Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moven news.
Speaker 1: Find the Bloomberg Markets podcast called Apple Podcasts or wherever
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Speaker 1: Let's bring in Data Peterson. She's a chief economist this
Speaker 1: conference board. Dana, thanks so much for joining us here.
Speaker 1: Talk to us about the Leading Economic Index. What it,
Speaker 1: what you guys reported today, what it tells you, and
Speaker 1: what should we take away from all this?
Speaker 3: Absolutely so, the Leading Economic indicator fell again for I
Speaker 3: think the fourteenth consecutive months, and the weakness was definitely
Speaker 3: in expectations from the ism in terms of manufacturing and
Speaker 3: also from consumers. And then the yield curve continued to
Speaker 3: be negative, and also the leading credit indicator was negative.
Speaker 3: So that's all telling us that there's still some weakness
Speaker 3: out there. There's still expectations that maybe we'll go into
Speaker 3: a recession. Certainly it's pointing to recession starting probably about now.
Speaker 3: I know we keep forecasting it, but the key thing
Speaker 3: is that there's been strength in the labor market that's
Speaker 3: definitely forestalling what we think is the inevitable.
Speaker 4: It's interesting because even though it's a leading economic index,
Speaker 4: a lot of investors look at it more as lagging,
Speaker 4: just because of when you're looking at the economy, and
Speaker 4: since investors are looking you know, six months twelve months out,
Speaker 4: do you think that's why we're seeing the stock market
Speaker 4: more supported. Do you think investors think the worst of
Speaker 4: the pain is already passed?
Speaker 3: Well, I think investors are looking at data like labor markets,
Speaker 3: and indeed, in the leading economic indicator and even in
Speaker 3: our current economic indicator, the labor market data are holding up. Why.
Speaker 3: It's because of labor shortages and so many businesses instead
Speaker 3: of letting people go, they're holding on to their workers.
Speaker 3: And then you also still have a number of sectors
Speaker 3: that are still trying to catch up from losses during
Speaker 3: the pandemic, especially services that are in high demand. And
Speaker 3: so if you're looking at that, you know, I understand
Speaker 3: why investors might look at our measure and say, well,
Speaker 3: what's going on here? Right?
Speaker 1: So talk to us about the housing market data that
Speaker 1: continues to kind of befuddel me in the midst of
Speaker 1: rising interest rates, still strong. How do you think about
Speaker 1: the housing market right here?
Speaker 3: Well, I think you're coming off of very low levels.
Speaker 3: When you look at most of the housing market data,
Speaker 3: it really slowed dramatically last year, so and it seems
Speaker 3: like we kind of reached the bottom. So you're still
Speaker 3: you're in a hole and you're just trying to climb
Speaker 3: out of that hole. And so the thing is that
Speaker 3: we're probably not going to see a real resurgence in
Speaker 3: housing activity until next year, when we think the Fed
Speaker 3: will begin cutting interest rates.
Speaker 4: So if you're expecting more of that weakness in the
Speaker 4: economy to start around, Now, where is it being driven by?
Speaker 4: Is it the consumer, which obviously you know propelling GDP
Speaker 4: by more than two thirds of when you were looking
Speaker 4: at economic growth.
Speaker 3: Well, it's got to come from several places already. Like
Speaker 3: I said, the housing market, it has collapsed, and we
Speaker 3: don't we think it's just going to be middling, so
Speaker 3: it's not going to be a contributor. But businesses have
Speaker 3: been pulling back certainly on spending on equipment and also
Speaker 3: structures because the cost of capital is rising for many
Speaker 3: of them, and you definitely need consumers to spend less.
Speaker 3: So we have seen a little bit of moderation in
Speaker 3: terms of spending on big ticket items that you have
Speaker 3: to finance. The consumers are still spending a lot of
Speaker 3: money on services, especially travel and restaurants, things they couldn't
Speaker 3: really spend on during the pandemic. So the key thing
Speaker 3: is when that excess income that consumers have, you know,
Speaker 3: the excess savings go away. We think they're going to
Speaker 3: run out of steam in the second half of this year.
Speaker 3: And also we think consumers are going to become a
Speaker 3: little bit more concerned about job prospects and that might
Speaker 3: cause them to pull back on some of the spending
Speaker 3: as well.
Speaker 4: A follow up I have to that is when it
Speaker 4: comes to the repayment for the student debt that was
Speaker 4: delayed off and going through forbearance during the pandemic, that's
Speaker 4: supposed to presume in October. So when you're thinking about
Speaker 4: the consumer and those types of payments that are going
Speaker 4: to start up again, is that also going into those
Speaker 4: calculations of a pullback there.
Speaker 3: Absolutely we have folded that into our forecast for the
Speaker 3: last the second half of this year. And then also
Speaker 3: let's not forget the debt ceiling deal. While that's not
Speaker 3: really going to affect the fiscal year twenty twenty three,
Speaker 3: it does affect fiscal year twenty twenty four, and that
Speaker 3: starts in October as well.
Speaker 5: Dan, to talk to.
Speaker 1: Us about your view of the labor market here still,
Speaker 1: you know, very strong by historical measures here, and I
Speaker 1: know the Fed is talking about they expect the unemployment
Speaker 1: rate to go up and you know, maybe I have
Speaker 1: a fore handle here in a not too distant future.
Speaker 5: What's your view at the conference.
Speaker 3: Ward, Yes, we think also that we're probably going to
Speaker 3: have a four handle, that the unemployment rate may ultimately
Speaker 3: rise by one percentage point to four and a half percent,
Speaker 3: But that's that's not going to happen probably until early
Speaker 3: next year, because the unemployment rate really lags what goes
Speaker 3: on with GDP. And so certainly if the Fed continues
Speaker 3: to hike interest rates, which is strongly signaling a chair
Speaker 3: Powell signaled that certainly to Congress very recently, then that's
Speaker 3: also going the weigh on the economy and consequently the
Speaker 3: labor market.
Speaker 4: What industries do you think are most vulnerable to layoffs
Speaker 4: right now?
Speaker 3: So those pandemic darlings, those industries now are very vulnerable,
Speaker 3: so tech, finance, residential construction, and some of the sectors that.
Speaker 4: We've continued to see those cost cutting efforts, those are
Speaker 4: going to still be the ones that we'll.
Speaker 3: See absolutely because there's not as much demand for their
Speaker 3: products and services.
Speaker 1: All right, Dan, thank you so much for joining us.
Speaker 1: I always appreciate getting some thoughts from you. Dana Peterson,
Speaker 1: Chief Economists at the Conference Board. The Leading Economic Indicator
Speaker 1: data out today kind of showing some continuedness, and I
Speaker 1: think that Dantas had fourteen months in a row with
Speaker 1: a negative number, so it's very interesting to keep out
Speaker 1: an eye on that.
Speaker 5: Again.
Speaker 1: It came in it negative zero point seven percent on
Speaker 1: the Leading Index versus negative zero point six percent last month.
Speaker 6: You're listening to the Team Ken's are Live program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot Com,
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Speaker 1: Let's pivot here to the Big Take story of the
Speaker 1: day on the Bloomberg terminal. This is we love the
Speaker 1: Big Take stories. They are so well researched, so well reported.
Speaker 4: Away the best.
Speaker 5: Yeah, deep, good team efforts.
Speaker 1: They really dive deep here and today is a good
Speaker 1: one talking about the electric vehicle market in Ford Motor
Speaker 1: Company in particular, they're racing as is GM and stillant
Speaker 1: Is to kind of really take the lead here in
Speaker 1: this ev transformation. Ford gets nine point two billion dollars
Speaker 1: from the US government for the effort. Oxshot Rathi one
Speaker 1: of the reporters on the story. He's a senior climate
Speaker 1: reporter with Bloomberg News. He joins us here. Okshot talk
Speaker 1: to us about Ford and the support it is receiving
Speaker 1: from the government authorities to kind of make this transformation
Speaker 1: to electric vehicles.
Speaker 7: Right, every car maker has to make this transformation and
Speaker 7: it's not going to be cheap. It has to be made,
Speaker 7: but it's not going to be cheap. And that's where
Speaker 7: the US government is coming in. Ford last year said
Speaker 7: it's going to spend us but just fifty billion dollars
Speaker 7: over the next four years towards electrification strategy. And this
Speaker 7: nine point two billion dollar loan, it's a conditional loan.
Speaker 7: The conditions are very light and they'll meet them, no doubt,
Speaker 7: but that will go towards building three battery factories. And
Speaker 7: that is a lot of battery factories, but still not enough.
Speaker 7: Ford has an ambition to electrify its entire fleet, but
Speaker 7: it's starting out with increasing its number of electric vehicles
Speaker 7: made from one hundred and thirty thousand last year to
Speaker 7: two million by twenty twenty six. So that's quite a
Speaker 7: jump and they need all the help they can and
Speaker 7: Joe Biden's Climate Plan is allowing the government to be
Speaker 7: able to give these billions out right now to be
Speaker 7: able to encourage these companies down the transition.
Speaker 4: And what you were mentioning for. Did have an investor
Speaker 4: event last month actually, where they were focusing on this
Speaker 4: fifty billion dollar plan for EV models and the availability
Speaker 4: in the cost of these crucial battery metals, and when
Speaker 4: you were thinking about nickel and cobalt, they've been key
Speaker 4: concerns for years among EV makers trying to build out
Speaker 4: their electric lineup. So what do you think are the
Speaker 4: main hurdles at play?
Speaker 7: So the main order from a Ford perspective actually is profitability.
Speaker 7: Ford is going to lose three billion dollars this year
Speaker 7: on its TV business, and it says it's going to
Speaker 7: turn the losses into profit by twenty twenty six. Of course,
Speaker 7: that is just from a company's perspective, but you're right,
Speaker 7: metals are going to be another constraint. And so this program,
Speaker 7: the US government program, it's called the Loan Program's Office,
Speaker 7: which gave this nine point two billion dollar loan for
Speaker 7: a battery manufacturing facility, is also giving out billions of
Speaker 7: dollars in battery recycling facility. And so the goal would
Speaker 7: there be to take the batteries that are already in
Speaker 7: the United States, recycle their metals, and reuse them. So
Speaker 7: that's one way in which you can deal with the
Speaker 7: metal crunch that is coming. But another is that you're
Speaker 7: going to have to mine metals. And now is America
Speaker 7: ready to do it domestically? That remains unclear. It's very
Speaker 7: much a live topic in the US Congress.
Speaker 1: So actually, I just gave us a sense of this
Speaker 1: nine point two billion dollars, the two or three plants
Speaker 1: they're thinking about here. Where is that in total the
Speaker 1: total need that they will have.
Speaker 5: For these types of facilities.
Speaker 1: Is this just kind of a good first step or
Speaker 1: is this kind of a giant leap for fulfilling their
Speaker 1: ultimate needs.
Speaker 7: I guess it's actually both, which is to say, they're
Speaker 7: going from zero battery facilities to three. So it's a giantly,
Speaker 7: but it's the first step because if you're going to
Speaker 7: have to electrify your entire fleet, you're going to have
Speaker 7: to build many more battery factories. And that's probably why
Speaker 7: this loan makes sense. If it's a giant leap, companies
Speaker 7: are typically conservative in taking those and getting a bit
Speaker 7: of government support, which would be in terms of a
Speaker 7: loan with conditions that are easier than what you would
Speaker 7: get on Wall Street, can make the difference between making
Speaker 7: a decision or not, and so that's going to help forward.
Speaker 7: But you're absolutely right, there is a long way to
Speaker 7: go for to transition to a fully electric vehicle company,
Speaker 7: which there is already one giant one in America called Tesla.
Speaker 4: I was just taking a look at Ford stock. Let's
Speaker 4: stick your simple afforts up about twenty two percent this
Speaker 4: year after that investor day last month, do you think
Speaker 4: they were successfully able to persuade investors on the merits
Speaker 4: of this plan when you are looking at this sixteen
Speaker 4: four increase an EV production in the span of just
Speaker 4: a few years.
Speaker 7: Well, Ford is trying to convince the investors as hard
Speaker 7: as it can. So there was a long conversation internal
Speaker 7: I'm sure even longer to try and see whether it
Speaker 7: is worth splitting the company into its TV business and
Speaker 7: into and its separate traditional engine business. But Ford came
Speaker 7: to a conclusion that that wouldn't be right because there
Speaker 7: are certain specializations between the two companies on design et cetera.
Speaker 7: On manufacturing also some components that are just too good
Speaker 7: to give up. You would have to replicate, you would
Speaker 7: have to actually increase costs. And so they decided in
Speaker 7: the end to stick with one company doing two things.
Speaker 7: But they are going to separate out the business in
Speaker 7: reporting terms, and that's going to give investors an insight
Speaker 7: into whether this transition is going as for things it
Speaker 7: can go with this current business structure. And you know,
Speaker 7: given that the stock prices up, clearly businesses clearly investors
Speaker 7: are in a position thinking that Ford's going in the
Speaker 7: right direction. But it's going to be analyzing as things go.
Speaker 7: There are clearly plans and Ford is starting to execute them.
Speaker 7: Now how well it executes them is the caution.
Speaker 1: Ok, shot, how about the Fords competitors in the US
Speaker 1: Stillantis and GM. Is the US government prepared to support
Speaker 1: those as well.
Speaker 7: So the US goverment has already funded a GM battery plant.
Speaker 7: So GM got two point five billion dollars last year
Speaker 7: in December twenty twenty two.
Speaker 8: And.
Speaker 7: STILLANTIS is actually getting money from the Canadian government. Okay,
Speaker 7: So in Canada, Volkswagen got ten billion dollars and STILLANTIS
Speaker 7: is in conversation to get something similar for its battery factories.
Speaker 7: But yes, it's one of those industries where profitability is hard,
Speaker 7: upfront investments high, and they tend to be national champions,
Speaker 7: so to speak, and governments want to protect them both
Speaker 7: for having the company domestically but also from the perspective
Speaker 7: of jobs that they give to many many different states
Speaker 7: that they.
Speaker 1: All right, Okshott, great reporting for you and your team.
Speaker 1: Appreciate that. Oxshot Rothy a senior reporter for climate for
Speaker 1: Bloomberg News. He and his team put out this Big
Speaker 1: Take story. Always good stories. You can find those stories
Speaker 1: at Bloomberg dot com, Slash Big Take or nispace Big Take.
Speaker 1: Go on the Bloomberg terminal.
Speaker 6: You're listening to the tape Cats are live program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio. The
Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 6: You can also listen live on Amazon Alexa from our
Speaker 6: flagship New York station. Just say Alexa, play Bloomberg eleven thirty.
Speaker 1: Just meant Paul Sweeney here the Bloomberg Interactive Workers Studio.
Speaker 5: We're going to Mike McLoone.
Speaker 1: He's a senior macro strategist for Bloomberg Intelligence.
Speaker 5: Just should we tell Mike what we.
Speaker 4: Just yes, nicknamed him Miami Mike, Miami Mike.
Speaker 1: That's where we're going with Mike. That's that's You can
Speaker 1: thank Katie Greifeld for that. But you are forever known
Speaker 1: up here in the Bloomberg radio circles as Miami Mike.
Speaker 5: How do you like that?
Speaker 9: I'll take it.
Speaker 10: I actually last night got to shake of Mayor Mayor
Speaker 10: Suarez's hand for the fourth time last night, So I
Speaker 10: feel like I'm entrenched in the city.
Speaker 5: You are.
Speaker 1: You are our guy down there, and that's great. Hey, Mike,
Speaker 1: you know what we've been hearing about a lot over
Speaker 1: the last few days is that this equity market is
Speaker 1: over bought.
Speaker 5: A do you buy that?
Speaker 1: And b If so, what do you look at that
Speaker 1: kind of give you that sense.
Speaker 10: Well, I really appreciated your conversation about Gene and Martin
Speaker 10: Adams earlier. She has been spot on. But right now
Speaker 10: we have a little dichotomy, which we're supposed to with
Speaker 10: pure research professionals with on a Wong. On a Wong
Speaker 10: is our our chief economist. Now, she points out the
Speaker 10: term she's used for second half is ugly for the
Speaker 10: US economic It's trajectory.
Speaker 9: Now.
Speaker 10: She started saying this a year ago, and she said
Speaker 10: it would start in basically three Q she moved a
Speaker 10: little forward the banking crisis. So I'm going with that,
Speaker 10: and I look at it for first, you look at
Speaker 10: it a simple risk asset manager or a trader. Markets
Speaker 10: have bounced in this opium for a soft landing in
Speaker 10: the FED eventually ease. So the risk is it all
Speaker 10: tilts back towards a recession. The FED not easy in
Speaker 10: what you're seeing testifying right now from Erman Pow. He
Speaker 10: is banging hard and he has no incentive all to
Speaker 10: let the markets know they're going to provide more liquidity.
Speaker 9: So the lessons of liquidity and contraction.
Speaker 10: Money supplight minus five percent you mentioned LII, the annual
Speaker 10: measure is down has dropped the most in about thirty years.
Speaker 10: It's down almost eight percent. To me, that all tilts
Speaker 10: towards a pretty ugly second half, and I think that's
Speaker 10: the risk. Also, there was one little thing metric going
Speaker 10: with just last Friday and Tuesday, the Nasdaq reached about
Speaker 10: twenty four percent above its two hundred day movement average.
Speaker 10: It has not stayed sustained above that level, that high
Speaker 10: lofty level the Internet bubble that ended in two thousand.
Speaker 4: Now when it comes to what's happening with the bitcoin space,
Speaker 4: because I know you cover all things with this, it
Speaker 4: actually hit its highest soele level since April yesterday after
Speaker 4: obviously when you're thinking the correlation with this ETF type
Speaker 4: optimism that Katie Greyfield was just here talking to us
Speaker 4: about that what are you seeing there with bitcoin? And
Speaker 4: because the last time you were here, we were talking
Speaker 4: about how that thirty thousand sort of threshold level was
Speaker 4: the psychologically key level that investors were watching exactly.
Speaker 10: I stick with that, Jess, and I just sent an
Speaker 10: editorial I'm going to point that out for publishing tomorrow,
Speaker 10: that there's so much enthusiasm about this thirty thousand level.
Speaker 10: I think the risk is similar to the stock market.
Speaker 10: If we get a little bit of rollover the fastest
Speaker 10: horse in the race that went up the most this year,
Speaker 10: again it bounds, risks go back, going back down. Now,
Speaker 10: this ETF from Blackrock, Eric Belchunus points out it might
Speaker 10: not get approved until next We don't know that for sure,
Speaker 10: but there's so much enthusiasm here at this level. Here,
Speaker 10: I look at it as the macro is still unfavorable.
Speaker 10: Bitcoin phases its first recession. It's one of the riskiest
Speaker 10: assets in the business. It's still the least risky crypto,
Speaker 10: and it's at this key threshold. And my senses from
Speaker 10: digging into all the crypto people as they're all a
Speaker 10: little too giddy. I sense this around sixty thousand when
Speaker 10: Mayor Suarez took his salary in bitcoin.
Speaker 9: So I'm concerned at.
Speaker 10: These levels that we're gonna have here's the bottom line.
Speaker 10: I'm concerned we're gonna have that ebbing tied in the
Speaker 10: stock market. Hopefully Gino will be right, but I'm sensing
Speaker 10: more at least get a correction, and then Bitcoin will
Speaker 10: drop with that. So what we need eventually is bitcoin
Speaker 10: to either I'll perform the Nasdaq. But the problem is
Speaker 10: it's been the same level with the NASTEK since twenty seventeen.
Speaker 9: It's about two to one right now versus a.
Speaker 10: Nasdaq and it or we needed to transition in a
Speaker 10: recession towards trading more like treasury bonds or gold.
Speaker 9: And it's just not there yet. Maybe it's starting, but
Speaker 9: I don't see it yet.
Speaker 5: Mike.
Speaker 1: If we're having a top second half economically in the
Speaker 1: commodities space, are you looking at is this is my
Speaker 1: time to go out and b like pork bellies?
Speaker 5: What should I be thinking about?
Speaker 9: Yeah?
Speaker 10: Gold, I the only think I think goes backed up,
Speaker 10: it's rallied, but it's still a five percent in the
Speaker 10: I think gold's going to be the best performing commodity,
Speaker 10: probably one of the best reporting commodities as we tilt
Speaker 10: this recession specifically get to a serious recession. But the
Speaker 10: problem I see for most commodities it's still a bear market,
Speaker 10: and typically to bottom a bear market need a long
Speaker 10: lag to significant amount of federal reserve easy and we're
Speaker 10: still tightening, and that to me is the key thing.
Speaker 10: So just today, right now cordill is down another four percent,
Speaker 10: set sixty nine dollars a bill. I'm still looking afford
Speaker 10: to head towards fifty dollars a barrow, and there's precedent
Speaker 10: for that. It's done it since twenty fourteen to keep
Speaker 10: its actually since the financial crisis in two thousand and
Speaker 10: this year already natural gas has done the equivalent.
Speaker 9: So I look at.
Speaker 10: Commodities, there are still bear marketing. The bottom line is
Speaker 10: you have to ask yourself what ends that. All the
Speaker 10: data from China is disappointing, and the FED and most
Speaker 10: central banks are still tightening. We just saw the Bank
Speaker 10: of England just did a surprise fifty based point hike.
Speaker 10: That's not a good environment for commodities.
Speaker 9: Mike.
Speaker 4: When it comes to the gold to copper ratio, last
Speaker 4: time you were here, it was moving lower. Now it's
Speaker 4: actually moving higher this month. What do you think this
Speaker 4: is telling us in relation to when we're especially when
Speaker 4: it comes to copper and what that means for the
Speaker 4: trajectory of the global economy.
Speaker 10: Yes, so the gold outpracing copper is what I fully expect,
Speaker 10: and that's normally what happens in a recession, and when
Speaker 10: the FED starts it has to ease for that. So
Speaker 10: I think that's going to really break out and potentially
Speaker 10: make new highs. That's what it did during we had
Speaker 10: that big pump and liquidity, right they had twenty twenty one,
Speaker 10: And this is things like the bond manager Jeff Gunnle
Speaker 10: like watches. So gold to copper, I think is going
Speaker 10: to break out higher. And also remember the enduring propensity
Speaker 10: over time is for gold to beat most commodities. Certainly
Speaker 10: when it comes from having to hold that asset, it's
Speaker 10: the easiest, the cheapest to store. And so I'm quite
Speaker 10: bullish gold versus most combintic to my particularly crudel, particularly copper.
Speaker 9: Copper and crudel the most industrial sensitive.
Speaker 10: And if Onna Wong's right and I leading indicators are right,
Speaker 10: and the yield curves right, the inverted deal curve, which
Speaker 10: I think it will be, then we should expect copper
Speaker 10: to underperform gold and go to outperform in the next
Speaker 10: year or so.
Speaker 4: It's interesting because that indicator actually rose with US stocks
Speaker 4: after the lows in two thousand and nine, twenty eleven,
Speaker 4: twenty eighteen, and in twenty twenty. So does that actually
Speaker 4: point to brighter times ahead?
Speaker 10: Well, it's it's it will point to brighter times ahead
Speaker 10: once copper starts outperforming goal.
Speaker 9: So this case right now points to recession.
Speaker 10: It fits in with Anna's model, it fits in with
Speaker 10: the UH, the inverted Yeeld curve, and with plunging commodities.
Speaker 10: So I fully expect that we need some kind of shock.
Speaker 10: We need to not have this recession and the FED
Speaker 10: a year from now to sa oh, we're still at
Speaker 10: the same rates because economy is doing great. That will
Speaker 10: repress gold. Remember gold is a good competition for gold
Speaker 10: is high rates. You're getting five percent in a T bill,
Speaker 10: that's great, and the stock market out performing the rest
Speaker 10: of the world, the US stock market. If that starts
Speaker 10: tilting lower, gold's gonna beat most asset. So I see
Speaker 10: it right now is look at copper on the year
Speaker 10: it was, it's basically up about two percent.
Speaker 9: But here's a key thing.
Speaker 10: The way to look at copper the dollar price of copper,
Speaker 10: if you overlay that with the S and P five hundred,
Speaker 10: just take the S and P five hundred and divide
Speaker 10: it by a thousand. They've been almost the exact same
Speaker 10: for about five years. So right now the dollar price
Speaker 10: of copper implies that S and P five hundred should
Speaker 10: be about three thousand, nine hundred and it's currently about
Speaker 10: four thousand, four hundred. The question we'll see within the
Speaker 10: next few months if that ration has that relationship and
Speaker 10: broken down, or is copper being the leading indicator and
Speaker 10: showing us what leading indicators are telling us that they
Speaker 10: were heading towards a pretty bad recession, which means the
Speaker 10: stock market's gonna have a problem.
Speaker 1: All right, I got your gold call. You've been very
Speaker 1: consistent on that, Mike. How about the poor man's gold silver?
Speaker 9: Bilver has been a really good performing this year.
Speaker 10: The problem with silver is it's no longer a monetary ascid.
Speaker 10: It's much more an industrial metal. It's been replaced by gold,
Speaker 10: and Sir Isaac Newton started that in the seventeenth century
Speaker 10: when he was head of the US I'm sorry the
Speaker 10: British mint. So I think what we've seen this year
Speaker 10: so far as a bounce in silver, just like you've
Speaker 10: seen in some of the other commodities. I'm sorry, like
Speaker 10: it's the stock market, but I think silver is going
Speaker 10: to more succumb to the recession. The industrial metals like
Speaker 10: copper trade lower and gold outperform, but overall the price
Speaker 10: of gold versus copper is really I'm sorry versus silver.
Speaker 10: The gold silver ratio has appreciated over time. I expect
Speaker 10: that to kick in and to rally go to outperform silver,
Speaker 10: particularly if we get to a New York's recession.
Speaker 1: All right, Mike, thanks as always for joining us. Always
Speaker 1: appreciate getting your input there. Mike yep aka Miami Mike
Speaker 1: Senior Mac was strategist for Bloomberg Intelligence. We can talk
Speaker 1: to him about anything on a commodity space.
Speaker 6: You're listening to the team Ken's are Live program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot Com,
Speaker 6: the iHeartRadio app and the Bloomberg Business app, or listen
Speaker 6: on demand wherever you get your podcasts.
Speaker 1: I just met in Paul Sween here in a Bloomberg
Speaker 1: INTERACTI broker studio. It just here's a company, Jess, Equinix.
Speaker 1: It's like a June sized company and I don't know
Speaker 1: anything about it.
Speaker 4: Data center provider.
Speaker 1: Yeah, I mean that's like that is call it the
Speaker 1: backbone of technology.
Speaker 5: Got to the data center somewhere.
Speaker 1: It's a seventy billion market cap company, Equinix. Eqix is
Speaker 1: a ticker. The good news is we have the CFO
Speaker 1: in our Bloomberg Interactive Broker studio. Keith Taylor, CFO of
Speaker 1: Equinox again eq Ix. We also have Jeff Langbaum. He
Speaker 1: is the reet analyst who covers all of the reats,
Speaker 1: including Equinix, because Equinox is a REAT. So we're gonna
Speaker 1: be brought Jeff in here because he's the smartest guy
Speaker 1: we having to build. Need to talk about this company.
Speaker 1: So Keith, let's start with you talk to us about Equinix.
Speaker 1: What do you guys do? Number one and number two?
Speaker 1: I knew you guys had a big investor day yesterday.
Speaker 1: What was kind of the message you were trying to
Speaker 1: get across?
Speaker 11: Yeah, Paul looks largest data center company in the world.
Speaker 11: Think of all things digital coming into our environment. We
Speaker 11: sit on a foundation of two thousand networks, three thousand
Speaker 11: cloud and IT services companies. We've got two hundred and
Speaker 11: fifty data centers about around the world, and we're investing
Speaker 11: a tremendous amount of capital. All things digital belong inside Equinics.
Speaker 4: What specific companies are you providing these connected digital infrastructures too,
Speaker 4: because I've seen you also work with companies like Google, Cloud, Zoom, Oracles,
Speaker 4: so these are some big names.
Speaker 11: No, absolutely, but first and form, the top ten customers
Speaker 11: for us represent about eighteen percent of our business, and
Speaker 11: it's the large hyperscalers. And think of us as effectively
Speaker 11: on an off ram to the Internet and to the cloud.
Speaker 11: We have again two thousand networks, three thousand IT and
Speaker 11: cloud companies. We have majority of the forty percent of
Speaker 11: the cloud on ramps. And so it's how data transfers
Speaker 11: through basically the systems. And for us, they need proximity,
Speaker 11: they need diversity, and we provide that. We're in seventy
Speaker 11: one markets around the world, will soon soon be in
Speaker 11: in seventy five and thirty one country is going to
Speaker 11: thirty five. So a very exciting time for us.
Speaker 12: Well, and from from the rep perspective, it paints a
Speaker 12: very different picture than a lot of the other asset
Speaker 12: classes that we typically talk about.
Speaker 5: Right, demand is through the roof.
Speaker 12: I mean, they spent a lot of time yesterday talking about,
Speaker 12: you know, the demand drivers for their business and just
Speaker 12: you know, the just the connectivity.
Speaker 5: We haven't even touched on AI.
Speaker 12: I'm sure Keith is nun is tired of talking about it,
Speaker 12: but I mean that's probably the next wave, right, the
Speaker 12: demand for the data center business is through the roof
Speaker 12: and you can see it extending out over the next
Speaker 12: whatever timeframe you choose.
Speaker 5: So what do you think about AI.
Speaker 11: Well, at first, the opportunities amous if you believe that
Speaker 11: all things digital have a home inside Aquinics, and you
Speaker 11: think about AI where it will take us. I just
Speaker 11: think it's a broader opportunity for us. So it's exciting.
Speaker 11: Whether it's autonomous driving, you know, whether it's AI, whether
Speaker 11: it's electronic trading, all those have a home inside Aquinics.
Speaker 11: So a lot of our message Paul was yesterday was
Speaker 11: really about the opportunity that's in front of us, and
Speaker 11: Charles talked about, you know, the size of the market opportunity.
Speaker 11: We see it as roughly one hundred and forty billion
Speaker 11: dollars opportunity and we'll play inside that space. So it's
Speaker 11: an exciting time for us. And sort of the back
Speaker 11: end of the conversation was really about we're no, we're
Speaker 11: the best representative of a very strong financial financially strong
Speaker 11: company that has the balance sheet, has the liquidity, has
Speaker 11: the wherewithal to invest to scale where I think others
Speaker 11: are going to have a tougher time over the next
Speaker 11: the next little while.
Speaker 12: And Keith, you can you talk a little bit about
Speaker 12: what the growth looks like from you, you know, from
Speaker 12: your perspective in terms of top line bottom line, you know,
Speaker 12: and frankly how that differentiates you from your data center piers,
Speaker 12: but also reads broadly.
Speaker 11: Yes, well, the top line. What we told the market
Speaker 11: yesterday we had our analyst day and today's our twenty
Speaker 11: fifth anniversary. Interestingly enough, and so twenty five years into
Speaker 11: our history. We basically told them, you know, just despite
Speaker 11: our scale and size today that we can still grow
Speaker 11: the top line eight to ten percent. But I said
Speaker 11: there's accelerants to that that we're not willing to share
Speaker 11: just yet, and one of them is AI and just
Speaker 11: the opportunity, and largely we said that because of it's
Speaker 11: in its infancy. The other aspect of it was really
Speaker 11: digital services. It's going to be an adjacency service to
Speaker 11: our to are for our customers. And again it's just
Speaker 11: a little bit early on the flip side. When we
Speaker 11: look at we look at profitability, we said that we
Speaker 11: can grow AFFO per share seven to ten percent. And
Speaker 11: part of the reason we said seven to ten percent,
Speaker 11: as many people know, there's an element of refinancing that
Speaker 11: we have to do, and the cost of capital, of
Speaker 11: course is larger today. But despite that, we also committed
Speaker 11: and suggested that we could spend three billion dollars a
Speaker 11: year for the next five years. That's fifteen billion dollars
Speaker 11: and the majority of us going to be funded from
Speaker 11: internal resources. It means the cash flow in the business
Speaker 11: is fueling that growth, which is which I think is
Speaker 11: just a great opportunity, unparalleled compared to anyone else.
Speaker 4: You're based in California. I wanted to get your view
Speaker 4: after we saw a lot of those regional banking stresses
Speaker 4: back in March, what your outlook is for growth and
Speaker 4: if you were impacted at all by that.
Speaker 9: Yeah, just the.
Speaker 11: Obviously there were stress in the system. I think what
Speaker 11: it did was it created an environment where decisions were
Speaker 11: paused and it caused people to stop and reflect on
Speaker 11: what really was happening within the financial segment. A large
Speaker 11: component of our business is certainly in with the banking industry.
Speaker 11: A lot of the electronic trading takes place inside Equin
Speaker 11: that all said, the implications to us was very, very minor,
Speaker 11: and I'm saying minor in the sense that we had
Speaker 11: Silicon Valley Bank we first Republican some of the others,
Speaker 11: but it wasn't a meaningful part of our revenue exposure.
Speaker 12: Keith, you mentioned just a minute ago the potential to
Speaker 12: spend three billion dollars a year fifteen billion dollars in
Speaker 12: total on capex. That's expanding your portfolio domestically globally. Can
Speaker 12: you talk about the demand trends that is fueling the
Speaker 12: need for so much space and why you feel comfortable
Speaker 12: putting that much capital to work.
Speaker 11: Yeah, well, right now, we have fifty projects underway today
Speaker 11: of size in thirty seven marcus in twenty five countries,
Speaker 11: so it gives you a sense of the breadth of
Speaker 11: our business. One of the things I shared with the
Speaker 11: investors yesterday also was seventy five percent of our revenues
Speaker 11: come from customers who want to operate in more than
Speaker 11: one region of the world, and so we're the best
Speaker 11: manifestation of that. So we draw comfort from I think
Speaker 11: we have something that's very uni relative to the majority
Speaker 11: of the marketplace. Number two, all things digital feel like
Speaker 11: they should have a home and equinics. And then number three,
Speaker 11: I suggest they are posited that, you know, in with
Speaker 11: the difficulties in the marketplace. It feels like the supply
Speaker 11: over time is going to get constrained because cost capital
Speaker 11: is high, is harder to build. You have supply chain
Speaker 11: implications to power, access to power, access to water. These
Speaker 11: all would suggest that for the unsophisticated it's going to
Speaker 11: be harder build. And therefore we think we can we
Speaker 11: can fill that void, and in many ways we even
Speaker 11: believe that pricing can move up favorably towards us. But
Speaker 11: you know the beauty is look, I suggested three billion
Speaker 11: dollars a year. We have, we have levers. We can
Speaker 11: pull them as we see the information. We're making decisions,
Speaker 11: and their decisions are long term based. You have to
Speaker 11: decide today what you're going to do years years from now,
Speaker 11: and we can pull back in those if we need to.
Speaker 1: So Keith, you know your CEO was just on the
Speaker 1: desk start a little bit earlier. But we prefer to
Speaker 1: get the money guy in the studio here because you guys,
Speaker 1: you really pull the I'm looking at your balance sheet here,
Speaker 1: I see about fifteen billion of net debt. I see
Speaker 1: you know a little bit more than three billion dollars
Speaker 1: three and a half million dollars for free cashally she
Speaker 1: gets some.
Speaker 5: Leverage on the balance sheet.
Speaker 1: Is it too much leverage? Is it optimal leverage? Where
Speaker 1: are you in terms of your balance sheet? And if
Speaker 1: you need to fund fifteen billion dollars, where's that coming from?
Speaker 9: Again?
Speaker 11: Yeah, well, look, I'll tell you a few things. First
Speaker 11: and foremost, we're lever three point four times when you
Speaker 11: look at an industry average at about six point one times,
Speaker 11: So that's one. Number two. We have two point six
Speaker 11: billion dollars of cash on our balance sheet, is correct.
Speaker 11: We have a four billion dollar unused line of credit,
Speaker 11: So I feel that we have the liquidity, but more
Speaker 11: than anything, the affo that we generate in the business.
Speaker 11: Think of that as the cash flow because it's after tax,
Speaker 11: after interest, after running the business and investing.
Speaker 5: Ros I tried to teach me, fine it.
Speaker 12: Paul loves dividends.
Speaker 11: Talk to you, but think about that's a three billion
Speaker 11: dollar number or they're about that's growing in the range
Speaker 11: of seven to ten percent per year. So Number one,
Speaker 11: you've got the cash and because of our structure, we
Speaker 11: only have to distribute out forty two cents of every
Speaker 11: dollar to the shareholders in the form of a dividend,
Speaker 11: and as a result, you're keeping fifty eight cents. And
Speaker 11: when you do that, unless just you three billion for
Speaker 11: a simple number times sixty percent, you get to keep
Speaker 11: one point eight billion dollars a year just to fund
Speaker 11: your growth. And of course it's a growing number. So
Speaker 11: it's actually the model works exceedingly well. So the dividend
Speaker 11: is going up, the investment is going up, but I
Speaker 11: think the opportunity is going up even more so.
Speaker 4: If you have that cash, are you looking to acquire
Speaker 4: any particular companies to expand your network globally?
Speaker 11: Just the answer is, Look, we're alway, We're always going
Speaker 11: to look at acquisitions. We've done thirty in our time,
Speaker 11: thirty plus. But the best use of our capital is
Speaker 11: actually investing in organic bill that's where we get the
Speaker 11: highest return. But we are expanding in the Aussian countries.
Speaker 11: We want to be another markets. So it's an exciting time.
Speaker 11: But I rather build organically than buy somebody.
Speaker 5: All right, Keith, So glad to get some of your
Speaker 5: time here.
Speaker 1: Keith Taylor, CFO Equinox, joining us as well as Jeff Langboun,
Speaker 1: who covers all the reats including Equinics for Bloomberg Intelligence.
Speaker 6: You're listening to the tape Cat's are live program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 6: You can also listen live on Amazon Alexa from our
Speaker 6: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Speaker 1: I want to talk about this economy.
Speaker 5: We want to talk about this FED.
Speaker 1: We want to see where we're going here, and to
Speaker 1: do that, we have a welcome guest, returning, Chevin yeltikin
Speaker 1: the dean at the University of Rochester Business School, joining
Speaker 1: us live here in our Bloomberg Interactive Brooker Studio. Chevin,
Speaker 1: so great to see you again. What do you make
Speaker 1: of this Federal Reserve? We've heard FED Chairman Pal today
Speaker 1: in front of the Senate, yesterday in front of the House,
Speaker 1: and every other FED president is speaking all over the place.
Speaker 1: This FED seems pretty consistent about raising rates here.
Speaker 8: Yes, he definitely wanted to signal that they did. They're
Speaker 8: not pausing for good. I mean see, you know, even
Speaker 8: though they've they've paused for a bit, and they might
Speaker 8: pause through that the summer or something, but until that
Speaker 8: inflation figures come down to about two percent or somewhere
Speaker 8: close to it. They're not pausing for a long period
Speaker 8: of time, So that was that was quite a strong statement.
Speaker 4: And also pointing out that at least two more rate increases,
Speaker 4: which something James Bullard had already pointed to about a
Speaker 4: month ago, and that's been priced into their dot plots.
Speaker 4: What do you think it's going to take and when
Speaker 4: do you think the next potential rate increase could be?
Speaker 4: Paul and I've been talking about this a lot this morning,
Speaker 4: because there's not a ton of data between now and
Speaker 4: the next FED meeting in late July.
Speaker 8: I mean, one of the interesting things about his statement
Speaker 8: was he was saying, you know, monetary policy takes a
Speaker 8: little while to sort of percolate throughout the economy, and
Speaker 8: what we're really doing is kind of giving it a
Speaker 8: chance to percolate, rather than what we're seeing is very
Speaker 8: strong data for us to stop the inflationary you know,
Speaker 8: suppressing inflation. So I don't think much is going to
Speaker 8: come between now and then. It's just that they're going
Speaker 8: to look at some very micro data, very low frequency data,
Speaker 8: to be able to tell whether, you know, if the
Speaker 8: economy is not plunging into any kind of major you know,
Speaker 8: slow down. I think they're going to continue to raise.
Speaker 1: Rates, all right, smart people like you tell tell me
Speaker 1: about this long and variable lags of FED policy. I
Speaker 1: mean the Fed raise it's in strate over five hundred
Speaker 1: basis points within a year. Why don't we just stop
Speaker 1: and just see how it plays out over the next
Speaker 1: several months. Why do they feel the need to kind
Speaker 1: of keep talking very hawkishly about raising rates, do you think?
Speaker 8: I think because they know that people are going to
Speaker 8: be making investment decisions and certainly pricing things into long
Speaker 8: term and they don't want to signal that they're done.
Speaker 8: They want to leave a lot of kind of gray
Speaker 8: room for them to maneuver. I think that's part of
Speaker 8: it as well, because we're not there yet, We're not
Speaker 8: seeing inflation, especially core inflation is still kind of high,
Speaker 8: and I think it really gives them an opportunity to
Speaker 8: be able to maneuver the economy in whatever way that
Speaker 8: they see fit at the time that the data arrives.
Speaker 8: I mean, this is not a perfect science, but nowhere
Speaker 8: near it. Right, there's a lot of weight and see
Speaker 8: and feel the ground and feel the data and crutch
Speaker 8: the numbers and do another kind of you know, projection.
Speaker 8: So I think what we're seeing is just really that
Speaker 8: kind of work being played out. But now we get
Speaker 8: to see that data very very frequently ourselves, which we
Speaker 8: didn't used to do twenty thirty years ago.
Speaker 4: I like to use the ECFC function in the terminal
Speaker 4: to kind of gauge where economy is pulled by Bloomberg
Speaker 4: are gauging where the economy is headed. And coming into
Speaker 4: this year, as you know, a lot of economists were
Speaker 4: expecting that we would already be in a recession at
Speaker 4: this point. Now it continues to get pushed back, but
Speaker 4: it's more when you're looking at a quarter over quarter basis,
Speaker 4: not year over year. Now it's looking maybe for the
Speaker 4: tail end of this year. What do you think, how
Speaker 4: do you where this away when you still see resilient
Speaker 4: consumer data versus the inflation backdrop, and this whole coming
Speaker 4: into this year where everybody was telegraphing a recession that
Speaker 4: hasn't necessarily come to fruision just yet.
Speaker 8: I would like to say that I was one of
Speaker 8: the very few economists who kept saying, even on record
Speaker 8: in this show, that I actually thought that the economy
Speaker 8: had a lot of pockets of resilience that that recession.
Speaker 8: You know, what we see where the recession it, you know,
Speaker 8: signs there's a lot in the expectations, but that's because
Speaker 8: we're also talking a lot about it. I mean, a
Speaker 8: lot of the news we receive are negative these days,
Speaker 8: from Ukraine to relations with China to a whole variety
Speaker 8: of things. A lot of the news that we receive
Speaker 8: are negative. So that's affecting expectations. But consumers are very resilient,
Speaker 8: and I don't think it's just that fiscal stimulus that
Speaker 8: but that fiscal stimulus had run its course a while ago.
Speaker 8: Our savings direct are down back to close to zero again,
Speaker 8: so it's not really people spending the money that they
Speaker 8: had been given, you know, two years ago during the pandemic.
Speaker 8: There's a lot of consumer resilience. There's a lot of
Speaker 8: resilience in the service market. Housing market is still doing
Speaker 8: relatively well. I mean, it's not what it was a
Speaker 8: year and a half ago. I just I think it's
Speaker 8: still really really pessimistic to say that we're going to
Speaker 8: go into a recession. Labor market is very tight, we
Speaker 8: can't hire people fast enough, and we're losing people every day.
Speaker 1: How about your students at University of Rochester, the business
Speaker 1: school there, how are they doing in the job market.
Speaker 8: They're doing really well. So one of the places that
Speaker 8: they go to typically is the tech market. So the
Speaker 8: tech market certainly has taken a hit. What we are
Speaker 8: seeing is a little bit of a slow down in
Speaker 8: decision making. They're not pulling out of the market, they're
Speaker 8: not you know, stopping interviews, but they are taking a
Speaker 8: little longer to extend or putting out the start dates
Speaker 8: further into the summer rather than a Junie start date,
Speaker 8: a September start date or a little bit later. But
Speaker 8: we haven't really consulting as one of the areas that
Speaker 8: where we do see actually a slow down.
Speaker 4: Okay, what do you think the catalysts could really be
Speaker 4: to actually see growth slow more significantly, because are we
Speaker 4: really headed for a recession or is it just kind
Speaker 4: of a little bit more of a slower growth regime
Speaker 4: for the next few quarters. It's really hard.
Speaker 8: I mean, I know this is such an economist answer,
Speaker 8: but at the same time, you know, we're talking about
Speaker 8: the housing market slowing down at the same time inventory
Speaker 8: is really low, you know, and at the same time,
Speaker 8: we know that the cost of building is going up,
Speaker 8: so people who want to build want to build sooner
Speaker 8: rather than later, because we still have a lot of
Speaker 8: supply issues going on at the same time, we have geopolitics, right,
Speaker 8: and then we have a very strong dollar.
Speaker 6: There's just so.
Speaker 8: Many mixed signals and mixed sort of information coming through
Speaker 8: that it's really hard to make a very strong prediction.
Speaker 8: And that's why I think all of us are having
Speaker 8: a really hard time to pinpoint exactly what's going to
Speaker 8: happen and when it's going to happen. But I've been
Speaker 8: much more optimistic because the resilience is certainly there. I
Speaker 8: think if we see a La Baber market really tightness
Speaker 8: go away, that's when we're going to get worried.
Speaker 4: Why are so many people overlooking some of these resilient
Speaker 4: pockets and still going toward ward this kind of gloom scenario.
Speaker 8: Maybe it sells more.
Speaker 4: Obviously what we saw with decades high inflation exactly.
Speaker 8: I mean, because typically I think historically too, if you
Speaker 8: saw inflation and that kind of numbers in inflation almost
Speaker 8: close to sort of double digits, historically when we look back,
Speaker 8: those were followed by recessions.
Speaker 4: And then also the Fed obviously not having the best
Speaker 4: track record when it comes to say these soft type.
Speaker 8: They have absolutely so I think looking back historically, people
Speaker 8: are right to assume that there is going to be
Speaker 8: some sort of a slow down. But again, we're seeing
Speaker 8: a lot of growth in the service sector at least
Speaker 8: sort of going towards back to the pandemic levels. We're
Speaker 8: seeing a lot of sort of consumer resilience and labor
Speaker 8: market resilience. And I'm not quite sure that you know,
Speaker 8: firms are really holding onto labor because you know, there's
Speaker 8: a lot of talk about labor hoarding, and it's it's
Speaker 8: certainly new. You know, placements are just not getting the
Speaker 8: applications that we used to see pre pandemic. So it's hard.
Speaker 8: It's hard to replace people.
Speaker 1: Let's talk about Turkey. Oh, central Bank hikes policy eight
Speaker 1: to fifteen percent. Liar drops to a record low. I'm
Speaker 1: you're expert on Turkey, I know, just give us their
Speaker 1: thirty thousand foot view.
Speaker 5: What's happening there.
Speaker 8: I mean, it's a good sign that they're reversing the
Speaker 8: policy of low interest rates, this idea that you know,
Speaker 8: low interest rates with curb inflation is diametrically opposed to
Speaker 8: anything that we know about how any economy works. So
Speaker 8: they have raised it, but not raised it fast or
Speaker 8: large enough. They now have, you know, a new finance
Speaker 8: minister along with a new central Bank governor, so hopefully
Speaker 8: we'll see a little bit more orthodox policies coming.
Speaker 9: Out of it.
Speaker 8: The lira is a huge I mean it's now down
Speaker 8: to about one dollar to twenty lirias or so. Election, well,
Speaker 8: he's got another five year term, so there will be
Speaker 8: at least you know, we'll see how that pans out too.
Speaker 8: But Turkey, it's going to take a while before investors
Speaker 8: come back.
Speaker 1: I know, there's been so many challenges in Turkey in
Speaker 1: terms of natural disasters, and so how are the people doing?
Speaker 8: They are, at least the people that I'm in touch with,
Speaker 8: and they have a very negative outlook. They have a
Speaker 8: very negative outlook about the you know, they don't trust
Speaker 8: the inflation numbers. They don't really trust some of the numbers.
Speaker 5: Yet they put er one back in for another five years.
Speaker 8: Yes, absolutely, all.
Speaker 5: Right, you're an expert, so we're going to.
Speaker 1: Be coming here.
Speaker 8: I want to say it was a very fair election, right.
Speaker 1: Yep, we'll leave it there all right. Chevin Yeltakain, thank
Speaker 1: you so much for join us. Always appreciate getting your perspective.
Speaker 1: Chevin is the dean at the University of Rochester Business School.
Speaker 1: I'm a big fan of Rochester. They turn out a
Speaker 1: lot of good graduates there. I've hired a bunch of
Speaker 1: myself back in the day.
Speaker 6: You're listening to the tape Cat's are live program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, tune
Speaker 6: in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 6: You can also listen live on Amazon Alexa from our
Speaker 6: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 4: I'm really excited for our next guest, first time I've
Speaker 4: been able to meet him in person. What is work
Speaker 4: for you?
Speaker 5: Oh boy, this must be a street for you.
Speaker 1: Barry Ridholt's host of Masters in Business. I mean for me,
Speaker 1: it's nothing, but it's just Barry just host some Masters
Speaker 1: of business. I think you run some money too. He's
Speaker 1: a chairman in chief Investment off Serbert Holts Wealth Management. Hey,
Speaker 1: Barry s and P five hundred. It's up fourteen percent
Speaker 1: this year. Why don't I just index my money and
Speaker 1: just go onto the golf course.
Speaker 13: I don't know, why don't you?
Speaker 1: I don't know, I mean, why am I sitting her
Speaker 1: waits and trying to do research and all that kind
Speaker 1: of stuff just by the index?
Speaker 13: I mean, at the very least, having the core of
Speaker 13: your investment portfolio be index and then you know, I
Speaker 13: like to describe it as the Christmas tree and the ornaments.
Speaker 13: If your core is the S and P five hundred,
Speaker 13: you know you're never going to be that far off
Speaker 13: from the market. You'll at the very least compound at
Speaker 13: a different at a pretty close to market rate. And
Speaker 13: then if you feel like you're enthusiastic about different things,
Speaker 13: maybe you like value, maybe you like technology, maybe you
Speaker 13: want to go regional and say I think India is
Speaker 13: the next great growth region or whatever it happens to be.
Speaker 13: I'm just randomly pulling examples out of the air. That's
Speaker 13: perfectly fine. You can absolutely start with the index, especially
Speaker 13: when you look at how easy it is to go
Speaker 13: out and buy an ETF and the cost is four
Speaker 13: or five basis points' it's practically free. So for the
Speaker 13: average you know, home viewer listening at home. It's a
Speaker 13: great place to start.
Speaker 4: And you had a column recently specifically about this and
Speaker 4: why indexing should be a part of investors core investment strategy.
Speaker 4: What were these five issues? Can you walk us through
Speaker 4: with sure?
Speaker 13: You know, it's funny because there's sort of been a
Speaker 13: cottage industry trashing indexing. If you remember a couple of
Speaker 13: years ago, we heard it was un American, it was
Speaker 13: anti competitive. When Jack Bogel and Vanguard first launched in
Speaker 13: seventy four, they were told it was literally communistic. The
Speaker 13: advantage so let's start out first and foremost costs. And
Speaker 13: while the active side has gotten much better on costs
Speaker 13: used to be about two hundred basis points for the
Speaker 13: average active mutual fund, that's now somewhere between let's call
Speaker 13: it fifteen seventy five basis points. It's not four BIPs.
Speaker 13: It's you know, appreciably higher over thirty years. If you're
Speaker 13: gonna compound with fees of seventy five basis points just
Speaker 13: for the fund, say nothing about the advice or trading
Speaker 13: or taxes or anything like that, that's gonna end up
Speaker 13: being about twenty percent of your total returns. It really
Speaker 13: has a giant impact so costs are a big part
Speaker 13: of it. Second of the five things is simply behavior.
Speaker 13: You know, if you're just buying an index, you're not
Speaker 13: engaging in stock selection, you're not market timing, you're not
Speaker 13: jumping in and out, you're not thinking about all the
Speaker 13: things that lead human beings to make bad investment decisions.
Speaker 13: It turns out people are full of cognitive errors and
Speaker 13: behavioral biases, and it leads us to places that not
Speaker 13: the greatest when it comes to to making investing. I
Speaker 13: mentioned stock selection, which you don't do. That's the third thing.
Speaker 13: There have been a number of studies. Hendrik Besting Minder
Speaker 13: is probably the most famous of the studies. Most stocks
Speaker 13: don't really do anything. Some stocks go up a little,
Speaker 13: some stocks go down a little. A couple really crash
Speaker 13: and burn. But it turns out the market indexes are
Speaker 13: primarily driven by the big winners, and that's one one
Speaker 13: and a half percent of the total stocks. So not
Speaker 13: only do you have to find that needle in a haystack,
Speaker 13: you also have to avoid all the rest of the
Speaker 13: mass stocks really really hard. When you buy an index
Speaker 13: like the S and P five hundred that's cap weighted,
Speaker 13: not only are you pretty much guaranteed to have those
Speaker 13: winners in them, but as they get bigger, you own
Speaker 13: more of them. The Apple is the largest component in
Speaker 13: the S and P five hundred. It's also the biggest
Speaker 13: US company in the world. And what a surprise. It
Speaker 13: used to be a tiny percentage of the S and
Speaker 13: P five hundred in the nineties and now it's large.
Speaker 13: And then the last couple of things are really I
Speaker 13: don't know, a little Pickyn, but those three are the
Speaker 13: where you start from.
Speaker 5: Yep, ye, hey, Barry.
Speaker 1: When I started out in the business, we went to
Speaker 1: the mutual funds because that's where all the money was.
Speaker 1: As a sellside analysts, I'd got the Boston three or
Speaker 1: four times a year, walk around town seeing Fidelity and
Speaker 1: Puttingham and all those because that's where the money was.
Speaker 1: Now I'm asking my question, is there any future for
Speaker 1: the mutual fund business? ETFs is gobbling up all the
Speaker 1: money I've got mutual funds converting to ETFs. It's a
Speaker 1: race to the bottom on costs. What's the future of
Speaker 1: the mutual fund business?
Speaker 12: Do you think so?
Speaker 13: The single biggest advantage of ETFs is that there's no
Speaker 13: phantom capital gains tax. Maybe This is a little controversial.
Speaker 13: This is my opinion, but it's hard to argue that
Speaker 13: if I own a mutual fund and I don't sell it, right,
Speaker 13: I continue to hold it. But there are sales and
Speaker 13: transactions within and people who own that fund buy it
Speaker 13: or sell it. Suddenly I get a tax bill that's terrible.
Speaker 13: So I could understand why in taxable accounts there's a
Speaker 13: built in preference for ETFs. However, the mutual fund structure
Speaker 13: is well known, it's well understood in many ways. It's
Speaker 13: scale very nicely, whereas you have some issues with ETF scaling.
Speaker 13: So in qualified tax accounts, in iras and four oh
Speaker 13: one k's, of course you want to go with the
Speaker 13: mutual fund. They don't trade during the day, so there's
Speaker 13: none of that headache. You get priced daily. That's all
Speaker 13: you really need. The costs have come down dramatically, and
Speaker 13: your biggest concern is that phantom tax that goes away
Speaker 13: in a four oh one K or an IRA. So
Speaker 13: I think the future of mutual funds is going to
Speaker 13: be in those retirement accounts. Yeah, ETFs give you some thematics,
Speaker 13: they give you some indexes, they give you some other
Speaker 13: things that work better in the non tax exempt accounts.
Speaker 13: There's room for both of them. They each serve a
Speaker 13: different role.
Speaker 4: Money market mutual funds have been such a hot topic,
Speaker 4: and especially given just with investors being able to yield more,
Speaker 4: and last week actually the Investment Company Institute showed how
Speaker 4: there were flows coming out of that for the first
Speaker 4: time in about two months. I'm wondering, what's the catalyst
Speaker 4: push more of the cash that's sitting there into the
Speaker 4: equity market.
Speaker 13: That's that's always a key question. I Mean, the amazing
Speaker 13: thing is, you know, you got zero in money market
Speaker 13: funds and practically nothing in bonds for a long time. Wait,
Speaker 13: I could put money in a money market fund can
Speaker 13: get five and a half percent pretty safely. I mean,
Speaker 13: as long as it's a name brand that you don't
Speaker 13: have to worry about it somehow being tied to some
Speaker 13: stable coin that blows up. But like if you want
Speaker 13: a Vanguard or a Fidelity or a Franklin Templeton money
Speaker 13: market fund, you're gonna get five percent. That's pretty safe money.
Speaker 13: If I'm gonna rotate some of that into the equity market,
Speaker 13: there really has to be a promise or an expected
Speaker 13: return appreciably higher than five percent, and you know, up
Speaker 13: fourteen percent for the year halfway through the year. That's
Speaker 13: a good year, right, you know the equity market. Could
Speaker 13: you know, right, gone fishing and take the rest of
Speaker 13: your gear off and it's a good year. Not that
Speaker 13: that's gonna happen unless your own pal goes fishing and
Speaker 13: takes the rest of the year off and then we're
Speaker 13: off to the races.
Speaker 4: Yeah, NASAK one hundred is off to its best first
Speaker 4: six months to a year ever.
Speaker 13: Actually be fair, it's coming off a horrific.
Speaker 4: Yes, right for last year.
Speaker 5: But by the way, people.
Speaker 13: Don't think this way, but NASDAK down thirty percent. I'm
Speaker 13: absolutely a buyer anytime. Maybe not the whole position. Maybe
Speaker 13: you're waiting to see if you're down forty percent or more.
Speaker 13: But anytime you have that sort of a selloff in
Speaker 13: that rapid period of time, you have to you have
Speaker 13: to think, hey, this is fallen so far out of
Speaker 13: favor that the valuations have become attractive.
Speaker 1: Thirty seconds balance power, I'm sorry, master's in business.
Speaker 5: Who you got coming up?
Speaker 13: So coming up in two weeks of Jenny Johnson of
Speaker 13: Franklin Templeton next week is going to be Alana Weinstein,
Speaker 13: one of the Hedge fun Hunter and this weekend Peter
Speaker 13: Borish pulled Tudor Jones' partner and runs the Robin Hood Foundation.
Speaker 5: You get players every time every Tuesday. His recording here
Speaker 5: and a lot of fun.
Speaker 1: I kind of just make sure I kind of walk
Speaker 1: by the studio to see who's there.
Speaker 5: Ye kind of like stargazing Barry Ridolts.
Speaker 1: He's host of Masters in Business fantastic podcast, check it out.
Speaker 1: He also is a chairman and chief investment officer Rit
Speaker 1: Holtz Wealth Management. Love getting him here and it's good
Speaker 1: to get him in studio.
Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 2: at Matt Miller nineteen seventy three and on.
Speaker 1: Faull Sweeney I'm on Twitter at pt Sweeney. Before the podcast,
Speaker 1: you can always catch us worldwide at Bloomberg Radio Time