The Economy, EVs, And Markets (Podcast)

economists for Morgan Stanley, joins us here. Ellen, Matt and I were just talking about insurance, UH, inflation, housing markets. Let's start with inflation. What's your inflation calls? Did we kind of peek in March April or do we have more to go? So I think we've clearly seen a peek in some of the categories where we were looking for weakness. You know, you were just talking about UH, new and used car prices, um, and there is evidence

that those are definitely topy here. UM. But you know, inflation is going to be painful for some time here. I mean, I think the fact that um, it is going to be coming off these peaks that we've just hit doesn't mean that suddenly we're back at a very low inflationary environment. You know, in the next couple of months. I think it's going to be a slow um decline from from here and we're still going to end the year,

you know, fairly elevated. What do you First of all, I can't help but say, Ellen used to do rewind with me all the time. Those were the days Ellen, when you me, Joe, Bruce Willis, David Rosenberg, we had the best time on that. It was a nighttime show at Bloomberg. It was it was. It was a good casual conversation where we could get a little goofy that happened occasionally. Um. So all right, we we we have your take on inflation. I guess the next most important

thing is your take on growth. Um. You know, how does it look? Are we just going to slow down? Do we remain at trend growth? Are we headed for a recession in the next you know, year and a half? How do you see it? Yeah? So growth? Um? Look, I think you know, I'm still concerned to have on growth.

UM on the US and especially when you look at across other UM countries with you know, developed market central banks that are also trying to do the same amount of tightening, I think the US is definitely in a good position to withstand the amount of tightening that the FED would like to do. UM. But energy prices, while they're not affecting UM the US as much as say in Europe, UM and other parts of the world, UM, it is affecting households in the US, and in particular

lower income households. And so you know, we've refreshed um our look at the impact across the households in the US, and we've taken consumer spending down quite a bit going into the second quarter, where I think we're going to get just around a one percent growth rate and consumer spending, and that's because there's just only so much that households can withstand, and they've got to absorb this shock of

higher energy, food and rents UH and rising interest rates. UM. Now does that spell disasters or for the US economy, No, but I think that that at least for the consumer, that's going to be the slowest quarter of the year as as we adjust UM. But I think we're in good shape. I mean, look at jobs. Jobs have been so incredibly steady in that five thousand range, and when I look ahead a few weeks to the next job's report, I don't see anything in the data that go into

those estimations. Uh, that would point to some sort of slow down in job creation here. Um, And you can't get a recession or a meaningful slowly down the economy if you're going to still be printing that level of job gains. You are a Buffalo, aren't you? Big buff? I am a big buff fan and a big Long Horn fan. So you grew up in Austin, Texas, like at the Long Horn. Then you go to University Colorado Business Administration and a master's. Yeah, well, you know the question.

The question is how did you ever get out of there? Because most people that study in Colorado realized it's a better place to live than everywhere else. It's the same, you know what. Somehow I tend to to leave all the good places, So I can't understand why I ever left Austin Boulder, Colorado. My son just just graduated University of Colorado, so I spent a lot of time in Boulder. It is a fantastic town. So is Denver, of course. So it's great to chat with a buff ellen Zitner

Sco buffs Joey, we got you on the phone. Joy at Fladico, President of Lincoln, thanks so much for joining us. Um, so we were just talking about, uh, what to power with? What to power the navigator? Right now, there's only the eco boost option. If I'm not mistaken. Are we going to an electric version? Are we going to a hybrid version? Well, you're correct. The Navigator is just the eco boost engine right now, and we don't have anything to say about

electrifying that vehicle yet. It's a fantastic hicle. A lot of our customers use it for road trips as you well know. Um, what we were talking about last night here that I think you stayed up for was our Lincoln Star Concept, which is an electric vehicle concept vehicle. Yeah, so talk us through that. Um. Like I said, Barbosa sent me the release, I was super psyched. Please keep me on your media list. Um. And it looks fascinating. Uh the interior is probably more important, I guess than

the exterior. What have you got here? Yeah, So this is our Lincoln Star Concept, and you know, we're commemorating our hundred year anniversary and we thought what a better time to really redefine the DNA of our vehicles for the next hundred years. So looking at electric to your point. The interior is super important for the Lincoln brand. We

always try to create that as sanctuary experience. So with the extra space that we have, we're able to have that front trunk, We're able to have a great exterior trunk, and we're able to do incredible things uh in the inside with a coast to coast screen UM with the lounge seats and create a real third space for our clients. But the exterior is also very important to clients. And you'll see the new face of Lincoln UM and the vision that we have for that as we moved to

e v S on this vehicle. You can see the backlit lighting, the star that's uh behind the glass UM. You can see the sleek design aerodynamic good for efficiency and range UM and into the sleekness of the side panels as well. Hey Joy, just so just broadly defined thirty seconds here, How quickly is the Ford Motor Company

Lincoln Motor Company going to go electric? So we are going to have three fully electric vehicles by and we'll have a fourth in and that's all part of the Ford plus plan where we'll be producing more than two million vehicles globally at Ford in that's some big stuff there. I mean, you know, once he's folks in Detroit got into the ev story. They're moving aggressively, joyful Otico President CMO of the Lincoln Motor Company. All right, our Federal

Reserve is in fact beginning to raise interest rates. I guess the question investors have at this point is how much, how quickly, and over what time frame. Let's bringing on an expert to maybe get some thoughts there on this area of the market. Kristoff Lash, President and c I O of Harbor Capital Advisors. So, kristof the US Federal Reserve has begun raising rates. How do you think the path will look for this feeder reserve over the course

of the year. Hi, thanks for having me. So, I think it's important to start at the top, that we have an economy now that is overheating and it's clearly too strong. Um. We've now got a FED that is playing catch up, and it's trying to take some momentum um, you know, out of the growth by tightening financial conditions, which obviously done up rates with the lack. So, I think the combination of today's overheating economy and typing the

financial conditions will eventually translate into a slowing economy. But how do we get there? I think, Um, you know, what's important to understand is this is not our father's Fed. This FED tightening cycle we think is going to be a sprint and not a marathon. So we think it's going to be pretty abrupt, um compared to certainly previous tightening cycles. Sorry, do they do they remain on this

tightening path until they break the back of inflation? Is this a FED that is hell bent on turning inflation around, even at the risk of, um, you know, a recession or even a market crash. Yes, So I think, look that this is a different FED than what we've had to contend with over the last couple of decades. You know, the market's change, it's very different. You look at the FED jewel mandate of in full employment and price stability.

We think they're worry about price stability. So we think they're not only going to talk tough on inflation, we think they're going to beat us on inflation. Um. You know, you saw saw Billard come out a couple of days ago, even talking about seventy five basis points at the next meeting. We don't think it will be that, but I think that's just indicative of how worried they are about inflation, and we think it would be a mistake to underestimate

their resolve in tackling this this year. Do you think the Federal Reserve has a credibility problem? I think they had a big credibility problem a few months ago. I think when PAL finally retired the term transitory at the end of November. You know, they were very, very late, and then the market was worried that they weren't taking inflation seriously, which is in part why we think they're going to have to be so tough, because they are

in the midst of wrestling back credibility. Yeah, it does seem like now the markets by that they're willing to do whatever it takes in a sense to fight inflation. As long as that's the case, I mean, if everyone believes them, they won't have to do too much. Right, So, what's your expectation for the terminal rate? So I think the with regards to the FED tightening, we think the terminal rate will probably fall out somewhere in the freeze.

And if you think about where we've we've already tightened significantly, So the markets, as you said, believe what the FED has been has been saying, and we've seen a significant tightening in financial conditions. You know, we look at various indicators of financial conditions and we actually see that they've tightened already. I think today's mortgage rates coming in at five point one A is a great example of how quickly financial conditions have tightened. So given that backdrop, Christoph,

how are you positioning your portfolio? What are you telling your clients? So at the moment, I think the the asset class that people are under allocated to the kind of forgotten asset classes commodities. We all talk about sixty investing across equities and bonds, but we think right now is prime for a diversified approach to commodities in client portfolios at this point of the cycle, when it is overheating,

tends to be when commodities do best. When inflation is running hot above three percent as it is today, tends to be when commodities do best, and they offer great diversification benefits from from equities and figs income. And we just think that's an asset class that have been largely ignored over the past decade. Obviously not the past couple of months, right, I mean, hasn't that ship sailed at

this point? I'd only get sailed. No, far from it. Um, you know, I think the the issue with inflation is their cyclical and structural dynamics at play here and coming into this year before obviously the tragic situation and in Ukraine, you know, the commodities markets were already very tight um suffered from a lack of investment, and we were already looking at coming into a squeezing commodity prices that's now been exacerbated by what's happened. So we don't think that

commodities are sort of done here. We think this is earlier innings, and we think the old two percent world of inflation that we used to live in is a thing in the past, and there are plenty of drivers of structural inflation now, such as deglobalization, decarbonization, energy security, and things like that. So one of the commodities obviously that I guess people's attention is crude oil. Brent crude still and well north of a hundred dollars of barrel.

You still think there's room to go there? Yeah, absolutely, Um, you know, we think the risk at the moment to Brent is certainly to the upside. Um. Look, there's there's been a lot of financial market disruption in the commodity space, um so the Russian invasion of Ukraine. But what we're yet to see are the physical disruptions. You know, a Chelo jewel of energy is not fungible, and even individual UM commodities are not fungible when you try and reconfigure um.

You know, whether it was Russian oil and gas typically shipped to Europe is now on its way to the Far East, as we saw with COVID. That causes all sorts of supply chain headaches, which is ultimately inflationary. All right, Christoph, thank you so much for sharing some of your time. We appreciate getting your insights. Kristoph Glaish, president and ce IO of Harbor Capital Advisors, giving us his thoughts and markets, and he's suggesting, hey, folks, take a look at commodities.

There's more room to go. David Coodla, founder, CEO and c i O of Mainstake Capital Management joins is here. David, we've got rising interest rates. Um. You know, the question is how fast, how how much? How do you position your portfolio for an environment that we haven't seen in quite sometime. You know, Good morning, Matt and Paul. And

that is UH, that's a very good question. I think a lot of investors are asking themselves because if you look at the U sixty forty that that classic six mix this year as an investor or anything around that that it has you know, stocks of the S and P five hundreds, some stocks of the NASDAC UH and you know, look at the US aggregate US aggregate bond index, you're pushing a negative ten percent return or close to that or a little bit more depending on your mix

of stocks. With the US aggregate bond index down over nine this year, you know, we we we know the statistics, it would be the worst year on record. So UM, we're tactical asset allocators at mainstake Capital Management it so we have been in the first part of this year, we have been short bonds and that specifically treasuries, high grade corporates that are very interest rate sensitive. I think that was prudent with what we know is coming from the FAT and we've seen all along the curve from

tunes to tens anticipate that. UH. And in stocks. You know, we're we're in, We're long commodities were significantly overweight commodities most we've ever been in the history of the firm, and then in stocks were picking our places. At what point, uh, David time, we've heard commodities today day, Yeah, we have. And I'm gonna ask David the same question that I just asked a few minutes ago, um, in a different way, because Okay, you've you've made the right bets and you've

profited on that. At what point do you take some money off the table, Because now everyone is saying get into commodities, And at that point I start to ask myself, you know, um, is the trade over? Yeah, And I've you've mentioned before my presence on Twitter and I've you know, tease controlled but tease some some of the people talking about commodities. Now it's like, good call, but you're a

little bit late to the game. And that's you know, commodities has been a good play for a year, but especially this last you know, for you know, four or five months, it's been incredible. We had all the reasons for coming into that space that was heightened by Ukraine, UH and COVID lockdowns in China. We've seen the Ukraine premium get built in and taken back out, but we think the fundamentals are still there for commodities to go and none at the rate they have been maybe in

the first four four and a half. But you know, if you look at the environment we're in, we're an inflationary environment for a while. Here we have the some of the elements of nineteen seventies nineteen seventy styles stag inflation. But if you look back in the nineteen seventies when inflation was running, you know at a very high rate, what asset class did the best during that time frame,

and it was it was commodities. Now, the short treasuries, we're going to be scaling that back because we've seen a lot of that get built in already. And I think we're gonna see, you know, interest rates more leveling out, maybe some more risk to the upside. It's certainly not the run up we've had since December. Do you are you in the camp that has you know, a reasonable concern that this field reserve is going to move too quickly, too much and in fact push this economy not into

a slowing growth rate but into actual recession. Yeah, that is that is our fear. And you know, if I had to put odds on it right now, I'd say it's maybe still fifty fifty. But it depends on um how they actually execute. I mean, if if you look at how far behind the curve they are, and maybe how slow and deliberate we're gonna hear from Jerome Pile later today, but how slow and deliberate you know they've been.

They literally let qt every time of sorry q E run right to the first rate hike in the first week of March. They were still buying four point one billion and and UH and assets and it ran literally and right up to the meeting, and it was a quick pivot to qt UH And now we're talking about fifty basis point rate rate hikes. And with Bullard, maybe we've got a couple in there. And so when they moved that far that fast, that's when we're concerned about

them breaking something. We had, you know, portions of the yield curve and inverting earlier, you know, several weeks ago, and and that's you know, there are some historical presence there, but aside from that, it's it's just that they could move far enough and fast enough that they could lead us into session or a meaningful slowdown. Right now. You know, things still look good. Corporate profits are coming in very well for the first quarter. Economy still coming along, but

there's concerns. We get the second part of are really into David, you're the founder sponsor of Engage, which is the world's largest student stock competition and conference at the University of Michigan. Are we having one of those this year? He's gonna be in person? Give us what's the status? It's virtual. We're still trying to be uh, you know, respect for you know, the concerns about the ongoing COVID issue and so virtual again, virtual last year, Virtual again

this year. But we will certainly be back to an in person conference next year, which I like for students so that when we bring in all these professionals, they have a chance to interact with them and network with them one on one. Yep, that's some great stuff, David, that you do there with that conference again at the University of Michigan. David Coudlaf founder CEO c i O of Mainstay Capital Management Grand Blanc Michigan. But he got

his master's degree at Stanford. Yeah, uh so, it's good stuff that, but that the Engage Conference is really good. I know a lot of schools participate that and they get some real good experience in terms of the markets and investing, and they get to interact with a lot of profess sational investors. So there are some good things to do in an harbor. Sure, absolutely go see a

football game. Speaking from the man from the great state of Ohio here, 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 Fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio.