Bloomberg Markets Full Show (05/09/2022)
From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. It is 30 minutes into the US trading day it is Monday May 9th here the top market stories that we are following for you at this hour. The S&P is tipping point. Equity markets slamming approaching that 4000 mark. Would this trigger a mass exodus from equities or in a break down the technicals investors flee some stocks and dollar dominance. Dollar jumping in safe haven of choice. While Atlanta Fed President Rafael Bostic backs up the Fed chair advocating for just 50 basis point rate increases insurance headache all state bets on higher rates to customers as inflation hurts earnings. We're going to speak to the CEO Tom Wilson from New York. I'm Alix Steel and my co-host in London Guy Johnson. Welcome to Bloomberg Markets. It is a pleasure to
be back guy. It's been 15 very long weeks and it is very good to see you. It is fantastic to see you. You have been missed. Every day we played the opening sequence we just saw Guy Johnson Alix Steel. So you've been in our thoughts every day Alex. And it is so fantastic to have you back. And we've got so much to talk about your journey I think over those last 15 weeks. We've got to talk about the details in just a moment folks. I think there's lessons in all of this for all of us. So it is. It is. Let me just say for the whole team from everybody it is great to have you back. And we're going to look after you and make sure that your transition back into work is
as easy as possible. So let's get on with that work and talk a little bit about what is happening today. We've got data that is breaking. We've got it. We're gonna go to Alex's story in the next block and talk more about it because I think actually what Alex has been through is relevant to what is happening in the U.S. labor market right now in particular and for the whole of society. So let's talk about the data we're getting right now. Wholesale inventories month on month two point three being in line with expectations. The trade sales number one point seven companies Alex are continuing to build inventories understandably considering the problems we continue to have with the trade story around the world. So that's the data right now.
But markets firmly in focus. Yeah. And all of that really leading to the question of the day. What's below 4000 for the S&P 500. What kind of washout are we going to see if we break below that. Katie Stockton is founder and managing partner is a fairly and strategies me kind of want to get the technical take about Katie if you bought below 4000. What's next. Right Alix Steel welcome back to you. And essentially we have already seen a breakdown by the S&P 500 index and the level that
I was watching was actually forty two hundred. So 4000 to me is basically a foregone conclusion at this point. The 40 200 level was based on three different technical factors one being a Fibonacci retracement level. And those are very common ways to discern support. It's on the charts now unfortunately with this confirmed breakdown that we received for IBEX. Hundred. The
support level based on those same Fibonacci retracement is roughly thirty eight fifteen. And we use support levels as a gauge of downside risk. Now they're not really predictive in a way but they do show an area of potential buying pressure in a chart. So we believe that with the breakdown that it does increase risk perhaps to that 38 15. But along the way we'll always be looking for signs of downside exhaustion that are more than just short term in nature.
Michael Hartnett Casey over at Bank of America says the average in for most people since the start of 2020 what is 40 to 74 and you get below 4000 on a track. Door opens I hear what you're saying about the fact that actually the key levels are already broken. But how significant is 4000 to a lot of people out there. A lot of people obviously. But this lock it up a long way. Dipping below 4000 could be a big line in the sand for them. Yeah. I mean it's a round number right. And anything that has that kind of influence on market sentiment it is a big deal just
by the nature of that just being around number and in the same way in a 10 year Treasury yields clearing 3 percent. These are all big hurdles on the charts. And when you take a step back and you look at the S&P 500 index for one with four thousand forty two hundred whatever it may be being taken out it starts to look like a top information. We'd like to call it a head and shoulders. And it's a pretty common technical term. And essentially it's just showing a lower high that's reflecting that a loss of long term upside momentum. So that's something that's not new to the market. At the break down of course happens after you've already seen that loss of momentum. That is pretty meaningful. We actually started to see it late last year
in our indicators. If you look at the monthly bar charts we had things from an overbought oversold perspective that started to flash sell signals. And then also we saw this downtick in momentum that still of course is with the market. So momentum right now is unfortunately to the downside across timeframes. We would expect it to ultimately improve short term. And yet what we're seeing in the market right now is a non reaction to oversold conditions and we take issue with that. That does reflect usually a down trending market. So we're going to assume that this downtrend is going to keep pulled in the coming months. So does that mean that any kind of rally you want to be selling reps at any point in any asset
that we've been recommending that folks be hedged from a top down perspective. What you do see when the market's going lower is at most everything participates in the downside. There's very very few places to hide. So we're encouraging people to sell strength just like you say and especially to stocks that have broken support levels of their own of which there are many in fact about a review of the S&P 500. We found that about 70 percent of the stocks in the S&P 500 had downside intermediate term momentum. It's pretty high. And of course that just makes it so much harder to take advantage of any upside. It just means
that a lot of these stocks are trending lower. So any time that someone's putting on a long position it is effectively counter trend. Of course we don't want to have to sell everything. So keeping some core exposure is usually the right thing to do. But then you can manage around that by being on these hedges. Can you talk to me about the NASDAQ 20 percent down already plus
it's already in a bear market. How different does the picture look if at all. It's really quite similar. But what I would suspect is that the Nasdaq 100 index would underperform with additional downside in the same way that it has done recently. And I say that in part because we believe that the mega caps really they haven't fallen terribly out of favor collectively especially with the help of Apple which has been a relative sort of outperform or I would say and with apples apples or cracks. That's obviously going to have a bigger negative impact on the NASDAQ 100 than the S&P 500
given its footprint in Apple. So we also are watching the support levels there. So with the 13000 area having been taken out decisively the next support area for the Nasdaq 100 is roughly another 18 to 20 percent lower. So we're watching ten thousand six hundred. It doesn't mean that it will see that kind of downside follow through. But it does hint at greater risk. So talk about relative outperformance. That brings me to value. And I wonder when you look at the charts how much can value outperform growth but not air quotes on all of that. We are always looking for relative performance too and we would
expect value to outperform in a more defensive tape. Typically we like to have exposure to defensive sectors that's overweight in this kind of environment. And while still reducing overall equity exposure period. So with the value orientation of some in these more defensive sectors in sectors like financials which couldn't have been considered as a stretch say as technology which of course is more heavy in growth those areas of the market should outperform. Katie what's the canary in the coal mine for you right now. Where are you looking for a lead indicator.
Oh gosh. Well there's a lot of things I wish there was a simple answer to that but what we tend to look for in terms of identifying tradable low would be first number one support discovery looking for momentum to start to shift. It doesn't have to shift fully but some early indications of that. Sometimes that appears in the charts in positive divergences in the indicators. So let's say we see a higher load an indicator that we're tracking as price is finding its footing. So that's a type of thing that we look for. We look for oversold by signals. We look for loss of downside momentum generally speaking. And then things like on a short term basis like outside update. So you can see it's a combination of factors that we're looking for
to suggest that a low is in place and usually those lows are put when sentiment is just awful. And I have to say it as much as you'll feel the pain of the recent market sentiment at least by transactional measures is not quite as bearish as you'd expect it would be. OK. I hear that. That's not how it feels. But yeah I hear what you're saying. Feels like it feels like a pretty rough type out there at the moment Katie. But maybe there's worse still to come. It was nice to get some good news on a Monday. Katie Stockton great to catch up. Really appreciate the time. Katie soaked in a fairly strategy founder and managing partner over there as we speak. The S&P just dipping a little bit further 40 41. Obviously we continue to watch that 4000 mark that Casey kind of taking us
away from that a little bit. OK. What we got coming up. More signs. That's where our at risk of a bear market in hot. It's absolute strategy. Research chief investment strategist is going to be joining us next. It's going to be fascinating to hear he was how he is viewing this market. Well down downside to come. We'll find out next. This is Bloomberg. Welcome to Bloomberg Markets. If you've been keeping score it has been 15 weeks since I have sat in this anchor chair and the markets have moved insanely quickly over those last 15 weeks. Guy I wanted to pull those little comparison here that show
where the S&P the dollar the 10 year in oil were on my last day in the office versus where they are now. I cannot believe that I missed a 30 percent plus move in the oil market. I have to say so Alex. Commodities have been front and center so you definitely mixed missed out on what has been an incredible story. We think that every day we have talks about commodities and it's it has been it has been a wild ride. Kailey Leinz I know is watching. I sat in that chair for a while while he's been away keeping it warm and huge thanks to her. But what what she has said on at the beginning of every month is and she said
it again at the beginning of this month is I can't quite make up my mind whether or not I'm saying I can't quite believe it's may I. We're already sort of so far through the year or I can't quite believe it's only May because it has been an incredibly bumpy ride since the start of the year. Every day has just felt like you being whipsawed. I think we've all got stiff next basically from the start of the year and I feel exactly the same way even though my journey has been a bit different. I just want
to sort of fill in our viewers a little bit about what's been going on with me. I am triple DAX with the Cohen vaccine. I did get Covid at the end of January when my daughter brought it home from school. And since then I've been dealing with severe brain fog and fatigue. So it has really taken a village to get me back in this seat today. And I deeply thank my team and guy for being
so supportive. It is a war. It's a long road and it's still a work in progress. I'm still not 100 percent I don't know what's going to be like in 10 minutes. Don't know what I'll be like tomorrow. But I really do appreciate the support. And Guy what has made me think a lot about and I mean this sincerely as I work in a company that has incredibly supportive staff and who have been incredibly supportive policies and there are a lot of people that don't. And there have to be millions of people dealing with this. And I tell you it is severely debilitating. And I just really have to wonder what this economy and labor
market is going to look like in five or 10 years when people really come to terms with what the long term effects are from Covid. Well I think we saw that on Friday Alex. Everybody was expecting the participation number to go up. It is not people are not coming back to the labor market. In fact the question I posed Friday is where is everybody. Why are people not coming back into the labor market. And I think what you just laid out just encapsulate some of the problems and the experiences and the difficulties that people are having right now. They're either looking after somebody that is that has had Covid got long Covid got medical issues stemming from Covid or they're worried about putting themselves in a position where they may catch it. And you saw the debates over the weekend between Anthony Fancy and the White House and what was going on there
about what happened at the correspondents dinner. Thousands of people getting together. The possibility of big numbers still further down the road cannot be ignored. So I think a lot of people are still very nervous. And I think that's keeping a lot of people out of the labor market right now. So I think to your point the long term effect is going to be multipronged. I'm
going to have to think about it from lots of different angles. And talking about one of them that's the medium term any long term outlook really. And the day to day is still just as volatile for me and for the markets. Which brings us back to the question of the day. What's below 4000 for the S&P. Well in Harnett absolute strategy research chief investment strategist joins us now. Onset which is a very good and well-deserved surprise for me in what is below 4000. Well first of all it's a pleasure to be your first guest on onset Alex and it's always a pleasure to work with you and Guy. So you know I think we're
absolutely crucial point now. Your previous guest was talking about some of the short term technical points. But if you go down to the next technical point it has been such a nice run up the 200 day moving averages right the way down around the three thousand five hundred area. So you know that is the kind of risk that we've got here. And one of the things I was looking at this morning is that you know people are saying oh well after this kind of color correction that we've had 16 percent down from the peak. Surely this is a buying opportunity already but have a look at equities vs. bonds in the last three months. Equities are still up relative to bonds or pretty flat relative to bonds in the last three months. The real buying opportunities come when we're much lower than that. And so our models are still saying that this is a bear market signal for equities vs. bonds and we want to stay out of it. And potentially either those bond yields have to come down a long way or the equity market
probably will test that three thousand five hundred level. And that's a pretty shocking number. Ian great to see you and thanks for joining us in New York. What do you think about cash right now. A lot of people keep telling me that you don't want to be in cash because you're taking the inflation hit. But what you're not doing is doing is taking the absolute hit of being in the market. And this is what I really don't understand about this whole argument. If I stay in the market and I stay invested and I stay broadly invested I'm going to see a relative hit from inflation and I'm going to see an absolute hit because the market is going to be declining. Do you just want to be in cash guy. You're absolutely right. You know
so cash has an attraction all of its own in that kind of environment in this kind of environment. You can see what you've lost against the bond market. You know in the bond market and in the equity market. So you know we've been overweight cash in our portfolio that we've been recommending to clients and also overweight alternative assets like commodities generally although I'm beginning to get very concerned about that. I'd prefer to be in real estate rather than than commodities on the industrial side of real estate. But yeah cash has a real attraction at this stage given what we're concerned about. But we'd say it's actually now time to get back into bonds with those treasury yields right back over 3 percent. You know I
think there's real attraction in the bond market particularly if as we think economic growth is going to go from a synchronized global slowdown to a recession and we are going to see break evens coming down aggressively as earnings get crunched in the next six months. I mean I've heard that too. Are you seeing Bond ETF start to attract some kind of hedging flow due to that. So where do you do what you do with the dollar then. Well I think that one of the issues for the global economy here Alex and one of the reasons why we worry that this is a global slowdown is that dollar strength all the while the US continues to grow faster than the rest of the world. The upward bias for the dollar is there. So we think the dollar still got further upside. But that's one of the problems that causes issues for the global economy. And one of the things that causes problems for those earnings outlook. So I'd still stay long the dollar. I'd still be very nervous therefore about international markets
and about E.M. particularly if it's still too early to buy those emerging market equities. Let's take you back to the bull market for a second and just talk about the different durations that are on offer here. If if we are going to get the inflation data later this week Germany from the US if we get in their peak inflation if bonds are starting to look attractive which bonds in particular do I want to be for instance buying the front end. Because actually then maybe that moves gone too far and selling the selling duration. How do I want to play that from a curve point of view. So I
think the bottom line is that we think the whole curve is going to come down here guy. Have you've got a situation where economic growth coming down is going to see and argue. We think that people's expectations of the Fed futures have gone too far. It's interesting illustrative that I think over the weekend we haven't really seen much change even though the 30 year picked up quite a long way. But you know at the end of the day you're going to see duration went out. If you break evens come down. If oil prices come down commodity prices come down as we anticipate then you aren't going to see that back end of the curve come down as well. I think the other thing that I would say is that some of our models are painting an awful picture for the eurozone. We're talking about earnings growth down in the eurozone 20 percent year on year. And I think budgets are a great buy here. So that's going to be another area that we'd be looking at aggressively.
In great to catch up great to see you in New York. Thank you very much indeed for spending some time with us in Holland. Absolute strategy research chief investment strategist. OK let's turn our attention to what is happening with geopolitics. Vladimir Putin invoking the World War to fight against Nazi Germany to justify the invasion of Ukraine. We're gonna break that down next. This is Bloomberg.
So the Russian president Vladimir Putin tried to justify his faltering invasion of Ukraine a little earlier as a battle comparable to the fight against Nazi Germany. He spoke at the annual Victory Day celebration in Red Square which marks the defeat of Germany in 1945. It does not yet still NASDAQ need. Countries didn't want to listen to us and in fact would would. They had completely different plans and we can see it today and be openly prepared.
The operation in Donbas and the invasion of its historical aren't including Crimea. He talks a lot about the Donbass region. Obviously that is where the heaviest fighting is right now. Joining us now to discuss Bloomberg's Washington correspondent Annmarie Horden Amiri. He didn't label it as a war which a lot of people are citing as being significant. If he had done it would have led to a mass mobilization. It was a more subdued speech the many had
anticipated. How is it being received in D.C.. Yes certainly more subdued. I mean many thought as you say guy he was going to label this a war. There could've been a mass mobilization. He didn't even mention the country Ukraine. And it does look like he is really trying to focus and laser focus in on the Donbass region. We should note that this 10 weeks of this invasion Russia still has not been able to fully capture a single city. Their biggest triumph is Mariupol. And yet it is
still not fully in Russian hands. So what you saw from President Vladimir Putin is a very different speech than what he would have likely wanted to give pre invasion which when he thought it was going to be a very swift capture of Ukraine. But we should note this is a really important day for not just Putin but the Russian people. And they celebrated every year and they market every year because. Twenty seven million Soviets died during World War Two. And he's using this rhetoric to try to make this comparison which we know is not true. Between World War Two and what is going on in Ukraine.
And as President Zelinsky made clear in his address today many of those were Ukrainians Amari. The view from Washington increasingly feels like it's we need to degrade Russia's war machine. So not only can they not fight in Ukraine but they can't fight elsewhere. He just took me to have that is taking shape. Well we heard as well from the deputy treasury secretary this morning basically saying just that they're going after the infrastructure of not just the entire economy to fund the war but also the military and making sure that there's export controls on technology and the likes and things that Russia would continuously need guy to continue this or potentially invade other countries. Absolutely. We'll talk more about this in the next hour Annmarie Horden. Joining us from the White House thank you very much indeed. Right. Coming up Atlanta Fed President Rafael Bostic says half
point hikes are already pretty aggressive. We'll talk about that next. This is Bloomberg. We're an hour into the US trading session and it is getting very ugly we're now down by about 90 points for the S&P. Christie Gupta Bloomberg is here tracking some of those moves. Hey Kristie. Yeah Ali we'll talk about the sea of red that we're seeing selling. It's indiscriminate but there is some nuances. I really want to point to a point too. Out to our audience here. And that of course is the energy index down almost 5 percent on this day. Remember energy has kind of been this inflation hedge
this defensive trade to some extent what tech used to be for a post pandemic. And now you're actually seeing that trade flipped a little bit. So the net or the information technology index for example which has really been leading the decline over the last couple of weeks it's actually outperforming to some extent. The energy index that's going to be something to keep in mind. Let's take a look at what sectors are actually officially in bear market. Now as we see the Nasdaq 25 percent lower from its high but that isn't the case for all of the sectors. You of course see the S&P 500 down 50 percent of its members down 20 percent.
But if you look at energy utilities staples the outperformance lately we're not quite there yet. Perhaps that's why the energy sector is actually underperforming today. Remember a lot of traders are saying this isn't a question about fundamentals driving the selling. It's about just returning to normal valuations. One trader told me for example the S&P 500 now will likely go back to trading to sick a 16 or 18 P E multiple instead of the 20 to 21. And that might actually be a driver. For more selling this talk about what's actually doing well today. And that of course is the dollar green on the screen the dollar's strength continues. But the problem here is does that make the stock market that we were just talking about a little
less accessible for foreigners. That's got to be something we're really gonna be watching. Guy. Yeah and really expensive for me to come to New York City thinking very much indeed. Pretty good sir. On what is happening with the markets. The S&P 31 points now away from the 4000 mark. The Federal Reserve Bank of Atlanta is president. Rafael Bostic says inflation is still too high. And the Fed needs to act decisively to take control of that narrative. But he makes it
clear that there are limits to what the Fed is prepared to do here. Raphael Bostic spoke in an exclusive interview a little earlier with Bloomberg's Mike NIKKEI. When I think about our policy the first thing that is on my mind is that inflation is too high and we need to act definitively and purposefully to try to get that under control. I think if you look at what we what we've done so far in the last two meetings that have really started that process for me 50 50 basis points from now over the last 20 years you know is already a pretty aggressive move. I don't think we need to be moving even more aggressively. I think we can stay at this at this pace and this cadence and really see how the markets evolve. My
expectation and hope really is that as we move closer to our neutral levels and far away from our accommodative stance that we're gonna start to see a lot of the tightness and attention the economy start to moderate which can then give us options and choices as to sort of what we do. After that point how far do you go. Where do you think you'll be by say the end of the year by the end of 2023. Well you know that's a very good question. I really think we need to be getting somewhere into the neutral range. And as you know different people have different ideas about what that looks like for me. I'm looking at somewhere
between two and two and a half percent as our neutral range. And then we can then let's just wait and seeing what's happening in the intro to the segment. A lot of discussions about uncertainty or the Seth Carpenter reference reference. He's gonna be here. I'm really excited about that saying that there's a lot of volatility a lot of stuff that's going to play out. So once we
get to that neutral level I think that'll be fine. We're gonna be in my view we're going gonna move a couple of times maybe two maybe three times see what happens. See how the economy responds to see if inflation continues to move closer to our 2 percent target. And then we can really take a pause I think and look at how things are going. Well take a pause. What does that mean. Not move at a meeting or would just be just a rolling decision as you go along. So for me I think all options are on the table
at every meeting. So depending on how the economy is responding it could be that the economy is running strongly. So we don't need to do anything. It could be that the economy is responding maybe a little less strong. So we might move to 25 basis points or we may stay at 50. So I'm really going to keep my my mind open. I'm going to observe what happens in the economy and then adapt my idea about what appropriate policy looks like based on a lot of economists and many of your colleagues have said you're going to have to go beyond neutral too restrictive. If you had a 4 percent inflation rate and a 3 percent Fed funds rate you've still got a negative real Fed funds rate. Why don't you think that you're gonna have to do that. Well my hope is that a lot of the things that are really out of our control things like supply chain disruptions and the like are going to start to get to a better place. We're going to see how the labor market responds. There's there was a story just last week about retirees coming
back into the workplace. Those are things that might relieve some of the tension that we're seeing in labor markets and allow producers to start to increase the supply. There's a supply of products that then reduces the imbalance between demand and supply because all of this inflation is about an imbalance between the high demand and the low supply that's out there. So if we can start to see moving on the supply side that means we'll have to push less on demand. And so that inflation I'm hoping will come down. Now how fast we'll have to see. And that will really determine whether we have to get into restrictive territory. And if we do how far. But I'm totally open to that. But you know I'll just say we've been doing surveys throughout
the entire pandemic. Every one has come with predictions that turned out not to be the case. So I'm trying to be as humble as I can be really just true to being in the moment and trying not to anticipate too many steps out in advance because there's just a lot of stuff that's going to happen. As the land of Fed President Raphael Bostic speaking to Bloomberg's Michael McKee Might joins us now. Mike I come back. You go to Florida without a tie. I don't really know what's
happening anymore. But I want to focus on what Bostick was saying about the neutral rate. In some ways his neutral rate target is lower than the markets. And I guess my question is how much higher is the Fed going to have to go above neutral and how quickly. While there is a lot of dispute about that Alex I might mention that Rafael Bostic himself told me not to wear a tie. So I do what the host says. But we were out at the Hoover conference last late last week and the consensus there seemed to be you're going to have to go above three maybe to four. And of course you've got the outliers like Larry Summers who's saying five or six percent because you need
to get real rates up. And if you have four percent inflation by the end of the year as the Fed forecasts and you have the Fed at two to two and a half percent you still got negative Fed funds real rates. So they're probably going to have to go farther than they anticipate but they'll be keeping an eye on all the numbers that come out. We do get CPI on Wednesday PPA on Thursday import prices Friday this week. And also Friday we get the University of Michigan numbers on what Americans think inflation is going to be. So there's going to be a lot of debate over the next couple of days and a lot of volatility in the markets as people try to figure out just how hard they're going to have to hit it. Mike could you talk a bit about that inflation number and maybe
get a sense of where Bostic kind of feels we're going here. Just mechanically it's likely that we're gonna start to see inflation coming back down again. The question is how quickly does it come back down again and to what level. And is there a sense that the Fed as to whether or not what is currently priced into the markets is going to be enough to bring us down to Target. I don't know where the Fed wants to go on inflation. I'm assuming its target but I don't know. Well there's kind of two ways to look at that. One is that Bostic thinks that if nothing changes we're going to be seeing
inflation come down not just mechanically but because some of the things that went up during the pandemic are going to be coming down again. We're already seeing that with used car prices at the same time. There's so much unknown out there. And he like other Fed members is emphasizing that if we see energy prices rise significantly now from where we even are at the moment then you're going to have a problem with inflation that then could get into the core rate. If diesel prices continue to rise then that's going to raise shipping costs and that'll flow into the economy. So there's a lot they don't know at this point. And they're they can only kind of make the policy or decide where they are by looking at where they are at the
moment. And it's kind of hard to know what's going to be happening down the line. California than Florida might Mickey getting all the great gigs. Mike thank you very much indeed. Bloomberg's Mike McKee. Okay Mike we'll have another exclusive interview coming up. They just keep on coming. Cleveland Fed President Loretta Mestre is going to be talking to Mike. Really looking forward to that conversation as well. Coming up we're going to turn our attention to what this all means. Insurance to combat inflation gives car prices are higher. You
want to fix a car it's more expensive. The whole range of factors in the mix here. We're going to talk to the company's CEO Tom Wilson. That conversation next. This is Bloomberg. This is Bloomberg Markets farmers could get to you're looking at a live shot of the principal room coming up Terry spot the seam a while. Founder and CIO joining Bloomberg Television 330 p.m. New York time. This is Glenn Beck.
Keeping you up to date with news from around the world is the first word answers you can get to the US government had a record taxable this spring and some of the credit goes to the surge in individual stock trading by Americans according to Treasury Department data tax collection since the start of the fiscal year in October running at a record high up some 43 percent over the same period in twenty nineteen. That surprised Wall Street and a shrinking the budget deficit. President Biden will give a speech Tuesday on his efforts to fight inflation. Rising prices are threatening the Democrats already slim chances of holding onto Congress after the midterm elections.
The president will draw a contrast between his proposals and a plan by Florida Senator Rick Scott to raise taxes and let Social Security and Medicare expire. Open 24 hours a day on our Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than 120 countries on which you can get to. This is big day. Thanks very much indeed. Let's turn our attention to the insurance industry. All states reporting first quarter earnings that missed estimates. The insurance company I did find is in inflation basically as
the main culprit. There will be more accidents apparently as well. But the main problem here is that used car prices are very high. And if you want to fix a car parts are very expensive as well. As a result of which the company posted a combined ratio which is a key measure for the insurance industry north of 100 coming through at 102. Joining us now is Allstate CEO Tom Wilson. Tom great to see you on the program today. What we're all trying to understand right now is how long does the current state of affairs last for. How long do car prices stay high. How long the parts stay high. You obviously got a huge vested interest in this.
What can you tell us about what you see coming next. Well good morning guy. Alex nice to see you back on in the game. We think inflation is going to stay for a while. So we've had to adapt. So we both reduce our expenses raise prices and change the way we invest. But I'd like to think of inflation. It's almost like the pig going through a python near the pythons. The economy it swallows a pig takes a long time for it to get through there. So as you point out what happened you get chip shortages. There's new cars not as many new cars being built. A lot of money in the economy used car prices are up 40 percent
and then it costs more to fix them. And then so we have to raise our prices. Same thing happens to housing. Same thing happens to oil. And next thing you know people are increasing their wages because they don't have enough money to live on. So we think it takes a while to go through the economy. Tom great to see you. Also that analogy probably made my day. The pig in the python. So I guess the question is how high do you have to increase your rates to offset this sort of slow moving very large inflation impact. Well so far we're up six and a half percent in the last six months and we think we'll have to go up higher from there. And of course the reason is because if your car used to be worth twenty thousand dollars and now it's worth twenty eight thousand dollars and it gets wrecked. Do we need to fix it. We have to
charge more money. We have to pay more money to get it fixed. And we can't. We have to find a way to recover those costs. Do you think some of your competitors are going to continue to raise prices. I'm just wondering kind of how much switching you're going to see how competitive the market is in terms of people shopping around. People are shopping around for
everything right now Tom. It's grocery. It's gasoline. It's everything. How do you see that working out. I think well first everybody's got the same issue. Well all the auto insurers even the home insurers same thing not as bad as in cars but in auto mobiles. Prices are going up. Everybody's raising. People will shop more which is why we built what we call transformative growth which is really trying to build a digital insurer on top of what's an analog company that we digitize. So we're trying to reduce our expenses. We have a product called Mile ISE where if you don't drive much so if you
drive less than 10000 thousand miles you should be by mile wise. Pay for it by the mile not by the money. Tom I'd love you to put another hat on as well. You previously served on the board of the Chicago Fed. So I wonder if you could sort of conflate those two jobs. And when you're taking a look at demand destruction for example which is basically what the Fed has to see in order for inflation to come down from the CEO seat what's it going to take to get that kind of demand destruction when people stop buying used cars where they stop replacing old parts. Well it's going to take a while as I said I don't think this is the kind of thing we can expect. Two or three rate hikes in nine
months are going to make a difference. It's going to take a while for it to work through the economy. So I think you have to be patient. I think the markets have to be patient with it. And what you're seeing out of that of course is interest rates are gone way up which is why we changed our investing late last year. And you're seeing it in equity prices too as those two
things change. I think the economic activity will follow but it's going to take a time. It's not going to like they're not going to raise rates and people are going to stop investing in plants or stop buying goods. It'll take awhile. Can I just take you back to the kind of pay as you go model. Do you see any evidence that people are driving less because of high gasoline prices. A little bit. But first say why do people drive so. About a third of the time you drive into work a third of time you drive in to do errands. And about a third of the time you're driving for entertainment to go see friends go on a trip. That third category is guy impacted by higher prices annual higher gas
prices and that will come down. That said when we look at Miles in total we track about 26 million cars everyday. Miles in total are now at or above where they were pre pandemic. But it's changed the time of day. So you see less driving in commuting because people deciding commuting is overrated. But you see more in the last category. I think that will come down some in the next couple of months. Meaning is is definitely overrated in all of this. And you mentioned it earlier in terms of say the newer technology that you've been dealing with. I want to get your perspective then on how your workforce and your wages have kind of changed as we try and grapple with what the labor market is really going to look like in this time of higher inflation.
Well it's been a crazy couple of years right. So we started we had 80 percent of people in offices and 20 percent were remote. Today it's about still over 90 percent remote. We're getting more people back into the office. Not all of them want to commute in come into the office. So we're having to adapt and give employees choice. So we were one of the first companies to say look you can choose if you want to come in. You can come in. If you want to work permanently remotely you can do that. The
challenge for us will be Alex is making sure they're still feeling affiliated and they align with our purpose. So it's a little bit easier when you're doing culture in a physical place. And it's not because you got 10000 people in one building it's because you do in pods. So we're trying to figure out how do we collate collect and create these virtual pods that help people still feel affiliated with us. So that that'll bring turnover down and then we can continue to grow. Tom we really appreciate
your time today. Thank you very much for joining us. We look forward to the next time. Tom Wilson Allstate CEO thank you very much. All right. Coming up we're going to stay with the sell off here. The Nasdaq 100 really taken a nosedive here off by two and a half percent. Here's a review. And a big part of that is going to die at their lockup period for certain insiders and investors comes to an end. Details on that next. This is Bloomberg. Shares are revision tanking at some early stakeholders the electric pickup maker about to get their first chance to unload shares. All of that as the market continues to trade lower than NASDAQ. One hundred off by three percentage points. Here with
more is Bloomberg's at Ludlow Ed who is selling and right now. Yeah I mean reports over the weekend that Ford is selling a block of shares which is interesting right. Ford holds around 20 percent to 12 percent of review. And the stock we're trading at. Twenty four dollars a share. Way off from the post IPO high. So it's a really curious kind of time to sell. You know it seems
that they're selling a block reportedly of 8 million shares. They still have by my count. Ninety four million shares in their holdings selling at the bottom. Well maybe the bottom I maybe stock is well under water. Ed what kind of signal does this send. This is either an opportunity for the retail investors to buy the shares they could buy earlier or signal that those closest to the company has have doubts. Yeah. Look this is a stock that is sensitive to the all the things we're seeing in the broader selloff rate. Higher rates. It is a higher multiple stock. They've encountered supply chain
problems. They had earnings on Thursday that would give us a good lens into how they're managing that. And for the first guy you and I talked about this before investors have choice in this space. You know previously Tesla was the only game in town if you're an investor that believes in the long term energy transition story. Now you've got options. But as I said the timing is curious. You know we asked Amazon what they plan to do. They're another big shareholder. You know they declined to comment on whether they'll sell down their stake. But they said you know we're committed to at least working with Raytheon. And Amazon of course is a customer of Libyan. So it's a complicated stock story. Well the retail investor coming here that's another
question. So Ed I was doing a lot of prep last week like calls. The different analysts like OK what did I miss last 15 weeks. And so many of them said companies like this ribbon carbine etc. Do they go to zero. If you can't deliver any kind of actual free cash flow who's going to want to step in and buy it. What kind of conversations are you having in relation. Yeah no no. Look I
speak to a lot of existing shareholders. Revision has a balance sheet that most companies would be jealous of. Right. They've got the cash. They are now revenue generating. They are ramping up production. But the euphoria that we had post IPO reality set in. You know they scaled back full year production target to 25000 units from around 50000 units that the installed capacity of their factory gives them. They're struggling in the real world. And that's that's it. We're struggling with the nuts and bolts of making calls. I went to the factory Alex. I don't know if you saw that. It's real. It's real. There's stuff going on there. But the equity investors is taking a more skeptical view on this company.
Is there a signal to the rest. If you are looking at Revere do you look at Tesla and say there's an equal problem or do you look at Tesla and say these guys are going to be the winners in all of this. They are miles ahead of everybody else. How do you react from one to the other. Well first of all I mean the Tesla in terms of the stock story has not been immune to rising yields. Right. It's caught up in that rates higher multiple narrative. But it also has outdone itself during a pandemic
period. It circumvented the supply chain issues. That legacy auto in the newcomers Caribbean have frankly really struggled with its consistently beat expectations on the top and bottom line throughout this pandemic period. The stock has been under pressure. And so again IBEX is when you come in and buy at great stuff. Thank you very much indeed. Ed Ludlow joining us from San Francisco on the revision story. The S&P is now trading 14 19. This is Bloomberg.
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