Markets, Retail, And Washington (Podcast)

Let's bring in a professional and get a professional opinion on what these markets are telling us. Here Mace McClean see I O president and Managing director at Frost Investment Adviers Advisors. Uh proud graduate from the Ohio State University. Mace, thanks so much for joining us. I don't know why you guys always say the but I'll go with it. Um, what do you make of these markets over the last

few days? Is this a little bear market rally kind of had its say, I would say, Jerome powege getting is best is shwis is that you know the financial conditions tightening with the sell off in the market. All right, So how pronounced I mean, I guess the question is they're gonna be out in Jackson Hole, and yes, Tom Keenan and surveillance team will be out in Jackson Hole as well. The surveillance golf stream is gassing up as

we speak. Um, do you expect to get anything out of Jackson Hole this week or should we just wait for September? Well, I think this is you know, um terman Pal's chance to try to talk down the expectations of a pivot. As I said, the expectations that they would pivot and the rally in the market is really

working against him, trying to tighten to nancural conditions. And so I think we're going to get a steady drum beat from uh the FED speakers that we will be um not seeing a pivot at anytime soon, but instead will be continuing to course towards rate increases. It doesn't matter who's been driving the rally. Are we worried about the retail menia coming back some sort repeat or are we okay with the fact that perhaps this rally has

been on low volume. What's your take? Of course, it has been low volume in the summer trading, but we are continue to see that rotation reflet, which also reflects the rotation and consumer habits which we're you know, switching to services and out of products as we come out of the pandemic. So we're continuing to see that rotation. Um and uh, you know we have not seen I don't think solid leadership yet for the rally and the next leg up May Sorry are you You're based in

San Antonio? Right? I am abundant Dallas today where it's flooding. Great. Well, I just assume anybody who this is my assumption to anybody who's from the state of Texas, they have a call on energy. So in oil, I'm looking at w T A crude oil here, we're down three, We're well below ninety barrel. Has oil has energy? Has that play

played out? We don't think so. If we think that we're continuing to explore and invest in new energy fines at a rate that's slower than the rate we need to replace energy stores we're using, there's any sort of green energy transition is going to take multiple years. We're still going to need the crude and the natural gas,

and right now we're under investing in that effort. So if we think that we're going to see energy stay in short supply for a number of years, and that we think that that play is has a long way

to go. So let's stick with that. That idea that Paul was really getting out because it seemed like it wasn't too long ago where everyone was saying the best way to hedge your portfolio is to do one of two things, to either buy the dollar or you buy just a basket of commodities, basically because those were the two things that we're going up. At its core, though, that is a contrarian trade. The dollar and commodity should be moving opposite to each other. You talked about the

commodities trade. I'm curious about the dollar trade. Are you concerned about a stronger dollar? I am concerned that the dollar may not may peek out here as we also see other monetary authorities around the world raise rates, we think that we may see a peek in the dollar at least leggling out. So I wouldn't bet uh strong that the dollar continues unabated in its current in trend that has been on. So Mace, we we just finished up Q two earnings here. They kind of came in

a little bit better than expected. Maybe the expectations were pretty low going into the earning season. Here, did the earning season change your view here? Change maybe your allocation change maybe some sectors you might be looking at. Not really, We've been um nibbling at tech chnology on the in the downturns, and so we're about trying to buy high quality stocks, the pet the market being maybe a head

of the FED pivot. Therefore we're you know, we're trading off today because people readjust when they think where rates are going. But the economy is weakening, and so we think we get every day get a little bit closer to that um that point where the Fed does stop raising rates and did market will get a lot more support. So, uh, we're more interested in the dips and buying high qualities companies like the technology and growth stocks in week markets. Alright,

buying the dips. That's what we like to hear particularly, is equity salesperson and equity trader, buy those dips. I'll go show you some more stock. Mace McCain ce io, President and managing director for Frost Investment Advisors. Boy, it's been a tough tough go for the folks in the fixed income. Biz, let's check in with one of those, Andre skibahead of Blue Bay US fixed income that's at RBC, the Royal Bank account of Global Asset Management. Andre, thanks

so much for joining us here. Help put into perspective what it's been like to be the head of US fixed income at a big Canadian bank when it's been just a brutal, brutal start to the year. Give us kind of what you've seen in the marketplace. Well, good morning. Um, it definitely felt like being on the roller coaster ride and not a particularly enjoyable one. UH this year. Investors have not seen these kind of returns within UH fixed income for a long long time. So yes, it's been

brutal indeed. Alright, so obviously concern about rising interest rates? Um, where do you think this Federal reserve is going to go? There are those that said, hey, September seventi five base points and then maybe even a pause. Um, how are you guys thinking about US federal Reserve? We think that

Federal reserve will be very data dependent. Um, it's pretty clear that the market, including the Federal Reserve, struggled to get their handle around where inflation is heading from here, and that is the key question that we need answers for before we can determine how aggressive Federal Reserve needs to high grate going forward. What is clear is that we have to go into restrictive territory, I tighten even more to start helping seeing inflation coming down more aggressively

from here. But how far we need to go is really data dependent in the months ahead. So are you expecting anything of note here from Jackson hawayoming as the central bankers get together later this week. Well, in a way, Jackson Hole this time could be less eventful than in the previous years because FED is being honest in saying that we just need to watch the data and not

everything is in their control at this point. So absolutely we would expect them to reaffirm the commitment to fighting inflation, to keep hiking rates, to pushing into restrictive territory. But how far they need to go, uh, that will be very much framed framed in the context of incoming data. So we actually should look more to inflation print ahead rather than what we hear jackson Hole to determine direction

of travel. So where are you guys at Blue Bay kind of placing your bets sharpening your pencils in the US fixed income business. So we think that when you look at government bond yields, three where tenure is trading right now, is roughly where we should be at this point. So we don't have a particularly strong view that levels should be meaningfully higher um than three for the tenure

in credit. We find that after the market being too panicky earlier this summer and pricing in a deep procession too quickly, the rebound that we have seen in the recent weeks means that credit assets look okay, but they don't look crazy exciting after the rebound that we have just seen. So we're much more in this weight and see mode to determine what inflation does, what pedal reserve does, and how much of a slowdown we will experience in the US over the months ahead. So talk to us

a little b about liquidity here. I mean, we're talking about financial conditions looking looser and looser, but treasury liquidity specifically has been a major issue. How worried are you about that? It's true that liquidity has been pretty thin uh in multiple episodes of of this market movement, and that applies both in the treasury space, but also broadly in credit. UM, we think right now, given that we're in the second half of August, liquidity is never that great.

But we look forward to market environment after Labor Day two assess the genuine level of underlying liquidity. So I thinks definitely are fluctuating from liquidity perspective, but neither are they horrible on a consistent basis. So sometimes we fear about liquidity too much, UM, But we will see how this evolves after labor Day. All right, Andre, good stuff. We appreciate you taking the time to talk fix and

come with us. One of the stock stories that got my attention today was Adidas for Audi Das as the Europeans say, it announced the surprise departure of its chief executive officer. And this can't be a good time when they're dealing with what's going on in China, which is a huge supplier and end the market for them. But I want to get the latest on what's going on with Adidas and just the retail space. So who do we turn to? Put him? Goyle, senior analysts for e

commerce at leisure and off price retail. Uh, that's a mouthful for Bloomberg Intelligence. She's been coming retail for ever. She was actually one of the very first hires at Bloomberg Intelligence back in two thousand nine, so she's been a rock here for Bloomberg's intelligence research operation. So putam, what do you say about Adida is here? Uh, Cosper Worsted stepping down? What's that mean? And what do you what do you take away from Yeah? Thankful? Um. I

think you know it was actually by surprise. If contract doesn't end until so going out next year is we think likely a result of the weaker results that they've seen recently, some notably the execution in China. They had replaced their Chinese had earlier this year. And I think this just you know, follows onto that there results in the first quarter were very weak and guided that was largely China. We lost you there for a second. But let's go back to the China story, because I think

that's so important. We're talking about a slowdown in the Chinese economy. We're also talking about potentially UM getting a lot more support in China. How does it translate to some of the issues that we're seeing when it comes to American exposure to China specifically. Yeah, I think I think for Adida specifically UM China. The issues are largely there,

not even on the supplying anymore. And when you think about any company today that's investing in growth in China, whether it's Adidas or whether it's a Lemon or Nike, the struggles are all the same, so it's not relevant to just one company at home. Adidas has done very well. Actually, um They've seen the business grown nicely. They've stayed in the number two spot with Nike being the lead, and at that position, we think they were on pace to

maintain per years. Where do we stand with inventories here? It sounds like you're at the Jersey shore. I would guess on the beach, but I want to see where do we standing with the inventories here? A lot of retailer's been talking about, you know, maybe they overbought and had a ton of inventory in the in the system and ano they're having to mark down prices to move inventory. Are we seeing that in the athletes are space with

the Audi, Das and the Nikes of the world. Yeah, there's definitely more inventory in the retail marketplace across the board. It's true also in Adidas and at Nike, but the inventory situation is a little different. Where in North America they have the demand to support the elevated inventory his local inventory. In China they're having to mark down more,

and somewhat in Europe as well. So I think it's a tale of two halfs really when you think about it, where there are pockets of areas in the business that are doing exceptionally well, but then there's a big part of the business, the growth part of the business, that's struggling and if we don't see signs of a recovery anytime soon. Put one of the big stories in the retail spaces, of course, been this build up of inventories. But what to me is so interesting is how quickly

the market narrative on that inventory story has changed. Because I want to say, about a year ago or so, when we're talking about supply chain issues, a lot of these major retailers were shoring up their supply chains and having an inventory build up was a good thing. Now it seems to be such a massive negative. Do we ever see a market dynamic where we go back to the fact that an inventory build up is a good thing,

given that the supply chain issues happen completely healed? Uh, you know, a lot of inventory is never a good thing in retail. You want to have the right supply with the right demand. What happened over the pandemic was I would say one time in nature. It was really a result of the pandemic. Or factories were shut down, there were transportation delayed, the report blockages. That's all now mitigated to a large extent. And do we ever go

back to that situation. Hopefully not, But I think we're just going back into the normal retail cycle where retailers ordered too much and they mismatched demand and you have to mark things down. That's how retails operated for hundreds of years, and we're just back in that place again. Put them I've read something recently that says people are actually going back to the stores and the growth you're seeing and the bricks and order is pretty darn near

where you're seeing on the e commerce side. Is this just a what are you seeing out there in terms of that kind of data? Well, you have to be careful when you look at the growth, right, Paul, because you're looking at two different growth comparisons. One for the online side, the growth looks more muted because you're off of very tough comparisons from a year with prior, whereas the reverse is true for the breaking mortar side. Now, I'd say the leveling field is pretty balanced. You're going

to have people returning to stores. There's always going to be room for stores because people do need that last minute thing and they do enjoy shopping this certain extent. Still, though it's going to be more bounced, we see e commerce penetration rising. To keep in mind that it was, you know, below twenty percent just a few years ago, So there is still a step up in e commerce. But there is a place for stories too, you know.

Putuma just came back from two weeks of vacation and I'm kind of counting down the months and when I can take another and I realized, you know, look, I've taken all my days off for the year. And I said, well, we only actually have four months of the year left, which means that maybe it's not too early start talking about the holiday season. Do you think it's too early talking about the holiday season and what should we be expecting in just a few months down the road on

the retail space, I always think it's too early. When we started talking about one of those Halloween and stores. I see Halloween and stores when I go in right now, and Sammy not even over the January. I'm like, all right, when's Christmas? No? But I think you know clearly two ages all about the holidays, right, and I think it's all going to be dependent on inventory and the help

of the consumer. We are at a point where the consumer has been spending, but largely the spund has shifted towards travel and experiences because that's where they had pent up demand. And on the other hand, inflation is curving spend of consumer staples of food and just um, really shifting towards those areas out of discretionary apparel sending. We saw that at Walmart, we saw that at Target. We've seen that across the board, even other retailers. They're citing

that there is pressure on the low income consumer. That's the first sign of a recession. If you look back to prior recessions, the first consumer de fault is the low income consumer. And we're now seeing signs of slop. I don't know when we get into a recession, but early signs are there as we speak today. All Right, put them good stuff, we appreciate it. Put them goyal

senior analysts covering all things retail for Bloomberg Intelligence. You know, my inbox this week end with the research from Wall Street was kind of cautious on the market. A lot of Wall Street folks are saying, all right, pause, hit the brakes here. We still got a fed raising rates. This rally in the market may need to take a pause. Uh. I remember the days when Wall Street analysts just said bye bye bye. Chanellie Basket, wall Street reporter for Bloomberg News,

joins us here in our Bloomberg internactive broker's studio. So it feels like the streets a little bit more bearish, a little bit more cautious on this rally we've seen. Cautious is definitely the word that I would use, and I would think back to what had happened last week. We had talked to Greg Fleming, the CEO of Rockefeller, and he said that's where his clients are. I'd even look at more data. For example, you have liz Ane

Saunders really pointing out here, that's uh. Los Ane Saunders of Schwab pointing out that hedge funds are not really letting go of short bets and that their net futures positioning for the SMP five hundred are near the lowest level since June. Money. That's an interesting thing to point out. And what else is happening when you look at options market SEEFTC data also shows sizeable and that short positioning in so for future. So that is the library replacement.

So that is increasingly hawkish. I don't like that library replacement at all. The other day man loans on work for thirty five years live word, plus I have just the right guests for you to talk all day about. I don't think that's a I don't think that's a contrarian take though. I feel like it's pretty consensus. We want. This is like market plumbing. We'll get into the cooler funners. Radio audience is like, what's that? I like the geeky stuff,

but listen. All of this is just to say that there are more expectations about a hawk is freed and conversely uh pressure on the stock market in light of that, plus more catalysts that are going into the fall. You look at a note that Guggenheim said out last week to clients as well, and the idea that docks have really been struggling with their two day moving average could

mean deeper losses ahead for equities. And the point that I've been making all year is that for the marginal buyers, let's use hedge funds as one of the bigger examples here. Some of these hedge funds are down in the first half of the year. How much powder do they have on the sidelines to spend big in the second half of the year. They don't. It's the answer. Yeah, I

got you. I think what's interesting And you brought this point up on the hedge funds story as well, because this is actually my chart of the day UM as well as that CFTC positioning really talks about how people have been more and more short on the SMP five hundred, even though you've seen the rally just kind of skyrocket were from the low. So it's interesting that hedge funds, though, are still kind of holding onto it. And they would

argue that perhaps the rallies driven more by retail. We're smart money saying well, no, I don't believe in it, and it's smart money saying they don't believe in it, or are they afraid to dip in. I was talking to a big hedge fund manager last week and they were saying, listen, I just don't see a pitch that I can hit at yet, and I don't have enough conviction here. So even some of the smartest guys in the room are sitting there saying that you can look

at the data both ways. You can. You you don't want to fight the rally. You lose money that way. You don't want to get into the rally because you could also lose money that way. And so that is the conundrum on Wall Street today. And so what you're setting up for is for the banking side of things. If you look at if volatility kind of stays low here,

you can see some of the activity come back. Data underwriting, equity and writing all the things that we've lost all year that have made the bank's money uh m, and a advisory work once again. And that's the stuff that could really fuel Wall Street into the second half. If you have deals come back, you have merger are come back. If you have all these activists asking for split ups, you also have deals come back. So a little bit of calmness would be the hope for Wall Street for

the second part of this year. I guess less than half of the year left. Um, but you know you were talking about it, Paul Pain still on a lot of corners on Wall Street, Credit Sweets being the poster child of that. A lot of banks also suffering a lot of losses. I mean Credit Swiss, my former employer. I worked there for a while. They just have management problems after management problem, aftter management problems in the stocks at you know, five h was five Swiss. Frank's yeah,

just brutal um talking about hollowing out. As we put in our Bloomberg Big Take story, the investment bank kind of backing away from everything with the exception of advisory work, and so they really would not be an investment bank anymore. They would be I guess, just really a wealth advisor. I guess wealth advisor. And that's something that UBS has

struggled with a long time. Remember the new CEO and a lot of new executives have come from UBS, and you're looking at a question of what that trading business looks like in the future. Can they take on more risk when Credit Swiss fade is facing a ratings downgrade. That swashbuckling world of trading, that high flying world has brought them billions of dollars in revenue, but in more recent quarters and years a lot of losses along with it.

What's the government, the Swiss government saying about that? Can they allow one of their two national banks to really not be a investment bank? You don't need to get out completely if you take Deutsche Bank as an example. But they did was they really sold a big chunk of their prime brokerage business. They kept a lot of their fixed income trading business. And guess what where Credit sweez is trading at less than a third of their book value. Deutsche Bank is back to par Deutsche bankers

trading at their book value. So they really recovered in a big way. So sometimes deep cuts can lead to a better future, as shown by Deutsche Bank. But again, what decisions are going on this new management team going to make today that really defines the future for a

bank that started their roots in the eighteen hundreds. Yeah, so, I mean, you know Historic Bank here and Credit Swiss bought what was one of the U S historic banks, First Boston Corporation, uh, and then that combined Credit Swiss First Boston bought d L j u Lfkin and jen Red, another high quality investment bank. But despite those acquisitions, I mean they we were always a top five bank six

you are in equity income m n a um. But you know they just can't get the profit side, the cost side of the business, uh right, and so then it results they have these big, big blow ups from time to time and a risk culture. Uh that's showing time and again to be problematic. So anyway, good news. They're lots of stuff on Wall Street as always as the bankers get back from the Hampton, instincts gonna be

heating up. For Shinali Bastik. She is our Wall Street reporter joining us live on our Bloomberg Interactive Brokers studio. Pretty sure, I'm here, I'm just but we've got a guest in our studio, which we don't get very often from the falls of Washington, d C. And re Hoardern Washington corresponding for Bloomberg Televisions. We saw her wandering around and crazy, and I are like, let's grab her and get her in our studio here to get the latest emory.

Thanks so much for joining us here. I don't really know where to go other than in August. It's August, but in d C. I know it's a lovely time of year down in Washington. Weatherwise, But elections are coming up here and is it me or is the narrative begun to change from not how bad is it going to be for the Democrats, but can they maybe pick

up some ground there. They had a pretty good summer in the sense of getting some really high profile legislative goals over the finish line, the most recently which the president when this recess is over and everyone's kind of back to the grind and Washington is going to have this big almost party at the White House for getting over the very very smaller version of their billback Better but their Inflation Reduction Act, so they had that, They

had gun legislation, they had something for veterans. They were able to get Congress to sign off on Sweden and Finland joining NATO, like these are really important measures, and they got it all done in the summer at the same time as gasolene prices were trickling down and that was the biggest issue for voters and that has really

evaporated from the news headlines being every single day. So with that kind of gives them some breathing room going into this election that they can campaign on these gains. So I thought very interesting last week, Mitch McConnell, although he's back in his home state of Kentucky, the Senate rope leader, said, I think there's probably a greater likelihood the House flips, which independent analysts have said, flip from Democrat to Republic. But he says the Senate races are

just different there. Statewide candidate quality has a lot to do with the outcome, and what he clearly is indirectly indirectly pointing to is some of these Senate candidates that have really been backed by the former president that don't have that usual level experience that you would see in some senators. Well, let's go from Washington to Tehran. We know that there are conversations right now happening with European leaders regarding the Iran deal. Do we see it coming back?

It's just now, I would say, the same level of discussions it's always been. This deal has been on the table. The Iranians didn't say yes or no. They came back with the response. Now the Europeans are telling the Americans, we need a response from you, and they the Americans have said, we have had the same deal on the table. The Iranians can say yes or no. There's been the same issues of hurdles for the Iranians that have always stood in the way. One of them was the i

r g C, the Islamic Revolutionary Guard. They want that off the terror list right now. The Iranians, the reporting that we've had for weeks is that potentially they're starting to maybe allow that to go ahead, and they're not going to make that the end all to be of the deal. But the one issue they do have is if a Republican president comes back in power, they want to make sure that this deal is safeguarded. And that's there's nothing the United States can do for that, right interesting,

So keep an eye on that. So as folks do come back into Washington after the recess, what's on the legislative calendar do you think getting re elected? Getting re elected? That's it, right, I mean, it's yeah, it's it's a small amount of run on. How might put it this way, the abortion ruling from the Supreme Court. How will the Democratic Party do you anticipate them running on that using

that as an issue. Well, they want to make sure that they are getting the word out to all of their constituents that this is something that one they want to put into law and go to Congress, but also that they don't want to see Republicans gaining power or individual candidates that are for abortion gaining this type of power.

They will certainly run in that and you can see them already doing that with them spending in terms of donations and what you do see what we saw recently in Kansas with voters they are rejecting um more draconian measures on abortion, is that this is a live issue for the re member election. Everyone thought it was going to be inflation, and the Republicans are going to hammer the administration on that. They're already doing it in in the ads.

But the Democrats will fight back on well, inflation, it's high here, as you mentioned earlier, it's high all over the world. We were able to get the administration's words, will be able to get gasoline prices down going into the winter months and the peak driving seasons of the summer. We have it down, and they are going to want to make sure that women, especially is hearing that to make sure that is their number one issue, not inflation.

All right, So is this mid room election going to be a referendum on former President Trump and his ability to run for president i e. If his candidates that he backs here in these mid terms farewell, he will say, hey, maybe you know I still got it and I can

make another run. It's an interesting question because we've seen already a number of former Trump or the former President's candidates he's chosen already, when most recently we saw that in Wyoming with Representative Chaining getting ousted from her seat. I think it will be depending on the individuals and what they're running for. Meaning maybe you'll see some representatives going to the House that the foreign president backed, but some of these senators that are running you have mement

Oz in Pennsylvania, you have Blake Masters in Arizona. At the moment, their polls aren't faring as well, and these are going to be really big seats that the foreign president is going to want to see his candidates win. What's on President Biden's agenda? Do you think UM does even have any big trips planned, you know, back in the fall, because it seems like, you know, the world's

kind of moved on from COVID. It seems like maybe I can take advantage of, you know, some of these travel opportunities to kind of so from now until the mid terms, he will likely focus all of his energy domestically. So already on Thursday, he's going to Maryland. This is gonna be like the kickoff of his push for the mid terms. Whether or not those candidates actually want the President United States to come campaign with him is another issue.

Over the weekend, the Washington Post had a survey and it was more than sixty candidates in these very hot races um kind of saying they're either not asking the President to come or they're actively avoiding it. Basically, there's no welcome banner that they want because it's really more of a referendum for a lot of these people. For the Democrats, it's a referendum on the administration. But then after the mid terms, he set to go to the G twenty in Bali. Now they haven't announced that, but

that is likely. The President has been doing his team, Shiji Ping's team is working together to maybe have their first meeting. Potentially that could be in November. The President will be in in Asia Pacific, so there's definitely going to be travel internationally, but that will happen only after the midterms. Everything is going to be right after Labor Day. It is going to be every headline, every inbox. Just prepare yourself some TV ads. I'm guessing all right. Anrie Hordern,

Washington correspondent for Bloomberg Television. We're fortunate to have her in our Bloomberg Interact their Broker studio today, so that is a treat. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews and Apple podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Pet On fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio