Ira Jersey, Chief US interest rate strategist for Bloomberg Intelligence join us for an extended roundtable to discuss the Bank of Japan move. Bloomberg host Kathleen Hays joins us to discuss the Bank of Japan move. Rosa Whitaker, President and CEO of the Whitaker Group & the first ever assistant US trade rep for Africa (appointed by Bill Clinton), joins the program to discuss Africa’s leader summit, climate goals in the New Year, and role African nations are playing in geopolitical tensions across the world. Nick Hayek Jr., CEO at Swatch Group, joins us to discuss his business, retail outlook, and business strategy. Quincy Krosby, Chief Global Strategist for LPL Financial, and Ben Emons, head of fixed income for NewEdge Wealth, join the show in studio to talk markets and outlook for the economy. Lee Klaskow, with Bloomberg Intelligence, joins the program to discuss his 2023 freight outlook. Hosted by Paul Sweeney and Kriti Gupta.
Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside my co host Matt Miller. Every business day, we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moving news. Find the Bloomberg Markets Podcast on Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. Let's move on and get into what this really means from a Central banks perspective, from a bond market perspective. You know, I woke this morning and I have to when I saw this new is I have to admen. I did not have the b O J tightening on my two BINGO card. But here we are. So I said, we need to talk to some smart people here. So we rounded up a couple. We have plenty to choose from here at Bloomberg. Kathleen Hayes, Bloomberg television correspondent, joins us Ira Jersey h interest rate strategist for Bloomberg Intelligence, also on the phone, and Kathleen's here on our Bloomberg Interactive Broker studio. So, Kathleen, I came in here. I'm listening to the energy John Farrow and Tom keene have about the b o J. I'm like, I don't know. Can you tell me why this is important? Why this is important? Oh? My god. First of all, big surprised. I was sitting on the sixth floor in front of our camera up there, getting ready to react to this with our team in in Tokyo and Asia, and when I saw they had like come across widening yield curve control, I was shocked. Everyone was shocked. All the signals coming out of the Bank of Japan, including Governor Kuroda, repeatedly was no, we're not ready, and the expectation has been not ready to uh start making this move with inflation rising. UH. Kroda kept saying, well, we don't know if it's sustainable. You know what, there might be a global recession bring down prices. That's gonna We're gonna we need the stimulus uh. And then UH, we're getting a new governor. The new governor is going to be in place UH in April. And at that point that's been the expectation when it would start. But the BOJ has been insisting even when the shift away from extraordinary stimulus started, it would be gradual. And so when Kroda had his press conference last night. One of the things he stressed was we haven't changed our forward guidance. I'm still concerned that inflation may not be sustainable. Wayes have to rise. The spring negotiations start off to the first year, probably in late February early March. Uh that um, it was what financial stability keeping. And there's a big concern about the weekend right that that's been something that very unpopular with the public. So this is a step. But it's one thing to say it's not clear that the regime shift has fully begun, but at the door is definitely wide open. It's clear that's where the b o J is going now. Well, I think what's so significant about this particular move is that and a lot of people don't really read about the Japanese economy, but deflation has been an issue for the Japanese economy for what decades. Well, they got out often after they signed the accord in that set up all this extraordinary easing, but yes, they they still had inflation has not gotten to two percent and stayed there right exactly. And I think what's crucial here is that, I mean, so many people would call this right. They said that the market was going to break at some point up point, which is why you're seeing a lot of the likes of BBS, blue Bag, etcetera. I really cash out on shorting these j g B s. But I have to ask why so soon? Because that was the surprise here. It was going to be this eventuality by so soon? Why so soon? But financial stability? Perhaps he was a bit concerned about having to defend the yen so aggressively. Member in the just a couple of months ago, the yen they with the extraordinary bomb purchases. And that's one thing they also did in the last meeting was increased the amount of the money for intervening, for buying the bonds, etcetera, to nine trillion from seven point three trillion. It might be one of our guests overnight said politics that high inflation is so unpopular in Japan. Uh Krona gave a speech a couple of months to Parliament a couple of months ago where he said, well he knows that the Japanese people can understand inflation. He got so much pushback that made people very angry. Kishida, the new prime minister, relatively new prime minister. His approval ratings are have been crushed. This made be a sense I need I need to show that yes, we we know what's going on, this is where we're heading and let people know. Now all right, want to bring you in here. What is your reaction to what we saw out of the bank in Japan. How do you think the US feder Reserve will react? What was your take? Well, I don't think the Fed is going to react directly to this, but I do think that it surprised everyone. I think a lot of people thought that if if the b o J was going to increase the band for its yield curve control, that it would come you know, much later next year. So so so I'm not surprised given the news. What how the the US markets reacting. I think what what's going to be fascinating is whether or not the you know J is actually going to deliver on what the what what the market is currently pricing in terms of interest rate moves, because there's a large part of the market and I've even had conversations this morning with UH with investors who think that the UH the b o J is not going to ever move interest rates off of the negative ten basis point level where the are now, but the market continues to price for um, you know, for for for the b o J to potentially increase interest rates a little bit in the middle of next year. So so I think this is kind of a almost a necessary step in order to pave the way for potential interest rate hikes in the future. Um, you know, how many and how aggressive the b o J can be, I think will be very much determined, like Kathleen said, about what the economic landscape ends up ends up being there. But but generally speaking, you know, it is part and parcel of this global policy tightening that you've seen, um out of just about every central bank in the world, even even those who you know traditionally have been majorly dubbish. So just Kathleen, that's kind of right ones to go. It feels very coordinated to men, like the central banks around the world raising rates. Is this typically how it happens? Well, I'm not sure it was coordinated now they do. We know that they communicate with each other frequently. I will say this that very recently my sources to the b o J, we're indicating that nothing was going to change yet, as recently as late last week when I spoke to somebody, So, uh, it's still a mystery to me too. Why now why this meeting? And another thing, the b o J has eight meetings a year. Four of them have a monetary policy report thoughts when they usually make any kind of shift in policy. This was not one of them. Again, why now, why the movie do they communicate with the public, with the markets like the Fed? Does it seems like we're here from Fed presidents every other day? Well, they test Governor Rod testifies Parliament all the time. The board members are are testifying more than they used to. But one of the big clues that something was going to happen was really broken first about four or five weeks ago by our team in Tokyo that a source said that that change having having a look at the policy review, that was the policy accord that was set back in that established all that the aggressive easy and that established the groundwork for moving your Their inflation target was one percent to two sen that's when yield curve control in that they were going to be looking at that after the first year. Kyoto News, one of the big Japanese news outlets, over the weekend another report saying this was going to happen so it has been telegraphed, and the b o J does telegraph things with the press. I think the surprising part is the fact that they decided why to wide and yield career control. They doubled it right, and I think Roda is probably telling us the truth that to a certain extent, they needed um, they needed more ability to defend the end when they need to to make sure that the bond market doesn't get too far out of whack. They've got more. They've got more flexibility on that now too, they don't have to be so aggressively trying to hold it, you know, below point. So still a little bit of mystery why now again, possibly the politics of this, and they need maybe to show the Japanese people we're moving that direction. Boyd. News coming out of Japan hot and heavy today. It is the topic Bank of Japan getting letting the rates go a little bit higher, and that is certainly a change from what we've seen from Japan over the Lai. Well, I don't know, at least a decade, maybe two. I need to get some context here, and we do that with Kathleen Hayes. She's a Bloomberg television anchor six to twelve pm Eastern time doing all that, tune into absolutely gotta follow Asia over Jersey. He covers all things interest rates for Bloomberg Intelligence. So, Kathy, I just want to start with you again, just I know, you know pre pandemic. You're going over to Japan on a regular basis. Just give us a sense of how is the economy today in Japan. Well, the economy is I would say I would sort of characterize it as medium. Uh. They've they've come out of COVID pretty well over the past year, but there's still concerns about where the economy is going next. Capital investment surprisingly has been looking a bit better. People were b o J was concerned about that. I think their retail sales have been sort of mixed. Uh. The inflation rate has been moving higher, and that's the key here because their target is two percent. They've had well number one. They did when the when the bo J started. It's very aggressive policy back in I should say they did get the Japanese economy out of deflation with the help of some energy prices, but that that was that was the big accomplishment at the beginning. But they've been I'm unable to get much above one percent or get to two percent and keep it there. And now, because of higher energy prices, et cetera, up they've been able to get it up to what the core rate their their headline minus fresh food prices is up to three point six percent year over year, the headlines up to three point seven. There's a concern whether or not they can keep it there. There's a concern about the FED hiking rates so aggressively and pushing towards recession to get down this this inflation problem that exists here because a recession in the US bad news for Japan's economy, very export oriented. So I'd say it's a mixed view, and that's why there's UH. That's why to a certain extent, Governor Quota's UH decision to widen the yield curve COULT band to point five percent on either side of zero UH. As he said, today's move is not a rate hike. He's this is not meant to start an exit. That's what he's saying now. And we'll have to see what happens next. What does future policy then look like when it comes to UM some of these kind of expansion of the bands. Because I believe I saw a chart. I want to say Jim Bianco has been circulating it, but this is the third time they've increased that ban um. But it's taken years to do that. What would the next potential increase look like? I think that's a very good question. I suspect it's we're not There's another meeting in January. That's a meeting with a monetary policy report. As I said, that's usually they make choose in policy. Send you over there in January. Oh, you better believe that I'll be over there right out there. You know, we're out of the first year. Uh. But I think now the question is what we're going to hear more from the government. Are they going to announce a policy review? Are they by February? I believe we should know who, uh the next governor is going to be, certainly by March, but because they'd like to do that early. Governor Quota steps down on April eight. Can they do anything more? Do they need to do anything more between now and the next meeting when the governor next government will take over? So you know, I'm looking at the U S. Treasury market. I got a couple of basis points into two year maybe eight basis points in the tenure. Are you surprised for not seeing more action in the U S. Treasury market? Not? No, not not really. I think a big reason for this is one that just a correlation between global rates generally, because so you've seen developed market interest rates sell off just about in every jurisdiction after the after the b O J news. I think the other thing is for for the US is that the consensus has been very crowded trade, which is yield curve flatteners, so more in version of the yield curve. As the economy slows, people think that the Fed is going to keep interest rate throughoutively high and then and then long term interest rates will have to come down significantly. So I think when you get news like you did out of Japan, you have people that are just unwinding positions, particularly given the calendar effect here, right, So people just want to get out of whatever risk they have before your end, especially if they had very good years visa be their index or or their peers um. So, so I think people are just taking some um. People are just taking some chips off the table here. I think that's the probably the big reason why you're seeing this this pretty big steepening in the curve over the last couple of days. I wrote, when we're talking about the contagion effect or the ripple effect here of Japan, it does seem like it's a fairly muted reaction today. But I think there was this expectation going in the eventually the market is going to break in in some regard. Do you think that what happened overnight in Japan, well's to some extent priced in explaining the needed reaction. Well, yeah, we did here. You know, there were people who were I think hearing rumblings that it might happen yesterday. That's one reason why you saw a similar reaction yesterday. So when you look at the two day move, it's really non trivial. Right, So you look at the UM the two day move and in tenure treasuries, and you are talking about UM, you know, a twenty basis point selloff in in two your in ten ure yields UM not quite as much in the front end. And again I think a big part of that is this UM kind of unwinding positionings and people getting somewhat somewhat flatter than than they had been. I think the risk going forward, is this kind of is going to be communication out of the b O J right, So so there is the chance for more volatility being driven out of the next actions at the Bank of Japan takes because if you know, Governor Kuroda's term is ending soon, you're going to get a new governor in there. Will that governor actually decide to hike interest rates or won't they will? Will they get rid of the band altogether and kind of end yield curve control instead of just you know, continuing to increase the band um. And you know, even though even though Governor Krota has said, you know, this is not an interest rate hike, it is an interest rate hype because the fact is that you you did see long term so thirty year um Japanese government bonds went from very low levels to one and a half percent doesn't sound very high, you know, visa v the US, right, which has more than twice that yield, and it's in our long end. But nonetheless, you you had this very serious deepening of the yield curve in part because people thought that natural interest rates in Japan should be much higher than they were. You know, you still don't have the same type of inflationary problems in Japan that you have in in Western Europe or the United States. But nonetheless, their inflation is now positive, right, whereas it had been hovering near zero, you know, and generally negative for for a long period of time. So so I think the fact that that there's an acknowledgement now by markets that hey, we do have some inflation. Maybe we don't need policy to be as easy as it has been so um. So I think the bo j's actions are um, you know, have the potential for creating more volatility and other developed market developed market rates um markets Uh, over the next couple of months, Kathleen. We have some strength in the end today, but boy, it had been weak. What's the Bank of Japan? How does it really feel about its currency? What does it want it to be? How does it because it seemed to become so weak? Okay, not so weak? Uh? And again it is it's a source of it's a source of discontent, uh in Japan. Uh. You know, the it's for so long we worried about the end getting too strong, right, you know, the ultimate carry trade currency. Everybody wants to use it. You don't have always control it completely. By the central Bank. But this, this ultra weakness, has been a problem. And when Governor Crota said at the press conference, put your attention on foreign exchange, on financial markets, I think that's another signal that this truly is his concern. And uh. Again, the this ever raises the question of how quickly they'll get rid of youka control. This is going to take time. But one of the lead contenders, Roshi Nakaso, who was made a deputy governor of the b o J back when Crota made was made governor, is looked at somebody who may be in favor now because he will be more on the side of let's move away from this extraordinary stimulus, let's normalize this. This Uh, all these bonds were buying. You know, the government owns excuse me, the b o J owns more than half of all the outstanding jgbs now and that has been a concern, has been complained about. They haven't seemed to respond to it. But this, this is definitely a time of change for the BUJ. Will it be quick? We'll see, Okay, hey, I were real quick. I'm looking at the crowds in Buenos Aires, A hundred thousand people celebrating Argentina. Pretty good World Cup? Huh, yeah, it was. You know, the on field action was very exciting this World Cup. It was some of the It was probably the best World Cup of my lifetime. Quick frankly everever who didn't want MESSI you know, I was rooting for France and completely it was wrong. Um, but I did think Bob played really well. Just saying, continue, you get a hat trick in the World Cup. Finally you gotta be you can't be unhappy, right amen? Yeah? And how big is it going to be in four years from now? I wrote in North America? Yeah, I think that it's It really will expand the game here in the US. I think just this final, I can't tell you how many people hit me up on you know, all the text I was getting about you know that, Hey, this game, this one game did more for soccer than US soccer has done in the last four years. So I think once all that action comes here to the US, I think it will just propel the sport even more. Alright, great stuff Iver in Jersey. Bloomberg interest rate strategist Kathleen Hayes joining us in study here. She has a Bloomberg Television correspondent really appreciate getting her perspective. President Biden just recently hosted a sum in Washington, U S Africa Leader Summit. A lot of topics discussed. One of them is that African governments have made it clear that they wished to be active participants in the clean energy revolution. And next guest argues that the United States should support the continent's efforts just beyond rhetoric. Ros Whittaker joins us the president and CEO of the Whittaker Group. She was the first ever Assistant US Representative for Africa. That was a position established by President Clinton back in the day. Rol, So thanks so much for joining us here. UM talk to us about Africa clean energy, their ability and willingness to participate in what appears to be for the most part of you know, a global trend here towards cleaner energy. Yes, well, thank you so much. Well, the African countries UM largely have a consensus around their feature entitled the Africa We Want and that's a decarbonized future. And the conversation has been very interesting with the US because what the African countries are largely saying, and it's summarized in an African proverb is that, UM, don't be the last person at the bar, because you may get stuck paying the bills. And that's largely how they feel. And so I think that with the summit this week, there was a lot of good feelings about President Biden's commitment. UM. He made a commitment to include Africa as a part of this eleven billion dollar climate change funding. He's thinking from Congress, but the operative word is speaking from Congress. Will President Biden be able to deliver on that commitment, We don't know. Um. The Africans were very pleased about the US commitment and COPS twenty seven where the US committed to the Loss and Damage funds very happy about that. But the African government is also recognized that climate change is costing up to fit taken off about fift cent of their GDP every year, and it is and they are in a crisis. And they believe that the Western world that really has this boom and productivity and industrialization based on you know, smokes, that kind of development models, UH, that they should not be paying the full price. And I agree, we have an obligation. This is a transnational issue, and so I think the summit was largely good. I believe we saw President Biden at his strength where he's building these global alliances. Uh, he is an internationalist. He is revitalizing these partnerships around the world. So it's a good thing. So Rosa, where is Congress on this? Do we have a feel what kind of support there may be in Congress? Well, I think that we don't know what's going to happen with the Republicans controlling the health I think there's a lot of work to do, and I hope that the African countries, like many other countries that have received US commitments, will not walk away disappointed on this. You know, it's really really I see the best way forward in my view, it's not to depend exclusively on the US government. We have to incentivize the private sector to come in and that's why I've called for um taxes centers by the US government to US companies to invest in africa String future. What it's needed. We need patient, well priced private capital to support a de carbonite one century Africa productivity revolution. And it's in our interest, you know. It was reported recently, for example, a solar farm in Cloudy Germany needs to earn only a seven percent return on investment to get funded, whereas a similar project in sunny, very sunny Egypt requires a twenty eight percent return on investment to get funding. There is a need for urgent, well placed private capital to do this, and I just believe that private sector and sentence open up our tax code. It can be done in a budget neutral way. Um for a private sector too to come in and invest in this ROSA talk to us a little bit about the geopolitics at play here. When I think Africa, I'm starting to think a lot about the Belton Road project coming out of China as well. Connect some of those dots for us. Well, I can tell you we are so far behind China that we would have to do far more than the summit to catch up. Okay, so US Africa trade and services with Africa has increased to about eighty three billion dollars last year, up by sixteen percent since the since the pandemic, but Africa. China's trade with Africa is over two hundred fifty four billion dollars and it's growing by thirty five percent a year. Uh. Right now, China controls the majority party of the infrastructure project in Africa, So they are controlling a lot of the strategic minerals that we even need. If we're talking about, for example, America leading the green future, America leading in electrical vehicles, no one has figured out how you're gonna have massive production of electrical vehicles without co books. Most of that call books in the world is in Africa, sevent of it in one country, the Democratic Republic of Congo. China is now processing sixty of that. So how can we talk about having a green future leading an electrical vehicles when China is controlling a lot of the strategic minerals required for that green future that's in Africa. So I think that we're late in the game and we have to get Americans. We have to build great awareness about Africa's strategic importance to the world. Rose, I wonder if we can just if you can just give us a quick kind of reviewer assessment of how Africa did during the pandemic. How, how how is it broadly defined the continent doing well? What Africa did is it surprised the world because it put in a lot of mitigation lockdown. It did fairly well in terms of the parts of the pandemic it could control. UM, we did not see people dying in the numbers that were projected. However, economically, UM, Africa has really suffered. It is it had a downward trajectory in terms of its economic growth levels. Uh. It created more people, hundreds of millions of new people that were impoverished on top of the poverty that we all ready saw. UM and UM we're seeing a massive food and security crisis as a result of poll. But and now with kraiz Okay, Rosa really appreciate getting that overview. Rosa Whittaker, President CEO of the Whittaker Group, getting us an overview of Africa and the need to develop trade with Africa, catching up with China. All right, Nathan Hagar, good stuff. Where you appreciate that as always want to get right to our next guest, uh Nick Hike Jr. He's the CEO of Swatch Group based in Switzerland. He's joining us via zoom. Uh Nick, thanks so much for joining us here. You know, I'd love to get it just an overview of the watch business. I'm not really a jewelry guy, but I really enjoy my Omega watch. I've had it for many years now. It's great, great watch. I love it. Just give us an overview of how the watch businesses on a global scale. Cod we just came through a pandemic and lots of different parts of the world reacted differently. I'm just wondering how the luxury watch market is doing. Hello first of all to everybody, and the congratulation you're a man with a good taste. You know, that's right. Congratulation. You know, worldwide we see a really strong, strong situation for watches, especially Swiss made watches and mechanical watches. Was also court watches, and we see it everywhere. Of course, you still have countries like China where you have shops that are closed because of COVID. But I would say the COVID situation where everybody had to stay at home emotions, you could not show, you could not meet people, you could not talk with other people. You could only make it a via zoom, you make your home offices. This has favored now everybody who doesn't want to sit at home and wants to live again and to breathe again. This is fantastic for the watch mark because watches a first of all emotional products. You go and look at them you want to make a joy for yourself, but you want to buy it as a gift to somebody else. And here we see that whatever segment you take, the entry segment, like with the moon swatch, what we are talking about also certainly later on to the luxury ones. It's really booming everywhere in the world and especially in the US well. Speaking of that booming dynamic, a lot of people are using a lot of these luxury products, and watches specifically, I would argue handbags as well as kind of the investment. Is sure when the rest of the market seem to be completely tanking, there is no alternative has really worked quite well for the luxury market. Do you think that's going to sustain Yeah, but you think only money and investment. For most of the people, it's an emotional investment. It's something you get when you get married or when you have a birthday. So of course these are products that that have value, that are not a commodity that's another consumer electronics product that in one year you have to change because of the software change. Watches have always been of great value long term, long time, but not only because they keep a value money wise, They keep first of all an emotional value, and that's why you have so many collectors. I talked with many young people. They want to own watches because they love it, they know the history about it. Are the ones who don't know the history of the watches and the brands they want to own one. If at the same time you have add its value and it increases over time, it's even better. But that's not the first motivation to buy Swiss made watches. Nick, you mentioned the Moon Swatch. I know that's a collaboration between Swatch and Omega, which is a brand. You don't talk to us about the Moon Swatch. Yeah, you know, typically the Moon Swatch. It's an idea that started. First of all, I have a Pirates flagon in front of my office hanging out to to say, hey, you have to be a little bit more provocative. Swatch has always been has a message of joy of life and positive provocation. And in the beginning of twenty one, I was sitting in my office and I said, my god, we have to stop two to be without joy of life and without positive provocation. What could we do? And then of course came the idea was the new material of bios ramy. Why should we not offer the people in the world. There's a craze about luxury, why should we not make an exclusive product and I can that is watch who works with an I can that's Omega and bring to the people the story of the speed Master in a quality product and let it launch in our own stores. Let's not make e coomerce, and let's give the people a social and cultural components in what they are doing. And that's how the whole thing has been born. And then we kept its secret. Thanks to our strong industrial base we produce everything here in Switzerland, we could keep it totally secret, and we wanted to keep it secret because we were convinced this will be spectacular. It's something people were waiting for. They could not imagine that this is happening, but it happened, and of course nine months after, it's still booming, queuing everywhere in the world. It's not a limited edition, and it has proven that you can make an exclusive product without excluding people, creating accessibility. But nevertheless, the product is rare, it's not limited and there's no e commerce and it works. And by the way, Bloomberg has reported that we could perhaps make and sell half a million of these pieces but it's the double that we have already done, and our capacities are really difficult to increase further. It doesn't stop, and it shows how much hunger is out there for a desirable emotional product that is only costing too under six SS. Well, one of the issues or criticisms that your company has faced is simply the rollout of the Moon's Watch, specifically basically saying the short supply was a major issue. They're only available at brick and mortar spots, and there was a promise of online sales as well that never really materialized. Do you regret how that went? Is it influencing your strategy on future product rollouts? You are wrongly informed. We never communicated we do e commerce. This was an assumption in the market. They said, this is a mass product. They cannot be that it is not e commerce. From the moment we first talked about it to the launch there were only nine days and we never talked about e commerce. The people had these expectations and we said, no, it's only through a selective number of our own stores, and you can buy one product why time when you come to visit the store, and then when you come a second time you can buy another one. And it was clearly communicated. And it's not the shortage that we created. The demand created the shortage. There is a huge demand. You can go out there and see what is happening. This is an industrially fine product where everything has to develope from scratch. It's innovative new material, and we do it in our factories with our workers, the hands, the dials, everything has to be done. It's not suppliers somewhere in China, in Vietnam where you can order something, you have to do it, so you cannot just press the button and say okay, I want to do a new mobile phone and then I produce it with I don't know how many suppliers. This is done here in Switzerland and the consequences. We didn't want it that the people just can order it in e commerce. Why should you Why should you be comfortable at home and say, yes, I have the right when I ordered hamburger, I order it. Okay, it's not a burger. It is a fine product. If you want it, you have to move and then you meet other people, you discuss with them. Everybody knows what he's waiting for, and the people play the game and they like it. They come back and when you talk with most of the people, the ones that have not yet angry, but the ones who are coming all the time back, they have also a joyful approach because they meet again people and it's a common experience that they have. It's something different than e commerce. And you see what is important. We didn't do this product to make in the shortest period of time the maximum amount of money. It was not this. We wanted to create an entry possibility for younger people in the world to get interested into watches and don't feel excluded in getting access only on Swiss made watches that are costing six thousand, seven thousand, ten thousand dollars. That's what we wanted to do, and we wanted to bring them to the stores and it works. Hey, Nick, you know I went doing research for this discussion. You know, I was surprised to see how many brands that the Swatch company actually owns. So I'm wondering about M and A. How do you think about acquiring new brands? I mean, it's such a strong market for luxury items luxury watches. Is Swatch looking to make acquisitions and grow via acquisitions? We are not investors in uh, you know, you can ask this question some I don't know, some funds probably or whoever wants to invest money. I'm an industrialist. I invest money in our factories and in new products. We have enough brands we have from Burge, from Harry Winston to Bruge, Blanc, Omega, Loan, Genes, Watch. We have all the brands we need and we won't We don't need other ones. But what we need is to invest in our brands, in the innovation of the brands, and mood Swatch is the best example. This was disruptive. This creates new opportunities for everybody in the whole industry. And that's what we're going to do. To go and look what could we buy? No, we don't need to buy anything. Yes, we invest in our factories here in Switzerland and not somewhere else in the world, and in our workers and in our research and development. And that's what we are doing. There's no lead, nick. I just want to also get it when I when I talk to anybody in the luxury business, I need to get the call on China because China is such a big part of demand for luxury products across the board and of course with the pandemic, it's virtually shut down. How are you guys thinking about China as as a market for your products going forward. Yeah, it's wonderful because the Chinese people are very cultivated people, and they know about the value and the difference between a commodity or a consumer electronics product and define product that is coming from an authentic brand, and they love to know that. And it's doing the products themselves and they're not producing somewhere else in the world that they have ownership. And they like storytelling. Because China has a history of several thousand years, they have invented many things. So the Chinese consumer is totally open for authentic brands that can tell them a story and are really delivering the product was their own know how. And that's why the potential is huge, not only in the luxury is also in the entry level. It is this consumer, Henry, he wants to know, I said, I read the study of the Chinese consumer knows what a mechanical watches. They're fascinated, all right, Well, hopefully they can get in the US. In the US of the consumer knows what a mechanical watches because see, yeah, I know It's interesting to have to see how that plays out as a reopening of China, hopefully a big move for your company. Nick Hyake Jr. He's the CEO of swa watch group, joining us via zoom uh from Switzerland. We appreciate getting the update on the luxury watch business, which has seen some incredible demand through the pandemic. Just amazing. Okay, let's talk a little macro here round table. Joining us on a Bloomberg in our Actor Broker studios, Dr Quincy Crosby. She's chief global strategist for LPL Financial, her offices in charlottees' Ville, Virginia. I don't know how she worked out that scam. That's a great town down there. She joins us here in our studio. Plus Ben Emmon's had a fixed income for New Edge Wealth. He joins his via zoom um. So you know, Quincy, when he we woke up this morning and he saw that the federal that the Bank of Japan is raising rates. Boy, we haven't seen that in a long time. As you know, as a macro global strategists, what did that mean to you? Well, you know, I mean the expectations were that when left office, which was expected that that we would start to see a shift in yell curve control. That's what that's what they did. That came in in UH September, and the expectations were that that that would help actually help induce inflation, which as you know, is something that Japan is needed over many, many years. So it was a surprise they that they did it overnight, but but not a shock. So how do because it was a surprise but not a shock. And also just think about it. They've had to take care of of underpinning the yen as it started to collapse a number of times visa VI the US dollar. As the dollar strengthened with an aggressive fet it meant that they had to sell treasuries in order to do that. It cost them a lot of money. This was and on top of that, the most important things. Inflation is actually up now it's above three not not great, but it's above where they needed to be. So they've got to work on wages. They've got to get that up. Wages and is an issue for them. They want higher wages that they're working on that with companies. But again this was needed. The yeld curve control kept a very tight band. They needed to just be more flexible, and that's what they have. Ben hop on in here and give us your take on this shock but not shock kind of decision overnight. Yeah, Cudy, I think it was a shock for let's say specific markets right like so it was going as to talk about the end had a put substantial move, you know, three and a half percent rally. The end volatility just jumped and you see the explosions, same thing in interstave volatility in Japan. Yes, you're underneath your shock. But when it comes to the surprise, I think what people didn't expect that CRUDA would make this. I would think in someone of a savvy move ahead of the his his office when he leaves right in April. I think what he really did here is to kind of listen to the government and say, you do want to move to a different rate regime. I'm just opening the door here for you to allow you to change this in the future. Yet I'm still keeping legacy here because what they did do as well and announcing this in the statement overnight, is that they actually increase quantity leasing. But another that's sort of I think it was like nine trillion yend or so So there's a bit of a bit of both sides of the story here, right, Kruda is listening to the government then cs inflation time and meeting a goal. We can allow for more flexibility or for the tenure to move around to zero, you know, up and down fifty base points, but we do keep it quantec vision really large. Right, So so I think the market gott and said, Okay, this means just a very simple message. The end entertain here that have been really closely linked since August and twenty sixteen. That's now the coupling. That's just simply means that Japanese will have less demand for treasuries as the end strength is and they look for a more normalized interest rate environment in Japan. So Quincy, given that backdrop, we've now got the Bank of Japan joining most other central banks around the world and kind of throwing in the hat saying all right, I gotta let rates rise to fight inflation. One could argue that's bullish for stocks here, that maybe we got light at the end of the tunnel. How do you think about stocks? Well, I mean, we just go back to Japan for one minute. It's also hurting going to hurt their exports, because suddenly that becomes more expensive as the end goes up. But take a look at the banks. Uh, they're enjoying a recovery with net and the rest margin in Japan. But overall, I mean, what what LPL is looking for is the process of going through the first and second quarter, the Fed we believe will continue to raise rates albeit perhaps ago from fifty basis points to twenty and twenty five, and then um, you know, looking for another sell off that perhaps then kills the bear market and brings the valuations down to a compelling level where not just traders, this has been a trader's market for so long, but where investors start coming in and saying, look, the valuations are attractive, they're compelling. The economy is going to start to ease, particularly if you if you believe the Fed funds futures market and the Fed UH cuts rates and sometime in three or even early you start to move out of this period in which, uh, you know, you've you've got a difficult market, You're worried about earnings, you're worrying about margin compression, and how about this, Uh, the the fixed income market becomes attractive, albeit now with some concerns about volatility that we just have UH introduced because of the Japan's move, But nonetheless US UH fixed income treasuries have become UH as equal as the equity market in terms of UH long term investors. Well, QUIZI. It brings me to the fact that now that we are actually seeing some real yield in in in the market, which I think is getting to the point that you were just making. Do you then start to see, even in the face of a hawkers federal reserve, a bull case for treasuries forming that might actually suppress yields. Yes, I mean, obviously if you start to see even now now before Christmas, before the holiday season, let's put at the end of the year, you start to see the rebalancing of of huge portfolios, pension portfolios, they start to do a rebalancing, and that I think is going to bring in more money into the treasury market, which would actually help the government by by bringing yields down. Hey, Ben, so for it next year, do you have a recession in your forecast? There? And I so kind of the depths and lengthen and we think it's going to be a mild downturn ball um So maybe too. Quincy's point, like, you do have a fellow reserve that's slowing down rate heights and will end up at a restrictive level that they will keep in place where it takes away a lot of yourncertainty about interest rates. Right, So you're getting in that sense of flow, natural flow from pensions from other investors into interest rates, and that should at least keep borrowing costs controlled. And at the same time, I think that's the other story China reopening. I think we'll play a big role next year. We talked about it the last show. I think that will be potentially actually a counterway to all the say really recession fear that's out there, because it should lead to more global activity potentially um and then Lassie, it is also about that inflation, you know, with restrictive rates, is a really different inflation next year than it is this year. Every we should see lower inflation next year. That should lead to better you know, real income. So we think it's a milder downturn. But you cannot escape to Quincy's points, there is an earning secession that seems to be more likely, that may be a more severe one than the actual recession. The economic procession. Well, Ben, when we're not talking when we're talking about kind of a more severe recession, there seems to be this thought and the market that, well, don't worry because the Fed is going to cut rights as soon as we get there. Something at the Federal Reserve has vehemently denied. Why do you think that they're denying that when Sherman Powell has actively said that, look, the risk of overdoing it is actually less than the market would perceive because they have that ability to cut rates. What do you think, Yeah, I think that conundrum that you described creaty party again into the Quincey says you have a lot of flows coming into into fixed income now, so to an extent that gets influenced by the view of one, yes, the fact will not rates, you know, and at a high rate for for a long time. Right, they do this for a number of months and then have to shift. There's a view that as goods inflation is now really declining, it's just a matter of time and services inflation will decline fast to therefore inflation comes up much quicker, and the fact we'll have to move on rates and then last ye, it's about that idea of fact, it may not be such a severe recession or earning succession, so you know, you don't really need the fellows have to say that tight, right, it could actually uh, first course, and I think the fact wants to be really careful here about this on the seventies experience in particular, if you have a too hot economy, are you east too soon? You're gonna have to come back with major radararchs, right, that's the problem. All right, good, great stuff. Really appreciate that. Ben Emmon's head of fixed Income for New Edge Wealth joining us to be a zoom and Dr Quincy Crosby and Chief Global Strategies for LPL Financial, joining us here in our Bloomberg Interactive Broker studio. One of my first jobs on Wall Street way back in the day was a research assistant covering railroads and trucks for Jim Voyko and Tony Hatch, a couple of the legends of research in that business. So I've followed it with uh, you know ever since, railroads, trucks, the big ships, all that kind of good stuff. Unfortunately, for Bloomberg Intelligence, we have one of the best on Wall Street covering the stuff, Lee class Cow. He's a sector heads senior analyst covers all that freight, transportation, logistics, all that stuff for Bloomberg Intelligence and and Lee Boy. I mean, your industries are really important for the U. S and and global economy, but never more so they've been in It just feels like been at the top of conversation for so many people. We talk about bottlenecks and supply chains and and all that kind of stuff. Here, just give us now we're here in December, give us kind of a review of two. How did the you know, the logistics business kind of work? How did it perform in two? And then more importantly, what's the at look for next year? Hey, Paul, thanks for having me. I mean, I really think it's it's really depends on what sector you're looking at with within the market, and just generally speaking of the first half wasn't it was pretty good for a lot of sectors, and then the second half got a lot worse. Uh, and that that that weakness is flowing through three. You know, we saw a trucking rates come down considerably. Um, you know the spot market where uh, you know, we get to see a weekly rates and weekly supply and demand on ammics, you know, they change considerably from you know, when they peaked earlier in the year. You know, they're down around year of a year um and were We don't expect that market to really probably bottom until like the second quarter, so we expect spot rates and then the truckload market to continue to decline, and that's going to have you know, a ripple effect amongst a lot of different modes within North America. You know, because the cheaper that trucking is, um you know, the less competitive intermodal is, which is what railroads move. You know when you see those container boxes on a on a train, um and that and that is you know, is hoping to be an area of growth for the rails and which have struggled with service, which has also limited their ability to attract freight onto their networks. Well what does that that mean from a more labor perspective, because not too long ago there were trucking strikes in Canada and that's billed over into the US. There are railroad strikes that of course have been calmed now but certainly did affect a lot of the supply chain issues. Are we worried at all about the possibility of the labor situation getting worse in Uh. You know, the good news is that, you know, we we luckily inverted a rail strike last month when the federal government stepped in. Um, you know, there seems to be you know, some disagreement amongst the labor unions and management companies about sick days. Um. You know, my guess is that it is probably going to be more negotiated at a local level, which has historically been U and the rails kind of understand um, that their relationship with labor is shifted in a way. You know, a lot of them have adopted precisions scheduling railroading, which is for the most part six sigma for railroads. It's really about operating lean and sweating, sweating air assets. Um, they're gonna have to operate with a little more cushion. Um. You know, we attended to southerns Analyst Day a couple of weeks ago down in Atlanta, and you know, they were actually highlighting that the fact that you know that they're they're willing to have more people on hand versus you know, overly firing or furloughing I should say people. You know when volumes come down, because during this last cycle, you know, when volumes dried up in the first quarter of um, you know, and then all of a sudden they snapped back. They already furloughed a lot of people, and they realized once they were calling those workers back that a lot of them didn't want to come back, either, you know, to work because of the pandemic, or didn't want to come back to working on a railroad because they were better opportunities closer to home, you know, and working on a railroad, you know, it is a difficult job at outdoors. You're dealing with the elements. Uh. And you know a lot of times, you know, you're you're not necessarily home every night, so you know, you miss some family activities. So you know, it's it's a tougher work balance than a transportation analyst sot Lee. Um, the the supply chain, Are we back to quote unquote normal or normal ish? And give us a sense of kind of where we are when you when you look at the rails and the trucks and all that kind of stuff. Yeah, Well, well, since this is radio, I'll let everyone know I'm doing air quotes when I say normal, So you know, I think we are getting back to normal. Um. But you know, it is becoming a new normal. You know, the ports we're seeing in l a long beach to backups which were over you know, hundred and nine. I think that's when they peaked. Um. You know, they're down by low single digits right now. UM. You know you're seeing the throughput improved. The problem still remain. The warehouses are very full right now because people aren't necessarily buying stuff and a lot of retails might have overordered stuff. Um, and so there's not a place for new freight to come. So there's still that bottle of that kind of like inland within the supply chain that'll slowly work its way out. And there's also still you know, labor issues across the supply chain. You know. Um, while we're not necessarily talking about like driver shortages, um, but you know, it's still tough to get certain types of employers and certain types of markets. UM. You know the ones that the companies that are going to probably be best uh to to deal with this are being very creative. You know, you have trucking companies like XPO and Warner they have driving schools which you know helps them get new drivers into their system. UM. You know, there's things of that nature. They you know, we recently went to a facility at XPO, you know, and they have a program in place where you know, a dock worker can become a trailer technician, and that trailer technician going to become you know, a diesel mechanic, um, you know. And that progression is you know, not just changing of jobs, but it's you know, a higher paying job. So it's like kind of a career path for folks. And and so you know, I think companies are investing more in their employees, you know, to have them, um stay stay longer as opposed to turn over, and turnover in transportation tends to be typically high just because of the nature of the work that we discussed earlier. Well, UM, in our last thirty seconds lead, I have to ask you about the relationship between a lot of the countries here, so Canada, Mexico, as we talk about the outlook for rail specifically between UM the next year for those three countries, comply on the spot thirty seconds what do we have to watch for? Actually, I'm gonna say one thing, you know, the most exciting thing next year, and it has to do with all those countries that you mentioned is the merger of Ken Pacific in Kansas City, southern UH. That should be get the STB approval probably UH in the next couple months here, and that's going to create the first UH. I guess we can call it an apt to still a network. I don't know what we're calling it nowadays, but you know, it's really connecting the market those three markets. It's probably going to increase competition amongst its other class one here. So I think that's going to be the most interesting to see how that plays out in the execution of integrating those two rails. All right, good stuff, Lee, classical US sector head and senior analyste covers rails, trucks, logistics, all that kind of stuff. And it's obviously the backbone of the U. S economy in so many ways, touches a lot of different parts of the economy. That's why economists really track some of those metrics and data coming out of those transportation companies because they really give a reflection of goods and services that are being transported across the country. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple podcasts or whatever. Podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen se twenty three and on Faull Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio