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Let's switch gears here, give a little bit more time on this US Steel deer a deal. That's the stock tickers X, which I thought it would have been Xerox, but it's X for US steal. There you go, President Biden blocking that deal. The stock is trading down today. Let's get some more news on that. Michael Shepherd, Bloomberg Senior editor in Washington, DC, DC. Hey, Michael, why is President Biden blocking this deal?
Is this simply a political move here?
Well, it is certainly political. He is also invoking national security concerns and considerations in the world Order that he released and signed today. It was also part of the statement that he issued to the public saying that he thought it was in the US national security interest to keep US Steel domestically owned and headquartered. And this was one of the key justifications he had been making for months since the deal was announced back in December twenty
twenty three. This is something he had expressed opposition to throughout the past year, but he had never come out outright saying that I will block this. President ele like Donald Trump of course, has done so, and he said that if the deal had ended up on his desk in some fashion or had not been completed by the time he takes office later this month, he also would work to block the transaction, of course, as sending the
companies back to the drawing board. And we're seeing what it's doing to shares of US Steel today, which are down seven percent at last.
Check from last night check. Though, wasn't Japan like an ally of ours? So why would an ally present national security risk?
Well, that's a great question, Alex because usually the committee that oversees reviews of big transactions like this on national security grounds, it's called the Committee on Foreign Investment in the US.
It's secretive.
It also tends to focus on any transaction that could deal more with an adversary rather than a very close ally like Japan.
But the US is.
Looking at this is perhaps more question of will the company's priorities it once merged, diverge from the US national interest it's a little bit more subtle, but there is a more basic question here at hand, and of course that is the political one that Paul raised at the top, and that is part of the key argument. Biden also said that he is concerned about manufacturing jobs in the US, and this is part of another step that he wants to take to ensure that they are not jeopardized somehow.
Is there any sense of what happens next? I mean, what does US Steel do do we? I mean, I guess they just sit around to wait for another buyer.
Maybe.
Well, there are a couple of things that are on the table for them. One is going to court, you know, a time honored tradition now in the US where we see companies taking the government and regulators to court to see if they can overturn a government action. We are seeing TikTok do this right now, trying to get this divestor ban law voided before it takes effect on January nineteenth, and we see arguments in that case next week. But for US Steel and Nippon Steel, they have signaled that
they may try to go to court. US Steel if a court move somehow fails, they will then be forced to reconsider their options.
Will they look for another buyer.
Will they have to maybe shed some assets, some plants, some production someplace. Will it end up costing jobs in some locations. Those are all questions that they're going to have to consider.
Now.
Both Nippon Steele and US Steel had insisted that this transaction was necessary to preserve jobs and to maintain production capacity here in the US with some investment coming from Japan.
So and this also raised the question in Cleveland Cliffs if you guys remember, actually tried to make.
A bid for it. They lost out to Nippon Steel.
For a moment, there might be a merger possibility there, but in the meantime Cleveland Cliffs bought a Canadian producer. So now they're waffling back on US steal real quick before we let you go do this. The union workers steel workers want the deal or not the deal.
You know, the union leadership was very much against this. This is very off brand for them. And in fact, there are clips of Biden from back in April standing with steel workers in Pittsburgh saying that he was adamantly opposed to the transaction. But some in the rank and file actually took a more nuanced view, and that was that, Hey, if Nippon Steel buys US steel, maybe this will actually help us get the kind of investment that we need to add jobs or at least preserve the ones that we have.
All Right, so much for the markets deciding what happens out there that the government involved. Michael Shepherd, thanks so much for joining us, Senior editor, Bloomberg News, joining us from Washington, DC.
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I want to go back to that ism.
So hitting a nine month high new orders the highest since January. Employment though did fall, production though jumped, it looks all in all to be a relatively solid number. So I want to get more on this with Walter Todd, President, chief investment officer and managing director at Greenwood Capital. So
the second I wind up seeing this number. I thought back to something that Torres and Slock of Apollo had written about, saying that the Fed cuts and the financial markets will actually boost GDP over the coming quarters by one percentage point and boost inflation by half a percentage point.
Would you be prepping for that at all?
Well, Alex, good morning, Happy New year, Thanks for having me. Yeah, so, I think this is the dynamic of the market and the balancing act here. Going back to that report, you just reference the prices paid component of that was higher, So we had new orders higher, the top line number higher, prices paid higher, but employment lower. That's not a good combination of seemingly a slower employment market but yet higher
inflation and potentially higher GDP. When you look at the GDP now forecast for the fourth quarter, it's about two and a half to three percent. So the economy seems fairly solid on the surface, but the labor market is key, and the report we get next Friday is going to be a big one for the market.
So, Walter, how are you guys thinking about this federal reserve here in twenty twenty five, It looks like the market's kind of discounting maybe two rate hikes.
Does that seem reasonable to you? What are you guys thinking about?
Yeah, So that's in the fourth quarter of twenty twenty four. The biggest shift, obviously was the FED expectations September when they cut half a point. We had seven to eight cuts baked into twenty twenty five. Now we have, you know, less than two baked in, the first one coming in June. Again, it goes back to the labor market. If inflation can kind of stay where it is to moderate and the labor markets stay solid, I think two is probably the
right number. My guess is that the labor market continues to weaken a bit as we move through the course of twenty twenty five, and that's going to force the FED to maybe shift again their narrative as they did in December, and we saw that pretty violent market reaction over a twenty four hour period with the S and
P down four percent. So I think that's one of the many unknowns for twenty twenty five is you can the FED stick with that that two cut outlook or a they going to have to shift again if the labor market and the economy weekends as they moved.
Through in some ways that feels really binary. So how do you position for that?
Well, I think it goes back to a couple of things. Diversification, which has been a dirty word for the past two years. You wanted to be concentrated in five to ten names to outperform the market, but I think having diversification among different sectors, different industries, even different geographies again x US another dirty word for the past number of years, looking outside the US where evaluations are much cheaper as the
potential opportunity there. I think also rebalancing, being disciplined with acid allocation. If you've been fortunate enough to be overweight stocks for the past two years, you're more overweight than you were two years ago significantly, So using this opportunity and strength to rebalance a portfolio and pick up some still very attractive fixed income yields, whether you look at treasuries or corporate bonds.
All right, let's go there, Walter.
I love to get your thoughts on kind of the fixed income opportunities again, because an investor can buy a two year treasure and get four and a quarter percent, it seems like an honest way to make a living. Do we take some credit risk above and beyond that, how do you think about credit risk?
Yeah, it's an interesting question because spreads on the surface are extremely tight, and the tightest they've almost historically been, whether you look at high yield or investment grade bonds. At the same time, the argument could be made that the balance sheet of Apple or Johnson and Johnson might be better than the balanchiet of the US government. So I think having a blend, having a blend of high
grade corporate bonds as well as some treasuries. But I think the temptation to stay on that front end, particularly with the shift and the Fed narrative, is a big one.
But we would use the opportunity of the backup in rates to extend duration a little bit, and I go crazy, not go certainly nothing beyond ten years, but look at that three, five and seven year part of the curve as an opportunity to lock in some of these yields as they backed up almost one hundred basis points since the low's in September.
I'm going to ask the question that I stole from Paul yesterday because it was a good one.
Do you stick with what got you here?
So?
Is this going to be another year that you got to own big tech.
Yeah, So I think for us, our opinion is we think it's a balance. Right, we will think you abandoned. We don't think it's binary. You don't think We don't think you abandoned big tech. But at the same time, if you've been really concentrated in that area, fortunately for the for the past two years, take this opportunity to rebalance a bit and look for opportunities outside of those areas. Very expensive valuations in those in that part of the market.
When you go look at energy or healthcare again, nobody wanted those in twenty twenty four, very inexpensive valuations. You could find good quality companies with good growth prospects that are much cheaper than some of those big names. So we would advocate for diversifying beyond the top of five to ten names.
Do you what's kind of a model portfolio for you guys?
I don't know if you have a model portfolio, but like stocks, bonds, alternatives, where do you kind of start from as ground.
Zero for maybe your accounts?
Yeah, So to say, obvious, every investors unique in terms of what they're looking for in their allocation. But we do like to have a blend of stocks, both large cap as well as maybe MidCap and xus allocations there. Fixed income, both intermediate and shorter duration fixed income, and also alternatives. We're starting to blend alternatives into that. We've
got two opportunities to do that. We partner with a company called First Trust as an alternative suite, but we also have ETF based portfolios that we have built that utilize alternative asset classes to structure that and incorporate that in portfolios. And I think that's another opportunity as we look forward again, not looking back at what's worked over the past two years, but looking forward, there's an opportunity there to incorporate those in two portfolios.
All Right, Walter, thank you so much for joining us. Appreciate getting a few minutes of your time. As Walter Todd, President, chief investment Officer, and managing director of Greenwood Capital based in Greenwood, South Carolina, which is kind of like great smacking in the middle of the state. Looks like a nice town there.
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So again, US seargeon general calling for cancer warnings on an alcohol label. Duncan Fox's Bloomberg Intelligence senior consumer staples analyst. We're clearly seeing alcohol stocks, Brown Foreman, molten Core's consolation brands get hit. What would be the real impact here if a label came.
On, Well, if it came on, I maschreming, it would become't similar to what happened in tobacco, where you'd just see volume come under a little bit of pressure in the short term. Tobacco volume generally is to have about sort of three to four percent. It's been a bit worse in the US recently, but I would assume that's the sort of thing that you would go to if
it was done globally. At the moment, this seems to be something coming out of the US, and I'm assuming it would probably just stay in the US at this moment, but who knows. I have no idea how long it will take to get any regulation through.
Do I'm going to have the companies talked about this at all, or this risk highlighted it? What do the companies say about something like this?
I think there are shocked, as I was when I saw it at the screen. I don't think anybody had any clue this is going to come from anywhere. Frankly, I think I heard your previous person on the radio there and they're saying, we all know alcohol is bad for you. That God all sorts of warnings already on there, but obviously not the one that would say cancer, which would be certainly worries on people. So they have drink
responsibly on there and all those sort of things. So this one's come out of nowhere, and I think, to be fair, the industry has been trying to do sensible things for years, essentially trying to get us to drink better quality product and drink less of it. So yeah, this one's a bit of a surprise.
It's also interesting because I wonder what the direct impact would be in terms of timelines. Like I mean, clearly, there was a world where women drank when they were pregnant, and then everyone figured out that wasn't good for them, and then it would harm the fetus, and then therefore then there was a warning label now on the alcohol bottle, which then prevented eventually women from not drinking mostly when
they're pregnant. So what's like a time lag for stuff like this, Like if a label gets slapped on today, when do people start paying attention.
Well, the only thing I can talk about here is what happened on tobacco and they started saying it was cans in nineteen fifty six, I think somewhere around then that it was nineteen sixty four when the US Surgeon General put in the saying it actually does cause can So then it was nineteen sixty six before you actually got the label onto the tobacco packet. It was even later in Europe. It was about nineteen seventy one in the UK. I think it was two thousand sixteen in Europe,
so it could take some time. Now people stopped smoking, or certainly smoking incident fell from about fifty percent around about nineteen sixty and has come down sort of consistently ever since. So I guess the talker that would mean people would consider switching to soft drinks or to lower alcohol stuff, although I'm assuring lower alcohol stuff maybe have a similar block on it because it's got some alcohol in there, and I couldn't tell you whether the amount
and whether spirits are worse than beer or not. I have absolutely no idea I'm not seeing. The medical data on.
That alcohol links to cancer have been known since the nineteen eighties in clings to Bloomberg's reporting, and the substances ranked US a third leading preventable cause of the disease. So alcohol causes about one hundred thousand cases of cancer in twenty thousand related deaths.
Each year in the US.
And that's according to the f the Surgeon General, far more than the thirteenty five hundred alcohol related fatalities from traffic rashes, just to give you some numbers here. So we're seeing a little bit of a sell off in the stocks here. Is this kind of in line with what you would expect because it doesn't seem like it's too traumatic to the stocks at this point.
Well, I mean the moment it's shock, I think that that's sending them down because we just don't know all this will get carried on through the rest of the world. We have no idea when it will be put on or if it will be put on in the US. The data, no doubt, the alcohol companies will say some of that data may be skewed because there can be other things that will be related, you know, showing a
bad diet and obesity as number two. I think in certain generals less hind Tobacca in terms of giving counsel. But I'm not hearing anything about them putting counters from food packaging, So I mean, I think there could be a long way to go before we see anything actually happen on the label. But you're right the discussions now, so people will start talking about it. I'm sure it'll get into the into newspapers and online, and it may
affect people's consumption habits. I have absolutely no idea. I've got nothing to basis on at the moment, so I'm just sort of assuming the volume will probably come under a little bit of pressure. But my guess is for the company's the beverage will probably push prices up a little bit more to like tobacco, cop this hat and try and not set some of that that.
Hit well, Duncan, We appreciate the insight.
Thank you very much, Duncan Fox, Bloomberg Intelligence, Senior Consumer Staples Analysts.
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