Markets, Labor, And The Supply Chain

portfolio Management at Federated Hermes. Uh. They are big folks, over six hundred billion dollars in assets under management. Phil. I'm an equity investor. I'm looking at two I see rates are gonna be rising. I see the economy is going to be slowing. Is there any place for me to be in the equity markets? Uh? Yeah, It's certainly going to be a more volatile year, certainly going to

be a choppier year. But we think when the dust settles at the end of the year, stock market will be maybe ten percent or so higher than forty hundred where we started the year. We think will end the year at about fifty three hundred. But that's going to be a very back end loaded kind of performance. The

first nine months of the year. In our mind, UH is going to be very choppy, very volatile, with the focus on this soaring inflation, what's the federal Reserve doing in terms of changing policy, and so you know, we thought there would be an eight to twelve percent correction or so over the first couple of quarters of the year. UM. The emphasis here is going to be preserving capital, and and that suggests owning the stocks that are cheaper, that

have lower datas, that have higher dividend yield support. UM. So we like domestic large cap and small cap value. We like small cap stocks, we like international stocks, and and those stocks have been performing a lot better than the growthier technology stocks, which which have been trading at at you know, sort of nosebleed valuation levels. So hang on, you want to in preserving capital, you want to buy

a small cap stocks? How's that defensive? The small cap stocks have gotten taken out behind the wood shed, So the valuation is significantly more attractive than the large cap growth names. The small cap stocks quite literally a cheaper than the large cap stocks, and they've got better growth. Um. Most people think that it's the small cap stocks that are trading at you know, fifty or a hundred times

forward earnings. That's not the case. So the value stocks, the small cap stocks, the international stocks are the places you're gonna find better value. And then what do you look for a specific sign to get back into the broader market If we're gonna ra at the end of the year, or is there a certain time that you want to do that, Well, certainly I think there's gonna be chopped into the late summer early fall period. We

want to see how this inflation plays out. We want to see what the FEDS change in policy is going to be. We know the tapering is going to end in March. They told us that. We know they're going to start to raise interest rates in March. They told us that what we don't know is are they gonna tighten policy, raise interest rates every meeting every other meeting. Are they gonna give us a bunch of twenty five basis point heights? Are they going to front load with

a couple of fifties? Are they going to start to aggressively shrink the balance sheet either passively or uh actively in the middle of the year. There's a lot of open questions, and importantly, We don't know who five of the seven members of the Board of Governors UH is going to be until the Senate confirms them or not later this month. So there's a lot of open questions surrounding inflation and federal reserve makeup and policy. Phil It's

it's interesting here. We we've had, you know, this pullback in the marketplace. We've had a little bit of a bounce back here over the past week here. Um one of the sectors that has been really interesting. I look at w t I crude oil at a barrel. Yes, it's had such a move. Have the stocks had their day or is there still room to grow? I know a lot of folks thinking about that. Well, there's no question that energy has been the best performer to date,

and and deservedly so. Crude oil has gone from thirty or thirty five dollars a barrel back in November of as you said, we're now at ninety dollars a barrel going higher. We're probably going to be a hundred hundred twenty by the end of the year. Why is that You've got this global reopening trade UH in which there is a significant demand for energy, Yet the largest energy producer in the world. The United States, we voluntarily reduced our production by over the course of the last year

because of fiscal policy. So as a result, what's the clearing mechanism, price price has gone higher. Less less supply, more demand, and and that trend is going to continue until either the demand slows or we're able to put more more product onto the market. And the latter's looks seemingly difficult, right, I mean, opec Um doesn't have that

much spare capacity. Well two issues. Number one, they're saying, well, we're just going to slowly add four dred thousand barrels, you know, a day over the next month to increase that but there are legitimate questions as to whether or not they've got any oil that they can put onto the market. They have they they may be uh, they may be running on empty right now. So the swing

producer is going to be the United States. And and you know, over the course of the last year, we've taken our production down from thirteen million barrels a day to eleven million barrels a day. So in order to get the price lower, US producers need to be encouraged by the federal government to to start exploring and produce you more. By the way, Philip, we're at the SMP and crew is trading for hundred ten, hundred twenty. Where do you see the tenure at the end of the year.

We think benchmark tens which are about one ninety now, we think they'll be closer to two and a half percent by the end of the calendar year. Interesting. See. Phil always brings the goods, you know, always got some headlines coming out of Philip Orlando. Phil, thanks so much for joining us. As always, we appreciate your clear calls on these markets. Phil Orlando, chief equity market strategist and head of Client Portfolio Management. He's a federated at HERMIS.

Those federated folks are based in Pittsburgh, but uh fills in New York City. All right, let's talk interest rates. They're going higher. A lot of folks want to say where we want to get an understanding of, you know, how quickly and how much preamra she does this for a living Managing director in Global head of rate Strategy at TV Securities. Is my federal reserve gonna lift interest rates fifty basis points in mark? Thy thanks for having

me on. We don't think not in March. I mean, it's not obvious to us that the benefits of going fifty, which is not priced in, it would be a huge shock to the market. It would tighten financial conditions that it's worth it. From the Fed standpoint, I mean, I

think they're signaling that they're about to start hiking. We think largely consecutive meetings of hikes until as well as quantitative tightening until we figure out whether inflation is decelerating in the second half of the year, which we do expect. So we're looking for them to start in March, continue to hike it connegative meetings, and then slow down into your end because we see inflation declining. But I would stress that quantitative tightening is likely to move into strates higher.

I mean, we don't think they go fifty, but if they start letting the balance sheet run off. The balance sheet is much larger than it was in seventeen, it has a shorter week to average maturity, and that's going to put a lot of treasury supply in the market, which we think will take that tenure higher. So we're looking forward to in a quarter on the tenure, the pace is tricky. When does the market start to price it, and you could get a faster move to that to

in a quarter. But I do think the long end the front ense price for hikes. I think the long end still has some some work to do in terms of moving higher in rates to price. In this exit from off the Fit, It's been twenty five years since I took statistics from Hassan Rockmanny and at Antioch College. And to be honest, I was in a college in Yellow Springs, Ohio, really great, great place, and it was super fun, which is why I didn't pay much attention in statistics. But um, so the language I don't I

don't have downpad. But you know, there can be a couple of different scenarios when you're making forecasts. Right, On the one hand, you can have a high degree of probability your base case is very likely to happen when you're looking at say um you know, year end fed UM policy and inflation. On the other hand, you can have a really broad distribution of probability these right. I mean, as you said, we don't know what's going to happen

with inflation. Maybe it turns around in the middle of the year and then the fat doesn't have to hike five, six, seven times, or maybe inflation keeps coming on strong and they have to do not just one, but multiple fifty basis point rate hikes. Is this a situation where the likelihood we're forecasting the end game is much more difficult? Yes, it is, And I would say for a couple of reasons,

we're still in the midst of a pandemic. Um. I mean, as much as we'd like to think that it's behind us, the impact of it on supply chains, on the goods to services, that that demand transition that we've been reading now for a year, I mean there's some aspect of that that flows into not just the labor market, but also inflation, because as much as inflation was a supply chain issue, was also a demand issue. There was significant

demand for goods. So we're still trying to figure out the impact over the how COVID itself, um, you know, how how the pandemic progresses, How is the impact of that flow through. So there's that macro risk. And then to your point, I mean trying to figure out the timing of when inflation will decline. And at the same time you have a FED that I think has stepped

back from forward guidance. They're telling us they're likely to start the exit soon, but after that, all options around the table because of being I think inherent uncertainty around the data and I think concerns that they might be behind the curve, which is why I think that fifty basis point will give a very strong signal that the FED things there behind the curve. But I think they want to keep all options on the table because they

may have to go faster. And that's the case. Where can they go faster on QT or can they go more hikes market pricing? In about five and a half hikes this year there are seven meetings, they could technically go seven times, just twenty five, and it's much more than Well, Also, the hikes probably aren't going to have and as much of an effect on markets as QT

are they. I mean, if they if they unwind two or three trillion dollars from their balance sheet, they still haven't gone through everything they build up since the beginning of the pandemic, and that would hit markets. I think, you know, that's way more than anyone expects. Exactly, and well, we've noticed real rates as well as the equity market or financial conditions in general seem to react much more

to QT because there's a permanence to it. While on hike, if all we're doing is moving a hike from two thousand, twenty three to twenty two, you know it's a big deal if you're trading fret front futures, But it doesn't matter as much in terms of interest rates because you've just taken front loaded the hikes as opposed to increase the number of hikes. And notice the endpoint of the hiking cycle, the market pricing of that hasn't changed. It's been between one seventy five and one nine, so it's

not like the markets adding more hikes. We're just moving hikes from one year to another. But QUT is a different story. At that point, there's a lot more treasuries and we need to find that marginal buyer for treasuries in auctions that every other week the Treasury has auctions. So yes, I think QUT is a bigger One of the reasons why we think the FIT would not have to hike as much is because of all right, prea

thank you so much for joining us. Always appreciate a pre MISERM Managing director and global head of Rate strategy at TV Securities. Let's continue our discussion of the US labor market. We can do that now with Nolan Church,

CEO and co founder of Continuum. Nolan former chief people Officer Carter, former head of Talented door Dash, former recruiter Google, so he knows all about this hiring and retaining talent stuff and captain of in Captain baseball team, the baseball team at the Universe with the name like Nolan, do you have to I think you have to be a baseball player. You can't go out there and you know, be a frisbee ultimate frisbe play. You're gonna be a

bas frisbee golf exactly. Nolan, thanks so much for joining us here. One of the many questions I have about this unique place in time in our in our labor market, is you know, the four to five million people that aren't in the labor market today that we're there pre pandemic, Who are they? Where did they go? And are they ever coming back? Yeah, it's a great question. First of all, it's great to be here. Thanks for having me on. Guys. I think that's the big mystery we're all trying to solve. Now.

What I would tell you is is that I can't tell you for certain for all four to five million, you know where they are ended up right now, But I will tell you that I think a large majority of those people have actually become solo preneurs. I think that they've started to work for themselves. I think that they're starting to consult, advise, become angel investors. And I'm seeing that especially being the case with executives that have deep expertise in a functional area. So how do we

do that? Well, you gotta work in radio a little longer. Uh No, I honestly believe what it comes down to is is that if you look at the labor market right now, and specifically the case with the executives, which is where I've spent a bunch of my time, these people are the most in demand. So if you think about executive recruiting, which is the function in which we connect executives to companies today, these searches usually cost a hundred k or more, they usually take six to nine months.

And right now there's a phenomenon I've never seen before, which is these executive recruiters are so busy they are turning away business. And so if you think about that on one side, and you think about the other side is these people have been in their careers for ten, fifteen,

twenty plus years and they're tired. They've been working their tails off for typically one company at a time, and you know they look in tech Crunch every morning and they're starting to see all their CEOs become angel investors to do other things outside of just the CEO job, and they're wondering, Hey, I've had my head down this entire time. Is there something else that I can do that's interesting for me, that gives me more time back in my life, but still allows me to make an

income and to challenge myself intellectually. So, Nolan, as you talk to your clients as they think about trying to hire, and we know it's such a difficult hiring environment right now. We see for you know, help one as signs every ay where and it's not just at the local bakery and local store, it's corporate America as well. Is hybrid workforce? Is that just table stakes? Do I just have to offer that as an employer? I actually don't think so. Now.

What I will say is everything is a trade off right now, and so if you don't want to be remote first or hybrid, then you will take longer to hire somebody period, full stop, especially people that have experienced Yeah, that makes sense, right, especially depending on where you are what kind of I mean, your clients are higher end uh looking to fill higher end jobs, right, So I mean, if you're an executive and you're doing well, I don't think your boss probably cares most of the time what

office you're in. That's that's what we're seeing now. And the COVID forced us all to become zoom native, uh to to just like everyone's got a webcam severn set up now, and so I think all of us are

now used to this. What's happening though, is that just because these searches take so long, And it's the case for executives certainly, but frankly, all the way through the stack and the company, I think companies are are saying, actually, this trade off that we wanted to have everybody in the office just isn't worth it anymore, and now we need to optimize for speed. And if you're optimizing for speed, what we're seeing companies do is obviously they're going to

remote first. Number one, we're seeing them pay more. Um So increasing compensation as number two, and then number three is that they're they're starting to explore these new options. So instead of hey, I thought I needed somebody for you know, I wanted somebody for a full time role working forty plus hours a week, I will now take somebody that's working twenty to thirty hours a week because

I can get them in the building faster. By the way, how many people are you putting into you know, um, highly skilled, high level jobs normally where they need to be in New York City or in Chicago or in l A And they say, no, I'm gonna do with the job from like the mountains in Montana. That is, I would say of the executives in our market place

are now like that. It is unbelievable. And and what's fascinating is is that you know, companies, they're they're starting to catch up, but still many of them are quite slow for this. And so we primarily work with with pre I p O startups in the technology sector, and I would say the large majority of those companies are now being founded as remote first companies. Those that aren't are living on this line between man, I really want to be intentional about my culture I want people in

the office. We have this office, I want people to use it, but it's taking forever to hire. And so okay, maybe I'll now explore somebody fractionally that doesn't work in the office because they can come solve my problems today. Look at this is where the the world is moving in this direction, and I think the people that jump on this train now will deal with a lot less pain than those that continue to be headstrong about getting people in the I'll get on the train. I need

to get on the you're gonna miss the train. We need to get Alan Anthony from Jersey on the train. That's what we need, all right. Nolan Church, thanks so much for joining us. Fascinating discussion here this half hour about the changing labor environment. Boy, you gotta get people back in the office, or do you? All right? Nolan Church, CEO and co founder of Continuum, fascinating discussion. All right, let's talk manufacturing here and Fan Dazzi, Chief executive Officer.

Richie Brothers. Richie Brothers is a publicly traded company that's six and a half billion market cap. Stocks been kind of flat over last year. The company sells used and unused industrial equipment, including equipment using the construction, transportation, mining, forestry, petroleum, and agricultural industries. I didn't even know there was such a thing, but it makes perfect sense. And we love chatting with the ancause it's a good sense of what's

going on in industrial America, supply chain, all that stuff. So, and thanks so much for joining us. How about let's just talk about how's your market is. How's the market for using and I guess new industrial equipment? Yeah, so thanks for having me on the show. The market is white hot because the demand is so high. The issue is the supply chain and that we're a global company, uh, and we're feeling it all over the globe. So Richie Brothers Transact primarily used equipment, and as you said, in

the industrial transportation space. Unfortunately, Uh, if you don't have a new piece of equipment to replace your use piece of equipment, you cannot give up the uth piece of equipment. So we see the demand the sky high, resulting in just incredible prices for youth equipment in the marketplace because they cannot get you to replace at the same clip they will so I want to So I'm guessing is an auction platform that you have it. Yeah, so we uh.

We primarily go to market through an auction platform. We also have a listing service that we've had in Europe for some time and just launched Ritchie List a couple of months ago in North America. So we allow people to list their own equipment, sell it themselves, we can finance that, we can inspect it for them, we can help close the transaction, or if you just need liquidity, we are happy to sell it on your behalf. So um, I mean it sounds awesome business like I want to

go on the website and check it out. But I imagine that your turnover hasn't been so much higher over the past couple of years, but the prices have just soored. Is that the case, or do you even have more turnover? Yeah, no, that's exactly right. Our units are down. So two things are happening in our marketplace. The prices are sky high because the man the sky high. The units are down because, as you say, we you know, low turnover, we ken

we can't get the new equipment. And also the mix of the equipment, so the things that are coming are older smaller. Again, you know, when people really have to turn the equipment they do. Otherwise they just hold onto it much longer. Now, the beauty of our businesses as that equipment continues to sit there, it continues to age. So sooner or later, when the supply chain catches up, uh, that equipment will need to be turned Uh. And that's

where we come in. So we're we're but the but the but the opportunity for you here, I mean, I'm looking at your stock here going from basically forty to sixty pre pandemic to now, which is you know, gain is better than a stick in the eye. But your opportunity, I guess is to um really boost your brand awareness here. You know, I think of the car space and pre pandemic, most people wanting a new car would just go down

the dealership lot and pick one out. But there aren't any on the dealership lots, so they've had to familiarize themselves with Auto Trader, car Max, car Gurus, etcetera. And so fourth, I guess what you want to do is make everybody aware that Richie Brothers Auctions is the place to go for this kind of equipment. Yeah, that's beautifully said. We actually take a lot of cues from the car industry. I personally spent almost over a decade in big Auto prior to a couple of uh CEO gigs outside of

auto and now Richie Brothers. It's a perfect analogy. So we are very fortunate because the space of used equipment ready for this, three hundred billion dollars of used equipment in a normal year change his hands every year. Three hundred billion dollars. We transact roughly six billion of that every year. So the opportunity space is huge. Uh, and our transition is just beginning from kind of a pure

play auctioneer to really a marketplace. Think about all the things that exists in cars, Kelly blue Book, car facts, as you set all of different formats to trend that we're actually putting those in place. We acquired Rouse to help us build the Kelly Bluebook of our industry. We launched the listing service that facilitate transactions outside of the auction channel, and then obviously kind of the pre eminent auction player all over the globe. All right, fascinating stuff.

We're gonna have to get you back on and I got a million in one questions, like me too, When is the supply chain? Thinking would be over. I want to and you get over this whole market, right. You want to become like the Mannheim of equipment. I want to get a big like earth Mover or something like that. And Fandazi, chief executive officer for Richie Brothers. 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. Pet On bal Sweeney, I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio