Markets, Shipping, and Lending

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Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside my co host Matt Miller.

Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market movin news.

Find the Bloomberg Markets podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot Com slash podcast. Again, it feels like this market is just really has it gotten too far over? That's what it feels like to me, at least in the short term. But what do I know. I've only been doing this since nineteen eighty six. I still don't get it. Robert Teetert, he knows what's going on. He's a head of investment policy in a strategy group

It does.

We've gotten a lot of progress in the last six weeks as we've seen the yield and the tenure come down from five to four. We've added a lot on the valuation side. Seems like we're fairly valued here rather than undervalued. Need a lot of progress next year on inflation and FED talk to keep holding those gains in valuation. So I think we're sort of at the end of this phase of the of the FED rate cut cycle

Right right, So how are you advising your clients to position heading into next year? Because you were mentioning to me earlier that you felt like what is transpired in the past seven weeks you were thinking was going to actually take about six months to happen.

Yes, I do think it makes next year a bit more allenging. We've compressed a lot of gains into a short period of time. The earnings picture still looks reasonably encouraging for next year. So while the streets at plus eleven or so, my forecast is for around six percent on the earning side, I'm not really looking for any

Now, Jess, she won't admit to it, but she's owned the Magnificent seven. She's belong those stocks, so she says, you know, going right to the bank. Me, on the other hand, I have not What do I do here? Do I chase them into twenty twenty four? Do I try to find some of the sectors that have not performed? How do you think about where to go in twenty four?

The likely scenario in my mind is that the seven still continue to keep pace, driven mainly by the earning side. They've got strong earnings potential that should continue. But small caps will catch up. They've been out of favor for a long time. There's a lot of valuation pressure that's closed the gap a bit in the last six weeks, but I think still more room to go. There are a lot of segments within small cap two that have

Well, it's also very broad because you have the bigger banks, you have insurers, and then you also had fintech in it that was not originally in that sector but got moved over because of the GIGS changes in the spring.

Yeah, I think a lot of that nuance will be

How about energy here, we've seen a lot of volatility in the price of crude oil across the globe, supply demand, all the geopolitical issues here. Is that a space that you like into twenty twenty four or is that kind of had its run because it's been a sector that everybody forgot about for a decade, it seemed like, and then it's just been really performing well over the last couple of years.

It has been It's hard to see an environment where those prices continue a lot higher, absent more geopolitical risk, again just on the basis of a slowing economy. So globally, you know, Asia had been a real powerhouse of growth that slowed down US. They'd had a massive rebound, of course in terms of growth, but next year, with a backdrop of probably two percent economic growth, hard to see a lot of upside pressure on commodities next year.

How are your clients feeling right now?

I think they, like most of the rest of the world, are feeling a bit surprised how quickly the last six weeks unfolded. You know, it was sort of very easy back in October to look at the year and say, it's been an okay year, but there are a lot of things that have been lagging, and a lot's.

Happened from the past six seven weeks, I don't think.

So we've done a pretty good job, I think of keeping clients invested, and our view for most of this year had been relatively optimistic, so we hadn't been in the Barish camp. We had been in the optimistic camp on the year on the basis of the progress that's been made in inflation and economy. Mainly on the economy.

How do you view the trajectory of the economy next year.

Definitely slowing. I'm not in the recession camp mainly on the basis that I think we'll I think we'll see it coming. And that sounds like very dangerous words, but with the availability of real time data that we have and the fact that we're still adding jobs in the economy, that means economic growth. And we can debate a lot whether that's half a percent or two percent, but it

What are some of your favorite signals that you like to gauge, because I feel like there's sort of the telltale signs that Wall Street likes to look at. But what do you like to use from more of an investment perspective, maybe contrarian perspective too, to see if certain things are weakening where you start loading up on stocks.

Yeah, that's a great question. We look a lot at We do a lot of factor work. We do a lot of work on spreads between sectors and attribution and then tying that to where we are in the economic cycle, So just looking at rates of change on different indicators on the economy, both real time and jobs growth, and

Earnings about outside the US. Any opportunities there for you guys, it's been a really tough area.

You know, every time we and other look at it, there's that nice looking valuation gap that never seems to close. And the challenge there, I think is growth. You know, Asia growth has been slowing. Europe's had a really tough time generating growth. The sectors that are that are growth oriented in terms of generating organic earnings are really in the US, and so it's very hard to get excited

All right, Robert, thanks so much for joining us. Really appreciate it as always, Robert Teeter. He's head of investment Policy and a strategy strategy group at Silvercress Asset Management. Looking at these markets holding on to some modest gains here the S and P five hundreds up about four tens a one percent, of Dow up a half a percent, Russell up one point five percent. So that's better breadth. Right, as the technicians like to say, you're listening to the team.

Ken's are Live program Bloomberg Markets weekdays at ten am Eastern, Bloomberg dot Com, the iHeartRadio app and the Bloomberg Business app, or listen on demand wherever you get your podcasts.

Let's love transports, all right. I'm not a big podcast guy, but I actually do subscribe to this thing called Talking Transports. Lee Klascal from Bloemberg Intelligence, He's got it because I mean, when you got one entitled werner on better trucking conditions

You know what we expect to hear is share gains. So there won some share gains from UPS. As you should probably remember UPS at a labor contract negotiation that went down to the wire and UH shippers diverted their freight away from UPS. And FedEx was a big winner in that. They're also one share from Yellow. Yellow is back in the day in your transportation today. Yeah, they were a large lesson truckload provider. They shipped about fifty thousand shipments a day, so they had about.

Six to seven percent of the market and they poof went away.

So that's a lot of a lot of Paletts that went up for grabs and FedEx. FedEx Freight is the largest LTL carrier in North America, so they were able to benefit.

I didn't know that.

So when you're looking at FedEx, LTL means LTL.

Less than truckload. Yeah, as opposed to Tel, which is not team leader. It's truckload team leaders.

And Paul, if you want to learn more about it, we actually we have a new podcast today, you do with the CEO from ARC Best.

ARC Best celebrated centennial.

They did Happy Birthday arc Best.

Yeah, very cool. So and so ARC Best are they sort of their private trucking company LTL trucking company their public The problem a ARC b Oh, I didn't do that deal? Did they get public? I took all those public back in the day they.

Were public, and then they a while ago they had some activists investor and then they took themselves private and they went public again.

Fort Smith, Arkansas. That's where I went when I was doing this truck Really, God, what do we do with the heart land? I don't know, des moines I or something.

Oh yeah, yea yeah, that sounds like it's awesome. Sounds about right. Looking at the Dow transports from their October low up close to twenty percent, when you're thinking about we will hear like you, we're talking about FedEx after the bell today, but when it comes to these transport companies, what are they telling us about the economy.

That's that's a good question.

So we've been in a freight recession for quite some time and we're coming out of that freight recession. The less than truckload mark is actually negative right now. And one of the good things about when we were talking about FedEx earlier, why it's a good thing that they got all this market share from Yellow and it comes at a time when volumes were down because demand has been down, so they've been able to mitigate that impact.

So that's not that's not recessionary data from your transportation.

So I think what we're doing is we're reflecting positively on a lot of these industries because like we've been down for a while, and some of that has to do with the economy and someone has to do with really difficult comparisons.

Right because everybody was stocking up like crazy back.

In Beta, okay, and the destocking cycle appears to be over from a lot of the retailers, which is really good for the truckload market.

So I mean, I look at FedEx again, up sixty two percent, but ups down seven percent? Is that reflective of just they're operating?

Also the strikes strikes?

Yeah, so so what you see there? So you know, it's all about, you know, your two points from a performance standpoint, and this year it's a little bit about you know, ups dealing with their labor contract issues and FedEx kind of getting hammered last year and coming off their lows, they've initiated a bunch of new strategies. They call it Network two point oh, their Drive initiative. It's

How did the what's going on in the Red Sea and it comes to shipping, how do you foresee that affecting transport companies?

Yeah, so it's just another kind of shock to the supply chain. We've seen container liner rates which are down twenty nine percent from last year.

They're up ten percent over the last two weeks.

And that's really driven on that because at the end of the day, if a ship can't go through the Suez Canal, it's got to.

Go south along Africa.

It adds about ten to twelve days, and so that you know, time is money, So it's going to add costs to shippers and listen, it's going to be inflationary. But that inflationary pressure I'm not gonna say transitory because I think someone will trouble for that, but it's definitely going to be short term in nature because the US government is and its allies they have.

A coalition to deal with the houthy rebels.

And you know, it might not create the most fluid supply chains because you know, ships might have to operate in a convoy if you will.

Wow.

But but it'll be.

Safer for ships to transverse the traversity of the Red Sea.

I do even quite frankly, have to be honest, I need to know where the Red Sea was a couple of days ago, and I had to go.

Like Google map it and air you thought it was.

It's Jerry Garcia on it. I thought that until very recently in my adult life. So but I mean twelve percent of you of global shipping goes through the Red Sea, so I mean that's marish. Those are the companies you cover, right, the big Yeah.

So a lot of a lot of the liners like Maris, Capac, Lloyd, the two private ones MSc and CMA, they all announced that they're not going to go in the Red Sea because of the risk not only to their crews but to cargo and ship ships are pretty expensive there, around seventy to one hundred million dollars each, so you know that's very expensive and insurers do not want insurance insurance companies don't want the ships that they're ensuring to be

Talk to us about the railroads, what's the what's the the theme for twenty twenty four for these railroads? Is it kind of just riding the economy? I mean, what are you thinking about or what are investors thinking about?

Well, I'm thinking about service.

So you know, rails talk a big game about service, but I really think they.

Need to deliver on that.

More and more of the railroads are kind of have pivoted to a precision schedule railroading or precision railroading. They like to call it different things, but at the end of the day, it's six sigma for the rail industry, and in order to lower costs, it can't come.

At the expense of service. And so you know, you'll see railroads maybe have.

More employees during down cycles and they might normally have just so they're prepared for when the uptick happens. And also, in addition to service, I think it's growth. It's where are they going to grow from? Because they're not going to grow for major M and A because the.

Large class ones will just not be able to merge. It's just they're just too big.

So it'll be tucking acquisitions of short lines and kind of looking to take advantage of trends like cross border near shoring, that kind of stuff.

We only have about a little maybe like a minute and a half left, but I want to get into airlines because it is the holiday travel season. I know airlines going into the fourth quarter had cut some of their outlooks because of they're worried about demand. But what are you seeing because it seems like people are still traveling.

Well, the only thing I know about airlines is that I'm on them. That's George Ferguson, my colleague at BI.

I do not cover.

Airlines, but I do cover some of the freight, the air freight carriers, and what we're seeing there is capacity kind of getting back to.

Pre pandemic levels.

And it's interesting because you know, I mentioned earlier that liner rates are down twenty nine percent. Air freight rates are only down like high single digit, low double digits, So they've been a lot more resilient since the pandemic. And that's really because there hasn't beant while the capacity is nearing pre pandemic levels. There's not a lot of slack capacity out there, all right.

Lee Classical, thanks so much for joining us. Lee Clasow, he is a senior analyst covering all the transports and logistics for Bloomberg Intelligence. He's also got a podcas Us out there talking transports. The focus will be on trucking, railroads, ocean and air freight markets and everything in between, so check that out. He always gets a lot of good guests on there. And again this most recent week, our

S and P.

Five hundred Here today holding on to the gains up about a half a percent, saying for the dall saying for the Nasdaq, the small cappers haveing their day up one point seven percent.

Here you're listening to the tape Cat's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, just say Alexa play Bloomberg eleven thirty.

Jess and paulse wean to hear in the Bloomberg Interactive Brokers studio and tiss the season Paul, because we talk so much about seasonality heading into year end. And who better to bring in than Jeff Hersh CEO at her Sholdings and the editor of The Stock Traders Amanac joining us on Zoom to discuss his correct market call this year, what to expect for the Santa Claus rally period as

Yeah, it gets misused.

I mean, it's a fun phrase, Santa Claus Rally rolls off the tongue, but it's something my father discovered and devised back in nineteen seventy two. Is published in a seventy three almanac, and it's this short seven trading day rally the last five trading.

Days of the year to the first two of the new year.

And it's not this huge, you know gain, It's about a one and a half one point three percent gain on the S and PN average. But the key thing is that it's not a strategy, it's an indicator. And when that period is not up, it's an indication that there's something amiss in the markets. Usually have you know, traders and and prop desks, people picking up stocks that

Sort of thing.

So, as my father said, you know, some sixty seventy years ago, if Santa Claus should failed to call, bears may come to broaden wall.

So it's you know.

An indication that it's a catchy tune he could turn a phrase. But we've combined that with the January barometer, another one of.

His inventions back in seventy two.

At the same time, they're both in that seventy three Almenac the full month January barometer. Everyone knows as January goes, so goes the year, and then there's the first five days early warning system.

January has become a bit of a profit taking periods.

It's lost some of its luster in recent years, and we've had some errors in the January barometer recently. So we combined all three to this this January Indicator trifecta, and you know, the bulls win when we hit that trifecta.

We hit it this year in January twenty three.

Since nineteen fifty excuse me, doing all three year up Santa claus Rally first five days full month January barometer the year is up twenty eight of thirty one years, ninety point three percent of the time, for an average game of seventeen and a half percent. The subsequent eleven months February December up twenty seven of those thirty one for a twelve point three percent game.

So you know, we didn't have that traffic in twenty twenty two.

Interesting, you know, we were going we were going into a midterm years, so we're already concerned. So we'll be looking at those things right now. I'm pretty bullished. I mean, this is the pre election year. We've got a good chunk of new highs we're seeing right here. Happened in December of the pre election year, a lot of them on the last trading day. Everyone started getting you know, all the bears are now getting on the soft landing bandwagon.

Happens with the election.

I mean, if something we're changed where Biden's not you know, the city president running, that would change our outlook a little bit.

Jeff, you know, we've seen since late October this S and P five hundred rally fifteen percent. It's been such a moving in November and in December here, what do you make of that?

It's pretty typical for your cycle seasonal behavior. It's encouraging everyone had you know, had this. The small caps we're in the doghouse. But you know, I've put out some of the recent charts about the small cap out performance starting you know, picking it around late October, and really the bulk of it is the last half of December.

I mean games, we get games.

It's supportive or starting to seeing some breath, you know, supporting it. We're seeing you know, broader participation in this. You know, it's it's a it's a rally based upon you know, the success of the economy. There's this productivity anticipation with AI market maybe a.

Little ahead of itself.

We're gonna have some corrections you know, throughout the you know, the the year, just like we had in twenty three, a very bullish year, but we had a nice you know, ten percent plus correction depending upon the index you look at.

I make.

What I make of it is that it's a bullish indication that we're we've got further upside here.

So my biggest concern at the.

Beginning of this year, I don't know if you remember, Jess when when I was talking, is that I wasn't bullish enough. I mean, we were already forecasting you know, fifteen to twenty percent gains for the for the S and P here we are with that, so again, you know, maybe I wasn't bullish enough, but pretty close.

What I'm wondering is because you're walking us through the seasonality with small caps, typically we tend to see that usually history and more in mid December and then as you know, going into year end with some of that window dressing, is some of the gains, especially the bulk of it that we've seen like you were talking about that started out towards the end of October. Does that potentially steal some of the typical games we would see

I think the small caps were catching up with the rest of the ball market based upon you know, the interest rates finally settling down.

That seems to have a bigger impact on the small caps.

I don't know if we're going to get as much of that you know, small cap out performance as we've just add.

I don't think it's over whatsoever.

I think we're going to get that regular, you know small cap effect what used to be the January effect in last half of December.

And into into January. I don't think it's taken away from it.

I think it's just catching up and setting us up for another for a continuation of small cap back performance.

Jeff, what do you make of the magnificence been here in twenty twenty three that was a unique aspect to this market performance this year.

There's always been leaders, they're still leading. You know, there was the nifty to fifty back in the late sixties. You know, these companies are doing you know, fabulous things. We're using their software and their their products right now as we speak. They some of the other you know, industries are catching up. But I mean, you've always got leaders. I'm not so concerned that the markets, you know, being led by seven stocks. There's plenty of other positive you know,

Let them lead. There'll be other people stepping in.

We only have about twenty seconds left. But you were talking to us earlier about how coming into this year you should have been even more bullish, even though you're already seeing a fifteen to twenty percent rise in stocks this year. What percentage are you expecting in twenty twenty four.

My early handicapping is about eight to twelve percent on the Dow maybe a little bit more at SMP and NASDAK and I'll be fine tuning that over the next couple of days.

As we finalize our annual forecast in the newsletter.

So yeah, I mean above average the election year performance.

You know what a sitting president's running.

The Dow's up twelve point eight percent on average, when it's an open field it's minus one and a half percent.

I think we've got a lot of tailwinds here going into twenty twenty.

Four election, technology, AI and a rising market.

All right, jeff, thanks so much for being with us, really appreciated. Jeffrey Hirsch, CEO of Hirsh Holdings and editor in chief of The Stock Traders Almanac.

You're listening to the tape catcher line program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.

Only in my career, Jess, I was at lead Chasemanton Bank, and I survived their credit training program, which is a beast on the street still is, and we were in the media group. So we lent not against assets, not against like receivables and stuff like that. Cash flow baby leverage lending. That's how we did. We go up to six times leverage lending on some of these stupid things. We did fleet call, which was we'd give them five hundred million dollars and we went to our credit committee

Value?

Value in Latin will go? Yes, good enough from me. How do you guys talk to us about twenty twenty three in kind of the credit market, because you know, I'm looking at across a lot of fixing come positive returns this year, which is good versus twenty twenty two when it wasn't so much, but how was How do you view the kind of the credit markets out there? So we've had.

A pretty volatile two years but twenty twenty three very strong across the board for leverage. Credit leverage loans as of now up almost twelve and a half percent after effectively a flat year in twenty twenty two. Most of that coming from the absolute yield, so you know, all loans are floating rate, and so the base rate at over five percent provides a lot of carry in the

Talk to us more about the earnings picture. What do you foresee and where do you see areas of weakness? Where do you see areas of strength?

Sure, so, as we've gone through twenty twenty three, and in particular Q three earnings, I think surprised to the upside, and that's not surprising as we look back with very strong GDP numbers here in the US. I think as we go into twenty four, we're going to see more differentiation. What we've seen over the last couple of years is normalization as we've dealt with inflation factors, be it supply chain, labor,

Private credit, Yes, I knew this is guys. How do you guys interact with the private credit business?

Right, So we're focused at Predium almost exclusively on the broadly syndicated market.

I think, so you buy loans from banks from banks, So I would do my chase Manhattan Bank. I'd syndicate ninety percent because I don't want take any risk. I'm in the business degenerating fees, right, so I would sell it to you. Yes, nice.

And so private credits now creating more competition for the likes of JP Morgan. What that for sponsors? What they're prepared to do is pay up for certainty of execution, and that was very important in twenty two twenty three when the broadly syndicated market was you know, pretty much shut for parts for parts of the year.

Why was it shut?

We've seen substantial outflows and COLO creation, which lateralized loan obligations represent about three quarters of the buying base for broadly syndicated loans, and issuance was slow to start this year. So the private credit market generally cost sponsors about two hundred basis points more in terms of yeah.

And why go there because I can't get a bank to do it?

Certainty of execution?

Okay?

And I think that that started to shift as the broadly syndicated primary markets opened up and is quite strong right now. So I think the sponsors want both markets and include high yield as well, to be you know, are you accessible?

Are you surprised that the banks have allowed that business to walk across the street. I never would have done that.

Yeah, I think they've been surprised as well. So private credit now is comparable in size, you know, a trillion plus to high yield and loans. I think they're the banks are playing catch up in terms of what role they have in that market.

Yes, private debt was thought to be really pressured as rates were going to rise, but that didn't happen. Walk us through why that didn't happen.

Yeah.

So I think that, you know, one thing with private debt that we've experienced or not experienced, but seen over the last uh, you know, a few quarters, is they're very aggressive in terms of terms and as rates have risen, and I think some of these companies and multiples that sponsors are paying, they're having a hard time dealing with the increased interest cost and so we're starting to see and this I think is scary. And I was also trained at JP Martin so goes back to my training days.

Yes, is.

You know, put in place because they don't have the cash flow to service and cash interest. I think setting up for you know, volatility in the future, but as purely a function of where rates sit today.

How do you think that twenty twenty four deal market will be ergo the kind of the stuff that you guys are going to see coming out of the bank syndication.

Yeah, I think we're going to see a real pick up in primary activity next year. I think the biggest factor this year has just been the gap between buy and sell side multiples. I think that started to contract. We've started to see m and a pick up. I would expect that to continue next year. And I think as you know, as our market you know, continues to remain open and is active, you'll see a resurgence of.

Are you guys at Predium raising capital now?

Yes, yes, we are raising capital across all products.

And what's the pitch here, like, what's the what's the reason that.

You get right?

So we think that next year we're going to have a lot of dispersion and that credit selection is going to be a big differentiator among performance. And I think this goes to sector selection and individual name selection, and that's our strong suit.

Yes, So looking at credit, what do you think is tells us about economic growth?

Well, I think as we saw in Q three earnings were you know, continue to be strong and actually accelerated from the first half. I actually think the US economy is doing quite well. And that's what we've experienced in in pretty broad based industries.

What would you need to see in the credit space to raise any sort of red flags to you? I mean it seems like you're not seeing those yet, But what particular indicators would you need to see for them kind of alarms go off in your mind. As far as growth stalling out.

Yeah, so what we haven't seen is a deceleration of the top line, and that to me is a function of strength in the US consumer. We've seen a deceleration of growth to some degree, but not negative growth year on year, quarter and quarter. I think we'd need to see that in a more broad based way across consumer driven sectors, which we haven't seen at all.

Interesting. Roberta, thank you so much for joining us. Roberta os She's a senior managing director at Pretium Partners, which again means value value. Thank you listening the new language. Yeah, maybe one ear and other ear.

Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.

And I'm Faull Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.