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 moving news.
Find the Bloomberg Markets Podcast on Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. All right, so we had the CPI print today pretty much I think what most people were looking for. Certainly consensus, certainly gives some more credence to the argument that the Fed can pause if it wants to. Let's check in with somebody who pays close attention to this stuff, Ira Jersey,
chief US interest rate strategist for Bloomberg Intelligence. So, Ira, what's your takeaway from the inflation print we saw today?
Yeah, obviously, you've know, you guys have talked about it at nauseum here a little bit. Pretty much as expected. It doesn't really leave a whole lot of doubt as to what's going to happen tomorrow. I think that, you know, if we had seen something where you get a point five or a point six print on uh on on the core numbers, then maybe the Fed would would hike tomorrow, but they've signaled that they're probably going to skip tomorrow's meeting.
I think the bigger the bigger thing that today's data does for us is really leaves in doubt what then is going to happen in July, so that you know, the market was pricing for a near certainty that they were going to skip June and then hike in July. But now you know, I think that we have to reassess that uh, that the certainty that the Fed is going to go in UH in July, and the market started to kind of move away at least a little bit from that possibility at this point.
So irauld talk to us about when we're looking at this speculation that's happening in the bond market and how it's at a record when you are looking at treasury features ahead of the FED meeting, break it down as far as what is happening with the positioning there.
Yeah, there's a lot of so so there's record short positioning by speculators and UH in the treasury market basically everyone short duration. So the so the fact that you actually have a little bit of a selloff going on right here right now is a little bit surprising, But typically what happens is that you know, this positioning data doesn't necessarily give you a lot of information about what
direction the market's going to go. You know that the fact that people are very short just means in particular that as the market sells off that you could see some short covering, and that it just gets harder and harder for moves in the direction that the future's positioning is. But we have to keep in mind too that that these some of this positioning in a way could be a hedge to another risk that some of these levered
investors that that are primarily short have on. So for example, if their long corporate bonds, for example, they could be short some treasuries as and and treasury futures as kind of a hedge to that. Or could be that they're short equities or long equities rather and you know short rates as well. You know that that's possible too. So so it's a little bit hard to discern with this future's positioning exactly what's going on with the overall strength
of the market. But I do think that it means it's going to get harder and harder to for the market to sell off on as dramatically as it has, and you could wind up seeing on a rally, You could wind up seeing massive rallies because a lot of these shorts could get covered very quickly.
Shorting US treasures isn't that kind of un American? How often does that happen? I mean, what who does that?
There's been been a lot of people short treasuries, you know, for the better part of you know, two years now, really, you know, just and you know part of part of the reason is that when interest rates are going up, you don't want to be long, right, and you know,
there's there's ways to make money. And if you look at that, even though you know, the Bloomberg Treasury Index has been had record losses over the last eighteen months, even worse than nineteen seventies and eighties, even though interest rates have went up way more back then, right back during the you know, nineteen seventy eight to nineteen eighty one, you actually had interest rates go up ten percent, right, and we've only seen interest rates go up you know,
four and a half five percent now here. But there's some bond math involved, because the relationship between the price of a bond and the yield and yield moves is much much higher now, so you get a little move in in a yield of a bond, and it's more in dollar price today than it was back in the nineteen nineteen seventies and eighties. So even though we've had
these massive losses, a lot of people have outperformed. So when you look at active managers in bond funds, both bond mutual funds and actively managed ETFs, you actually see significant outperformance compared to disease. Even though you now have some people you know, still moving to passive. Within the ETF world, the active managers have have done very well by being short treasuries or underweight treasury securities in their portfolios.
Hey, Ira, I've had some traders talk to me about how whenever they're shorting treasuries, especially if you're looking at the tenure, it was more of the expectations that yield to move higher, but then the caveat being so extreme position may have the counter effect and then end up having to push yield lower. Do you think that's plausible?
Well, I think it has more to do with the volatility and in the directionality of the market. So, like I mentioned, if if people weren't as short as they are now with things like treasury futures, we might have seen even even a bigger sell off today than we've seen so far. You know, ten years yields, you know,
higher by five ish basis points on the day. But I think it's when you go the other way and you get that short covering that you wind up really seeing like position squaring and uh and and you know what would be you think would be a five base point move can turn into a ten or twelve basis
point move in a hurry. And we've seen quite a lot of that over the over the last couple of years, where you get this these extreme positioning and then you get this massive snapbacks as as the market kind of recalibrates their their thinking and and you know, again like if if you know, I think a big part of the reason why you see some of the short base and in things like duration is I do suspect that there's a lot of people who are in interest rates steepeners.
Now.
People were in flattening trades for a very long time where they were long say ten years or thirty year
securities and then they were short twos and fives. I think I think that's starting to flip as we get toward the end of the fed's hiking cycle, because the next move, and I do concur with this, the next move is likely to be a very significant steepening of the yield or un inversion of the yield curve at least, so you wind up with an environment where people are going to be buying two year, three year, five year notes and then want to be short or or underweight
ten year and thirty year securities.
Hira, what would surprise you tomorrow from FED Chairman jpal As comments, I.
Think if he's I think if he's extremely hawkish, would would surprise me, you know, given some of the some of the data that we've received. Yes, the employment data was pretty solid, but a lot of the other data that we've seen everywhere, from some sales data as well as some of the ism surveys and the leading economic indicator something all been pretty poor and actually are very
close to recessionary type levels. So so so I think if he was very hawkish tomorrow, that would be a surprise, certainly if he was more hawkish than he was last month. So I'm looking very closely at our at at at our FED sentiment indicator. So after he after J. Powell gives his opening remarks from the press conference, you know we're going to run our natural language processing model and yeah, you know take a.
Look as known as your juniors, Well.
Our data science team will.
Yeah, I know we've got one of those MBA.
How much fun was it to see Ira last week and the suspenders with the soccer all over?
Great?
He comes out of his cam every once in a while, so we would be appreciate that, Ira Jersey, thanks so much. I he covers all the interest rate strategy work for Bloomberg Intelligence. I got a whole team, uh doing that kind of stuff, and they've got some serious models. He's got a model that kind of covers on a day to day basis the receipts and the spending of the US government. Amazing, Like I don't even have that for myself.
He's got it for the entire US government. So we knows when and if the US can afford to pay their bill. So keep an eye on that.
You're listening to the team Ken's are Live program Bloomberg Markets weekdays at ten am Eastern.
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Jess Matt and Paul Sweeney Here in the Bloomberg Interactive Brokers studio, Boy attention is going to be this afternoon down in Miami, Florida, where President Trump will be arranged. Yeah, we want to get the kind of a roundtable this discussion here and kind of catch it from a couple of different angles. So we welcome Wendy Schuler Brown University professor. She joins us here, as does Kaylee Lines. She joins us. She is in Miami at the courthouse. Of course, she
covers the White House for Bloomberg Television. We appreciate her time on a busy, busy day. Wendy, let's start with you. I mean, it doesn't happen every day that former president gets arraigned on federal charges.
Here.
Do you expect this to mean for President Trump and potentially another run for the presidency?
Well, good morning. In the short term, it's it's good for Donald Trump with his base and donations. They expect they're holding a fundraiser, I believe, even this evening, and they expect to raise a lot of money off this and really continue to keep his name in the news.
I mean, there is no publicity that Donald Trump doesn't like, and so I think in the short run, you know, he'll benefit in some way from this, But in the longer run, it's just another or an additional liability to his candidacy, particularly the broader Republican Party, and I don't see where it does him any favors with the key independent voters he'd need to win the general. But even in state primaries across the country, you can register and
change your party registration from independent to Republican. So the independents wanted to shape the Republican nomination process. They can do that and haven't been big fans of the president in recent the former president in recent elections. So that's it's a liability. I think that's sort of deep and persistent for Donald Trump's longer term prospects.
Kaylee, I want to bring you into this conversation set the scene for us. What are things shaping up heading into this afternoon.
Well, I'm at the outside the courthouse right now, and there are dozens and dozens of media tents like the one I am in for Bluebert. There is a very high police presence, but there isn't yet at this point. It seems to be a lot of protesters, but they are prepared for potentially a lot to be here over the course of today. The Miami Police Chief is that it could be anywhere between five thousand and fifty thousand supporters of President Trump who show out today, as he
had calls on them to do. He of course had posted on true social over the weekend, I'll see you in Miami on Tuesday. He had in an interview with Roger Stone on radio over the weekend as well, so that people need to come out and keep fully protest. So we'll be on watch for that. And of course it's at three pm Eastern time, so about four and a half hours from now. I think, if my math is right, that the President will be showing up here,
although we may not see him. He may enter under grown to be arraigned on these federal charges.
What, Wendy, what do you make of some of the I guess responses we've had from members of Congress. Some have come out and supporting the president pretty wholeheartedly, and some have not supported him. Some have been, like cenatored Romney, been critical here. How do you expect this to play out.
Well, they're sort of dancing around it, right, They wanted to can't alienate the Trump base, either whether you're currently holding office and running or president you're just currently holding office trying to get reelected, if you're a House member in particular in twenty four, you're dancing around it. On the other hand, you see that they're sort of trying not to talk about the severity of the classification level
of the documents that were badly handled. So these are really highly sensitive national security documents, and it gets to the point of do you want this man in charge of our national security? And then it's a legitimate point and question to ask. People will get confused about the number of indictments and the scope of authority, but at the end of the day, he's got, you know, military
plans and nuclear secrets lying around the ballroom. You know, that does not say I'm going to be responsible with national security. And the Republicans want to keep the edge that they think they have on national security. So there does come a point, except for maybe through Jim Jordan of Ohio, where you say, I can't really defend compromising our national security from my own re election prospects.
Kayleie, how has the Biden administration responded so far?
Well, they really haven't at all. The President has really tried to keep him his distance from this. When he's been asked about that, he has set no comment on the indictment because, of course, one of the narratives that President former President Trump as well as Republicans have been pushing is that this is politically motivated, that this is a weaponization of the Justice Department. President Trump has said that this is a corrupt Biden administration election interference at
the highest level. So to this point, President Biden has tried to stay far away from this, let the Justice Department do its work, and not really try to be involved in this.
In any way, Kaylee Done in Miami, is there an expectation that the president will be public here? Will there be a public I'm not going to say a purp walk, but will there be some public appearance by the president today? Is part of this process? Do we know?
It really could go either way. The expectation though, is that he will not be walking through the usual lobby of this courthouse, that he's going to enter be an underground garage and then head into the courthouse, so we may not actually see him here physically. Where we will see the president is after he finishes these proceedings in
Miami today. He's going to get back on his private plane, fly from Miami back up to Bedminster in New Jersey, and speak at his golf club there this evening at eight fifteen pm Eastern time, and bold a donor event as Wendy talks about his campaign is hoping celebrates two million dollars at that event tonight, just hours after he
made history by being arraigned on federal criminal charges. This is something we have never seen happen before, but it could have the same effect as the indictments previously in Manhattan earlier this year, that what it really accomplishes is galvanizing his base and ultimately being away for him to thundering.
Wendy, what's the timetable here that we're talking about when it comes to a potential indictment obviously like this, As far as how long this could drag out for.
Well, that's a great question just because it gets to the judge, right, this is the judge that appointed a special master, you know, to sort of go over what the Justice barman had done. In terms of the raid the documents. You know, this judge got chastised for the way she handled this case before by her you know, sort of higher level judges on a panel. The question is, you know, does she go buy the book here or does she compromise the case in some way and does
she have to be removed from the case. I mean, there's still a question mark about whether she actually ends up being the presiding judge. You know, you've got setting trial dates, you've got jury selection. You you know, these trials and I mean multiple trials to the former president will go, we'll move on, and you know they'll take a long time. They'll drag out, which was good good
for Trump in terms of his ability. As Kelly's you know, absolutely rightly suggesting, but there's a weariness, particularly among core voters, and as I said, mechanically in the primaries next year, you can have a lot of people who aren't core Trump's supporters actually sign up to vote in the Republican primary. Since Biden, if he's the nominee, you know, as he stays healthy and all that stuff that we talk about, there's not gonna be much of a contest on the
Democratic side. So You're going to see some shifting of voters in that primary and this, I think this will become a liability, particularly if he gets a lot of really rowdy, slash violent people to protest this. That just reminds people of January sixth, and I don't think that does anybody good on the Republican side.
Wendy, If I'm running for the Republican nomination, how do I play this thing that Trump has been in ditona of federal crimes?
You know, you play it by basically trying and especially in digital advertising on social media platforms, to saying, look, I support everything this guy you know did, I'm loyal, but he's not the guy anymore. It's too chaotic, it's
too disruptive, you can't usin with national security. Try to get that one in and just really, if they can get the kind of big money, you know, blanket the Republican party base in the next couple of months saying I am really the better alternative and try to sort of erode that thirty four to thirty five percent base that we think he has in the Republican primary voting electorate and steal nine to fifteen percent of that voting populist elsewhere, and I think that needs to be The
strategy is the slow and steady, but it needs to happen now, and it needs to say, you know, I'm the better alternative. You can still like this guy, but vote for me if you really want to win in twenty twenty four.
Hey, kayleie, we only have about a minute left. How does this impact other potential cases that Trump is having to deal with as well?
Well, that's a really good question, because of course this isn't the first time that he has been arranged or case criminal charges that already happened in New York. But this also may not be the only indictment we see stemming from investigations by Special Counsel Jacksmith. He is also investigating Trump's role in January sixth. There is a district attorney in County Georgia that is also looking at his attempts to overturn the results of the twenty twenty election.
So this doesn't necessarily mean the end of Trump's legal woes, and potentially related to January sixth, we could actually see even more serious charges than the one he's facing here. And I have to apologize if you hear this rooster.
Guys.
I know you've been talking about there are literally wild chickens and roosters walking around the courthouse right now.
All right, we'll leave that to you. You're in charge of that down there. Bloomberg TD anchor Kaylee Lines definitely on location down in Miami with the chickens in the Hends and Wendy Schiller Brown University, a professor joining us to get some just some smart analysis of how this is all going to play out down in Miami today and what it might mean for President former President Trump gung Ford, particularly as we prepare for the twenty twenty four election. A lot of moving pieces there.
You're listening to the tape Cancher Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, Tune in up, 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 playing Bloomberg eleven thirty.
Bes min and Paul Swaite here in the Bloomberg Interactive Broker Studio. Our Inflation Day, Today's CPI Day Today. Here's a kind of the headline stuff on an annualized basis CPI. The headline print four percent. That's kind of right in line with a four point one percent expectation, but it's down big from last month when it was four point nine percent.
Eight was talking about those egg prices and the index for eggs falling close to fourteen percent, the largest decrease in that index since January nineteenth, big one of that CPI report.
Yeah, I'm a big expedited guy. So that's that's chickens outside the courthouse. Chickens outside of the court house with Kaylee Lines, she's in charge.
All right.
Let's so they seem pretty good to me. But let's go to somebody who does this stuff for a living. Jeffrey Cleveland. He's a director and chief e commerce that paid it in regal So, Jeff, you know, the print seemed good to me. What's your takeaway from our inflation out local here in the United States?
Well, I'm self interested. So when I look at the index for food away from home, it's up eight point three percent in the last twelve months.
Okay, so that's you.
Know, dining now, that's it's too much for me. Food at home is up six percent year on year and I think if I remember correctly, I flipped through the report for the LA area, So the La Metro area headline CPI was up point seven percent month to month. So I'm not seeing this slow down in prices that everyone is so cheerful.
Well, your problem out there, Jeff's gasoline price is what are you guys doing out there? I mean it's it's all your taxes also.
Use vehicle prices picked up in the MADE data.
That's correct too. Yeah, I think people drive too much here, Paul. That's that's the problem in Los Angeles. It's a that's a driving culture. Taxes and regulations don't help. That's the short version of the story.
All right, So what does this all mean for the FED? They're in lockdown. MOAD done in DC today and tomorrow. We'll hear from the FED chairman Jpal tomorrow afternoon. How do you think he and you know, the FED board in general, how are they going to view some of this data?
Well, I think they've communicated pretty clearly that they would like to pause so or at least maybe skip this meeting. So I think that's the plan here. Does this report give them cover to do so?
Yes?
You know, the headline inflation was softer, coming into point one, lowest year on year reading in a few years. So that that's fine. I think, though, when I look at the guts of the report, all jokes aside about about food away from home here, I look at that core CPI number. It has been point four or point five month to month four by mic count six I think,
six consecutive months now. So to me, that's important because that that's giving you a sense of the underlying trend when you when you filter through a lot of the noise, and that shows no signs of really really slowing down. I think if you're a policy maker, your hope is that rents in the al in the shelter component slows further as the year progresses. But at this point I think that's more hope than anything. So I would yeah, maybe they skip, but there there's still there's gonna be
some discomfort here. I think if we keep getting point four percent core CPI ratings through the summer.
Would we look in the warp function in the terminal world interest rate probability? Still to your point, Jeffrey, when you're thinking about that July meeting, a potential skip, maybe tomorrow but still sixty percent odds there that there will
be a hike next month. What do you think we need to see happen in the data in particular between now and then further to maybe continue this pause, or maybe on the flip side of that, if the data comes in still a little bit more persistently stubbornly high on the inflation front, to where they might have to continue with these rate increases.
Yeah, we think they will, you know, so they'll skip then in July they could hike, and it's possible I wouldn't rule it out that they hike even another time later this year, and it goes down to the I would say inertia in the core inflation data. You need a much bigger slowdown. In my view, point four percent month a month is not going to cut it. So you need something like point one or even flat readings, which tend to be pretty rare historically. I think that's
the key takeaway. So I don't really see scope for that. In fact, we may see rent slow down. I think there's a lot of forecaster expectation of that, given what we've seen in house prices and given what we've seen in maybe some private sector rent metrics, So the investors or investors and forecast is already expecting that we could see some offset, though other categories which have been weak
all year could surprise the upsie layer this year. So one that I would point out is medical care services. Medical care services have been negative, so there's been a drag on inflation since last fall. I think a lot of that has to do with how the CPI is calculating the health insurance figures. So we've been pretty negative, dragging down over all inflation. That could change as we get into the fall, and then it could be a positive.
So all in all, you might get a slow down rents, but that could be offset by a pickup in medical care services and then your overall core inflation won't slow that much at all, and that's going to be problematic for the Fed in the second half.
Jeffrey, you have to get your take on the recession debate. If you look at the ECFC function in the terminal where you can see these projections for economists pulled by Bloomberg, if you look annually, you aren't seeing that contraction there, and growth prelate quarter of requard continues to get pushed out. Now it's just slightly about like five tens of percent contraction in the third quarter, a little bit around the
same ballpark in the fourth quarter. But it seems like investors are even economists in particular, still keep being pushing back those recession expectations. What's your call there, Yeah.
I think you have to push out your recession expectations.
Again.
We've been joking. This is the most forecast in recession ever. Everyone says it's imminent, and then another month of data goes by and we see that it's not. I think, to be fair to my bearish colleagues, you look at leading indicators, if you look at the yield curve, if you look at how much the feed is tightened in the last fifteen months or so, I think it is it is is correct, you know, or it is good to be prudent, to be cautious. However, for us, simple,
simple way to look at it. Look at the jobs report. Look at the spending power that the consumer has. When you think about how many people are employed and how much they're earning in aggregate, that's growing around seven percent year on year through the latest set of data. You know from the Jobs report that we got a week or so ago. So right there, that tells you the consumer still has spending power. That's really key for us.
So that means the recession is not imminent. I think if you want to push it out in your forecast, maybe sometime in the middle of next year would be a better It doesn't seem like it's going to be a Q three or a Q four occurrence in our view.
Hey, Jeff, we know you hang out with the Hollywood crowd. What's going on with the writers strike out there? What's the status?
You know, I don't hang out with the hall of this crowd. I appreciate you trying to loop me in with the cool kids, but I don't get those invites. Somehow they don't want to hang out and talk about CPI.
So that is, uh, that's a real issue for that's a real issue for that area out there.
Yeah, in the past it has been, you know, I would say in California in general, we're already feeling I would say a bigger slowdown. If you look at the unemployment rat in California, it's already up half a percentage or more since the lows so and so part of that could be due to Hollywood I think the bigger story.
Paul right now is tech.
Yeah, we definitely felt the the you know, the very near effects of the layoffs that you've seen in tech, especially in Q one. So I think that is a bigger factor than the Hollywood writers strike a at this point for me.
All right, all right, well until we start missing our fall shows and then we're all going to be worried about it. Jeffrey Cleveland, director and chief economists at Peydon Rigal. He is based in Los Angeles, with getting some la color from him when we.
Can, definitely and also bring in the sunshine.
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Chris Whalen, he's a founder whaling Global Advisors. Hey, Chris, we got the CPI print today. Kind of how does that inform I don't know your view of what we'll hear from the FED tomorrow. How does that inform kind of your view of markets? Any change there?
Well, I think it's given you know, the manager class reasons to go out and buy stocks. My banks are running very well, all green other than Deutsche Bank. We want to pay attention to them. So the managers want to buy it. They will. You know, people don't realize that the lesson of the first quarter was it banks or not really stocks. They're actually heavily levered credit trades. But it doesn't matter. They want to own them and they will. I mean, so far is the best performer
last year? Well, the ubs and Discover.
There you were, Chris, what are you buying?
What are you selling?
Well? I did buy a little bit of a New York Community Bank. We've talked about that because I know the guys at Flagstar very well. I'm a mortgage guy. We're going to wait on that one, though, because obviously rates aren't going to fall for a while, and that's
a bull market housing trade. Even though you think of it as a New York regional bank, it's now a national mortgage bank, so you're gonna have to It's funny they actually use the flag Star name outside of New York because he can't say New York Community Bank in California exactly. It wouldn't work. But you know, it's now one hundred plus billion dollar mortgage specialist, and meanwhile Comerica is tiptoeing out of the mortgage space. This morning, very
interesting report I saw. So I guess what I would tell you is the inflation numbers are making people feel better, but they want to feel better. You know. The bias of the entire audience in finance in the United States is long. Yeah, that's how we get paid, so you know.
Chris, I mean, I mean, is it time for me to go out and buy some quality regional banks? I don't know, an M and T bank, something like that. I mean, I felt like so many banks are thrown out kind of with the bathwater over the last four or five six weeks. Is it okay to go out there and buy them or do we still have some real concerns out there about the sector?
Well, there are real fundamental concerns about the sector. Everyone knows this. The FED took the pistol out of our mountains by putting the funding facility out there. That brought us some time, but it doesn't change the negative cash flow. I wrote about this in the blog yesterday. The amount of paper that people are sitting on that they're losing
money on every day is growing. You know, Bill Nelson at Bank Policy Institute writes great stuff on the FED, and he talked about the fact that they're losing a billion dollars a day at the FED because of the difference between what they earn and what they're paying out. Same thing with the banks. So depending on who it is, and depending on your willingness to sit with it all year until the real fundamentals for banks improve. That's really the question you got to ask. Are they cheap?
Yes?
US Bank at one time's book my god, But I just made a decision in twenty to move up the capital structure into preferreds until I had a little more visibility on banks because the FED took so much earning power away from banks during QI, and they're now trying to readjust their cost structure and what they earn on their assets for the future. But that means a year from that. So if you buy banks, you got to be patient.
How important are management teams when I'm looking at a bank stock, Oh, very crucial?
Yeah.
Do they understand duration number one? And do they understand credit? Because if you look at Silicon Valley Bank, these guys basically shot themselves in the head they kept buying more mortgage backs, and then half the book prepaid, they bought more and by twenty one, end of twenty one, that bank is dead. They just didn't know it yet. So, you know, credit is the second thing we're going into. Maybe a recession. I don't know, guys, So we haven't
a recession. I think this economy is going to ignore the Fed. What do we do then? What do we do if we just continue to chug along the way? We are no recession? Think about what the FED has done. They have increased the cost of credit for the front end of the economy, the productive part, but the long end. No, are we going to die because mortgage rates are at
seven percent? No, We're going to do business. So I think the private sector is incredibly strong in this country, and maybe those rate cuts during COVID were unnecessary.
Chris coming out just a few months after a lot of those concerns about some of those regional bank stresses in March, what are deposit flows telling us at this point?
Well, they kind of came back by the end of the quarter. In other words, the outflows slowed down. This was partly because Treasury wasn't selling any paper and The delay with the debt ceiling now forces them to go out and basically refund about a trillion dollars, and they are outflows constantly during this period, so they'll end up with six seven hundred billion sitting in the TGA. But unfortunately, every dollar they raise means that a bank deposits going
to disappear because Treasury is indeficit. Every time a bond on the books of the FED matures, Treasury has to refinance that bond immediately, So that's why banks are under so much pressure. Now. We're hoping that the difference between the reverses that the FED has been maintaining for money market funds to help them are going to run off.
We're hoping that that problem is going to leave and the FED is going to be able to simplify policy going forward by not having to support banks and the GSS and the money market funds with the reverse repurchase agreements. That would simplify life a little bit for Chairman Powell. But other than that, I think they got to run off the bounce sheet. My hope is they're going to
pause and start selling more bonds. What I would do if I were Powells is I would tell the FETE of New York, make sure you hit the cap every month for the runoff of the mortgage backed security. So if the natural runoff is half of the cap, that means they got to sell some bonds.
You're when you're talking about money market funds specifically, because so much money has been plowed into those, At what point you can see even more of that money go toward equities?
Well, that's the thing it was. It was rising over the last couple of months, so over two trillion dollars. Now that if half of that money went back in act, what he's going to be a tremendous boot to the market. But I think more likely it's going to go into T bills because these are not risky funds, these are money markets.
Is it because of just being able to deald more than five for sure?
Sure? If youre going to pick up thirty BIPs by going out of money market funds and the T bills, you're going to do it. Absolutely. I just took a big pile off the table on a video I had gone in in twenty twenty one. I was staring at a one hundred and fifty percent game. I had to take it I put it in T bills, you know exactly. And remember if you sell a money market fund and buy a T bill, but deposit disappears, it's a producery deposit,
but it still disappears. So the system is going to be running off cash banking system as the FED balance sheet shrinks. How far can we go?
Yep?
That's the real that's the big question, all.
Right, Chris, Chris, always good stuff. We love, We appreciate getting few minutes of your time. Chris Whalen. He's a chairman of Whaling Global Advisors and just one of the top I think bank analysts out there that like talking to. And it was just great, you know, over the last couple three months when we're having those real big stories about some of those regional banks, he was just critical
for us kind of getting a handle on that. So good touching base with Chris Wayll and a Whale and Global Advisors.
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Thirty, Jess Men and Paul Sweeney here in the Bloomberg Interactive Brokers Studio. Want to get right to our next guest, because I'm going to talk about markets and where to go here, because there's a lot of economic data flying out, flying around out there. It's a big week. I want to know what the pros are doing and what they're telling their clients. Tim Pagliarra joins, and he is the CIO of cap Wealth based down in Tennessee. Our good friends down in Tennessee. Tim, thanks so much for joining
us here. We're in Tennessee. Are you Franklin?
Franklin, Tennessee?
All right?
You have to answer one question from him? Dying to know this about Nashville. Why has Nashville become the bachelorette party capital of the world.
What about Austin? Austin's a lot of fun.
I think, I don't know what. Tell me Nationals where the youngest leaders are going.
Yeah, that's where the kids go.
I think, because they facilitate it, they'll let them do just about anything.
All right. I just I went down there on a business trip and they were all over the place.
You're not wrong.
It used to be Vegas, but now it's what happens in Nashville, all right.
Good to know. And Franklin is just outside of Nashville, so hopefully safely outside there. So Tim, you know, we've had a nice run in this market. But I want to get your thoughts on. If I look at SPX, I see a nice story up, you know, eleven twelve percent. If I look at SPW the equal weighted, it's kind of flat. So I got the magnificent seven stocks kind of ruling the day here. Is that a concern for you?
Very much? So?
I mean, it's frothy, and it is a sign that you know it can't continue, you know, because we were pushing valuations before, and the seven stocks are accounting for about ninety five ninety six percent of their turn the index.
I got to ask, though, because looking month to date, you're starting to see some of these other sectors beginning to pick up, whether you're looking at industrials, energy, financials, also small caps auditear up more than eight percent this month. What do you need to see happen to give you more conviction that this is broadening.
Out, I think guidance from the Fed about what they're going to do and how much time they are going to allow us to get to that two percent inflation target. Bloomberg had a good survey that was out this week, and fifty four percent of the respondents felt like it was going to take a little over two years to get to that two percent inflation target. About eleven percent of the respondents felt like it would take five years.
So it's just a question of how much patience the FED is going to have and how concerned they are that they may break something if they push too hard. And there's a lot of signs of stress in the system right now.
So given that backdrop, how are you positioning very very defensively really, and even even after eight months, systems below in October and just have to.
Be you have to be disciplined and this and the first time in I think it's twelve fourteen years, we've got a fifteen percent position in treasuries. The FAD, you know, they've got problems that they have to fix. And even this past week where you saw the park turned the keys back over to their properties in Union Square and walk away from you know too magnificent hotel property. Yep,
that has a ripple effect through the system. It's not just that property and it's not just San Francisco, and so those are the things that you have to watch and be conser learned about in the contagion what it could cause for the rest of the markets.
You know, we're just looking. Abigail Doolittle, who covers the markets for Bloomberg, she mentioned earlier today that you know, this market's starting to broaden out a little bit in the last couple of weeks, and she point out to like the Russell two thousand up one point one today outperforming the S and P five hundred. Is small mid cap a place where you think people should be looking to the extent that maybe they missed them that big cap rally.
Absolutely. I mean we take an all cap approach, and I think you can find some some great values, you know, in that sector right now. But it is an individual stock market, and so people that own individual securities and that are not you know, dependent on the indexes for their returns, they're the they're going to be the beneficiaries of all of us.
What are your top stock picks?
Yeah, and very broadly, we still Likeshire halfaway because of the cash position.
You know, that's actually getting close class B shares close to a record, and obviously they have a very hefty steak in Apple as.
We know, right, But you know, so I would be I like Berkshire, I like CBS. We like a company that I really can't mention it because it's below five dollars and they're in transition, but they're in the they're in the technology space, yeah, in fighting internet, high speed fiber.
So I think you just have to look at those companies that have been hit really hard because of maybe their balance sheet and was overreacting, you know to that, because we believe it's important to have strong balance sheets and not have to depend on the capital markets. But you can also take that a little too far. And so those are some of the companies we're looking at. Regional banks. There are some that you know that have come up on the radar.
Which which regionals do you like?
Well, I'm in an acquisition period on some of them, so I can't. Okay, I can't say, but but that's in a general way, that's what I would that's what I would look at.
So you were.
Buying the dip then on those banks that potential ones that obviously were seeing their stock prices for all the last couple.
Of months, we're shuffling the deck. So I like to compare it to, you know, being the general manager of a football team and we're trying to improve the team that we've got on the on the field. So that might be peeling off some Apple and buying something else that we like in that space without abandoning Apple.
You know, is it just because a little pricey after the record run it's been on.
Yeah. And you know, fortunately, when you buy something at a at a cheap price and it gets to a client's portfolio and it's up to six or seven or eight percent, then you you know, you have an obligation really to to look at what you put seven or eight percent of a client's money in a single company to start out, and the answer is generally no. So then you have to go through the process of selling and then looking for things that you know represent a better value and a longer runway for success.
Tim just about thirty seconds this AI hype boy. It's moving a lot of names. How do you think about it?
I mean, if you know, if you've just used Navidia as an example. You know, forty times sales is a you know, it's an alarm bell. And I think what in the end, at the end of the day, it's not the chip. It is the software applications. It's the use of those of that technology that's ultimately going to have the value. You know, It's like Maverick, it's not the it's not the plane, it's the pilot, right, you know,
it's going to be the software. You know, company like paland here for example, is one of our you know, one of the companies, right, greatly from that.
All right, Tim, thanks very much. Tim Pagley, our CIO of cap Wealth, giving us his latest. This is Bloomberg.
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Let's do retail. What are you consumers buying in terms of clothing? That's a big part. Yeah, exactly, Dnim, I'm all in on that. I mean Scott Baxter joints his Contour brands. That is a publicly traded symbol. Kt is the ticker.
Yeah, I know, host a six percent today.
So all right, So Scott Baxter joins us, he's the CEO. He joins us here in our Bloomberg and Active Broker studio. They're based in where, North Carolina, Greensboro, Greensboro on a beautiful place down there in Greensboro. Scott talked to us about Contour brands. You've got the ones. I really know what everybody knows what is Lee Jeans, Wrangler Wrangler, which is if you're a cowboy Texas, that's it.
There you go.
If you're all the regulars in Texas, let me tell you.
Justice from Texas. What to Texas, A and M. Cowboys only wear Wrangler, right, I.
Mean that's the predominant one, that.
Is true cowboys exactly.
So Scott talk to us about these brands you have Lee and Wrangler and the rest of the brands you're managing.
So so, Wrangler have been around since nineteen oh four. Lee has been around for over one hundred years. Both brands global brands, both brands strong in China, Europe, North America of course, and then we have a few other brands that are prominent for us, like All Terrain Gear and also Rock and Republic denim. So we have a nice portfolio, but the predominant piece of our portfolio is both Wrangler and Lee.
So you're expanding out to China and other areas in Asia. Tell us more about that.
Yeah, So we've done some really nice licensing deals around Asia, and then we have a direct business in China which is fairly significant, so it's a big part.
Of our portfolio. It's mostly Lee with a.
Little bit of Wrangler, but we have been there over thirty years, so we have a real strong consumer base there that know our product really well.
So what's going on over there for your business?
You know, it's opened back up, thank god.
Right, So, we went through a period like everybody did, where China was closed and a lot of retail was closed, and it's opened back up here recently.
So for us, it's been how do you so you.
Do you license your you said early? Do you license or do you manufacture and export?
We license our brand to some parts of Asia, but we actually own our operations in China.
Okay, and we make our product. You know, in China face we're comfortable with that.
He you gotta be less comfortable you were of a few years ago.
Right now everything's okay, okay, So for us right now is everything's just fine.
And what does this.
Tell us about the consumer more broadly? Not just obviously we're not talking about just the US nsumer here. Obviously, when you're looking at these other markets, what is it telling us about the global economy?
You know, the global economy I think is treading water right now. You know, you saw some of the news here out of Europe. Not recently China has opened back up so a little bit stronger, and I think here in the US, the consumer is it's tough for the consumer right now. Right all they're borrowing is a little bit more expensive than it has been, so that takes a little bit out of a family's budget.
So the for your you do most of your manufacturing, right you don't contract that out.
About thirty five to forty percent.
We own our manufacturing in Mexico and then the rest is outsourced throughout the globe.
And how's that versus your competitors.
We're really the only ones and while we're you know, we've owned those for so long. We think of it as a competitive advantage. It's speed to market, it's innovation, so we can control our own destiny. It's been a really good deal for us. And think about the time during the pandemic. Owning our own manufacturing during the pandemic was clearly a positive.
So having that competitive advantage there.
Oh absolutely, I mean we were keeping our factories open, we were rolling product in the whole time, So really good position.
All right, what's the just generic market share? Wrangler, Lee, Levi's, and maybe other I don't know how many.
Yeah, so Wranglers two, Lee is three, and and Levi's is number one.
Okay, yeah, interesting, Okay, So what's the growth for I mean, these are brands, as you said, around more than one hundred years. How do you grow your brands? How do you how does how does somebody do that?
In the stand it's new categories, new channels, new geographies, and that's kind of what we've been doing.
So excuse me.
When we spun off from VF, we were kind of landlocked in a couple of categories and channels because they used us for a cash cow standpoint, And now we've opened that up to across the globe, different channels and categories. So we're selling the high end boutiques, you know, we're selling to the Western group, we're selling in China. So we're doing things like that and also creating new opportunities like our outdoor line altering gear.
Who do you consider to be some of your rivals?
Oh, Levi's would be a rival of ours, But I consider anybody that sells denim and or apparel arrival.
So, I mean, you know, I was on wallsterer for thirty years. We're in a suit now this is a you know, kind of a dress update for me having khakis. How's the world changed in God's very academic changed for you guys helping.
Me out out.
So the world has gotten extremely casual. And if you see me today in a blazer and a pair of pair of jeens, it's become the standard, you know, for everybody, and it's allowed everywhere you go. You can wear this to weddings, you can wear this to parties, you can wear this to the theater. Didn't used to be able to do it, but now it is totally acceptable.
As far as looking more ahead, what is your outlook moving forward? For the company this year.
I think that we get through this little you know, shock with the consumer right now. I think things will get better with time. Interest rates will come down over time, the consumer will be in a better place, and then we'll continue to go ahead and do what we've been doing as far as working through a very difficult time, but in an elegant way.
From your perspective and how you're viewing things, all of these recession calls with what you're doing with your business. Do you think that's actually likely in the next couple of quarters?
Could be? I do worry about it.
There's no quest about it. So yeah, I give it a fifty to fifty chance that we could go there. But for us, our product is used for work in a very significant way, and right now, as you know, unemployment is very good, especially in North America. So the consumer uses our product for a workplace. So we sit in a pretty good place and we're very value oriented. You can buy our product at a very reasonable price, and it's a trusted brand.
E commerce. How does that work for you? How does that distribution channel work for you?
Big opportunity for us because we didn't capitalize on it or spend any time and money on it when we were part of another company. It's been part of our strategic spin off move and we've been investing in it heavily since the day we.
Spun When did you spend off?
Four years and one month ago?
Okay?
And why was that?
Wasn't part of the portfolio that the parent company wanted. They wanted to focus on outdoor and action sports and we weren't part of that, so we were a logical spin Okay?
Is there We always like to talk about these. See with McDonald's it has their fry indicators. One of their last starting reports, they were talking about how not as many people were adding that on to their meals planned. I'm curious when it comes to denim, are there particular indicators like you like to look at that can give you a tell?
We do.
We love to look at share data, So NPD share data for us is extremely important. Most of our retailers are aligned and also are part of that process, so we find out exactly what's rang through the register and that is really important to us. In our share for both brands has been growing significantly.
Interesting, Okay, So that would be an optimistic sign.
Right, very optimistic for us. Yes, and it's real data. It's hard data.
Fourteen thou four hundred employees is what we have for you.
Guys.
Talk to us about the labor market for you. How tough is it? How because we've heard from every CEO and every line of business over the last several years, really tough to get and keep good people.
Yeah, it's tough in certain areas. So it's tough in our retail environment, in our stores, it's tough in distribution, it's tough in it So there are pockets that are tougher than others. But remember Warren Greensboro, North Carolina, one of the biggest publicly traded companies. We've been there for one hundred years. We have a very loyal base, and we're a very good proposition for people that want to work for a publicly traded big company.
But in Greensboro, right, and what.
Are the alternatives?
I mean there aren't. There aren't nearly as many as some other large cities.
Ye.
All right, So you know you're sitting front of a group of investors. What's the number one question you get these days?
Mostly about whether we're going to go ahead and pop into a recession or how are things going in China. That's an example of two of the most recent ones.
How do you keep a pulse on China? Really?
Oh?
We have We have a sourcing office in Hong Kong, and we have a front end office marketing, sales and design in Shanghai. We have a leaders there, we have a general manager. They report right into US, and we travel and move back and forth with people. Were there a lot and they come here a lot?
And Chinese like their denim.
Oh love it, absolutely love it. And it's and it's a big marketplace too.
Oh yeah, it is a big I mean. And are the local competitors there?
Oh?
Absolutely?
Yeah, yeah, local and also global, right, because everybody's in.
The market, right, So not just Texas with the wranglers, Paul, No.
I guess that's how watch that Yellowstone. Yes, all those guys are wearing the ranguage.
Huge win for us.
Yeah, number one rated show on cable TV. Most of the characters are wearing our product. But also the show is centered around rodeos and the cowboy culture. Our brand is in all those rodeo venues. You see our signs. We've gotten advertising that way. But the single biggest win for us is if you follow the show, you know Landy Wilson's or country artists on there. Well, we just signed her as our global spokesperson for women women Wrangler.
Huge wen for our first our first ever global spokesperson.
For really Brian a few years ago, and that's talented and got back to the superstars. She's great. Scott Baxter, thank you so much, CEO of Contour brands, Think Wrangler and Lee gens Fro.
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Let's continue our C suite conversations today. We're now we're gonna talk about it, the distribution of electronics, huge huge business, Global business. Sean Karens joins us. He's the CEO of Arrow Electronics symbol a r W. The stock is up thirty two percent year to date, up about one point six percent today, all time high for the stock. Sean, thanks so much for joining us. Why is ARW at an all time high today?
Well, thank you, Paul, thanks for having me. You know, i'd say that the long term outlook for electronics is very promising. You know, not long ago, the use cases for electronics were pretty narrow. It was things like compute, maybe personal electronics including your smartphone. But today, you know, we talk about the electrification of everything, and so you're seeing all walks of life and homes, cars, factories, you
name it. They're all becoming electrified and they all require more and more semiconductor and electronic technology.
So we like that Sean talk to us more about what aero electronics does in your global reach.
So, Jess, we live in the middle of the electronics and the information technology supply chain, which basically means we help the makers of all those technologies get to market, and then we help the commercial customers of those technologies design, build, supply, and even manage the products that embed them. You know, we like to say it Aro that if it takes an electronic charge, we probably had something to do with designing it, provisioning it, getting it to market.
So you know, whenever we talk to folks in a technology supply chain, we have to just ask about the chip business, where are we Are we back to quote unquote normal in terms of the supply and demand of chips out there.
You know, I'd say, Paul, the lead times are improving, but we're certainly not back to pre pandemic levels. The improvement has been fairly broad based, but there's still a handful of categories that are in shorter supply in lies. The you know, the golden screw dynamic that I'm sure you've heard the industry talk about on many occasions.
When it comes to the different markets and industries that your company is heavily involved in, which can you talk more specifically if it's a automotive and and D industrials, things like that, and how they're being impacted by the trajectory of the economy.
So just I'd say the markets are broadly mixed, and it does vary by region throughout the world, But you know, we compete very heavily in the industrial markets, which means you know, lots of manufacturing. We have significant exposure to the automotive and transportation industries more broadly, and that obviously puts us right in the middle of the transition to electric vehicles. But we also participate in aerospace and defense, medical, compute,
and a good handful of others. And i'd say, you know, we're seeing relative strength in industrial and automotive and maybe aerospace and defense. They're faring better at the moment than what we see happening in the world of compute, communications, infrastructure, you know, mobility, and even things related to the Internet of Things. I think those demand trends are temporary. I think again, the long term outlook is going to get better.
So you know, we can't talk to anybody again within the technology stack without talking about AI, because it seems like every company in the world feels like they're a play on AI. But how does artificial intelligence impact you, your business, your outlook, your customers. How do you guys think about that?
So, like most companies were paying very close attention to it, I'd say we're in the early days of the hype cycle, as with many other big tech transitions you know, throughout history. But there's no doubt it represents a compelling opportunity for us and for the industry, And so we think about it on two fronts. One is internal because it will certainly help, you know, help us redefine work and workload and streamline a lot of processes that today you know,
require lots and lots of effort. But more importantly, I think, you know, as we speak, there's a whole ecosystem developing around AI and generative AI, and so back to you know, our role in the middle of the you know, the electronics and the IT supply chain. We're going to help bring that ecosystem to life and will help the makers
of all those related technologies get to market. And so we think it's just one more of the bigger demand trends that you know, make the long term outlook as promising as it is.
This bounce back that we've been seeing more broadly in chip stocks this year. Looking at the Philadelphia Semiconductor Index ticker Symbole Socks SOX, that's a paul almost fifty percent. It's a forty six percent year to date after that
index lost clover thirty five percent last year. So sean from your view, and obviously given a large part of your business is tied to obviously the design and building of these chips and it comes to the semiconductor sector, what's your tell and you're reading on what this means for the global economy, because if you see ship makers performing well like this, wouldn't that be more of an optimistic sign?
You know, I would tend to agree with you. We've been you know, talking amongst ourselves for some time now that we're you know, there's an argument to be made for a softer landing. As you might know, there's a cyclical nature to this industry, and so when demand is strong, you know, supply rants up to serve it, and that all works great until demand softens and that leads to you know, a build up of inventory throughout the industry that takes a little bit of time to sell through.
I'd say the industry is right in the middle of that now. However, you know, backlogs are still fairly significant due to all the shortages over the past couple of years, and I'd say demand has softened, but it's not you know, falling sharply. You know, I think we're in the midst of a market that's moving sideways, and hence we sort of feel like, you know, a software landing is in store, and I think, you know, the market is probably reflecting that.
So shaw I see aout a third of your revenue comes from Asia, Pacific. I don't know what's your exposure to China, what's your either as a customer or supplier, and how are you guys dealing with that.
Well, we serve the Asia Pacific market, of which you know, China is the biggest piece. Like in the West, we tend to focus on the transportation and industrial markets and so you know, demand in China is software at the moment, but you know, we do anticipate that that will improve at some point in the near future.
You know.
We we like that market, we like our position in that market, and we think that there's still a lot of good opportunity for us in store. Having said that, we're a global company and we have lots of relative strength throughout the West. So regardless of how the you know, the semiconductor industry shakes out, I think we're well positioned regardless of how that how that looks.
When we have about twenty seconds left. Other areas in the global economy that you want to push into, well.
We certainly like all the trends in transportation and industrial and medical as I mentioned, we certainly see great opportunities in our IT business for the notion of information technology as a service and We're certainly going to play an important role in helping you know, customers benefit from it.
All right, Hey, Shan, thanks so much for taking the time to check in with us. Sean Karns, he's the CEO of Arrow Electronics, the New York Stock Exchange. Tickers a RW to put into your Bloomberg terminal, and what you'll find when you put up the prices stocks an all time Hi, so participating in that tech move.
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And I'm Faull Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.