Tesla, US GDP, and Markets (Podcast)

Tesla rallies from the low's pushing valuation over five hundred billion. Dan, I've joints us here on O Bloomberg and Actor Brooker Studio. What Bush Securities? Uh? Dan? What'd you take away from the Tesla news last night? That was a Goldilocks quarter, I meaning for the bulls, they were popping champagne because the demand out look was strong for two thousand twenty three and margins are holding. So now that dream scenario for Tesla's back on the table and look sentiment was

just so negative. Mini and fire in a crowd theater. I think you combine it. This is stock now it starts to run towards two. So did the band What did Elon Musk say? I think he quantified it saying there's like two buyers for every production. Well, that's the I mean, as you just hit. I mean, that was really the thing that I think stood out. I'd almost call it a jaw dropper in terms of two x demand over production. And why are they offering all these incentives.

There's no doubt you're starting to see cracks in the armor in China. You've seen in the US. But they read the room cut prices ripped the band aid off and then now they're able, because of their scale, which is unique, keep margins still well above industry norm. So what they're able to do now is scaleing that and I think coming at the gates and we've done this with survey work in China, it's just been on fire. And I think that's really the takeaway here. There's the

bears go into hibernation mood. I mean, when the when the worst case scenario is only boosting production by thirty seven percent, that's insane. Right when the streets like, no, we want you to boost production by in a year for Carmaker, that's insane. That's why in my opinion, along with Apple, the most transformational companies in the world, and I think it continues to be testa. I never viewed

as an auto company. Have views disruptive where I want to go and I should We should have had Kevin Tyner. We had him on the last I were Tom Keene. Kevin Tynan is the auto analyst for Bloomberg Intelligence, traditional auto guy, and he's of you know, he's never bought into this story because he's just simply it's not profitable, and be when it is profitable, everybody else Toyota and Volkswagen can commit and they'll on the market, and this company,

whatever it is, will be a niche whatever. That's kind of I think, not just Kevin's call, but the call that made a lot of the traditional auto guys, you and a lot of other tech guys have viewed it more as a technology It seems like to me more of a technology company, a technology play, and that's how investors should look at it. Are we at the point though, that we do have the Toyota's, the Volkswagens and the Generalmotan's affords coming in where maybe it can it would

be viewed more as an auto company no doubt. I mean, many thought Apple was going to be in the next BlackBerry at two in a billion and then went to three trillions. So I think it's just one of those situations where you have competition come from all angles, no doubt in Auto and especially coming out of the three win three area co GM and for what they're doing. But Tesla because of the vertical integration, because of the unique of the brand, the software, and you see that

in the margins, and it's the must DNA all right. Now, the Musk DNA was a super net positive for a long time. Not now are you concerned that it is turned to a negative? Specifically, I don't. I don't care about him and his views, but does it damage the Tesla brand because he was so closely associated with the Tesla brand we talked about I think sent the sell off in two thousand twenty two was Musk Twitter fiasco driven.

Is any of that permanent? Do you think? I think there's there's some of it, You know that that maybe you could quantify a small amoun that could be permanent. But that's why it was really the reason yesterday was probably the most important earnings called for Tesla. Many many years is because Musk, you need a pilot on the plant for him really to navigate. And I think that when he came off confident really I think even owned some of the twitters on the call last night. Was

he reasonable? Do you think was he reassuring to some of the big investors. He was a lot more dialed in than I've seen him in many calls. And I think that was another thing that investors takeaway was because now you feel like this is a company that's actually going to do the right strategic things. That Twitter situation is going to continue to be there in the background. But I think not necessarily that albatross over the name, but now right, I mean, I've dated girls who had

a good night. They appeared to be completely rational and reasonable at dinner with my parents, but then they weren't, you know. I mean there is an argument that Elon Musk is Cucu per coco puffs, right. I Mean, the guy is out there sometimes he's he always has been, but he's now willing to embarrass himself publicly more than he more than a normal rational person would look. And I think that's the controversy of Musk because that many of you, as a modern day Thomas Edison Albert Einstein

that essentially went through a Howard Hughes moment. You know, when you think about the Twitter situation now from Musk, it's recognizing the Golden Child tests. So that's that has been an overhang because of the Twitter Spiderweb. Dan, do they have to come out with new models because it is the original model? S isn't that the same as it's been for ten years? And they all look like that. Do they need to come up with anything? How do

they talk about that? Well? They do, because then you start to get into four nineteen nineteen going into seven where GM basically overtook him because they didn't innovate. I think if you look Cybertruck coming out later this year, I think potentially in SUV you know, in terms of some of the roads during some others, they're gonna need to expand that from penetration respective. But then you take

a step back. We are in the early days of the biggest transformation to the auto industry since nineteen of these. I mean, the cyber truck will be huge when it comes out. It's just a bummer that it keeps getting delayed and delayed and delayed and everybody else gets to some extent and advantage. UM. The Ford, you know, has gotten great reviews. Paul loved it. It looks very traditional. UM. The Chevy seems like it's going to be even better.

The GMC Hummer is like on another level, the cyber truck could be a better product than all of those. But it's just coming so many years late that everybody with a hundreds and spend an electric truck has already done it. And now I maybe if you look at this stuff coming at GM and Ford, it is it's a renaissance that I believe it's happened in Detroit. And that's why for tests, it's about making sure that this

window opportunity they don't lose. But if the ultimate takeaway here is that they are putting iron fence around their backyard by the price cut and that call last night felt, I'd say exactly what the bulls needed to sort of take this out of the way. I always forget to mention Rivan and I feel because we have listeners who love the rib they look pretty, I look amazing. What

do you think about the company about Ribbon? Is there going to be a challenger because they have also got production nightmares the likes of which you know Elon Musk got a dreamt of back in the day, no doubt. I mean, it's been a lot of time riving at their head. You're at their factory in Illinois. I'm bullish on Ribby in terms of where they could take this. Clearly there have been just massive speed bumps coming at the gate. They need to navigate that. But they are

gonna be a player for many, many years. And then you're a Football Giants New York Giants Football Giants fan. What do they do with Daniel Jones and se Kwon Barkley? Oh? I think they resigned both then, especially the goat Kwan. I think that's a no brainer that they have to resign them. Okay, all right, I mean that's in my opinion. You get those are two. I think that proved it this year that I'd be shocked if they don't resign them.

How about Pensiley football? Increasingly bullish and a good year. Didn't beat Ohio Stat or Michigan, but still a good year and still have those ruises that I'm wearing after being two time packed twelve champ, and I believe they are top five team next year. I think that they've now made that weep into the elite category, all right,

and bullish. I just I just configured my Tesla Model X and it's only a five, so it's not I know, but I didn't add the auto full autopilot, full self driving feature, so I'm saving like six six thou dollars there? All right, Dan, eys, what but security joining us here in our Bloomberg in Actress Broker studio talking all things Tesla.

Seems like the markets are just trying to really digest not only the earnings that we're getting every single day, but the slow of economic data we had today, trying to figure out what that means for the FED, what that means for this economy, and what that means for their portfolios. Who better to check in with and David Kelly, chief Global strategist for JP Morgan Asset Management. David thinks,

so much for taking the time. I know you're busy today with your client Anson kind of sitting through all the data. What's your takeaway when you look at your ECO screen on your Bloomberg terminal and you see all the economic data that came out today, what's your takeaway? I think the slowdown is on track despite a lot

of confusing data. So we did get that stronger than expected GDP read of two point nine percent, But I really think it's important to recognize that all that two point nine percent one point five percent was was coming from a pile up in inventories. So inventories grew at a pace of a hundred and thirty billion. Now normally

they grow at about pace about fifty billions. So necessarily that means that inventories are actually gonna drag on growth in three And when we look at consumer spending, we know on a monthly basis a wall is slowing down. In the fourth quarter, we think we're still gonna we're gonna get worse trade numbers going forward. UM housing is still going to be weak, although it's a lot of the damage has been done. But overall, we we think

we're still slowing down here. I mean we're on the edge of something that we don't we don't think we're on the edge of a cliff. We're probably in the edge of a swamp, but we still think the economy is slowing here. So David, does that mean, um, the Fed really does have to worry about the long and varied lags of monetary policy because they've hiked so much in the last year and nonetheless financial conditions are super loose. Well, well, yes they do. I mean they've got to look at

not just monetary conditions but also fisical conditions. So what we've got is a lot of fiscal drag in the economy. Um, we're just slowing things down, and that's you know, that's really where the the main economic problem is here, because the personal savings rates down at two point nine. You know, normally it's up at seven percent, which which means a lot of people wrecked up credit card debt over the

last year. The asian to their savings just to maintain a standard living that they can't maintain in the long run. So we're going to see consumer cutbacks this year because of what's going on really with fiscal policy, and the Federal Reserve should not be making things worse by overtightening monetary posts. Hang on, when you say they ate into their savings, I know the savings rate is dropped, but bank balances are still really high. Yeah, but they are

coming down. But I'm also about the way you look at this is it's also an accumulation of debt. So when you've got you've got credit card debt going up by more than fifteen percent year over year in November, um, you know that particularly lower and middle income households are adding on debt in order to just try to maintain a certain standard living. And and you can't raise raise credit card debt by fifteen percent per year going forward. So we know consumers are going to slow down here.

And we know the job growth is going to slow down here because we're three and a half percent unemployment that there very there aren't enough unemployed people out there to to to grow jobs quickly. So we know slow down is coming. And what I don't quite get about what the Federal Reserve is doing is that they say they want to get the federal funds right up above five percent and then cut it by one percent next year and cut it by another one percent the year

after that. And that doesn't make any sense to me. I mean, which you should do with monetary policy, because the lags you mentioned, you should try to slide in, slide into first space, so as you know, just very gently raise it to about the right level and left the economy adjust instead, they're overshooting, and I think that that that is an economic risk. They could put the

economy in recession by the end of the year. So if you were FED Chairman J. Pale, if you were sitting in his seat, what would you do over the next several meetings? Well, first of all, I would, UM, I would express confidence that inflation is coming down. We think we've we've we've beaten this. UM. We recognize that interest rates are low by historical standards, but they're not low by the standards to which the economy has become accustomed.

You know, we've had fifteen years of everybody getting used to the morphine drip of zero present interest rates. In that kind of economy, you do have to adjust a bit UM. So I would say enough for now, UM, I would stop raising rates UM, and let's see how this all plays out. And we are we stand ready to raise or lower rates going forward if things UM change. But right now it looks like inflation is coming down, growth is slowing. Let's just leave well enough alone at

this point and not tighten any further. So that's what that what you would do. What do you think that that is going to do? And I think they'll raise. I think they will raise rates by one quarter of percent on next Wednesday, and I think they'll probably do the same thing on March four. Now, their own forecast states they will again come back and raise rates by another quarter point on May three, and that I don't

think they'll do. I think they'll probably stop on, you know, with the with the last rate hike in March, and then let's wait and see what happens, because, as I say, inflation is coming down pretty rapidly here, and the great danger is that they overshoot put the economy and recession, and then they're going to have to come rate very aggressively, which is not the way you should be conducting monetary policy, David. Just on the labor market front, we had another initial

jobs claims print below two hundred thousand and eighty six thousand. Boy, this market is really strong. This surprise you how strong the labor market is. Uh, irrespective of kind of what we're here from some of the silific Silicon Valley companies, Well, there's a difference between you know, I remember watching an exercise video which talked and talked about tightening and strengthening various parts of my of my body, and I think this is this is a labor market that is very tight,

but not necessarily very strong. Um. In other words, there aren't enough There aren't a reserve pool of unemployed workers. The labor force itself is growing by about one tenth of a percent um per year, so it's it's the working population, so there's no extra workers. Now, that means that there aren't that many layoffs, but even there would be a little careful because we've got a very unusual economy.

We're probably not seeing the normal retail layoffs we'd see um after the holiday season because we probably didn't see as much on the ground retail hiring as you would normally see in retail season. So I'm I'm a little skeptical about that. I do think that the pace of hiring in the economy is slowing down, and I think that some of these job openings are kind of, you know, no longer relevant, even though they're they're staying on the

boards here. So I don't, you know, I do think the labor market is very night, but I don't think it's actually very strong. Yeah, I mean, three and a half percent unemployment points to a very tight labor market. But the question is does it rise quickly? Do we get to five percent by the middle of the year. No, I don't think we do because I think, as I say, it's it's very tied. So just aren't enough workers for that to happen, to be enough to lay awful lot

of workers. But I think another thing to look at here is wage growth, because wage growth has actually been decelerating in the last few months. Wages for all you know, for production non supervisor workers are five percent to year over year, but inflation six and a half percent year over year. So workers aren't keeping up with inflation. I think increasingly they won't because they again they don't feel like they've got that much bargaining power. So you know,

as I say, it's a tight labor market. There aren't a lot of available workers, but the working age population is growing slowly. I think the economy after this morning's report, is going to be growing slowly in the first half of this year. And you know, I think we just need to get used to a slow growth, lower lower inflation economy. Again, David, how are you factoring in just switch gears a little bit, How are you factoring in

the reopening and maybe they're reopening faster than expected of China. Um. I think it's I think it's kind of a it's a positive for global economic growth. I think it's probably almost a net neutral for inflation. Um so um we were clearly getting you know, because they've gone to a got rid of their zero COVID policy. I think that we will see um surges in output from China, and I think you'll see more Chinese spending on services, but I don't think you'll see a huge surge in Chinese

spending on goods. And because of that, you know, that's how higher Chinese demand would translate into higher inflation around the world. So I don't think that's going to push up inflation, but it will help with global growth. And I think the interesting thing is this year the US is going to be slowing down while the rest of the world is picking up in terms of growth, and that couldn't be negative for the dollar, which you think.

It's got some pretty interesting investment implications. I just have this image in my head at one point four billion people finally allowed to getting their cars and drive. They have to stop at the gas station, right, I mean, um h. Jeff Curry compared this to two thousand eight when we saw crewde go to barrel. You're not worried about that, no, not at all. Is we've had very high prices very recently, and the best here for high

prices is high prices. Uh. This year is going to be the biggest year in US history for liquid fuels production. We've we've got a huge production of natural gas, and and Europe is now all stocked up the natural gas. But I, you know, I see plenty of conservation. I don't think the global economy is going to grow that fast, you know, if you I do think it's going to grow fast in the US, but the US is going to grow very slowly, and China will be picking up, but Europe is going to be slow. The UK is

in recession. So I don't see a boom in global energy demand this year. Um. I think because of the high prices last year, we are going to see pretty strong growth in energy supply. So I don't unless something else happens to supply that we're not anticipating right now, I don't think we'll see another surge in oil prices in this kind of economy. All right, David, great stuff,

Really appreciate getting a few minutes of your time. David Kelly, Chief Global Strategist, JP Morgan asset Management and even more importantly Bachelor and economics from the University College of Dublin. You can probably get a little bit of the Irish accent there through the radio and a PhD in economics from Michigan State University. Spartans about that parties I won if he comes over from you know, Ireland and becomes like this crazy big ten football fan, do you think

that happens? I could imagine that. Why how could you not when you're in that part of the part of the country. I think in the in the big picture, huge news, and that is the Akio Toyota is stepping down as the CEO president of his namesake firm. So that was Toyota as in the founder of the company. Yeah, I think his grandfather founded the company. Um they changed the name from Toyota uh with a D to Toyota with a T because of something to do with like

numbers and luck. I'm not sure, but someone who does know for sure is Craig Trudel. He's our Global Autos czar. He ran the auto's coverage for the US then he went over to Tokyo and ran Auto's coverage in Asia, and now he's in London. He runs auto coverage globally. Just he just can't stay put anywhere. Well, I think it's cool. It's like he worked in a different part of the company and now he runs the whole thing.

So okay, Craig, thanks so much for joining us. Talk to me about well, first of all, what's the deal with Toyota with a D versus Toyota with a T. You know what you You have put me on the spot, and I know that I've I know that I've been that this has been explained to me, but I don't remember. I don't remember. I'm pretty sure that he's like Toyota with a D means like ten and but eight is a luckier number, and that's with a T. So I

don't know something like that, but google it. The thing I know about Akio Toyota for sure is that he is I don't want to say micromanages, but he is involved in every aspect of Toyota car production. Like he's responsible for the reason that Toyota's look and run the way they do, for the reason that Toyota strategy is the way it is. So it's really a sea change, right if he is leaving and putting someone else in

the UM in the chief executive seat. Yeah, I think I think he absolutely Uh is a tough cookie too in terms of his evaluation of cars. We've heard over the years that you know, he is no pushover and and Uh is not, you know, shy about giving tough feedback. And I got a kick out of, you know, a video about a year ago when Lexus was was bringing

out its first fully electric vehicle. And we actually embed this tweet in our story today about the new the new incoming CEO of of of Toyota, Akio Toyota and his his uh, you know air apparent now Kist are in this Flexus STUV and in in the early goings, you see Ako kind of you know, this thing drafts kind of heavy, and you see Soto kind of you know, hang his head a little bit, and and it isn't until he really hits the accelerator that they both get

really excited. So I think that's that that the reason I tell that story is because you know, I think Toyota has to get more excited about electric vehicles. There's been some real reluctance for them to sort of, you know, come around to this idea that you know, the world

wants fully electric cars. They were people, i mean they started boring environmentally sound cars, and that's i mean, that's you know, maybe not in those words, but that's been you know, Toyota has really sort of clung to this idea of, look, you know, the more realistic uh, you know way forward here is absolutely we should move into

electric vehicles quickly. But the more realistic path here is more people are going to be able to afford you know, gas electric car are Shortages of batteries are going to continue for many years. We're already seeing you know, these massive run up and run ups and prices of things like lithium. As long as that's this is the case, going fully electric is not doable, and it's not a case of of necessarily even you know, dragging your feet

in terms of emissions production. If you can, if you can electrify more cars, uh, you know, by using smaller batteries in cars that still rely on part on an engine. Toyota's view is that this is the more effective way, and they've really struggled to sort of make that nuanced case when you've got a guy in Elon Musk who just says this can be done, where we should go all electric. I'm gonna make twenty million teslas a year. Uh,

you know one of these years. Uh. It's really hard for that you know, messaging battle to to win out when one is is nuanced complicated, the other is is much simple. So, Craig lu can you tell us about Cogi Sato the replacement here as CEO, And what do you expect his you know, to do list to look like.

I mean, Alexis interestingly is going to be on the sort of cutting edge of of you know, Toyota coming around to electric vehicles, and and that makes sense right where we're we're seeing much faster adoption and on the higher end, Uh, it makes more sense for the companies and that they're able to forward to charge uh more for the fact that that batteries are are still very expensive. Uh. And so you know, I think you know, Lexus uh

is a bit divisive in in the world of car geeks. Uh. You know, they they are not prummy cars, but you know they maybe do get you know, still panned. Uh. You know, to this day is less exciting than say a Porsche or or even you know, an Audie. But but you know, they're also really solid vehicles. They've they've been growing their international presence over the years under cost Uh and so you know, he has been building up international experience. He knows that division well. And the fact

that they're going electric first. I think it is something that you know, Toyota is going to to point to as they sort of introduce him to the world. Yeah. I think for for me the design is I can't get with that, but that's totally subjective, right of Lexus cars. I also feel like they have an American nous in their quality, you know, because they have these cushy, padded seats, and they're also a little too complex for me. I don't like um small displacement with turbo chargers. I like

big naturally aspirated. Who doesn't like big naturally asked by the way, I'm looking, Craig under So. I found this website opex Learning. They give a few reasons for the name change, but apparently it's debated why they change the name. Apparently in Japanese UH the D is a voiceless consonant. I don't really know what that means. But the T

is a voiced constant that makes it more appealing. Also, there's a practice called jukaku, which is the counting of strokes in kanji and katakana, which is like the way you write um letters and Toyota with a D is ten strokes, but Toyota with a T is eight strokes, so that's luckier. Some people say eight is considered to be a lucky number of Japanese culture. So the name Toyota was chosen. Yes, that makes sense. Also it's a reduction, it's a reduction and waste. You know, it takes fewer

strokes to write Toyota Toyota. And then one thing I did not know until just now. And I've been a car geek since I was like six. In the emblem um you can actually see the T O y o T and egg. I did not know that did not he got on the screen. Now it's awesome. So they didn't just pick a name. Who knows why it really happened. But if Craig Trudella doesn't know for sure, then I don't think anyone knows. No, But this is a big

change for Toyota. I mean, the you know, the founding que grandson, and now that it looks like they're gonna make a pivot too, It's both to me. It's like it's a it's a shift away from tradition, which is kind of a bummer in my eyes, but it's also a new beginning. I'm excited to see if Sato changes the design tok what's going on. If he changes the design language, I think it's gonna be very interesting because

I haven't loved a Toyota since the Selka. I know the gt S Craig Rudale, Global Automotive editor for Bloomberg News. He's based in London, giving us the lowdown on big, big CEO changes at Toyota. As a company continues, it's pivot towards electric vehicles, tons of ECO data today. We don't know which way to go. So he said, let's call Yelena. She's only one floor away. She can just

walk up and come into the studio. But no, no, no, no no, she has left Bloomberg and gone to BNP Parry Bah I mean, junior US economist at BNP Perry box Elenava, which is the way I'm going to continue to pronounce it. I don't care. It's a way of doing it for years. I think you did a great job. You learned it over the years, so the seven years I was here, So Elena, welcome back. Great to have you in studio here. We need you like we always have.

We rely upon you to give us a sense of what's going on out There's a lot of eco data. What's your takeaway? So we got GDP results for the fourth quarter today and the report is way weaker than the headline number is telling you. So we got an

upside surprise as we watched the alboom brick terminals. But if you start, was the que over a quarter of a quarter number and two point six percent was what we were looking for, right, But they're both a slow down from three in the previous quarter, which is fine, but it's still solid growth if you just look at

the headline number. But if you look beneath the surface, you will see that a lot of this is driven by unwanted accumulation in inventories and of decline in imports, and a combination of this too is telling you that demand. Consumer demand is slowing down, business demand is slowing down. GDP was not the only report we received today. If you look at durable goods report, you will see that shipments core good shipments are falling as well. So that

is the headline. That was the headline, A headline, guy, that's all I am. I took two semesters back. That's why you Yeah, that's the headline. Number is driven by orders of aircraft. But if you look at broader picture, so beneath the surface again, so you you see a significant deceleration in consumer and business demand going forward. So our call is for a recession to start in the second quarter of this year, and today's data actually in the second quarter, so in just two more months, basically

a few months away. It's hard to believe given the strength in the label market. But so alright, a recession, how long and how deep do you think? We think slightly less than one percent decline in GDP overall, we're about like, uh that mark, but we think it's gonna last for like three quarters maybe a little bit longer, and we assume at least the two percentage point increase

in the unemployment try. So I look at these Yeah, you know what she says right when she comes in here, I mean, she just gives you the numbers that you need to know. Yes, I mean now I got it. I got the BNP Perry back Hall. So all right, what I wonder is what happens then to inflation. We got the core PC at three point nine percent, which is good. We're get coming in under four right, we were four point seven percent the previous reading. I everybody

knows I desperately want a Dodge Challenger hell Cat. Who does. There's seventy seven thousand dollars right now test driving a Cadillac Escalade V, which is basically a land yacht yep with a supercharge seven most I know, But there are a hundred and fifty one grand to start before I

put any options. So I'm hope hoping that we get a milder recession because I don't want people lose their jobs, but that prices come down, that these companies make too many cars and they have to cut the price at dealers. We're gonna see that. So we we are seeing this already in goods. And what you're talking about is goods, uh, you know, disinflation basically and declines outright declines and goods prices.

What is really important for the fit and for the policy and for everybody, here is what is happening with services prices, and they remain sticky. So if you exclude some components like shelter and medical care services, that part of inflation remains really sticky. And that's why what is that by everyone says this, and I think a massage that services that we're talking like tennis lessons? What are we? What is it? What is the service that is less

pleasant than that? I would say because prices, consumer prices for services continue to grow and continue to grow at a very unacceptable pace. So that means the FAT has not done their job and they will continue to tighten policy. So our call is for the FED to uh continue to talk about terminal rate of five and a quarter and as they you know, uh uh basis points. You're way beyond this point, Paul and Helena. You probably are to a babysitter now it's like an hour, yes, and

that's for a high school kid. They're ballsy enough to say, I won't do it for less than twenty five an hour. And don't get me started talking about daycare prices. Yeah, I have to in I just wrote another check for like four grand. Insane. That's just because somebody got the idea to put a daycare in quotes in the basement of a Korean church, like unbelievable the prices for these, So that also weighs on consumer demand and on real consumer demand. That these are the numbers that we see

in GDP numbers. And again today when the headline GDP number surprise to the upside, consumer spending surprise to the downside, and we see that the trajectory of intra trajectory of growth in consumer spending is decelerating sharply. Tomorrow's numbers will show most likely and negative reading tomorrow personal income, personal spending. Um. We were talking about this with David Kelly earlier as well. UM, we're gonna get University of Michigan sentiment as well. Tomorrow

is that tomorrow? Um state it's rough to even bring that up. Um. We we uh have seen savings rates come down substantially, And I always look up the savings rate on the Bloomberg terminal and I'm like, wow, we were at twelve and now we're at three, like it's horrible. But then Michael McKee says, hey, you gotta look at bank balances. I don't know the index that he pulls up, but the guy knows everything about the terminal, and I see bank balances are still at a pretty high level.

David call from JP Morgan is saying that's going to come off because debts rising, credit card spending is rising, and that's just gonna fall. So Mike and other guys are talking about something called excess savings. So the savings rate that you see on your terminal every month with that personally spending report is like, what is happening in the flow of savings? But we already have a large stock of accumulated savings which is depleting very fast. And

that's that's the worry. Is it depleting very quickly. It's depleting very quickly. It's still some cursion and that's why we see consumers spending is still growing, but that will continue to deplete this year, and it will deplete to the point at which, yes, consumers will either have to rely on their wages, which is also decelerating, or on borrowing as you mentioned. But at that or no more daycare. You know, well one of us has to stay home.

You can you can broadcast put all that together next Wednesday. What are we can hear from our Federal Reserve chairman. I think their task is getting really much more difficult. So you see deceleration in growth a shop one, Uh, you see some deceleration and goods prices, but at the same time inflation and services is still very high. So I think you know, if you look at the whole picture, you will probably expect them to continue to tighten policy.

They will hike again twenty five basis points, but they will know that they will reduce it to And it seems like you know, a common expectations hawk for the Fed. He wants on to keep jacking rates up, but at the same time they will keep talking about a higher terminal rate, and I don't think they're ready to step back from that call. So because inflation is still uncomfortably high, even though it's de cl reading, they need to have

the job done. The recent comments we can't risk inflation coming back exactly, and some communications from both sides of the Duff Hawk spectrum UH tells us that they're not ready to give up. So Waller and ladle Brian and they're all talking about like they need to be vigilant on inflation. That is obvious. Yea, you know what. You know what I did before Elena walked in and went bio for Elena, just to check if she's a terminal user still, and she is, otherwise I was going to

show her the door. I mean, if you're not a terminal user, absolutely, how can you do it? How can do just a message? Yeah? I type like message Carl Ricka Donna nice. He still has a terminal yeah, and he's coming in next week. So we're bringing the band back together, all the grade economists we had here at Bloomberg. So Elena, she let you have a joining us here. She's a senior US economist for BNP Parry Bad. But of course her claim to fame is she once worked

with me at Bloomberg Intelligence. That's what you know. People, we missed you, but that's not clear. And there's everybody who message us from the news. I'm like, oh, Yolene is gonna be here. I'm gonna later. It was so good to be bad guys, and I am so grateful for the time that I worked here. So that I also wanted to mention that the market is trying to figure out what the heck is going on there today, tons of stuff that digests from Tesla, earnings from earning

asist in general across the board. We had a whole slew of eco data today. We just had, you know, some some thoughts here about where what that means for the economy, what that means for the FED, what that means for the markets. Let's break it down with somebody who does this for living, David Coudla, founder, CEO and CIO of Mainstay Capital Management. David, thanks so much for

joining us here. It's a busy, busy day. And and David, Matt and I were just speaking with one of our favorite economists from BNP, Parry Bad and she's saying, Hey, recession starting second quarter, maybe last three quarters, maybe more, maybe one percent or so. Contraction in the economy. Is that something you guys are having your calculus as you think about your portfolio. Uh, Hi, Paul and Matt, Good afternoon or good morning. Uh. You know, I think that

calling for a recession the second quarter is probably premature. Uh. You know, what we've seen recently is the markets pricing in more and more very shallow or no recession. But let's look at the data. Right, if we go around just in the US and go around the world, we still have strong jobs in the US. That was confirmed again today with weekly job as claims. We have strong GDP. Now that's backward looking into the fourth quarter at two point nine better than expected. GDP keeps coming in better

than expected. We've been have housing recovering with yields coming down. Some mortgages are coming down. If we look at Europe, Uh, they were supposed to have a worse recession than US. Now there's calls for no recession in Europe because the energy crunch hasn't materialized with a warmer winner or it has abated, I should say. And then we go over to Asia China. Uh, surprisingly too many probably abandoned zero COVID policy. Uh. Their holiday travel right now is quadrupled

over this time last year. So there are a lot of factors that show we still have strong growth, driving and driving growth. I just I can't see a recession starting in a couple of months. Uh, you know you're out there in Michigan. I start to think more and more about the possibility of too much production at GM. Too much production at I guess it's Stlantis now. UM inventories starting to rise compared to sales. Do you see that out there. Uh, it depends. Um, I'm still waiting

on my order for my zero six Corvette to go through. Dude, I gotta tell you something real quick. I went for a ride with Mark Royce in a zero six at the Milford proven Grounds on believable viah Just amazing what they could get out of five and a half leaders. Just I was blown away. And for the price, it was like a GT three killer. Yeah. Yeah. So, so you know, there is still pent up demand for uh

new autos because of the chip shortage. There's still pent up demand and in some areas where we're still catching up even though we know the used car market has been declined for the past several months, but it, you know, during the pandemic had gone up, had rose so much, had risen so much, so I know, you know, the automakers here are are still humming along. Now. If we get a contraction the economy or god forbid a deeper recession,

that all changes their cyclical companies. But for now, there's really still some some catch up to that pent up demand. So what do we do here? I mean again, I'm just looking at my Eco screen on the Bloomberg terminal. I'm trying to digest all this economic data being deluged with earnings. We had some you know, I guess some good news from Tesla last night. Not that that's reflective in the economy, but what are you doing with your

portfolio here given that economic backdrop and earnings backdrop. Yeah, so this I would say, this first month of this year is shaping up a little bit different than some had expected, you know, some of the forecasts we had from Morgan Stanley or JP Morgan or you know. And we'll see how the rest of the quarter turns out. But you know, we've had a good market now. With that, that's good for our growth stocks that we hold, but we are still biased towards the defensive because of this

concern about procession. I'd say though that our biggest change in our portfolios is going overseas. With China recovering, that's great for Asia stocks, and of course they've been on a terror so we like e M specifically Asia. Uh And of course CONNA duration and in bonds has made more since here recently too, so we've had it there. So the e M call we heard, I guess we're hearing a little bit more and more these days. Um, what's the basis of that for you? Is that just

simply the growth there is better relative to to the valuation. Yeah, we've got you know E M E M. Undervalued certainly relative to the US. When we look at historical historical basis, and if we look at the factors, what is really and I'm talking about Asia now specifically Asia. Uh, if the Chinese economy is opening up, that's good for China, that's good for the region, that's good for all of Asia. And we're seeing that are already in stock prices. So

and we think that has further to run because being undervalued. Uh, specifically China having sold off so far, and you know that I don't know that, Uh, it was expected, but they have certainly done an about face. And whether you're looking at holiday travel, hotels demand, you know, immediately increasing as COVID policy, COVID zero policy becomes a thing of a past there. So that's just another factor that is

in favor of Asia stocks. More broadly. You know, I'm looking at the Bloomberg Dollar Index and you know, I've been asking people for years what's the bear case for the U. S. Dollar? I mean, the dollar index is down ten percent from its peak, So maybe we're kind of there. How do you think about the dollar and how does that impact kind of how you construct your portfolio? Yeah, and a and another good thank you. That's another dynamic

I should have mentioned relative to overseas. Right, that's another factor that's working in our favor is the weakening dollar. Um. And you know, I think it's a function of we see the FED is tapering off in their purchases. Uh. Certainly the dollar was on a just a care last year with an aggressive faid. We see the FED tapering off I'm sorry, tapering off in the rate hikes, not purchases. And so we have Europe that still needs to catch up.

They were behind the curb. Uh. You know, we look at that around the world and or just looking locally at the US. Uh. You know, the dollar has just declined with this this uh tapering of FED rate heights. Um. I'm just sorry, sorry, I got sidetracked looking at the Zeo six here. This is I'm so excited for you because it's the most powerful naturally aspirated V eight ever put in a production car. SI power zero to sixty and two and a half seconds, and it's not electric.

Zero to sixty and two and a half seconds and it costs not electric, I mean half of what you would pay. That's just an unbelievable I hope you've got the orange or maybe a bright green color. Uh there when you get take delivery, I'm gonna come over to Michigan and do a few laps with you. It's a day. It's a day, It's a day. What do you think

it is? What do you think, David about the about the American consumer, Because a lot of people have been kind of raining on my parade today saying the consumer is starting to borrow a lot more, a lot more on credit cards. Savings rates has dropped to nothing, the bank balances are going to start to get depleted. Yeah, you nailed it. The consumer is still strong, but where it was savings from the pandemic, it's now more credit

card debt. We're seeing bank bank accounts decline. So you know that becomes a concern as we roll further into this year. Uh, because the consumers two thirds of the economy, and some of those numbers I cited at the beginning of the segment, Uh, those are get impacted very quickly. If the consumer starts to weaken, and look what's happening with jobs in some areas at least and big tech. You know, almost every day we're seeing a mass layoff

at a company. Yeah, and those you know, started out just being West Coast things tech stocks that you would have expected because they hired you know, fifty more employees in one year. Then you start to see three M, then you start to see IBM. It's starting to creep into Dow and old economy stocks. How concerned are you about layoffs? Uh, well, it depends. We we want to see the FED have a reason to to stop. I

think they've gone too far already. Um. I know that that you guys have a debate internally between where the FED should be. But I think they've gone too far already, and I think that's that's that's the risk that they

break something later in the year. But uh, you know, we're all eyes are on that because because the stock markets a liquidity junkie um more important than earnings even but uh yeah, if we if we can continue to see that, or if we see that really and pack the broader jobs numbers, uh, than that makes an issue. Finally caused the FED to pause, all right, David, great stuff. Always appreciate getting your thoughts. David Coudla, founder at CEO

of Mainstay Capital Management. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three pt On Ball Sweeney I'm on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio