Elon Musk, Stocks, And Ukraine (Podcast)

like and now it has. Elon Musk, of course, is what we're talking about, buying Twitter taking over the platform twenty five and a half billion dollars of financing from some of the world's biggest bangs. He has to put out one billion dollars on his own. Should only walk

us through the deal dynamics. Yeah, it's really interesting because there was a lot of questions at the beginning on who's going to finance Elon Musk's bid, But at the end of the day, Wall Street has always stepped up to Elon Musk's rescue, if you think about it, and so it's not surprising to see who ended stepping up, which is Morgan Stanley and m u f G, which is a big partner. Remember MUFG really came to Morgan Stanley's rescue during the financial crisis, became a huge lending

partner thereafter. Bank of America was listed later on Alan and Company. And so you're looking at companies that you know, it's not surprising at the end of the day how the money came together. But to the point that I think you're making here is only part of this is done in terms of debt financing and margin loans. There is still twenty one billion dollars of equity to put in, and so there's news to be had still on who

joins Elon Musk in providing that equity. Yeah, and only this is something that you and I have spoken about plenty of times off the air, But let's do it on the air. Let's bring in our worldwide audience into this. There's a little bit of a rivalry here when it comes to the banks as well, JP Morgan and Goldman Sachs helping out Twitter's board kind of seems like everyone else was on Musk side. Talk to us about the bank dynamics, who's backing who would kind of feel almost

a proxy war between Wall Street. It's funny that you put it that way too, because JP Morgan they have had some tensions with Tesla before. They have sued Tesla over the price of some warrants. So that's a kind of messy situation that's there in the background. But then there's Goldman Sacks, which has worked on both sides. And the thing is, at the end of the day, when it came to Twitter, remember the current and former chief

financial officer of Twitter worked at Goldman Zacs. Goldman Sacs was the lead bank that took Twitter public, and so on this deal in particular, Goldman was on Twitter side of things. Now, Leonna Baker had some and her team

who's our deals reporter, a deal's team leader. Actually they had some great reporting on how in the background they came to this price and really convinced Twitters and the board that this was the best possible deal, that this is a price that you're not going to necessarily see for Twitter in in the near term. And so anyone who says, well, Twitter was once trading more than seventy dollars a share, you know, will it trade at seventy

dollars a share in the future. So there was a lot of people coming together in agreement by the end of it. Smart stuff. I'm also pleased to say we have Ed Ludlow joining us from San Francisco. I have but a good authority. He's had four espressos this morning, so he is ready to go talk to us about this new dynamic of billionaires buying media. Right because Jeff Bezos has the Washington Post, you have other billionaires. I believe there's a billionaire in charge of time as his

name escapes me. Stuff, lots of stuff. And now you have Elon Musk looking into Twitter. I'm not sure if it's fair to compare the Washington Post and Twitter, but this is still significant. Is this the start of a trend that we could see continue? Well? Um, well, I think we should state festival Twitter was founded by and the single big shareholder, Jack Dawsey, is a billionaire in

his own right. Um. But I think Elon Musk comes at this and we're going based on his previous statements and and the kind of points that he reiterates it in regulatory filings. Over the roller coaster that's been the last two weeks. Freedom of speech. You know that he has a reason for doing this, that he felt that protecting freedom of speech was worth buying a social media

company for. I don't know if you guys saw the tweets overnight from Jack Dorsey, but Jack Dorsey essentially said that he was worried about the platform being a publicly traded company, and he said I'm paraphrasing, but he said in the tweets that the first step was to take the company out of the hands of Wall Street and that he believes Elon Mark Musk was the single person that could kind of bring Twitter back on track with what he wants it to be, which is the global

public town square, you know, the point of consciousness and debate for for social media users globally, which we should point out Jeff Bezos kind of made fun of him for her, right. Um. What's interesting here is also the twenty one billion dollars of financing nationality meant if you are borrowing or actually twenty five and a half. Actually I want to talk about the financing that he got twenty five and a half billion dollars. He has to pay that back, which means Twitter has to make money.

How are we going to do that. I did giggle a little bit because ultimately he's the world's richest man and it doesn't matter. You know, we always joke that he's cash poor and rich on paper, but here's the world's richest man, and he has options. You know, the twenty five point five billion, you know, thirteen billion dollars of it is split between fixed term debt and revolving credit lines. You saw SMP got global ratings UM put Twitter on negative watch overnight because of, you know, the

debt burden going forward. I think I'm right in saying that the interest payments on that debt is greater than the forecast for full year bit DAR so, so it's a significant transaction that's taking place. The twelve point five billion margin loan is secured against sixty two billion dollars of Elon Musk's Tesla stock, which is nuts right, sixty two billion dollars of class rules of borrow, twelve point five billion dollars of debt um and then on the

twenty one billion dollars side of equity financing. He has options. Like We've written a lot on the Bloomberg today about those options, and there are many of them. It is wild. The story is wild. If there's a lot more going on, we have fortunately have to leave it there. Belisa Brahma Wix joins me. Thank god during you here to past, rescuing me from really a sense of abandonment at the top of the show. We can talk about that later. Yes, this will not be my therapy session, I promise um.

But anyways, let's talk about these markets here really tanking down one and a half percent. I thought this is past us, Lisa. Honestly, I think that this is a fascinating moment because we're not just talking about rate hiking fears, but also what we're seeing in earnings. And I know Gina and Martin Adde's has been tracking this, and I'm curious to hear her interpretation of the downside surprises that have been absolutely hammered. Yeah, well, let's bring your right.

I have nothing else to add. We only have the wisdom of Gina to go to. Of course, she is the head of equity strategy here at Bloomberg Intelligence. Gina, thank you so much for joining us. What do you make of the cell off today? I think it's fascinating that we were worried we went from inflation concerns to demand concerns very quickly. Yeah, I think it's honestly, I don't think the inflation concerns have gone away pretty so

I would like to say they have. It is still the source of the greatest thanks in the S and P five. I think that the demand concerns are an interesting point because the demand concerns are not only for the mega caps, which is where we're going to see the most profound impact in the market, but also there's a lot of nervousness that the consumer is just going to fall out of bed. I mean, you know, I hear this on a day to day basis, is Okay, how much can the consumer hold on? How much can

they keep growing, keep spending. Certainly, now the housing market is likely to turn over, We're going to see interest rates rise, which is going to increase the cost of borrowing and the cost of debt for the consumers. Certainly, that's going to be it. So there's a lot of pessimism that has bubbled up to the surface over the course of the last month with respect to the US consumer, and that is new. I do think the companies are

generally giving us mixed results. We have not seen you know, broad widespread weakness, but we have seen some highlighted weakness specifically in the industrial space as well as in the in the tech and communication space that the market is certainly we're nervous about right now. Gina, Let's sit on the industrial space, especially with General Electric and the shares they're plunging, as well as some of the other issues

that we're seeing. How much is this an execution story and how much is this something else that is a broader macro story. No, I think it's mostly with General Electric. I think it's mostly about supply chain at this point. Yeah, I mean, you know, General Electric, With all due respect to GE, it kind of stopped being a massive bell weather several years ago. Um, it's not as important as it used to be. But I think it's mostly a

supply chain and inflation story. It's interesting to me that sort of sentiment wise, we're talking about e s the bell weather and not ups as the bell weather, and I think the tell the transportation stocks are significantly more important to watch. But it's just a function of sentiment, Right, what do we go to, We go to the miss, we go to what's not working in the market on a day when stocks are down during an earning season that was hopefully going to bail us out of all

this weakness. But kind of the reality is there's more ups is out there. There's more positive notes on price pass through than there are negatives still um and until that balance shifts, we've got to pay attention to both, right. So I do think that g E is a function of supply chain risks continuing, probably certainly some slow down. An end market demanded is a giant conglomerate still, but I would watch the transports more importantly. What what do

you really think is going to lead the market? It's going to be things like ups and J. B Hunts of the world, the FedEx Is of the world. Where you want to watch for weakness to emerge in the early cycle, stuff like that first as a precursor or to a slowdown. Do you know you're talking about Bell Weathers here, and among all the ones you just named, I'm also thinking forward GM carmakers, both of which are

reporting earnings after the bell today. But they're also a significant chunk, at least historically, of the American labor market. And I think I want to kind of square the two because you have auto earnings, you have this labor market tightness. Essentially, you also have tech earnings this week, and it kind of seems like perhaps Apple, Amazon is perhaps on a labor perspective, becoming a bigger part of

that market. Is that a fair assumption to make and is that something to take into account when you look at some of these companies. Yeah, I absolutely think you want to take into account all forms of price increase. Labor is something we've been talking about for the last six months as an accelerating concern. It's still not enough

to compress operating margins. Operating margins for the SMP may be surprised to know are actually on track to grow um this quarter relative to the quarter a year ago, which is a tremendous testament to corporate strength and managing costs. That income margins are falling, but operating margins are growing, So that's a pretty big positive. You would see operating margins start to compress an environment where labor costs was becoming a widespread issue, but it is becoming a bigger issue.

As a matter of fact, we track mentions of labor costs in transcripts and the number of mentions has accelerated very rapidly over the course of the last several quarters. Certainly, also sentiment reflecting labor costs, so we look at sentiment around those mentions has also gotten increasingly negative. So companies are very concerned about rising labor costs. They're also very concerned about simply the supply of labor and sourcing that labor,

which is pressuring labor costs higher. It's not such a widespread issue that I'm worried about it depressing operating margins, and certainly results so far this quarter would support that thesis. But longer term, if we can't get any new supply of labor coming into the market, we're going to continue to see abercasts accelerating and they may be a longer term depression on those depressants on those margins that we

need to look out for. Well, Gina Martin Adams, thank you so much, as always, Bloomberg Intelligence, Chief equity strategist. You know, every day we kind of get the drip drip drip out of the Eastern European nations. What's going on in Ukraine and the latest with you and Secretary Channel Antonio Guterres over in Moscow. Kind of trying to

dovetail the two nations and pitch it forward. I do wonder, cretty how much we're getting to some sort of resolution versus just an understanding that we're going to be in this for possibly months, if not years. And you know, as sad as it is to say on a human level, I think from a markets perspective, there's become this kind of resilience to those headlines in a way to where you now see the markets perhaps trading on China, trading

on COVID. I feel like the actual, say, risk of a nuclear attack, for example, is that priced into the market well? And and so I guess the dissonance between the market blasans I know that's not really a word, and the humanitarian pain and suffering right now are increasingly dissonant. Dr Ariel Cohen has been tracking, and he's senior fellow at the Atlantic Council in eur Asia Center. I'm wondering, Ariel, how much you see a resolution in the near term

and easing and some of the suffering. Are we just getting benumbed to the headlines that really have been dominating what we've been watching over the past couple of months. I'm not being numbed. I'm horrified. Uh. The mayor of mariupol vi Um city uh in southern Ukraine that the Russians are fighting to take now for two months, the mayor said, twenty thousand people were killed. This is civilians, men, women, men, men, women,

children and the elderly. It is horrifying. And now we see the expansion of the hostilities to include the neighboring Moldova, in a separatist part of Moldova called Transnistria. For those who don't know it, please open Google and look up

trans Um. There were several explosions yesterday and today. The Kremlin said that they are quote unquote concerned, and the rumors swirling that Russia may open another front against Ukraine because they're supporting these separatists and they may fly their own troops to Transnistria and attack Ukraine from the west. Going to the major port city of Odessa on the Black Seat Rio, he went exactly where I wanted you to go, and that is to Moldova. We hear a

lot about Holland Belarus. Can you speak a little bit about the history of the Moldova when it comes to this region and the significance of it when it comes to the war in Ukraine. Yeah, but before that, I was i'ld like to say that from my talks in Moscow before Covient, from reading some of the memoirs and books, by putting advisors. When they are in crisis, their strategy, the Russian strategy, is to expand the perimeter of the crisis,

not to shrink it, not to negotiate. But they are convinced in their own superiority, I would I would add they're convinced erroneously in their own superiority over the West. They think we're soft. They think where if heed the thing, we're scared, which I didn't see much evidence of that yet. Um. And they think that by expanding and escalating, they're going to win this war and have no doubt. I'm in Sweden right now on a naval base. Uh. This is

not a war in Ukraine alone. We're mentioning Moldova that the Russians may go to the Baltic state and may go to Finland and Sweden. I think it'll be suicidal because Finland and Sweden are joining NATO. But they are expanding so far the perimeter of this all Europe War. Now, Moldova was occupied first by the Russian Empire, then by the Soviets Union. Part of it was um in Romania, and Stalin took in the ninety nine when he made

a pact with Hitler. Moldova is independent. It's pro Western, pro EU, pro Us, pro NATO, and it's led by a woman who went to Canada, Schoo, Maya Sandu. And the Russians don't like it. They have the separatists in Transistria. They probably would like to take Moldova as well. When you say they, are you talking about Vladimir Putin? Are you talking about Russians at large in the entire military complex. You know, this is the sixty four trillion ruble question.

How much is that worth at this point? Yeah? Right, Um, not much so um. It is Putin who is expressing the collective unconsciousness of the majority of Russians, not of all the Russians far from and just as we saw more than a hundred years ago when the Bolsheviks took over Russia, all the elite flushed out of there. They went to Paris, they went to Germany, to Berlin, to product. A lot of people are leaving Russia today. It's a huge brain drain. A lot of it professionals, a lot

of engineers. If you are thinking about your future in Russia and you speak English and you're sort of cosmopolitan, you get the heck out of there. However, a lot of Russian people, less educated, those who don't necessarily live in big cities or don't work for the government. Um, they are supportive of putting their brainwashed by the horrific Russian propaganda who calls Ukraine Nazi, but call of the West.

You know what, They call it gay ropa because you know Europe has more LGBT rights in Russia, which is not complicated, right, um and um. They are casting this conflict in existential and ideological terms, not unlike what the Communists did thirty plus years ago. We just have about a minute left. From your perspective, how do you see

this ending? Well, my big fear and I talked to a lot of colleagues about nuclear escalation, not necessarily an all out our Mageddon's style nuclear war, but Russia throwing a nuke into Ukraine just to bang the table show they're serious, and then they think we'll go to some serious negotiations, will recognize their sphere of influence, not just in the former Soubet Union, but in all of Eastern Europe served going to status quo ante the end of

the Cold War. Eastern Europe is our side of nature, and in the Russian influence weakening all of Europe, weakening NATA, kicking the US out of Europe? Is that going to happen? I don't think well. Dr Ariel Cohen, the senior fellow at the Atlantic Council of your Asia Center, we thank you so much for your perspective. You know, we are a lot talking about a lot of red today, deeply negative for a lot of different stocks, and in particular a number of potholes in the tech at the industrial spaces.

And there's no one better to really link industrial and macro at a time when we are hearing those concerns really coming together than Russell Price, whos chief economists at amer Prize Financial, stemming from Detroit and having analyzed companies including Caterpillar and John Deere. Russell, thank you so much for being with us. I want to read you a quote Larry Kulp of General Electric in the earnings call It in an interview said it is as challenging a

back rob backdrop as I think I've ever seen. Do you think that we're over or estimating or underestimating the effects the ramifications of these pro prolonged supply chain disruptions, you know, I think it's a it makes very challenging environment. So I think it's it's hard to um uh underestimate at this time right now. It's not just the point of a product being short supply, but of course we

also have pricing issues to talk about as well. So companies are really struggling not just with their component availability when it comes to their energy or technology or even low technology goods or even agricultural goods. It really crosses the entire spectrum. And so it's very challenging environment for the industrial base overall. When we're talking about the industrial basis, let's broaden that out to all of corporate America. Not to get too brought here, UM, but I'm curious about

the commodity impact. We're talking about oil prices. I mean, they've come off their highs obviously, um. But that I think the consensus here is that's very much a short term issue. As the more and more dependence on on Russian supply kind of get removed from the market. How much of an impact does that actually have to Corporate America.

It's a corporate marria. That's one of the things we're evaluating right now during the current earnings release season to see which companies are able to pass along there the added costs that they're seeing. We're evaluating which companies are able to do that, which companies are still struggling with the negative effects of just simple supply. So energy overall, we expect energy to reduce US GDP this year by a little more than half a percentage point just based

on the cost. So that's a very significant negative impact, not just for consumers, but Corporate America is certainly challenged as well. But of course with the SMP five you have that offset to some degree by the energy related companies that are benefiting from that. So it's a it's a mix right now, but overall, a very distinct negative. How strong is that you as economy. How much of

a rate hiking cycle can we withstand? I think that it's going to be able to withstand the rate hiking cycle fairly well better than it has in the past. In the past and four of the last five rate hip cycles we ended up with recession this in each

of those periods. However, we're also correlated with high point points of consumer debt, and right now consumer debts are actually low and borrowing demand is low, So the translation mechanism for higher rates into the broader economy is weakened by that effect of consumers demand for borrowing being weaker.

Can we tie in where we began this idea of supply chain disruptions, especially as we talk about lockdowns in China and how much that could stem the tide of growth and really reduce some of the strength in order to see a more material impact negatively from these rate hikes, Yeah, I think that's going to have certainly some negative impact, but I think it will be reletively modest. Consumers are in the transsition period, transitioning from spending more on services, uh,

from spending more on goods. We had the surge and spending on goods there for about two years as the ability to spend on services has been so significantly diminished by COVID h conditions. Now, as COVID conditions are alleviating,

we hopefully that that remains the case. That consumers are spending more of their dollars on services and UH so some of the pressure on the good side of the equation should ease to some degree, and that that corresponds with the supply pressures that are coming out of China because of their widespread lockdowns, well widespread lockdowns. But does that create an environment where a lot of these companies

are very quickly trying to find alternative alternative sources. I mean, I think one of the major kind of appeals of Apple and Microsoft and the like up besides the fact of the Apple and Microsoft, is that their supply chains

are incredibly secure. Tim Cook has been hailed as kind of that's been his legacy that he secured these very strong supply chains that have weathered COVID that whether the trade war and vice versa, are more and more companies trying to do that, Yes, I think so, I mean, certainly uh from a related perspective, But that gets expensive

very quickly. Yes, it does, particularly when you're competing with so many of your UH peers trying to secure additional supplies at a time when supply is actually diminishing rather than improving. And you see that particularly with semiconductors UH for the last several months, being based outside of Detroit, we've been looking for the signs of improvement semiconductor supplies going to the automobile industry because that's so important to the health and vibrancy of the US economy, and uh,

we just haven't seen that. Semiconductor supplies remained a very significant impediment and they really have not improved shown much improvement at all. So we're still hoping to see that in the months ahead, particularly in the second half of the year as additional supply is supposed to come online, but we have yet to uh to see that well. Russell Price, chief economist at a Mail Price Financial, We thank you so much for your time joining us here

live in our interactive broker studio. Rare treat for Lisa and myself. Thank you as always a throwback to an era where we were unmasked and actually seeing each other in person, so we appreciate that. Yeah, it feels like twenty nineteen all over again, sort of. 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 three

put on false Sweeney. I'm on Twitter at pt Sweeney Before the podcast. You can always catch us worldwide at Bloomberg Radio