P&L: The Thanksgiving Price War

organic turkey. Jennifer Bartashes is over here. She's a of Bloomberg Intelligence US food and drug retail analysts, speaking to us from Prinston, New Jersey. Jennifer, what are you cooking this this h holiday? Well, I am cooking turkey. Um, But I'm actually cooking part of a turkey, and we have a small household, so we're not interested in a lot of leftover. But it's cheaper this year. It is, um,

you know, definitely. Food food deflation is taking a toll um And on average, Thanksgiving is about three point four percent less expensive this year than it was last year. UM. And so that that's good news for consumers. Well, so where is the decline coming from? Because the actual turkey

itself is not necessarily cheaper, right exactly. Um, But what's the decline is really coming from all the other typical items that you would think of for your holiday dinner, so um, stuffing, green beans, you know, uh, you know, potatoes,

things like that. Um. And what's happening is that in a deflationary environment, all of the retailers are trying to get as many sales as possible, um, and so they're discounting all of those common items, and so there's a little bit of a price war that's happening that's driving those prices lower. What what product is sort of the focal point for some of these price wars? Um, well, anything you know, obviously aside from the turkey, which which

is a little bit more expensive this year. Um. You see everything from you know, the instant stuffing to cans of you know, cream of mushroom soup, pretty much all the standard basic items that most people buy. Um. Almost every retailer has some sort of promotion happening on a lot of those core items. But it seems like there's something of a divergence between lower cost grocers and the higher end sort of organic focused UH stores. Right. I mean it seems like prices are going up for the

more kind of artists, artisanal producers. It's true, especially once you get into more more of the organic type of items, that prices are going up a little bit more. Um And And what's what's happening is that there are more and more stores that are selling organic products these days. Um. But the the supply is not necessarily expanding at the same rate as a number of people that are starving

those goods, um. And so that that gives it an inherently a little bit of extra inflation or or higher prices, as people have to pay a little bit more to have the goods in their stores, and then they pass it on to consumers. So when you look at retailers like Whole Foods, UM, fresh Market, Fairway, Um, these are all retailers that have lean more heavily in that organic and natural space. And as a result, their Thanksgiving basket

was a little bit higher this year's than the average supermarkets. Yeah, meaning that it was more expensive. Right. So I think you had some information that the basket at Whole Foods would cost a hundred and thirty four dollars, that's for twenty items. Compared with one and seventy eight cents at Fairway at nine seven dollars a Trader Joe's and nineties six dollars and forty cents at fresh Market. Can we talk a little bit about why there is price deflation

in some of these grocery uh products. Well, you know, the the the price deflation. Yeah, this is a pretty small basket, you know when you're talking about very specific things for Thanksgiving, But the price deflation is is really coming. It's a it's an overall industry trend where you're seeing deflation across the board and it's been a sustained period of deflation. UM. And some of that is coming from

deflation in produce UM. Some of that is coming from deflation in proteins like beef and eggs and chicken UM, and in dairy as well. UM. And so when that happens, it sort of bleeds through and affects all of the you know, all of the retail prices within the industry. Is it just that we're getting that much more efficient

at producing food? Um, That's that's that's part of it. UM. You know, there's there's there's always a cycle of supply and demand with regards to you know, what's produced UM, and so you know, you go through limited supply producers that overproduced UM, and then you go through, you know, a period where there's there's a little too much in prices come down UM, and that's kind of a normal fluctuation.

But we have had kind of a sustain period where UM prices have been coming down or staying well UM for quite a while. Jennifer Batasha's thank you so much for being with us. Jennifer Patasha's US food and drug retail analyst for Bloomberg Intelligence, speaking with us from Princeton, New Jersey. I'm Lisa Bramwood's my co host, Pim Fox is on vacation. This is Bloomberg. I want to learn

about what fund managers are thinking right now. A number of money managers that we spoke to since President elect Trump won the election, they've said that they have not changed the way that they structured their portfolios significantly or their strategies. But perhaps our next guest disagrees. I want to bring in David Kudla, CEO and chief investment strategist of Mainstay Capital Management, which oversees about two billion dollars UH. David Thank you so much for being with us. Good morning,

Good morning. So have you changed your base case outlook and the way that you invest since the election? Absolutely? Uh. You know, when we look at it, we look at a Trump presidency with a still Republican controlled Congress, but specifically with the Trump presidency, a see change in the

investment landscape. Um. We've already seen what's happened with bond yields in the last two weeks, with the prospect of tax policy and infrastructure spending, pro growth policies, regulation regulations being rolled back, and you know, we see the that there is a path here for rates headed higher. The Fed will have cover to raise rates even faster than maybe they would have. UM. And we've seen the markets performing well in specific sectors in this regard that I

think investors need to take key to this. It's very important for the coming weeks and months in their portfolio. Well, so, how do you sort of take what's going on and put it into an investment thesis? I mean, how do you determine when potentially a rally has gone too far or when perhaps people's hopes are getting ahead of the reality. Sure, so there's some things that happened immediately. UM that that could have been expected if one expected that Trump was

going to win the election. You know, we saw an immediate bounce in biotech because biotech and pharma had been under a what we considered a political risk with the threat of UH pricing regulation what started really in September of last year with the Hillary Clinton tweet. As soon as Trump won the presidency rather than Hillary Clinton, that political risk was greatly diminished. Biotech popped a lot UH that we see maybe you know, as a shorter immediate

bounce other things like banks. You know, we had already been favorable towards the regional banks with the prospect of FED raising rates that improves their net interest margin or basically their profit on landing. Now the regulatory headwind in front of banks will probably be diminished, and we expect that and we think there's a long runway for banks and financial services UH that's now in front of us

with the Trump presidency, with the infrastructure spend. We'll see what comes there and we'll see what policy statements or what statements were made during the campaign actually become policy. Because he's walked some back, some like announcing its intent to pull out of t p P. He's he's gone through with. So I'm looking at a tenure yield right now in the treasury UH at about two point four percent, up from UH one point five percent as recently as September.

How high do you think that the tenure could go and will this be a messy, unwrapped ing of of the bond market? Well, it's it's been a messy, unrattling for the last two weeks. We've seen yields, depending on where we are on the curve, rise as much as fifties sixty seventy basis points, and yields around the world have gone quite a bit higher. UM. So it's already been a little bit massy. We think we could get a pause here at some point, you know, around two

and a half percent on the ten year UH. But when we look out longer term and a lot of this will will that will be based on you know, our Trump's you know, the actual policies with a Republican Congress to get put through. Do we see the inflationary the pro growth but also inflationary policies that many think will go in That has caused the bond market start

pricing and higher inflation um. You know, but it's easy to see that we we now see rates moving higher and the one three back in July we saw in the tenure um is a generational low bond yields. Well, so what argument for why people were going into stocks was that, well there was no alternative, right, because bond yields were so low. Basically, the dividend you'd you'd be paid by owning a broad basket of stocks would be

more than treasuries. That's changing, and it's changing fast. Do you think that this will lead some people to withdraw or at least hold back from allocating money to stock. So far that has not been the case, but this has been one big question among people I speak with. Yeah, it's it's an interesting dynamic that will unfold because you know, we've talked about the great rotation for a number of years, and there have been a lot of false starts where

where rates have eventually start to go higher. We see the rotation from UM from bonds to stocks for that reason, although stocks have had a lot of UH stimulus to go higher, namely central bank stimulus. I mean, that's what we talked about until the election. Is earnings didn't matter. Valueations didn't matter. It was about central bank stimulus around

the world pumping stocks higher. And you know, but the way we think the dynamic between stocks and bonds and folds initially is investors start to see and again it's investors that look at treasuries and high grade corporates is a safe investment. But statement after statement they see a negative number in terms of their total return because the

price of bonds moves inversely the yields. As yields go higher and stay higher, the bond prices are lower, and that will cause people to rethink, you know, how are they allocating their investments. And you know, we have been saying for a while and continue to say, this is where liquid alternative investments are an opportunity when bonds are going to be you know, an asset class that potentially

offers negative returns here for a while. So in terms of total return, So, David, what's your what's your best bet going forward in the next six months? Banks, financial services regionels are bigger, bigger. So we've seen we've seen what's happened with the large money center banks we have, um, you know, the problem with the Wells Fargo scandal. So when we we look at what rising rates will do for financial services in general, uh, it is it's help

with lending. When we look at the regulatory headwinds that have been in place, that's affected lending a lot to people look at their regional banks. We we think of as the hometown lender. People look at at those banks. That's where a lot of their revenue comes from. So therefore we like the regional banks over larger banks. We like, uh, you know, the smaller companies that are domestically oriented versus

large mauna national conglomerates. So so small regional banks right in that fold of a couple of investment themes that we think they have a long runway ahead of them, even though they've done so great the past two weeks. David Kudla, CEO and chief investment strategist at Mainstay Capital Management, talking about how banks is his bet going forward, te

you with the enemy. Donald Trump went to visit The New York Times yesterday, a publication that he has maligned greatly and that they've had a pretty contentious relationship, and uh. He had a wide ranging interview with editors and reporters at the New York Times, Ben Brody, Bloomberg Politics supporter here in the studio at Bloomberg eleven three oh, to talk a little bit about what the three most important points were that we learned from that interview. Right, Well,

as you said, it was certainly wide ranging them. But one of the things that I think a lot of people took away from it was him saying suddenly that he was open to not exiting the Paris Climate Accords. This is somebody who has labeled climate change, uh, you know what Chinese designed to make America less competitive, and suddenly he's saying that, well, he might keep an open mind about this. It was a little unclear what exactly would sway him one way or the other, but that

certainly made headlines. Um. He also backed away a little bit from some of the neo Nazis have been supporting from him, who have been supporting him backed away a lot from this campaign, promised to prosecute Hillary Clinton for her use of a private email server, and then raising a lot of eyebrows in my world, was him saying that the president of the United States simply can't have a conflict of interest. This was this was quite exceptional.

The laws totally on my side, meaning the president can't have a conflict of interest. UM. There was a great story by Bloomberg reporters Caleb Melby and Stephanie Baker about how President elect Trump would have a hard time divesting his businesses even if he wanted to. UM, can you talk a little bit about that and just how conflicted

he may be? Sure? Well, for one thing, you know, he has a broad international empire with a lot of international partners, including in the Philippines somebody who is uh an envoy to the US. UH. So the level of the conflicts and the level of the involvement is just so incredibly vast and really unprecedented UH in the history of the U. S presidency. But of course there's also

the real estate issue. A lot of his holdings are relatively a liquid and it's not clear exactly what fair market value would be UH for him to divest again if he were interested, which he does not seem to be coming across as he says, an such thing. It's fine, And in a strange way, he actually is right about

the law conflict of interest. UH laws generally exempt the president because they have such a wide purview that there would constantly be raising questions of that doesn't undo his moral or ethical obligation, nor is it going to stop his political enemies from raising questions about it or for that a matter of reporters who seeing a story yesterday

that George Washington too had a lot of property. Um, but it might not have been as as quite as lucrative, but people are sort of looking, uh for some kind of precedent that far back. There was another report yesterday that the Trump Foundation admitted violating I R S rules by uh improperly giving money to someone close to the organization. Um, is this an important thing? Is this something that people should pay attention to? Does it matter? Well, you know,

I'll just sort of use Trump's own logic. You know, he said that the Hillary Clara the Clinton Foundation, that Bill Hilly and Chelsea Clinton Foundation was worthy of looking into because people could use it giving to it as a way to get access to the precedent to the president. They had used it as a way to get access to the Secretary of State, and that you know, this basically was issue number one or piece of evidence number one about the ways that the economy is rigged and

the way that Washington is rigged. So I think it is something that people should be looking into. Uh, it's not exactly clear what the nature of that self dealing was. They just sort of checked a box on the I R. S Form. But yeah, well we're certainly gonna be looking into it. Yeah. It seems pretty unclear at this point with the scope of it is or sort of how how important it is. Um, but it's something to keep

an eye on. Another thing making headlines today, uh, and President elect Trump plans to nominate South Carolina Governor Nicki Haley to be United Nations ambassador. Is he getting pushed back from his Republican colleagues even though Nicki Haley is a Republican herself. Nikki Haley is very popular in the party. Nikki Haley is very popular in her state. Of course, she was a vocal Trump opponent for much of the primaries,

never really came around to him. Uh. It's a little bit unclear just how comfortable mainstream Republicans are right now with some of his picks who have been a little bit more outside of the mainstream where they've been a little bit more insiders, uh and loyalists. But we do know that they are broadly very happy with the choice of NICKI Haley, which one are theyt least happy about? Uh,

that's uh, that's a big question. Steve Bannon is certainly someone who they who's gonna be uh a senior strategistic counselor uh, somebody who is drawing sort of a headache for them insofar as it's brought some pressure and some examination from liberal groups who are concerned about his ties to white nationalist movements. But uh, you know, picks like Ryant's previous for chief of staff, who's the chairman of

the r n C, they're pretty happy about those. So you know, it's a mixed bag for some of them. And I've heard um kind of mixed reports about Mitt Romney and how seriously uh President elect Trump is is considering putting up a secretary of state. Is that it is still Is that still on the table too? I think it's definitely still on the table. I think he's

also definitely still considering a lot of people. This is a you know, this is a blue ribbon appointment, and he's taking it seriously, and I think he's entertaining a really wide iety of people from it. And he's somebody who uh kind of goes through a lot of different possibilities for big choices like this, and UH often doesn't sort of commit one way or the other until his gut knows, And so you'll hear leaks from this or that quarter representing what's purported to be his choice at

a given moment. But very often once it's made, UH, it looks a little bit different from what people on the inside for telling us. Ben Brody, Blumber Politics reporter, you have an interesting job. I want to talk about the story of UH construction companies and that have just absolutely searched in the wake of Donald Trump's victory as the next US president. And they seem to be soaring on the expectation that construction will pick up. But is

this actually what's going to happen with us? To break it all down, is Karen Eubile, Heart and industrials analyst at Bloomberg Intelligence. First, Karen, let's talk a little bit about Deer earnings. They came out. They were better than expected, still down from last year, but better than expected. The stock now up more than nine percent. What's going on, UH, Deer is consistently beat throughout this cycle. This was a big beat. The expectations were thirty cents. That came in

almost a dollar, So that's part of it. UM. The second thing is they sort of signaled that they think the bottom is here in aug equipment. UM. And you know, I think it's just that they've executed well, and there's a lot of hype around these stocks right now, so any any news is good news, it seems like. But it seems like it's not necessarily that they're predicting such an uptick in revenue next year even and frankly, a lot of their gains have come from or better than

expected performance has come from cost cutting. Correct. They still expect the North American market to be down five to ten percent. That's the most important market for them. Uh. They expect lard equipment to be down in a similar amount, But they were down twenty five tot in uh in uh fifth school sixteen, so I guess five to ten looks better. Uh. You know it. It is still going

to be down in their high margin project products. So it's still going to be about execution next year, but people have a lot of confidence in it because they've done a good job. Did they talk at all about what a Trump administration would mean for their outlook going forward, do they have any sense of that. The conference call is on right now, but um, I so you know, I haven't heard the commentary. But what's going on is of course everything moved with Trump, right, But infrastructure was

the big, big excitement around these docks. And interestingly for Deer, it's twelve percent of their sales construction equipment, so it should not have moved on that. But um, you know, Caterpillar, some of the others, they all moved in anticipation. What he what he said he wants to do is a big number, a trillion dollars over ten years on likely very unlikely. Also probably not gonna help next year, maybe help if we get anything through. But there's other things.

Tax rates are expected to be lower, UH, clean it regulations are supposed to be lower. So there's just a lot of height that it's a very favorable environment for business in general, and UH cyclicals even more because of the construction spending and they're just really running. And yet on Monday, S and P Global downgraded the outlook for Caterpillar, which is often thought of as a rival too dear UH, saying that the outlook looks less less positive going forward.

I mean, is Caterpillar facing a different outlook for some reason than Deer Uh yeah, Um, Deer's Cats in the money market, big market for them, it's down you know sixty um and uh so that looks like that's going to be bad again next year, maybe not as bad again, leveling off Deer's largely. Yeah, Dad Deer's egg. Um, cats got mining and construction. They overlap in construction, but the outlook is is different and Cat's financial situation is more

stretched than DearS and that's part of why. Um, you know, SMP made the adjustment as well. Um. So they are similar in that that the two largest cap stocks in the group, but the end markets are really quite different with respect to Dear. How much more can make cut? Uh, they expect to cut another another hundred and fifteen million dollars again, Um, it's going to be probably largely people at this point. I think, you know, you can always

find something. I think they're they're doing some restructuring in Europe. I think they're getting to the end of the cost cutting. At some point, they've got to start getting some top line and and you know, maybe they'll get it by the end of next year, but it's certainly not gonna happen in the in the first half. You know, I have to wonder, I mean, are they replacing people with

machines or it's just as excess. Uh now they're running there, they're running their plants at much lower levels, like they've they've shut down their capacity and large equipment is like a third of what it was, for example, so they'd simply need less people. But that is happening that, you know,

the longer term trend is that is happening. Karen Yubil, Heart Industrials analyst at Bloomberg Intelligence, here with us in our Bloomberg eleven three oh studio in New York, talking about uh Dear's beat big beat, its stocks are responding, and counterpillars more negative outlook. The big question remains, will the positive expectations of the market beefa filled with actual infrastructure spending. Thanks for listening to the Bloomberg pian L podcast.

You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm out there on Twitter at pim Fox. I'm out there on Twitter at Lisa Abramo it's one before the podcast. You can always catch us worldwide. I'm Boomberg Radio m