Bloomberg Surveillance: Early Edition 07/20/2023
>> THIS IS BLOOMBERG SURVEILLANCE: EARLY EDITION WITH DANI BURGER AND KRITI GUPTA. >> IT IS 10:00 A.M. IN LONDON. TESLA SINKS AS ELON MUSK WARNS OF PROFITABILITY WHILE NETFLIX SLUMPS ON A DISAPPOINTING REVENUE FORECAST. THE YUAN RALLIES. OFFICIALS CONSIDERING MORTGAGE EASING IN CHINA'S BIGGEST CITIES. PRICES RISE FURTHER AFTER THEIR
BIGGEST SURGE IN A DECADE. RUSSIA MAKES THREATS AGAINST SHIPS SAILING TO UKRAINIAN PORTS. I AM DANI BURGER IN LONDON. SONALI BASAK IS IN NEW YORK. THE BANK EARNINGS ARE DONE BUT WE HAVE OTHER EARNINGS TO SORT THROUGH. SONALI: AND THE REST OF THE WEEK TO DO THAT. LET'S TAKE A LOOK AT THE U.S.
MARKETS FIRST. LOOKING AT SOME OF THE NEGATIVE DATA, WE HAVE S&P FUTURES DOWN SO FAR ON THE DAY AS WELL AS NASDAQ 100 FUTURES. WE WILL DIP INTO EARNINGS FROM SEMI CONDUCTOR MAKERS AS WELL AS TESLA AND NETFLIX DRAGGING THIS FUTURES DOWN A LITTLE HERE. WE ALSO WANT TO PAY ATTENTION TO THE U.S.-YEN CROSS. IT IS INTERESTING AFTER A BIT
OF STRENGTH HERE. WE ARE SEEING SOME WEAKNESS IN THE CROSS. I WANT TO POINT TO WEAK PRICES BECAUSE WE ARE SEEING MORE STRENGTH IN WHEAT.
RUSSIA SHOT A WARNING SHOT OVER SHIPS IN THE BLACK SEA RELATED TO GRAIN PRICES. IT WAS THE BIGGEST SURGE IN A DECADE AND WE ARE SEEING THAT HERE TODAY. DANI: IT IS NOT JUST WHEAT. WE ARE LOOKING AT COMMODITIES REBOUNDING AND GENERAL NOT JUST ON THAT RUSSIA STORY BUT ON CHINA SUPPORT. A COUPLE THINGS HAPPENING IN THE ASIA SESSION. THE STRONGEST FIX FOR THE YUAN THIS YEAR.
WE HAD SOME CAPITAL FUND CHANGES TO PROMOTE THAT AND OFFICIALS CONSIDERING MAKING THINGS MORE EASY TO OBTAIN A MORTGAGE IN A BIG CITY. YESTERDAY, THERE WAS A REPORT ABOUT SUPPORTING PRIVATE BUSINESSES. IT AS TO A COMMODITY RALLY -- ADDS TO A COMMODITY RALLY AND SUPPORTIVE COMMODITY CURRENCIES. HERE IS THE RUB. STOCKS IN CHINA DID NOT RALLY OFF THE BACK OF THIS. THE CSI ENDED THE SESSION LOWER. PERHAPS THERE IS SKEPTICISM AS
TO WHETHER THIS IS JUST A BAND-AID OR SOMETHING THAT DRIVES THE PICTURE. THE OTHER BAD THING WAS TSMC EARNINGS, BUT THAT TRANSLATED INTO ISSUES FOR THE EUROPE SESSION. LET ME SHOW YOU WHAT IS HAPPENING IN EUROPE BECAUSE TECHNOLOGY STOCKS ARE DRAGGING DOWN THE OVERALL INDEX. THE WORST PERFORMING SECTOR IS THE CHIP STOCKS, EVERYTHING THAT MIGHT MOVE ON THE FEAR THAT THE CUTS WILL MEAN BAD NEWS FOR EUROPE'S CHIP SECTOR AFTER THAT BLOWOUT NUMBER YESTERDAY, BUT TWO YEAR YIELDS CREEP HIGHER BUT BARELY. THEY ARE HOLDING ONTO THAT RALLY WE SAW YESTERDAY, BUT A LOT CAN CHANGE TODAY CONSIDERING THE EARNINGS NEWS.
SONALI: WE WILL TALK ABOUT TESLA , NOW LOWER IN PREMARKET TRADING . CEO ELON MUSK SAYING SACRIFICES WILL HELP FUTURE VALUATIONS. >> IT DOES MAKE SENSE TO SACRIFICE MARGINS IN FAVOR OF MAKING VEHICLES BECAUSE WE THINK IN THE NOT TOO DISTANT FUTURE THEY WILL HAVE A DRAMATIC VALUATION INCREASE.
THE TESLA FLEET VALUE INCREASE WILL BE THE SINGLE BIGGEST STEP CHANGE IN ASSET VALUE IN HISTORY. SONALI: OLIVER KROGH JOINS US NOW. WHAT DO WE CARE ABOUT WHEN WE LOOK AT THE TESLA EARNINGS TODAY? >> THIS IS COMING DOWN TO MARKET SALE AND MARGIN AND THE WAR BETWEEN THE TWO. THAT IS BEING WAGED IN PRICE CUTS FOR TESLA. THAT IS THE ONLY THING PEOPLE REALLY CARED ABOUT LOOKING AT THESE NUMBERS, THE PROFIT MARGIN. THE GROSS PROFIT MARGIN WAS A
MESS -- MISS. ELON MUSK LAST NIGHT SET HE IS WILLING TO BURN THAT EVEN FURTHER. HIS ATTITUDE TOWARD THE MARGIN IS, IF YOU'VE GOT THEM, SMOKE THEM. IS IT WORKING? THEY DELIVERED A RECORD NUMBER OF CARS IN THE SECOND QUARTER. THE MODEL Y WAS THE BEST SELLING MODEL IN EUROPE.
TESLA OUTSOLD NISSAN. THESE ARE ALL LOCAL PLAYERS IT IS BEATING. THERE ARE SOME CLOUDS ON THE OUTLOOK. THEY HAVE DEMAND THAT IS NOT WHERE IT USED TO BE. YOU ARE SEEING INVENTORIES COME
UP, SO THAT IS AN ISSUE FOR THEM GOING FORWARD. DANI: I JUST PULLED UP THE ONE YEAR CHART. AM I LOOKING AT THIS RIGHT, THAT THEY HAVE RALLIED 130% SO FAR THIS YEAR? OLIVER: WE LOST 1.4%, NOW 2.5%. THAT COULD BE A BIG DEAL, BUT WHO CARES? THERE'S A DEGREE TO WHICH IT DOES NOT MATTER THAT MUCH AND THERE ARE OTHER MILESTONES WHICH WE WATCHED WITH INTEREST, FOR INSTANCE FORD AND GM ADOPTING THE SORT OF TESLA STANDARD PLUG. IT SHOWS HOW FAR AHEAD THEY ARE
IN THE ECOSYSTEM AND THE CYBER TRUCK -- THERE ARE MEMORABLE MOMENTS IN TESLA HISTORY. THE 14 YEARS AGO WERE THEY DEMONSTRATE THE SHATTERPROOF GLASS THAT SHATTERS ON IMPACT TWICE WILL BE HARD TO FORGET AND THAT TRUCK WAS SUPPOSED TO BE DELIVERED TWO YEARS AGO. NOW WE HAVE THE FIRST ONE ROLLING OFF THE ASSEMBLY LINE IN TEXAS.
THIS IS ELON MUSK AT HIS BEST, BRINGING NEW HARDWARE TO MARKET. IT WILL BE STRANGE TO SEE THESE ON THE ROADS. DANI: ALSO DOING WHAT HE DOES BEST IN CREATING MEMES. THE IMAGE OF THE THING SHATTERING WILL LIVE ON IN INTERNET HISTORY. WE WILL GET YOU ONE ANALYSIS ON
TESLA RESULTS LATER THIS HOUR. THE OTHER BIG EARNINGS TO SORT THROUGH IS NETFLIX AFTER THE SHAMAN GIANT GAVE A DISAPPOINTING REVENUE FORECAST. THE CRACKDOWN ON PASSWORD SHARING AND YOU ADVERTISING ARE NOT DELIVERING GROWTH ANALYSTS EXPECTED. THE NETFLIX CFO TRIED TO REASSURE ANALYSTS ON THE EARNINGS CALL. >> ONLY A SMALL PERCENTAGE OF OUR MEMBERS ARE ON THE ADS TIER. NICE GROWTH, BUT STILL OFF A
SMALL BASE. IT IS GOING TO BUILD UP OVER MULTIPLE QUARTERS. DANI: WHAT DO YOU MAKE OF THE PRICE ACTION THIS MORNING? THEY DID ADD A SIGNIFICANTLY HIGHER AMOUNT OF SUBSCRIBERS THAN EXPECTED. >> THEY HAD A HUGE SUBSCRIBER INCREASE IN THE LAST QUARTER, BUT THEY HAVE HAD SLOWER THAN EXPECTED ABILITY TO GENERATE MORE REVENUE FROM THIS STRATEGY MET WHICH HAS INVOLVED CRACKING DOWN ON PASSWORD SHARING AND INTRODUCING THE AD FUNDED TIER. >> HOW DO WE EXPECT HOLLYWOOD STRIKES TO IMPACT THE BUSINESS? >> IT IS A MIXED BAG FOR NETFLIX. IT IS AFFECTING PRODUCTION OF HIT SHOW'S LIKE STRANGER THINGS, BUT IT HAS CUT PRODUCTION COSTS FOR THE COMPANY, SO THERE PROJECTING REDUCED COSTS THIS YEAR.
NETFLIX WILL SAY THEY HAVE THIS DEEP BACK CATALOG OF MOVIES AND SHOWS AND PRODUCE CONTENT INTERNATIONALLY SO THEY THINK THAT WILL MITIGATE THE IMPACT OF THE STRIKES. >> THANK YOU FOR THAT UPDATE. A CHIPMAKER POSTED A SMALLER THAN EXPECTED PROFIT DECLINE AFTER THE GLOBAL AI DEVELOPMENT BOOM OUTWEIGHS A PERSISTENT SLUMP IN SMARTPHONE DEMAND, THAT ASIA'S -- BUT ASIA'S MOST VALUABLE COMPANY SAYS -- I THOUGHT AI WAS SUPPOSED TO SAVE ALL THE CHIP COMPANIES. THIS DOES NOT LOOK GREAT. >> IT IS A REAL BOMBSHELL THEY GAVE US A FEW HOURS AGO WHEN THEY SAID SALES WILL DROP 10% THIS YEAR. PREVIOUSLY THEY SAID THE LOWS SEVERAL DIGITS.
AI IS GIVING THEM A BOOST, BUT EVEN THE CATEGORY OF AI IS SOFT RIGHT NOW. SO FOR THE WHOLE YEAR, SMARTPHONES ARE THE PROBLEM BUT AI IS NOT ENOUGH TO FILL THE GAP. IF WE LOOK AT THE NUMBERS TSMC'S INVENTORY HAS RISEN.
CHIPS GO BAD, SO TO SPEAK, QUICKLY BECAUSE IT IS A TIME SENSITIVE SECTOR. YOU DON'T WANT OLD SHIPS SITTING ON THE SHELVES BECAUSE NO ONE WILL WANT THEM IN SIX MONTHS. IT IS A BIG PROBLEM FOR THE GLOBAL ECONOMY BECAUSE EVERYBODY USES PRODUCTS THEY MAKE AND PEOPLE ARE NOT BUYING CHIPS IT MEANS THE WHOLE ECONOMY IS SLOWING AND LOOKING WEAK. APPLE DOES NOT WANT TO BUY LAST YEAR'S CHIPS. THEY WANT THE LATEST CHIPS THAT THEY DESIGNED AND ARE GETTING TSMC TO MAKE. THE HIGH INVENTORY AND WORSE THAN EXPECTED OUTLOOK IS WEIGHING NOT JUST ON TSMC BUT A BROAD SECTOR OF THE ECONOMY.
>> PUT INTO CONTEXT WHAT IT MEANS FOR TSMC TO DELAY THE OUTPUT FROM THE PLANT IN ARIZONA. TIM: THAT IS THE OTHER BIG BOMBSHELL TODAY. THE CHAIRMAN TOLD OUR INVESTORS TODAY THEY ARE FACING PROBLEMS GETTING SKILLED LABOR AT THAT ARIZONA SITE OUTSIDE PHOENIX.
YOU NEED A SPECIAL TYPE OF WORKER WITH EXPERIENCE IN HANDLING AND INSTALLING SENSITIVE CHIPMAKING EQUIPMENT. THEY HAVE BEEN TRYING TO GET THE RIGHT KIND OF PEOPLE TO DO IT. THEY BASICALLY SAID WE WILL HAVE TO BRING OUR OWN PEOPLE IN FROM TAIWAN. THEY WILL FLY AND PEOPLE FROM TAIWAN TO ARIZONA TO LIVE THERE FOR A TEMPORARY PERIOD TO BASICALLY GET THAT JOB DONE. BECAUSE OF THAT, THEY HAVE
PUSHED BACK AS MUCH AS A YEAR THE OPENING OF THE FACTORY. THE FACTORY WAS SUPPOSED TO GET GOING NEXT YEAR BUT A DELAY OF UP TO A YEAR SAYS A LOT FOR THE U.S. ABOUT THE SKILL SHORTAGE THEY HAVE THEIR AND THE FACT THE U.S. DOES NOT HAVE THE SKILL SET THEY USED TO HAVE IN INSTALLING HIGH DETAILED OR SENSITIVE SEMI CONDUCTOR MANUFACTURING EQUIPMENT. THAT IS A PROBLEM FOR THE U.S. THAT REFLECT BADLY ON THE U.S. ECONOMY. >> FOR ALL THE CONCERN ABOUT PC'S AND MOBILE PHONE DEMANDS, IT IS REMARKABLE TO LOOK AT APPLE HIT RECORD HIGH AFTER RECORD HIGH, THIS TIME ON THE DEVELOPMENT OF NAI -- AN AI RIVAL. IS THE RALLY JUSTIFIED?
TIM: I DO NOT CALL STOCKS BUT BASICALLY APPLE HAS BEEN OUT OF THE GAME WHEN IT COMES TO GENERATIVE AI. THEY HAVE BEEN USING AI FOR A WHILE AND ARE GOOD AT AI USED TO LOOK AT AND EDIT PHOTOS BUT HAVE STAYED AWAY FROM GENERATIVE AI FOR A FEW REASONS, ONE OF WHICH IS PRIVACY CONCERNS. PROGRAMS LIKE CHATGPT HOOVER UP A LOT OF DATA. WE DO NOT EVEN KNOW WHERE THE DATA COMES FROM. THAT IS PART OF THE PROBLEM. APPLE IS BIG ON PRIVACY. WHAT THEY HAVE DONE IS THEY HAVE DEVELOPED SOMETHING INTERNALLY, WHICH IS AN INTERNAL REPLICATION BY APPLE OF THINGS LIKE ART.
IT IS NOT DESIGNED TO BE USED FOR CONSUMER APPLICATIONS OR RELEASED TO THE PUBLIC BUT DOES SHOW THEY ARE TRYING TO MAKE USE OF THESE KIND OF TECHNOLOGIES EVEN IF INTERNALLY AND TREADING CAREFULLY INTO THAT REALM. THE FACT INVESTORS ARE SAYING THEY ARE NOT ASLEEP AT THE WHEEL -- PERHAPS THEY ARE INTERESTED AND INVOLVED -- IS CERTAINLY UPSIDE FOR THE COMPANY AND STOCK. DANI: THANK YOU. COMING UP ON THE PROGRAM, THE
PRICE OF WHEAT KEEPS RISING AFTER POSTING ITS BIGGEST DAILY SURGE IN A DECADE. WE WILL MORE ON THAT NEXT. AND ECONOMY EUROSTAT REVISED THEIR FIRST QUARTER EURO AREA GDP STATISTIC 20. SO EUROPE DODGES A RECESSION. WE WILL CATCH UP ON EUROPEAN BONDS AND THE FED.
ALSO COMING UP LATER IN THE SHOW, WE WILL TALK ABOUT THE NEXT BIG RISK, PREMIERING TONIGHT AND FEATURING DAVID RUBENSTEIN. >> THE NEXT TIME THERE IS A SERIOUS SELL OFF, THERE ARE A NUMBER OF ASPECTS FROM THE BEHAVIORAL TO THAT THE FED IS >> THIS IS BLOOMBERG SURVEILLANCE: EARLY EDITION. WHEAT PRICES ARE EXTENDING GAINS AFTER THE BIGGEST DAILY SURGE SINCE 2012 AMID ESCALATING CONFLICT OVER GRAIN EXPORTS FROM THE BLACK SEA REGION.
FOR MORE ON THIS, WE WILL BRING IN WILL KENNEDY. CLEARLY A SECOND DAY OF GAINS HERE, DRASTIC MOVES IN WHEAT PRICES ALONE. HOW MUCH PRESSURE IS THERE ON WHEAT AND RELATED COMMODITIES? >> PEOPLE IN AGRICULTURE MARKETS HAVE CLEARLY DECIDED THIS IS AN IMPORTANT EVENT, THE FORTUNES OF THE GRAIN CORRIDOR AND THE IDEA THAT GRAIN COULD CONTINUE TO FLOW FROM UKRAINIAN PORTS DESPITE THE WAR. THERE WAS AN AGREEMENT THAT RUSSIA WOULD ALLOW THAT TO HAPPEN. WHAT WE CAN SAY IS THAT IS NOW OVER AT LEAST FOR THE TIME BEING AND THE MARKET REALIZES RUSSIAN THREATS MEAN IT IS UNLIKELY THAT ANY GRAIN WILL COME OUT OF THAT CORRIDOR AND EXPORTS REMAIN CONSTRAINED.
UKRAINE REMAINS AN IMPORTANT SUPPLY TO THE GLOBAL WHEAT MARKET AND AS THE LATEST HARVEST COMES IN THIS SUMMER PEOPLE ARE CONCERNED THAT LESS OF THE GRAIN WILL GET TO MARKET THAN PREVIOUSLY THOUGHT. >> IF PRICES ARE AROUND 7:40 AT THE MOMENT, THEY WERE CLOSER TO 9:40 AT THE PEAK OF THE HEIGHT WHEN RUSSIA FIRST INVADED UKRAINE. SHOULD THINGS BE COMPLETELY BLOCKED? >> NOT NECESSARILY. PEOPLE HAVE LIVES WITHOUT MUCH LESS UKRAINIAN GRAIN AND WE HAVE STRONG HARVESTS ELSEWHERE, NOTABLY IN RUSSIA AND RUSSIAN EXPORTS CONTINUE. ONE OF THE ATTRACTIONS OF THE POLICY FOR RUSSIA IS THAT IT BOOSTS SUPPLIES OF ITS OWN WHEAT AND IS GOOD FOR THE RUSSIAN ECONOMY. I DO NOT THINK PEOPLE THINK WE ARE GOING TO RETAKE THOSE LIMITS AT THE MOMENT BECAUSE UKRAINE NOW IS A RELATIVELY SMALL SLICE OF THE GLOBAL WHEAT MARKET. DANI:
DOES THAT MEAN FOR THIS TO TURN INTO A STORY WHERE WE GET CONCERNED ABOUT FOOD INFLATION THAT ABILITY IS LESSENED? WILL: IT IS NOT COMFORTABLE, A 10% JUMP IN WHEAT PRICING IN A FEW DAYS AS A MATTER OF CONCERN. SOME OF THE PRESSURE HAS COME OUT OF GLOBAL FOOD CRISES. THIS MAY SLOW THAT PROCESS, BUT ULTIMATELY THE WHEAT MARKET HAS DETERMINED -- IS DETERMINED NOT JUST BY THIS BUT BY THE LEVEL HARVESTS AROUND THE WORLD AND THE AMOUNT OF SUPPLY AROUND THE WORLD. BY NOW, THAT LOOKS HEALTHY. DANI: THANK YOU VERY MUCH. THAT IS BLOOMBERG'S WILL KENNEDY WITH THE LATEST ON WHEAT PRICES. COMING UP, BIG BANK EARNINGS
WRAP UP. SO NELLY -- SONALI FINISHES WHAT IS PROBABLY ONE OF HER BIGGEST THREE DAYS EVER. THIS IS BLOOMBERG. >> WITH GOLDMAN SACHS REPORTING YESTERDAY WE HAVE ALL THE BIG BULLISH BANKS IN THE BOOKS FOR THE EARNINGS.
HOW MUCH SLEEP DO YOU THINK YOU GOT CUMULATIVELY THIS WEEK? SONALI: EIGHT HOURS A NIGHT, IF YOU CAN BELIEVE IT, TO THE EXTENT I WAS ABLE TO GET TO BED BEFORE 8:00, 9:00 P.M. DANI: THAT IS IMPRESSIVE CONSIDERING. THE THING THE BANKING SEASON TO ME -- THERE WAS JUST A LOT UNDERNEATH THE SURFACE, A LOT OF DIVERGENCES WHICH I THINK YOU WOULD HAVE NEEDED EIGHT HOURS FOR. I WAS LISTENING TO THE INTERVIEW THE TEAM DID YESTERDAY, BASICALLY OPTIMISM THAT THE WOES ARE OVER AND BANKS HAVE TURNED A PAGE. WAS THAT YOUR IMPRESSION? SONALI: YOU HAVE HAD BANK OF AMERICA TRADING UNDER BOOK VALUE . THEY ARE INCREASING THEIR NET INTEREST INCOME AND MAKING MONEY.
YOU HAVE A COUPLE DAYS IN A ROW THAT YOU SAW SUCH EXUBERANCE IN THE BANK INDEX. MIKE MAYO WAS TELLING US HE HAS SEEN THE WORST VALUATIONS FOR BANKS IN HIS CAREER IN DECADES, SO THERE IS QUESTION ABOUT HOW MUCH PAIN IS LEFT. WE ARE NOT DONE YET. THERE ARE CREDIT CARD COMPANIES AND QUESTIONS ABOUT CREDIT QUALITY. DANI: THAT IS A GOOD POINT ON REGIONALS AND SEEING THEM ADJUST THEIR BALANCE SHEETS. WE ARE LOOKING FOR ANY SIGNS OF CONTINUED CREDIT CRUNCH. WHAT ARE YOU EXPECTING? SONALI:
IF YOU THINK ABOUT CREDIT CRUNCH, YOU HAVE THE REGIONAL BANKS REPORTING EARNINGS AND YOU ARE SEEING PRESSURE ON NET INTEREST INCOME. AT THE SAME TIME TODAY, WE HAVE BLACKSTONE KICKING OFF PRIVATE ASSET FIRM EARNINGS, MAKING A HUGE PUSH INTO PRIVATE CREDIT. HOW MUCH COMPETITION WILL THESE GUYS GIVE NOT ONLY THE REGIONAL BANKING SYSTEM BUT EVEN BIG BANKS SEEING UNDERWRITING COME BACK? DANI: EVERYONE SEEMED SO HYPE ABOUT THE IDEA THAT CAPITAL MARKETS ARE COMING BACK. GOLDMAN WAS ABLE TO RALLY BECAUSE IT CFO SAID IT WAS COMING BACK.
MORGAN STANLEY, THEIR BIG LEG UP WAS THAT DEAL FLOW WAS COMING BACK. I AM INTERESTED TO SEE WHETHER BACKS UP THAT VIEW. SONALI: EVEN WITHOUT A FLURRY OF DEALS, YOU HAVE SEEN BLACKSTONE TAKE A SURGE IN MARKETS THIS YEAR. THEY ARE TRADING AT A MARKET CAP THAT IS MORE THAN $10 BILLION MORE THAN GOLDMAN SACHS, SO THAT SHOWS YOU WITH THE MARKET WANTS TO SEE. DANI: THESE THINGS ARE MASSIVE. NOT TO BE CONTROVERSIAL -- IF YOU'RE BIGGER THAN GOLDMAN, DO WE NEED TO HAVE REGULATORY CONVERSATION? DO WE NEED TO HAVE A TOO BIG TO FAIL CONVERSATION SONALI: PRIVATE EQUITY GUYS WILL SAY LOOK AT BLACKROCK FIRST. THIS COULD BE A LANDMARK MOMENT FOR
PRIVATE EQUITY WITH BLACKSTONE POTENTIALLY PASSING $1 TRILLION IN ASSETS. DANI: I'M LOOKING FORWARD TO YOUR INTERVIEW WITH THE BLACKSTONE CEO LATER. WE WILL ROLL THAT OUT LATER AFTER THE COMPANY REPORTS QUARTERLY RESULTS. >> THIS IS BLOOMBERG SURVEILLANCE: EARLY EDITION.
TESLA SINKING WHILE NETFLIX ALSO SLUMS ON A DISAPPOINTING REVENUE FORECAST. THE YUAN RALLIES AS OFFICIALS CONSIDER MORTGAGE EASING IN CHINA'S BIGGEST CITIES. AND WHEAT PRICES RISING FURTHER AFTER THEIR BIGGEST SURGE IN A DECADE AS REISCH -- AS RUSSIA MAKES THREATS AGAINST SHIPS SAILING TO UKRAINIAN PORTS. GIVE ME A LOOK AT WHAT THE EUROPEAN MARKETS ARE DOING TODAY. DANI: IT COULD HAVE BEEN A GOOD DAY
FOR WAS NOT FOR TECH AND TSMC. YOU LOOK AT THE BIG CAPS, ALL MOVING LOWER BECAUSE OF THIS DRAG OF TECH. TECHNOLOGY STOCKS DOWN NEARLY 2% AFTER TSMC CUT ITS FORECAST GOING FORWARD. IT IS BAD NEWS IF YOU ARE A CHIP COMPANY IN EUROPE, SO THAT IS DRAGGING US LOWER. THE SEEM OF WEAKER STERLING CONTINUES. WE ARE DOWN FOR THE FIFTH DAY IN A ROW.
IT HAS BEEN A BIG MOVE OFF THE BACK OF U.K. CPI BUT WE HAVE STRENGTHENED SO MUCH THIS YEAR FOR STERLING. WE HAVE NOT YET ON DONE THAT. LOOKING AT ASIA, THE BIG STORY WAS MORE CHINA SUPPORT. IS IT INCREMENTAL OR GAME CHANGING? THAT IS THE QUESTION WE HAVE TO GRAPPLE WITH AFTER A STRONGER-THAN-EXPECTED FIX AFTER ADJUSTMENTS TO CROSS-BORDER FLOW TO INCREASE INVESTMENTS AFTER NEWS AROUND PRIVATE COMPANIES AND MORTGAGES MAKING THAT EASIER. YOU SAW A STRENGTHENING IN THE
OFFSHORE GAINING ABOUT .7%. METAL IS DOING WELL. SOME JOBS DATA IN AUSTRALIA BUT COMMODITY CURRENCIES RALLYING. AGAIN, STOCKS NONPERFORMING PARTIALLY ON TSMC AND PARTIALLY ON PESSIMISM.
IS ANY OF THAT CARRYING OVER TO THE U.S. SESSION? SONALI: ABSOLUTELY. S&P 100 FUTURES ARE SLIGHTLY DOWN ON THE DAY. IT IS ALSO A LITTLE BIT OF TESLA .
WE WILL SEE A CONTINUATION OF EARNINGS SEASON PLAYING OUT. WE HAVE THE DOLLAR-JAPANESE YEN CROSS. WE ARE SEEING EASING OF THE PRESSURE ON THE CROSS HERE. WE HAVE IT TRADING AT LESS THAN 140. PEOPLE ARE WATCHING THAT TO SEE IF IT BREAKS THROUGH.
WHEAT IS UP MORE THAN 2% AFTER A MAJOR RALLY WEDNESDAY AS WELL. THIS HAS TO DO WITH THE RUSSIAN LOOK AT THE BLACK SEA AND THE RESTRICTIONS BEING PLACED ON EXPORTS. BACK TO YOU. DANI: I REALIZE THIS IS ABOUT TO BE AN AWKWARD PIVOT BECAUSE YOU WERE JUST SHOWING US FUTURES MOVING ON EARNINGS, BUT FOR THE MOST PART AMERICAN EQUITY AND RISK, RISK IN GENERAL HAS HELD UP WELL THIS YEAR. LOOK AT HIGH-YIELD SPREADS AND THE IG SPREADS.
THEY HAVE ALL BEEN CONTRACTING. HIGH-YIELD SPREADS ARE THE TIGHTEST SINCE APRIL 2022. NOTHING SEEMS ABLE TO DENT THAT RISK APPETITE. DOES THAT GO FURTHER?
WHAT DOES THE HIGH-YIELD RALLY DO FROM HERE? >> CURRENTLY, THE MARKET IS DIGESTING THIS REEVALUATION THAT WE ARE GOING TO HAVE A SOFT LANDING. THAT IS BASED ON INFLATION. WE HAVE HAD THE U.S., EUROPE, AND THE U.K. GIVE US INFLATION WHICH
INCREASES THE CHANCES THAT THE CENTRAL BANKS CAN PULL OFF A SOFT LANDING AND GET INFLATION DOWN WITHOUT PUSHING US INTO RECESSION. IT OPENS THE WAY FOR FURTHER SQUEEZING IN CREDIT SPREADS. WHAT I HAVE SEEN SO FAR THIS YEAR IS LARGE INFLOWS INTO INVESTMENT GRADE. I'M STARTING TO SEE CLIENTS
WANT MORE DURATION, BUT I THINK THERE IS PLENTY OF ROOM FOR PEOPLE TO PUSH FURTHER INTO HIGH-YIELD. DANI: I KNOW THIS IS DIFFICULT TO ANSWER, BUT DO THE FUNDAMENTALS BACK IT UP VERSUS JUST INTEREST RATE RISK? GORDON: NOT NECESSARILY. WE HAVE SEEN MOST OF THE EARNINGS BE DOWN . VALUATIONS ARE BECOMING MORE STRETCHED, BUT I DO NOT SEE ANY APPETITE NOW FOR PEOPLE TO PROPERLY ASSESS. SONALI: SPEAKING OF DOWNSIDE RISK, HOW MUCH IS THERE IN TERMS OF YOUR EXPECTATIONS FOR LOSS OF CAPITAL FOR ALL THE PEOPLE LOOKING FORWARD TO HIGH-YIELD THINKING IT IS SANGUINE ENOUGH TO DO SO? GORDON: THE EXPECTATION IS EVEN IF WE HAVE A SOFT LANDING THE DEFAULT RATES ARE GOING TO STAY LOW, SO AS LONG AS YOU STAY AWAY FROM THE TRIPLE SEAS -- C'S, IT IS HIGH. SONALI:
HOW FAR DOWN THE SPECTRUM SHOULD PEOPLE GO? IS THERE A SENSE THAT HIGH-YIELD GIVES YOU BETTER PROTECTION THAN THE LEVERAGE LOAN MARKET? GORDON: WHAT I THINK IS PARTICULARLY INTERESTING HERE ARE LOANS WITH EXTENSION RISK. AS WE HAVE MORE CLARITY, THE EXPECTATION OF THOSE BONDS GOES FIRE. HERE I AM TALKING ABOUT BANK 80 OR CORPORATE HYBRIDS. THERE IS NOT JUST FOR STRONG CARRY BUT ALSO FOR CAPITAL GAINS AS BONDS ARE TAKEN OUT. DANI: THIS RALLY HAS BEEN FUELED BY THE U.K. YESTERDAY AND ALL THE DATA WE ARE GETTING.
WHAT ARE THE ODDS THAT THE BOJ ANNOUNCES SOMETHING LIKE A TWEAK AND UPENDS THIS WHOLE THING? GORDON: YOU HAVE TO KEEP OPEN TO THESE THINGS. THEY ARE TRYING TO BALANCE A NUMBER OF DIFFERENT FEATURES. CENTRAL BANKS EVERYWHERE ARE WORRIED MARKETS ARE STILL TIGHT. DANI: IF THE BOJ DOES TWEAK, DOES THAT UP END THE RALLY? DO WE NEED TO RECONSIDER THE ABILITY FOR BONDS IN EUROPE TO KEEP GOING? GORDON: I THINK THE MARKET FINDS A WAY TO GET THROUGH THAT. SONALI: ANOTHER THING I HAVE BEEN
WONDERING IS HOW MUCH RISK IS THERE TO INFLATIONARY SHOCKS? WE ARE TALKING ABOUT THIS CROSS CURRENT IN COMMODITY PRICES. HOW MUCH COULD THOSE TYPES OF RIPPLE EFFECTS REALLY RUIN THE TRAJECTORY WE ARE ON? GORDON: THE BASE EFFECTS ARE SO HIGH THAT REGARDLESS YOU WILL SEE A FALL IN HEADLINE INFLATION. CENTRAL BANKS ARE MOST INTERESTED IN CORE INFLATION AND CORE SERVICES. THAT IS GENERALLY WHAT THEY LOOK AT, SO COMMODITY PRICES GOING UP -- EVENTUALLY THOSE BECOME AN ISSUE AND FEED INTO A WIDER GEOPOLITICAL PROBLEM. IT IS PROBABLY LESS OF AN ISSUE FOR THE NEXT COUPLE.
DANI: IF I CAN JUMP IN, WE ARE GOING TO KEEP RALLYING. THE NARRATIVE SEEMS TO BE ONE MORE, WE ARE FINISHED, SOFT LANDING. I CANNOT HELP BUT WONDER, ARE WE READING TOO MUCH INTO IT? ARE WE TOO OPTIMISTIC? GORDON: ONE DATA PRINT IS NOT A TREND, AS WE HAVE TALKED ABOUT BEFORE. I'M A BIG INVENTOR IN THE YIELD
CURVE. IF WE COMPARE PREVIOUS TIMES AND WE HAVE HAD THE INVERSION OF THE YIELD CURVE -- PREVIOUS ONES WERE SLIGHTLY OVERDUE, BUT IF YOU COMPARE US TO FEBRUARY 1980 AND THE RECESSION THERE, THAT WILL PUT US AT A TIME ENTERING THE RECESSION RIGHT ABOUT DECEMBER. SO THE FACT THAT WE ARE STILL -90 IS A RED FLAG. SONALI: I'M CURIOUS ABOUT WHETHER THIS IDEA THAT INFLATION EASING IS ENOUGH OF A STORY. COMPANIES STILL HAVE TO MAKE ENOUGH MONEY TO REPAY INTEREST AT A HIGHER RATE, SO ARE THERE OTHER RISKS TO CORPORATE PROFITABILITY WHEN WE ARE THINKING ABOUT THE RISK YEAR BOND MARKETS? GORDON: I THINK THE CONUNDRUM FOR THE MARKET HAS BEEN HOW WELL CONSUMER SENTIMENT HAS HELD UP. EVERYONE HAS WORRIED ABOUT IT. I AM STILL WORRIED ABOUT THE CUMULATIVE IMPACT OF MONETARY POLICY TIGHTENING AND WHEN THAT CUTS INTO CONSUMER SPENDING, BUT CONSUMERS IN THE U.S. HAPPEN WILLING TO RUN DOWN
THEIR SAVINGS AND THERE IS MONEY FOR COMPANIES THAT NEED IT TO KEEP PAYING THEIR COUPONS AND THERE WAS A HUGE AMOUNT OF REFI DONE IN 2021 AND 2022, SO THE MATURITY WALL DOES NOT HIT US FOR ANOTHER COUPLE YEARS. THERE'S A CERTAIN LEVEL OF COMFORT THAT CAN BE TAKEN THERE. DANI: THIS COMES BACK TO THE IDEA OF TRIPLE C'S. THOSE HAVE HELD UP.
WHAT YOU WANT TO DO TO PREPARE YOURSELF IF THIS DOES NOT COME TO FRUITION? IF THE CROWD TURNS, WHERE DO YOU WANT TO HIDE OUT? GORDON: YOU WANT TO MAKE SURE YOU'RE IN BUSINESSES THAT CAN BE RESILIENT FOR A PRETTY -- FOR A RECESSION. THERE ARE A NUMBER OF VARIABLES HERE, SO KEEP RESILIENT. KEEP IT HIGH-QUALITY. DANI: THANK YOU FOR JOINING.
COMING UP, TESLA EXTENDS DECLINES WITH ELON MUSK WARNING OF MORE BLOWS TO MARGINS. WE WILL HAVE MORE ON THAT. ♪ THIS IS BLOOMBERG. COMING UP, AN INTERVIEW WITH JONATHAN GRAY AFTER BLACK SUMMER REPORTS RESULTS. -- THIS IS BLOOMBERG SURVEILLANCE: EARLY EDITION. I AM DANI BURGER IN LONDON.
SONALI BASAK IS IN NEW YORK. TESLA IS TRADING LOWER IN THE PREMARKET SESSION. THE COMPANY WARNED OF MORE PROFIT HITS TO COME. JOINING US NOW IS TOM NARAYAN . WHAT DO YOU MAKE OF THE PRICE
ACTION? WAS WHAT YOU HEARD YESTERDAY SOMETHING THAT SHOULD SEND SHARES LOWER? TOM: IT IS DOWN ABOUT 2% NOW AFTER HOURS. I THINK IT WAS DOWN MORE BEFORE THAT. THE ACTUAL EARNINGS ITSELF WAS PRETTY GOOD. IT CAME IN AT 18.2%, KIND OF ABOVE CONSENSUS. ON THE EARNINGS CALL, THERE WERE COMMENTS ABOUT SPENDING ON AUTONOMY AND SOFTWARE, WHICH A LOT INVESTORS ARE RETAIL INVESTORS WHO WANT A QUICK PAY OFF IMMEDIATELY. THERE ARE OTHER THINGS, BUT THE REALITY IS IF YOU ARE BUYING TESLA STOCK YOU ARE IN IT BECAUSE OF THE FUTURE IN AUTONOMY. FOR THOSE TO WORK, YOU WILL
HAVE TO SPEND TODAY. I REMIND FOLKS IF YOU COMPARE TESLA TO ANY OTHER AUTOMAKER IS STILL POSTED 10% OPERATING INCOME MARGINS AND 100% ELECTRIC CARS. THERE IS NO OTHER TO MAKE HER DOING THESE TYPES OF NUMBERS. PEOPLE GET CAUGHT UP BECAUSE THE STOCK HAS RUN INTO THE PRINT, BUT ALL AND ALL WHEN YOU LOOK AT THE BIG PICTURE I THINK THIS IS A PRETTY GOOD QUARTER. DANI: PRETTY GOOD QUARTER, BUT THE RUN UP OF THE STOCK HAS BEEN 136 PERCENT THIS YEAR ALONE. DOES IT NEED SOME COOLING OFF GIVEN THE NEAR TERM PRESSURES? TOM: THAT COULD BE WHAT IS HAPPENING. I DO NOT THINK ANYBODY WAS
EXPECTING A Q3 CUT IN PRODUCTION. SO IT COULD BE SOME OF THAT, BUT ULTIMATELY IF YOU'RE GOING TO OWN A STOCK LIKE THIS WITH A TRILLION DOLLAR MARKET CAP POTENTIAL YOU HAVE TO BELIEVE IN ROBO TAXIS. THE MATH DOES NOT MAKE SENSE OTHERWISE AND THEY BELIEVE THEY NEED TO SPEND TO GET THERE AND THERE ARE NOT MANY OTHER COMPANIES OUTSIDE OF TESLA SPENDING ON THESE THINGS. IT IS A LITTLE NEBULOUS NOW. WHAT IS A SUPERCOMPUTER?
WHAT EXACTLY DOES THAT MEAN? A LOT OF QUESTIONS TO BE ANSWERED COME UP WITH THIS IS A COMPANY THAT HAS A TRACK RECORD OF PROVING ITSELF OVER TIME. SONALI: EVEN IF YOU BELIEVE IN THE LONG-TERM, I THINK IT IS WORTH DIGGING INTO WHAT THE CHALLENGES ARE ON THE WAY THERE. TOM: SURE. THERE ARE A LOT OF CHALLENGES. FSD IS A LEVEL TWO PLUS SYSTEM. NOT MANY PEOPLE KNOW ABOUT ITS QUALITY, BUT IF THEY LOWER THE PRICE FROM $200 A MONTH TO $50 A MONTH AND A TANK RATE EXPLODES, PEOPLE BE AWARE OF IT. ROBO TAXIS ARE MAYBE 10, 15 YEARS AWAY.
IT IS A PROVE ME CONCEPT. THIS STOCK IS LIKE AMAZON 15 YEARS AGO. ENOUGH PEOPLE BELIEVE IN THE FUTURE THAT THE THESIS IS ALWAYS THERE IN PEOPLE'S EYES. THAT DOES CREATE SUPPORT FOR THE STOCK, ESPECIALLY WITH THE AI INVESTMENT RATES NOW. THAT IS NOT REALLY GOING AWAY. AS LONG AS THAT IS AROUND, I THINK YOU WILL SEE SUPPORT FOR TESLA SHARES. >> IF WE SHOULD BE PATIENT FOR TESLA, HOW PATIENT? WHEN DOES THE RUBBER HIT THE ROAD? WHEN DO WE SEE MARGINS THAT KEEP UP WITH PRICE ACTION? TOM: NOT FOR SOME TIME, BUT THE POINT IS THAT A CAR MARGIN IS 10%. A SOFTWARE MARGIN IS 80% TO 90%.
YOU WILL NOT SEE THOSE NUMBERS FOR PROBABLY FOUR YEARS. THEY WILL NOT GET THE NUMBERS OF CARS ON THE ROAD WITH THEIR SOFTWARE FOR A WHILE, BUT THEY DID ANNOUNCE THEY ARE IN DISCUSSIONS TO LICENSE FST SOFTWARE. THAT IS TELLING. IF YOU RUN THE MATH ON LICENSING SOFTWARE TO OTHER OEMS, YOU CAN COME UP WITH BIG NUMBERS SO MARGINS ARE PROBABLY PRESSURED NEAR-TERM BUT THIS COMPANY DOES NOT SEE ITSELF AS A CAR COMPANY. THEY SEE THEMSELVES AS A
SOFTWARE COMPANY, SO INVESTORS WILL HAVE TO BE PATIENT BUT COULD BE HAPPY WITH ANNOUNCEMENTS LIKE WE ARE LAUNCHING A ROBO TAXI SERVICE AND THE FSD RATE HAS EXPANDED. THESE SORTS OF HEADLINES WILL HELP INVESTORS GET MORE COMFORTABLE WITH THE LONG-TERM INVESTMENT THESIS. SONALI: THAT IS TOM NARAYAN. IT IS A BUSY DAY FOR TESLA INVESTORS FOR SURE. LET'S GET A QUICK CHECK ON THE
STOCKS MOVING IN PREMARKET TRADING. TESLA IS DOWN MORE THAN 3% ON THE DAY HEADING INTO U.S. TRADING. WE HAVE NETFLIX AS WELL DOWN
MORE THAN 6.6% ON THE DAY. TSMC SHARES DOWN ALMOST 3%, BUT WE HAVE AMERICAN AIRLINES GROUP UP MORE THAN 2% OF THE DAY. IT IS PART OF WHAT IS LEADING THE DOW HIGHER IN FUTURES TRADING RELATIVE TO THE S&P AND NASDAQ 100. TOUGH DAY FOR TECH. DANI: BUT YOU GAVE US ONE GOOD STORY. THAT WE WILL TAKE, ALTHOUGH I
DO NOT THINK AMERICAN AIR HAS REPORTED EARNINGS YET. HOPEFULLY GOOD NEWS CAN CONTINUE FOR THEM. COMING UP, THE LATEST EPISODE OF THE NEXT BIG RISK PREMIERES TOMORROW NIGHT. THIS IS BLOOMBERG. ♪ SONALI: THIS IS BLOOMBERG SURVEILLANCE: EARLY EDITION. INVESTING INVOLVES THE BUSINESS
OF MANAGING RISKS AND THE PAST YEAR HAS SERVED UP NO SHORTAGE OF WARNING SIGNS. I ASKED BOAZ WEINSTEIN AND DAVID RUBENSTEIN WHAT THEY THINK THE NEXT RISK IS FOR MARKETS. HERE IS WHAT RUBENS LINE -- RUBENSTEIN HAD TO SAY. >> THE BIGGEST CONCERN IS THE CLASH BETWEEN THE HAVES AND HAVE-NOTS. IN THE WESTERN WORLD, IT WILL BE BETWEEN OLDER PEOPLE AND YOUNGER PEOPLE.
OLDER PEOPLE ARE LIVING LONGER, BUT RETIREMENT BENEFITS ARE NOT WENT TO KEEP UP WITH WHAT THEY EXPECT OR NEED AND YOUNGER PEOPLE WILL HAVE TO SAY, WE DO NOT WANT TO WORK THAT MUCH HARDER SO YOU HAVE A BETTER RETIREMENT, SO YOU WILL HAVE SOCIAL SECURITY IN THE UNITED STATES NOT BEING ADEQUATELY FUNDED AND OTHER ENDOWMENT PROGRAMS THAT ARE NOT ADEQUATELY FUNDED AND MORE PEOPLE WILL FIGHT BETWEEN AGE GROUPS, THOSE WHO ARE NOT WORKING HARD AND WANT TO MAKE MORE MONEY FOR THEMSELVES AND THOSE WHO WANT MORE MONEY TO BE GIVEN TO THEM FOR RETIREMENT PURPOSES THAT THEY NEED. IN THE EMERGING MARKETS, IT WILL BE BETWEEN THE HAVES AND HAVE-NOTS IN THE SENSE THAT THE HAVES WHO RUN THE WORLD FOR THE LAST 50 TO 75 YEARS, WESTERN EUROPE AND THE UNITED STATES AND SO FORTH, THEY HAVE THE WEALTH AND MEANS TO LIVE LIVES THEY WANT. THEY HAVE NOT NATIONS ARE GOING TO BASICALLY SAY, WE WANT TO SOME OF THE WEALTH OF THE WORLD AND MORE INFLUENCE IN THE WORLD. WE WANT TO CONTROL BODIES LIKE THE U.N. AND WORLD BANK AND HAVE NOT HAD THAT KIND OF INFLUENCE BEFORE, SO YOU'RE GOING TO SEE IN THE WESTERN WORLD RETIREES CLASHING WITH YOUNGER PEOPLE AND THE WORLD AS A WHOLE WILL HAVE PEOPLE WHO HAVE HAD THE POWER THE LAST 5070 YEARS -- 50 TO 70 YEARS FIGHTING WITH PEOPLE WHO HAVE NOT HAD THE POWER AND I WANT IT. THAT IS THE BIGGEST FIGHT
YOU'RE GOING TO SEE. SONALI: THE LATEST EPISODE OF THE NEXT BIG RISK PREMIERES TOMORROW. YOU CAN ACTUALLY FIND THE STORY NOW ON THE BLOOMBERG TERMINAL AS WELL, ONE OF THE MOST INTERESTING THINGS DAVID HAD TO SAY IS THE IDEA THAT INEQUALITY CAN ONLY KEEP RISING FOR A LOT OF STRUCTURAL REASONS, ONE OF THEM BEING IF YOU'RE IN THE UNITED STATES WE ARE DONE WITH THE DEBT CEILING CONVERSATION FOR THE SUMMER BUT ONE OF THE PROBLEMS IS HOW MUCH THE DEBT LOAD HAS RISEN SINCE HE WAS IN WASHINGTON HIMSELF AND SERVING THE WHITE HOUSE. THE IDEA HERE IS YOU CAN ONLY INFLATE YOUR WAY OUT OF IT. DANI: I HAVE THE STORY IN FRONT OF ME. ONE OF THE MORE DEPRESSING THINGS HE SAID IS EVERYONE IS PAYING LIP SERVICE TO IT AND KNOWS THERE IS AN ISSUE BUT WHAT ARE PEOPLE DOING ABOUT IT? POLITICIANS RECOGNIZE IT. I DO NOT THINK THEY ARE ABLE TO
DO MUCH ABOUT IT. I KNOW THE TITLE IS THE NEXT BIG RISK, BUT THIS IS A RISK THAT IT FEELS LIKE NO ONE HAS THE APPETITE TO SOLVE. SONALI: WE TALK ABOUT MARKET ACTION TRADING BUT THE REALITY IS IF YOU ARE INVESTING MANY OF THESE INVESTORS ARE TRYING TO INVEST OVER LONGER-TERM HORIZONS , PARTICULARLY WHERE YOU THINKING ABOUT PRIVATE EQUITY BUT ANOTHER INTERESTING ONE WAS BOAZ WEINSTEIN WORRIED ABOUT LIQUID MARKET CHALLENGES WITH THE FED TIGHTENING. HE IS POINTING OUT THAT EVEN MARKET RISKS ARE NOT BEING ACCOUNTED FOR WITH WHERE WE ARE IN THE CYCLE. DANI:
THAT WHEN I REALLY LIKED. I THINK ABOUT THE MACRO ALL THE TIME WITH THIS IDEA THAT THE FED IS NOT GOING TO COME SAVE YOU THIS TIME. IF WE GET ANOTHER SELLOFF, THE FED AIN'T GOING TO STEP IN. FOR ME, THAT WAS JARRING. SONALI: PEOPLE FORGET THAT YOU AND I REPORTED ON IT, SO WE PAY ATTENTION TO THOSE NUANCES COMES TO RISK AND PEOPLE WATCHING IT. DANI:
REALLY GREAT TO HAVE YOU ON THE SHOW TODAY. WE WILL DO TO AGAIN TOMORROW. THAT IS IT FOR EARLY EDITION. SURVEILLANCE IS UP AHEAD. WE JOINED THE TEAM THERE. THIS IS BLOOMBERG.
2023-07-27 23:15
