of it is, Okay, in a theoretical bankruptcy, where would I be in line to receive any sort of money. Yeah, especially if it's in Panama. Yeah, I see, like twenty billion of their dead is at a Panama. Yeah, the Hamas and Caymans are usually generally the place that they go to for

the issuing subsidiaries. But yeah, I mean, if you're saying, okay, I have these bonds, and even even if it's not you know, bankruptcy. If you're a high yield company, you always have to think about liquidation, right if you're a credit autai as you say, okay, what would this be in a theoretical liquidation standpoint, because it's high yield, and so that will dictate how the bonds trade. Now that said,

you have higher risk, higher rewards. So there are some investors who say, oh, then it's worthwhile to sort of nibble at those There's other investors who say, you know what, there's still a lot of factors at play that could dictate how these bonds behave and and the you know, the forecast of this company. I think there's still very much in a turnaround phase, and I think there's still a little bit on the earlier side, although we're starting to get to the point that we're seeing the light

at the end of the tunnel. So Jody, just give us a sensure. I'm just looking at the stocks of Carnival and it's peers and they're all down between twenty and forty percent, So the market's really skittish there. I'm sort of there's similar concerns in the credit markets as well.

I kind of thought once this pandemic you know, they started lifting on the mass mandates and all that stuff, that this industry would just explode with demand and occupancies would be like sky high for years in pent up demand. That really hasn't happened, or has it. It's starting to happen. We actually wrote a note that specifically spoke to occupancy rates as well as to cash flow. So one thing that they have is advanced bookings, which is basically the

cash they take in when people book their cruises. They can't book that as revenue until the person actually goes on a cruise, but they can take it in as cash, so that actually helps their business. It's an alternative form of cash compared to say raising debt. The piece when you think about it from an occupancy standpoint that's difficult for these companies is the cruise lines were unique and that they got a moratorium, meaning they were unable to

actually cruise. They were unable to operate. You compare that to the theme parks, which I know you and I have talked about it before. Um and and the theme parks they were able to sort of get creative and how they operated. So you take someone like Cedar Fair, they were able to have a wine and cheese festival at Nottsbury Farm, you know, and and and six Flags. We actually my family actually went to Great Adventure and

did the Safari tour in our own car. And you don't have to get out of the car, nor do you want to get out of the car, you know, Okay, And it is a little fun to have drafts like it, Yeah, absolutely out of draft actually in the yes, the baboons used to do that. I think they've been a little bit better about how they let you interact with them. But I was there one time as a kid where they did rip off our antenna from the Now I have something on my list that this weekend that sounds awesome.

Yeah so, but but your point is that the very good time. Your point is that the cruise lines were sincerely disadvantaged these every other industries, right exactly. So getting back to the cruise lines, you compare that to the theme parks, and the cruise lines were literally unable to cruise. They had these massive vessels that were either sitting dormant or they had to staff it up so that they had a minimal amount of staff to just keep the

basically keep the ships from getting stale. They also postponed some of their capex right, so that just the maintenance caffex that's required, and it just takes a lot of time to ramp up from zero. So even though these companies are seeing tremendous demand, I mean I'm hearing anecdotally because people hear that I you know, I'm a cruise analysts, they'd go, oh, actually, I just went on my first cruise.

And you're definitely hearing that more and more, which is music to the cruise company's ears, because the challenge that they're dealing with isn't so much the diehard cruiser fans like my parents, but the people who have never stepped foot on a cruise ship before, the people who are skittish around cruises or it's just not within their generational appeal. And so that's where the cruise companies are trying to

jump over. The hurdle is saying, Okay, let's get these new to cruise people on the ships and then grow our our pool of potential customers. Then they'll they'll see benefits. They'll see it as beneficial. That's it. I mean, there is only so much they can cruise. There's only so many days in the year. There's only so many rooms in a ship, and it takes a lot of time to get them from zero to one hundred percent operational. Are they these companies still investing in ships. I mean,

that's to me is the sign of optimus. If you're bullish on you know, your future, five to ten years, you'll build a billion dollars ship or whatever they cost. These days. Yes, I mean the companies are still very much investing in ships. Carnival has a little bit of a gap in terms of when they're planning to take delivery of ships, which I think they're a little bit relieved by. It's less so indicative of what they've been planning more so of the hold up in the shipbuilders side.

So obviously the shipbuilders, just like every other industry, dealt with the pandemic where they had shutdowns, they were unable to get parts. You know, everything you're hearing about the autos, similar sort of things we're going on with the shipbuilding.

So a lot of the cruise ships had ships that were scheduled to be delivered that they got postponed, which was actually fortuitous for the cruise ships because it gave them a little bit more time to deal with the fact that they had all these ships that were just not being operating. Yep, all right, Jody, thank you so much for joining us. Really appreciate getting your thoughts here on Carnival and on the cruise industry as it ramps back up a post pandemic. Jody Lorie, she's a credit

analyst for Bloomberg Intelligence. She's on her day off, but she took time out to give us the update on the cruise business. We appreciate that. Two gold stars for Jody. You're listening to the tape. Ken's a our live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tuning app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Jo Say Alexa playing Bloomberg eleven thirty.

I want to bring the all star to the microphone over here. Karen Uberhart, she's in Bloomberg Intelligence. She covers the industrial space. I mean talk about these are real companies. Met These are like dear Caterpillar, Emerson Electric. I mean, you're going hardcore industrial America. This is General Electric. Back in the day. I guess you could say, I mean back in the day, General Electric is still bigger than Emerson, right, I mean big. Emerson's just a forty seven billion dollar company.

It will put up a I'm sure ge right now one hundred and two billion, so it's still bigger. It's not the world's biggest maker of earth moving equipment. No, this is they have all right. Karen Buberhart, Senior Industrial Annals Bloomberg Intelligen just joins us here in our Bloomberg Interactive Brokers studio because Emerson Electrics out there with a deal to buy National Instruments. Karen, thanks so much for joining us here in studio. What is Emerson Electric buying?

What is National Instruments? It's one of the larger test and measurement companies, you know, like when you're in the R and D lab and you know, developing product etc. That is a platform that Emerson wants to develop. It's a higher growth platform. It fits with their automation focus now and they'd been looking. They did say they'd have to do a meaningful deal to get a footprint rather

than their own, and they did it rather quickly. So what does Emerson's core business I mean, what do I go to Emerson for factory automation process, you know, plant automation like chemical plants, etc. Software They're getting involved. They took one of the biggest bets on software with buying Aspen Technologies to get them into industrial software. This is a new CEO about two and a half years. He's really trying to make the make the company into less cyclical,

higher growth. Lots of companies are doing, but he's moving quickly. I saw Fordive was the biggest gainer in the S ANDP for not buying. And sometimes you know, you just feel good when you don't spend a ton of money. Well, you thought you were going to get I get the That's a shareholder reaction, but does it lead them in a disadvantaged position for not getting it? That was a financial stretch for Fortive. You know, it is a twenty three billion dollar company. They would have had to issue

stock or some nearer stock to get it done. Leverage would have been very high. People were nervous about that. It did lead Emerson to pay sixty bucks, which is more than you know, some of us would have liked. The numbers still can work, but you know it was higher than So it's interesting here. So Emerson Electric paying eight point two billion dollars sixty dollars to share. The stock was at like fifty three before trading today, so a premium. Emerson's people know this. People must have known

this is going on. Well, you know, it's funny. The CEO drew a line in the sand and said, if it's a sixty dollars bid, it's not ours. And so I was in the possive writing, this is a competitive bid. Maybe it's gonna be sixty bucks. And it is sixty bucks. You can still make the numbers work. The synergies are talking about one hundred and sixty f million and five years out. That's a stretch to get it all the way five years. But Emerson is a very good operating company.

They're going to do better than the numbers they say on synergies and it is a creed of even at

sixty bucks. I'm just saying for NATTY shareholders, right the ticker for National Instruments NATI, those shares were trading at thirty five, thirty six thirty seven dollars at the end of twenty two, beginning of twenty three, and then I'm guessing just by looking at the chart that shareholders became aware that they had something others wanted to buy, because the stock just shoots up in the beginning of January twenty three. Well, that's when they announced a hostile bid.

They couldn't Emerson was trying to get a deal done. They went into forty eight, they couldn't get it done. They went into fifty three, they couldn't get it done. There was a lot of communication going back and forth. So Emerson broke the news, we're trying to buy this thing, and they published all the letters and communications to get

them off. You get them moving, right. So then they went into a strategic planning situation and got other bidders and this is where it fell out and Emerson had to fight to sixty to get it from Fordive is or how is Emerson paying for this cash? They're selling their climate business, and that is part of that's probably what they want. They're going to have nine point nine point five billion dollars in cash from selling their refrigeration

and climate you know, air conditioning components. That gets them out of a residential oriented cyclical business, gives them money to put into a higher growth that these businesses they say will grow ford to selling the name from that's where I know the name. I see it at my house in the basement all the time. They're a market leader in that business, but they wanted out of that to spend money on these higher growth, higher margin businesses.

All right, So if everybody's talking about a recession, your companies, long lead times make big stuff. How are you thinking about or how are your companies telling you that they're preparing for a recession? You know, Um, the backlogs are at record levels. It doesn't mean some of that can't dissipate, but there's there's a lot of pent up demand. A company like Emerson's pretty long lead time, So maybe some of their large projects might get pushed out a little bit.

But I don't think they're going to see you know, like residential construction goes down thirty percent. They're not going to see that kind of exposure. But they all are still you know, supply constrained. Um, their costs are still they still have getting that supply chain stuff is still an issue for still going on. Yeah, and in this in this case, automation is a growth business. Companies are investing a lot in you know, EV and semiconductors, et cetera.

There's a lot of money going into the automation business. That's where there, there they are, and where they're going in a bigger way, drawing on the same track as AI, really right, I mean automation and software is happening at the same time as we're seeing these big leaps forward and manufacturing. What about consolidation we were talking about, you know the string of M and A we've seen this week, obviously not in industrials but mostly in UH in materials commodities.

Now we see this deal. Is there a consolidation way happening? Is this a one off? It's I think it's a strategic move. There's like four or five people in that business. Um. You know, the other big one in the US is Key Site. They were talked about as maybe buying them, but I don't think they were serious contenders. And you don't see a lot of other deals on the horizon the companies you cover not But what's happening is they're breaking up. I mean all the multis have are becoming

more focused and more so. But a lot of that is happening in spinoffs. They're creating new companies um like the HVAC companies are mostly pure plays now. They came out of larger companies. So that's the biggest wave in the large industrials is breaking up being more focused. And that's exactly what Emerson did with this move selling climate, trying to get into more It's so funny they go

through these. When I first started working at Bloomberg and Frankfurt, I was covering Seemans at the time, and they were breaking up, and then they got together, and then they're breaking up. I mean, it's it's it's good to be an investment banker covering industrial America. Absolutely a wave and and and you know it had I'm here a long time too, and I've seen them put them all together to lower the cick locality, to be in different businesses, be more diverse. Then you see them breaking up to

be more focused. My feeling is, you know, once we get in a bad cycle and some of these focused companies, you know, get whacked by a bad recession, maybe they're going to want a little balance again. I mean, this thing comes and goes and comes and goes, as you know, over long periods of time. Twenty seconds GEED stocks up thirty five percent the traillion twelve months. Are they done? They fixed everything? Well, you know, there's a lot a lot of legs in aerospace that's going to be a

great standalone business. And I think what changed is people start to get confidence on the energy business, which has been the dog for a while, and you know it's been going up for a while. But then they had an investor day and pitched the long term story for you know, the energy business, the IRA etc. There's a lot of money flowing into that business there and wind power etc. So now the two pieces look like they're going to be okay and the stock is taken off.

All right, good news finally for our friends at General Electric. Karen Uberhard. She's industrial anallyst for Bloomberg Intelligence, the absolute expert on all that industrial stuff coming out of Middle America. She's the best. You're listening to the team Ken'serline program Bloomberg Markets weekdays at ten am, easting on Bloomberg dot com, the I Heart Radio app, and the Bloomberg Business App.

We're listening on demand wherever you get your podcast. Want to get to right next guest Johann Gron He's a vice president and head of ETF strategy at Alliance Investment Management. Johan, thanks so much for joining us here. I'm just looking through the notes here and Matt and I talk a lot about the volatility, particularly in the treasury market, but there's been some volatility in the equities, although it's been kind of low recently. But you've got a product called

bufferd ETFs. What is a bufferd ETF. Oh, hey, yeah, thanks for having me on. It's good good to talk to you. Buffery ETFs and all their simplicity, effectively are four investors that care about having some downside risk committigation in their portfolios. So effectively, all of this is exposure to the SMP five hundred, and you can participate in the SMP five hundred up to a cap. That's the catch, if you will. So in the case of our two products, we have one with a ten percent buffer, we have

one with a twenty percent buffer. In the case of the ten percent buffer, if you were to invest this month, for example, you can gain up to about eighteen percent if the SMP five hundred goes up in the next twelve months, and if the SMP five hundred is down by ten percent or less than you're flat with the market or flat in your portfolio. So that's at a

very high level. That's kind of how they work. What if it's down ten percent or more so, in the case of the ten percent buffer, if it's down by eleven, you lose one. If it's down by twelve, you lose two. If it's down by twenty, you lose ten. So basically, whatever the market is down, mine is that ten So so sorry, the ten percent buffer, you can get eighteen percent upside, but you're protected from ten percent of the down side, that's right. And the twenty percent buffer, it's

your upside cap. The April found that we have. The upside is almost twelve percent netal fees, I see, and the downside would be then you get downside protection to twenty percent, that's right. Yeah, So if the market is down by twenty percent or less, you're still flat. So if you put the million dollars in on day one here on let's say April first, or even today, actually

it's trading at about the same place. It's been relatively flat so far in April, then you have you have that opportunity to twelve percent up and then you're still you have twenty percent of the buffer if the market swings down. How many ETFs are do you guys have right now? And kind of where are you seeing the demand? What types of products? Yeah, so a lot of a lot of the demand we've seen our twenty percent product and part of that stems from the volatility and the

rate tiking, if you will. In the battle market. There are a lot of advisors and investors out there that they'd rather take put their put theirs on the equity side, on the equity risk premia. When you have a twenty percent cushion's um it's rare to see or you don't see a lot of predictions speaking to a market decline of twenty percent or more in the next twelve months. So that's a pretty good trade off for a lot of a lot of advices and investors. And that's where

we see the most the most traction. Well, if you look across the the ETF spectrum, though, um, you know, where do you see I mean, the most demand in the last couple of weeks has certainly been ultra short treasury ETFs. Right, So if you look, if you look at the ETF universe, where do you see the biggest holes. Well, more broadly speaking, that's just a reflection of you know,

where where the places are being bets at the moment. Right, So we still see some more slightly more aggressive behaviors, if you will, in terms of putting money into equity ETFs. So you see a little bit a little bit less risk one and a little bit more risk on generally speaking, is what we've been seeing. Now. I happen to believe that that might be a little bit premature, but that's the market economous conversation that I'm happy to get into

if you'd like. So all right, let's kind of go there, John, because we had the big CPI print today PPI coming up, and of course inflation's job one for this Federal Reserve and for the ETF I'm sorry, the ECB as well. What are you guys at Alliance? Would would you make the inflation print today? And how do you think our Federal Reserve is going to respond? I actually think it's pretty straightforward. We still see pressure in the service sector.

I mean, goods have come down for natural reasons, but in terms of the service sector inflation and you still have some wage inflation. And even if there are not numbers that you might see in you know, other other

parts of the world. They're still very high. Given the target that the FED has and the fact that FED shairman John Paul was talking about fifty basis points just before we had a couple of banking issues, I think that speaks to the that there is still more quote unquote work for the FED to do, and what that implies is that, yes, they're going to continue with this ray tike cycle twenty five basis points in a couple of weeks here that I think that's pretty much baked

in right now. You have a seventy five percent chance of that happening according to the statistics today. But I think that's more a function of time. The closer we get to the meeting, that those numbers are going to go up and we're going to see the twenty five basis point hike. So I think that's pretty much more or less a dumb deal, pending any any strange behaviors in the market in the next couple of weeks here, Yeah, the markets pricing in some cuts after that. Do you

think we're going to see any this year? I don't. I'm in the camp of no. I just have a look, at the end of the day, the FED consists of human beings, right, and like it or not, they they can be as data dependent as they want. But I don't think they're going to have enough data points to place what I would consider a very bold pivot already in July. I see some the consensus is that they're going to start cutting in July already and then at every meeting for the rest of the year after that.

I don't think that will happen. I think they will have much more staying power than that. The decision to pause is somewhat difficult. We might see it in May, but I can also very easily see the rate hiking cycle continuing another meeting or two. But it's an easier decision to make. To make a decision after a pause is much much more difficult, because either you have to say, well, crap,

we have more inflation that we thought. I guess the disinflation we've been seeing it wasn't after all unintended transitory. So they're going to be very cautious with that. That part of it, right, So they'd rather go higher for

longer than pausing or cutting earlier. And then on the flip side, if you if you say you're going you're going to actually start cutting rates, then the question immediately becomes, what is it that the FED is seeing that hasn't been baked into the market over the past, you know, two months so, and that it'd been a self will create some some reelings, and I don't I don't think that that's anything that they want to trigger. So Johanna over the lines, talk to us about just the fun

flows in and out of ETFs. Are you seeing continued net inflows here, because it's just been you know, in my investing lifetime, well north of thirty years, it's just been one of the most fascinating phenomena to watch the growth of the ETF business. Yeah, I mean, it is fascinating, and it's fascinating for good reasons, as I'm sure you've covered in previous episodes, you know, in terms of why

the ETF rapper is so attractive. But even even in March, we saw thirty billion coming into the overall ETF industry here in the United States, and it's now back up to like almost seven trillion six point nine to be more precise, six point nine trillion dollars in market size and the predictions over the next couple of decades is that it's going to easily double triple or maybe quadruple, so that that flow of capital, if you will, from the mutual fund industry primarily into the ETF industry is

US that's basically tied away. That that's not going to stop anytime soon. Yeah. I was talking to Brian Lake from JP Morgan on on Monday and he said he sees fifteen billion that's for the US market. If you look at, you know, the global ETF industry, it's more like ten trillion dollars in UH. It's a huge it's a huge market and growing. Where do you think the

most growth is going to be. We've seen a lot in terms of for a while we saw factors and then now thematic I'd say probably actively managed ETFs are the hottest thing right now. What's your take? Well, I guess it depends on the where the question is coming from, right But in terms of growth, it's going to continue to be in the in the passive endses, in the broad market exposure that is by by far the most

dominant part of the world, if you will. But in terms of where UH etf issuers are going to see the most exciting opportunity for growth and also on opportunities to to h to generate some revenue is from the active ETF actively managed ETF space and then more specifically the space that Alian's Investment Management is in is to define the outcome ETF space. It's a relatively new space as well. An innovation has just barely begun in this

space and that is already over. It's been around for almost what is an a three and a half years maybe and as of last year it grew by ten billion alone and that growth is just continuing as well. All Right, Johan, thank you so much for joining us. Johann Gron he is the vice president ahead of ETF strategy to Alligan's Investment Management and just falling up on them.

It's just the growth of ETFs is just extraordinary. You know, you think about we grew up when is all about mutual funds, you know, but these ETFs have just there's such a superior product in terms of cost for and other attributes as well for so many investors. And the buffer, i mean the space that Johan and Alliance Investment Management are in buffer ETFs is just about to break out. I mean they're doing I assume very well with their business.

I know black Rock, which is an ETF Beheemoth has filed plans to break into the booming buff Buffer ETF market as well. So it's a tremendous space. Yeah, we'll stay on top of that. You're listening to the tape cancer our live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business alf. You can also listen live on Amazon Alexa from our flagship New York station, Just

say Alexa play Bloomberg eleven thirty. Our Brad case Joints his chief economist, director of Research for Middleburg Communities, talk about a guy who's just way over educated. All right, he keep economists there, chief economists. That's the key part of his title todays. Yeah, all right, Burke, where would you go? Undergrad Williams? Okay, not bad. They're the EPs. We cleared that up, masters in something from Berkeley, then a PhD from Yale. Then he goes out and gets

his CFA. On top of that and the CIA, which I have no idea what that is, but while you're working at the Federal Reserve. I would guess, yeah, absolutely, Yeah, that's that's alternative investments. Alternative Sure, why not? So I'm guessing he's got everything covered here. Brad talked us about inflation out there. You guys are in the real estate business at middle BIRG communities. What's going on with the

cost of housing? Is that really the driver here for the inflation that is still probably a lot stickier than people would like to see. Yeah, I mean you have to remember that there are two very different parts of the of the housing market. That the prices of houses that are bought by owners who expect to live in the houses, those are still so expensive and prices have already started to decline, um, and so it's it's harder to buy those properties, and people are worried that once

they buy the the price will come down. Um. But but the but that's much more expensive than the rental housing part of the market, which is I've actually got a lot of a lot of attention last year because rents had increased so dramatically all across the country. That has gone away, but uh, you know, but that's not yet mayasured in things like the CPI, because what they're measuring is essentially leases that people signed last year. This is what I wanted to ask about. And you you

worked at the Federal Reserve Board. Doesn't somebody at the FED know somebody at the BLS who can set that straight? Because it seems to be a measurement a metrics problem more than it is a rent problem. It's not really a problem. What the CPI is for is measuring it properly. Okay, The FED, when they set interest rate policy is looking at something a little bit different. So the FED is worried about inflation, not about the CPI. Now for a lot of those people, for a lot of people, those

are the same thing. But if you're a FED decision maker, they're not. And so the people have a FED Yes they are aware, yea, and they're paying close attention to and they like, if I'm not mistaken. They prefer the core PC right, yes, the personal consumption expenditures expenditures exactly I was looking for the E. Yeah, so they look at a different measure than we kind of main Street follows the CPI. There's a very little difference between the CPI and the PC deflator, all right, So put it

all together here, what's our Fed going to do? So? I think the Fed is going to continue raising interest rates. I expect them to raise them at the next meeting. I don't. That may end up being the last one, okay. But the reason that they're doing that is is that getting inflation down is very important, and they have finished that job. Inflation, when you measure it properly is back down under two percent. But that's not their only job.

I explain that one because you know what, I used my sandwich ham and cheese sandwich at the La Delhi forever was six dollars and seventy cents. It's now nine dollars and twenty cents. That's inflation for me. Is that going to go down? I mean it's not. No, the Fed doesn't. They're generally not not looking to get prices back down to where they were sometime in the past. Okay. They they're trying to say, we don't want the rate of increase in prices to be much above two percent.

They don't want it to go down either, and they're actually there are economic problems that are caused when when prices are actually declining. So that's not something everybody waits. Nobody wants to buy anything right because you think you'll get a cheaper price in the future. You look at something like the Japanese economy, which has had trouble for more than thirty years, and a lot of that trouble

came because they were in that disinflationary situation. So the price here's hand which is not going down back down to five bucks. What we want is for it to stop going up so aggressively. And that, as I say, really has been accomplished in spite of what we saw this morning when the CPI came out. Years hoping to find that because all I look at my ECO screens, I at CPI, CPI X, food and Energy and the Supercore whatever that is, that's all got a five handle

on it. So what should I be looking at or what is the FED looking at to say, all right, we've kind of done our job. So so thirty five percent of the CPI comes from the way they measure housing costs. Okay, and that's not just rent, but rents are the main piece of information that they're using to do that. But as they say, to a great extent,

they're measuring the rents that were signed a year. Okay. Um. So so what they're doing in practice is saying, all right, what's happening to new rents, and new rents are not showing that that strong growth that they're still measuring, um and and so when you take into account the new rents, then the overall CPI is down in the two percent range. Okay,

the government doesn't publish that number, that's right. What's right because because they accomplish their main purpose by publishing the CPI or the or the pc deflator, Okay, that is measuring something different. I'm just saying that the FED is their job is not to get the CPI to two percent. Their job is to is to fight inflation. Those are

slightly different. Now, one of the things that that that that they're that they're that they need to accomplish is they need to make sure people don't expect inflation to stay high. And since people are paying attention to the CPI, that's why it's important to get the CPI down. But that's part of the job that is not yet expectations

or the problem. Let me quickly, we only have a minute and a half left, but I want to ask you about housing because I think there's an affordability issue now for a lot of people, both in terms of price and in terms of rates. How does that get solved? So it gets all fundamentally, but just more supply. And that's that's everywhere in the country, but it's especially in the parts of the country where people are moving to and so houses housing prices are just outrageous in places

like San Francisco. But people are moving out of San Francisco, partly because of that, but partly because their jobs are moving out. Their jobs are moving two places where it is somewhat easier to build housing. And so you know, my company's situation is, you know, we're in that part of the country where the people are moving to because the jobs are moving there. And you know, it's a long term story there is it will take years for

us to build enough housing for everybody. But over those years, a lot of those people will move out of the high house parts of the country and to the places where the jobs are moving to. Middleburg, Virginia. Is that you guys are we are not located there. We're named after that town. Okay, where were you guys located? And just outside of Washington, DC in Virginia? Okay, all right, good stuff from Middleburg Communities. Next time you're back in New York, we'll get you back in here. You've got

a lot of good stuff to talk about. I'm just looking at Middleburg, Virginia. Looks like a very nice little town there. I've never been there. I was more Inston Williams it is. I googled Williams versus Amherst to see I thought I was going to see football scores, but everything I got was like, Williams has more access to nature.

Apparently Williams has better food and dorm situations. But Amherst is closed to Northampton, which has a lively arts town, so it's not really the same kind of thing you'd get if you googled Ohio State versus. It's a big rivalry. It's a huge rivalry. Yeah, the biggest little game in America. Rad Case, thanks so much for joining us chief economist

at Middleburg Communities. You're listening to the tape cans Are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, Tuna app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty to weed? Why not? Morgan Paxy, a co founder managing partner Beside Investment Management, joins us they have a Poseidon Dynamic, a cannabis etf the tickers ps DN.

Morgan takes so much for taking the time to join us here. We want to get a state of the cannabis business these especially after till Ray's disappointing revenue in neverse came in yesterday. What's what's the weed market look like? Sure, well, thank you for having me. It's good to be with you all here in Rainy, Miami for the Benzinga Cannabis Conference. UM. It's a really interesting time in our industry. UM. Companies like Tilray, as as you know, had a pretty lousy quarter,

not their first, not their last. UM. There are several companies in our space that really won't make it through this period. There was too much capacity built regulations and really keep up, and so you know, the weaker companies are falling by the wayside and the good companies are managing through m So that's what we're seeing right now.

We're seeing that here live at the conference. I'm at this week great attendance mood is pretty somber because it feels like people don't want to celebrate if they're doing

well because they see others struggling in this time. So, you know, through a tight capital market like we're in, though, it's it's brought a lot of focus on fundamentals and companies are really being very stupid their cash They need to get to an a point of cash flow positive and really thinking about their roys, how they're deploying capital, what they're doing on their cost side. So as the demand continues to grow, we're seeing, you know, we're seeing

that translate to the bottom. All when I get into a somber mood, I just look for a little sativa that kind of boost you up a little bit, you know, gives you a little energy boost. Why aren't we seeing explosive sales figures from these cannabis companies. I went down to the grand opening of the first legal weed shop in New York a couple of months ago, and the line was apped around the block four days. How come

that's not coming through in the numbers. Sure? Well, Remember cannabis is still as a state by state market, and New York is an abject failure from a legal standpoint because the regulators have not opened up legal doors, right, so there's very few legal retail. Even though there's retail all over New York, most of that or of that is completely illegal, so which is actually very scary. There was a there was a guy actually shot and killed

in was in the Bronx. Yes, we prefer the term unregulated, Morgan. Sure, Okay, Well that's not helping the regulated market so much. So that's part of the problem why New York is not doing well. But if you go to like New Jersey or Connecticut, those are states that are doing great or Missouri. Missouri just in the month of March at one hundred and twenty six million dollars of legal sales. So it

really depends on where you are, all right. Just New York's got a lot of work to do, all right, Morgan, thanks so much for joining us. We'll get you back on again and get the update here made the next time you're in New York tomorrow maye. We can get them right back on tomorrow because that wasn't enough time and I want to hear more about the conference down there,

so I'm gonna ask Eric Mallow, our producer. We can do that if we can, and we'll ask Morgan obviously if yeah, if he's got time, he's down in Miami. Morgan Paxy a co founder and managing partner Poseide the Investment Management. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three, and I'm

fall Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio