1 00:00:00,800 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day, we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,520 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,600 --> 00:00:18,439 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:22,160 Speaker 1: at Bloomberg dot com slash podcast. China hits back at 7 00:00:22,280 --> 00:00:25,200 Speaker 1: us with sanctions on Lockheed and Raitheon. What's up with that? 8 00:00:25,440 --> 00:00:28,640 Speaker 1: It's checking with George Ferguson does at Aerospace stuff Airlines. 9 00:00:28,720 --> 00:00:31,880 Speaker 1: He's actually, if my eyes don't see me, actually in 10 00:00:32,000 --> 00:00:35,400 Speaker 1: the Bloomberg Interactive Broger George Ferguson in the office before 11 00:00:35,520 --> 00:00:37,959 Speaker 1: now He's fully embracing this work from the game in here, 12 00:00:37,960 --> 00:00:39,440 Speaker 1: and I was like, who is this? Who is this guy? 13 00:00:39,560 --> 00:00:41,760 Speaker 1: George Ferguson, Thanks for joining us. But I worked from 14 00:00:41,760 --> 00:00:45,760 Speaker 1: the Bucolic farms of Princeton to the office. But I 15 00:00:45,760 --> 00:00:48,000 Speaker 1: go to the Princeton off Yeah, it's like that's like 16 00:00:48,080 --> 00:00:51,960 Speaker 1: Bloomberg life. Yea. Um, George talked to us about this. 17 00:00:52,040 --> 00:00:54,240 Speaker 1: China hitting back sanctions on some of these big Garro 18 00:00:54,320 --> 00:00:57,160 Speaker 1: space companies Lockheed, Raitheon, give us a sense as to 19 00:00:57,440 --> 00:00:59,840 Speaker 1: how important this is or is not much to do 20 00:01:00,080 --> 00:01:03,320 Speaker 1: about nothing. So if the Chinese could buy something from 21 00:01:03,720 --> 00:01:07,880 Speaker 1: Raytheon Missile and Defense, not Broader Raytheon, they would, and 22 00:01:07,920 --> 00:01:11,480 Speaker 1: if they could buy something from Lockheed they would. They'll 23 00:01:11,480 --> 00:01:13,160 Speaker 1: never be able to buy anything for the defense sides 24 00:01:13,200 --> 00:01:16,000 Speaker 1: of those businesses. It was interesting too again they went 25 00:01:16,600 --> 00:01:18,600 Speaker 1: that's been the case for a long time, right, yes, okay, 26 00:01:18,640 --> 00:01:21,160 Speaker 1: I mean they always sanctioned these companies, And it was 27 00:01:21,240 --> 00:01:25,280 Speaker 1: interesting too that they made it Raytheon Missile and Defense, 28 00:01:25,360 --> 00:01:30,319 Speaker 1: right because Raytheon makes the geared turbofan which powers about 29 00:01:30,400 --> 00:01:33,520 Speaker 1: half of the airbus A three narrow bodies in the world. 30 00:01:35,080 --> 00:01:37,919 Speaker 1: China is a GE country. There's a lot of GE 31 00:01:37,959 --> 00:01:42,440 Speaker 1: powered aircraft, but there is some Pratt powered A three 32 00:01:42,440 --> 00:01:46,080 Speaker 1: twenties in the country. So if China sanctioned Broader Raytheon, 33 00:01:46,600 --> 00:01:48,560 Speaker 1: they probably wouldn't be able to get spare parts for 34 00:01:48,560 --> 00:01:51,200 Speaker 1: those airplanes. They wouldn't be able to compete the engine 35 00:01:51,200 --> 00:01:54,840 Speaker 1: contract against Ge. So they're a bit, you know, stuck 36 00:01:54,880 --> 00:01:56,360 Speaker 1: in the middle of that whole thing. And that's why 37 00:01:56,360 --> 00:01:59,600 Speaker 1: they went down for for the big aerospace companies that 38 00:01:59,600 --> 00:02:02,520 Speaker 1: you cover, what percentage of their business is China general. 39 00:02:02,600 --> 00:02:05,640 Speaker 1: I mean, for for well, Boeing right now is out right, 40 00:02:05,680 --> 00:02:08,600 Speaker 1: because the Chinese haven't started to take their deliveries. It 41 00:02:08,760 --> 00:02:11,920 Speaker 1: used to be of their business, right, and so so 42 00:02:11,960 --> 00:02:15,639 Speaker 1: we would sell commercial We the US aerospace companies would 43 00:02:15,639 --> 00:02:18,600 Speaker 1: sell commercial stuff to them. Military yes, okay, I mean 44 00:02:18,840 --> 00:02:20,960 Speaker 1: really no military stuff at all going in there from 45 00:02:20,960 --> 00:02:24,000 Speaker 1: the US. Very very commercial and very important, isn't the 46 00:02:24,000 --> 00:02:27,360 Speaker 1: Michael Creighton book which was from like the eighties, right, 47 00:02:27,440 --> 00:02:30,920 Speaker 1: that's even that is about like wing construction and how 48 00:02:30,919 --> 00:02:33,000 Speaker 1: they didn't want to let the Chinese know how they 49 00:02:33,000 --> 00:02:36,840 Speaker 1: built the wings. What was that airframe? You know? So 50 00:02:37,120 --> 00:02:39,040 Speaker 1: I don't know that I've read that book, but I 51 00:02:39,040 --> 00:02:40,880 Speaker 1: can tell you, you you know, the the update on that 52 00:02:41,040 --> 00:02:44,000 Speaker 1: is one the Chinese and making their own airplane, the 53 00:02:44,080 --> 00:02:47,079 Speaker 1: Comacs C nine one nine, right, So they know how 54 00:02:47,080 --> 00:02:49,400 Speaker 1: to make wings and they know how to make fuselages. 55 00:02:49,720 --> 00:02:51,680 Speaker 1: We've been doing that there for a while. But if 56 00:02:51,680 --> 00:02:56,200 Speaker 1: you look at their airliner, it's supplied almost entirely by 57 00:02:56,280 --> 00:02:59,960 Speaker 1: Western manufacturers, right, So the engines are coming from West 58 00:03:00,000 --> 00:03:05,240 Speaker 1: and manufactures the avionics Western I'm talking European US. I 59 00:03:05,280 --> 00:03:07,760 Speaker 1: think some of those manufacturers very careful about what level 60 00:03:07,760 --> 00:03:11,079 Speaker 1: of technology they build in the country and they put 61 00:03:11,120 --> 00:03:14,239 Speaker 1: on the airplane, but they have down you know that 62 00:03:14,240 --> 00:03:17,480 Speaker 1: that kind of aerostructure stuff. Aero structures is sort of 63 00:03:17,520 --> 00:03:19,880 Speaker 1: the low hanging fruit in the business. The big stuff 64 00:03:19,960 --> 00:03:23,800 Speaker 1: is engines, avionics. So is there is there any pressure 65 00:03:23,840 --> 00:03:27,880 Speaker 1: on these Western aerospace companies too, maybe cut off all 66 00:03:27,880 --> 00:03:31,320 Speaker 1: business with China, including the commercial stuff. Just it just 67 00:03:31,360 --> 00:03:34,000 Speaker 1: feels like things are getting worse by the day. And 68 00:03:34,000 --> 00:03:36,640 Speaker 1: I'm wondering if that's big business. But it's big exports 69 00:03:36,640 --> 00:03:39,280 Speaker 1: for the U. S economy. It is big exports, very 70 00:03:39,280 --> 00:03:41,920 Speaker 1: important to the US economy. I haven't heard anybody talk 71 00:03:41,960 --> 00:03:45,360 Speaker 1: about cutting off. There's a lot of concern about technology. 72 00:03:45,400 --> 00:03:47,840 Speaker 1: I do think too. If you're an engine maker, you 73 00:03:47,880 --> 00:03:50,000 Speaker 1: have to remember these engine makers have been making a 74 00:03:50,000 --> 00:03:52,200 Speaker 1: lot of them have making engines since World War Two. 75 00:03:52,760 --> 00:03:55,480 Speaker 1: There's a lot of intellectual property inside those engines that 76 00:03:55,520 --> 00:03:58,160 Speaker 1: are it's really hard to replicate, and I think they're 77 00:03:58,160 --> 00:04:01,120 Speaker 1: trying to be very very careful about making sure that 78 00:04:01,160 --> 00:04:03,840 Speaker 1: doesn't leak, you know, in sort of an industrial spl 79 00:04:03,920 --> 00:04:06,680 Speaker 1: Look what just happened with the SML right um that 80 00:04:07,000 --> 00:04:10,960 Speaker 1: they make the equipment that makes chips, and we're worried 81 00:04:11,000 --> 00:04:15,040 Speaker 1: that one employee has taken information and given it to 82 00:04:15,080 --> 00:04:18,760 Speaker 1: the Chinese. I imagine they could have a trouble, have 83 00:04:18,839 --> 00:04:24,320 Speaker 1: trouble even hiring employees from Raytheon or from Rolls Royce, 84 00:04:24,560 --> 00:04:26,680 Speaker 1: you know. But I can't I can't understand why they 85 00:04:26,680 --> 00:04:29,080 Speaker 1: wouldn't you know that they're already doing so well and 86 00:04:29,160 --> 00:04:31,560 Speaker 1: making cars, and that effort has only been underway for 87 00:04:31,600 --> 00:04:33,880 Speaker 1: a couple of decades. Why don't they start making some 88 00:04:33,920 --> 00:04:36,320 Speaker 1: of the stuff themselves and hire as many people as 89 00:04:36,320 --> 00:04:40,240 Speaker 1: they can from Boeing and Lockeed Martin Well again, because 90 00:04:40,240 --> 00:04:43,080 Speaker 1: I think sort of the big technology is the engine technology. 91 00:04:43,160 --> 00:04:46,000 Speaker 1: There's a real you know, there's a real art inside that. 92 00:04:46,080 --> 00:04:49,520 Speaker 1: So Pratt and Whitney, Rolls Royce ge right, So that 93 00:04:49,520 --> 00:04:52,440 Speaker 1: that's the real sort of art in this business. Um 94 00:04:53,040 --> 00:04:56,640 Speaker 1: and uh, that's not made in China, right, And so 95 00:04:57,000 --> 00:04:58,640 Speaker 1: I think they just have a harder time fund, you know, 96 00:04:58,680 --> 00:05:02,720 Speaker 1: pulling people out of those companies. He's into China, um, 97 00:05:02,920 --> 00:05:04,839 Speaker 1: you know. And I think it's I don't think any 98 00:05:04,880 --> 00:05:08,040 Speaker 1: one person at Raytheon and g understands all the magic 99 00:05:08,120 --> 00:05:10,640 Speaker 1: behind the engine. So that's another way you kind of 100 00:05:10,640 --> 00:05:14,360 Speaker 1: firewall the intellectual property. But that's it is concerning. Again, 101 00:05:14,400 --> 00:05:16,960 Speaker 1: They've been doing it since World War Two, I think, 102 00:05:17,000 --> 00:05:20,520 Speaker 1: improving these processes and how they make these engines, engines 103 00:05:20,560 --> 00:05:22,920 Speaker 1: getting hotter. You know, some of these engines run at 104 00:05:22,920 --> 00:05:26,000 Speaker 1: temperatures that would that would melt some of the products inside, 105 00:05:26,040 --> 00:05:29,599 Speaker 1: you know, the components inside the engine. Special codings helped them, 106 00:05:30,160 --> 00:05:33,720 Speaker 1: you know, help them last longer and not melt, like 107 00:05:33,800 --> 00:05:36,600 Speaker 1: a lot of science inside there. And I think those 108 00:05:36,600 --> 00:05:38,680 Speaker 1: companies are very very protective about that. I was talking 109 00:05:38,720 --> 00:05:42,160 Speaker 1: to for a today, Um, the CEO of air Bus, 110 00:05:42,440 --> 00:05:44,800 Speaker 1: and one of the questions that I didn't have time 111 00:05:44,839 --> 00:05:47,880 Speaker 1: to ask him is what are you doing about materials 112 00:05:47,960 --> 00:05:51,160 Speaker 1: that you've had trouble getting from Russia? For example, titanium. 113 00:05:51,200 --> 00:05:54,240 Speaker 1: It's my favorite metal by those Okay, I love it, Um, 114 00:05:54,279 --> 00:05:57,440 Speaker 1: And I guess you have to get the stuff. Also. 115 00:05:57,480 --> 00:05:59,359 Speaker 1: The Chinese have a lot of the rare earths, but 116 00:05:59,440 --> 00:06:00,960 Speaker 1: maybe they have trouble getting a lot of the other 117 00:06:01,040 --> 00:06:03,719 Speaker 1: stuff that goes into these engines. No, I don't. I 118 00:06:03,720 --> 00:06:06,000 Speaker 1: don't know that they have any difficulty. Again, I think, 119 00:06:06,040 --> 00:06:08,120 Speaker 1: you know, Russia is a is a good source for 120 00:06:08,160 --> 00:06:10,400 Speaker 1: a bunch of these medals, and I think the China, 121 00:06:10,640 --> 00:06:14,760 Speaker 1: Chinese won't have any you know, good relationship out of Russia. 122 00:06:15,320 --> 00:06:17,000 Speaker 1: Airbus was even getting some of the stuff out of 123 00:06:17,040 --> 00:06:21,800 Speaker 1: Russia until recently they've they've they've trailed that back. And 124 00:06:22,000 --> 00:06:23,559 Speaker 1: you know, you have to remember too, some of these 125 00:06:23,560 --> 00:06:27,039 Speaker 1: medals have been stockpiled because aircraft builds weren't as high 126 00:06:27,040 --> 00:06:29,240 Speaker 1: as they you know, coming out of the pandemic, weren't 127 00:06:29,279 --> 00:06:31,960 Speaker 1: as high as expected. So some of the West has 128 00:06:32,000 --> 00:06:35,120 Speaker 1: been burning through some of these stockpiles, and these medals 129 00:06:35,120 --> 00:06:36,800 Speaker 1: may become more of a problem here in the next 130 00:06:36,880 --> 00:06:39,000 Speaker 1: next few years. We can't talk out of space without 131 00:06:39,000 --> 00:06:40,960 Speaker 1: talking about our good friends I'm going to still refer 132 00:06:41,000 --> 00:06:43,159 Speaker 1: to them from Seattle and that is Bowing. Forget the 133 00:06:43,240 --> 00:06:45,880 Speaker 1: Chicago and now Washington. That gigantic order. You were talking 134 00:06:45,880 --> 00:06:48,360 Speaker 1: about this gigantic orders touch us about Bowing. What's happening 135 00:06:48,360 --> 00:06:50,680 Speaker 1: there again? We saw this big order from Air Indian 136 00:06:50,680 --> 00:06:53,120 Speaker 1: mounts referencing. I mean, I think the you know, the 137 00:06:53,279 --> 00:06:57,240 Speaker 1: bowing continues to uh sort of right the ship, I 138 00:06:57,240 --> 00:07:00,640 Speaker 1: would say, right, they're driving for hyperduct ger rates, which 139 00:07:00,680 --> 00:07:04,240 Speaker 1: is really what they need to boost profitability. I think 140 00:07:04,240 --> 00:07:07,640 Speaker 1: the Air India order another in a string of good 141 00:07:07,760 --> 00:07:09,960 Speaker 1: orders they've had recently. I'd say some of the higher 142 00:07:10,040 --> 00:07:13,880 Speaker 1: qualities were probably you know the Southwest, the United some 143 00:07:13,960 --> 00:07:17,280 Speaker 1: of those core customers, even you know the Ryanairs, Um 144 00:07:17,360 --> 00:07:19,720 Speaker 1: Air India, you know. Bowings challenge in India is they 145 00:07:19,760 --> 00:07:21,840 Speaker 1: don't have a good dog in the fight, right in 146 00:07:21,840 --> 00:07:24,880 Speaker 1: every economy, you want to have a really good airline 147 00:07:24,920 --> 00:07:27,720 Speaker 1: that's taken market share. So as they take market share, 148 00:07:27,720 --> 00:07:30,640 Speaker 1: you could be pumping airplanes into them. And air Bus 149 00:07:30,640 --> 00:07:34,000 Speaker 1: has it with with Indigo Indigoes, you know, very fast growing, 150 00:07:34,200 --> 00:07:36,880 Speaker 1: low cost airline in India. That's why Air India was 151 00:07:36,920 --> 00:07:39,840 Speaker 1: a bit of a prize. We thought that that order 152 00:07:39,880 --> 00:07:42,720 Speaker 1: was going to go entirely to Boeing. It got divided. 153 00:07:42,720 --> 00:07:44,679 Speaker 1: It felt to me a little bit like the American 154 00:07:44,720 --> 00:07:47,320 Speaker 1: Airlines order back, you know, back in the day when 155 00:07:47,320 --> 00:07:49,720 Speaker 1: the Neo was launched and the Max was launched, when 156 00:07:49,720 --> 00:07:52,240 Speaker 1: American Airlines made went into the room to negotiate and 157 00:07:52,240 --> 00:07:54,560 Speaker 1: they said, we got two great offers, we'll take them 158 00:07:54,600 --> 00:07:57,680 Speaker 1: both right, and that sets up a fight down the 159 00:07:57,760 --> 00:08:01,160 Speaker 1: road again to be that you know provider to Air 160 00:08:01,280 --> 00:08:05,080 Speaker 1: India again. Boeing really needs it, but Air India is 161 00:08:05,080 --> 00:08:07,760 Speaker 1: probably gonna squeeze you on price. So the challenge is 162 00:08:08,160 --> 00:08:09,760 Speaker 1: how bad do you want to be in India? How 163 00:08:09,840 --> 00:08:11,440 Speaker 1: much do you want to discount to be in India? 164 00:08:11,680 --> 00:08:13,480 Speaker 1: But I think Boeing really wants to be in India, 165 00:08:13,520 --> 00:08:15,320 Speaker 1: so it was a nice order from that standpoint. It 166 00:08:15,320 --> 00:08:16,720 Speaker 1: would have been better for them if it wasn't. What 167 00:08:16,760 --> 00:08:18,920 Speaker 1: an economy to tap I mean one point four billion 168 00:08:18,920 --> 00:08:21,320 Speaker 1: people and growing plus young people that are gonna keep 169 00:08:21,360 --> 00:08:23,040 Speaker 1: flying for the rest of their lives, and it's not 170 00:08:23,160 --> 00:08:25,720 Speaker 1: and it's not China and coming out of the pandemic. 171 00:08:25,760 --> 00:08:28,600 Speaker 1: I think we watched China shut down and that was 172 00:08:28,680 --> 00:08:31,680 Speaker 1: so painful, and yet Boeing still out of there. So 173 00:08:31,800 --> 00:08:36,000 Speaker 1: China being a much more open economy society, I think 174 00:08:36,000 --> 00:08:37,640 Speaker 1: a better place to be a longer run. All right, 175 00:08:37,679 --> 00:08:40,400 Speaker 1: George first, and he covers the airspace, he covers the airlines, 176 00:08:40,440 --> 00:08:44,360 Speaker 1: anything that flies basically is in George's remit good guy. 177 00:08:44,720 --> 00:08:46,440 Speaker 1: He is a US Army veterans, so we thank him 178 00:08:46,440 --> 00:08:53,160 Speaker 1: for his service as always. How Bacco soon joins us here. 179 00:08:53,160 --> 00:08:56,120 Speaker 1: He's a co portfolio manager for Hennessey Funds E S G, 180 00:08:56,679 --> 00:08:59,560 Speaker 1: Large Cap e t F Kyle. I mean we've seen 181 00:08:59,640 --> 00:09:01,679 Speaker 1: some weak us in the market today, but you know, 182 00:09:01,920 --> 00:09:04,640 Speaker 1: rallying a little bit this year to date versus the 183 00:09:04,640 --> 00:09:08,640 Speaker 1: disaster disaster that was. What are you telling your clients, 184 00:09:08,640 --> 00:09:10,280 Speaker 1: what are you telling your fund managers? What are you 185 00:09:10,280 --> 00:09:13,760 Speaker 1: telling your analysts about how they should think about positioning 186 00:09:13,880 --> 00:09:19,120 Speaker 1: themselves in UM, I'd say is going to be an 187 00:09:19,160 --> 00:09:23,080 Speaker 1: interesting year after what we had was a major correction 188 00:09:23,160 --> 00:09:26,960 Speaker 1: and evaluates in the twenty two where names that I 189 00:09:27,000 --> 00:09:30,400 Speaker 1: think had some very ambitious growth prospects go out of 190 00:09:30,440 --> 00:09:34,440 Speaker 1: the reality checked by the prospect of delivering that growth 191 00:09:34,440 --> 00:09:37,360 Speaker 1: in a higher interest rate environment caused which caused something 192 00:09:37,360 --> 00:09:40,559 Speaker 1: significant declines. I think this year we've seen a lot 193 00:09:40,559 --> 00:09:44,760 Speaker 1: of those same names recover a bit of the losses. UM. 194 00:09:45,120 --> 00:09:48,719 Speaker 1: In terms of like January, I'd say we think it's 195 00:09:48,760 --> 00:09:51,280 Speaker 1: been a bit of a kind of a garbage rally 196 00:09:51,280 --> 00:09:53,400 Speaker 1: where the stuff like I Beeping up the most has 197 00:09:53,480 --> 00:09:59,280 Speaker 1: rallied significantly. UM. We're looking at Orange quite closely. By 198 00:09:59,280 --> 00:10:02,680 Speaker 1: the way, Kyle, was you think that was people who 199 00:10:02,920 --> 00:10:06,200 Speaker 1: sold stocks at a loss last year for tax purposes, 200 00:10:06,400 --> 00:10:10,160 Speaker 1: we're just getting back in them. Or UM, was it 201 00:10:10,280 --> 00:10:13,679 Speaker 1: that people who shorted them down into two or covering 202 00:10:13,720 --> 00:10:16,760 Speaker 1: those shorts or you know what, what why why was 203 00:10:16,800 --> 00:10:20,160 Speaker 1: this garbage rally occurring? I think there's a couple of 204 00:10:20,200 --> 00:10:23,920 Speaker 1: different forces. When we have the what I call retirement, 205 00:10:23,920 --> 00:10:26,640 Speaker 1: which is a very powerful force for investors who are 206 00:10:26,640 --> 00:10:29,720 Speaker 1: effectively forced to buy, and a lot of them have 207 00:10:29,840 --> 00:10:34,559 Speaker 1: been just seeing that influence. We've also seen some repositioning 208 00:10:34,559 --> 00:10:38,280 Speaker 1: where some investors have said, look, these valuations look quite 209 00:10:38,280 --> 00:10:41,320 Speaker 1: attractive now and I'm gonna I'm gonna actually move some 210 00:10:41,400 --> 00:10:45,640 Speaker 1: cash into names like UM that Tesla and other names 211 00:10:45,640 --> 00:10:48,600 Speaker 1: that have been i'd say that have taken a significant 212 00:10:48,600 --> 00:10:51,840 Speaker 1: beat down where their core businesses are Actually, we're actually 213 00:10:52,040 --> 00:10:55,359 Speaker 1: relatively strong when wh when you look at the evaluation 214 00:10:55,480 --> 00:10:59,679 Speaker 1: declines that have occurred UM in terms of tax loss harvesting, 215 00:11:00,160 --> 00:11:03,200 Speaker 1: I do think that's a relatively powerful force, although I 216 00:11:03,240 --> 00:11:06,400 Speaker 1: don't I highly doubt that most of those trades would 217 00:11:06,400 --> 00:11:10,600 Speaker 1: have come in exactly on that timing yet, So I 218 00:11:10,600 --> 00:11:12,839 Speaker 1: think there are a variety of different courses going on. 219 00:11:13,600 --> 00:11:15,480 Speaker 1: The other big one I think that's we're going to 220 00:11:15,559 --> 00:11:17,280 Speaker 1: see it's becoming more and more of a trend is 221 00:11:17,440 --> 00:11:21,240 Speaker 1: UM as earnings and macro data comes out, as which 222 00:11:21,320 --> 00:11:24,400 Speaker 1: names will have will be more attractive. So our name 223 00:11:24,440 --> 00:11:27,680 Speaker 1: has dropped fifty six from last year. UM effectively has 224 00:11:27,920 --> 00:11:31,040 Speaker 1: seen evaluation. Couldn't happen if those names are still are 225 00:11:31,080 --> 00:11:33,520 Speaker 1: still growing up, although at a much slower rate, it 226 00:11:33,559 --> 00:11:38,280 Speaker 1: might be quite attractive to investors. So talk to us 227 00:11:38,320 --> 00:11:40,280 Speaker 1: about health care. I know that's a space you guys, like, 228 00:11:40,360 --> 00:11:43,840 Speaker 1: what's your thesis on healthcare here? As we you know, 229 00:11:43,920 --> 00:11:46,560 Speaker 1: come out of this pandemic, maybe get into more normalized. 230 00:11:46,720 --> 00:11:50,640 Speaker 1: I guess kind of a health scenario, I mean health 231 00:11:50,640 --> 00:11:53,120 Speaker 1: care are I always joke that it's a fake UM 232 00:11:53,600 --> 00:11:56,800 Speaker 1: sector name in that there's a lot of diversification in there. 233 00:11:56,800 --> 00:12:00,560 Speaker 1: As you have in germs names, you have m biotech 234 00:12:00,640 --> 00:12:04,040 Speaker 1: research names, you have more established blake ship like farmer names, 235 00:12:04,400 --> 00:12:07,440 Speaker 1: you have retail like names. So we actually quite like 236 00:12:07,600 --> 00:12:10,080 Speaker 1: health care and that our quantum models find a lot 237 00:12:10,120 --> 00:12:13,240 Speaker 1: of diversification in there. UM we always tend to be 238 00:12:13,280 --> 00:12:16,960 Speaker 1: overweight because of that. UM we actually like some of 239 00:12:16,960 --> 00:12:20,600 Speaker 1: the names as as names normalized in terms of being 240 00:12:20,600 --> 00:12:24,160 Speaker 1: the growth of insurance plans we are, we see, we 241 00:12:24,240 --> 00:12:27,559 Speaker 1: see and forecast some growth on the on the use 242 00:12:27,600 --> 00:12:31,719 Speaker 1: of labs that the effectively the country's getting older and 243 00:12:32,040 --> 00:12:35,240 Speaker 1: health care ugalization is going up if you think about it, 244 00:12:35,280 --> 00:12:37,560 Speaker 1: with everyone's having to kind of I'm not gonna use 245 00:12:37,600 --> 00:12:39,599 Speaker 1: the word high, but have been at home to the 246 00:12:39,720 --> 00:12:43,200 Speaker 1: last Year's not everyone, obviously, there's a lot of people 247 00:12:43,240 --> 00:12:46,520 Speaker 1: who've been out and about, but there's a large segment 248 00:12:46,520 --> 00:12:49,880 Speaker 1: of the population that has not been using healthcare resources 249 00:12:49,920 --> 00:12:53,400 Speaker 1: as they normally would in a non pandemic environment, and 250 00:12:53,440 --> 00:12:57,560 Speaker 1: we do expect that utilization to go back up. That's 251 00:12:57,559 --> 00:12:59,280 Speaker 1: a great that's a great point. You know, a lot 252 00:12:59,320 --> 00:13:02,840 Speaker 1: of people probably during the pandemics, I don't need to 253 00:13:02,880 --> 00:13:06,440 Speaker 1: go to the dermatologist. I don't need to go check 254 00:13:06,480 --> 00:13:10,080 Speaker 1: out my tennis elbow, you know, those little or things, 255 00:13:10,200 --> 00:13:12,080 Speaker 1: right or what we perceive as little or at least 256 00:13:12,120 --> 00:13:16,800 Speaker 1: the beginning. Um, now that everything's open and clear, you 257 00:13:16,840 --> 00:13:20,360 Speaker 1: make as many appointments as you can. Well, it's not 258 00:13:20,400 --> 00:13:22,800 Speaker 1: only that, it's also it's a bit easier to go 259 00:13:23,320 --> 00:13:25,560 Speaker 1: to get right now. I mean, at the height of 260 00:13:25,559 --> 00:13:28,800 Speaker 1: the pandemic, your doctor might be remote only it might 261 00:13:28,840 --> 00:13:34,280 Speaker 1: require um significant masking sensation protocols of fact the nations. 262 00:13:34,559 --> 00:13:36,880 Speaker 1: Now things are kind of normalizing, you don't need all 263 00:13:36,920 --> 00:13:39,160 Speaker 1: of that. Yeah, you still got to wear the mask. 264 00:13:39,240 --> 00:13:42,840 Speaker 1: Unfortunately I go to HSS for my for my physical 265 00:13:42,880 --> 00:13:46,800 Speaker 1: therapy tennis elbow, squash elbow, I got to wear a mask. 266 00:13:46,960 --> 00:13:48,600 Speaker 1: I think that might be something for a very long 267 00:13:48,640 --> 00:13:51,839 Speaker 1: time in those kinds of environments. So, Kyle, you talk 268 00:13:51,880 --> 00:13:54,840 Speaker 1: about the quant background, what's the quant model you guys 269 00:13:55,640 --> 00:13:59,920 Speaker 1: used today and how is it performed? I'd say are 270 00:14:00,320 --> 00:14:03,320 Speaker 1: Our plant process has evolved a lot over the last 271 00:14:03,360 --> 00:14:08,160 Speaker 1: nine years. So we started off in kind of intersecting 272 00:14:09,120 --> 00:14:13,679 Speaker 1: machine learning for investment views and what I call rules 273 00:14:13,679 --> 00:14:17,160 Speaker 1: basest screens for values alignment, and the name that has 274 00:14:17,240 --> 00:14:21,360 Speaker 1: both an expectation about performance from the machine learning and 275 00:14:21,640 --> 00:14:24,640 Speaker 1: a values alignment signal from our e STG process. You 276 00:14:24,680 --> 00:14:28,000 Speaker 1: can think of as a potential long um, we've been 277 00:14:28,040 --> 00:14:31,920 Speaker 1: blending a variety of different types of what i'd call 278 00:14:31,960 --> 00:14:34,800 Speaker 1: them quantamental factors, So things like having our own in 279 00:14:34,840 --> 00:14:40,280 Speaker 1: house sales growth forecast, our own relative valuation model, our 280 00:14:40,320 --> 00:14:44,760 Speaker 1: own um time series framework, and we we we we 281 00:14:45,000 --> 00:14:47,920 Speaker 1: combine all that with very tracditional metrics too, and we 282 00:14:48,000 --> 00:14:50,600 Speaker 1: kind of let the machine figure kind of wait and 283 00:14:50,680 --> 00:14:52,880 Speaker 1: deal with all of this, and it's our job to 284 00:14:52,920 --> 00:14:56,239 Speaker 1: feed better things in there um in terms of performance 285 00:14:56,360 --> 00:14:59,600 Speaker 1: we've had as a firm, we've had quite strong performance. 286 00:14:59,600 --> 00:15:04,320 Speaker 1: Although nine years UM we recently launched an ETS in 287 00:15:04,360 --> 00:15:08,320 Speaker 1: March one. We had quite significant out performance last year. 288 00:15:08,600 --> 00:15:10,880 Speaker 1: What was the t F S t n C S 289 00:15:10,920 --> 00:15:16,440 Speaker 1: t nc UM. Yeah, the Hennessey Stants UM s G 290 00:15:16,640 --> 00:15:20,560 Speaker 1: t f UM. I'd say last year was quite interesting 291 00:15:20,600 --> 00:15:24,040 Speaker 1: in that our quant model, which was saying, i'll say 292 00:15:24,400 --> 00:15:27,560 Speaker 1: Q one, for example, what it was saying to buy 293 00:15:27,920 --> 00:15:30,920 Speaker 1: energy names which are U s G process promptly rejected. 294 00:15:31,560 --> 00:15:33,280 Speaker 1: So if I look at Q one, which was a 295 00:15:33,280 --> 00:15:36,840 Speaker 1: bad quarter for us on a relative to benchmark basis 296 00:15:36,840 --> 00:15:39,480 Speaker 1: of last year, a lot of the under performance was 297 00:15:39,520 --> 00:15:42,440 Speaker 1: simply because we couldn't get access to those energy names, 298 00:15:42,440 --> 00:15:47,800 Speaker 1: which went up in one case over nine probably because 299 00:15:47,880 --> 00:15:51,840 Speaker 1: the SC signal said no, I was just gonna ask 300 00:15:52,080 --> 00:15:54,440 Speaker 1: E s G is E s G something you slap 301 00:15:54,480 --> 00:15:56,600 Speaker 1: on an E t F are a fund the way 302 00:15:57,040 --> 00:15:59,760 Speaker 1: UM companies used to do with blockchain and their names 303 00:15:59,760 --> 00:16:02,880 Speaker 1: so that people would think it was cool or UM. 304 00:16:02,920 --> 00:16:05,760 Speaker 1: I guess your models limit you do they help you 305 00:16:05,800 --> 00:16:08,480 Speaker 1: in anyway? As E s G been a tail wind 306 00:16:08,560 --> 00:16:11,480 Speaker 1: because you were up I mean at least the last 307 00:16:11,480 --> 00:16:15,840 Speaker 1: twelve months, stances up like seven percent, right, so you've 308 00:16:15,840 --> 00:16:20,000 Speaker 1: done well. Yep, we we we have done well. But 309 00:16:20,040 --> 00:16:21,800 Speaker 1: I would say I don't think I B. S G 310 00:16:21,920 --> 00:16:23,920 Speaker 1: is having to help or heard us. I actually think 311 00:16:23,960 --> 00:16:26,520 Speaker 1: it gives us simply a list of names that are 312 00:16:26,560 --> 00:16:30,680 Speaker 1: more values aligned with the data of our clientele in process, 313 00:16:30,800 --> 00:16:33,840 Speaker 1: and we actually think it's a firm. There's no alpha 314 00:16:33,880 --> 00:16:36,400 Speaker 1: in E. S G. But because there's no alpha, it's 315 00:16:36,400 --> 00:16:40,800 Speaker 1: effectively a free lunch. I can generate out performance from 316 00:16:40,800 --> 00:16:43,200 Speaker 1: the use of quant models, I can build a more 317 00:16:43,320 --> 00:16:47,440 Speaker 1: risk efficient portfolio to the use of optimization, and if 318 00:16:47,480 --> 00:16:49,920 Speaker 1: I can actually have a process. In our case, we 319 00:16:50,040 --> 00:16:53,240 Speaker 1: actually have a systematic process that tries to pick the 320 00:16:53,880 --> 00:16:56,400 Speaker 1: best names from each industry group as a function of 321 00:16:56,960 --> 00:17:03,760 Speaker 1: sector specific indicators things like clean avenue, diversity, re resource efficiency, UH, 322 00:17:04,240 --> 00:17:07,600 Speaker 1: how they treat their workers. And also we also look 323 00:17:07,640 --> 00:17:09,840 Speaker 1: at a lot of third party data in terms of 324 00:17:09,880 --> 00:17:13,520 Speaker 1: bad lists where terms have been flagged for illegal behavior, 325 00:17:14,280 --> 00:17:18,280 Speaker 1: non compliance fines, and we find the intersection of those 326 00:17:19,000 --> 00:17:21,639 Speaker 1: of those two processes tends to yield a more what 327 00:17:21,720 --> 00:17:24,919 Speaker 1: I call values aligned portfolio. So I'd say it's not 328 00:17:25,000 --> 00:17:27,520 Speaker 1: something you slap on if you're gonna do it you 329 00:17:27,560 --> 00:17:31,160 Speaker 1: need to have a very explainable process and a way 330 00:17:31,160 --> 00:17:34,280 Speaker 1: to show that why a company isn't our out, which 331 00:17:34,280 --> 00:17:37,399 Speaker 1: I think is very important, versus saying, um, we actually 332 00:17:37,560 --> 00:17:40,879 Speaker 1: critique as a firm the I'm gonna have some vendor 333 00:17:41,000 --> 00:17:43,159 Speaker 1: r E s G score and just to fire this 334 00:17:43,200 --> 00:17:46,399 Speaker 1: through my tracking error optimizer to have the highest on 335 00:17:46,480 --> 00:17:49,040 Speaker 1: the sc score, but give me back the SNP. I 336 00:17:49,040 --> 00:17:52,160 Speaker 1: don't really think that's a good approach from product standpoint, 337 00:17:52,160 --> 00:17:55,040 Speaker 1: as you're just trying to effectively sell the SNP with 338 00:17:56,240 --> 00:18:00,520 Speaker 1: more fees. Just real quickly, thirty seconds. Give us your 339 00:18:00,520 --> 00:18:05,280 Speaker 1: opinion on has E S G enthusiasm peaked? I don't 340 00:18:05,280 --> 00:18:08,080 Speaker 1: think so. I actually think um, I actually think it's 341 00:18:08,080 --> 00:18:11,119 Speaker 1: continuing to peaks. I always joke about this and when 342 00:18:11,160 --> 00:18:13,000 Speaker 1: I say that anti E S T product is E 343 00:18:13,160 --> 00:18:15,400 Speaker 1: S G product in the sense that it's some values aligned. 344 00:18:15,800 --> 00:18:19,959 Speaker 1: The values might be opposite to some scientele, but but 345 00:18:20,000 --> 00:18:22,520 Speaker 1: it's still the exact same thing. They're saying, these are 346 00:18:22,680 --> 00:18:25,000 Speaker 1: values just the opposite of those ones. Then we're going 347 00:18:25,040 --> 00:18:28,200 Speaker 1: to invest accordingly. So I'd actually argue that it's some 348 00:18:29,000 --> 00:18:32,080 Speaker 1: continuing the peak. All right, good stuff. Kyle Backinson, co 349 00:18:32,240 --> 00:18:35,320 Speaker 1: portfolio manager, Hennessey Funds e s G Large Cap e 350 00:18:35,480 --> 00:18:37,879 Speaker 1: t F S t n C S t n C 351 00:18:38,240 --> 00:18:43,360 Speaker 1: is the ticker for that E t F. I saw 352 00:18:43,400 --> 00:18:47,040 Speaker 1: a story overnight by Katie Greifeld and Bildana Hirach about 353 00:18:47,680 --> 00:18:52,879 Speaker 1: surging bond yields that are putting up real competition to 354 00:18:53,040 --> 00:18:55,320 Speaker 1: the SMP five. In fact, they talked about a six 355 00:18:55,359 --> 00:18:58,840 Speaker 1: month yield that is just a hair below five per cent, 356 00:18:59,800 --> 00:19:05,080 Speaker 1: and that's risk free UM. That compares to an SMPS 357 00:19:05,160 --> 00:19:08,520 Speaker 1: yield that clocks in about five point zero eight percent, 358 00:19:09,200 --> 00:19:12,200 Speaker 1: so pretty much the same thing. Let's go to Kara 359 00:19:12,280 --> 00:19:16,240 Speaker 1: Murphy right now. She's ce IO at Castra Holdings UM, 360 00:19:16,280 --> 00:19:18,680 Speaker 1: and she can tell us a thing or two about 361 00:19:18,680 --> 00:19:21,960 Speaker 1: this because she does it for a living. Kara, you 362 00:19:22,000 --> 00:19:24,160 Speaker 1: know when when your clients comes to you and says, 363 00:19:25,000 --> 00:19:28,159 Speaker 1: you know, I'd rather have risk free five return than 364 00:19:28,240 --> 00:19:32,320 Speaker 1: worry about stocks, what do you say, I think cash 365 00:19:32,440 --> 00:19:35,359 Speaker 1: is really compelling here. And this is like the first 366 00:19:35,400 --> 00:19:37,879 Speaker 1: time in over a decade that that has been the case. 367 00:19:38,400 --> 00:19:40,600 Speaker 1: But let's not forget for most of the history of 368 00:19:40,640 --> 00:19:43,040 Speaker 1: the market that is kind of the norm where you 369 00:19:43,080 --> 00:19:46,120 Speaker 1: were able to earn a decent risk free rate and 370 00:19:46,160 --> 00:19:48,680 Speaker 1: whiskey athletes like stocks had to compete with that. So 371 00:19:48,680 --> 00:19:50,840 Speaker 1: so I don't think that this is necessarily a bad thing. 372 00:19:50,920 --> 00:19:53,919 Speaker 1: It's just getting to a more normal environment. And in 373 00:19:53,920 --> 00:19:56,159 Speaker 1: that sense, then stocks have to make their case that 374 00:19:56,320 --> 00:19:58,840 Speaker 1: much stronger than a straight up, you know, five percent 375 00:19:58,920 --> 00:20:02,600 Speaker 1: yield on an almost cash flight position. So care I'd 376 00:20:02,600 --> 00:20:04,399 Speaker 1: love to get a sense kind of where which camp 377 00:20:04,480 --> 00:20:08,359 Speaker 1: you're in here with this UM inflation and the Federal 378 00:20:08,440 --> 00:20:11,720 Speaker 1: Reserve discussion and the ability to engineer a soft landing 379 00:20:11,760 --> 00:20:15,040 Speaker 1: and all of that, because that's clearly what's still driving 380 00:20:15,040 --> 00:20:18,159 Speaker 1: the market. How do you see Yeah, and and I 381 00:20:18,200 --> 00:20:21,080 Speaker 1: think you know, today's data shows that that it's becoming 382 00:20:21,119 --> 00:20:24,640 Speaker 1: even more difficult to be able to thread this needle right. 383 00:20:24,640 --> 00:20:27,000 Speaker 1: So the FET has been working for over a year 384 00:20:27,080 --> 00:20:30,040 Speaker 1: to have this just right landing. And we've kind of 385 00:20:30,080 --> 00:20:33,080 Speaker 1: described the economy as as a big plane that the 386 00:20:33,080 --> 00:20:36,800 Speaker 1: FET is trying to land in turbulence without disturbing the passengers. 387 00:20:36,840 --> 00:20:39,919 Speaker 1: It's a very high level difficulty, and I think today 388 00:20:40,000 --> 00:20:45,320 Speaker 1: is showing us that um the challenges of monetary policy 389 00:20:45,400 --> 00:20:48,040 Speaker 1: having an impact out a lag. So there are certain 390 00:20:48,119 --> 00:20:51,080 Speaker 1: parts of the economy, like let's take housing for instance, 391 00:20:51,119 --> 00:20:54,480 Speaker 1: that reacted very quickly to hire interest rates. You saw 392 00:20:54,600 --> 00:20:58,480 Speaker 1: starts really slow down, traffic really slow down. Prices have 393 00:20:58,600 --> 00:21:01,520 Speaker 1: taken longer to really modern, right, but then things like 394 00:21:01,840 --> 00:21:05,600 Speaker 1: labor and services prices are taking a lot longer to 395 00:21:05,720 --> 00:21:09,040 Speaker 1: respond to this tighter monetary environment. We still think that 396 00:21:09,080 --> 00:21:12,760 Speaker 1: it will happen, it's just taking longer. The good news 397 00:21:13,000 --> 00:21:16,760 Speaker 1: is that we're no longer having this almost existential discussion 398 00:21:16,800 --> 00:21:19,000 Speaker 1: that we were, you know, towards the middle part of 399 00:21:19,080 --> 00:21:22,560 Speaker 1: last year, about whether they said could even get its 400 00:21:22,640 --> 00:21:24,480 Speaker 1: arms around inflation. There were a lot of people who 401 00:21:24,480 --> 00:21:27,560 Speaker 1: are questioning if the FEDS, like typical medicine of higher 402 00:21:27,600 --> 00:21:29,960 Speaker 1: interest rates is going to work. The good news is 403 00:21:30,000 --> 00:21:32,680 Speaker 1: that it is working. It just might take some more 404 00:21:32,680 --> 00:21:35,639 Speaker 1: medicine for it to actually have the desired impact. You Know. 405 00:21:36,000 --> 00:21:37,920 Speaker 1: One of the things that I've started to worry about 406 00:21:38,000 --> 00:21:42,640 Speaker 1: recently is you get a lot allowed voices people who 407 00:21:42,640 --> 00:21:46,720 Speaker 1: are you know, cynics like me, who say, man, the 408 00:21:46,760 --> 00:21:50,440 Speaker 1: Fed is raised rates four our seventy five basis points, 409 00:21:50,440 --> 00:21:52,399 Speaker 1: and all they have to show for it is like 410 00:21:52,440 --> 00:21:55,640 Speaker 1: a drop in stocks. You know, we have three point 411 00:21:55,720 --> 00:21:59,439 Speaker 1: four percent unemployment and financial conditions are looser than they 412 00:21:59,440 --> 00:22:02,840 Speaker 1: were a year go. So on the other hand, care 413 00:22:02,960 --> 00:22:06,120 Speaker 1: you point out we have to be careful about these 414 00:22:06,160 --> 00:22:09,840 Speaker 1: long and variable lags. If you're putting some pressure on 415 00:22:09,920 --> 00:22:13,879 Speaker 1: the yoke and you're I don't know, uh boeing seven 416 00:22:14,720 --> 00:22:17,479 Speaker 1: and you're not turning hard enough, then you just really 417 00:22:17,480 --> 00:22:19,840 Speaker 1: wrench it to one side. All of a sudden, you're 418 00:22:19,880 --> 00:22:22,320 Speaker 1: in a violent spin that you can't control what happens 419 00:22:22,359 --> 00:22:24,920 Speaker 1: if you know, the FED keeps raising rates, raises rates 420 00:22:24,960 --> 00:22:27,280 Speaker 1: too much, and then next year we're not just in 421 00:22:27,320 --> 00:22:30,560 Speaker 1: a recession but a deep, deep procession and a housing 422 00:22:30,640 --> 00:22:34,800 Speaker 1: crash of like thirty or Is that a concern for you, Yeah, 423 00:22:34,800 --> 00:22:37,160 Speaker 1: for sure, And it's a concern for the Fed as well, 424 00:22:37,200 --> 00:22:40,920 Speaker 1: which is why they've started to moderate interest rate um increases. 425 00:22:41,480 --> 00:22:44,000 Speaker 1: I also think that's why the Fed is probably going 426 00:22:44,040 --> 00:22:47,720 Speaker 1: to start to lean harder on this idea of higher 427 00:22:47,840 --> 00:22:51,600 Speaker 1: for longer. That's an easier discussion to have to try 428 00:22:51,600 --> 00:22:53,600 Speaker 1: and convince the market that they're not going to be 429 00:22:53,640 --> 00:22:56,640 Speaker 1: cutting rates anytime soon. And it's a little bit softer 430 00:22:56,920 --> 00:23:00,200 Speaker 1: of an adjustment to the landing rather than saying, hey, 431 00:23:00,200 --> 00:23:02,200 Speaker 1: we need to go for another fifty or seventy five 432 00:23:02,240 --> 00:23:05,760 Speaker 1: basis point rate hike in the near term. Alright, So kar, 433 00:23:05,920 --> 00:23:09,160 Speaker 1: given that backdrop, here where do we go. I mean, 434 00:23:09,240 --> 00:23:13,520 Speaker 1: you know, the portfolio got decimated in two people a 435 00:23:13,600 --> 00:23:15,320 Speaker 1: little shell shocked. We are seeing a little bit of 436 00:23:15,320 --> 00:23:18,679 Speaker 1: a bounce here in stocks this year, But what are 437 00:23:18,720 --> 00:23:22,080 Speaker 1: you telling your clients? Yeah, and and as you said, 438 00:23:22,160 --> 00:23:25,280 Speaker 1: you know, you have these tighter financial conditions, but stocks 439 00:23:25,320 --> 00:23:27,760 Speaker 1: are rallied. And it's not just the broad market. It's 440 00:23:27,840 --> 00:23:33,040 Speaker 1: particularly the nonprofitable kind of like low quality names that 441 00:23:33,080 --> 00:23:35,280 Speaker 1: have really been catching a bit more recently. And so 442 00:23:35,320 --> 00:23:38,080 Speaker 1: that's always a bit of a cautionary tale as we 443 00:23:38,200 --> 00:23:42,439 Speaker 1: think that economic conditions are still weakening. So typically in 444 00:23:42,440 --> 00:23:45,119 Speaker 1: that type of an environment, where you would go is 445 00:23:45,119 --> 00:23:49,680 Speaker 1: to more defensive areas like consumer staples, utilities, healthcare, those 446 00:23:49,720 --> 00:23:52,080 Speaker 1: bills that people have to pay even when their wages 447 00:23:52,119 --> 00:23:56,320 Speaker 1: are being squeezed. The challenge there is that those valuations 448 00:23:56,400 --> 00:23:59,919 Speaker 1: already look relatively rich compared to history. So all right, 449 00:24:00,040 --> 00:24:02,440 Speaker 1: that tells us that the market has already made that move. 450 00:24:03,080 --> 00:24:05,800 Speaker 1: So then we start looking around more broadly, and we're 451 00:24:05,800 --> 00:24:10,720 Speaker 1: seeing interesting opportunities outside the US. UM you know, SMP 452 00:24:10,840 --> 00:24:14,679 Speaker 1: has you know trounced any other non US UM stock 453 00:24:14,720 --> 00:24:17,800 Speaker 1: Index for a very long time, and maybe that's starting 454 00:24:17,840 --> 00:24:23,600 Speaker 1: to turn and we're seeing very chea valuations, attractive dividend yields, okay, 455 00:24:23,600 --> 00:24:26,560 Speaker 1: earnings environments. UM, So we think it's time to start 456 00:24:26,560 --> 00:24:29,959 Speaker 1: looking outside the US where specifically do you like Europe? 457 00:24:29,960 --> 00:24:33,760 Speaker 1: Do you like emerging markets? So there there. You know, 458 00:24:33,840 --> 00:24:36,920 Speaker 1: in emerging markets you always have to be very careful UM, 459 00:24:36,960 --> 00:24:39,480 Speaker 1: and generally we keep it a smallish part of a 460 00:24:39,480 --> 00:24:42,160 Speaker 1: total portfolio, but yes, we think that there are certain 461 00:24:42,200 --> 00:24:46,159 Speaker 1: opportunities there. I think Europe is an easier call. Um. 462 00:24:46,200 --> 00:24:49,200 Speaker 1: We have valuations that are not just cheaper than the US, 463 00:24:49,280 --> 00:24:53,120 Speaker 1: but cheaper to their own historic averages dividend yields. They're 464 00:24:53,160 --> 00:24:54,920 Speaker 1: running it like one and a half times what you 465 00:24:54,920 --> 00:24:58,000 Speaker 1: would find in the US. And again we're expecting weaker 466 00:24:58,040 --> 00:25:01,120 Speaker 1: economic environment there as well, but we think that that's 467 00:25:01,160 --> 00:25:05,359 Speaker 1: already largely priced in. Have been earnings risk in this 468 00:25:05,480 --> 00:25:08,800 Speaker 1: marketplace where just pretty much through this most recent earnings period, 469 00:25:09,400 --> 00:25:11,800 Speaker 1: how much more downside, if any, do you see out 470 00:25:11,840 --> 00:25:16,000 Speaker 1: there for earnings. So we've been talking since the middle 471 00:25:16,000 --> 00:25:19,520 Speaker 1: of last year that earnings expectations for two thousand twenty 472 00:25:19,640 --> 00:25:23,640 Speaker 1: three were too rich. So back then analysts were estimating 473 00:25:23,640 --> 00:25:26,399 Speaker 1: that earnings would grow by ten percent this year. That 474 00:25:26,520 --> 00:25:29,880 Speaker 1: seemed way too optimistic. By the end of the year, 475 00:25:29,920 --> 00:25:32,879 Speaker 1: those estimates had come down to five percent grows, and 476 00:25:32,880 --> 00:25:36,200 Speaker 1: now we're looking at three percent growth. So if we're right, 477 00:25:36,720 --> 00:25:40,000 Speaker 1: we're continuing to see these lagged impact of monetary policy 478 00:25:40,080 --> 00:25:42,480 Speaker 1: that will kick in later in the year. We think 479 00:25:42,520 --> 00:25:46,240 Speaker 1: that that three percent growth is probably still optimistic, especially 480 00:25:46,280 --> 00:25:49,840 Speaker 1: given that corporate profit margins are coming off of historic highs, 481 00:25:49,880 --> 00:25:53,200 Speaker 1: so companies don't have a ton of room to cut expenses. 482 00:25:53,720 --> 00:25:56,120 Speaker 1: That said, we're in a much more realistic position than 483 00:25:56,119 --> 00:25:58,320 Speaker 1: we were just six months ago, but we do think 484 00:25:58,320 --> 00:26:02,120 Speaker 1: that there's some additional downside. I wonder, um, Carol, when 485 00:26:02,119 --> 00:26:07,400 Speaker 1: you're appointing investors towards UM areas like Europe, for example, 486 00:26:07,400 --> 00:26:09,959 Speaker 1: even if it's a small part part of their portfolio, 487 00:26:10,680 --> 00:26:13,200 Speaker 1: what's the best vehicle? I mean, do you go there 488 00:26:13,280 --> 00:26:16,159 Speaker 1: and buy stocks in those markets? Specifically? Do you like 489 00:26:16,560 --> 00:26:20,440 Speaker 1: E T f s or funds? What makes the most sense? Yeah, 490 00:26:20,520 --> 00:26:23,520 Speaker 1: but for most of our clients, ets are a great vehicle. 491 00:26:23,800 --> 00:26:27,520 Speaker 1: They're very liquid, they're very transparent, they're chiefs to get 492 00:26:27,560 --> 00:26:29,440 Speaker 1: in and out of. You can get access to a 493 00:26:29,560 --> 00:26:33,240 Speaker 1: very broad, diversified basket of stocks without having to worry 494 00:26:33,280 --> 00:26:37,560 Speaker 1: about all the transaction costs associated with buying individual securities. 495 00:26:37,640 --> 00:26:42,040 Speaker 1: So for most of our clients, that's perfectly appropriate. Cool alright, 496 00:26:42,040 --> 00:26:44,520 Speaker 1: great stuff, Kara Murphy. We really appreciate you checking in 497 00:26:44,560 --> 00:26:47,080 Speaker 1: with us. You bet, Kara Murphy. She's a chief investment 498 00:26:47,080 --> 00:26:50,719 Speaker 1: officer Orchestra Investment Management. Here a little bit of caution 499 00:26:50,760 --> 00:26:52,800 Speaker 1: I noted in some of her out look and why 500 00:26:52,800 --> 00:26:59,480 Speaker 1: not one of the top red stories. Not surprisingly, they 501 00:26:59,520 --> 00:27:01,440 Speaker 1: were the last of teen thirty minutes on the Bloomberg 502 00:27:01,520 --> 00:27:04,000 Speaker 1: terminals about Bank of America. They're planning some job cuts 503 00:27:04,000 --> 00:27:07,439 Speaker 1: in their investment banks, uh, as Wall Street continues to 504 00:27:07,480 --> 00:27:09,439 Speaker 1: re entrench. So we want to get a sense of 505 00:27:09,520 --> 00:27:11,760 Speaker 1: kind of what's going on that's only at BA, but 506 00:27:11,800 --> 00:27:14,360 Speaker 1: just across the street as they think about headcount going 507 00:27:14,359 --> 00:27:17,840 Speaker 1: into another perhaps difficult year on Wall Street. So for 508 00:27:17,880 --> 00:27:20,880 Speaker 1: that we bring in Snali bassik Uh. She covers all 509 00:27:20,920 --> 00:27:25,199 Speaker 1: things Wall Street for Bloomberg News. Snally, what do you 510 00:27:25,240 --> 00:27:28,639 Speaker 1: make of this? We've seen some job cuts, uh, you know, 511 00:27:28,720 --> 00:27:30,520 Speaker 1: from some of the other players. Now it seems like 512 00:27:30,880 --> 00:27:34,080 Speaker 1: Bank of America is jumping in yeah, listen, the number 513 00:27:34,119 --> 00:27:36,639 Speaker 1: of cuts being discussed, according to this great scoop today 514 00:27:36,760 --> 00:27:40,000 Speaker 1: by Katherine Dougherty and our team, Listen, it's less than 515 00:27:40,200 --> 00:27:42,879 Speaker 1: two under bankers globally, so that is the good news. 516 00:27:42,920 --> 00:27:45,920 Speaker 1: It is a fairly small amountain for now, for now, 517 00:27:46,000 --> 00:27:48,479 Speaker 1: and that's the important part because we have been like 518 00:27:48,800 --> 00:27:52,480 Speaker 1: laser eyes watching Bank of America. They have a huge workforce. 519 00:27:52,840 --> 00:28:01,399 Speaker 1: Arises a crypto thing. Yeah, crypto absolutely, Uh well crypto, 520 00:28:01,520 --> 00:28:03,280 Speaker 1: but I know what you mean. Look, if I was 521 00:28:03,320 --> 00:28:06,359 Speaker 1: telling our producer Eric Mallow, because he said, maybe it's 522 00:28:06,400 --> 00:28:08,919 Speaker 1: not a huge number of people, I thought, it's not 523 00:28:09,000 --> 00:28:12,600 Speaker 1: about really the speed. It's about the direction of travel here, 524 00:28:12,720 --> 00:28:16,080 Speaker 1: and they're just one more bank, you know. Put aside 525 00:28:16,080 --> 00:28:18,160 Speaker 1: what we heard from Fidelity this morning, and we'll get 526 00:28:18,240 --> 00:28:21,639 Speaker 1: to that. Um, it seems like Wall Street banks are 527 00:28:21,680 --> 00:28:24,600 Speaker 1: really starting to retrench and they're starting to fire people. 528 00:28:24,760 --> 00:28:26,920 Speaker 1: And listen, there's a calculus all these banks have to make. 529 00:28:26,920 --> 00:28:30,120 Speaker 1: When I spoke to somebody at Goldman, the sense was, okay, fine, 530 00:28:30,200 --> 00:28:34,000 Speaker 1: we cut people, but our comp was still up in 531 00:28:34,119 --> 00:28:37,000 Speaker 1: broad strokes. But a lot of banks didn't make those cuts, 532 00:28:37,000 --> 00:28:40,120 Speaker 1: and you might have seen comp compensation that is fall 533 00:28:40,160 --> 00:28:43,640 Speaker 1: at a more drastic pace at Bank of America. The 534 00:28:43,720 --> 00:28:46,560 Speaker 1: longer this goes on, the longer it's harder to keep 535 00:28:46,600 --> 00:28:49,280 Speaker 1: people around. There's a sense that dealmaking could start to 536 00:28:49,280 --> 00:28:51,040 Speaker 1: pick up in the second half of the year, but 537 00:28:51,120 --> 00:28:54,080 Speaker 1: as you say, Paul, if rates stay higher for longer 538 00:28:54,400 --> 00:28:56,600 Speaker 1: than does that stifle a lot of the things that 539 00:28:56,640 --> 00:28:59,400 Speaker 1: these bankers are and their fees off of Jeffreys is 540 00:28:59,440 --> 00:29:02,400 Speaker 1: another injury sting example of this because their communication couldn't 541 00:29:02,400 --> 00:29:04,320 Speaker 1: have been clearer. They don't want to let go of 542 00:29:04,320 --> 00:29:07,640 Speaker 1: all the people that they just added. It's bad for morale. 543 00:29:07,880 --> 00:29:09,960 Speaker 1: It sends the wrong signal to clients in terms of 544 00:29:09,960 --> 00:29:12,400 Speaker 1: where their ambitions are, which is why you're seeing right 545 00:29:12,440 --> 00:29:15,440 Speaker 1: now that's small number of Bank of America. But to 546 00:29:15,520 --> 00:29:17,800 Speaker 1: your point, this is just you know, six weeks ago, 547 00:29:17,840 --> 00:29:21,040 Speaker 1: Brian moynihan was saying something different, right exactly. Here's what's 548 00:29:21,160 --> 00:29:24,160 Speaker 1: great about Bloomberg Bloomberg Radio TV because we get the 549 00:29:24,200 --> 00:29:28,040 Speaker 1: draw upon Matt some the biggest and best news organization 550 00:29:28,040 --> 00:29:30,120 Speaker 1: on the plan at Bloomberg News. And then we've got 551 00:29:30,120 --> 00:29:33,000 Speaker 1: what I think is the biggest and the best research 552 00:29:33,080 --> 00:29:35,440 Speaker 1: department on Wall Street, not as Bloomberg Intelligence. So we 553 00:29:35,440 --> 00:29:38,200 Speaker 1: get Shanali Basset from Bloomberg News and Bloomberg News of 554 00:29:38,200 --> 00:29:39,920 Speaker 1: course with this story here today. And then of course 555 00:29:39,960 --> 00:29:41,880 Speaker 1: we have Allison Williams, who has been covering the investment 556 00:29:41,880 --> 00:29:44,560 Speaker 1: banks for decades, and Allison joins us live in our 557 00:29:44,600 --> 00:29:46,920 Speaker 1: Bloomberg Interactive Broker studios. Now we can kind of round 558 00:29:46,960 --> 00:29:50,840 Speaker 1: table table it with Shale and Allison. So Allison, I mean, 559 00:29:51,640 --> 00:29:53,080 Speaker 1: it just seems like you and I've been on the 560 00:29:53,080 --> 00:29:54,880 Speaker 1: street for a long time. We've seen this come and go. 561 00:29:55,960 --> 00:29:57,800 Speaker 1: Is this a surprise or is this just what Wall 562 00:29:57,840 --> 00:30:02,080 Speaker 1: Street does when businesses stuff. I think it is Wall 563 00:30:02,120 --> 00:30:04,800 Speaker 1: Street what Wall Street does when business is tough. And 564 00:30:04,840 --> 00:30:10,200 Speaker 1: I think the timing really relates to a very slow 565 00:30:10,440 --> 00:30:13,120 Speaker 1: start to the year, especially in equity issue and so 566 00:30:13,560 --> 00:30:15,880 Speaker 1: on the death side of things. Things are looking up 567 00:30:15,880 --> 00:30:19,480 Speaker 1: a little bit um, you know, and we're looking versus 568 00:30:19,560 --> 00:30:23,120 Speaker 1: last quarter, so typically the fourth quarter is seasonally slow. 569 00:30:23,280 --> 00:30:27,520 Speaker 1: There's not a lot going on um when we look, 570 00:30:27,720 --> 00:30:29,280 Speaker 1: so we would expect a big pick up in the 571 00:30:29,280 --> 00:30:32,520 Speaker 1: first quarter. We're just still not getting it in equities. 572 00:30:32,520 --> 00:30:35,400 Speaker 1: And obviously when we compare to the year ago quarter, 573 00:30:36,080 --> 00:30:39,440 Speaker 1: um things are things are much worse. JP Morgan came 574 00:30:39,480 --> 00:30:42,840 Speaker 1: out and said they expected drop and I think across 575 00:30:42,920 --> 00:30:45,840 Speaker 1: all these banks UM and Gennale alluded to this before 576 00:30:45,920 --> 00:30:48,960 Speaker 1: when she was talking about Jeffreys. There's such a scramble 577 00:30:50,040 --> 00:30:53,160 Speaker 1: to add bodies, um, and so to your point, that's 578 00:30:53,200 --> 00:30:55,320 Speaker 1: what happens in the cycle, right. So, but there was 579 00:30:55,400 --> 00:30:59,720 Speaker 1: such a scramble, and their pipelines have remained really strong, 580 00:30:59,800 --> 00:31:02,480 Speaker 1: and so there's this this term bank a hoarding right 581 00:31:03,000 --> 00:31:05,240 Speaker 1: boom bust. Right. You think that after so many years 582 00:31:05,280 --> 00:31:08,080 Speaker 1: that this would not be the case anymore, But right 583 00:31:08,160 --> 00:31:10,480 Speaker 1: here we are. And I think what was a little 584 00:31:10,480 --> 00:31:13,320 Speaker 1: bit different this time is because the pandemic and things 585 00:31:13,360 --> 00:31:16,160 Speaker 1: have been very extreme. UH as they said, you know what, 586 00:31:16,200 --> 00:31:18,160 Speaker 1: we're gonna hold that out. The pipelines are still strong. 587 00:31:18,280 --> 00:31:20,880 Speaker 1: Maybe we'll get that lift, and we're not seeing it 588 00:31:20,920 --> 00:31:23,160 Speaker 1: on the equity side, so you might just see like 589 00:31:23,200 --> 00:31:24,880 Speaker 1: a little bit of throwing in the tow at Bank 590 00:31:24,920 --> 00:31:28,720 Speaker 1: America on the dead side of things. UM. JP Morgan's 591 00:31:29,680 --> 00:31:35,160 Speaker 1: UH fixed income trading boss, Troy Warbox said Um. He's 592 00:31:35,160 --> 00:31:37,840 Speaker 1: the global head of markets at JP Morgan. He said, 593 00:31:37,840 --> 00:31:41,080 Speaker 1: fixed income is in wh I thought of Paul when 594 00:31:41,120 --> 00:31:44,240 Speaker 1: I read that, because he's excited but I wonder if 595 00:31:44,280 --> 00:31:49,360 Speaker 1: this doesn't signal a new phase, a bigger, more worrying phase. 596 00:31:49,480 --> 00:31:53,160 Speaker 1: Is it just Allison's slow start too, and we're gonna 597 00:31:53,200 --> 00:31:55,800 Speaker 1: let down like go two hundred people? Or is this 598 00:31:55,920 --> 00:31:59,320 Speaker 1: like Goldman Sachs is letting people go? Um, you know, 599 00:31:59,360 --> 00:32:04,240 Speaker 1: Bank America goes letting people go city Jeffreies Citadel, like 600 00:32:04,360 --> 00:32:08,440 Speaker 1: is everybody else gonna follow? I think that looks like 601 00:32:08,520 --> 00:32:16,200 Speaker 1: the case. But again I think the latter because yeah, yeah, 602 00:32:16,240 --> 00:32:19,360 Speaker 1: And so to Sale's point, there's two sides of the business, 603 00:32:19,440 --> 00:32:23,200 Speaker 1: right so um, to the extent that markets are higher, 604 00:32:23,240 --> 00:32:25,360 Speaker 1: and I think that's been the surprise this quarter. Right, 605 00:32:25,400 --> 00:32:27,840 Speaker 1: so markets are higher. We had a strong equity start 606 00:32:27,880 --> 00:32:30,880 Speaker 1: of the year. Um, you know, Paul, as we know 607 00:32:30,920 --> 00:32:32,920 Speaker 1: that generally means a lot of activity, a lot of 608 00:32:33,000 --> 00:32:35,800 Speaker 1: hustle going on, and the fact that that hasn't come 609 00:32:35,840 --> 00:32:39,080 Speaker 1: with the better markets, I think is the disappointment. Whereas 610 00:32:39,080 --> 00:32:42,000 Speaker 1: on the asset management side of things, higher assets mean 611 00:32:42,160 --> 00:32:46,959 Speaker 1: higher fees. Um, so you don't fidelity the story this 612 00:32:47,000 --> 00:32:50,800 Speaker 1: morning out of Boston Fidelities adding four thousand people. So 613 00:32:50,840 --> 00:32:55,800 Speaker 1: I guess, look the two under investment bankers leaving Bank 614 00:32:55,840 --> 00:32:59,200 Speaker 1: America They're not gonna go from Charleston up to Boston. Right, 615 00:32:59,200 --> 00:33:02,360 Speaker 1: There's a different skill set. It is a different sales set, 616 00:33:02,520 --> 00:33:04,400 Speaker 1: and I would just you know, circle back to what 617 00:33:04,440 --> 00:33:07,120 Speaker 1: you said about fixed income. I think that is. I 618 00:33:07,160 --> 00:33:09,720 Speaker 1: think what we're going to see this quarter, UM, from 619 00:33:09,720 --> 00:33:12,680 Speaker 1: a mix standpoint is credit trading, which was, you know, 620 00:33:12,760 --> 00:33:15,280 Speaker 1: sort of the the underperformer last year. It was all 621 00:33:15,320 --> 00:33:18,440 Speaker 1: about rates and macro credit trading doing a little bit better. 622 00:33:18,480 --> 00:33:20,280 Speaker 1: Part of that is the fees that we talked about, 623 00:33:20,320 --> 00:33:24,040 Speaker 1: So the debt bankers are a little bit happier with 624 00:33:24,080 --> 00:33:26,520 Speaker 1: their outlook than than on the accorties. I'm just wondering 625 00:33:26,520 --> 00:33:31,280 Speaker 1: about the individuals affected by this, um, you know, who 626 00:33:31,360 --> 00:33:33,360 Speaker 1: are they and where do they go? I'm assuming you 627 00:33:33,440 --> 00:33:36,760 Speaker 1: let go like the older white guys first, and then 628 00:33:37,160 --> 00:33:39,440 Speaker 1: where do you where do you send them? Did they 629 00:33:39,480 --> 00:33:42,720 Speaker 1: move to a smaller bank? Um? Do they move to 630 00:33:42,800 --> 00:33:46,120 Speaker 1: what's Paul? What's the so you know, there's a few things. 631 00:33:46,360 --> 00:33:50,680 Speaker 1: I know, Paul's pointy at himself. Stop doing that, you know. Um, 632 00:33:50,720 --> 00:33:53,240 Speaker 1: a lot of people had started to anticipate this and 633 00:33:53,280 --> 00:33:56,720 Speaker 1: moved before and what they've ended up doing was there 634 00:33:56,760 --> 00:34:00,360 Speaker 1: are still private debt firms that are hiring. They're raising money. 635 00:34:00,400 --> 00:34:02,000 Speaker 1: You know, you think about a place like Aries and 636 00:34:02,040 --> 00:34:04,959 Speaker 1: they're raising money at seven of their ten largest funds. 637 00:34:05,040 --> 00:34:07,520 Speaker 1: Because so much activities outside of the banking system into 638 00:34:07,560 --> 00:34:10,040 Speaker 1: the private debt world. So that's a place people are going. 639 00:34:10,120 --> 00:34:12,520 Speaker 1: If you're a trader. Some of the big multi street 640 00:34:12,560 --> 00:34:15,040 Speaker 1: hedge funds are growing very quickly. There's a question about 641 00:34:15,040 --> 00:34:19,000 Speaker 1: how sustainable that growth is, but that's another boom bust. 642 00:34:19,239 --> 00:34:20,680 Speaker 1: You know, if you want to sit there and have 643 00:34:20,719 --> 00:34:23,520 Speaker 1: a job for the next ten years, not typically the 644 00:34:23,520 --> 00:34:27,879 Speaker 1: place you got, but they are hiring, uh, and so 645 00:34:28,200 --> 00:34:29,920 Speaker 1: there are places to go, and there are some of 646 00:34:29,920 --> 00:34:32,200 Speaker 1: the smaller firms. The boutiques are trying to they say 647 00:34:32,200 --> 00:34:34,239 Speaker 1: they're trying to pick up that's all. That's exactly what 648 00:34:34,280 --> 00:34:35,640 Speaker 1: I was going to point to. If you look at 649 00:34:35,680 --> 00:34:38,440 Speaker 1: the boutiques, they are still very much in hiring mode. 650 00:34:38,600 --> 00:34:41,800 Speaker 1: And that's something that's something that's something that we didn't 651 00:34:41,800 --> 00:34:45,280 Speaker 1: have the coming boutique, right, That's something that we didn't 652 00:34:45,320 --> 00:34:48,000 Speaker 1: have a decade ago. We have all these smaller boutiques 653 00:34:48,040 --> 00:34:51,560 Speaker 1: that are public now UM have money. They're going after 654 00:34:52,080 --> 00:34:55,440 Speaker 1: UM some of the senior talent. So that you know, 655 00:34:55,520 --> 00:34:58,640 Speaker 1: at the smaller firms like the molest of the world, 656 00:34:59,400 --> 00:35:02,640 Speaker 1: and do you have the we do you have the 657 00:35:02,719 --> 00:35:06,319 Speaker 1: credit suites first Boston? You know, as that evolves, right, 658 00:35:06,360 --> 00:35:08,359 Speaker 1: So that's that's going to evolve over the next couple 659 00:35:08,400 --> 00:35:11,120 Speaker 1: of years. What's fun too, is those places are actually 660 00:35:11,160 --> 00:35:14,880 Speaker 1: promoting young people faster as well. And so even for 661 00:35:15,000 --> 00:35:17,560 Speaker 1: you know, the thirtysomething banker, they're trying to make it 662 00:35:17,600 --> 00:35:20,480 Speaker 1: really attractive to come over there because you just get 663 00:35:20,520 --> 00:35:24,040 Speaker 1: in front of clients quicker. Lastly, i'd say restructuring. I 664 00:35:24,080 --> 00:35:26,399 Speaker 1: mean the restructuring guys are having the time of their 665 00:35:26,440 --> 00:35:30,360 Speaker 1: life because there has been no restructuring activity in so long. 666 00:35:30,760 --> 00:35:33,520 Speaker 1: And so whether it's like you know, quote unquote liability 667 00:35:33,560 --> 00:35:36,000 Speaker 1: management and just kind of you know that's hot right now? 668 00:35:36,040 --> 00:35:37,640 Speaker 1: Oh my god, it's the most boring thing alive. But 669 00:35:37,719 --> 00:35:40,880 Speaker 1: yes it's hot. So I love it. I love it. 670 00:35:41,480 --> 00:35:45,279 Speaker 1: You build up so much debt during ZIRP and then 671 00:35:45,280 --> 00:35:47,120 Speaker 1: you hire a banker to fix your balance, and then 672 00:35:47,120 --> 00:35:48,920 Speaker 1: you've got to sell stuff off to get rid of it. 673 00:35:48,920 --> 00:35:52,879 Speaker 1: Sounds like my household help restructure exactly. Money on both sides, yep. 674 00:35:52,960 --> 00:35:56,720 Speaker 1: I remember, alright, great stuff, we can put this together again. 675 00:35:56,800 --> 00:35:59,520 Speaker 1: The News Bank of America laying off a small number 676 00:35:59,520 --> 00:36:00,920 Speaker 1: of people. But it just kind of goes to the 677 00:36:00,920 --> 00:36:03,560 Speaker 1: trend we're singing on Wall Street. It's an important story. 678 00:36:03,560 --> 00:36:05,800 Speaker 1: It's a highly read story on the Bloomberg Criminal So 679 00:36:05,840 --> 00:36:07,480 Speaker 1: we got two of our smarter folks in the building 680 00:36:07,520 --> 00:36:09,760 Speaker 1: to come in here and chat with us. That's Shinnelli 681 00:36:09,800 --> 00:36:12,640 Speaker 1: Bassik from Bloomberg News and Alison Williams and Bloomberg Intelligence. 682 00:36:12,800 --> 00:36:14,800 Speaker 1: Put it all together and get a nice little round table. 683 00:36:14,800 --> 00:36:32,520 Speaker 1: Thank you, Eric Mulla for putting that together. All right, 684 00:36:32,600 --> 00:36:36,239 Speaker 1: let's go to the hotel business high reported. Uh some 685 00:36:36,360 --> 00:36:40,080 Speaker 1: pretty darn good numbers. Uh. Just recently stocks off about 686 00:36:40,120 --> 00:36:42,279 Speaker 1: one point eight percent, but boy, the stock is up 687 00:36:42,320 --> 00:36:46,080 Speaker 1: twenty seven percent year to date this year. Hotel stocks 688 00:36:46,080 --> 00:36:49,680 Speaker 1: are just ripping. Uh, they're all up about year to date. 689 00:36:49,719 --> 00:36:52,719 Speaker 1: So people are getting out there, they're traveling. Let's see 690 00:36:52,760 --> 00:36:54,840 Speaker 1: what's going on with there. Mark Hoplamaze, and he's the 691 00:36:54,920 --> 00:36:58,239 Speaker 1: CEO and president of Hyatt, joins us here by phone. Mark, 692 00:36:58,280 --> 00:37:00,160 Speaker 1: thanks so much for taking the time, give us the 693 00:37:00,160 --> 00:37:04,880 Speaker 1: the highlights the takeaways from your recent quarterly report. Thanks 694 00:37:04,920 --> 00:37:08,120 Speaker 1: for having me. Um. Yeah, we we finished a transformative 695 00:37:08,200 --> 00:37:12,320 Speaker 1: year with another record quarter driven really across the business. 696 00:37:12,560 --> 00:37:18,320 Speaker 1: UH Leisure has been the the UH the strongest segment 697 00:37:18,400 --> 00:37:21,400 Speaker 1: by far. We see no signs of slowdown in that 698 00:37:21,600 --> 00:37:25,440 Speaker 1: in that segment. UM Group business that is meetings and 699 00:37:25,560 --> 00:37:29,680 Speaker 1: conventions and so forth. Has we fully worked coverage levels 700 00:37:29,680 --> 00:37:34,160 Speaker 1: in the fourth quarter, and we are seeing great demand 701 00:37:34,280 --> 00:37:38,879 Speaker 1: heading into this year. Our bookings in January or paced 702 00:37:38,920 --> 00:37:41,799 Speaker 1: into the rest of the year rather for twenty three 703 00:37:41,920 --> 00:37:45,160 Speaker 1: is ahead of where it was last year. UM. And 704 00:37:45,239 --> 00:37:49,320 Speaker 1: even business transient is showing signs of real improvement. UM. 705 00:37:49,440 --> 00:37:52,880 Speaker 1: You know, we were down eighteen to nineteen levels in 706 00:37:52,920 --> 00:37:57,280 Speaker 1: the fourth quarter. We ended January started off much further 707 00:37:57,320 --> 00:38:00,719 Speaker 1: down because everyone's still on holiday, but ended seventeen percent down. 708 00:38:01,080 --> 00:38:04,200 Speaker 1: But the first two weeks of February we're down twelve UM. 709 00:38:04,320 --> 00:38:07,959 Speaker 1: So it's really improved a lot UM, and we see 710 00:38:08,000 --> 00:38:11,920 Speaker 1: great strength across the board. So Mark, talk to us 711 00:38:11,960 --> 00:38:15,279 Speaker 1: about that business travel segment. UM. You know, just somematcdonald 712 00:38:15,360 --> 00:38:18,600 Speaker 1: evidence here at Bloomberg. I mean, it's it feels like 713 00:38:18,640 --> 00:38:21,840 Speaker 1: it's picking up. Where asked to go to various conferences 714 00:38:21,840 --> 00:38:23,399 Speaker 1: and things like that. It feels like it's picking up. 715 00:38:23,400 --> 00:38:26,120 Speaker 1: But how do you guys think about that long term, 716 00:38:26,120 --> 00:38:29,320 Speaker 1: but it just feels like it might not every return 717 00:38:29,360 --> 00:38:31,759 Speaker 1: to the level pre pandemic level. How do you guys 718 00:38:31,800 --> 00:38:35,040 Speaker 1: think about it? Well, the first thing I would say 719 00:38:35,120 --> 00:38:40,480 Speaker 1: is that the the dividing lines between business transient group 720 00:38:40,600 --> 00:38:44,360 Speaker 1: and leisure have all blurred. So we see more leisure 721 00:38:44,400 --> 00:38:49,400 Speaker 1: trips where people are going on Thursday nights staying in 722 00:38:49,520 --> 00:38:52,759 Speaker 1: hotels for a long weekend. So Thursday and Sunday night 723 00:38:52,880 --> 00:38:58,720 Speaker 1: occupancies have recovered faster than weekday occupancies. UM. That's notable 724 00:38:59,000 --> 00:39:04,040 Speaker 1: because we're seeing that that crossover trip between hanging out 725 00:39:04,080 --> 00:39:08,479 Speaker 1: and working remotely for a long weekend. UM. So there's 726 00:39:08,560 --> 00:39:12,960 Speaker 1: some measure of of I think challenge, and it's fuzzy 727 00:39:13,000 --> 00:39:17,280 Speaker 1: line now between leisure transient and business transient. And secondly, 728 00:39:17,640 --> 00:39:23,360 Speaker 1: quite a few corporations UM have have turned to travel 729 00:39:23,560 --> 00:39:27,719 Speaker 1: with the c suite or with groups of people UM, 730 00:39:27,800 --> 00:39:31,080 Speaker 1: and we track any group of ten or more as 731 00:39:31,120 --> 00:39:33,919 Speaker 1: a group as opposed to business transient. And so there's 732 00:39:33,960 --> 00:39:38,360 Speaker 1: some substitution going on where you used to have a 733 00:39:38,400 --> 00:39:41,080 Speaker 1: bunch of individual trips and now they're aggregating that up 734 00:39:41,120 --> 00:39:43,920 Speaker 1: and traveling in teams. And that part of that has 735 00:39:43,960 --> 00:39:48,160 Speaker 1: to do with maximizing the impact of client meetings, um, 736 00:39:48,200 --> 00:39:50,759 Speaker 1: but partly by virtue of the fact that not every 737 00:39:50,760 --> 00:39:52,800 Speaker 1: one of their clients is in the office on a 738 00:39:52,840 --> 00:39:56,640 Speaker 1: full time basis, so when they can capture the important 739 00:39:56,680 --> 00:39:58,600 Speaker 1: people they need to see, they want to bring the 740 00:39:58,600 --> 00:40:00,560 Speaker 1: full measure of their firms to bear. This is really 741 00:40:00,560 --> 00:40:03,799 Speaker 1: pronounced in the financial services industry, so I would say 742 00:40:03,840 --> 00:40:07,160 Speaker 1: that the dividing lines are are blurring. The one thing 743 00:40:07,200 --> 00:40:09,399 Speaker 1: I would say is commercial travel in general, whether it's 744 00:40:09,440 --> 00:40:14,640 Speaker 1: group or business transient as a category, will be growing 745 00:40:14,800 --> 00:40:20,359 Speaker 1: and will exceed pre pandemic levels because their secular economy. Hey, 746 00:40:20,360 --> 00:40:22,759 Speaker 1: Mark talked to us about the labor issue. I've just 747 00:40:22,800 --> 00:40:25,760 Speaker 1: done some travel recently, and you know, it doesn't feel 748 00:40:25,920 --> 00:40:28,480 Speaker 1: like hotels are ever going to return to Hey, We'll 749 00:40:28,520 --> 00:40:31,319 Speaker 1: come to your housekeeping every day, um I, And I 750 00:40:31,360 --> 00:40:34,000 Speaker 1: know that's partly a function of labor availability, but I 751 00:40:34,040 --> 00:40:37,000 Speaker 1: kind of feel like, you know, you guys are in 752 00:40:37,000 --> 00:40:39,640 Speaker 1: the hotel industry realizing that as guests will take that 753 00:40:39,760 --> 00:40:43,440 Speaker 1: lower level of service. Uh, and that's cost savings to 754 00:40:43,480 --> 00:40:45,480 Speaker 1: you guys. How do you think about labor and how 755 00:40:45,520 --> 00:40:49,200 Speaker 1: you deploy labor? Yeah, First of all, the labor market 756 00:40:49,239 --> 00:40:52,600 Speaker 1: conditions have improved a lot. UM. A year ago, we 757 00:40:52,600 --> 00:40:55,640 Speaker 1: were running sort of fiftent vacancy rates and now we're 758 00:40:55,719 --> 00:40:58,840 Speaker 1: down to eight, which is sort of I would say, 759 00:40:58,920 --> 00:41:03,080 Speaker 1: in the range of that I would consider to be typical. UM. 760 00:41:03,120 --> 00:41:06,120 Speaker 1: So we've we've we've seen a great improvement in being 761 00:41:06,120 --> 00:41:10,680 Speaker 1: able to hire people. UM. But it's true that UM, 762 00:41:11,040 --> 00:41:14,600 Speaker 1: there there has been a change in policy. You can 763 00:41:14,680 --> 00:41:18,320 Speaker 1: still get daily housekeeping, but it's with requests in many 764 00:41:18,520 --> 00:41:22,439 Speaker 1: lower end brands and select service brands for our luxury hotels, UH, 765 00:41:22,480 --> 00:41:26,799 Speaker 1: in our lifestyle hotels that we we are maintaining daily housekeeping. 766 00:41:27,200 --> 00:41:30,279 Speaker 1: I personally, when I travel, all I really need is 767 00:41:30,280 --> 00:41:34,280 Speaker 1: a is a refresh on towels. UM. I actually sounds 768 00:41:34,360 --> 00:41:36,960 Speaker 1: a little a little strange. But during the during the pandemic, 769 00:41:37,440 --> 00:41:40,759 Speaker 1: I made it a practice to make make you know 770 00:41:40,880 --> 00:41:43,600 Speaker 1: our bed in the morning. UM. And I still do that. 771 00:41:43,680 --> 00:41:46,680 Speaker 1: And when I'm at hotels, I seem to be reverting 772 00:41:46,719 --> 00:41:49,640 Speaker 1: to my autonomic response and I make the bed. So 773 00:41:50,000 --> 00:41:52,440 Speaker 1: sometimes the housekeepers come in and they remake it because 774 00:41:52,600 --> 00:41:55,920 Speaker 1: apparently I didn't do the job according to their standards. 775 00:41:55,960 --> 00:42:00,239 Speaker 1: But apart from that, I actually prefer a re USh 776 00:42:00,280 --> 00:42:03,319 Speaker 1: to a full clean and so I think some people 777 00:42:03,360 --> 00:42:06,080 Speaker 1: are just choosing to opt out, But I think it's 778 00:42:06,120 --> 00:42:10,680 Speaker 1: gonna we will discover a different type of equilibrium going forward. 779 00:42:10,719 --> 00:42:14,000 Speaker 1: And I do think that the incidents of full housekeeping 780 00:42:14,040 --> 00:42:15,880 Speaker 1: every day is is going to be lower. Are you 781 00:42:15,920 --> 00:42:20,799 Speaker 1: able to get the UM employees that you need or 782 00:42:20,880 --> 00:42:23,359 Speaker 1: is it a regional problem where you are in you know, 783 00:42:23,400 --> 00:42:26,960 Speaker 1: some countries and you're not in others. Yeah, I think 784 00:42:27,160 --> 00:42:30,239 Speaker 1: the answer is it's it's a challenge in many markets. 785 00:42:30,800 --> 00:42:33,479 Speaker 1: The number one issue in the United States at least 786 00:42:33,800 --> 00:42:37,960 Speaker 1: is that the temporary visas that are have been issued 787 00:42:38,400 --> 00:42:42,840 Speaker 1: for summer workers for for temporary workers UM for decades. 788 00:42:43,160 --> 00:42:45,480 Speaker 1: This is not a new program. This has been around forever. 789 00:42:46,160 --> 00:42:51,000 Speaker 1: UM has been dramatically limited in numbers. UM. We through 790 00:42:51,080 --> 00:42:56,080 Speaker 1: through our Industry Association, appealed for a significant increase in 791 00:42:56,120 --> 00:42:59,320 Speaker 1: the number of visas for temporary work visas for the 792 00:42:59,400 --> 00:43:02,040 Speaker 1: last summer and we got a small fraction, like one 793 00:43:02,120 --> 00:43:04,560 Speaker 1: fifth of the of the employees that we would have needed. 794 00:43:05,400 --> 00:43:09,960 Speaker 1: Because leisure, a lot of these positions are resorts. So 795 00:43:10,000 --> 00:43:13,360 Speaker 1: I would say, first and foremost, our industry Association is 796 00:43:13,400 --> 00:43:18,520 Speaker 1: focused on constructive way to increase those temporary visas, but 797 00:43:18,640 --> 00:43:25,920 Speaker 1: ultimately a better uh well, a an immigration policy period 798 00:43:26,480 --> 00:43:29,600 Speaker 1: UM would really significantly improve this. Why why has the 799 00:43:29,640 --> 00:43:33,839 Speaker 1: Biden administration seemingly dropped the ball on that. I don't 800 00:43:33,880 --> 00:43:36,239 Speaker 1: know the specifics of what they're doing, but I do 801 00:43:36,360 --> 00:43:41,320 Speaker 1: know that, you know, the Trump administration severely limited foreign 802 00:43:41,360 --> 00:43:45,120 Speaker 1: access to this country and that affected you know, workers, 803 00:43:45,200 --> 00:43:48,440 Speaker 1: you know, legal immigration as well as illegal immigration. A 804 00:43:48,520 --> 00:43:50,720 Speaker 1: lot of people thought it would get back to normal 805 00:43:50,800 --> 00:43:53,320 Speaker 1: when President Biden came into office, and we're still looking 806 00:43:53,360 --> 00:43:57,400 Speaker 1: at a backup of almost two million people waiting for 807 00:43:57,520 --> 00:44:02,080 Speaker 1: legal visas. Why don't you and the other uh, you know, 808 00:44:02,160 --> 00:44:05,440 Speaker 1: top on CEOs in the country just go to Washington 809 00:44:05,520 --> 00:44:10,399 Speaker 1: and say, dude, you gotta do something on this. Yeah, well, 810 00:44:10,440 --> 00:44:14,400 Speaker 1: I I share your sense of urgency. I think it 811 00:44:14,520 --> 00:44:17,279 Speaker 1: is one of the key issues that we face as 812 00:44:17,320 --> 00:44:21,000 Speaker 1: a as an economy, US economy looking forward. Uh, this 813 00:44:21,080 --> 00:44:24,600 Speaker 1: is really a high priority for the American Hotel and 814 00:44:24,680 --> 00:44:29,400 Speaker 1: Lodging Association UM, and we as a group of UM 815 00:44:29,680 --> 00:44:34,319 Speaker 1: CEOs across the industry are heavily engaged in this. So 816 00:44:34,520 --> 00:44:37,920 Speaker 1: we are making the case. UM. There are various reasons 817 00:44:37,960 --> 00:44:43,279 Speaker 1: why the needlessent moved on this UM, and I'm not able. 818 00:44:43,400 --> 00:44:45,719 Speaker 1: I'm not a political commentator, so I'm not going to try. 819 00:44:46,480 --> 00:44:48,799 Speaker 1: What I can tell you is that the pressure on 820 00:44:49,200 --> 00:44:51,920 Speaker 1: focusing people on what the actual net impact on the 821 00:44:51,920 --> 00:44:55,719 Speaker 1: economy is UH is that case is being made and 822 00:44:56,000 --> 00:44:58,840 Speaker 1: it's persistent, like we are going back to the to 823 00:44:59,320 --> 00:45:01,359 Speaker 1: Capitol Hill over and over and over again to make 824 00:45:01,400 --> 00:45:04,200 Speaker 1: these make these same points. I strongly agree with your 825 00:45:04,200 --> 00:45:06,400 Speaker 1: sense of urgency, though. Mark talked to us about the 826 00:45:06,440 --> 00:45:09,560 Speaker 1: growth outlook for Hiatt. What are the drivers that you're 827 00:45:09,560 --> 00:45:12,319 Speaker 1: going to be pulling to drive revenue and earnings? Ford? 828 00:45:12,440 --> 00:45:15,720 Speaker 1: Is it focusing on revenue prevailable room that rev part metric. 829 00:45:15,840 --> 00:45:20,520 Speaker 1: Is it adding rooms through new hotels as acquisitions? What's 830 00:45:20,560 --> 00:45:23,560 Speaker 1: your growth story? Yeah, it's it's all of the above. 831 00:45:23,600 --> 00:45:26,680 Speaker 1: But but first and foremost, we for the last six 832 00:45:26,760 --> 00:45:28,640 Speaker 1: years in a row, we've had the highest net rooms 833 00:45:28,680 --> 00:45:32,719 Speaker 1: growth in the industry among major companies, and UM, we're 834 00:45:32,800 --> 00:45:36,120 Speaker 1: very proud of that. But it's really partly a result 835 00:45:36,160 --> 00:45:37,680 Speaker 1: of the fact that we are a small We have 836 00:45:37,719 --> 00:45:40,400 Speaker 1: a smaller footprint than some of our bigger competitors, so 837 00:45:40,440 --> 00:45:42,799 Speaker 1: we are not running into ourselves in any markets. We 838 00:45:42,840 --> 00:45:46,480 Speaker 1: are underpenetrated in most markets in which we operate the 839 00:45:46,520 --> 00:45:49,239 Speaker 1: vast majority of them actually, so we've been able to 840 00:45:49,280 --> 00:45:52,360 Speaker 1: grow at a faster pace and we expect that to 841 00:45:52,360 --> 00:45:56,600 Speaker 1: continue UM really into the future. We've done part of 842 00:45:56,640 --> 00:45:59,920 Speaker 1: that through organic growth and part of it through acquisition. 843 00:46:00,640 --> 00:46:04,440 Speaker 1: UM the acquisitions that we've made have had a couple 844 00:46:04,440 --> 00:46:07,640 Speaker 1: of attributes associated with them. First, fits into our portfolio 845 00:46:07,640 --> 00:46:10,680 Speaker 1: and our customer base. Second, UH creates more of a 846 00:46:10,719 --> 00:46:14,000 Speaker 1: network effect, so that UM the kind of customers that 847 00:46:14,040 --> 00:46:18,120 Speaker 1: we're serving in the locations of those brands help helped 848 00:46:18,160 --> 00:46:21,080 Speaker 1: to strengthen the entirety of the higher network for our 849 00:46:21,160 --> 00:46:25,440 Speaker 1: loyalty members. And Third, in each case, they were brand 850 00:46:25,800 --> 00:46:30,000 Speaker 1: platforms that had future significant future growth potential. Our most 851 00:46:30,000 --> 00:46:33,799 Speaker 1: recent acquisition that we just closed on is Dream Hotel Group. 852 00:46:34,280 --> 00:46:36,600 Speaker 1: We start off with twelve open hotels, but they have 853 00:46:36,640 --> 00:46:40,160 Speaker 1: twenty four signed contracts for new UM management agreements for 854 00:46:40,200 --> 00:46:43,319 Speaker 1: hotels opening in the future. That's just an example of 855 00:46:43,360 --> 00:46:46,440 Speaker 1: what we've been doing, which is finding brands that have 856 00:46:46,640 --> 00:46:51,640 Speaker 1: very strong growth prospects and bringing that growth into UM 857 00:46:51,719 --> 00:46:56,040 Speaker 1: into the company. Alright, good stuff, Mark hop amaze, and 858 00:46:56,080 --> 00:46:58,160 Speaker 1: thank you so much for joining us. A Mark is 859 00:46:58,160 --> 00:47:00,480 Speaker 1: the CEO and president of high at the just reported 860 00:47:00,760 --> 00:47:04,560 Speaker 1: some numbers, some better than expected numbers, their financial results 861 00:47:04,640 --> 00:47:12,800 Speaker 1: and stock up about year to date. Thanks for listening 862 00:47:12,800 --> 00:47:16,279 Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen 863 00:47:16,320 --> 00:47:20,600 Speaker 1: to interviews with Apple Podcasts or whatever podcast platform you prefer. 864 00:47:20,960 --> 00:47:24,960 Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller, three 865 00:47:25,360 --> 00:47:27,840 Speaker 1: pen on Fall Sweeney I'm on Twitter at pt Sweeney. 866 00:47:27,920 --> 00:47:30,560 Speaker 1: Before the podcast, you can always catch us worldwide at 867 00:47:30,600 --> 00:47:31,359 Speaker 1: Bloomberg Radio