Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside my co host Matt Miller.
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Find the Bloomberg Markets podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com, slash podcast rate and smack in the middle of earning season here, lots going on, but we do have a big day tomorrow for the market, and then as a Federal Reserve is going to meet and we're gonna hear what they're gonna do with interest rates and get a little bit of a preview. Here, Lydia Bussor joins us. She's a senior economist at e Y Parthanachi joins us live here
in our Bloomberg Interactive Broker studio. So, Lydia, what do you guys at Ey, what do you think you're going to hear from this Federal Reserve tomorrow when we hear from Fed Chairman J Powell.
Sure? So, I think at this stage the twenty five bases front rate hike is pretty much baked in, so the focus will really be on the press conference, I think Fetcher Palell, we'll want to maintain that hockey Ish stilt and keep the options open in terms of you know, potentially hiking again before the end of the year. So we're likely to see, you know, to still have that hockey tone and at the same time also you know,
sticking to that slower pace of tightening. So in our view, we're likely to see the Federal Reserve skipping another rate hike in September, and by November, we think that the economic activity will have slowed significantly and we will have seen inflation also coming back down quite significantly as well, and that will you know, lead the Fed to stay on the sidelines. And so we think we tomorrow is going to be the last rate hike in the cycle.
When it comes to economies in the recession calls, it's really become dicey. If you look at the ECFC function in the Bloomberg terminal, the revisions for the second and third quarter have been adjusted higher. How do you view wherethy economy is projected to go in the US? Because even just looking at the IMF this morning, we ended up lipping the world out look just based on the strength that we have seen in the US and the stability there.
Yeah, I mean, we've seen some encouraging science for the economy. When we look at the latest economic data and from you know, our conversations also with our clients, we are seeing more caution from consumers and businesses, but we're not seeing a private sector retrenchment in terms of activity. So
we are seeing you know, downshifting economic activity. We are seeing that moderation and inflation, and we are also seeing that you know, soft rebalancing in the label market and that's definitely led you know, forecasters to raise their expectations for growth this year, and also it has also led
us to you know, lower our odds of our recession. Now, I think in this environment, it's still important to remember that there are some strong headwinds currently facing the economy and that includes tighter credit conditions and that's going to continue to put downward pressure on the economy in the second half of the year. So we are expecting to see some recession conditions later this year.
You know, the US Consumer Conference came out as John Tucker was just reporting a two year high. I found the Federal Reserve and I see that data point, I'm like I can raise rates some more.
Yeah, risk, Yeah, I mean, consumers have showed some resilience. We've seen consumers continuing to spend despite higher interest rates, despite the fact that you know, credit has become harder to access and more expensive. And so that resilience has been you know, tied to excess savings and the fact that they've been able to draw down on these excess savings to continue to spend. And at the same time, you know, it's important also to think about some of
the headwinds facing the consumer. We still have high inflation, they can no longer rely on these excess savings to support spending. And when we look at you know, the fall, we're going to have the restart or the student loan repayments, and that's also going to be a headwind for the consumer. So the consumers continue to spend, but they are more cautious. They are also more selective with their spendings.
On Friday, we actually get the Employment Costs Index, which is quarterly. We all know Pala and other policy makers wash up very closely the gauge wage inflation, but also their preferre gauge when it comes to PCE. And then in between this decision and then the one on September twentieth. We still have a batch of other CPI data PPI as well as PCE. Will that be enough to where if it continues to be enough for the Fed to actually conclude this tightening cycle.
Yes, that's the real question. I mean, the FED has become extremely data dependent, and so you know they're going to be closely looking at all these incoming data between non and September to make a decision. And that's a key reason why they really want to keep options open to that, you know, to a potential rate hike. When it comes to wage growth, we know that the FED is going to be closely looking at the ECI. I think there are some good reasons to think that we're
going to see some moderation on the wagefront. We've seen that rebalancing in the label market making some progress, and at the same time we are also seeing the services side of inflation also starting to cool as well. So we're expecting, you know, wage growth to moderate, to show some slight moderation on Friday, and then also looking at the rest of the year.
LYDIA, can you explain to me and to our listeners why inflation in Europe is so much more persistent and difficult than it is here in the US.
I mean, I think in when you look at what's been happening in Europe, part of the story has also been tied to label markets. So there is some label market tightness and that's also what we've seen in the US. And then you know, if you look at the economy,
we've also seen some resilience in the European economy. We've seen you know, the europe and European economy performing quite well over the winter when we were expecting things to get worse, and so part of that, I think is also helps explain why, you know, inflation pressures have remained persistent in Europe.
Can the US pull off a soft learning because the dynamics with inflation being very different here than overseas.
If we continue to see some of the dynamics we're seeing right now in the economy, I think there is a chance that we could see a seft lending. I think the runway for the selft lending has become wider as we've seen that moderation in inflation, as we've seen that you know, resilience in economic activity, the economy is slowing, but it's not retrenching, so you know, consumers and businesses still spending and hiring, and the label market as well,
we need to continue to see that rebalancing. I think when you look at the label market, what's really encouraging as well is that rebound in the labor supply and the fact that labor force participation has also been rising when you look at primate liber force participation. So if we continue to see that rebalancing between supply and demand, and we continue to see that moderation in inflation, there is a chance that the economy, you know, could you know, pull up that self lending.
I think the economists are going to have to rewrite some of these textbooks going forward because I don't understand it and can't explain really why our labor market is as strong as it is here in the United States. Do you have a theory?
I mean, the tightness we're seeing in the label market right now is reflecting some of the label market dislocations that we've seen during the pandemic. We had this dramatic shock that really led to a huge decline in the labor supply, and that came at a time when labor demand became very strong, and so that mismatch in the label market has really generated a lot of label market tightness, and we saw wage growth, you know, raising very rapidly.
Some of these labor shortages have eased, and so that has led to the beginning of moderation in wage growth. But some of these labor shortages are also going to continue moving forward. And then we also have some demographic factor acting in the background as well and pulling down on labor force participation.
So if the Fed does indeed raise rates at least two more times this year, could that potentially be the policy mistake If we're waiting for those lagged effects after the last ten meetings where they raised rates that investors in everybody in the US is like projecting where this recession could be headed that everyone was waiting for. That could actually end up potentially tilting the economy into either recession or just a regime of slower growth.
Yeah, I mean, it's it's really hard to gauge, and and that's you know, the key question, you know, how to calibrate policy just enough to get that soft landing. We do think, you know, given our forecast for inflation to come back down quite significantly, significantly. We have head on infision at three percent by the end of the year, we have core inflation between you know, around three point five percent three point three point seven percent by the end of the year, and then when we look into
twenty twenty four, a further moderation in inflation. So we do think that given the outlook, you know one, that those rate hikes would be unnecessary in this context.
So just lastly quickly, on the core PCE, we're going to get that on Thursday, consensus is four percent, down from four point nine percent the prior period. It's going in the right direction, yes.
I mean PC infliction is going in the right direction, and core inflation in general. I think if you look at the rest of the year, we're likely to see headline inflation moving sideways as we got past these base effects, and I think it's the action is really going to happen on the core inflation side, and we're likely to see further on this inflation in core services inflation heading into twenty twenty four.
Sounds good to me. I don't know, Lydia Bussor, she's the expert, she's the senior econdomists at ey Parthann kind enough to come into our Bloomberg and Actor Broker study. We appreciate that, Thank you so much, Lydia. Looking at these markets just real quickly, just a little bit of green on the screen, I think people are kind of sitting on the sidelines waiting for what we're gonna see tomorrow.
And also on Thursday will be the first reading of second quarter GDP that did get revised a bit higher. If you're looking at the Alana Fed now though, they're thinking it's going to come in around two point four percent. Okay, Yeah, so that's something we've got to keep an eye on.
Verste So some decent GDP growth, moderating inflation. What's not that?
Like?
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Let's talk to Dana Peterson because I don't know do we have Danna yet? Because I want to get right to that data.
Yeah, she's here, Yeah about that conference consumer confidence, that monthly report that obviously came in around a two year high.
There.
Yeah, I want to get right to that because it came in and really surprising, I think on the upside. Dana Peterson joints us here. She is the chief economist at the conference board. Dana, talk to us about this consumer confidence data we got today. Something really got everybody's attention.
Absolutely, it was definitely stronger than what markets expected. And what's important is that we broke out of that range that we had been in for a very long time, seeing the highest reading SUNS two years ago. And it was not just present situation present confidence being elevated, but it was also expectations. So we saw breakouts for both of the underlying indicators.
Here.
One thing I'm curious about because last week when you were talking to us about the monthly report, when it comes to the leading economic indicators still pointing toward a potential recession in the US, how do you rectify when you're looking at that data versus when it comes to this sentiment and consumer confidence data.
Sure, well, the leading index does include expectations, so probably in the next reading we'll see the improvement in leading indicators, but certainly up through the last measure it's collecting information on the yield curve, which has been negative for some time. It's also collecting a lot of information on manufacturing. We know there is a manufacturing recession going on right now, so it's gathering up that info, and it's also collecting
some of the declines we've seen are rather worsening. We've seen in jobless claims, which I mean are still incredibly low, but it does capture monthly movements, and so when you pull all those things together, it's still flashing red for recession at some point over the next year. So it's it's not necessarily inconsistent. Consumers are saying that they're not as concerned about recession going forward, but there's still that risk out there that the leading indicators is showing us.
So one of the numbers that really jumped out of me, Dana was the Conference board expectations came in an eighty eight point three. That's versus a revised hire eighty for last period. Put into context what an eighty eight point three means.
Yeah, so anything above eighty means that consumers are not expecting recession, and anything below means they are expecting recession within the next six to twelve months, so we've been hanging out below eighty for some time. So it really is significant that we had one reading that was right on the button and then one reading that's been that was notably above.
Where are the pain points when it comes to consumers? Because it looks like when it comes to stay some red flags bubbling up, especially when you're looking at auto delinquencies. What is that telling us right now? And at what threshold does it need to end up happening and hit to be more of an issue when it comes to a pullback in consumer spending and what that could mean for the trajectory of GDP.
Sure, So I think for you have to break it up into goods and services. For goods, consumers have been feeling the pressure from higher interest rates, and certainly if you're starting to see delinquencies go up, that's because interest
rates are rising. So anyone who had been financing something, but usually not a car because that's usually a five year fixed rate, but anything that might be increasing in the rate, then that's going to be a weight on consumers and they're probably going to pull back on durables. So when we look at the six months mooth or moving average, of the conference boards buying indicators, but the
most part they're showing some weakness. But we also ask a special question about services and what consumers are saying, and services don't usually get affected by the interest rate, which is a big challenge for the FED. But they're saying there will to buy fewer things that they want and more things that they need. And so I think that's significant in terms of a shift in what people
are actually spending on. When it comes to services, they're spending on things that they can't live without and less on the things that they may just desire.
Dana, you know the consumer confidence number of one seventeen here, the highest in two years. I would think that a strong labor market has to be a big component of that. Just explain to us how labor kind of weaves into that consumer confidence number.
Absolutely, we ask about labor in a number of places. We ask it for the present situation and for the expectations, and in both of those measures, consumers are saying, yes, we think the labor market's doing well in terms of current conditions. There are more jobs out there than we even need, so jobs are easy to get. When it comes to expectations, they're saying, yes, we still think we're
going to be employed in the future. And certainly when we ask CEOs what they're doing with respect to the labor market, many of them are still saying they're hiring, and then a lot of them are actually just holding on to workers. They're hoarding workers, they're not looking to let people go. So I think that's also showing up in consumer sentiment of confidence with regard to the labor market.
And certainly, if you're working and your wages have risen a bit and you're seeing inflation come off and your real wages a rising, you're going to feel better. And I think that's what's being exhibit here, exhibited here in today's report.
Yeah, one of the things that's a new concept to me is hoarding workers. I don't think i've heard of that before. Is that something you economists have seen before.
I'm sure that's happened in the past, but this is definitely something that is very noticeable now. And I think the reason why we're having hoarding is because of labor shortages. And many businesses worked really hard to attract labor, and they're also working really hard to retain labor, and so they don't want to let people go, especially if they think that maybe they're might be a recession. But it's not going to be that bad. It's not going to
be that long. So if that's the situation, you hold on to your workers, you hold on to your talent, and you don't let them all go and then have to come back six to nine months later and bring them back. We hire them at a higher price point. So that's something that is a phenomenon that I mean, I can't necessarily say if that's ever happened to before. I'm sure it has, but certainly we're seeing it right now and it's an important development that's affecting the labor market.
Dana, as an economist, how many more rate increases do you think the US economy can handle as we're waiting on those lagged effects.
Well, that's just the thing. It's the Fed has already raised rates by five hundred basis points, and nonetheless, consumers are out there spending and businesses aren't letting people go very much, so the economy can still handle it. So we expect at least two more interest rate hikes from the Fed, definitely this week and then potentially in September. Although that September hike, maybe later if the FED says that they want more time to sit and wait and
see how those lags play out. But certainly, for the most part, the economy has been able to manage the increases in interest rates, and it's not clear like how far the FED can go before something, well, the economy itself breaks.
So what do you expect or what's what are the good folks at the conference board A conference board expect to hear from FED Chairman j Pal tomorrow.
Well, we expect that the chair will say that there have been positive developments. I mean, they're looking at these consumer confidence measures just like we are. We send them to them and they well they get it when everybody else does, is to be clear, and they're looking at that. They're also looking at the fact that CPI inflation has come off. That's not their preferred measure. But they're going to get the BEA data later this week and I'm sure some of the action that we saw in the
CPI will be reflected there. So calmer inflation, lower consumer inflation expectations, a more upbeat consumer. Also, we're seeing that, yes, there is this very weak growth in manufacturing, but services are still doing okay. So with all of that, I would say the FED would be pleased with the slowing inflation, but not happy with the ongoing straight that we've seen in the labor market. That's challenging keeping inflation or helping
inflation to fall further. So I think with that we're probably going to see another hike, certainly this week, and then another one before year end.
We only have about twenty seconds left. But the dissents when it comes to the FED decision, what are you watching?
Well, certainly there may be some descents in terms of those who think that the FED is done enough and we should pause. We've heard that, you know, from a number of participants in the FOMC. So it'd be curious to see if they actually put that down on paper and say, look, we've done enough. We need to sit and wait and see how all these lags work through the economy.
I would be one of those people, just so you know. Dana Peterson, chief Economists for the Conference Board, joins us here. We appreciate getting her thoughts here. We had some good consumer confidence data coming out from the Conference Board today. One seventeen consensus was for one twelve, so much better than that, and it was the best in two years. So how about that consumer? Hanging in there tough.
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Paul. We have this potential ups strike from workers that might be coming up very soon. So joining us now is Lee Klascow, who at Bloomberg Intelligence, he's the sector head and senior analyst of Free Transportation at BI. Is going to walk us through this. Lee talk to us about what's happening here, where to stocks, where do talks stand, and what should we expect to happen from here out.
Yeah, so what we know as of right now is that the two parties are at the negotiating tables. They took a time out because they're really far apart on you know, where we can where part time wages should be. The teamsters wanted significant raises in the ups put its at the time, it's it's best offer on the table, and that wasn't good enough for the teamsters, and so
the teamsters walked away from from the table. They've agreed on a lot of a lot of other issues ups also, you know, gave up the recognition of a certain type of driver, you know, to to make it just one class of driver. But it's really now the focus is on the part time aspect pay and you know, you know, we think that cooler heads will prevail. Obviously, as we get closer to that August first deadline, the probability of
his strike increases. But you know, from our vantage point, the company under the leadership of Carol to May truly has at least communicated that they're looking for a win win win situation in this negotiation. But I would say the teamsters, you know, the vehetoric out of their camp
is a little more aggressive. There's new leadership there, and you know, I think he wants to prove that he's not like the old leadership, which some people might have thought that koutout a little bit too much to the management teams that they were negotiating with.
You know, Lee, I'm probably like a lot of people during the pandemic. Every day the UPS guy showed up every day, the FedEx woman showed up, you know with the packages. Talk about essential workers here, does that factor in at all to kind of negotiationship, because I kind of feel like I got to throw these guys a little something extra.
Yeah, you know, listen, at the end of the day, during the pandemic, we're essential workers to our everyday lives. Today they are somewhat essential. You know, they deliver healthcare and pharmaceuticals that are important to our everyday life, not just you know, ordering rubber bands from Amazon. But you know, they do do provide a critical role, not only in the economy, but in our lives.
You know.
That being said, you know, a UPS part time driver, on average, according to the company, makes around twenty bucks an hour. And that's not just all they're making. They get healthcare and they don't really pay premiums. They get to participate in tuition reimbursement and also a retirement plan, so you know, there are a lot of benefits. It's not just the twenty dollars an hour. You know, currently the floor for part time workers fifteen fifty an hour.
But again, you know, I think the teamsters are looking to get that too closer to twenty and you know, I think that they're going to find some sort of middle ground. You know, I don't really know who if there's going to be true winner or a loser. I think the part time employees are probably going to be
earning more, uh. And you know, the union also wants to kind of transfer or or create more full time jobs and less part time jobs uh for for their member, So I think that's something that they're looking to to
do as well. And you know, the union is also looking for maybe you know, kind of like a one time benefit for you know, that work that they've done during the pandemic that you know, you mentioned a lot of them were out there working when when when most of us were home, you know, coward in our homes.
Do we know how close the two sides are at potentially reaching a.
Deal, I mean, I honestly don't.
You know.
It really depends on how much either side will bend. I'm guessing ups would will will will get closer to the twenty dollars mark than you know, uh, than than than what uh the team Seris might want. But you know, I think they're gonna you know, at the end of the day. I don't know, but like I think they're gonna they're gonna find some sort of middle ground because at the end of the day, you know, while the union you know, is threatening a strike, most of the
workers don't want to strike. It's disruptive for them. You know, there are some workers that might cross the picket lines, and obviously that that's might not be great from morale. They get, you know, a very small stipend when they when they strike, something like five or eight five to eight hundred dollars a week, which is, you know, not not a lot of money, but you know, it's something they get and they have families to feed.
You know.
If there is a strike, you know, we believe that it will be very short in duration. We think anything over a week will be extremely disruptive to supply chains. Obviously a week strike would still be disruptive to a lot of folks, but you know, it could also be an opportunity for for UPS's competitors or even other modes of transportation to pick up more volumes in an area where we're kind of currently in a freight recession because freight demand has been down for you know, a least a year.
So then what happens if a deal isn't done by August first.
It depends, Well, there's a couple of things that can happen. That the Teamsters can strike like they said they were going to, or maybe they can have a cooling off period and agree to meet again in a week or two. You know, there's a lot of different things that could happen. But the rhetoric out of the Teamsters is pretty aggressive in terms that you know, they are going to strike
if there's not an agreement reach. So if there is not an agreement reach, I'm assuming that's the likely outcome, and you know, politicians, whether it's the Biden administration or other organizations, are hard at work making sure that these two groups find some sort of common ground and then strike doesn't happen. You know, ups touches. It's been estimated
around five to six percent of of US GDP. I've seen some estimates out there on the Bloomberg terminal about you know, a strike could add twenty bases points to inflation. So obviously, you know, the Biden administration is very cognizant of that, and you know they don't want to see the derailment of the economy or a soft landing just
to become a recession. So you know, you know, I'm assuming that the Biden administration, through back channels is working very hard to try to get the two sides together.
Leah, I know you also cover the stock of FedEx, So what kind of upside would FedEx perhaps see if there were or striker? Maybe if there's not a strike, I'm just want to hedge my bets here and switch my cargo from ups to fed X.
Yeah, so we all knew, I we all knew this negotiation with the team series was coming. So this is really is in new news.
You know.
FedEx kind of went out to the marketplace and said, you know, if you think you're going to need us, you better come to us sooner than later. Last month and their earnings call, their CMO on the call talked about the fact that, you know, while they're not winning a lot of share as of right now, it's opening a lot of doors to have new conversations with customers they might have not talked to. I think net net
it's going to be a positive for FedEx. You know, you're not going to see their volumes jump ten percent, you know this quarter because of the strike. Again, assuming that it's not a prolonged stripe, because you know, FedEx doesn't have like gobs of excess capacity. They're not just going to take anything that comes. They have to be very choosy about making sure that the freight that they do accept into their network is highly profitable freight for them.
You touched a little bit on what the potential impacts could be, but what sort of like rippling effects when it comes to package deliveries and things like this could end up happening if a deal isn't reached.
Yeah, So, you know, so if you're if you're a shipper, either your stuff is just going to get delayed and you're just going to like, Okay, I'm going to wait through this.
You know.
UPS has has said at least there were press reports that they've said that they can handle four million packages a day. They do around twenty so and we're talking about their domestic business, so you know, we're talking you know about you know, twenty percent of their overall volumes. You're also going to have people that might be might be crossing the picket line, so you know, call that
five million. So there's there's fifteen, there's fifteen million packages a day that are either going to be delayed or loss.
You know, there's estimates out there that about a third of that fifteen million might be lost for good, meaning that it might need to find different routes that can go through the US Postal Service, you can go through FedEx, you can go through there's a lot of regional parcel carriers, and it also could benefit truckload and lesson truckload carriers because they might be shipping things closer to distribution areas and then handing it off to whether the post Office
or local final mile delivery companies. So you know, a disruption would be a benefit to a lot of transportation companies that we cover, whether it's you know, the LTL space like like an XBO or a Dominion or trucklow space like the Knight Swifts of the world, and even the brokers, because you know, if you're a shipper and you're getting desperate, yeah, to get your free from point A to point B, you're going to find all your
You're going to try to find all your channels. So as H Robinson or RXO might might benefit from that. And again we're not talking about like there's all going to be like a huge jump in volume games. It should be like, you know, an incremental positive.
All right, Lee, great stuff, as always lead classical senior transportation analyst for Bloomberg Intelligence.
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I want to move over to our next guest, who's in studio with Paul and myself, Scott Kaher, who's head of senior Loans at Neuvene, who's joining us to discuss the loan activity in the US and the credit quality among businesses as well as banks. Talk te us about how big the loan asset classes, because I think it's something wrong. One and a half trillion dollars when it comes to assets. It's actually larger than high yield in
private credit. And I don't think a lot of people actually know what's happening in that space right now, that's correct.
You know, it's interesting that this is a market that has really grown over the last ten years. And if you think about what the loan market the broadly syndicated loan market really is. It's where US companies that are not investment grade go to get financing. And one of the things that investors don't really understand about this market is if you're investing in this market, you're really buying a broad swath of the US economy.
Right.
If you think about a lot of the loans that are in our portfolios are things you and I touch every day, things like Uber, Burger King, Caesar's Entertainment adet. You know, if you put in contacts everywhere in BOSH and Loan and so you know, these are loans that are in many cases public companies, large leading market shares. And the other thing that I don't think people really understand about the loan market is there two very unique qualities that don't exist in other parts of fixed income
and that they have no duration, right. And so as the FED has been raising rates, it has had no impact on the price of loans, because as the FED raises rates, the overall yield or coupon on loans steps up. And the other unique aspect of the loan market is that these loans that we're making to these companies are first in line to be repaid and so something goes wrong, we get paid back first. Just like the mortgage on
your house. If you choose not to pay back the mortgage and the bank comes to get your house, well they are going to pay themselves off first to protect themselves. And so those very unique factors in the market have really allowed for you know, very good volatility in return streams over long periods of time.
So just I've seen, I was fortunate enough to receive some of the best credit training on Wall Street and that was the Chase Manhattan Bank training program back in the day one Chase mant in Plaza, so I can handle my own there and I'll end up to six times cash flow. About that. What sectors do you guys like right now in the senior loan market?
Sure?
So you know, what we've really been focused on over the last two years is one going back twenty four months when inflation was a big problem, right and really trying to avoid sectors and sub sectors that were going to hit the profitability of certain companies and industries i e. Industrials, food and things like that where companies were going to
get squeezed. And now on the flip side, as we've seen inflation really start to abate, come down, and a number of those companies, the price of those loans traded down because of the rise in inflation and the hit to earnings. Really focusing on companies and industries where inflation has flipped from a headwind to a tailwind, So think about things like industrial food manufacturing companies like that where
we're really seeing a nice uplift to earnings. But not only that, in many cases we've been able to buy loans at a discount because again, our market trades. That's the other thing I don't think people understand. Our market trades every single day. We have transparency on the price of our loans, so we can go in if a company misses numbers, if there are operational issues and a loan trades down five, ten, fifteen points, we can go in and buy and sell those loans every single day.
And so what we were doing going back eight to twelve months as we saw the inflection, as we anticipated numbers starting to get better, able to buy loans in the high eighties, low nineties with very nice yields in the double digits, and as inflation has come down and earnings that has inflected. We've really been able to find some opportunities that have traded up very nicely.
So then why don't retail investors have exposure to that space? Is it just something that's maybe not as sexy of an maybe asset class is when you're thinking about some of these high flyers in the stock market.
Yes, it's a great question, and candidly it's a little bit of a head scratcher as to why. I think one of the reasons is irregular investors cannot go buy an individual alone. They have to buy a mutual fund or an ETF. And so what I think has happened is in the institutional space, what we've seen over the last ten years is institutional pension funds, endowments, they've doubled
their exposure to the loan market. It's gone from just over two hundred billion dollars to over four hundred billion dollars. Retail investors, on the other hand, their exposure to the loan market has essentially flatlined. And so retail investors only own about six percent of the loan market. And in my opinion, and maybe I'm a little bit biased, but if you think about what it offers floating rate zero correlation to the Barclays AG very low volatility relative. Yes, yes,
and so there's zero correlation to that AG right. It's also it's outperformed that index by over twenty percent over the last two years. But all of the return in volatility characteristics are something that we think is incredibly important for retail investors to understand and appreciate and add to their portfolios, just like institutional investors have recognized and allocated to over the last ten years.
Scott about thirty seconds left. Private credit has been a big market. We've seen the so much money flow to the private credit business. How does that impact your business?
You know, it has not impacted it really to any large degree. Private credit has Certainly.
They don't do they syndicate their loans out to you guys.
No, no, so private credit will put those loans on their balance sheets and hold those until maturity. There's also they don't those loans don't trade, and so the public market in the private market are really learning to coexist. There's a lot of important and attractive characteristics of the private market just like there are in the public markets, and they're very much complementary. So what you're going to
see going forward. Is the public market in the private market really coexisting in offering unique characteristics that we think investors will recognize and allocate both to private and to public credit.
Great stuff, Scott, thanks very much for coming in here. Really appreciate it. Scott Kahert, head of Senior Loans at Neuvene and assa class that we don't talk about enough, but it's us near and dear to my heart. I love the old credit alms credits hard and equity soft. I heard that a number of times. This is Bloomberg.
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Very difficult to be a media investor these days. I follow this sector for more than thirty years. Todays is as tough as it's ever been. You've got this whole business model evolution or you know, switching from the core you know, cable TV model now to the streaming model. You don't know where those economics are going. And now you've got a couple of strikes in the industry, one with the writers, another with the actors. We want to get kind of the latest on what's going on there,
what's really some of the fundamental issues here. And we're joined by Lisa Takayuchi Cullen, vice president of Film, TV and Streaming for the Writer's Guild of America East. So I'm basing, I guess, and that's kind of a New York thing. Lisa, thanks so much for joining us from the writer's perspective. Can you kind of just frame out for us what your issues are with the indusue or what the issues are with the media companies.
Sure, our main issue is compensation as the issue for I think a lot of workers across America today, our compensation has been eroding in a time of what people consider peak entertainment, peak television, peak film. There are record numbers of people going to see these things and watching them on streaming at home and record profits, record revenues, while meanwhile, the people who create the content have been
making less and less. TV writers in particular are making and justin for inflation about twenty five percent less than they were ten years ago. And this is a time when television has been exploding as a medium and as companies have been raking in the revenues and profits. So all we're asking for, really, just like the actors, just like the crew, just like the teamsters, is our fair share of the product that we create.
And what specifically are you when you come to the writers are they looking for to get back to work? What are the demands right now?
The demands are that the studios meet our proposals and actually engage in negotiation on them. Our proposals remain exactly what they were when we began the strike on May first.
And can you summarize kind of what they are? The main proposals?
Sure, The main one is raised in our minimum rates. The contract that we work under is called the Minimum Basic Agreement, and essentially it outlines what the minimum rates can be for film and TV writing in our industry. And we are trying to negotiate a hike in those rates because, adjusting again for the spiking inflation, writers are making far less than they were to a point that it is simply not sustainable. We have members who cannot make the rent who are on actual food stamps. People
don't think of that when they think of Hollywood. They think that life is glamorous and that we're all rich and we own yachts and private jets, and most of are working people are middle class. If that now most of them are struggling to maintain a toe hold in the middle class. So it is raising our minimum rates. It is adjusting residuals for this age of streaming. That is a huge issue for both the writers and the actors.
We are not seeing anywhere close to the residuals that kept us afloat for decades back in the days when the model was not broken. But all of the studios jumped on the streaming bandwagon, and now here we are with this broken system where none of us are being compensated in a way that allows us to live. We're also fighting for some sustainability in our careers in both
film and television. We have seen our ability to manage our work and to create, you know, with our own creative licensing road TV writers are no longer allowed on sets if they're working on streaming shows because of the long delay in between a writer's room and when the actual production occurs. We're fighting for growth in the size of a writer's room, which is the room that convenes before a television show is made in order for writers to come up with the plot and to write all
of the episodes. The rooms are becoming smaller and smaller as the streaming budgets for writing shrink. And I say for writing because streaming budgets for shows and movies have exploded. Studios are spending what nineteen billion dollars a year on actually making these shows and movies. But the pie, the slices of the pie that writers are getting, is getting smaller and smaller. So we're fighting for all of those.
Things, Lisa. You know, I've covered the media industry as a financial analyst for more than thirty years, and I've never seen an industry that has so much uncertainty in the core business model. If I were an executive at a media company, my response might be our model is broken, and we don't know what the profitability of streaming is. We don't know how people are going to consume media
going forward. We're trying to adapt from what you mentioned correctly before, which is, you know, the traditional model that we all grew up with whether it was it was supported by cable subscriptions and one hundred million households paying money every month. That model's pretty much gone away. Now we're trying to replace it with this streaming model, but the economics are uncertain. Is there any do you guys? Is that an argument that resonates with you guys at all?
No, that's not our problem, right, I'm not the CEO of the company. I'm not the one who chose to enter into a major merger with another company or takeover of another company that places my company into a great amount of debts and now I'm not able to pay my bills. The companies are still making profits hand over fists, handover fist. They are still breaking in what is it now?
I think thirty billion dollars in profits from entertainment alone, And I'm not talking about Amazon's packaging business or Apple's computer business. From the studio companies, from the profits that they make just off of the product that we create. They're making thirty billion dollars in profits a year. So they're the ones who have to lie in the bed that they made. But it doesn't excuse them from having to pay their labor fairly.
Right.
How has the rise of streaming affected writer's compensation.
It has decimated writers compensation. Streaming has changed the way that we work. It used to be that under the network broadcast model, that writers could be employed forty forty five fifty weeks a year because the television shows would run for twenty episodes, twenty two episodes, twenty three and the rooms would would convene in the early summer, and they would run through the spring, and then there will
be a short break in between. Not only would we make the weekly pay that would sustain a middle class lifestyle, we also would make residuals, meaning that when those shows were read broadcast in foreign markets or on cable television, we would receive checks in the off times that perhaps we are not working on a show, or perhaps we're on a hiatus, that would pay our bills and continue to sustain a decent lifestyle. All of that has gone away.
Streaming has introduced the idea of what's called a mini room, which is a studio concept that is mini in every way, mini in size, mini in duration, mini in pay, and that means you gather together a very small number of writers and you pay them at the minimum rate allowed in our contract to produce ten episodes, and I say produced, meaning right, they're not actually producing it because again the
production occurs much later. But they're writing, say, ten episodes of television in ten weeks, and then they're sent off to you know, to try to fend for themselves for the rest of the year, and that is simply not sustainable.
Lisa, how far apart based on your understanding, how far apart are is the union and the industry? And second, how long are is the union prepared to stay out?
Sure? So, as an officer of the guild, I have been involved in the negotiations from the start, and I will say that that the studios simply refuse to even engage with us on our core issues. So I would say we're still far apart until they come back to us and say, okay, we hear you on your core issues. This is our counteroffer, and then we can come back with another counter offer. That's what a negotiation is.
And they have.
Refused to even negotiate on those points. So we do need to get there as far as how long we are willing to stay out. I talk to membership every single day, as do the other officers. And the other members of the negotiating committee and the other elected officials. And our unity is strong. Our solidarity is strong now that we have had one hundred and sixty thousand reinforcements. When say After joined us on the line, the feeling is that we have to get what we came for.
We have to get what we came for or else it is an absolutely an existential crisis for us. The career of writing for Hollywood will no longer exist. So I believe that we are willing to do what it takes.
All right, Lisa, thank you very much for taking the time. Really appreciate. I know what's a contentious issue on both sides, and hopefully both sides can come to an agreement sooner rather than later. A lot of jobs at stake and a lot of folks are depending upon.
Its you're listening to the tape Can's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa Play Bloomberg eleven thirty.
Jessy. Here's our next guest. Here's a who's who of some of the top names on Wall Street. Salomon Brothers, Oppenheimer, Goldman, Sachs, Government of Singapore as we kids call them, one gic Lehman Brothers. And now for the last I don't know, thirteen fourteen years, Bloomberg Intelligence.
It's quite the CV hop.
Top machinery analyst on Wall Street bar none Karen Uberheart, and she's here on our Bloomberg Interactive Broker studio. She's been covering machinery and all that kind of industrial stuff that we make.
For Helltale Signs of the economy.
Exactly right, Karen, thanks for joining us here. Let's talk about a company that we don't talk about enough, but it's one of Tom Keen's favorites, Minnesota Mining and Manufacturing three M. They has some good numbers today.
Yeah, they are. They have a big consumer exposure, so they're organic growth was actually down, but down less and expected, and they delivered. On the margin side. They've done a huge restructuring. It seems to be gaining some traction and also expectations are so low for three M now since they've had a lot of problems particularly the litigation problems.
Boy, they're in everything safety and industrial, transportation, electronics, healthcare, consumer. This is the conglomerate, right yeah, yeah, which.
They make everything from the post it's to grinding wheels.
Yeah.
Literally our GDP.
I mean, looking at that stock ticker symbol M up about five percent so on Pacepert's best days since the beginning of June. You look at it stock though, you're to date down close to nine percent. What's the story there?
They have a tens of billions of dollars litigation problem for environmental p Fast is the name of the chemical that has been hurting water, and so that's that could be twenty twenty five billion dollars. They've got another one on a ear plugs for the military. So they've got a lingering thirty billion, forty billion plus litigation that potentially they would have to pay over a long period of time.
That's the biggest problem. And then they've also disappointed on you know, we're on performance on operating, but we've had two quarters now where they beat on revenue and they beat a lot on earning. So I think the reason it's up is people are saying, oh, is it coming together on the operating.
Side Saint Paul, Minnesota. The home, great town. I love Saint Paul. All right, great hotel, I can't remember the name of it, but that's where you always stay when you go to marketing in Saint Paul. All right, let's go to GE. What is GE today? Tell us what they own because all I remember, it's been an investment banker's dream, just selling off businesses left and right. So I'm not sure what's left? And then what do you expect from their earnings?
When I started covering, they were in eight businesses. They're now in three, and they're about to be in one. What's left is aerospace that will be a standalone company. And then what they're calling an energy company, and it's basically renewables and their big power business. The turbine is a big turbines, that's what's left. Those are going to go together, and aerospace is going to stand alone.
That's what's left. Really, so the GE will just be a pure play. Okay, aerospace, all right, So talk to about kind of what's left and how's it're performing. And they're going to be reporting earnings. What are we looking for?
Uh?
They they actually did report this morning and they beat by a lot. That's why this sun's up. And you know, aerospace is through the roof and people, you know, you're estimate, you estimate twenty percent growth, it was up twenty eight percent. You know, it's just it's just exploding on both the oe east side and also on the commercial after market side.
Yeah, looking at that stock, I mean, up six percent this morning and then you're to date up eighty percent, trading around multi year highs.
You've been waiting a decade a while for that, a while for that.
But the other thing is their other big they've their other side. The Vernova piece has really struggled largely because of the renewable business, and that came together nicely you know today as well, with huge orders, like a tripling of orders, and the losses were much less and expected because the volumes were up so much. The volumes were up twenty seven percent and the street was looking for
five percent. So that business is the one that's been, you know, hanging around their neck that they can they fix it. Can it be a good business. I'm not sure it can be a good business, but it's a lot better business.
Than than we thought.
And that's what's really going on.
So talk to us about this turnaround for Ge after it was kicked out of the Dow in twenty eighteen.
They you know, they they particularly in their power business business just fell out of bed and they had way too much capacity for the large turbines, you know that generate electricity people don't We don't use them anymore. The stuff that's there is will still be. The installed base is still good, but the growth rate of that market and the size of that market has been cut in half. Then you've got a win business that they've always lost. They've lost money in for a long period of time.
You know.
So you had a lot of lingering problems, and the fine and the finance UB was a real problem for them, and they basically got out of the credit sub and there are a lot of rights related to that. So it felt like they couldn't get out of their own way for a couple of years.
Actually, there's nobody better to ask this question, which is because you've known this company forever, what do you think today with hindsight, the legacy of Jack Welch.
Is I have said, and I've said this a while back, that someday they're gonna you know, they wrote the book The House that Jack Built. Someday they're going to write the book The Straw House that Jack Built. And I hope I do not get in.
Trouble for that, because I mean, there was a time when he was building up General Electric, mainly through acquisitions, presumably, you know, kind of that conglomerate model, trying to find businesses with great returns and all that kind of stuff and just building them up and building them up. And then GE owned everything from NBC Universal to turbine engines and light bulbs, light bulbs exactly, I mean, And that was the conglomerates. That was a real business strategy for
decades in this country. Jack Walsh arguably the most prominent proponent of that. Now that's I think probably the market has been saying for the last ten fifteen years plus, that's not where we want to be.
Well, they grew, he grew the finance up up to be fifty percent of GE's earnings. It was very profitable, and they got involved in a lot of financial things that they probably should not have been involved in.
But originally it was set up, Oh, you want to buy a hundred billion dollars, I mean one hundred million dollar piece of equipment for me, I'll help finance it, just like all that. And that's what it's back to.
That's what it's very small they financed like the big turbine equipment, et cetera. But they are out of all that other stuff. But they had to take huge write offs to.
Get out of that financial crisis.
And the other thing is he was, if you know, in my opinion, in order to get higher margins every single quarter, you know, he you know, I think they milked the R and D and they and they had to play catch up on that as well, and I think that was that was another problem.
You know.
So he really was, you know, the king of industrials for a while, but Emilt was left with a large headache.
When you're looking at these earnings results from three M to GE, what do you think these corporate profits in this particular segment of the S and P five hundred tell us about the direction of the economy.
You know, I don't think the economy is as bad as as people are anticipating. You know, people are worried about a fallout in the second half. Some markets are slowing, but it's a pretty narrow slow down it's certain consumer markets and more that that actually is probably spreading. But the industrial side is really solid. And if you see all the mega projects from on shoring, you know, the infrastructure a bild the IRA, which is why Wind is
doing so well. All this federal money is just going to prop up industrials and I don't really see we're gonna we're gonna see an industrial recession.
How about China? And your companies deal with China and like nobody's business, So what are they saying?
It's slow? The recovery is slower than expected? Uh uh? Three M actually has a large exposure to China and they said it was they're in recovery now and it was down eight percent?
Are they? I mean, what how are they framing the geopolitical risk around the US and China or China in the West?
People are you know? I would say that you're not going to see more dollars spent there because there is some concern about that. It's an important market. It's five to eight percent of sales for a lot of these companies. They can't pick up and leave, but they are certainly rethinking at least whether they're how the business is sized because we don't know what's going to happen politically, and the recovery just is really taking a while to get going.
So how did they just thirty seconds? What's kind of the top area that you're like, what's the hot.
The two hottest areas. Aerospace is just on fire, and that has a lot of legs. Also, anything climate related, like the HVAC business. Residential hvac is down, but the rest of the business is strong. And we've got a trillion dollars in money tax credits. I mean, well, if you it's three hundred million in tax credits and a trillion dollars when you gross it up of money as a result of the IRA.
Yep, all right, Karen Great. I've always appreciate getting you, getting your insight, you know her, Karen and her companies touch everything into this economy. It's amazing something looking at.
This industrial sector in the s and P five hundred trading around records.
Yeah, yep, good. Everybody wants to talk to Kareny Buhart now Coaren hoopmart Senior and also covers some machinery and all that industrial stuff for Bloomberg and Talents. Appreciate getting a few minutes.
You're listening to the tape. Cat's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Well, we've talked so much about particular industry groups that have really rebounded as things continue to reopen from the pandemic. And one of those, especially when you're looking at what's happening with some of these gym related stocks, looking at what's happening with Lifetime Group that's ticker symbol LTCH up close to actually more than fifty percent this year alone.
And who better to join us for our c suite conversation than Akarate, CEO at Lifetime Fitness, Who's joining us on zoom to discuss this company post the pandemic as well as earnings and the outlook when it comes to consumers as well as gym goers. And you've talked a lot Bachram about how when it comes to Lifetime Fitness, this isn't just a gym. It's supposed to be this
sort of country club experience. Talk to us about what's been the key deer success, especially when it comes to the reopening that you've had over the past year.
Fantastic. What we focused on from the time we reopened it was desirability for our customer. We worked on programming. We worked on much more elevated experiences across all aspects of what we offer, whether it's the beach clubs, our food, our spas, our personal training, small group training, our rough program, all of the different program We added pickleball at the sort of an incredible pace. We're almost six hundred courts today.
We will have at least seven hundred by the year year in one thousand by the end of next year. So we basically have listened to see what the customer wants and offer that at the most experiential level. Everything's working beautifully. We are completely happy with our results, right where we expect to be. We are doing this without any promotions, any sales, any salespeople. We're just focused on creating that desirability and the customer is pouring in. Our
results have been never better. We have the best margins. We rewired the company structurally the last year to make sure the decisions are made much more rapidly to satisfy the customer, and that has also generated massive improvement to our margins. So it's all good news, Barram.
Your stock is down fifteen percent today on your earnings. Your sales missed, disappoints. Talk to us about what happened with the latest quarter and kind of what your guidance is here.
That's honestly enigma. We didn't miss anything. The analysts have missed completely. They have tried to listen to our sort of tone about Ebada and they try to get to that Ebida by lower margins and just pushing the revenue numbers up. Our revenue is exactly where expected to be. It's within the range we gave the street. So I have no apologies for anyone. Our team is working their
cans off. Everybody is performing. We're super happy with the momentum of the business and where we can take it from here.
Well, it sounds like at the very least you needs somebody to manage streets expectations so you don't have that volatility in the stock. That would just be an aside from a former analyst. Talk to us about what are your growth drivers going forward here as you adjust kind of a new world where you know, people are getting back out again.
Yeah, you know. Actually the you know, the clubs are doing fantastic. Many clubs are at the point where we really are putting them on waitlist and then we just basically meeter the people in so that we can manage that experience. We have ability to basically create the rack rate where that we can create optimal experiential for the people.
We continue to create invent programming. The most recent one that we are in the guts of getting it rolled out by beginning of first fourth quarter this dynamic stretch. We'll have that rolled out to one hundred and fifty locations by October one. So we continually think, invent, reinvent opportunities to serve the customer in all aspects of their healthy living and healthy aging. And so we have many,
many other initiatives in the works. So I anticipate double digit growth for this company top one, bottom line for the foreseeable future.
Let's talk about the demographics, because the average membership is over two hundred dollars in some key areas per month, and more than forty percent of the members are under thirty five years old. So I'm curious when it comes to student loan repayments, how that could potentially impact your business.
Yeah, you know what, Honestly, I don't see that being a factor whatsoever. Our memberships are very broad, from very very young people to very very old people. We have kids from ninety days old in these clubs with their families all the way to eighty ninety year old members. So no one segment is going to have an impact in our business in a way that people think, oh my god, you know, the student loan is going to
make We're not seeing anything. In fact, the number one indication to the health of our membership is attrition race, which, as I mentioned earlier, June was the first month we saw after COVID reopening that we had attrition rates below twenty nineteen rates. Now that has fallen through with July and August having exactly the same friends, and we take attritions today for September, so we already know the numbers for July and August attritions. So it's all showing complete
signs of strength. We're not seeing any weakness in our clubs or our performance. So and again the students and those who can be impacted by this is going to be a small section. Lifetime is so broad in terms of our offering, in terms of our demographic that I don't think any one sector is going to make a difference, and we're us not being able to deliver the numbers we guide the street.
All right, Barron, thanks so much for joining us. Botrom ak Rodi, CEO of Lifetime Group Holdings. That is a New York stock A change list is stocking on public last year. I'm sorry twenty twenty one at eighteen dollars to share the symbols lth that's a ticker fload into your Bloomberg terminal.
Thanks for listening to the Bloomberg Mark Kids 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.
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