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Let's switch gears here, little M and A. Here in the satellite television space. I never thought i'd see the day Direct TV and Dish they're going to merge to create the largest US PayTV provider. Let's get the latest on that. Keitha Raganathan joins as she's a US media anas for Bloomberg Intelligence. Keitha, this is big news in a satellite business. You've only got two satellite players out there, and now looks like they're going to be merging.
Here.
What's driving this deal?
What's really driving this deal is desperate times kind of call for desperate measures. Paul So, Satellite TV has steadily seen an erosion of its subscripase. I mean, at one point it was the only other game in town, along with cable TV, for people to get access to different PATV packages. Today the world is a completely different place.
I mean, you have cable you have satellite, which is of course the traditional facilities based operators, but then you also have a whole slew of new internet based options, whether you know it's a YouTube TV which gives you all of the linear TV options, or whether it's like completely different what are known as sphalts services subscription video on demand services like an Amazon Prime or Netflix, and
so the world today is completely different. And because of this, satellite TV has seen a huge, huge erosion of its subscriber base. Dish and direct TV once upon a time, you know, they were some of the largest PATV operators. They've lost about sixty three percent of their satellite subscriber base just over the past seven years.
That's unbelievable. Did two wrongs then make a right slash for regulators like it?
So regulators of course squashed this deal back, you know, about twenty years ago, but then again it was a completely different landscape. They have to kind of understand that things have completely changed today. One of the main appeal you know, or you know, appealing points of satellite TV, why people even taken in the first place, is because in a lot of areas in rural America, this is the only way that you can get access to PATV. But things have been changing because you know, we've had
this whole initiative to narrow the digital divide. So more and more houses in rural America are getting wired up, and with that they now have the option to switch to internet based TV, which is you know, exactly what Distion Direct TV are saying, this is the reason why they've lost subscribers. So this is the reason why there is more competition, and therefore regulators should allow the deal to pass.
And I guess a parallel announcement here today is that TPG Group, the private equity company, is going to acquire AT and t's seventy percent stake in direct TV that TVG doesn't already own. So in effect, a private equity owner is now going to own the entire US satellite television business. What's going on there?
Why?
Why is this happening?
Yeah, exactly, Paul. So it's you know, Charlie ergan walking away from the PATV business, and in many ways again T you know, AT and T also walking away from the PATV business. And as you well know, AT and T had invested heavily in the media businesses. They had bought the whole Warner Brothers operation, which they kind of got rid of selling that to Discovery. And then of course they had also bought the Direct TV operations, which
they sold a thirty percent stake to TPG. They still retained a seventy percent stake, and of course today with that deal with TPG, they are completely exiting that business. And for both of them, if you kind of look at what you know is the final endgame here for both AT and T and you know EchoStar or the the other part of the dish business, it's they really want to kind of focus on their core business, which is the wireless business for AT and T. Of course
it's the wireless business for EchoStar. They have you know, built, they've mastered a huge amount of spectrum, and they ultimately want to become the fourth largest wireless player in the United States and this deal really helps them do that and kind of focus their resources, investments, time and energy on just that part of the operation.
This might be a dumb question, but do they grow their customer base at this point? Is there a customer base to grow, or as you said, do they just become better at execution and they kind of cut with synergies and that's how they become successful.
Yes, so, yes, they are looking at about the outline about a billion dollars in synergies. A lot of those will of course be programming costs. They still will be with the combination. They still will be the largest PATV operator. They will have about nineteen to twenty million subscribers, but
there's not a whole lot to really grow ALEX. So it's really more kind of stemming the declines, if you will, just reducing the bleeding and becoming much much more efficient in kind of delivering customized, tailor made packages for you know, the PATV market.
He githin' about thirty seconds left. What's your forecast for just the overall pay TV business? Are paying subscribers going to.
Go to zero?
Is where we're going to be all streaming stuff soon?
I hope not, but we're definitely seeing that. You know, YouTube tv is becoming a major major player in the market again. They are delivering linear TV channels. Uh they right now are you know, about the third or the fourth largest operator eight million subscribers, So they actually have
more subscribers than Dish has on a satellite business. But we eventually in the next two to three years see them becoming the largest player, and then that of course changes the whole dynamics of the whole PATV market because then you have a streaming based operator that's providing, that's the largest operator of you know, the patv's market.
And again you know the DirecTV and Dish getting together. DirecTV is paying one dollar for the equity and assuming all the debts. So talk about a inglorious and to the PATV business from the great Charlie Ergan, who you know, built that satellite business from scratch about thirty years ago.
KEITHA.
Roganatha, thanks so much for joining us US media analysts for Bloomberg Intelligence, joining us from Princeton and again kind of an end of an ear for Charlie Ergen, again one of the leaders in satellite television, in satellite technology in general, and commercial telecommunications putting up the satellite thirty forty fifty years ago. So just walking away from that satellite television business, focusing on the wireless spectrum that he still retains.
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Let's get to this story. Danny Berger, Bloomberg Television anchored It joins us. Now.
She is at the.
Port Newark Elizabeth in Newark, New Jersey. So she's on the ground. She's been talking to the people. Walk us through, Danny, what's the scene there? Set the scene for us. What's it like?
So we are at this point, just some sixteen hours away from a potential strike. The next update we're waiting for is the International Longshoreman. They're set to release an update at eleven am New York time on the current status of this strike, but by all accounts, it will be going forward at twelve oh one am on Tuesday, that's when the current contract expires. There are no scheduled talks until then, so it seems like we're unlikely to get an agreement. The two major sticking points. One is
about wages and benefits. They want a some eighty percent increase in pay over the next six years. They say what's currently on offer is quote stingy. They also want language in the new contract that prevents further automation of these ports. Automation, I should say, there's really prevalent in other places like Amsterdam and Asia. It's pretty standard, but they don't want it here because they don't want the jobs removed. They have a pretty strong hand to play
at the moment. They have an administration in the Biden administration that's very friendly to labor, and we also have a supply demand issue. There's not enough people who want these jobs, which of course is part of the reason that the workers here, the employers want to automate these ports.
So what's the expectation here. It doesn't seem to be any emergency feeling that they need to get something done here. Is there a sense that this could be a long potential strike here.
Most of the people that I've been speaking to think that this will just last a couple of days, really, just because there is so much pressure. There is so much money at stake. Not to mention, as I said, this is a friendly administration to them. If they stretch this out and it gets closer to the November election, what happens if they realize that the next administration coming in won't be as friendly to them?
Now?
A lot of companies, a lot of retailers have been trying to stock up in anticipation of this. So if it just lasts a couple of days, the thinking is is that most people could go around it. But if it does last longer than a couple of days, it takes time. Ships will kind of build up on the ports around me, like you see, and they need to offload it. So something last let's say a week, it could end up taking months to resolve itself. There's not also not a lot of other options for ships to
go to the West coast ports Canada. They can't handle the same amount of volume and really absorb everything that's supposed to be happening here on these East coast ports.
All right, Danny, thanks a lot, really appreciated Danny Berger joining us there on the port strike. She joins us from Port Newark, Elizabeth over in Newark, New Jersey. Let's get more analysis with Lee las Gal Bloomberg Intelligence senior transport logistics and shipping analysts joining us on this, Hayley. What can be rerouted, what can't? And how does this all work?
These are great questions. So what can be rerouted?
Are things that shippers needed to have the foresight to reroute a couple months ago. So if a ship is going to expected to hit the East coast sports, it's not so easy for it to find another port of call to find because they're schedules that these ships have to adhere to.
So the more sophisticated shippers.
Probably have been plans in place that are currently you know, bringing freight to the West coast or maybe East coast.
In Canada, and we're seeing that.
We're seeing that in the really huge volumes in imports at La Long Beach last month. So we're seeing that it's happening now obviously as if there is a strike and it appears that there's going to be a strike and there's high value, time sensitive freight that needs to get somewhere on the East coast, there's always air freight. We haven't seen that much movement into air freight right now. It's really just being diverted to.
Other ports where they can come in and once they come from the West Coast, they either can get shrucked across the country or they can put on trains through intermodal And this is actually a net positive for.
A lot of companies that I cover. So I cover companies like Union Pacific and JB. Hunt and Werner and night Swift. These are all companies that will probably benefit from this in the short term because it's really should provide a boost to spot rates in the market, and a lot of this business is going to go in the spot market.
Well, how about some of the shipping companies and logistics companies that you cover. Are they what are they saying from their perspective about how much pain they're willing to take, how much flexibility they're willing to have in these negotiations.
Well, well, mask you know, mentioning that they're going to, you know, put out a surcharge for the additional costs that they're going to face. So they're looking to pass on any additional costs that they might have, whether if they're ships waiting by the ports and to unload or whatever those additional costs might be. So they're hedging themselves. But it really seems like the two sides are really far apart from you know, what I've been able to glean.
It seems like, you know, the rays that the port workers want the poor it's about fifty percent below what they're looking for. So there's a lot of middle ground that has to be made, and we do expect a strike to act to happen, But like a lot of the people that have been speaking before me, a strike probably won't last that long, and if it lasts more than a week or two, call it. I think the federal government will definitely step in with the taff had Lay.
Act right, which basically says that they can get involved and restrict the activities and power of labor unions when it winds up upsetting the country basically and they can't sort of function as a whole. So to this point, then if we get something, let's just say fifty to seventy percent wage increases over six years, what does that look like for the companies that will be involved for that?
So I don't cover the coort operators themselves. I cover Maris, which has some port operations. I mean, it will just mean that their costs are arising.
Right now, those are pretty good businesses.
I think the more interesting thing for my repetive is.
The U the union's inability to accept the reality of automation. Obviously, you know, they want to protect jobs, but in a world of AI, you know, and productivity improvements whether that's you know, in offices or on docks.
Uh, there's really a lot to be said there. Uh, and it would be a shame that, you know, the.
US sports wouldn't be as competitive to other ports around the world.
All right, Lee, thanks so much for joining us. Always appreciate getting your time. Lee Clasgow. He's the senior transport, Logistics and shipping analyst for Bloomberg Intelligence. He follows everything the rails, the trucks, the sea ships, the all that kind of stuff logistics companies, so he's our supply chain expert. He joins us from b I down in Princeton, New Jersey.
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This is Bloomberg Intelligence Radio. We cover all the top news and business, economic and finance through our lens of our Bloomberg Intelligence folks. They cover two thousand companies in one hundred and thirty industries worldwide. We alsotimes go outside that and just take a look at the broader market and get the nice macro view from some people who run money, and for that we go to Jerry Kudzil, Group Managing Director and Generalist portfolio manager over at TCW.
He joins us now from LA. There's lots of different ways to go with this, but I'm looking at a stock market that's a little softer. You have yields on the front end there a little bit higher. What is gonna What is the pain trade right now for you? Considering the massive move into Chinese equities that we've seen. Where's the pain trade right now?
Well?
Thanks a lot, I appreciate being on the show.
I'll tell you this this rumor about two to eighty gas prices as me, I think you guys are.
Lying at lass. It's a five dollars Still.
You have a whole different problem there in LA. So there's that we.
Have a for a whole different problem.
But I will what I will say is, you know, pat trade for for markets appears to be a concern about inflation, and what we would what we would say is that that's not I don't think anyone anyone is really concerned about that.
It feels like.
It feels like the Fed is trying to and I think, look, how tip to have tip to the Fed? So far, they've controlled the narrative really well. I mean, you've you've reset expectations only from June first to move rates one hundred basis points lower. We had we had one cut priced in by the end of the year June first, we're now going to have it, but we're now going to have about six and.
And ultimately the.
Evaluations really have been have been unimpacted.
So so hat tip to the Fed.
So far feels like, you know, the market's embracing the idea of a soft landing, uh, the idea that.
You know, lowering of inflation is a good thing.
Uh.
And we'll see ultimately, Ultimately, we'll see what proves out. But I think the data, certainly there's something, there's something in there for everyone as it relates to economic data right now, the bulls.
And the bears.
How much risk should fixed income investors be taking these days, given that rates are coming down?
That's a that's that's a good question.
Look, I think as we think about it, there's a bunch of ways to answer that question, Paul.
But the reality is.
Rates rates are going to come down because inflation, inflation expectations are are stable. I think the right question to ask is why are rates coming down? Are rates coming down because demand economy is slowing? Have a potential issue, and I think we'll learn a lot more as we as we moved through the week.
We're going to get We're going to get a you.
Know, a couple of a couple of economic numbers.
This week that that will probably be pretty pretty impactful. I would say we we like fixed income broadly. You can create income and portfolios. We like the belly of the curve, but we do what we don't think you should be doing, taking significant amount of credit risk in portfolios.
We talked about this a bunch on the on the show, and the reality.
Is the risk free rate gives you eighty five percent of your yield when you consider investment grade corporate bonds. And when you pull this back historically, when you look whether you're looking at high yield or you're looking at investment grade credit, at the at the end of the day, you can get the majority that yield in the risk free rate.
And we like the belly.
We like the belly of the curve and the front end of the curve because we think inflation expectations are stable, the curve will continue to steep in, and you'll be able to generate some some healthy income without taking this volatility. We don't think you need to introduce that in your portfolios with with significant amount of credit risk.
There's still money though, flowing into money market funds kind of like unbelievably, and the money hasn't come out of money market funds to say the least, When does it and where does it belong? In fixed income? After that?
What's it that?
That's the seven trillion dollar question, right, that's the that's the real where where's the where's.
The money gonna go?
The The market at the at the moment is comfortable that rates are coming down, but ultimately you need the rate to come You need the rate to come down. We think to see that, to see that money move, and where's where's that money gonna go?
Well, it's it's gonna kind of it's gonna kind of go, It's gonna kind of go everywhere.
I think our our opinion is, our opinion is it will it will benefit the markets.
But the reality I would just pause and and.
And for us, what we would what we would say is we're a little bit more concerned about the direction of the economy, uh, where it's heading and really a function of of the labor market. And and I think we're seeing some slowing in the labor market. Whether you have a lot of money in monkeys or a little money in money markets, when people lose their jobs, they don't spend money, and that's slowing in the economy.
Is gonna, I think, we think is gonna gonna.
Overwhelm any kind of short term movement of money and go to challenge risk assets at least performance or risk assets in the near to medium term.
Hey, Jerry, thanks so much for joining us. Appreciate getting your thoughts there. Jerry Kutzel, He's a group managing director and a generalist portfolio manager at tc W. Joining us from their home in Los Angeles.
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Let's get to the other significant story I think out of the day, which is just this real sell off in global auto stocks. Here Stillantis with a profit warning that came in much more egregious than maybe I think people were discounting that stock US off thirteen fourteen percent. Craig Trudell, Bloomberg Global Autos analyst, he's an editor or there I'm sorry, Bloomberg Global Autos editor on a slow
down in the European auto industry. So, Craig, it seems like this auto industry globally, certainly for the European operators, the North American operators, this transition to electric vehicles is proving much more, I guess, difficult than maybe the market had anticipated. Where are we here, what's happening with these big auto companies?
Yeah, I think that's spot on. I think in the case of Stilantis, you had a company that, especially in North America, was really taking its sweet time in terms of going electric, and they're now really caught in a buying because they've spent an awful lot on playing catch up.
They have, you know, some electric vehicles, some plug in hybrids coming to market just as as that market really slows down, and they've maybe invested in that at the expense of some of you know, some of the vehicles in their lineup that you know really were strong sellers and and that dealers were quite fond of. If you look at you know, Jeep or Ram, you know, some of the major brands that you know, Chrysler, you know,
has for a long time been shepherding in the UI. Yes, this is a company that you know, has way too much inventory, has been trying to take too much price for too long. And you know, the CEO, Carlos Tavares, has taken some blowback over that, even from dealers, and in a really unusual way, for the head of the US Dealer Council to issue a public letter a few weeks back criticizing him and criticizing the company was really remarkable.
What I'm having a hard time understanding is why it's hard for these companies to get a true handle on why things are bad. So just the idea that Stalantis cuts its forecast again in just a few months, Why is it so hard for them to get a read on their own business?
Well, I think in the case of Stalantis, you've seen actually sort of a reluctance for them to lower their guidance. So they did release a very disappointing first half result a couple months back. But you know, the the companies that maybe have had a harder time getting a handle on on earnings, I would I would put Volkswagen in that camp. They've had their second warning in the matter
of a short period. I think Nissan maybe next. As we reported earlier today, I do think that this is a case where you know, automakers globally, you know, very quickly went from this position of being you know, production constrained and you know, looking to move as quickly as
they possibly could to ramp production back up. And you know, once they were able to get through the many supply chain issues that they've had over the last few years coming out of the pandemic, they were it really took them some time to adjust to the fact that, you know what, at some point they were going to get to where they were no longer you know, production constrained, that you know, demand wasn't going to live up to what everyone was making, and it was kind of a
matter of who was going to blink first. And you know, I think Stillantis maybe is getting you know bonked on the head today because they were one of the last to really sort of bow to reality that they had way too much supply relative to to the demand that was out there.
So what do you Is there a consensus growing here, Craig about how this industry is going to continue to make this transition to EV because it seems like it's slower than maybe they had thought as recent recently as a year ago, more bumpier. How is this going to play out? Is there any consensus building?
You know?
I think there's probably going to be more collaboration. We've heard, you know, the CEO of Reno in France call for an airbus of autos, you know, coming together of European companies to try and you know, confront these challenges together. I think you've seen some analysts call for more collaboration among Western companies and Chinese companies.
Uh.
And we're seeing that in Stillantis right where they're teaming up with Leap Motor, one of the smaller EV makers in China. But I do think that there are some real limits to that latter strategy, given this sort of appetite for that in Washington, right. I think it's it's the one thing that's really uniting Republicans and Democrats, is this idea that you know, we shouldn't be at all reliant on China going forward, and that there are enemy and not our friend.
So what I also find interesting is that it's not just China and it's not just EVS, I mean specifically Salantas said jeep sales like. So it's easy to blame China cheap EV's, It's easy to blame the fact that people don't want to buy evs right now, but that's not necessarily the only problem.
I think that's a really key insight. I think this was a case of mismanagement on Stillantis's part, and you've seen some analysts come out with really sort of harsh words, not only for the way that they've sort of bungled things,
but the way they've communicated. You know, even just last week, the CFO of the company, you know, was talking about the sort of outlook, and you know, the company has not necessarily been forthcoming, even as you know, one European company after another was was issuing profit warnings for them too, you know, sort of drag their feet and only do so now when the writing maybe seemed to be on the wall, even when they were doing first half results.
I think that's part of why you're seeing this negative reaction because some are saying, you know, how can we trust this management team, you know, going forward, giving the way they've messaged this.
All right, Craig, thanks a lot, really appreciate it. Cred Trudel joining us Bloomberg and no, you're not Bloomberg Intelligence, he's Bloomberg Global Autos editor. I weirdly promoted him.
I think, yeah, I did the same thing.
You did the same thing, and yeah, so cool. It just means that you're super smart.
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All right.
Joining us now in the bond market because you're taking a look at the sell off pretty much across the curve. You got the two year yield up by five basis points three point six. You're also looking at the tenure up by about two three basis points up at three point seven seven. Joining us now.
R J.
Gallow, Senior portfolio Manager, Fixed Income at Federated Hermes joining us on the space. All right, what's your best bet on the curve right now?
Well, good morning.
Our view on the curve has been for quite some time, and this is a pretty widely held view, is that the US economy is unlikely to turn into a recession. But at the same time, the FED is completely shifted their focus. They had been almost like a soul mandate inflation fighting central bank when we had CPI north of six percent all the way up to nine. If you recall, they now have shifted gears and the sort of the weight now is more on the employment side of the mandate.
So the Fed's an easy mode that should bring shorter yields down. At the same time we're heading into an election. The economy, according to the Atlanta Fed GDP is still growing around three percent, so longer yields might not come down nearly as much. That's a bit of a steepener, and we've had a good success generating some excess returns to that on a year to day basis. On duration, we thought bonds we're gonna have a pretty good year
this year, and they are. Since April thirtieth, the US Aggregate Index is up eight point twenty four percent, and the Treasury Index is up seven point six percent. How's that for a heck of a run for less than a year's time in.
The bottom up exactly like these guys doing the lapse here. How about the high yield business that's actually been the best performer year to date r J.
Why is that?
And kind of how do you look at that market going forward?
Yeah, it's you're absolutely right on an internet basis. Uh, The Treasury Index, just to give some context, is only up four point oh eight percent, the number I shared before with some April thirtieth. So the Treasury Index is just over four and the AG is around four to seventy. High yield is almost eight seven point nine eight percent.
Why is that?
Well, the economy has proven resilient beyond nearly anyone's expectations with respect to the drastic FED hiking and now easing that has gone on and the disinflation process that has occurred. The view of a soft landing is a risk asset winner. Really, look at stocks, they're up double digits here to date. If you can have the ability to slow down inflation without sharply slowing down the economy, that's very favorable to risk assets, and that's been win at the back for
high yield pretty much all year as a firm. I'll be frank, this is a tough business. Sometimes you get them right, sometimes you don't. We've been a little underweight high yield in our multi sector portfolios and that's been a little difficult. However, we've made up some of that pain by being overweight mortgages and by playing the curve it and the rates direction to some degree. So there's a lot of levers to push and pool and fixing.
When we talk about say job's data that's going to come out on Friday, right, I'm wondering, what do you think the reaction function of the bond market is going to be to that number.
With the FEDS shift and mandate. Like I was saying a few moments ago, the job's data becomes all the more. I we went through an extended period there where jobs data took a backseat to inflation. Now that is the opposite.
I think that Chairman Powell at the podium recently after the September FMC suggested that they're going to be sort of mentally haircutting the employment report, especially the non farm payroll numbers sort of the headline figure, and that has everything to do with the fact that data out of the Commerce Department, which is used to periodically revise the payrolls data that we're familiar with from the Bureau of Labor Statistics, the Commerce Department data has been weaker less
job creation, so that took about I think it was eight hundred and ninety thousand jobs or so off the board, and that is as a result, sort of casting some shade, if you will, in terms of the quality of the data that we get from your Bureau of Labor Statistics. So if we get numbers like you know, one twenty one, thirty one forty, I think that the market will view that somewhat dubbishly in a bond friendly sense that it sort of keeps the FED in the game of sequence
easing significant easing to come. Conversely, if the data is really strong, I don't know if yields would rise that much. I think that yield direction in your term is more symmetric, in part because we're heading into an election season or season we're heading into an election itself. We've been in the season for a while, the outcome of which could have a significant impact on overall fiscal policy, to include
stimulus from extending expiring tax cuts. If President Trump is to return to the White House, we have tariff and inflation. Tariffs and inflation concerns to think about. If it's if it's Kamala Harris, then it's another picture. She also increases the deficit, maybe a little less. Those are factors I think that are going to become pretty important as we get past the election and see what happens next.
I'm a big fan of municipal bond market RJ. I love to get your thoughts on munich here.
You couldn't just wait till Friday.
Come on, man, I know you have the MUNI moment, but I'm happy to do it here too. You know, it's funny the muni market came into the year at a relatively rich point, and for those who are in munis, it tends to be a playground for individuals who want relatively high quality investments. You know, the average credit quality of the uni markets around double a much higher.
Than corporate bonds.
They also are very drawn by the tax benefits of interest free tax free interest, and so that's going to bring in people who can benefit the most from it, people who are the top few tax brackets. So the year started out with a lot of optimism on bond returns. Higher absolute yields that increases the value of that tax exemption in a sort of taxable equivalent sense. So demand has been pretty good for muni's pretty much all year, but that meant we started the year at a sort
of a rich point, and then supply has served. We've had one of the busiest supply years in a very long time. It's up like thirty five percent year of a year. It might even be a record year when it's all said and done. So when you supply and demand and relative price matter, Muni's on a year to day basis are not up quite as much.
I said.
Treasuries are up four the ags for eight Muni's with no adjustment for their tax benefits are only up around two point nine percent two point two percent, depending upon which index you look at. And that's because of that supplied demand pricing picture that we've seen. Right now, Muni's look sort of reasonably valued, maybe a little bit to the rich side, but their tax benefits are still bringing
people in. The Munique credit picture looks really good. A number of years ago, people used to fret about unique credit quality crumbling all over the place at the state level, at the local level. Right now it's very strong, great stuff.
See Munich. Yeah yeah, yeah, yeah, Focus, Get Friday, Get ready. R J.
Gallow, Senior portfolio manager Fixing Home and Federated at Hermes, given us the breakdown here on the fixed income markets.
Again.
Year to date, returns across the fixed income space has been solid, you know, kind of mid high single digits and even better performs coming off that April low there that we saw a little bit of a dip there, so as good returns for fixed income investors, and that is a good thing.
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I'm Alex d alongside Paul Sweeney. This is Bloomberg Intelligence Radio. We bring you all the top news and business, economics and finance. There are lens of our Bloomberg Intelligence folks. They cover two thousand companies and one hundred and thirty industries all around the world. And every Monday at this time we tap our great folks over at Bloomberg BNF
originally or previously known as New Energy Finance. They are the team in Bloomberg that tracks and analyzes the energy transition, and I mean like anything from power to transport, commodities to financing and government and government policy basically. So joining us now is Tommins Rowlands Rees. He is a b an EF head of research, so he does it all. We wanted to focus though today on the Inflation Reduction Act.
It is very much on the chopping block and it feels like a buyinary trade when it comes to the US elections come November. What has happened over the last two years in terms of deployment and projects and what is still left to do.
I think the main thing that has happened, you know, you'll see most of the money will have flowed through into the build out of the power sect, particularly into solar and wind and storage. Now there's a question of whether that was all going to get built anyway, and what you would say the real value of the Inflation Reduction Act. There is been more of a buffer against changing commodities prices. So when the Act, when the Act was passed, natural gas was pretty expensive. It's come down
a whole lot since then. So at the time it you know, you might have argued that that stuff was going to get built anyway, but it it it. Yeah, with the drop in prices, I think that actually maybe it wouldn't happen, So it gave that stability to that sector. Then outside of that, one of the big things we've
seen is the development of supply chains. You know, where the US was really at a standing start with regards batteries and so in particular, now we're seeing a lot of factories being announced in different states across the country. And then finally a real uptick in investment in hydrogen
electoralizer orders have significantly ticked upwards. Those are some of the it's kind of kept the power sector on the steady path that was on, and then it's really poured fertilizer on the ground of some of these more nascent technologies in.
Your world of you know, kind of managing this transition to a cleaner energy. What is the political risk that for this market, for this part of the world, if we were to get a reelection of former President Trump, what would that mean.
It's something we get asked about a lot, and actually we're producing some research right now to really answer that question. I think one of the things that we have concluded is that actually the main provisions of the Inflation Reluction Act are probably safe for a couple of reasons. One is that in the US, it's so hard to change legislation, you know, with you don't have a trifector, and you know, whatever the result of the election, a trifector is somewhat unlikely.
And even if there was a Republican trifector, a lot of the investment from the Inflation Reduction Act is going into states and into districts represented by Republicans, So there's they would have to have a really big majority in both chambers of the House. So I think there are certain aspects of the Inflation Reduction Act that could change.
There's how the laws are implemented. There's a lot of regulations still being written around some of the tax credits, and that could be written differently because that happens in government agencies which report up to the executive branch. But I think there's less risk than maybe one might assume how.
Much money still needs to get deployed. I just was really struck by Sarah Week for example. It's where all the energy people go and talk about stuff. It's a big conference, happens in Houston every year, happens in March, and Senator Secretary Granholm is really like, guys, come and get money, like we have it, we will give it to you. Come to us to let us give us money.
And some people don't like that. Some people are like that just shows that we're spending money on stuff that we don't necessarily need to spend money on.
Yeah, I mean, it's it's an interesting one because for the most part, the Inflation Reduction Act is not a pot of money, in that the majority of the investment would come through tax credits, which are really just dependent on how much stuff gets built. Where there is a pot of money, and I should have come in with the actual figure is the amount that's been authorized for
the Loan Program's office. So and that is the one that is really politically under threat because that you know, that was the the program in the past that was associated with Cylendra. So there is this perception that this is money being allocated to two companies that may fail, and there's there's a lot of that money still yet to be spent currently, and it's it's it's an ongoing process.
What industries are doing relatively well versus their bench marks, versus maybe some industries that aren't. We were just talking to Brian Egger from Boomberg Intelligence about the cruise industry and their carbon footprint and trying to manage that. Which industries are doing well, which maybe you're struggling.
I suppose on I think of things on a really macro level, so you know, I divide the world into power and transport and industry, which obviously is a real, real simplification. Most of them are. Momentum in decarbonization to date in the US has been in the power sector, okay, and most of that has been because of gas plants replacing coal plants, which doesn't get you to zero. It just brings emissions down in the near term. So wind and solar is then the next wave, and that's really
starting to kick in now. So there is good progress in power. Then transport historically hasn't had great success in reducing its emissions, but I think we're just at the start of the electric vehicle wave, which is gonna, I think, be a slow burn over the a couple of decades, because even if electric vehicle sales increase quickly, it takes time for the whole vehicle fleet to turn over. But
there is a downward trajectory in transport. So it's really industry where what we call the hard to abate sectors, where there's.
More work to be done, like some men steel that kind of fun stuff before I let you go. What I've also noticed when it comes to the IRA specifically, it really helped ignite the demand side of it, right excuse me, the supply side of it with tax credits, but not the demand side. So the gap between here's my cool hydrogen thing that I just built and then here's this company buying that cool hydrogen thing that I just built is wide. Yes, how do we solve that?
I mean, that's very especially true for hydrogen, and that is fundamentally the issue around the policy support that hydrogen receives is it's so much has been focused on supply, but I think it speaks to a deeper issue of what policy has to come next, because I think the nature of the Inflation Reduction Act was really throwing a lot at all these different industries to get things kick started. It's a bit like putting petrol in the engine. Maybe not the best analogy such, but it put petrol in
the end of the energy transition in the US. But whatever comes next needs to be more like a steering wheel because it's established this momentum. But there are all these questions now that are you know, we never knew we'd have this problem of oh, there's too much supply, where's the demand because at the time there was no supply in no demand. Yeah, so the next wave of a legislation has to address that, whether it's some hydrogen or a steering wheel.
I like that.
We're gonna use that, We're gonna steal it, all right, Thomas, thanks a lot. Thomas Rowlands rees he is a bl Bloomberg be any app head of research.
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