Investor Sentiment Has Moved To The Negative Side: Grohowski

on holiday for this July fourth week. But he's not on holiday, Leo Grohowski. He is the chief investment officer for b n y Melon Wealth Management, helping to manage nearly two hundred and fifty billion dollars. He joins us in our eleven three oh studios. Leo, thanks for coming in happy July four Um, tell me about people's perception of how markets, how equity more cots specifically have behaved, because if you look at the SMP five hundred, we're up not even one and a half percent so far

for the year. But if you're invested in stocks like Netflix or Amazon dot Com, you've got a different perspective on how the market is done. Yeah, no, no doubt, PAM. I think UM. Also, after last year, I think investors, UM, most of them ratcheted down their expectations for this year as a whole. And so as we tally sort of the mediear report card, you know, returns are very unexciting, UM, low single digits for most balanced portfolios. And this remains

a very unloved market. I mean an investors sentiment has actually moved to the negative side and uh, and so there's enough skepticism out there where it's become more palpable. And UM, I think when you combine that with investors, you know, looking at a lot of profits over the years, UM, it's not a surprise to see some selling pressure here on the on the equity markets. Where does the activity

come from? Oh my goodness, I think, uh, just you know, open up the paper, you know, watch the TV programs, and most of it is on the geo political front. And certainly today market participants are very concerned about UM tariffs and trade and UH elections and what's going on

in Germany and the UK with Brexit. So that the big picture macro geo political front UM is I think of most concern The good news is we're going to quickly you know, move into earning season here and and finally we'll have more fundamental news to sink our teeth into. But it's really been about the the global headlines macroeconomically

and geo politically. The earnings reports. Uh, you've got to kind of make the sort of distinction between gap earnings and non gap earnings, right, because when you look at the non gap burnings, things that doing just great, but when you look at gap earnings, it kind of tells a different story. Yeah, I think I think most market participants and most strategists are looking at you know, operating earnings for the SMP this year, um, and we are,

you know, somewhere between one and one sixties. So if you take the midpoint of that and a market at you know, the market's trading at what I think is a pretty undemanding pe multiple of seventeen times in the context of a tenure treasury at two eight five. Take that out to next year, we've got what we think is a pretty conservative thought around earnings at one seventy the markets that are multiple of just under sixteen times.

So UM, the market feels more expensive than it really is, and the market not having done much while earnings have been so strong, has really allowed valuation to get back into what we consider to be the reasonable territory. Does the FED continue to raise interest rates along that four plant path? And you know it's a tough call, but if you forced me into the yes or no, I would have to say yes. Particularly on the heels of Friday's PC report, right, we're sort of getting into holiday mode.

I didn't find a lot of investors focusing on but the personal consumption expenditure index at the core came into two percent, right, and the headline was two point three, a little hotter than what most we're expecting. And I think with that being a critical component in the FEDS quis and art of decision making, um, I would say that that the leaning is for them to end up doing four. So add to your equity holdings. Now, uh,

you know we're we have been and remain overweight equity. Okay, So a lot depends on you know, have you rebalanced lately, right, but we would be modestly overweight in equities, favoring US equities and favoring small and mid cap small cap unlike our comments earlier, you know, had a really good quarter up nearly eight percent on the Russell on the Russell two thousand. I would be looking at this more as

an entry point than exit point for most investors. And we're still looking at money market funds here in the US with two point eight three trillion dollars in cash. There's a lot of dry powder out there, and are they waiting what for interest rates to increase and then make something out of that money, because yet's still going to be taxed and you're not going to really end

up with much more than inflation. And a lot of that cash has been waiting for quite some time really for the big pullback in the market, right, the twenty percent plus correction that many have felt. You know, clearly, with all of the challenges out there and how well the markets have done, we must be due for that correction. There are a lot of market timers, I mean, people

really think they can time this well. I think there are enough of them that certainly have a lot of money sitting in either cash or near cash, that have really set out a pretty good portion of this bull market. Right. It's been very dangerous to be an investor concerned about wealth preservation when you also have to digest the news

flows weekend in week out. Yet, uh, you know, we're looking at a market that's up in nine years, and so I think a lot of investors field they missed that big run and need to wait for sort of the big pull back. That's not our view, but that's what I sense when I'm out traveling the country. Do you get the impression and that people are really paying attention to what's going on with the U S treasuries?

And excuse me, whether that three percent threshold, you know, is such a big deal, particularly for the thirty year or even for the ten years, not not so much. I was in here a few months ago and we were, you know, sort of where we are now on the cusp of three percent, and we actually exceeded that three percent for a while. I think it's a psychological level which will cause a pause, right, But I think we've

already recalibrated, right. A lot of the the earlier part of this year was about recalibrating first to higher earnings and then quickly to the potential for higher interest rates, including a three percent treasury. So I would argue most of that is in the market. But let's have the conversation if fields or three and a half to four percent on the tenure Treasury note, that would be a surprise and something the market is not equipped to handle

at these levels. What about consumer spending? Will that filter into let's say a call for this consumer discretionary stocks. You know, consumer discretionary stocks have really taken it on the chin um and um. The consumer balance sheet and now income statement is in very very good shape. So you know here too, we we we are and have

been underweight in the sector. But if we're thinking about the next twelve to eighteen months entry or exit point, probably be looking more at an entry point given how weak the group has been. But let's keep in mind a lot of these stocks are dependent on imports, supply chain involving China, and so there's gonna be a bit of a cloud of uncertainty. I think overhanging this consumer discretionary sector for a bit. But consumer balance sheets, income

statements are in good shape. And this Friday we get an employment report that should be another good one. What do you think, what are we going to get? Kind of well, the over under on nonfarm payroll is looking like around two hundred, right, and uh, I think many folks won't be around to be seeing it, but I would be, you know, thinking that that feels about right.

I think the bigger number to watch will be average hourly earnings, right, because that's what set the market, and it is in in February when we got a hot number there, so that's the number we're focusing on. Thanks very much as always, Leo Grohowski. He is the chief investment officer for b n y Melon Wealth Management, helping to manage nearly two hundred and fifty billion dollars. You're

listening to Bloomberg Markets, I'm pim Fox Tesla. The company says it has reached a milestone that is critical to Elon Musk's goll to bring electric cars to the masses. Is having to do with the production target for the Model three five thousand of the Sedans in the last week of the second quarter. Here to tell us more, Liam Denning our energy mining and commodities columnists for Bloomberg Opinion, and you can follow Liam on Twitter at Liam Denning.

All right, Liam Denning as the energy mining and commodities calumnists. You get a nice little sort of change in a way because you get to talk about an auto company. You wouldn't necessarily get that in most things. But um, this has to do with the battery technology and the ability of of Tesla to sort of leverage this technology. What do you make of the milestone achievement? So, um, you know, it's it's a milestone, it's been achieved. I think the bigger question we have to ask ourselves with

Tesla is what do these milestones really means? So you know, if we break it down, last week of of June, they produced just over five thousand model threes. Um. You know, thereby reaching the target that that Elon Musk had set we should say, a much reduced target from what was originally envisaged about two years ago. Um. But then if you if you look at the rest of the quarter, actually production taking last week out averaged about two thousand

a week. So clearly this, uh, this final kind of burst week for the quarter was was really engineered by the company. They really wanted to hit that target. Um. But you know, we're talking about a sixty billion dollar company here, and if you're really going to value Tesla at that level, it needs to be able to show that it can actually produced, you know, high quality cars at high volume, day in, day out, and I think as much as people bid the stock up Monday morning,

it's actually slightly down at this point, correct. But that initial pop I think reflected people saying, hey, let's hit the target. That's great, um, but really you need to be thinking about the bigger picture here, which is, you know,

what's the sustainable production rate? All right? You you before you came in, you said that you had been in a conference in Las Vegas having to do with one if you could just describe sort of your larger, your bigger picture perspective on the future of battery powered, electric

charged vehicles, So I will. I'm definitely in the camp that I think electrification of vehicles is at this point and unstoppable trend, unstoppable, unstoppable now and certainly the the the theme I took away from last week's conference on on lithium is that, broadly speaking, the the line showing where electrification of vehicles is going m is going up. Now.

People debate what the steepness of that line is, you know, but even the most bearish skeptical guys that I met last week don't think that electrification is a fad uh and will kind of just peter out. I think there are good reasons, particularly pertaining to the biggest growth market for auto's i China and to an extent, India, they have good reasons to electrify their vehicle fleet. They also don't have quite the same um infrastructure legacy that we have here, uh, which in some ways gets in the

way of electrification. Do costs need to keep coming down, Yes, but historically they have been coming down, and there are just good reasons to to to go for that, whether it's it's um you know, it's combating pollution, whether it's combating dependence on oil imports, which is a growing problem for for China and India. So yeah, I am. I am optimistic about the future of electric cars, whether Tesla will dominate that and thereby justify at sixty billion dollar valuation.

I'm much more skeptical. The electric car scenario though, comes with a big sort of input, which is someone's going to have to produce that electricity in order to charge all those batteries. Is that going to be renewable sources or do you believe it's going to be a mix of renewable as well as fossil fuel. I think if you're talking today, it's absolutely a mix of both, and in China, for example, a lot of it is coal.

And that's one of the criticism and level against electric vehicles that were simply swapping one set of emissions for another. I think what that misses is that over time, renewables are becoming a much bigger part of the generation mix. And if you think about a battery electric vehicle, it's essentially a platform that allows you to use different forms of energy inputs over time, whereas obviously an internal combustion

engine it burns oil. That's all it ever does in that In that scenario, do you believe that the US automobile makers like GM and Ford and even uh Fiart Chrysler, do they have the technological wherewithal to take advantage of this trend. I'm certain they have the technological know how, and GM, you know, obviously is making pretty good progress on it in a much less flashy way than say Tesla UM. I think the bigger problem for those companies is that UM they're they're having to deal with a

much more multi speed world. In yeah, they have to do to at least two things. At the same time, they've got to make profits selling the cars that currently exist given the infrastructure, Plus they have to plan for

the future that you're describing. And also a third element, which is that a lot of their growth is in other countries that have a very different outlook from what we have here in in the US, and so in some ways they're having to spread their R and D budgets in a in a much more complex way than they would have had to do. You know, ten twenty years ago, what did you take away from the conference that you went to in Las Vegas having to do with lithium. Of course one of the inputs for lithium

IAM batteries. I think the biggest takeaway was that this industry is sort of at this moment where it's poised between greed and fear. So uh, lithium stocks sold sold off quite heavily earlier this year after a massive run up in sen and I think the problem is is this they do will see this future of greater electrification,

which will require much higher lithium production. Most people are looking at the horizon of the early The problem is they need to get financing to produce the lithium and a lot of these companies are pretty small, and even though the the investment needs put it like fifteen to twenty billion, that's a lot of money for this sector. So they need to persuade people to actually start investing in these projects. Thank you very much for being with me.

Liam Denning always a pleasure, Energy mining and commodities columnist for Bloomberg Opinion. Follow him on Twitter at Liam Denning. Coming up Bloomberg Politics, Policy, power and Law. Thanks for listening. I'm Pim Fox. This is Bloomberg Markets with Pim Fox

and Lisa Abramowitz on Bloomberg Radio. As Amazon explorers ways to expand its delivery capacity, from leasing its own cargo planes to experimenting with drones, it is also moving into a new business to allow individuals to start their own delivery business with as little as ten thousand dollars of an investment. Here to tell us more about this is Satisha Jendal. He is the president of s J Consulting Group.

And Satisha, you're an expert when it comes to moving things from point A to point B. Just give people a little bit of your background and what would you do if you were running a logistics company? In Amazon

said they're getting into your business. Well do you know do then it is so relevant here that what Amazon is doing is in many ways duplicating with minor changes the model that RPS, which is today known as FedEx ground with generals fifteen sixteen billion and annual revenue, started with that model, and that is to leverage it's the entrepreneurial spirit of American people and give them an opportunity to own a business and be part of a bigger enterprise.

And FedEx clown approach to this is what they called i s P. Independent service provider. Amazon calls them, you know, delivery service partners, and it has got the similar model here where individual can set up a business, hires some employees to drive for them least vehicles, so buy them.

And what Amazon is doing is no surprise to the companies like UPS and fair X because Amazon is such a huge shipper with seven million packages a day and tim to put it in context, that is almost two and a half times more then the volume DHL was delivering in two thousand eight to night before it left this country. So she's how people your expertise when it comes to OURPS, which is as you describe this now FedEx Ground, so they understand where you're coming from. You know,

I was part of the founding team. I helped with that model, with the change that that went about. I've worked directly for the CEO, Den Sullivan, who was a great mentor for me. And the success of FedEx Ground is to a large extent based upon being able to leverage that model, which allows you to have a large fleet of delivery vehicles and people without you having to put up the Capitol's just kind of like the way McDonald's and Subway and and other companies expand using a

franchise model. This is in some ways akin to that, and I think it is a very good approach for Amazon to have expanded delivery capability because it cannot rely upon the other three big partners that it has to meet its growing need. What role do you think the brand of having Amazon on the side of those trucks and on the uniforms of those making the deliveries will have on the success of this business. It is huge that brand is more recognized than the ups and FedEx

at this point, Steven. Though it's a younger company, startup costs are estimated to be as low as ten thousand dollars. Do you buy that? Yeah, because you don't need much in startup cost, and you can lease vehicles, You can lease the technology you're gonna need, which most people already have is your smartphone. Every driver had its own personal one. Just reward them for making use off it. And you can start with a few drivers, and as you expand, you have the resources and you can uh it just

exactly the way FedEx does it. Will this take business away from FedEx and UPS? Now that's a little complicated question, and I'll try and answer it for your audience. One is the about of Amazon. Business today is being done by USPS, UPS and FedEx in that order. In terms of volume going forward, I expect the total volume between

the three to remain the same from Amazon. But because Amazon is growing at all, that growth that they're bringing in, I see that moving to these new options and approaches that they're taking, so they will get the smaller percentage of Amazon volume, but an absolute volume, it will not be any less. Last point to you, the President has talked about a potential reset of US postal service shipping rates because of Amazon. What can you tell us about

that relationship? Just to put it into some context. You know, it is a relationship that works for both Uh. Post Office is better off as a result of having Amazon volume, and Amazon is better off. But I would say that the if this DSP program that Amazon has rolled out probably was in the making already. But hearing that the President is putting his weight behind this relationship, that could potentially result in a slightly higher price the Post Office

may have to ask Amazon. Amazon is prepared to say, you know, there's a certain limit to which I can absorb. Otherwise, I've got my own network to create a competitive response. So you know, yeah, you can relate, but I've got other option. Thanks very much. Satis Jendle, He is the president of s J Consulting, talking about Amazon and the logistics business. Shares of Amazon are up nearly forty year to day. You're listening to Bloomberg Markets with Tim Fox

and Lisa Bramoetz on Bloomberg Radio. Bloomberg Markets has brought you by Commonwealth Financial Network, home to the industry's most satisfied advisers. Prepared to be swept off your feet by the broker dealer r I, A who has been putting relationships first since nineteen seventy nine. Visit Commonwealth dot com. Well chocolate specifically chocolate from Hershey and other food items from Treehouse Foods. They are going to feel the effects of counter tariffs that were put in place by Canada.

They're just some of the companies that are going to be affected by this move. Here to tell us more about what's going to happen in Canada as a result of these countermeasures is Carl Schramada. He is the chief strategist for Cambridge Global Payments, joining us from Toronto. Carl, thank you very much for being with us. Maybe you could just outline exactly what you believe the effects are going to be on the Canadian economy and then we

can kind of get into the details. Sure, so you know, certainly the escalation intentions and the direct costs of the Canadian economy are likely to be fairly substantial. Here. Um, there's been a real shift and sentiment among Canadian businesses in recent months, a lot of concern about whether the US markets will remain as robust as they have been, and as a result, we're seeing a toll taken on business investment. However, you know, when we look at the

Grand scheme of things. This still remains effectively a rounding error in the in the grand scheme of trade between Canada and the United States. If NAFTA is not renegotiated successfully, will that still be a rounding error? No? Uh no, that would certainly be sort of the nuclear option with

respect to trade between the two countries. Um. That would reset US most likely to w t O rules, which would imply a rise in tariffs and a dramatic slowdown in trade as well as investment flows into Canada, and Canada does remain heavily dependent on investment flows from the international community, so you know, this is something that that negotiators on both sides I believe are looking to avoid at this point. Would this be a short term or

a long term effect? If we see NAP to fall apart, we have a short term knee jerk reaction that would happen, and that would uh you know, likely push Canada very close to recession. Um. However, in the longer run you would see things equalize a bit. So the first thing and probably most important thing that happens with this type of trade negotiation is a effects related effect. If we

see depreciation and the Canadian dollar. That puts Canada on a more competitive footing and tends to uh outweigh some of the impact of higher terraffs. And so you know, in the long run, which you could see here is a bit of a snap back in the in the Canadian economy. UM. But of course that initial toll would

be quite devastating, Carl. Would we see an increase in inflation in Canada in as much as the Canadian government is putting tariff on steel products, ten percent on aluminum and consumer goods uh so far so, as far as our models suggests, we're looking at a point one percent increase in Canada's official inflation rate. UM. The reason being that this is you know, extremely small. Um. If you look at the overall amount that's involved, it's about twelve

point six billion US dollars UM. So you know, when you look at that against overall trade, that is not enough to you know, really shake the household budget in Canada. UM. Of course, if Trump does move forward with auto tariffs and things like that, that would change that picture and uh,

and you would have a resulting impact on inflation. Now, all of that said, uh, you know, that's the tariff impact, but the fact is that the Canadian dollar has fallen roughly five percent on trade related fear, and that also has a follow through effect on inflation in Canada. And if I devely crimp's household budgets, what is the current thinking in Canada about the potential for automobile tariffs. The

current thinking, I think is that it's mutually assured destruction. Um. The numbers really suggest that the United States runs a small surplus with Canada in autos and auto parts um, and that that Trump will run into, you know, very stiff domestic opposition if he does move forward with with

applying tariffs on the sector. Um. And of course you know, if he does apply it to Canada, he also has to apply it to the EU in some sense, and that, you know, brings US really into a full scale trade trade war against uh, you know, parties that Trump may not want to antagonize to that degree. UM. But I think, you know, the interesting thing here is that if if you look at how the EU and Canada are responding so far, it is very much a political political game

that is a foot here. Um. You know, I think the Canadian negotiators and the EU negotiators understand that trade imbalances are fund are fundamentally financial imbalances. So what they're doing is targeting Trump allies, congressional districts that that support Trump, and and particularly large businesses in those congressional districts. And so you know, if you look at one sector that that commands an immense amount of respect in the American

political establishment, that's the auto sector. So I would not suspect that that, you know, that things go too too far in that in that area. Carl Schamana, thank you very much, Chief strategist Cambridge Global Payments, joining us from Toronto, speaking about Canada's economy and retaliatory tariffs against the United States. You're listening to Bloomberg Markets. Thanks for listening to the

Bloomberg P and L podcast. You can subscut, gribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo wits one. Before the podcast, you can always catch us worldwide on Bluebirg Radio.