Markets, Chips, Nikola, And Battiers (Podcast)

Looking across the asset classes, let's check in with the professional, a j Odin's Senior Investment Strategist for bn Y Melon Investors Solutions. A J thanks so much for joining us here. What are you telling your clients at B N Y? Hey? Thanks for having me. Um, right now we're telling clients you know, we need to remain under underweight and equities right now. I mean we we see the fat that isn't going to capitulate or pivot anytime soon, and so

you know we're staying. You know, obviously we need to stay in the markets, but remaining underweight equities, looking for, you know, more defensive names, large cap stocks, with, you know, income generating equities. Um, we're neutral from a fixing commerspective, but we prefer short duration. However, as we start to see the tenure continue to move up, we're gonna act continue you start to add a little bit more duration

in the portfolio. Um, we're replacing that underweight in equities with an overweight in real assets, just because we need to be allocate to the sources of inflation. However, pulling back on that commodity pieces. We're seeing energy come down today, but that's that's kind of how we're we're positioning our our clients a little bit more defensive in nature. Um,

looking at utilities, healthcare, Um, things names like that. What does that mean in terms of the thought that we have to have capitulation to really have a sustainable but market? In the last hour pulseween I we're speaking to David Sowerby and he said, you know, we can't really tell what capitulation looks like. We don't know what the signals are. Your take on that? What do you look for? You know,

I think we're gonna have to follow the feed here. We, I feel like, the more kit for the last fourteen, fifteen years has been under this this sort of understanding that you know, the market's gonna or the Fens gonna come, come through, you know, ride through on a white horse and sort of Save the markets when there's a massive

dip like this Um. But you know, we have to understand that we've benefited from the amount of quantitative easing that's come in and that nine trillion dollar balance sheet, as part of their mandate, is trying to run that off as well. And so you know, when when inflation is persistently highlight this, you know they're they're waiting for

to see a downward trend of that. You know, the last month we're seeing inflation rise in parts of of of the PC and C P I um, aside from energy, and so you know, wage wage pressures continue to add onto the inflation narrative until we start to see cooling and the labor markets. Can Imagine, the FT's going to continue to move forward, and that's I felt like they gave a good projection of where what the potential terminal

rate could be. And so a market at some point will stabilize as as we start to see yields sort of normalized here. But obviously when you're seeing, you know, the five basis points swing up in the two year at four seventeen right now. You know we're going to continue to see repricing and so we start to see yields normalize a bit. So you're you're you're not alone in saying that following the Fed is is the way to go. But I have to talk about the precedent

that's set. The last time the federal reserved high rates like this about seen through. At the same time, they had this massive quantity of tightening operation, which was massive at the time, not of the same skills it is right now, and the equity market actually rallied over that time frame. You had tech leading that charge despite rising rates.

Why is this time different? You know, that's a great question. Um, what we would say here is that the reason why this time is different, I think, has a lot to do with inflation and it's it's really it's really been this sort of differentiator in the market. Um and and many of the different UH exogenists supply driven impacts that we're dealing with here. You know, Russia Ukraine conflict is

still having spillower effects. There's still the risk for for energy prices to go up Um and China, zero covid policy having an impact on supply chains and any other geopolitical tensions that it's sit out there between China and Taiwan, but also the concept of reshowing and on showing and how you know, even though the Fed has a two percent target for inflation, that it's potential that we could see persistently higher inflation for longer as jobs move back

to the US, and so I feel like inflation is is that is that differentiator in the in the in the environment that we're seeing today and the feds, and not just the Fed but on a global perspective major central banks, trying to maintain price stability. So H is a recession part of the bing y melon kind of outlook, I guess, for markets? Is that kind of what you're factory into your models? We're definitely looking at it. Um You know, I I wouldn't say you know it's it's

it's a high probability. I know we do have a more recent UH snapshot. Our projection come out in a few weeks, so I don't want to uh jump ahead and give any sort of UH indications before that comes out, but it is something that we're wearing on. I'd say Europe. Europe in the UK, some of the news coming out about potentially being in a recession is definitely something that

we're looking at as well. And and but you know, the U s seems to be a relative out performer Um when you're looking at many of the developed market countries. But to that question that you had, yes, it is something that we're looking at, but I think we believe that the Fed can still pull this off and navigate this this landing Um of the economy. Are you guys holding more cash than you typically do? Uh, we're definitely

moving into Um. A little bit more cash, for sure. Um, and even within some of our our tacticle asset allocation, looking at Treasury floating rate securities. Um. But, like I said before, as we start to see higher duration, I'm sorry, higher yields from the ten year, we're gonna start to add a little bit more duration to the portfolio. All right, a J great stuff. Really appreciate you taking the time checking in with us. Hey, J Odin, he's a senior

investment strategist at B and y melon's investors solutions. B N Y, the Bank of the York Nicole dugal joins us. He's a senior vice president general manager for automotive at Qualcom, and your qualcom has probably got this monster booth there which shows off all all its cool stuff. Nicole, talk to us about where we are with just kind of

the computerization of the automobile. I mean, Matt Miller had to wait for US Chevy silverado truck for months because they couldn't get enough chips to fund to drive all this stuff that's in the car. Where are we now? Yeah,

good morning, thank you for having me. Look, I think the car industry is going through this massive transformation where every automaker realizes that the platform that they're building has so much more potential, so much more capable, capability to really create a brand identity for the automaker, to connect with their customers, make it a services platform, find new ways to monitor times, and really the center of it

all is chips and software. These platforms are all becoming much more advanced technologically, you know, keeping up with the most complex technology that we are defining today. So, uh, this progression has started. It's upon us and we really seeing every card company become a technology company and our snapdrag and digital chassis is the basis on top of which we are building these partnerships with automakers. Talk to

us a little about pricing here. I mean it's clear that chips are in demand and have been in demand and probably will be in demand, I want to say, for the next minimum year or so, as we starts see supply chain issues really a bait. What does that mean for pricing? How much of a premium can you charge based on that really Um unabated demand? Yeah, you know,

I think automotive is and remains a very competitive space. Uh. What is changing, however, as you know, as we are able to integrate more and more functionality into the chips that we build, it allows us to be able to a, bring technology, bring products over to more affordable segments of the value chain also, uh, bring much more capability to

the higher end. So there is certainly a price premium that we can extract by the integration capabilities that we have Alba, bringing more technology to really every year of vehicle. All right, so, Nicole, in the past couple of months I experienced to first for me. Number One, I drove my first pickup truck. Number two, I drew my first electric vehicle. That happened to be the electric pickup truck, and I was just blown away by the technology of that E v in the in terms of the performance.

So okay, I get the EV thing that's coming. I get it. Autonomous Driving, that's another thing altogether. How do you envision the evolution towards autonomous drivings? I know calcom is going to be right at the four front of them. Yeah, it's an excellent question and you know, our snap dragon right platform really addresses this transition towards autonomous driving. So

there are a few things going on, you know. I think your experiences in terms of driving a new vehicle and really being impressed with all of the electronics inside. I think that is certainly indication of one shift. I think the other, clearly, is that cars are becoming safer because there is technology, there are sens there is a lot of capability now available to make cars much more safe. The transition from safety to comfort, to where you can actually allow the car to take you from point a

to point B, is a complex part. It is something that is going to take time because it really is about making sure that this can be implemented in a safe way. We are already seeing, for example, for highway applications, the ability for cars to be operating in autonomous mode for long durations, for long length of time. But as you start to bring in more way ability, more animous there is clearly a lot of work that needs to

be done. And mostly, in my mind, this is actually a question of the safety responsibility that automakers owe to their consumers. So, while the tech might be there, you have to do this in a very responsible fashion because you're essentially taking control away from the driver giving you the vehicle, and that's kind of where the responsibility potion

has to be really high. Cool. Yeah, I know you focus on the auto industry, but just I'd love to get your thoughts just over on the overall UH semiconductor supply issue kind of where are we as an industry in terms of getting supply matched with demand on a global basis, because that was a big, big problem continues to be a big, big problem for, you know, getting these economies kind of reopen and back up, up and

running where already think? You know, I think from an auto perspective we've been fortunate in that we've actually been able to prioritize availability of semising to supply for our automaker customers ahead of all other verticals and through Covid we were actually able to manage that quite well. Uh. You know, as we look at the next year or so, they are clearly still, uh, pockets of the market, you know, certain types of semiconductors that are still in short supply.

Supplies catching up, but I think, you know, through the second half of next year I do feel that the Automan, that the auto industry, is going to start to see much better balance between supplying the man so we have had a minute left. talked to us a little bit about the regional challenges that call comes specifically might be facing. I mean, like the auto industry is really in North America. It's in Germany as well, but a lot of the chips are coming from abroad. Talk to us about the

challenges there. So, you know, we are a fabulous company. We have partnerships globally across many different H semiconductor fabric fabrication partner and very the way that we have established the businesses to have the ability to build products across multiple locations, have dual sourcing strategies. H The automotive supply chain is highly complex and so scale is a very important factor and you have to be able to work across a wide variety of complexity, whether it's partnerships at

the front end or the back end. Because of the scale which we operate, this is something that we've actually been able to do, perhaps a bit better than some of the other more entrance players that do not have similar scale from a from an overall semic supply perspective. All right, Nicole, thank you so much for joining us there.

Nicole de Gal, senior VP and general manager. He covers the automotive business for Qualcom and again, the transition to electric vehicles well on the way Um and again the performance that I experienced, which is awesome. Now the question is, you know, getting more and more autonomous. Looking at the shares of the Nicola U N K L A is your ticker, you can put in there. Trading at three dollars and eight cents to share. It's off five percent today, off year to date, fifty two week low. It is ugly.

But we want to talk about, and that's so much the stock. But what's going on with it's founder? Ed Ludlow, joins us. Ed Ludlow's west coast correspondent, but he's in New York, but he's from England, so I don't know where he calls home here, but he joins us here talk about the trial of Nicola founder Trevor Milton and give us the background here on the issue here, at the trial here. What's going on, a kind of where are we? So Nikola was the post to child right

of this wave of EV companies that went public. Vis Back Special Purpose Act was in company one and Milton was like bill to be the next mosque. He was this visionary who would make hydrogen powered fuel cell semi trucks. That's a reality, and retail investors poured money into this stock.

But you know, things change really quick. You know, at one point they had a market cap bread and forward, but just after they went public, Bloomberg reported that their first truck, their debut truck that they'd unveiled in twenty six, was grossly exaggerated, never worked, missing parts. The next thing that happens a short seller takes notice, cites that Bloomberg report, looks into Trevor Milton and basically accuses him of deceiving investors.

The SEC gets involved, looks into him and ultimately by September of that year. He resigns. A year later he's indicted, charged with securities and wire fraud and that is the trial that's ongoing in Manhattan right now. So walk us through now what comes next in the trial and walks through the timeline. What have we seen? Where are we see next? So we're in day ten of the trial

to working weeks in and it's just been astonishing. Um, you know, we've had key witnesses, including Nicholas current outgoing CEO, Mark Russell, who basically testified and told the jury that he did have a lot of concerns about things that Milton was saying, that in fact most of what much of what he said was not true and that he and other executives had warned Milton that, as the executive chairman at the company, he everything he said equated to

a press release, equated to a securities filing. We heard from Nicolas Social Media Manager, and a big part of the story around Milton is he was a big user of twitter, sounds familiar, right, and Instagram, and she testified that they had a policy that non public information must not be shared on social media. She testified that only herself and Milton had access to the company's accounts and she testified that Milton was breaching his own company social

media policies. Next we hear from the CFO. We heard from a retail investor that says they lost a hundred and sixty thousand dollars because of investing in the company based on what Milton says. That's the crux of the case, by the way. So I look at I see Steve Gursky is the chairman of the board, who's a long time auto executive, longtime analyst. He and I used to work together way back in the day when he covered the auto stocks. He's a savvy investor, savvy auto person.

It looks like Trevor Milton perhaps duped a lot of smart people, not just kind of retail investors as well, potentially. Yes, I think it's important to say, like the defense are going to argue and they're trying to prove and convince a jury that a Milton genuinely believed what he was saying was true, but also that he was the CEO of the company right, it was his duty to market

the company. He was following the marketing plan and the burden of proof this is the American justice system is on the prosecution to not just prove that he lied, but those lies in fact did prompt investors to invest. And Steve Gursky is really interesting and that that's the extra bit of this trial that we're learning what really

took ace at the time. For example, yesterday a GM current GM employee and engineer testified that the pickup truck, the Badger, that GM had agreed initially to build on Nikola's behalf was not going to contain any parts from Nikola. Well, Trevor Milton gave an interview saying seventy of the parts would come from Nikola. So we're kind of filling the blanks of what we knew at the time. What is

the fine here? What is the what is the defense APP or the prosecution, excuse me, after when it comes to if they win this case, do the investors benefit? What is Trevor Milton cast a great question. This is a criminal trial and he faces two counts of securities fraud, two counts of wire fraud. The most severe penalty for one of the counts is twenty five years in prison, and so I think most legal experts and based on president, he is unlikely, I found guilty, to face that much

prison time. But the other way looking at it is the holistic picture that they were the poster child of the EB back wave. There are many commentators that would say this is kind of the shot across the bow from the government and regulators about the perils of investing in companies that when public virus back, and also the behavior some of those companies. We know there are many that have encountered financial trouble. Um You know. It's kind of an interesting tale of a market that's changed, the

specific market. What's the timing here? I mean I know you're here in part to cover this trial. What's the expectation when we might get a kind of windingness up and when we get a ruling? Yes, so it's it's built to be a five week trial winding up around October fourteenth. That's at least what the judge brief the jury.

You know, the government will need a few weeks to present their case and they have a long list of witnesses that they've been calling, Um you know, and that would leave about a week for the defense before closing arguments. And you know this is being really closely followed. That people want to know what happened to this guy, but many stuck with nickle. But you pointed out the stock. You know, the stock breached four dollars for the first US time. Um, you know, the background being that most

SPECTA quad companies, Star trading attend. There's a share. So you're out of the money right if if you held onto your your shares. You know it's become in the background. Has Become a boring truck company and at a really hard time. I'm looking at some of the stockholders, shore Vanguard Group, nor just bank, Black Rock, h some state streets. So a lot of the some big big funds own this thing. So I'm sure there's a lot of folks paying attention, in addition to obviously all the retail uh

investors as well. Ed Ludlow, thanks so much for joining us. There are we got in our studio here, Leo Kelly, CEO Verdon's capital visors. I have no interest in any of that. I just found out, first of all, he's a graduate of the College of New Jersey in Ewing, New Jersey, which I have. I grew up in that area so I'm very familiar with that. That school has gotten so good so quickly, but then you just worked a couple of summers at Bloomberg and Princeton. Well, you

just found his new best friends. Yeah, exactly. I mean I can't believe he still doesn't have his badge or his badge doesn't work. Who says it doesn't? Late night snack there? You've got to get a free lunch sometimes. Exactly. All Right, Leo, you've been doing this wealth management stuff for a long time in Merrila Kelly wealth management and I got your own firm here. What do you talk to well, what do you say to your clients these days when they see their performance in yes one, great years,

this year just brutal equities and fixed income. Where do you go? So what do you what do you tell your clients? Well, the first thing we tell them is that they have to remain calm as always and Um. But in the bigger picture we've been talking about this inflation and rising interest rates now for a couple of years. It's never made sense to me, Um, that we could put this much money, grow M to a percent a year and not have inflation. We didn't buy into the

transitory we didn't buy into rates would remain low. So they've been prepared. I don't think you can be prepared for this, though. I don't think you'd be prepared for eight or nine. We're running up to four on the ten year Um and the result of this, in my opinion, all of the money being flooded into the system, is we're moving into a secular change in interest rates and that's going to change a lot of things in the market.

So what people have relied on to be constants in the market in the past, it's all going to change and that's what we're talking to our clients about. Well, one of the things that we've been talking about throughout this show has been the C word capitulation, not clients Um, and I'm curious if you're in the camp that says to see a sustainable rebound in the stock market you have to see capitulation. And if you answers yes, tell me how we discover like, how you detect it. For

Answers No, tell me why not. Well, this is starting to feel like we're getting there. I don't think we're there yet and I think if you think seasonally, we we did get to a bear market. Bear markets do not typically go down touch a bottom and then run off to the races. It takes a few of these tests and often a new low before we see the bottom of the market. So we have been talking to our clients about get ready. September seasonally bad. Um, November,

December seasonally better. Right, we recover from that. Normally there's actually one more tempt at the bottom before you run off to the races. But sorry, really quickly. They're seasonally bad because it's a reaction, from what I've seen historically, to usually a summer rally like a or a Santa Rally, followed then by some sort of correction when you have

higher volume. Now, well, we did have a rally. We had a rally off the down from the summer and Um again, I think more than seasonality, and I don't want to I don't want to make this a technical conversation. Right, more than a seasonal rally. We have to take a step back. We have higher energy prices still, even though they've come down. We've got really large inflation, we've got rapidly rising interest rates, we have an extraordinarily aggressive fed

and replicate that everywhere in the world. That is not exactly what I would call stimulus. So us that says be prepared for volatility. What we're telling clients is be prepared for volatility. We have to be active in the markets. Going to sleep on a sixty pass of portfolio? Those days are done, they're behind us. That's exactly right. I mean that you think about it, this year, I guess you know the S and p off more than most of the bonding disease that we look at here on

the bloomber criminal off. You know ten there's really been nowhere to hide here Tis and you've got some clients who want to, you know, maybe take a little bit more risk, maybe put some cash into the market. Where are you suggesting? They look well, and I will be specific, but the first place is um not what has been successful prior okay, as we go and we have higher interest rates and more volatility, right, that's going to impact pe. So the the higher pe steady growth companies, I don't

think perform as well. Now, it's not to say that they're going to go down necessarily, but I just don't think they perform as well. We like earnings power. Strong dollar means small cap looks interesting to us right, small cap growth and small cap value growth, because it's down so much value because there's value there. Um, we like

the international markets, but there's gonna be tremendous volatility. International, developed international is two to three standard deviations lower evaluation, relative valuation, than what we see in the norm, than the medium. So to me that says let's put some money there and yes, we're gonna have to go through

the gyrations of the market. But, as we tell our clients, when you invest in equity you sign a contract and that contract says I know there's going to be volatility, I accept that for a higher rate of return and I'm willing to put up with it. Well, now is the time to now's the time to earn your money to make good on that. All Right, Leo Kelly, thank you so much for joining us. Leo Kelly is the CEO of verdant's capital Advisors, joining us uh live in

our Bloomberg interactive broker studio here today. So we've got central bankers around the world raising interest rates to trying to tame inflation at the risk of recession, and then I wake up this morning, and that includes the Bank of England, and then, you know, we wake up this morning we see the UK announces his biggest tax cut since nineteen seventy two. What is up with that? Talk about it seems like a lack of coordination. So we

figured we've got to get ED price in here. He's a senior fellow and former British trade official, uh at, from M N Y U. and what do you make of your English government and this tax cut vs V kind of what the Bank of England is trying to do with other central banks? Sure, thank thanks. At odds, I think is a fair enough description. Straight off the BAT. At odds Um, I would say that the the the point of the Conservative Party is, in part as we

said earlier, cutting taxes. So that doesn't that's not surprising, Um, but it's sort of it's kind of ignoring context. And so the other point of the Conservative Party is fiscal responsibility. Um, fiscal responsibility. This ain't so if you're asking me, what the you know what the Bank of England is doing. Probably not enough. We're at two in a quarter. They'll they'll have to go higher. And the the the let's see, mixture of the policy posture in the UK seems to

me to be inflationary. Um, in an inflationary context. Now, well, I guess my question here is if you are, and I'm trying to be as empathetic as possible, so help me be in their shoes. But literally, if you are Um Andrew Bailey, you are in the Bank of England, it totally makes sense to be restrictive right now. If you are on the political side and you're seeing people getting laid off, not being able to afford housing bills, etcetera, then it makes sense to stimulate the economy from from

that perspective. But why is this not being done in a coordinated manner? I mean less trust was very open about wanting to do this when she was campaigning. Right, is economic policy ever coordinated? You tell me. I don't think it is. I don't know if that's a cop out answer, but I don't think it is. And I think that, yes, let's trust, the prime minister was open about being someone who would cut taxes. And yes, of

course our back is against the wall. visit the energy so of course, again there has to be some sort of fiscal intervention because people are going to be cold. It's that simple, rights Um. But again, the Bank of England is probably thinking our independence is the most important thing. And to what extent do we have to hike to demonstrate that our independence is the most important thing? Let's remember that we're facing an inflationary supply side shock on

the energy side, right. So that that if you look at rates, that's kind of also a bit on the one hand. On the other you might say, well, let's cut rates to fight the deflationary pressure the unemployment that results from that. On the other hand, and I think at nine this is what you should do. You should hike to fight, to fight that inflation, right, but that sorry, they're they're at odds with each other at the end

of the day. So it's kind of like neither side almost has gets the full effect of what they're trying to achieve because they counteract. talked to us a little about the politics of it as well. When you walked in here. I asked you about the Conservative Party specifically. They haven't cut taxes for I think three years, but that's part of their party line, that's part of the DNA right. If you vote conservative, you're voting for a tax cart Um and they and they've delivered right. They've

cut what is it? They've cutty the top right down to four. The timing is impecable because they haven't done it for three years and now they're doing it right, right, well, it's always a good time to cut taxes if you're a tor here, right, don't yeah, I don't think it's a Um, a bad time. So that's that's two billion and then five billion out of the basic rate. So I think again, I'll go back to context pretty and say that makes sense without context. In context, it seems

to me like it's sort of shooting your load a bit. Earli. I think what we're doing as a country is saying bet on us in the medium term. Bet On us after this spending comes through, the system, comes through the economy. There's probably a two year lag on economic policy anyway. Then take another look at us, right, because at that point we will be in different shape relative to other

jurisdictions and other economies. So, looking at the pound, sterling here, Brook Blow One ten were now one spot, zero nine three to a couple of people of today have said the UK economy looks kind of like an emerging market. Here. I'm currency, I'm outrage. I'm leaving immediately. Exactly. I mean, it's what do you make of the sterling here in the training. Well, I came on your show previously and said that parity was something we should be talking about.

So I think that that's I'm not going to deny that. That is realistic. Um Emerging markets. I mean, that's a bit of a that's a bit of a cheeky. That's me, isn't it? That's something for twitter. Well, to be fair. To be fair, I saw this on yen's Nord big who, who's the CEO and founder ex anti data and the former FEX, head of Goldman, I believe, and he said that the way you define an emerging market currency, forgive me,

I'm ready for it. I'm ready for it. Says the way you you need define emerging market currency is when you have a basically in the United States, for example, when you have yields go higher, it supports the dollar interest rate differentials. They said emerging mark currency is the opposite of that which the pound, the cable rate, is actually supporting. So technically, in theory, by that definition, I'll split the difference. I'll split the difference with you and

say a very high quality emerging market. Okay, and again, British, have you. I'm very British, but I think that the future is unwritten. And again, this is all that. This is all coming out of Brexit, right. So sterling is rewriting its core narrative. The old sterling narrative was we've got Anglo Saxon innovation and European market size. That was that was very juicy. Now that that has to change because we've left the EU, I don't think that that rules out future roles for sterling as a hedge in

the world against other narratives. That will also change. So I'm optimistic in the sense that the UK is like front loading its twenty century supply side shock or one of them, and reacting to these these things that we're seeing, like covid and Ukraine, in a way that ultimately is add aisle. And ultimately, you know, with agility there's always a premium in the medium term. What's the feeling how

tough of this winter be for Europe, for the UK? Um, what's the thinking these days in terms of energy and all that time? Yeah, well, tough, tough, I think. I think that if we sort of move over the channel to the Germans, M Schultz is not happy. We saw that the other day. Um, I said earlier, people are gonna get cold and I think I'll stand by that. I think some people are going to be cold and

it might be worse than that. If you think about elderly people, if you think about children, if you think about businesses and firms shutting down, it's not just temperature, it's also going to be activity. So I think it's very tough. But looking even further right, further east, I'm not sure that Puson is having the best time that he you know, the best time that he thought he would. So yeah, a lot of Geo political issues out there today.

Just happened to be in the United Kingdom again. A big big tax cuts in the face of rising interest rates and a slowing economy, ed price joints as his a senior fellow to N Y U formers, British trade official joining us here in our Bloomberg interactive broker studio. Thanks for listening to the Bloomberg markets podcast. You can subscribe and listen to interviews with apple podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on twitter

at Matt Miller. Three on ball Sweeney, I'm on twitter at PT Sweeney. Before the podcast you can always catch US worldwide at Bloomberg radio.