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That Miskin joins us now for more mac.
Good morning to you, Good morning, thanks for having me.
Great to catch up with you in person as well.
It's been a while. Let's get into this. Governor Waller, is it in ignore and move on? Do you agree with Luke kickmore of Aberdeen?
I actually thought it made a lot of sense.
I thought Powell in the press conference during the FED meeting was you know, he kept saying overtime. It's like when I tell my children to clean their room and they're like, oh yeah, overtime, all clean the room. You know, it just keeps on getting more messy at everything over time, you got to be thinking about this more with a priority. Inflation is starting to come back, and it just you said before data dependent.
I love that. That's a great way for the Fed to think about this.
But if you're going to revise up your inflation forecast and you're going to keep cuts, that's not being data dependent. So they have a communication issue right now, and I think they're going to have a tough time navigating this because the markets are really dependent on them being dubvish, and if they push back, I think it's going to be tough, but I think they should because they don't want to fight.
This battle all over again later this year.
Always lovely storytelling, So let's run with it. Let's say the claim room is two percent and you're less convince they're going to clean it anytime soon. When is the bumb market starts to get messia, which essentially is what las raz askin.
So we've seen some that are saying in the position with four higher interest rates because of that, the long end of the curve would see higher rates if that does if they let inflation run like this. But in our view, it's just you're seeing a lot of value in the bond market yields are already up where in an inverted yield curve. This is the longest inversion the yield curve ever, So the bond market's a mess in a way. Just try and interpret this. In our view
though we stay inverted. If anything, we see we get more inverted. We're actually on the other side. We think they're going to take longer to cut, but then they're going to cut more than the markets expect because something will happen. They've got to push back here. They've got to be strong. They've got to be that adult in the room and tell the to clean their room. It's hard, but right now they're not doing it.
Well, they're not doing it. They're not being the adults in the room. They're basically saying, why don't you throw some more things on the floor, because you know what, we'll get to it and later.
And this raises the question, what gives you.
The conviction that that's the path that they're going to take If that's not the signals or the communications that they're giving and markets are running with that and they're not pushing back.
Yeah, I just think inflation coming back growth.
If we are starred, right, the stars of the sky, like you remember that analogy. Yeah, yeah, yeah, But if this is the utual rate, why isn't the economy slowing, Why is an inflation slowing?
None of that's happening.
It's hard to say that they're being really restricted with high yield spreads at three hundred basis points. They seem to be they're trying to turn off the faucet, but the shower's still running the water.
The liquidity is still coming into.
The market, and you've got to use financial I think that the you know, maybe this is a bigger picture conversation, but I think the FED needs to be market based and not academic based or legal.
A lawyer gonna jump in, Matt, it doesn't matter. This is who they are.
Doesn't this screen buy stocks by some what you've had in the last week.
So historically speaking, usually this is the time late cycle where the FED is at the what they think is the neutral rain, and you have to be careful because it does look good. Usually, get this late cycle pop and risk assets as the FED says, hey, we're gonna think about cutting or we're not gonna raise rates anymore,
and then the tide goes out. Well, Warren Buffin quote when the tide goes out, you see you're swimming, but you want to make sure that you don't have that risk, because if it's commercial real estate and it's other things, things can break and then all of a sudden, the Fed's got to turn.
And it almost seems like Powell might have something up.
His sleeve that's saying there's a risk here that that isn't on the surface. That I'm playing this a little bit easier, and I wouldn't be surprised if there is something underneath the surface.
How frustrating is it to play psychiatrist to J. Powell at a time where you feel like it should happen, but you think maybe he's playing games with us, Maybe in his head he knows something. I mean, this is sort of the level that we're at because people can't otherwise understand and draw the dots from what we saw in the.
Nating you know, when they do the summary of economic projections and all this forward guidance, and back in the day that was supposed to help because it was saying, hey, we're not doing much and we're just sitting here. Now it's almost hurting the fact that you're saying we're going to do rate cuts before it gets price in the market immediately, and basically that was a rate cut.
You know, the way I.
Think about it, almost like fight Club the movie. You don't talk about fight Club. That's the first rule. Don't talk about rate cuts until you need to talk about rate cuts, because if you're going to talk about in advance, the market's going to say, great, I'm going to price that in, and then that creates the risk on, that creates the inflation impulse.
And now we're going to have to deal with it all over again.
They also up their own inflation target, so you know, we've been having this conversation a lot of people about it's two points something that the FED actually basically is targeting, not no longer two percent. Maybe they're more acceptable of a range. Do you agree with that it's possible. I mean, after the last meeting, I thought that, I thought.
Two to three.
I mean, in the Summary of Economic projections, it doesn't taken till twenty twenty six that you see a two point zero.
That's that overtime. That's hey, we'll clean up the.
Room two years from now, but for then, you know it's gonna be bumpy deal, you know. But Emory, it's also about the energy sector recently. You know, oil prices are coming up. That's so if you had the stocks rallying but you didn't have the inflation impulse, that's a that's better. But you know, I almost think about March madness bracketology right now.
So energy stocks were actually.
One of the best performers in the quarter. Oil prices up another one percent today. If that keeps going, they're going to be hitting gas prices coming up, inflationary impulse, and there's other things disruptions of supply chain still going on that I think they're gonna have to change their tune as the year goes on.
So what are you buying?
So we still have the high quality US doocs were overweight US verse International.
We are up in cap. We're trying to find profitable businesses.
We do not have some of the AI you know, the Fomo AI or the crypto, the mind all that. So AI wise, you know, Navidia has done pretty well. You know, it has put on another trillion of market cap last quarter. So we do have tech. We've been overweight tech. We like quality, so that helps, but at a reasonable price, on the bond side, we have been dragging because we've been higher quality.
We're willing.
I look at high yield spreads at two ninety I think it was last week.
It was great tweet by the way, you know, because we got to watch this.
So the upside is fifty bases points lowers, the tightest in history, or we could go eight to twenty percent higher. And that's just another symptom of this market is just how tight the spreads are.
So we're not going after that.
We have an underweight to high yield overweight, higher quality than the bond market.
We're getting enough on the ball on that overweight to.
US equities overweight, US large cap have some of the tech quality names, but frankly, we're sitting here waiting and nothing's on sale, I mean, other than high quality bonds. But it's a hard trade because the momentum factor in equities is so powered.
I love how many people don't have a blimback terminal and rely on Bramo to get high yeld spread updates, safe, safer tide. But the way you talk about them is if they are a reflection of complacency and not a reflection of strength. Why do you see it as the former and not the latter.
Of the last two times they were this type was two thousand and seven, twenty twenty one, the twelve months after those real tight levels, high yield was down three percent total return, so you got about seven percent yield. Total return was negative in two thousand and seven. And this is again going back to that Warren Buffer quote of the tide goes out, it off and looks the best before it turns. The risk on the centiment has to be stretched to really feel the reversion.
And so I still think, I mean, we always think about risk management. It's part of our DNA.
But right now, as everyone else is going to this side of the boat, we're saying, hey, there's some stuff that's like higher quality, defensive parts of markets.
That's actually what you should be looking.
At it at. That's sensible.
I think we always just think about you know, when I hear stuff like this, I always have to think about things from the other side. And I'm thinking, right now, I'm listening to you the FED just to borrow a little bit from sorrow, So I'll do it the other way around. The FED can shake the events to anticipate and if you get chairm and Power coming out and establishing basically having a bus to respond to weaker economic
data than they would hire inflation points. It probably makes economic data even less likely because financial conditions are so loose right now when you see credit spreads as tight as they are. The way I think about it is, we were really worried about the maturity will in twenty five, and we've just taken a massive chunk out of it in the first quarter of twenty four. The high rates less of a thing to worry about three months into twenty four that maybe they were at the start of the year.
Yeah, you still have in all this communication, all this analysis, all this you know, analogy, you know, psycho analysis of what Powell's thinking.
But at the end of the day, they haven't done anything. So we're still doing QT.
We still have five and a half, We still have this huge maturity wall I mean, Russell twenty and forty five percent are not profitable.
They're gonna there's fifty sixty.
Percent of those companies that have to refinance in the next twelve to eighteen months. Yeah, so if they don't do anything, And that's why I actually liked Waller's comments.
I was like, that's refreshing.
Just don't do.
Anything, just let it go, sit on it, be patient. But Powell does seem like he wants to cut. I think this is going to create more issues than for him. And it's you know, it's just a circular feedback.
It's David shit just romonicus.
The last couple of weeks to say a chamman that wants to count well the tights a co op parade, and that's gonna be the outcome that get sets out likes it as yet, it's good to see it. Secretary Yellen, speaking at an event in Georgia yesterday, saying US manufacturing is facing pressure from cheap imports flooding the market. The
comments ranging from green energy products to electric vehicles. Yellen's saying this will be a key isshoe during head next trip to China, which is expected in the coming weeks. Stave As center At, Executive VP of Care America, joins us. Now for more, Steve goomone to you, Moring. Let's talk about EV's. It's fantastic to have you with us. You've got the EV nine, the EV six over at kir Can. We just start with how they're selling because we've heard a lot about pushback in this country.
How are they selling.
They're selling very well. We'd like to sell more of them, but I think there's been a lot of expectation about the rate of the transition and that's unknown. And consumers are buying the car, they're enjoying the car. The infrastructures is a challenge. The whole industry has already received the business from the early adopters and now we're getting into people that really need the car. This isn't a toy.
They need to get back and forth. The thing about range anxiety is true, but it's more about charging anxiety because the cars all go three hundred miles and very few people drive three hundred miles at a time. So we're very excited. EVE nine's won a lot of awards. It's proven what you can do with electric cars at three row SUV with that kind of range.
What are data ship's telling you about what they need right now? Where consumer demount is and how can you meet that demount.
Well, when you talk to dealers, their first answer is discounts, and that's not selling from strength. I think what we need is better infrastructure, and that's where all of This is failing in a sense because you can regulate what we build, you can't regulate what people buy. And the big projects like infrastructure that in the beginning are all cash out and then the return is over a long
period of time. That's kind of like building highways, and that's what the government should do, and they've really blown it on that.
From a personal perspective, when I was buying a car, it wasn't range anxiety, it wasn't charging anxiety. It was resale value anxiety, and the fact that it was probably going to plunge off a cliff if I got an electric vehicle, because right now it's not clear, especially with an eight year battery lifespan, how do you address that the fact that these cars are not as valuable when you resell them, and potentially there could be new technologies that come down the pike in that time.
Absolutely, and when you're buying electric cars that are probably more like tech products than they are normal cars, perhaps the ownership method's going to change and you may lease the car. You may be the first less see on the car. It may come back at the end of the lease and get a complete refitting and tech upgrade like an aircraft does, and then there'll be a second less see and you recondition the battery. So there's a lot of change coming in terms of how you do things.
And it might be that.
You don't own them. And in a sense, you don't own a car when you buy it. You only own the life of the car.
You know.
Jonesman on this point for a long time, and he's absolutely correct. It raises this question if policymakers have gotten it wrong, if basically the car makers were pushed into manufacturing vehicles where there wasn't the demand yet and it wasn't clear that that was the right pathway when there could have been better ways to get to a more efficient future.
Is that accurate?
Absolutely, we're being told what to make specifically, and there's many ways to skin that cat, so to speak. And if you talk to engine designers and emissions engineers, there are many things they can do to clean up the cars. And there's different technologies batteries. One, there's fuel cells and hydrogen. Fuel cells are really wonderful. Their emission is water and they're silent, and the question is where to get the hydrogen.
And I've worked on hydrogen cars for a long time and that infrastructure is even less mature than the battery charging infrastructure. So I tell everyone that I can find in the government. You need an Oppenheimer moment, and you need to one feel the crisis, and you need some leadership to manage the change.
The US government now has subsidies for the evs and then the EPA. Many people say, this's basically a mandate. These are the strongest pollution standards we've ever seen the United States. So what should have they done first? Because it seems like what you're saying is they got it backwards.
Yeah, well, there's a lot wrong with the regulation. And if you think about it, you've got three different groups regulating the auto industry, at least three at least from the emissions. You have a NITSO which is regulating CAFE, which is a fuel economy. You have EPA for exhaust gases. And then you have California steering from the back and they're requiring electric vehicles, and there's other states that jump on that rule and they're not doing anything about the infrastructure.
And the challenge you have is you've got too many sets of conflicting rules, and in the case of electric vehicles, the point is to reduce the CO two and CO two.
Is not a local problem.
When you fly over the country, you don't see the lines on the ground. It's a global problem. So California is a big EV market, you know what, like the number three and five are. It's Texas and Florida. They're not ZEV states. And my attitude is, well, let people buy them where they want to buy them, right now, and let's get the job done. So it's all automakers, the percentage of evs. You have to sell it for
the whole country. Don't create these silos and buckets. That's killing the industry and it's impossible to manage that.
By the administration has been very happy with the Inflation Reduction Act, able to get over the finish line. But Trump is threatening to ratchet back. How concerned are you about that?
Yeah, So someone asked me last night what's the biggest threat that I see in this business? And I said, it's an existential threat and they said, oh, it's a China something else said, No, that's that's competition, or okay with that, it's government policy and this whip sawing. We're making decisions that last thirty.
Or forty years.
When you build factories and establish supply chains and to have the government policy change from on off on off, it's nuts.
It's just nuts.
I means you need to be riddy in both. So can we talk about the EV plump in Georgia. Can you tell me whether that's going to be dedicated to the Baunttery pat vehicles or not.
How flexible would that plump be?
So that's a great question. The original concept is EVS and it also includes a battery plant. So because you always want to have the big heavy components right near the factory, it might be in the future because you always want that factory running full speed with everything you can do, it might be we also build other cars there.
Now.
We have another factory in West Georgia that's been around for a long time and we build tell your ide in Sorrento and other great cars there. One of the things that we've done is we made room and we're building EV nine there now. So and most of an electric vehicle is the same as internal combustion. At some point it goes this way or that way, and we're building EV nine. We're going to introduce it later this year. So it might be that we're going to balance the capacities with other products.
How easy is it to do that?
I've tried to get some information some county from GM and struggled, So maybe kick and help me out a little bit more to talkle between hybrids, evs, and total combustion engine vehicles in a single plant. How easy to tackle between the three?
The biggest hybrid vehicle isn't that different. So it has an engine, has a fuel tank, it also has a electric motor attached to the engine, and a battery pack. It's a smaller battery pack, and EV is a totally different beast because it's driven by electric motors at the wheels. So at some point when you're building the body and the car, it's either going to be born as an EV or born as internal combustion and that's where the difference is. So at some point on the line, you
go this way, you go that way. I think the biggest challenge is the supply chain because you have different parts, so you have to have different motors coming in and battery packs. But inside the factory you're either jacking up engines or you're jacking battery packs, and it's not that exciting.
When you talk about the supply chain. You mentioned this earlier. You don't worry about China, that's just competition. Do you think increasingly the gating off of different auto industries depending on the country is problematic for your business, even if it might benefit you in the short run in terms of restricting competition on the margins with certain areas.
Yeah, well you don't.
My background's in economics, actually, and you don't want to restrict competition because it breeds laziness and weakness. So competition is a good thing. You don't like it when somebody can beat you, and often you get beaten because the difference is between the nations and you just have to get better.
Steve, this was one of the most revealing conversations, honest conversations I've had about the automat because for a long long time, and appreciate the transparency the policymaker appears. It's put you in a very very complicated place, and we appreciate.
Your time this morning, sir. Thank you, my pleasure, Thank you, Steve.
Steve is sent to there of Kia America Max CEO. Robert Davis joins us now for more. Rob good morning to you, very good morning. Can we talk about that approval yesterday, how much of a breakthrough.
Well, you know, this is really, we think something special. The disease we are hopefully able now to really make a difference in is pulmonary arterial hypertension. And this is a rare disease. It's not a well known disease, but it's a devastating disease.
You know, this is a disease that.
Primarily affects women in the prime of life age thirty to sixty. Mortality rates of forty three percent in five years, so you can imagine in pack not only to the patient, but to the family of people who otherwise are in the prime of life. Is really tragic, thankfully, and hopefully we'll make a difference in that. This drug now we're bringing forward, it's called wind Revere, is a biologic. It's a first in class medicine. It's a new mechanism of
action called an active and signaling inhibitor. And what it actually does is potentially remodels the blood vessels, your arterior vessels, that allows them.
To open up.
Because what pH does it causes your blood vessels and your lungs to thicken and narrow, which ultimately leads to heart disease.
How often do you take this? Every three weeks? How does this work?
Yeah, so it's a three week subcutaneous injection. Can be done by the patient or caregiver, and so this would be something you would administer we expect most people do in home.
I wish we could go into a whole segment about how you come up with these names when vera key trutou We can do that another time. You want to get a sense though, that this whole idea of how you got into this through an acquisition to partner with someone, and then what the importance is of looking beyond some of the mainstays like cancer, is sort of that diversity that we were just hearing about.
Yeah, well, you know, obviously we are a science led, science driven company, and this came about because we were already starting to look into this space. So our cardiovascular
teams within MERK we're doing work in this space. When they saw the data from a company called Acceleron that had this asset, they came to me and said, you know, we're excited this can be a difference maker, and that's why we moved on this and it really now is a foundational element in our broader cardiovascular and cardio metabolic portfolio.
So it is one where we see the value diversification. Obviously, we're a leader in oncology, we're a leader in vaccines, We're increasingly moving into immunology, and this move into cardiometabolic space, which is significant for us.
There are a lot of people who are listening who invest increasingly in healthcare, and all they want to hear about.
Is what's your solution for weight loss?
Because that's really the.
Reason why so many people have gone into the healthcare stocks and into the industry.
You are working on a.
GLP one type of drug, but it's not for weight loss, it's for fatty liver. Why are you approaching this differently and not necessarily directed at the weight loss itself and more on some of the illness that potentially some of the some of it can cause.
Yeah, well, so the mechanism you're talking about, we have a GLP one glucagon dual agonist, and this is important because while it brings weight loss benefits frankly similar to what you'd see with the zepic, our primary focus, as you point out, is fatty liver disease, which is a really an untreated area today, and our view of this space is obesity is important, but increasingly it's the cool mobidities around obesity. It's you know, it's heart disease, it's diabetes,
it's liver disease. And so if we can affect those and bring outcomes that benefit patients clinically, there they get the weight benefit. But then as you think about reimbursement, as you think about value, that's where the value comes to society because actually we're making people more healthy than.
Just losing weight.
Is this mostly a coverage play? Essentially, it's easier for this to get reimbursed and ensured. And that's one reason why if you gear it as some of the illnesses, you won't have to get into the whole debate that's percolating elsewhere.
Yeah.
Well, again from a Mirkent perspective, it starts with the patient at the center, so we see this as a disease that needs to be dealt with. But yes, I think the benefit of this is if you can show outcome, if you can show that there's something beyond just a weight loss than your ability to be and reimbursed and the ability to show value to society is different.
It will be different.
But to your point, if obesity leads to so many other health issues, at some point, will insurance government even be able to put this under their plans.
We would expect so, yes, for sure, and I think you're already starting to see that start to shift. And it will be the outcomes driven approaches that drive that, for sure.
We started this conversation by talking about this new drug that you've developed, got approval, stock runaway high. Yesterday I was going through the cost, so the cost could be about two hundred and forty two thousand dollars a year. I've always struggled with this and I want you to explain to me why is it so much more expensive in America compared to say, the prices that I see for drugs abroad in Europe in the UK. What explains that difference?
Yeah, Well, you know, it's hard to do in apples to apples comparison. If you look at what drugs are as a percentage of total health care spend in the United States, they run about fourteen to fifteen percent. If you look across Europe, for instance, it's about the same. It's about twelve to thirteen percent. So the reality of it is that healthcare as a total area, not just drugs, in the United States is more expensive. The percentage of cost of drugs in the United States is equal to
what it is outside the United States. So it's hard to just take one element of the healthcare system and say, let's focus on it, not understanding the broader questions. You know, if you're in the United States, the thing we benefit from you get the fastest access, You get the most access to the most innovative medicine, driven by an industry that is based here in the United States and exports to the world. You know, so we need to look at the totality of what we see as really three elements.
You have to think about access, affordability, but then also making sure you're protecting the innovation ecosystem that we value in this country.
Rub we appreciate the breakthrough, that's for sure. In the last twenty four hours of major breakthrough. Thank you very much for being with us. Robert Davis there the merc CEO. This is the Bloomberg Sevenants podcast, bringing you the best in markets, economics, angio politics. You can watch the show live on Bloomberg TV weekday mornings from six am to
nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business apps