Markets, The Supply Chain, And California

down sevent today, fifty two week low. I blame the political situation in China, and I blame all emerging markets strategists as well. And then that includes Damien Sassaur, who is our chief emerging market strategist. Is the Do you cover the UK as well as chief market I know I don't cover the UK, but people have been asking you that. Actually it is the second largest economy in the world, uninvestable debt, demographics and declining productivity. That is China.

And for me, look, it comes down to reserves. In an environment like this, it's who has liquidity buffers to protect their currencies during times of distress. China's got three trillion reasons not to be worried. But the rapid deterioration of their currency base is not to be ignored. I mean, we're down seven and a half percent year today. They've lost about two hundred and fifty billion dollars of soft

currency reserves this year. That's quite a bit of money, but it pales in comparison to what we're seeing across the whole of em I mean, reserves are down eight point one percent across you know the major eighteen markets. And uh, I mean you've got countries like Malaysia, Indonesia, the Philippines that are just feeling the pain and their currencies are trading pretty much at all time loads. So you know, where do we go from here? To anyone's guess?

But not uninvestable, right, I mean, how can you even say that about such a huge economy given a longer time horizon. Clearly, even if you have concerns now, there's got to be some opportunity down the road. Is the worst case scenario for an Ali Baba investor, for example, And Ali Baba investor was doing one buying one thing, but it's buying the growth of the middle class in China. That's it. Forget the Internet, forgett e commerce. That was

the play. Now. Offsetting that was this broad thing called China risk. This is China risk. The government can come in and shut you down tomorrow, yeah, and they can block out the truth. I mean, look, I think all of us, inherently, fundamentally, we just want they could do that. Last year, that's it, and next year that that hasn't changed at all just because she has stacked some governing board.

He was still all powerful before this, yes he was, but I mean the question was was he going to use that power and how is he going to use that power. I mean, look, I think a lot of people are getting up in arms this morning about how he stacked the deck, not so much with she loyalists, but really with people who are sympathetic to the COVID

zero policy. Right, So that was the big thing. I think most analysts, not myself, thought that that policy might very well change before the end of the year, if not in the beginning of next year. And now that seems to be out the door. So I think that's why Chinese equities, why A shares, why in the Hong Kong you know what? Why everything is kind of down today. Look,

it's anyone's guests, but I mean, for me. I mean it's it's about liquidity, and if you don't have the ability to protect your currency and protect currency stability in times of distress, you know, everything else goes out the door, including the equity valuations for many of those thoughts like matuan ten cents in Ali Baba. But is that what we're watching right now? I mean, um, we've been looking at six ninety to seven for seven thirty now almost yeah, no,

for so long. You know, it's not huge swings. This isn't like the pound or the euro. This isn't like crazy talk. It's managed currency exactly. It's a managed currency. But look, it is a currency that is so heavily involved in global trade, and you know we now I mean, look, if you just look at export flows, I mean they came out overnight. I mean exports are down significantly. I'm talking double digits. China in the US, China and the Eurozone down seven percent, China in the UK down eleven.

So you know, global trade is going in one direction and that's down. And you know that means that, you know, if there's not enough demand for China's exports abroad, it's just gonna weigh that much more heavily on its domestic economy. And look, if you just look an unemployment, it's ticked up to five point five percent overnight. You know, retail

sales are down again. No one is lending in China because why lend to households or two small companies if to your point, you know, the government could come in and take it from you tomorrow. So what does this mean then, for not if Paul wants to buy Ali Baba or not, but what does this mean for if Tesla wants to sell more cars in China? That's a great question. What does this mean if JP Morgan and

Goldman Sachs want to do more business in China. I know Matt loves the auto sector, so let's go there. You know, it has slashed their prices by five percent overnight right in China, so the currency weekends. So they're they're because they're starting a they're starting a price war for electronic vehicles in China, and that and that is what and so that they've laid the gauntlet down. So

that's a very different story. But we must remember how auto sales drives not just China, I mean the Eastern European block is completely hungry pole in Czech Republic dominated by auto sales. And so if we now get into a price where are you know, every you know, part they're manufacturing is worth that much less, it's gonna be really, really painful for a lot of these countries operating out

along the periphery and emerging markets. And it's not just little startups like Tesla right, entrenched incumbent automakers like Folks Swag. They're sending their CEO with the German Chancellor to Beijing next month to probably plead on bended knee for more access. Yeah yeah, now, I mean look, I mean, look, it's

very difficult to gauge where we are. What I can tell you is as even the economies that got out in front of the tightening cycle, the Brazils, the Chile's, the Czech Republics, everyone, you know, you know, you're finally

starting to see them pumping the brakes on tightening. But how much more can they pump the brakes really with inflation running hot the way it is, I don't know, but activity I mean, right now, technically, Brazil, Chili, some of these economies are technically in recession probably as we speak, you know, and so for me, it's going to be very interesting to see some of the central bank meetings we're seeing this week. We've got Brazil on Wednesday, We've

got Columbia towards the end of the week. We've got Hungry this week. Those are all very important economies to see. You know, where their central banks are at, where their heads are, whether or not they can stem the decline. But with reserves coming off, what that means is that it exposes investors to risk of capital outflows in mass. And that's where we are. The life and times of an emerging market strategy. It's very difficult to create a

bush narrative policeto. Luckily you're doing well in the fantasy and a sports betting and sports betting expert on top of that. Boy, but that's a that's a combo right there. David Sassaur, he's our chief strategist for all things emerging markets at Bloomberg Intelligence. It's just a weird tape here. Got the SMP up two tenths of one percent, the deal up seven tenths and one percent, and then that's

that down eight tenths of one percent. So well, I guess the tech stocks are going to get super hard because of the China concerns, right, and I think the broader market is up on um relief out of the UK. That Richie Sunak is going to be the Prime minister seems that seems like the reasonable choice. And all we're by the way, we're set up for almost six billion dollars uh so earnings from companies that have six trillion

dollars sorry in market cap like massive from tomorrow. We got General Electric, we got General Motors, we got Coca Cola, I mean, just a ton then Tech at the end of the week, at the end of at the end of the day tomorrow, Microsoft and alphabetay is of course Google, Yeah, of course, okay, I'll be good stuff. So, you know, earnings, sharpen your pencil. Let's check in on somebody who does this kind of stock stuff for a living. Robert Stimpson,

c I O and portfolio manager at Oak Associates. So, Robert, we've had a couple of three days of some you know, upward moves into market, and what do you make of that? Is that are we still in this bear market? But we're just getting a little bit of a technical bumpers or anything else going on. Out there. Well, the market certainly has been you know, healthier or stronger than last week or so, but UM, you know, we do that we do view that as uh kind of acovery from

a very over sold position. Um, the market was very washed out after uh sustained weakness since August, and uh, you know, it's been more of a of a balance in our opinion, given we're in a window between you know, a bottom in September and a earning season in November. So but do you think that was the bottom in September or um? You know, does it really depend on what happens this earning season. Um, if we have a

big recession, is it likely to come next year? I guess these are the questions, These are the questions everyone's asking. But you know, in general, I tend to say that, you know, a recession doesn't matter for stocks. They simply do not like a slowing economy, and that is what we have. So whether it's a mid cycle slowdown or a soft landing or a recession, UH, stocks tend to struggle when the economy is slowing, and that's the environment

we're in. So the last week may have been better, but we do think it's going to be well into next year before stocks get further signals that has sustained advance is really possible, and bottoming is a process, and we're in the middle of that process. So what do we do here? I mean, do I just take my money and put it into your bond and get my four point five percent? Is that what I do until

I get a better sense of where this economy is going? Well, that depends if you're a long term investor a short term investor. Um it Oak Associates We are long term investors, and the market is certainly presenting a lot of long term opportunities here. Um. Given the decline the market has experienced the you know, year to date, valuations in many

sectors are very attractive. And if you're able to take a long term view and not worried about this quarter or what the the January number is gonna look like, UM, you should do very well. Where what sectors do you like? Well, you know, one group you like is the semiconductors. They've been under a lot of pressure on concerns over a

new sort of chip war with China. UM, but valuations have come down a lot from a year ago, year and a half ago when the industry was showing uh, you know, double ordering and concerns over supply chain issues UM, and we were a little more cautious on the group back then, but valuations have contracted, so now we're more constructive on it. UMU as a group, though, I've been really confused because it seems like UM chips that are

made for PCs are pretty much worthless. I mean, we're we're we're puking them, and and chips that are made for you know, cars are impossible to find. Still, Yeah, you're absolutely right, UM anything PC server gaining related. UM. Not only is their abundant supply at this point, but UM a lot of that demand was pulled forward during the pandemic UM and now there's just not as much of a need for it. So yeah, the opportunities are not in the PC, they're more in the industrial, the

automotive as well as the equipment sector. UM names like k l A, ten Core, LAMB Research. Their long term sales are driven by generational changes, improvements and yields and new factories, and we know that those are going to continue regardless of the current supply of certain chips. So Robert, you're based in Akron. Right, ye, all right, how the great state of Ohio, by the way, but it's perilously close to Michigan. I will say, how's the economy in Akron, Ohio.

When I think Akron, Ohio, I think good Middle America, good folks, tires, tires, of course, tires. Absolutely, How are things in Acron? You know, our economy is is quite stable at this point. Um. I think we're still seeing some of the by products of the pandemic. Restaurants are a little bit understaffed. We're seeing a lot more automated

teller machines at restaurants, grocery stores. Um. But I think, like much of America, the employment situation has been really strong nationwide, and as a result, there's still labor shortages. It's some basic service industries and um, you know, it kind of gives you the feel that the economy is doing fine. All right, Well, you're Ohio State Buckeys. I think you're gonna be upset this weekend, and Happy Valley by Penn State. That's the call right here. I'm taking

the points whatever. We'll see, all right, Robert, thank you so much. We appreciate that. Robert Stimpson, ce Io and portfolio manager at Oak Associates, located in the great city of Akron, Ohio, entire capital. Uh good stuff right there, Matt.

Go when you're sitting in front of your Bloomberg terminal and then you click on vessels and it shows you where all the global ships are all around the world import in transit, and so we've been focusing on that really since the beginning of the pandemic, and focusing on some of the big U s ports like Los Angeles Long Beach, things like that, Savannah on the East Coast, and of course Bayo, New Jersey, which is the center

of global trade. In my opinion, Um, you look at it now, boy, there's not that many ships off port of Things really gotten a lot better just looking at this. So we want to bring in Jeans Saroka. He's the CEO of the Port of Los Angeles. He joins us here in our Bloomberg Interactive Broker Studio, who has been really good making himself available during this pandemic to give us a sense of kind of what's going on in the Port of Los Angeles, because that really is one

of the the main global ports in the world. Gene, thanks so much for joining us here. How are things in l A. How are things at the port? If I bring my big ship up? How long do I have to wait? Paul Matt Good to be with you guys. Today the situation is much better. The marine terminals are fluid. The backlog of vessels has gone from a hundred and nine in January down to single digits as of today.

And those ships that are waiting outside the port stay there no longer than twenty four hours before they come in for work. So that's good news. I mean that sounds like the supply chain issues are simmering down. Um is it? Can you sound the all clear? Are you still concerned? Oh, Matt? The supply chain always needs improvement. You've got to hone your craft every day. But by and large it's moving in a good fluid form right now.

The dwell times on cargo moving out by truck, which represents two thirds of all of our business, is down to pre pandemic times, so the cargo velocity is good. Still working on the rail piece, but seeing great improvement over the last eight weeks. And I know the less you know the last couple of times you've been here. It's it's not just getting the ships into port. It's like, as you mentioned, getting them unloaded, getting the cargo out very either rail or truck, and then finding cargo space,

warehouse space. So talk to about that supply chain as you go out from the port and kind of get into the you know, kind of the storage areas and so on. Right working our way backwards, there's two billion square foot of warehousing available from the shores of the Pacific to the desert region, Paul, right now, about zero point two percent vacancy. In more normal times as we head into that peak season, you'd see about five percent vacancy,

but those warehouses still filled to the gills. You've seen people switch from ordering just in case to just in time, taking whatever cargo they could from the manufacturer in Asia bringing it here to help solve that equation around this insatiable appetite of the American consumer. So they so they're stocking up there just in case they need it, because they're worried that something may happen, uh like we saw in the pandemic, and they won't be able to get it.

It's not that they can't sell the stuff, and it's not that they can't truck the stuff. That's exactly right. And Matt, it's been the build up over the last two and a half to three years of all this inventory coming in because we've been buying so much. Now at this point, you head into a holiday season where the good segments are a little bit more narrow to think about what you want for to give the kids

and friends for the holidays, winter, where, etcetera. You've got to get this inventory out of the warehouses and into the economy, and it may look different. It could be patio furniture or flat screen TVs other products. So you've got two distinct areas to look out. What's gonna sell now and what you have to push into the market. The heck, a lot of the stuff that you guys

bring in is coming out of China. And we're focused so much on China today because we've got data, economic data out of the second biggest economy in the world. We also got um some political news. She is cemented his spot at the top for an unprecedented third term. Tell us about how important it is to China is

to your business. Right, having lived in China for over four years and keeping up great relationships there on the business side, I can tell you flat out, for the Port of Los Angeles, it's about sixty percent of our trade volume, essentially the biggest book of business across the board and by far to the number two competitor. The other piece to this is it's been a rocky relationship on the trade and government side over the last four

years with the introduction of tariffs retaliatory tariffs. Yet I don't even think the authors would have seen that yielded more imports, less exports, in the whitest gap in trade our country's history. Gene talked to us about labor. I know in past discussions it's it's hard to find folks to unload the ships to you know, load up the trains and trucks and things like that. How's the labor situation in l A Three segments of labor Paul. One

is the dock worker group. That's about fifteen thousand folks that are moving the containers on and off ships to truck and rail. That's been solid. They've been at full employment, working on average about six days a week since the

pandemic began. Second is the truck driving group, and with about twenty drivers registered to do business at the port, they're in good shape as well, but they have a mandate on hours of service federal regulations where they can work eleven hours a day and if they work consecutively have to take some time off. Matching up the volume with the workers availability on the trucking side is key.

And then last is the warehouse workers. As I mentioned, those warehouses have been full and that's been a very challenging location to attract, recruit and retain talent. Got to have more focus on that, whether it's pay, benefits, training, or upward mobility. So but you know, the concern is the concern was getting the people you needed to fill those spots. It looks like you're doing quite well on that side. Then paying them um a price. Wage spiral is the big worry for the FED and for a

lot of businesses. Do you see anything like that? Yeah, it's gonna be interesting because right now we're in the middle of the dock workers negotiation with their employers Association, and I'm sure that one of the hot topics in there is around compensation and benefits. How we look, the shipping industry has made a lot of money over the last three years. The workers have been out on those docks working essentially throughout this pandemic and in this surge

of cargo, they deserve to be paid as well. Looking at these other workers that are not represented by organized labor is where you'll probably see a change in pace when it comes to pay and retention concepts. Ten million jobs open nationwide, we have not been immune to making sure we have the right people in the proper spots. So just about the competitive environment on the West Coast, who do you who does l A really compete against and how do you how do you compete against the

other ports? Yeah, of the nation's goods move inbound through the ports of l A and Long Beach, about thirty percent of exports. I like to think we compete against everybody, but realistically, speaking from Asia to the interior of the country, it's the fastest, most efficient way. And with a twenty million population base in southern California, you've got a local purchasing power that's unlike anywhere else in the country. But the East and Gulf Coast ports have hired really great people,

invested in aligned with policy makers. We've got to be on our game every day. I was looking at like, if I'm coming from Asia, naturally I go to the West coast, but there were some times when people were coming the shippers are coming through the canal and going to like Savannah for example, because it was backed up on the west coast. Has that been alleviated No, not really. What we saw where shippers earlier this summer begin their moved bringing cargo through of the Panama or Suez Canals

to the eastern Gulf coast. And in fact, while we were moving record breaking numbers again this year for the first seven months and working those ships down from a hundred and nine to basically five, this morning you saw that cargo shift. Jean Stroka, uh here runs support of l a lots of boats going in and out. I think it's an important part of the economy. Speaking of export to the United States, speaking of hey, so Jeane, we've got this crazy strong dollar. Um when you think

about currencies, how does that impact your business? How do you kind of factor that into kind of your planning. Yeah, it makes American imports that much cheaper, but it puts a damper on American exports, and that's what we witnessed. We're down thirty seven and the last forty nine months on exports in part by trade policy of the previous administration and in part by the strength of the US dollar.

We're competing against soybeans from Brazil that have a better exchange rate, textile peace goods coming out of Southeast Asian nations that go into the finished garment, again competing against that strong U. S dollar. So as we try to ramp up every available avenue to pick up U S agriculture and manufactured goods, this will continue to be a headwind. It's got to make people also even more interested in

sourcing goods out of Asia than they already were. I mean, labor there has gotten more expensive, but as the dollar um continues to get stronger, that evens things out, right, So I just imagine, um, anyone making mass producing goods is gonna at least get parts out of Asia. That's right. And it's interesting to Matt because the parts and components that we import for American factories are about as much volume as the American retail goods that we talk about

so much today. So that's a really key input to our economy, as well as that volume through the port you know, gene. When the pandemic began and we had shortages of various items, most notably the microchips. There's this big discussion and big move to onshore a lot of stuff, and I'm sorry, I just don't see it personally. I maybe just because I grew up in the world where

globalization became the norm. When you talk to your shipping clients, how did they think about that on shoring aspect, Is that really something that's going to be material or do you still think it's gonna be a global trade environment. It's a real topic of discussion with most who we talked to. In fact, I just had j Timmins, the CEO of the North American Manufacturers Group, on our press conference last month. But it's nuanced, it's layered. There's gotta

be tax policy that supports it. There's gotta be a plan for jobs. With ten million jobs open nationwide, we don't have enough workers to go to all these different segments in the American economy. And Matt, as you said, the ability to buy the products at a decent price and get them in here to the factories looks a little bit different than it did even months ago. Yeah, what is your take on what we're gonna in terms of the U S economy in the next months and quarters.

I mean, there's been so much talk about a recession. We're almost, you know, talking our way into almost talking our way into it, except for the fact that it's it almost looks like it's not gonna happen, right, So there's some people saying this could be the recession that never transpired. We did see two quarters of contraction, but no one's labeled that a recession yet, and it just seems like we could skirt it when you look at

how well we're doing an earning season. Yeah, there was a lot of talk months ago about a soft landing, a hard landing, a little bit of turbulence of bumpy landing. It's an equation that we haven't seen before. Again, so many jobs open, lowest unemployment since the nineteen sixties. The consumer seems resilient. Flat numbers for July, August, and September, where many thought we would fall off a cliff, Producer prices, wholesale prices remaining elevated, and that means that we're still

ordering from those folks to do the outputs. So it's going to be interesting. But again, looking at inflation at eight point two percent, that's what's on our minds. We feel it at the gas pump, we feel it at the grocery store. Can we get through this on the resilience of the consumer. I think we can. It's just in time. Inventory, is that passee? Because it seems like that's we all learned that in business school, But then boy, it can came up to bite us here during this pandemic. Yeah.

I think it's interesting because as we passed through the pandemic and this import surge, no one wanted to be the paper company, so they began ordering everything they could, and the fight for factory floor space in Asia was just like it was throughout the supply chain and other segments.

I'll take whatever order I can get, and if it's patio furniture or a flat screen TV, maybe it's that that Barbie doll, I'm gonna take what I can get, and therefore I'm gonna build up my inventory so I'm not going to run out of products for this insatiable appetite of the American consumer that's yielded a lot of inventory here in the US that now must be bled out, maybe through discounting as we go into this all important

holiday season. All Right, good stuff as always. Jean Starroka, thank you so much for joining us live here in our Bloomberg Interactor Broker studio. We appreciate having these conversations during the past two and a half years on the global supply side, supply chain, that's been a big issue. Matt and I we can sider ourselves. I think quasi experts on the supply chain. I'm not necessarily an expert, but I'm willing to get my cd L and drive

a truck in and out of the Port of Los Angeles. Yeah, that might be you know, if things continue, might calling. That might be your calling, Jean Stroka, the Port of Los Angeles, we appreciate it. I'm a big fan of the state of California. I mean, there's so much to do, There's so many different regions of the state. It's just awesome. I think I wish the financial capital of America would move there. You know, Yeah, that'd be cool. Well, there's a lot of dough out there, no question about it.

If you're a technology person, is already there. California catching Germany as a number four economy. We've got Matt Winkler in studio. He's got a column out today talking about California breaking down the numbers. Matt Winkler, I don't know what he founded. Bloomberg News is that kind of and he's like an editor in chief emeritus. Okay, so that's big, right, Yeah, Okay, that's good, he hied me. He hired to al Right,

despite that, we haven't in our studio, Matt, California. Say what you will, people, everybody's going to California, Texas and Florida. California is still the bomb, right, So Paul and Matt, great to be with you. If you look at UM California, or rather Corporate California, which is almost four hundred publicly traded companies, there really isn't an industry group or or

category where California is number one. And if you add up the growth in sales and profit of these companies since when COVID disrupted the world economy, you would find that California has actually been on a tear, such a tear that um it is continued. If you like this trajectory where uh it it leap frog Brazil in France and two thousand fifteen, uh and supplanted, the UK is the number five economy in two thousand seventeen, and here

we are two thousand twenty two. If you looked at the trend lines for California and Germany, which we do in the column, uh, they are the narrowest they ever been in by some estimates, because we're not gonna have twenty two figures until twenty three. California has already overtaken Germany as the fourth largest economy in the world. The interesting thing is that the narrative we hear, um, I'll say, in the media, which is meta because obviously we are

the media. But the narrative we hear is that everyone's moving out right, that California is over taxing and over regulating all of these businesses, not giving startups a chance or even big companies like Tesla, and they'd rather be in Texas or Alabama or Florida. How un true is that? Why do we hear it so much? Well, because, um, you know, the easiest story to write is to go to the local gas station and ask people, are you happy? And the answer is gonna be no, And so we

have a crisis and it's called a gas crisis now California. Um, the whole notion of you know, high taxes and regulation just gets blown away because, as I said, there isn't an industry in America where California companies are number one by an overwhelming margin um against companies in any other state. And that's been true, by the way, over ten years,

five years, two years, one year. But it's especially been true during the period that we call the pandemic because so much innovation occurs in in California, and we got a lot of innovation during the stay at home economy. Many companies that didn't exist prior to two thousand and eighteen, we're flourishing by two thousand twenty one because California is

number one in innovation. And by the way, the proof of that is that the biggest companies in the world, when they have to situate their research and development, people guess where they go, overwhelmingly to California. It's interesting that we were talking before we came on the air here about the value of the higher education system in California,

the UKAU system, the cow State system. UM. I mean, it just seems like it's it's been such so strong, so supportive of the entire state's development, and there's really nothing like it that I can think of in any other state. No. I mean, look, Nelson Rockefeller tried to replicate what Governor Pat Brown, Jerry's father did in New York State with the state university system in New York. He tried to replicate that, and he did a lot

to to make it quite row bust. However, you're right, Um, you can't find a higher education system UM as diverse as UM you know, uh robust as the one that exists in California. And just you know, if you look at the Bay Area alone, you've got the University of California Berkeley, You've got uh, the University of San Francisco, you have Stanford University, UM, and UM, it's hard to find anything like those gems. But actually they're all along

the coast, they're inland, they're everywhere. Um. You know, the gems of higher education in California everywhere. And that's created an environment where you get some of the smartest people in the world and they lead in other industries or areas as well. Well. Yeah, I mean you mentioned bleak reference to Tesla. Um. You know, Tesla is now one of the its just maybe the largest manufacturing company in

California because it has uh something like fifty employees. So Elon Musk may have gone to Texas for a tax free and regular regulation free lifestyle, but the people who work for him um have actually increased numerically in California since he made Texas headquarters. And that's not an isolated example. It's that companies still are there. Obviously. All right, good stuff, as always, Matt Winkler, Bloomberg News Editor in Chief Emeritus.

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