Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside my co host Matt Miller.
Every business day, we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moving news.
Find the Bloomberg Markets Podcast on Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. A lot to chew on in terms of, you know, kind of where these central banks are going, where rates are going, we had clearly this this ECB panel in Portugal. A lot to chew on here, but I think the consistent message and again I think the central banks have been consistent from day one. Yeah, we are fighting inflation after they you know, I think the FED obviously was
late to the game. You could argue with that whole transitory talk a couple of years ago, but since then, I think it's been pretty consistent. Yet if you look at the WRP function, the markets are kind of suggesting that there may be some changes to that, so we'll have to see you about it. Our next guest actually has an informed opinion, which is great because we're just kind of, you know, we're amateurs here. But Tim Dewey.
He's the chief US economist at sg H Macro Advisors, and he's a professor at the University of Oregon at The Ducks joined us here in our Bloomberg Interactive Broker Studio. So, Tim, we heard from the central bankers today in Portugal. You know, it seems like that they're pretty consistent with our job's not done.
You right, right, And that was the message from the dots for the Fed two weeks ago that they were looking at another fifty basis points of raid hikes this year. And Paul actually, I think sort of opened up the chance for even more than that when he sort of said, well, maybe we'll have to move in September two or you know, we want to rule out moving every other meeting again.
And that's something that I don't think has really been on the radar yet, the possibility that six percent is still out there as an outcome.
And you think next meeting is a definite hike.
Yeah, I think I think we're I mean, i'd almost say one hundred percent, just just because I don't know everything all happened between now and then, but I think that decision was made. In fact, if Paul is saying we might have to go again in September. That would tell me that that July is for sure.
So where does that take us into our discussion about a recession? Where do you think that kind of shakes out here? Because the economic data is still pretty solid.
Well, the economy is always more resilient than people give it credit for. You know that the focus right now is on recession because you can you can really chase those rate cuts down from from a market perspective, right you know that there's there's a potential for some for
for some big gains on that. But uh, it's it's hard to knock the US economy down, is what we're learning here, especially now when we're still on the side effect of an enormous amount of phiscal stimulus and easy monetary conditions that I think are still you know, propelling underlying activity. So, uh, it is a recession going to happen eventually? Can I tell you that it's going to happen in the third quarter? It won't. Can I tell you it will happen, you know, second quarter of next year? Maybe?
You know, I think that from my perspective. The interesting thing here is that if you don't get that recession anytime soon. There's really room for central banks to keep hiking here in the second half, and it'll go on beyond July.
Well, you mentioned stimulus, but Powell said that excess savings is not the main driver of inflation. He's more concerned about the labor market driving up income and consumption.
How would you rate that comment.
I think that's that's a real real issue, is if you don't cool down the labor market eventually, you know, the we've got some benefit right now, and we've got certainly got lower energy prices. We're seeing headline inflation come down, We're probably use car prices come down, shelter prices, so we've got some benefits there that are really I think going to likely hold down inflation here in the second
half of the year. We'll see those any of those forecasts have actually you know, turned out badly in the past. But but you know, if you if it's almost like the pause that refreshes though, right, is that that's kind of bringing down bringing up real incomes and spending capacity that then would come to bear in the first first half of the next year. So you know, if you don't really I think that if you don't think the
Fed's right. If you don't start getting a little bit more softer even software activity in labor markets, you are risking, you know, a repeat of inflation.
Are you surprised that the labor market's been as resilient as it has been. We still have a jolts number that's near ten million job openings. You have to make of that.
I think that people again underestimate the resilience of the economy. Is that what has really amount is that we really stoked it stoked, stoked the fire pretty hot. And so no, I have I haven't been surprised. I'm not surprised by the rebound in the housing market at all. I think that you know, the FED has more work to do here.
Well, can we talk about housing numbers as well, because housing starts leaping in May. I wonder if you think that the FED failed to anticipate how higher rates would sort of convince people to not put their homes on the market. And if that's something that you are weighing in.
Your speration, it certainly seems to be like, Hey, it's that the FED miss missed this. And we know this because you know, last week during Paul's testimony. In the first day he is written testimony, he says the housing markets a week, and the second day he says, well, we met with some builders yesterday and it turns out the housing market's not that way right. Actually, it's rebounding.
And then we see the numbers start to come out. Now, I think that we've been writing about this forever because it seemed obvious to us that you really did break the housing market in some respects by holding interest rates, you know, near zero the policy level for so long. You have so many people locked into these three percent or less rates. There's no selling pressure. It's not like two thousand and five, two thousand and six, two thousand stas and even if some people start losing their job,
you're not gonna have mass selling pressure. At the same time, you have the demographics of more and more millennials wanting to buy homes, and so the only game in that talent then becomes new construction. So, you know, we've thought, you know, that the housing market was going to be more durable than people anticipated for for what's really a substantial increase in mortgage rates.
Yep, tell me about you.
Know, so if anybody's trying to move lately. It's kind of a shocker, but you know, these are things that once you sort of wrap your mind around and you need a house, you say, okay, well, you know seven percent, Eventually I'll be able to refinance it in five percent or four percent, and I got to just pull the trigger.
So, Tim, what's the biggest risk to this economic outlook for the next twelve months? Do you think is it something exogenous or is there because we had the bank issue a few months ago, people thought that might be a real challenge for the economy. That's kind of abated a little bit. What's the biggest risk out there?
Yeah, so it's it's it's always the exogenous shocks that gets you at the end, right, I mean, so one risk is the FED. I mean, it's sort of a conventional story is that the FED has you know that the Fed's already overtightened or will overtighten, and eventually that will crash fresh investment activity and eventually firms will have to lay off workers. Right, that's kind of the standard
recession story. But what seems to be emerging is right now the FED is slowing the economy, and maybe it's not until we get a real good shock, you know, like last year, that Ukraine shock, or the energy shock from Russia's invasion of Ukraine. That could have been the sort of recessionary shock had not the economy been flying so high at that time. So, you know, I again, will a recession happen? You know, no, But these are recessions are fairly rare. I mean, yeah, so, and they're
all adiosyncratic. There's a lot of you know, we tell different stories about every session, and we'll tell a different story about the next one than we have in undeath the rest.
Tim for better worse. You are one of our go to people for the Pacific Northwest. Your professor, University of Oregon. That's where you got your PhD undergraduate, the University of pujit sound most of us don't get to go to that part of the world, maybe as much as we would like, kind of kind of remote talk to us about the economy out there, housing market, just job market. How what's what's the feeling of the person on the street in University of Oregon.
Well, you know the job I mean, during the pandemic, you had a lot of people move to you know, move into these you know, western towns, to be able to gain gain gain advantage of that. I think some of that has faded in the Northwest, and the Northwest has, you know, more recently, I think struggled with some of the things you see in a lot of the West Western cities, you know, the the higher rates of homelessness
and so uh. You know, I think the economy is is solid out there, but maybe not as solids as we would we would have expected coming out of of of this pandemic relative to where other places have been.
So did you guys get that influx of I don't know, I mean just California for example, did they come up to that part of the world.
You know, the Northwest has regularly been a receiver of of of emmigrants from from California, just like a lot of other places. And so yeah, that's certainly been a long time trend that supported Organ's growth in particular. You know, one one one interesting thing is Organ's internal natural rate of growth has really slow to to basically zero.
So what are some of the core industries out there that still.
Well, you know, the big ones that people talking about. Everybody knows Nike obviously, Nike's got a big private vision there and you have Intel has a large manufacturing facility, and of course you have uh in Seattle, you know, the Amazon Microsoft that's sort of that sort of tech around. Tech is big in the Northwest. We have still forest products certainly also another historical uh you know, element of the of the of the Northwest economy.
All right, good stuff. He's one of our go to people there. You don't see too many people come through.
Our office from you know, I'll try to do it more often.
Yeah, exactly right, Dewey. He's the chief US economist S. G. H. Macroadvice, which is also a professor at the University of Oregon. The Ducks right there, PCUM coming into our Bloomberg Interactive Brookers studio. Right now, let's get a little bit of a reset here. We're going to get a business last with mister John Tucker.
All right, Fares Stocksco. Right now, the major averages they are mixed to. Little change now. The message that investors for now seem to be latched onto from Fed cheer Jerome Pal. A recession, he said, is not the most likely scenario, as the economy remains fairly resilient. At that Central Bank confab taking place in Portugal, so we're seeing a rally in megacap stocks like Tesla and Amazon dot Com.
The chip makers also trimming some of the earlier sell off that was driven by a report that the US considering new curbs shares of Nvidia. Right now, that's one of the laggards in the Nasdaq one hundred. It is down just about one percent right now. Overall, SMP five hundred one point lower, the Nasdaq one hundred up forty seven points. That's up three tents of a percent.
Now.
The down jones of Dunster larverage one hundred and twenty points lower. Right now. I'm going to see if Madison knows this one. I know that I know that you're going to get this. No, the guy, the man who brought you chachia and clap on, clap off has died. Really, Advertising executive Joseph Pettitt turned the Chia pet and clapper light switch into retail sensations.
I know it was going to be a sad story. You had me popping into the microphone.
It was ninety one.
He had clap on.
Now I see the founder clapper crapper, So.
Yeah, he's going Okay, that's a giant in the in the business. All right, John Tucker, thank you so much. We appreciate it.
You're listening to the team can't Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app and the Bloomberg Business.
App, or listen on demand wherever you get your guess.
Now, we've got the US government saying, hey, hey, let's think about what chips were exporting to China, and that's an issue for Nvidia and some of the other names. So let's bring in somebody who kind of smart on this stuff. We pay him to be smart on this stuff. That's Man Deep Singh. He's head of our tech research at Bloomberg Intelligence, along with some other guy in Chicago.
Man Deep talk to us about kind of just the news today about the government and it's wanted to maybe put a curb on the export of some of our best chip technology to China.
Well, so, I think so far this was probably a little you know, probability event when you think about the odds of you know, government going full into you know, imposing a band and which happened in Russia by the way, last year when the war broke, And I think, right Now what investors are grappling with is what happens if that does occur, Like how does Nvidia get hit? And the answer to that is all they have, you know,
fifteen twenty percent revenue expert. Now, what they did the last time around such a ban was imposed was they offered a lower performance variant which didn't fall in the restrictive category and they were still able to sell to China. So you could expect something similar from the chip makers. They'll try to skirt around those restrictions by offering some of their variant. I still think, you know, relocating the supply chains is going to be much harder, and that
is the biggest risk for all these chip makers. Is you still going to Taiwan. Taiwan has elections next year. There's a lot that could happen, you know, in terms of low probability events actually happening or there is that risk that they could occur. So that's that's where we are at, you.
Know, in terms of the risk of bringing things stateside. I'm curious about the Chips Act because Anawan had an amazing piece about this looking at how the Chips Act could be adding to the us GDP and having a negative effect on those inflation pressures because we're seeing so much investment and construction regarding chip making here in the States. Are you hearing about that from your sources? Kind of a flood of money into that state side?
I mean there is, and every government right now wants that, you know, manufacturing to come back. When it comes to semiconductors, the problem is these are multi year investments. So you start building a fab now, it's not going to be productive for a couple of years. And that also is a phased approach when it comes to you know, the three nanometer or the five nanometer, we're talking about leading
chips here. Those are the ones that are being restricted in terms of sales, and I would argue it's not going to be at least three four years before you're going to see leading node manufacturing here in the developed countries.
So where are we now a week later, since maybe a lot last time we talked to you about AI. What are you hearing from an investors here? How are they going about trying to play this team? I know you guys have a big research report on which I highly recommend to folks that are on the Bloomberg terminal kind of laying out the market and the opportunities and so on. But when you talk to institutional investors, how are they playing it right now?
Well, so clearly everyone wants exposure and hardware and semiconductors is still the most tangible thing. On the software side, you know, you have Snowflake and other database companies that are trying to leverage the capabilities that in video or
some of these new types of chips offer. But at the end of the day, everyone is trying to build the compute capacity to you know, ingest their proprietary data to build a large anguage model, and over time you're going to find new use cases emerge which are more domain specific. But right now everyone wants to build on top of chat, GPT or you know, the large anguage models that are out there and see what they can
get in terms of new output. And I think that's the phase wherey but everyone feels this is a strategic comparative right now from an IT spending perspective, and this is as non discretionary as it can get.
Does it seem to you that the C three ais those those kind of they're not meme stocks but MIMI stocks and air quotes.
There are falling to the wayside.
Now, are we still seeing more euphoria around some of those smaller names.
I think the way you have to think about it, and we lay this out in a report. There is that infrastructure layer for generative AI, which is dominated by the hyperscalers along with Nvidia. And then you have the platform layer, where every company is offering you a platform or something a workbench where you can build your applications
on top of. And so the compute capacity will continue to come from the hyperscalers, but when it comes to the platform layer, it's very fragmented and it's going to be very domain Specif every industry, whether it's healthcare, you know, industrials, they'll have their own player in terms of offering a platform where you're going to build an application. So C three dot A I would fall in that platform layer.
How big that opportunity is going to be, no one can tell right now, because ultimately it comes down to ROI, Right, can you generate ROI?
I guess I'm curious then, what you think about a company like a Kroger mentioning AI eight times in their earnings? Do you think that there are some companies that like you don't need to be mentioning this.
Any company that has large amounts of data and they have digitized their systems, okay, fields, they have proprietary data to feel this to this large anguige model. Yeah, what kind of output or productivity they can generate? I don't think they have a clue, but at least they're investing with the hope that they can leverage their proprietary data.
What's the number one topic with your clients these days? Is it AI?
I think everyone is focused on generative AI, but they want to go to you know, the medium to long term outlook in terms of who has a real mode versus you know, what is near term and it will phase out because right now, as Madison said, you know, every company is talking about it in their earnings call. Obviously some of it is hype, and I think you will see some real winners and losers emerge.
All right, Madison just sent me this really cool tweet about Airbnb, and I don't know it's from this guy, Nick Girly. I don't know who it is. Talking about Airbnb revenue top ten cities. It's dropping like crazy, forty fifty percent. Why is that?
Well so travel? I think is in that phase where consumer travel was very strong, very resilient, and right now you could argue the concert are getting tougher for these companies. And if there is any type of slowdown, the one area where you think it's gonna hit is I think consumer travel, business travel contine news to be strong, but it was slow to come back. And that's fair. Uh, there is that risk that you know, growth can de
cleberate sharply. Airbnb. We know it's still alternative accommodations, and I think a lot of people are thinking about the addressable market. Is it really that big to justify a premium that Airbnb had.
I mean, it's interesting again, Maddie, thanks for forting this tweet here. But like Phoenix year every year for the month of May, Airbnb revenue Phoenix off forty seven percent, Austin, Texas off forty six percent, Myrtle Beach forty five percent. These are you know, actual North Carolina off forty two percent.
So these are towns that just were COVID towns, if you will, COVID cities, people bailing out of the coast, going to the the you know, the Austin Texas is the Phoenixes of the world, and I guess that was a huge benefit for Airbnb at the time. Now you're just saying maybe some comps issues.
Absolutely, and we've seen that time and again. I mean look at Zoom. You know, great covid pull forward, but after that the comps got so m's tougher that you know, they struggled for a while in terms of the top line. And so I'm not saying this is going to be another Zoom, but there's clearly a parallel to be drawn.
Yeah, an Airbnb stock is still fifty to fifty year to date.
Yeah well yeah, so sorry Paul to step on you, but it's interesting to look at just the read through to the stock.
Does this have that impact?
Yeah? Interesting? All right, Now, Man Deep sing thanks so much for joining us. Man Deep Singh is one of our leading technology analysts at Bloomberg Intelligence, along with anarag
Rana and the whole tech team globally. And what's interesting is, you know, there's Man Deep in the team came out with this really big report on artificial intelligence, one of the most red research reports from BI so you can check that out on Big But it's also just kind of investors are really clamoring to kind of figure out what is AI.
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All right, we've had some funky C suite conversations in the studio, and this one I think my top the list. Get this deep sea mining for like metals that they use in batteries. I don't know what's going on here, but we have the CEO here, Gerard Baron, Chairman and CEO of the Metals Company. The symbol is it trades on the Nasdaq, the symbols TMC. That's what you enter into your Bloomberg terminal and check that out. Gerard, thanks so much for joining us here in our Bloomberg and
Arctor Broker studio. What does your company do? Talk to me like me and Maddy like we're five year olds.
Well, great to be here.
So the Metals Company are focused on developing a very large, abundant resource of polymetallic nodules that lie on the sea floor lie unattached. It's on the Pacific Ocean, about one thousand miles off the coast of Mexico, and they were discovered way back in the eighteen seventies, so almost one hundred and fifty more than one hundred and fifty years ago. And what they found is that they're very abundant in
nickel and copper and cobalt and mangetes. And it's a really interesting project because when we think about the transition away from fossil fuels, people have realized that we're going to need a lot more metals, and we're pushing into frontiers that are very bio diverse, and you're having to dislodge indigenous communities having tremendous environmental impacts as opposed to. What we're doing is we're collecting these nodules from an area known as the Abyssle zone. It's the most common
area on our planet. About forty percent of the entire planet is classified Abystle zone, where four thousand meters below sea level, there are no plants, so zero flora, and most of the fauna is bacteria living in the sediment, so it makes sense that we're increasing extractive industries in parts of our planet where there's the least life, not the most life.
Oh again, like I'm a five year old, What can this do for us on the planet Earth above the ocean?
Well, two things. The International Energy Agency predicts that will need to increase extractive industries between five and six hundred percent per annum by twenty forty. So the question is where are those metals going to come from with the lightest planetary and human impact. So we have to look at a full life cycle analysis that well, what's it going to mean for indigenous communities, what will it mean to carbon SINCS and CO two emissions and impacts on biodiversity?
And so what this resource can do is supply a supply of these important battery metals at the bottom end of the impact curve. And it can also address the issue of geopolitics, because what the world has woken up to is that when it comes to battery metals, China is opec. They dominate it, They've invested stood ahead of the curve, and there are no real resources other than this one that could provide mineral independence to the USA.
And we saw in the recent one hundred day review that the number one strategic priority was to build nickel processing capability in the USA. But the problem is, of course, a lot of land based all bodies are very low in grade, and you have to build the processing where the deposit is. And no one wants a mine in their backyard. Even if you found one in America, getting it permitted is almost impossible, whereas we have an ocean
based resource. By the way, we've identified one point six billion tons of these nodules, and that's enough to electrify at least two hundred and eighty million mid sized EV batteries using a nickel rich cathode chemistry. So that's enough to electrify the entire USA passenger fleet. So we can do two things, supply low impact battery metals and address the secure already of supply issues that are now top of everyone's mind.
All right, I understand that. Now explain to me how you actually what are your mining and how do you get it?
Well, so these nodules literally lie on the ocean floor. Think of a golf driving range, So we're literally picking up golf balls, and so that means we send down a robot. We're four, two hundred meters below sea level. We have a production vessel that sits on top. We've already secured our first one. In fact, last year, for six months we ran our first trials and to end trials, and that was done for two things. One was to test our system to get make sure it's production ready,
and secondly to understand the environmental impacts. So we had another boat out there for six months with eighty people on it, many of them scientists, observing the impacts of the area before we harvested, During harvesting, and after we'd collected all the nodules, and so our robot crawls along the sea law lifting these nodules, pulling them into an air riser which vertically transports the nodules to the production vessel, and then that production vessel will stay in production constantly,
so it offloads the nodules to a transport vessel which then carries them to shore. Now the opportunity, of course, for North America or the West, is for us to
process those nodules in their backyard. But what we've announced is that we're quite advanced with a company in Japan because we're also able to utilize existing onshore processing facilities, and that makes it a very attractive economic proposition because of course, normally you have to build your processing where the mine is, but in our case, we're in the
middle of the ocean. And the other great thing about this resource is that if I was to show you one, it's about the size of a potato, and we turn one hundred percent of the mass of this nodule into savailable usable material, so we generate no waste and no tailings. But the first plant is likely to be in Japan, and that means we'll produce the battery intermediate products of nickel and copper and cobalt and manganese in that market.
All right, let me talk about the economics of this. You guys are pre revenue right now, is that correct?
That's right?
Do you have the capital you need to kind of get to that revenue stage.
We will require some more capital. We've raised money in the last year from existing shareholders. We have some very successful large shareholders, including Allseas, which is our partner on the offshore side. We count Glenkor as a shareholder. They also have an off take and we are talking, as we've told the market to some strategic partners about earning
into the asset. Because the net present value for our first area that we're developing, we know it as Nori Area D is around thirteen billion dollars today now, so it's a very valuable asset, and so we're talking to strategics about earning into that asset and they tend to like that. That's what smaller resource companies, whether it's in mining or oil and gas, tend to do. They invite the big guys to come and take an economic interest. In our case, though we have such a broad array
of strategics. We have people from the oil and gas, the mining world, the battery precursor world, actual customers. We're seeing ev companies now start to invest in these supply lines because they worried about where are the raw material is going to come from, and so we're talking.
To many fascinating, fascinating story. I want you to come back when you kind of get closer, to get further along here, give us an update because this is really interesting. Drod Baron, he's a chairman and CEO of the metals company traded on the Nasdaq TMC. Fascinating story about the something I didn't even know existed. I know these things are on It literally looks like just a little rock and you bring it up and you can make that
into the stuff we need for these batteries. So story c suite conversations here in Bloomberg Markets, you never know who Eric Molow is going to book for us.
You're listening to the team Ken's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
Madison Mills and Paul Sweeny Here in our Bloomberg Interactive Broker studio, let's get right to our markets around here. Yeah, let's we get some players in here. Vinceignarelli, macro strategist for Bloomberg News. And Callie coxhe is the etural strategist. Callie. Let let's start with you. In that clip that Charlie just played Doug Cask we had on this morning, he was just saying, basically, he thinks his market is super expensive. He's very nervous about the market, and he goes net short,
net long. He's net short right here. What do you think about this market. Is it overextended? Are we too far over our skis here?
Yeah?
So I think this comes down to if you think the bull market can't continue, and that seems pretty obvious. But if this is a bull market, you have to remember that bull markets can be fierce even though we have an uncertain future ahead of us. Since nineteen fifty, the first year of every bull market, or in the first year of every bull market, the S ANDP has risen an average of forty three percent.
So we're a little cautious here.
We wouldn't say that we're so pessimistic that we would think prices could go down, but we do think that investors need to travel caution and really think about quality.
Well what about you, Vince, what are you thinking in terms of whether or not this is a real bull market or if the Wilson's of the world are going to be correct.
I think it's a real bull market, and I think mister Wilson's going to have a nice interesting conversation with the world come the end of the year.
I think I think forty nine hundreds in your prediction.
No, I think we could backtrack, you know, one hundred hundred and fifty points in the SMP. I mean, we've come a long way, but the longer term outlook, you know, the markets do not believe with the FETA saying I do not believe with the FETA saying it's a credibility issue for the FED to keep pushing this higher raise scenario. I don't think it's real. I don't think it's justified.
And when the Fed does pause, this market's going to rock and I think you could easily see it up around forty eight hundred in the next twelve eighteen months.
So but Vince, you know, for better or worse. We just listened this morning from you know, the ECB had their panel in Portugal, and you know, leader leading banker after another, including j Powell and Christine Leaguard talking tough.
They're they're talking tough because again I think they're so trying to recover from the errors they made by calling inflation transitory and they need to put a face on it. And I think they're going to keep talking that tough to a point where we're going to see real yields rise because inflation is going to come down below levels until they're ready to cut. And what that's going to do it's going to drive a rally in the bond market, and then it's going to drive that rally in the
stock market. And all the time they were talking this morning, eels went down in the US, stocks went up in Europe.
Well, Kelly, talk to me about that global picture, because you mentioned in your notes that six out of the last seven bull markets started as the FED lowered rates. So if they cut, does that.
Ruin their end goal here?
So I don't think they're cutting anytime soon unless we see a recession. And I think obviously that's the wildcard that everybody's grappling with. And you know, the lower FED rates have come with recessions or have come with crises. So the FED right now doesn't have a good reason to cut rates.
And they see inflation, you know.
Quite high, persistently high, so they have a good argument for keeping rates higher.
You know. I think that's a good story.
It shows that the economy is rocking and rolling, especially when a recession is at the top of investors' minds. But at the same time, I mean, a lot of the rate sensitive sectors have rallied on the back of some hope for lower rates, So I think that it's an awkward truth to grapple with the fact that most bull markets start in the depths of a recession. But I'm not sure that has to be the same case here.
And we've seen a lot of things over the past three years or so, and quite frankly, we could be having a rotating recession at the moment.
Hey, Vince, what do you look at all over the market, commodities, rates, currencies, all that kind of good stuff. What are you seeing other parts? What are you hearing from some of the traders that you talk to, just in terms of I guess their willingness to take on incremental risk here.
I mean, I think they like the risk scenario in general. They think the for the most part, the dollar was run its course, that equity use a for real with the you know, there are obviously exceptions out there, you know, to the point kindly just made it about interest rates and potential FED rate pause. You know, I don't think they I agree, they don't have a scenario right now where they're going to be cutting rates anytime soon. But if you look at all the data for June, it
points to them holding In July as well. CPI was lower, PPI, lower, export import price is lower, prices paid lower in all the scenarios, sentiment better in terms of expectation.
So you don't think they're going to raise in July.
I'm not saying they won't. I'm saying they don't have a reason to. The data suggests that they should hold one more time.
Now.
If the data from June matches the data going into the middle of July, then I think they should hold. Whether or not they do again, I still think it's a credibility issue, not a data issue.
Kelly, talk to me then about how retail investors should be looking at FED moves in the market. More broadly, you have a great tweet about how at least one stock from each S and P five hundred sector except for energy, has hit a fifty two week high in.
The past month.
How should retail investors be looking at and digesting that.
Yeah, so I want to remind everybody that retail investors are mainly longer term investors. They get a really bad knock in the market as being these short term day trading type speculators, but a lot of retail investors are just investing for a retirement or that nest egg, you know, long term security. So if you're a retail investor, you're looking long term, you're just taking some money from your paycheck chucking it into an index fund. You know, review
the headlines, be aware of what's going on. But at the same time, remember that ninety percent of these headlines don't matter to you, and that you know, even if we do plunge into another bear markets, every bear market that we've hit, we've recovered from.
It's all about emotion management.
If you are a little bit shorter term, I would, you know, I would be a little more cautious. I would definitely, you know, consider the headlines more. This is an interest rate sensitive market at the moment. I mean, we've been talking about the FED for this entire conversation, and the FED has a really good argument to keep rates high no matter if they hike or pause in July.
So if you're looking over the next three to six months or so, I would really focus on the companies that have those quality balance sheets that can operate in a slowing growth, high rate environment. And that's what we've been telling our customers. We really pay attention to what you're investing in and what can can survive these grinding conditions.
Well, Kelly, I want to ask you a follow up on that because Goldman had a note recently about how when retail investors start to take a little bit of care they start to get out. That's an indicator that they're about to miss out on a rally. Talk to me about your view on that. Why do you think that the retail investor just gets such a bad rep.
Well, it's a mystery to me. And I mean, you know that I work for a retail brekerage, so obviously I'm biased here. But individual investors have been stronger. They're the most have thought in this cycle. I mean, we take a quarterly survey it's called the Retail Investor Beat Survey, and we flat out ask investors, what are you investing in?
What are you thinking about? What are you worried about?
Where do you see your money going in the next three months? And their allocations have held pretty steady, even though they've diversified a little bit. They've become a little bit more tactical, and they, like every kind of investor, are worried about the future. They're watching their risks. So I'm not quite sure, you know, I think that there's been a change in psychology and sophistication of the retail investor.
You know, since the global financial crisis, and consumers, let's be honest, are in a really good position right now. And most people invest when they have money, So I have no doubt that people are taking chips off the table, let's be real. But in mass you know, I think investors are.
Still in it.
Hey, Vince, we got a company that people kind of come in contact with every day, General Mills, make, you know, consumer product stuff. They basically said they can no longer pass price increases through to me and you and Callie's walking down the supermarket aisle. That to me, if I'm the Federal Reserve, that's real inflation peaking, if not completely you know, coming down, which you know, it's just confirms
what we've seen from the government data. But there's a real company touching real people every day, you know, do I mean, does the market do? Do feed officials look at that kind of stuff?
They do? I mean I interviewed Charles Ploster once when I was with Wall Street Journal, and I started the conversation. He cut me off and said, yes, I do go to the supermarket and I do look at the cereal prices, So I'm gonna I'm gonna hope that the rest of them follow his lead and still do that. And I think it speaks volumes that when when you have a large retail company that touched retail and basically says we're at a wall. You know, people are just not going
to buy if we keep raising prices. That suggests something that's rolling over. That's a consumer that's starting to change their buying habits, and consumers do. It's the old story. If state gets too expensive, if beef's too expensive, you buy more checking and it happens, and people will move to alternatives if they have to. When a prices were through the roof, people went to alternatives for breakfast, and
I think they'll they'll do the same. And considering how much sugar is in cereal, it's probably good idea.
Okay, fair enough, but I do want to get your.
FX expertise while we have you here. You're an FX guy.
Obviously, how badly does a company like a General Mills or more broadly, other consumer packaged goods companies that have strong international exposure, how badly do they need some more downside for the dollar to be successful?
In the second half of the year big time because they don't hedge. And I've marketed to them forever and they don't. They somehow think the dollar is always going to be strong, and you know, they're they're going to have where the dollar is going to be weak rather and they're going to have this great situation. The dollar is going to come down.
It's overdone.
And you know, the the large corporations, the large cap companies just literally just don't hedge, and they you'll always see I mean, you watch the earnings numbers, and the earnings numbers that came out last year in particular were gruesome. With the strength of the dollars. They were reporting some huge FX losses.
So why don't they hedge?
It's a it's a cya story. I remember speaking to a guy buying a company buying a railroad in Australia, and I put a pitch together for them to save them potentially thirty million dollars ten percent, and the treasurer said to me, flat out, he said, if I do this trade and you're wrong, I'll lose my job. I said, but what about if I'm right and you say thirty million dollars? He said, no, one will.
Knows every job is the same.
They said, there's no reason for me to take this kind of risk. I don't get paid to save the company money on this scenario.
Interesting, Kelly, for your clients, your customers, what are you suggesting sector wise they allocate some where did they go in the market here? Do you have any some sectors that get that screen well for you guys?
Yeah?
So when I think about sector allocations, first, I think about the economic trend, and I think that's pretty clear at the moment. The FED has the economy and the vice a vice. They're not letting up anytime soon.
You know.
If we hit a recession, then you have to rethink the sector allocations, of course, But for now, in a slow and growth, high rate environment, I think it makes sense to look a little bit at defensives while keeping your toes and some quality risk as well. When I say quality risk, I mean looking at those rate sensitive sectors, looking at those sectors that do well in an early bull market, but focusing on the bigger.
Companies that you think can make it through.
So where does tech fall out in there?
For you?
Because Tech's been you know, the miracle sevens that have been just kind of the stalwarts so far this year, making up a lot of what they lost last year, granted, but worst tech fit in for you.
Guys, Well, we all know that there are a lot of flavors at tech. So there's big tech, you know, there are the AI, you know, rising stars that people have been looking at. I like to tell people this. You know, if you're looking at the speculative smaller tech companies that you you know, maybe believe in their story, then sure, stay invested in that. But at the same time, remember that this is a very tough operating environment for them.
Investment is going down, especially in the early stage companies, and these are the types of businesses that get squeezed by the higher costs and you know, higher.
Higher financing rates generally.
So, you know, big tech obviously they operate in the same environment.
You know, I have some thoughts.
On if they'll lead the next wool market. They're looking a little big and bloated to me. But big and bloated could work here. You know, they have really big cash modes and they have strong, healthy profit margins. So investors looking at big tech that doesn't surprise me. I think that that's a smart idea, especially if you're thinking bigger and durable, smaller tech.
You know, I would say, probably think twice about that.
A lot of people looking into AI as well.
Yes, yeah, so we've seen that on our platform, you know, we see it in the surveys that we watch.
And does that surprise you? It doesn't surprise me.
I mean there's a lot of hype out there around AI, and I think, you know, you have a good argument for saying that AI will probably change the world.
In some form or fashion.
You know, I'm a little cautious about how how much we attribute to AI at the moment. You know, I think it's a groundbreaking technology, but we need to see it flow into economic productivity. We need companies to spend on it, we need we need real utility from it. We don't just need to talk about it. And I think we can get there, but it's too early to tell.
I Ben's real quick. Just about thirty seconds. I'm going at WTI crude oil sixty nine dollars a barrel. I mean, where does it go from here? Do I just have to be right on demand?
I think it's actually going to be more of a supply issue. I think for it to go up I think the Sudis are going to have to end engineer another cut, opek engineer another cut. We're not yet, As as Kelly said, We're in a slower growth environment. This isn't an explosive growth environment. I don't think it's going to come from the demand side as much as it needs to be reduced from the supply side. I mean, we keep hearing about you know. I mean they just
cut recently yep, and oil went down yep. So it clearly isn't a demand issue to be There's just too much supply out there.
All right, Vince, thanks so much for joining us. Vince Cignorella, macro strategist for Bloomberg News, and Kellie Cox, us equity analyst with Intro, joining us here in our Bloomberg Interactive Broker Studio. We appreciate getting both of them together talking about these markets.
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Madison Mills, and Paul Tween Here in our Bloomer Interactive Broker's studio, let's talk real estate. Let's talk residential real estate, and we can do that with our next guest, Selma Hepbitt. She's a chief economist of core Logic. Salma, thanks so
much for joining us here. I guess my understanding is, if you want to buy a new home, you really only have one choice because people aren't selling their existing home, so you got to buy a new home new construction, and that had a huge number, the fastest pace in more than a year. Just recently, give us a lay of the land of how the residential real estate market is right now.
Yeah, of course, thanks for having me on the show. So home sales activity are sort of a tale of two different markets. In terms of new home sales, they are doing really, really well, as you mentioned their increase to a fifteen month high, as builders have been able to provide more incentives on one hand, and on the other hand, as existing home sale inventory is almost non existent in many markets.
So what needs to happen to change that?
I know that's kind of the million dollar question here, but is there anything that I mean.
That can be done to kind of shift that dynamic.
Well, I think, you.
Know, the further we move away from those three percent mortgages, and as people you know, and there's always a natural transition that people go to through and sell their homes and you know, they get a divorce, they have to move for schools, they have to move closer to families. So there's always that natural process of home sales activity that happens. And so one combined with the other, I think down the road we are likely to see more
new home sales on the market. The other thing is, you know, baby boomers are the largest cohort that with the highest home ownership rate, and of some fifty percent of baby Boomers have on their homes free and clear, and so for them, low mortgage rates, you know, are not making any difference right now. It's more about making that decision to leave their home, you know, and in light of the fact that that home prices have gone up so much, so that may be a difficult decision
for them. But the mortgage rates themselves are not a constraining factor. So I think, you know, again, as we as we move away from those really really favorable mortgage rates, we're likely to see more turnover in terms of existing home sales.
So what are the builders actually building these days? Because it seems like what I hear from you know, pros like you, we really need you know, kind of first time home buyer kind of homes, entry level homes, and that's not the stuff that's getting built. Because when I talk to homebuilders, they say, I can make a much better profit margin on some of these McMansions and I can on an entry level house. What are they actually building these days?
Well, I mean, so you know, it's very different regionally, very much. And I think in markets where you don't have a lot of regulatory constraints which increase the cost of construction, that those are the areas where you're likely
to see more affordable or smaller homes, you know. And and then on the on the flip side, the markets that are more expensive, such as the West Coast markets and Mountain West markets with a lot of regulatory constraints, a lot of costs coming into the construction just to start build building a home, that's where we are not likely to see a lot of affordable housing. So you know, it plays out very interestingly in how where people are moving.
So people are moving to those more affordable parts of the country and to you know, where there is more new construction because that's where they can afford.
Have we seen a reversal or at least declines though, and people moving to those areas that are a little are a little bit more affordable as we've seen you know, employers pushing people to get back into the office for example, have we seen that decline? And you know, people moving from New York City to Austin and for example, right.
I mean, I think we do.
But again there's two different types of buyers. There is the retired buyer and there is the buyer that is still working. And for the buyer that's still working, they
are likely to be going back to larger cities. And in our coreologic homepress index, and actually a case Shiller index that came out yesterday showed a stronger home press appreciation or at least a less of a declined deceleration in home press appreciation in markets that are more larger employment markets such as Boston and Chicago for example.
And then you still have the.
Markets in southeast and south in Texas and Florida, and Carolina's for example, where you do have retiree is going and where you do have those folks that are not necessarily tied to a desk in an office. So, you know, I would say that the rate of migration has slowed in some ways, but it has not completely stalled, you know. I think what we're seeing is we're seeing trends going
back to pre pandemic levels. And you know, even at those times, we did see a lot of migration to those more affordable markets.
Someone talk to us about just kind of this new construction market, new home sales market. We've heard that some builders are actually offering to buy down a buyer's mortgage. So the six or seven percent maybe is more like a three or four percent are you seeing? Is that pervasive out there? Is that a good business practice? Is that what's needed to get people into these homes?
Well, I think in terms of affordability, it does seem like it was needed. It wasn't until you know, in new home sales inventory climb to some ten months supply at the end of last year when mortgage rates peaked and seven percent, and that's when homebuilders started of providing mortgage rade buydowns and we did see home buyers coming back sort of in hoards in some way. I mean we can see that by the numbers that were just
released yes today. So people are sensitive to mortgage expenses, and typical mortgage payment rose to all time high at the end of last year. So a lot of people are pushed out of the market. So I think it is helping, it is helping bring folks back. But you know, on the other side, I think one thing we have to keep in mind is that people, you know, there is no inventory in a lot of markets out there. There's just simply nothing to buy. So people are turning
towards areas where there is something to buy. Because we do have you know, millennial population largest cohort in the US that is becoming of coming off first time home buying age. And there's some fifteen million of them. And so they you know, they have good jobs, they you know, they went through school, they have good incomes, and so they are you know, likely to want to buy a home.
Irrespectable mortgage rates are right now, looking at the overall share of mortgages that were they were originated with mortgage rate buydowns, it has increased from zero. You know when we were at a record low mortgage rates to some three percent at its highest points in November in November of last year. So it does seem, you know, it's not a huge increase, but it is. It has helped us spur market activity again.
Some really quickly.
Final thirty seconds here to what extent are some of the headwinds you're talking about forcing millennials to kind of just say, all right.
I'm never going to own a home. I'm just going to keep renting. Are you seeing that?
Yeah?
I mean I think that's always sort of been the case for younger you know, younger people when they were in their early twenties and up to you know, maybe twenty five, and they you know, get out of school and they get that first job and maybe it's not paying what they were hoping to, so they're very pessimistic
about their home ownership opportunities. I mean, when you think back about a decade ago when we were talking about millennials, you know, becoming that eventually becoming that largest population, and we survey them and they said, no, I will never buy because what's the point, you know, it's so expensive,
and they eventually did. So I think, you know, if We give people enough time to you know, understand housing market conditions to save some down payment, you know, and their wages go up and they they couple with another person to have more down payment and more income for that home. I think they will, they will come into the market.
Salma, thank you so much for joining us. I always appreciate getting your thoughts and analysis. Sama have chief economist at core Logic talking about the residential real estate market again. We got that new home sales number was just really gangbusters and the fastest pace in more than a year.
Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at 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 Faul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.