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 00:00:11,560 --> 00:00:15,600 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,640 --> 00:00:18,479 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. Well, we had an 7 00:00:22,160 --> 00:00:26,640 Speaker 1: I p O of this morning. Five Training Holdings fitness 8 00:00:26,680 --> 00:00:30,720 Speaker 1: company went public at a sixteen dollars A share has 9 00:00:30,760 --> 00:00:34,960 Speaker 1: not opened for trading. Bid bid his eighteen, ask his nineteen. 10 00:00:35,000 --> 00:00:38,000 Speaker 1: So looking to open up here on the first trade. 11 00:00:38,360 --> 00:00:40,800 Speaker 1: Adam Gilcrest, He's a co founder and CEO of F 12 00:00:40,920 --> 00:00:44,159 Speaker 1: forty five Training. Uh he joins us now, Adam, thanks 13 00:00:44,200 --> 00:00:45,720 Speaker 1: so much for joining us. I know you're having a 14 00:00:45,760 --> 00:00:48,600 Speaker 1: busy day here watching to see when your stock opens. 15 00:00:49,200 --> 00:00:51,040 Speaker 1: Love free to give us the kind of a thirty 16 00:00:51,360 --> 00:00:57,360 Speaker 1: second view of F forty Training. What's the story? Well, Nessily, 17 00:00:57,520 --> 00:01:01,000 Speaker 1: thanks very much for having me on your program. Obviously 18 00:01:01,040 --> 00:01:04,720 Speaker 1: a very exciting day. And look at forty five is, 19 00:01:05,080 --> 00:01:08,039 Speaker 1: you know, I think an incredible business. Because we tried 20 00:01:08,080 --> 00:01:10,399 Speaker 1: to answer a really simple question, which was you know 21 00:01:10,440 --> 00:01:12,280 Speaker 1: how do we get people to fall back in love 22 00:01:12,319 --> 00:01:15,360 Speaker 1: with the gym, and really f forty five is a 23 00:01:15,400 --> 00:01:19,120 Speaker 1: forty five minute workout. We do it in classes of 24 00:01:19,520 --> 00:01:22,720 Speaker 1: seven up to thirty six people. A typical franchise e 25 00:01:23,360 --> 00:01:26,040 Speaker 1: you know has you know, on average, two hundred members 26 00:01:26,520 --> 00:01:29,520 Speaker 1: and we charge our members somewhere between fifty dollars and 27 00:01:29,560 --> 00:01:33,200 Speaker 1: sixty dollars a week, so we're a premium brand um 28 00:01:33,240 --> 00:01:35,600 Speaker 1: And it was built on three key pillars. Number one 29 00:01:36,440 --> 00:01:40,400 Speaker 1: was innovation, where we have six thousand exercises in our 30 00:01:40,959 --> 00:01:43,640 Speaker 1: exercise and cyclopedia, so every day you turn up, it's 31 00:01:43,640 --> 00:01:47,200 Speaker 1: a different workout. Number two is motivation, like training in 32 00:01:47,240 --> 00:01:49,840 Speaker 1: teams is just so much more enjoyable being, you know, 33 00:01:49,960 --> 00:01:53,280 Speaker 1: in a community versus you know, sitting at home, you know, 34 00:01:53,360 --> 00:01:55,400 Speaker 1: running on a treadmill or going for a run around 35 00:01:55,400 --> 00:01:58,360 Speaker 1: a park by yourself. And the third key pillar was 36 00:01:58,760 --> 00:02:01,800 Speaker 1: you know, what we describe as simply as results and 37 00:02:01,840 --> 00:02:05,920 Speaker 1: results for us is via this simple modality of high 38 00:02:06,040 --> 00:02:10,440 Speaker 1: intensity interval training. So the workouts being forty five minutes, 39 00:02:10,800 --> 00:02:13,360 Speaker 1: you know, change each day, but it's it's often like 40 00:02:13,400 --> 00:02:16,760 Speaker 1: forty seconds of work twenty seconds of rest, and you 41 00:02:16,800 --> 00:02:19,360 Speaker 1: can really get some effective results in a in a 42 00:02:19,400 --> 00:02:22,560 Speaker 1: short period of time. So look, we're great. It's a 43 00:02:22,560 --> 00:02:26,160 Speaker 1: great business because we changed so many lives. People love 44 00:02:26,280 --> 00:02:29,920 Speaker 1: coming to forty five and we've really achieved, you know, 45 00:02:30,080 --> 00:02:33,520 Speaker 1: a wrap it up. One one major milestone is you know, 46 00:02:33,600 --> 00:02:37,079 Speaker 1: having more visitations with our members than any other gym 47 00:02:37,080 --> 00:02:38,720 Speaker 1: in the world, so they turn up on average two 48 00:02:38,760 --> 00:02:41,320 Speaker 1: points seven times per week. I want to quickly just 49 00:02:41,360 --> 00:02:44,080 Speaker 1: get to the market dynamics of what we're seeing. Notable, 50 00:02:44,120 --> 00:02:49,000 Speaker 1: of course, actor Mark Wahlberg is an investor Franchises member 51 00:02:49,240 --> 00:02:52,120 Speaker 1: of the board. A year ago in June, you tried 52 00:02:52,160 --> 00:02:56,639 Speaker 1: to go public via a spack with Crescent Acquisition Corps. 53 00:02:56,680 --> 00:02:59,160 Speaker 1: Today of course, trying to just take the traditional I 54 00:02:59,320 --> 00:03:04,400 Speaker 1: p O route. Why this why the switch? We we 55 00:03:04,400 --> 00:03:06,880 Speaker 1: we ran a dual process and we had a better 56 00:03:07,440 --> 00:03:11,840 Speaker 1: um structure that we we accepted, and we believe that 57 00:03:12,040 --> 00:03:14,800 Speaker 1: a traditional IPO would be you know, positioning the business 58 00:03:15,440 --> 00:03:19,000 Speaker 1: um for more success. And you know, we're we're really 59 00:03:19,040 --> 00:03:21,320 Speaker 1: pleased with where we're at at the moment, and you know, 60 00:03:21,360 --> 00:03:24,600 Speaker 1: we're really excited to hopefully watch the first trade come 61 00:03:24,639 --> 00:03:26,880 Speaker 1: through in the next half an hour. Hey, Adam, you 62 00:03:26,880 --> 00:03:28,760 Speaker 1: know I'm here with Taylor Riggs, and she's one of 63 00:03:28,800 --> 00:03:32,200 Speaker 1: those crazy nutty people that runs marathons all over the world. 64 00:03:32,280 --> 00:03:35,240 Speaker 1: I just can't relate at all. I did, in fact, 65 00:03:35,360 --> 00:03:38,520 Speaker 1: during the pandemic actually start getting on a peloton, so 66 00:03:38,520 --> 00:03:41,280 Speaker 1: at least I'm getting some exercise. Talk to us about 67 00:03:41,360 --> 00:03:48,120 Speaker 1: how your business has been impacted by this worldwide pandemic. Well, 68 00:03:48,160 --> 00:03:51,200 Speaker 1: of course, it was an extremely challenging year last year, 69 00:03:51,440 --> 00:03:54,680 Speaker 1: and you know, at one period of time we had 70 00:03:55,000 --> 00:03:59,160 Speaker 1: our franchise is closed. Um. What we have noticed, however, 71 00:03:59,800 --> 00:04:02,080 Speaker 1: is the fact that you know, people want to get 72 00:04:02,120 --> 00:04:05,160 Speaker 1: back into the gym, but more importantly, people want to 73 00:04:05,160 --> 00:04:07,440 Speaker 1: be part of communities. People don't want to sit at 74 00:04:07,480 --> 00:04:08,600 Speaker 1: home on a bike. They don't want to sit at 75 00:04:08,640 --> 00:04:11,360 Speaker 1: home and do zoom dinner parties when restaurants are reopened. 76 00:04:11,360 --> 00:04:13,440 Speaker 1: I asked that question all the time. You know, when 77 00:04:13,480 --> 00:04:15,480 Speaker 1: was the last time you had a zoom dinner party 78 00:04:15,520 --> 00:04:19,279 Speaker 1: if restaurants have reopened. And what we're finding now is 79 00:04:19,360 --> 00:04:23,920 Speaker 1: our cohorts that are two months reopened are performing better 80 00:04:23,960 --> 00:04:27,560 Speaker 1: with visitation than they were pre COVID. So what that 81 00:04:27,600 --> 00:04:30,039 Speaker 1: says to us is the fact that we're going to 82 00:04:30,120 --> 00:04:33,240 Speaker 1: bounce back far stronger than what we were pre COVID, 83 00:04:33,720 --> 00:04:37,200 Speaker 1: And look, we think the most important thing in life 84 00:04:37,360 --> 00:04:40,760 Speaker 1: is obviously number one, your family, but you know number 85 00:04:40,760 --> 00:04:43,400 Speaker 1: two should really be your health. And if you look 86 00:04:43,440 --> 00:04:46,080 Speaker 1: at the importance of health. You know, we were talking 87 00:04:46,120 --> 00:04:49,560 Speaker 1: about of Americans this year will die of heart disease, 88 00:04:50,760 --> 00:04:52,680 Speaker 1: will die of cancer, and thirty percent of other things, 89 00:04:52,680 --> 00:04:56,279 Speaker 1: but of that heart disease. You know, we we look 90 00:04:56,279 --> 00:04:58,359 Speaker 1: at that and we say we can address that. We 91 00:04:58,400 --> 00:05:00,880 Speaker 1: can change people's lives. We can you know, what we 92 00:05:01,000 --> 00:05:04,520 Speaker 1: described as preventative health. So really, you know, we think 93 00:05:04,880 --> 00:05:09,480 Speaker 1: this pandemic has been extremely challenging. We applaud our franchise 94 00:05:09,520 --> 00:05:12,360 Speaker 1: Ease for pushing through it. We are the we're going 95 00:05:12,400 --> 00:05:15,680 Speaker 1: to have the lowest rate of closures in the world, 96 00:05:16,080 --> 00:05:18,720 Speaker 1: with less than one percent of our studios not reopening 97 00:05:18,800 --> 00:05:21,560 Speaker 1: in comparison to the rest of the industry which is 98 00:05:21,760 --> 00:05:25,719 Speaker 1: currently and that's really sad to see so many great 99 00:05:26,040 --> 00:05:28,600 Speaker 1: you know, young entrepreneurs and business owners go broke. So 100 00:05:29,080 --> 00:05:32,479 Speaker 1: we hate seeing the industry contract, but we will see 101 00:05:32,920 --> 00:05:37,320 Speaker 1: some major beneficiaries. Forty five is one of them. Planet 102 00:05:37,400 --> 00:05:39,640 Speaker 1: is another, and we're really fortunate. A few months ago 103 00:05:39,720 --> 00:05:43,520 Speaker 1: that Entrepreneur magazine ranked US in front of Planet as 104 00:05:43,560 --> 00:05:46,680 Speaker 1: the world's fastest growing fitness franchise or so when we 105 00:05:46,760 --> 00:05:49,680 Speaker 1: sprinted past Planet, you know, that's one of the two 106 00:05:49,720 --> 00:05:52,919 Speaker 1: milestones I said. Obviously I wanted to be a faster 107 00:05:52,960 --> 00:05:55,120 Speaker 1: growing company in the Planet and the next one for 108 00:05:55,200 --> 00:05:57,039 Speaker 1: us is going to be our earnings. So when we 109 00:05:57,080 --> 00:05:59,160 Speaker 1: go past them in earning, that will be the next 110 00:05:59,160 --> 00:06:02,320 Speaker 1: sort of goal that I've got for the head office here. 111 00:06:02,360 --> 00:06:05,280 Speaker 1: On that note, of course, you're pricing the shares at 112 00:06:05,320 --> 00:06:08,239 Speaker 1: sixteen dollars a piece right now indicated open anywhere between 113 00:06:08,279 --> 00:06:11,640 Speaker 1: seventeen fifty eighteen fifty share. What are you doing with 114 00:06:11,680 --> 00:06:15,160 Speaker 1: the proceeds um The first thing we're doing. I mean, 115 00:06:15,160 --> 00:06:18,480 Speaker 1: we've been a very fiscally conservative company since two thousand 116 00:06:18,520 --> 00:06:22,680 Speaker 1: and thirteen. In fact, there's no other company that's sold 117 00:06:22,680 --> 00:06:26,240 Speaker 1: more franchises than us uh and and look, we're we're 118 00:06:26,240 --> 00:06:30,320 Speaker 1: excited because we've never had an unprofitable quarter. And that 119 00:06:30,400 --> 00:06:33,880 Speaker 1: fiscally conservative approach has now been applied to the capital 120 00:06:33,960 --> 00:06:38,239 Speaker 1: raising where we're number one paying back all of our debt. 121 00:06:38,520 --> 00:06:41,080 Speaker 1: So you know, that's that's that was my first and 122 00:06:41,279 --> 00:06:44,280 Speaker 1: my ultimate goal. We will have a revolver in place 123 00:06:44,320 --> 00:06:47,160 Speaker 1: of a hundred million dollars and we're going to thirdly 124 00:06:47,240 --> 00:06:50,720 Speaker 1: also put some additional capital onto the balance sheet, so 125 00:06:51,160 --> 00:06:53,640 Speaker 1: you know, we'll have horsepower of eighty million on the 126 00:06:53,680 --> 00:06:56,880 Speaker 1: balance sheet, hundred million dollar revolver and you know, if 127 00:06:56,920 --> 00:06:59,200 Speaker 1: you look at our earnings into the future, we are 128 00:06:59,320 --> 00:07:02,760 Speaker 1: unleave it. So you know, our peers currently have you know, 129 00:07:03,200 --> 00:07:05,960 Speaker 1: anywhere between four and six times, so we have a 130 00:07:06,000 --> 00:07:09,360 Speaker 1: lot of capacity to look at opportunities in the future. 131 00:07:09,560 --> 00:07:13,400 Speaker 1: We recently purchased Flywheel for five million dollars, which was 132 00:07:13,440 --> 00:07:17,560 Speaker 1: an incredible buy. So you know, the secondary is one 133 00:07:17,640 --> 00:07:20,720 Speaker 1: investor selling out. I'm not selling any any stock in 134 00:07:20,720 --> 00:07:24,000 Speaker 1: this I p O and I think that really you know, 135 00:07:24,160 --> 00:07:26,520 Speaker 1: spoke to the and really resonated with a lot of 136 00:07:26,520 --> 00:07:28,560 Speaker 1: our investors because I said, look, I'm here for the 137 00:07:28,560 --> 00:07:32,520 Speaker 1: long term. I'm not selling any stock. We're excited about 138 00:07:32,520 --> 00:07:36,400 Speaker 1: our future, but more importantly that the pipeline of potential 139 00:07:36,440 --> 00:07:39,640 Speaker 1: franchises buying has never been healthier. UM, so it's an 140 00:07:39,640 --> 00:07:42,560 Speaker 1: exciting period for us. All right, Adam, thank you so 141 00:07:42,640 --> 00:07:44,560 Speaker 1: much for joining us. We know you're having an incredibly 142 00:07:44,560 --> 00:07:47,520 Speaker 1: busy day today as your company goes public on New 143 00:07:47,520 --> 00:07:50,120 Speaker 1: New York Stark Exchange. Adam Gilchrist, co founder and CEO 144 00:07:50,120 --> 00:07:54,480 Speaker 1: of FT Trading, again that stock is bidding bid asks 145 00:07:54,600 --> 00:07:56,640 Speaker 1: seventeen and a half, eighteen and a half after pricing 146 00:07:57,120 --> 00:08:00,440 Speaker 1: UH their shares at sixteen dollars to share. But it's 147 00:08:00,440 --> 00:08:04,120 Speaker 1: interesting to see how that industry, um Taylor, is going 148 00:08:04,200 --> 00:08:08,000 Speaker 1: to recover. You know, how will consumer behavior change in 149 00:08:08,080 --> 00:08:10,000 Speaker 1: terms of going back to the gym and the innovation 150 00:08:10,080 --> 00:08:13,800 Speaker 1: that's been going on in that industry. And you know, Paul, 151 00:08:14,560 --> 00:08:17,400 Speaker 1: he was talking about those statistics around heart disease. I mean, 152 00:08:17,400 --> 00:08:20,640 Speaker 1: that's another pandemic frankly that we've been ignoring. I think 153 00:08:20,800 --> 00:08:23,240 Speaker 1: sitting around in this pandemic has made us realize we 154 00:08:23,280 --> 00:08:25,840 Speaker 1: all need to get back to the gym exactly right. 155 00:08:25,880 --> 00:08:28,679 Speaker 1: So hopefully again we saw a contraction. Hopefully that industry 156 00:08:28,680 --> 00:08:32,040 Speaker 1: can continue to recover. Well, that more coming up. This 157 00:08:32,520 --> 00:08:38,520 Speaker 1: is Bloomberg, all right. That was Charles Evans, the president 158 00:08:38,600 --> 00:08:41,000 Speaker 1: and CEO of the Federal Reserve Bank of Chicago, speaking 159 00:08:41,000 --> 00:08:43,920 Speaker 1: with Bloomberg's own Michael McKee. And we also had FED 160 00:08:44,000 --> 00:08:46,960 Speaker 1: Chairman j Pal He was UH in front of Congress 161 00:08:47,200 --> 00:08:50,080 Speaker 1: today making his comments as well. Let's get kind of 162 00:08:50,080 --> 00:08:51,800 Speaker 1: an overview a little bit of a recap. But what 163 00:08:51,840 --> 00:08:53,600 Speaker 1: we heard from these FED officials. We do that with 164 00:08:53,640 --> 00:08:57,960 Speaker 1: carlver Cadonna. He's our top economist for Bloomberg Intelligence. So 165 00:08:58,040 --> 00:09:01,000 Speaker 1: Carl kind of piecing together what we heard from Mr 166 00:09:01,080 --> 00:09:04,320 Speaker 1: Evans of Chicago and FED Chairman Pal. It doesn't seem 167 00:09:04,360 --> 00:09:06,920 Speaker 1: like this FEDS incented to do anything other than kind 168 00:09:06,920 --> 00:09:09,400 Speaker 1: of stay the course here. They feel like they're they 169 00:09:09,440 --> 00:09:11,880 Speaker 1: had the hand on the tiller. Yeah, that's a very 170 00:09:11,960 --> 00:09:14,440 Speaker 1: key theme to focus in on here, the kind of 171 00:09:14,760 --> 00:09:18,400 Speaker 1: central committee of the Open Markets Committee, so that the 172 00:09:18,679 --> 00:09:22,199 Speaker 1: centrists are that you know that the key leadership really 173 00:09:22,320 --> 00:09:25,720 Speaker 1: is not responding to the inflation data. Uh. The way 174 00:09:25,760 --> 00:09:27,960 Speaker 1: that the kind of overall messaging from the Fed is 175 00:09:28,040 --> 00:09:30,559 Speaker 1: a sounding like the Fed has taken up more hawkers shifts. 176 00:09:30,559 --> 00:09:32,880 Speaker 1: So the hawks on the committee have become more vocal, 177 00:09:33,040 --> 00:09:36,480 Speaker 1: more concerned about what's happening, whether it's commodity prices, gasoline 178 00:09:36,559 --> 00:09:40,319 Speaker 1: or or consumer inflation. But that the j Pale's the 179 00:09:40,720 --> 00:09:44,760 Speaker 1: Richard clarenas uh, the Chicago FED president, that Charles Evans, 180 00:09:44,760 --> 00:09:48,280 Speaker 1: who's a voter this year. Uh, they are confident. Uh. 181 00:09:48,559 --> 00:09:51,800 Speaker 1: And Evans specifically said he's confident that the inflation flare 182 00:09:51,880 --> 00:09:55,360 Speaker 1: up will be transitory. Powell has echoed that theme. So 183 00:09:55,400 --> 00:09:59,080 Speaker 1: they're acknowledging maybe that the price pressures have written more 184 00:09:59,080 --> 00:10:01,080 Speaker 1: than they anticipate did and it looks like it will 185 00:10:01,120 --> 00:10:04,360 Speaker 1: be able slightly longer duration than they anticipated. But they 186 00:10:04,360 --> 00:10:06,880 Speaker 1: still are very much of the view that things will 187 00:10:06,920 --> 00:10:08,960 Speaker 1: moderate in the back half of the year as we 188 00:10:08,960 --> 00:10:12,120 Speaker 1: start to see some moderation in overall economic growth. We 189 00:10:12,120 --> 00:10:15,480 Speaker 1: were chuckling a little bit yesterday. If members of the House, 190 00:10:15,679 --> 00:10:18,640 Speaker 1: members of the Senate are asking about inflation, you know, 191 00:10:18,720 --> 00:10:22,559 Speaker 1: it's something that their constituents are going to them and saying, hey, 192 00:10:22,840 --> 00:10:27,200 Speaker 1: we're feeling this. There are real world inflation pressures. And 193 00:10:27,200 --> 00:10:32,480 Speaker 1: then there's the economic models. How does Powell square the two? Well, 194 00:10:32,520 --> 00:10:35,400 Speaker 1: I think the you know, the models anticipated that we 195 00:10:35,400 --> 00:10:38,719 Speaker 1: would see an opening here, but they under anticipated the 196 00:10:38,760 --> 00:10:42,000 Speaker 1: magnitude of the price pressure. So, you know, very difficult 197 00:10:42,000 --> 00:10:45,240 Speaker 1: to model what reopening a twenty one trillion dollar economy 198 00:10:45,320 --> 00:10:50,320 Speaker 1: looks like micro chip shortages and those sort of factors. So, 199 00:10:50,440 --> 00:10:52,480 Speaker 1: you know, we kind of understand as we look at 200 00:10:52,520 --> 00:10:55,320 Speaker 1: economic growth relative to potential growth, you know, how that 201 00:10:55,400 --> 00:10:58,880 Speaker 1: inflation plays out. Um, But what's interesting here if we 202 00:10:58,960 --> 00:11:01,640 Speaker 1: think of, you know, what the models would forecast, inflation 203 00:11:01,720 --> 00:11:05,240 Speaker 1: is a lagging indicators. So if we're seeing great growth now, 204 00:11:05,920 --> 00:11:08,560 Speaker 1: that's going to cause inflation further on down the road. 205 00:11:08,720 --> 00:11:11,160 Speaker 1: And typically the lag is about six quarters, so a 206 00:11:11,240 --> 00:11:13,640 Speaker 1: year and a half. Right. The inflation we're seeing now 207 00:11:13,760 --> 00:11:17,440 Speaker 1: is not the result of an economy operating beyond its potential. 208 00:11:17,559 --> 00:11:20,640 Speaker 1: It's just this kind of supply, the growing pains of 209 00:11:20,640 --> 00:11:23,840 Speaker 1: of reopening, turning the key, and restarting the economy. So 210 00:11:23,840 --> 00:11:26,040 Speaker 1: it's a very different type of inflation, and that's why 211 00:11:26,040 --> 00:11:28,679 Speaker 1: the FED is responding it in such a different capacity. 212 00:11:29,280 --> 00:11:31,640 Speaker 1: Another way of thinking of this, if we take you know, 213 00:11:31,679 --> 00:11:35,200 Speaker 1: consumer inflation. So yes, prices are rising, but we have 214 00:11:35,280 --> 00:11:39,559 Speaker 1: to divide between goods and services. Services are things the 215 00:11:39,640 --> 00:11:43,679 Speaker 1: FED can very much control because service price pressure reflects 216 00:11:43,720 --> 00:11:46,680 Speaker 1: what's happening in the domestic economy. A lot of goods 217 00:11:46,679 --> 00:11:51,000 Speaker 1: sector inflation merely reflects what's happening with exchange rates or 218 00:11:51,080 --> 00:11:54,160 Speaker 1: inflation coming from overseas. So the price of goods coming 219 00:11:54,240 --> 00:11:57,360 Speaker 1: from China getting unloaded at the port of Long Beach 220 00:11:57,400 --> 00:12:00,360 Speaker 1: on the West Coast. Uh, that's not an lation the 221 00:12:00,400 --> 00:12:02,920 Speaker 1: FED can really control, nor do they want to control 222 00:12:03,000 --> 00:12:05,720 Speaker 1: that inflation. If we look at what's happening right now, 223 00:12:06,120 --> 00:12:11,000 Speaker 1: CPI goods is off the chart, flaring up, CPI services 224 00:12:11,320 --> 00:12:13,240 Speaker 1: very much running in line with the average of the 225 00:12:13,640 --> 00:12:16,880 Speaker 1: five years prior to the pandemic. Well, we just heard 226 00:12:16,880 --> 00:12:20,160 Speaker 1: a real inflationary data point today, Greg Jarrett Bloomberg Radio 227 00:12:20,200 --> 00:12:23,600 Speaker 1: in San Francisco paying more for his taco and his 228 00:12:23,640 --> 00:12:27,880 Speaker 1: taco flower rice is an extra dollar. So it is real. 229 00:12:28,080 --> 00:12:29,880 Speaker 1: I'm not sure, but I'm going to call you out 230 00:12:29,920 --> 00:12:33,720 Speaker 1: here because this is food away from home, restaurant meals, 231 00:12:33,800 --> 00:12:36,800 Speaker 1: which are part of this labor shortage that we're seeing 232 00:12:36,840 --> 00:12:40,839 Speaker 1: in leisure and hospitality sector, restaurant whatnot. If we look 233 00:12:40,960 --> 00:12:44,600 Speaker 1: at food at home, so grocery store prices, I continually 234 00:12:44,640 --> 00:12:46,760 Speaker 1: hear everyone's saying, oh, prices are going up. Prices are 235 00:12:46,760 --> 00:12:48,600 Speaker 1: going up. They're going up, but they are going up 236 00:12:48,640 --> 00:12:50,960 Speaker 1: at a very very slow pace. So if we look 237 00:12:50,960 --> 00:12:54,640 Speaker 1: at grocery food, we can see that there's actually a 238 00:12:54,720 --> 00:12:59,040 Speaker 1: deceleration taking place. So we keep talking about categories that are, 239 00:12:59,200 --> 00:13:01,720 Speaker 1: you know, part of the re opening, while there are 240 00:13:01,720 --> 00:13:05,280 Speaker 1: some categories that are actually decelerating as we reopen. In 241 00:13:05,559 --> 00:13:09,280 Speaker 1: grocery prices for the most part, are are in that category. 242 00:13:09,360 --> 00:13:11,400 Speaker 1: So they were high during the pandemic when everyone was 243 00:13:11,440 --> 00:13:16,520 Speaker 1: scrambling for grocery deliveries and whatnot. They are very significantly decelerating. 244 00:13:16,520 --> 00:13:18,960 Speaker 1: And yesterday, as I was looking through the CPI basket 245 00:13:19,559 --> 00:13:22,320 Speaker 1: looking at those food categories, most of them are running 246 00:13:22,360 --> 00:13:26,920 Speaker 1: below one percent even so my kale is cheaper. Paul, Oh, 247 00:13:26,920 --> 00:13:30,040 Speaker 1: good for you. I know what kale is. Come so Taylor, 248 00:13:30,080 --> 00:13:32,800 Speaker 1: stop complaining about those restaurant prices and go home and 249 00:13:32,800 --> 00:13:37,599 Speaker 1: cook your food. When we do see tapering, what's it 250 00:13:37,640 --> 00:13:41,760 Speaker 1: gonna look like. I think it's gonna look very boring 251 00:13:42,320 --> 00:13:45,560 Speaker 1: to financial market. So the Fed is being very clear 252 00:13:45,720 --> 00:13:48,200 Speaker 1: that this will be signaled well in advance, and so 253 00:13:48,240 --> 00:13:50,760 Speaker 1: they'll have time to refine that message if the market 254 00:13:50,800 --> 00:13:53,920 Speaker 1: does kind of react to the news. But what we're 255 00:13:53,960 --> 00:13:57,080 Speaker 1: hearing from folks like Evans and also from j. Powell, 256 00:13:57,640 --> 00:13:59,200 Speaker 1: this is not something that we're going to be hearing 257 00:13:59,200 --> 00:14:01,760 Speaker 1: about at the lie FO MC meeting right there. Going 258 00:14:01,800 --> 00:14:05,400 Speaker 1: to discuss this for several meetings, so the July meeting 259 00:14:05,480 --> 00:14:08,800 Speaker 1: into September, we might hear about it at Jackson Hole, 260 00:14:08,880 --> 00:14:11,440 Speaker 1: we might hear about it at the September FOMC. I 261 00:14:11,520 --> 00:14:14,680 Speaker 1: suspect that the delivery of that message is going to 262 00:14:14,720 --> 00:14:17,120 Speaker 1: come later than a lot of market participants are thinking 263 00:14:17,559 --> 00:14:20,080 Speaker 1: at the moment. I think still the best case scenario 264 00:14:20,160 --> 00:14:23,120 Speaker 1: has probably deliver the message in the fall. UH start 265 00:14:23,200 --> 00:14:25,680 Speaker 1: the program at the start of next year, so in 266 00:14:25,680 --> 00:14:30,000 Speaker 1: early and you taper basically over the course of next year. 267 00:14:30,160 --> 00:14:33,920 Speaker 1: So by the end of the FED will no longer 268 00:14:34,040 --> 00:14:37,200 Speaker 1: be purchasing securities to expand their balance sheet. They'll just 269 00:14:37,240 --> 00:14:40,640 Speaker 1: be replacing things that are maturing. Just quickly twenty seconds 270 00:14:40,840 --> 00:14:44,960 Speaker 1: you go equal taper, nbs and treasuries. That's a very 271 00:14:45,000 --> 00:14:48,240 Speaker 1: interesting question. J Pow was pushed on that a little 272 00:14:48,280 --> 00:14:52,000 Speaker 1: bit today and he said that probably mortgage purchases are 273 00:14:52,000 --> 00:14:53,960 Speaker 1: having more of an impact on the housing market than 274 00:14:53,960 --> 00:14:56,640 Speaker 1: treasury purchases, although both are impacting. So I think that 275 00:14:56,720 --> 00:14:59,560 Speaker 1: there is an incentive to move more aggressively on mortgages. 276 00:14:59,720 --> 00:15:04,040 Speaker 1: All Right, car ricka Donna, senior economist for Bloomberg Intelligent 277 00:15:04,160 --> 00:15:06,640 Speaker 1: joining us here helping us break it down. Here we 278 00:15:06,640 --> 00:15:09,640 Speaker 1: have FED Chairman pal Uh and Mr Evans from Chicago 279 00:15:10,040 --> 00:15:14,560 Speaker 1: FED looking at these markets. Here. Works just started, you know, 280 00:15:14,600 --> 00:15:16,480 Speaker 1: week one of what is going to be a very 281 00:15:16,520 --> 00:15:19,680 Speaker 1: active earning season, and again, a lot of investors are 282 00:15:19,760 --> 00:15:23,120 Speaker 1: looking for numbers that come in really strong to kind 283 00:15:23,120 --> 00:15:27,360 Speaker 1: of support the multiples we're seeing in this marketplace. Let's 284 00:15:27,400 --> 00:15:29,600 Speaker 1: bring in a professional that does it for a living. 285 00:15:29,640 --> 00:15:32,560 Speaker 1: Hugh Johnson, Chairman, ce IO and member of the Investment 286 00:15:32,640 --> 00:15:35,600 Speaker 1: Strategy Committee of Hugh Johnson Advisors. It's about one point 287 00:15:35,640 --> 00:15:38,080 Speaker 1: five billion dollars in assets under management based in Albody, 288 00:15:38,080 --> 00:15:40,480 Speaker 1: New York. Here, thanks for joining us once again here, 289 00:15:40,520 --> 00:15:43,480 Speaker 1: All right, what are you really looking for in this 290 00:15:43,520 --> 00:15:47,040 Speaker 1: earning season? He needs to see some really big beats 291 00:15:47,080 --> 00:15:52,000 Speaker 1: to justify these valuations. Uh, not real big beats, but 292 00:15:52,080 --> 00:15:54,800 Speaker 1: certainly beats. We've gotten very used to the fact that 293 00:15:55,200 --> 00:15:57,160 Speaker 1: when we've been looking at earnings, and I'm not talking 294 00:15:57,160 --> 00:15:59,880 Speaker 1: about just this earning season, but we've had a continuous 295 00:16:00,840 --> 00:16:03,400 Speaker 1: outpouring of earnings for the last three months, and in 296 00:16:03,440 --> 00:16:05,640 Speaker 1: each case, the earnings have been coming in a little 297 00:16:05,680 --> 00:16:08,240 Speaker 1: bit better than not significantly so, but a little bit 298 00:16:08,240 --> 00:16:11,400 Speaker 1: better than expected. And every time we see that, um 299 00:16:11,440 --> 00:16:13,360 Speaker 1: it gives a little bit of a boost to the market. 300 00:16:13,440 --> 00:16:16,200 Speaker 1: So the market has been really driven by good earnings 301 00:16:16,200 --> 00:16:18,960 Speaker 1: reports for the last three months, and I think really 302 00:16:18,960 --> 00:16:21,200 Speaker 1: we're looking for the same thing in this earning season, 303 00:16:21,200 --> 00:16:23,720 Speaker 1: a little bit of a let's just say, a beat 304 00:16:23,760 --> 00:16:27,120 Speaker 1: on the upside. Now, Now, remember keep in mind that 305 00:16:27,240 --> 00:16:31,000 Speaker 1: more recently, about a little bit less eight percent of 306 00:16:31,000 --> 00:16:33,920 Speaker 1: the companies that have been reporting have been reporting earnings 307 00:16:33,920 --> 00:16:37,240 Speaker 1: that have beaten estimates, and that compares with the number 308 00:16:37,280 --> 00:16:40,960 Speaker 1: that's the long term number of six. So companies are 309 00:16:40,960 --> 00:16:44,000 Speaker 1: getting used of reporting earnings a little bo expectations and 310 00:16:44,040 --> 00:16:47,120 Speaker 1: that's kept the kept the bull market alive, even though 311 00:16:47,120 --> 00:16:50,720 Speaker 1: we're a little bit concerned about valuation. Before we get 312 00:16:50,760 --> 00:16:53,720 Speaker 1: to valuations, I wouldn't ask if we're in on earnings 313 00:16:53,760 --> 00:16:56,960 Speaker 1: peak margins as we're thinking about some of these inflationary 314 00:16:57,040 --> 00:16:59,960 Speaker 1: costs that ceo s are mentioning, and they are mentioned 315 00:17:00,040 --> 00:17:03,640 Speaker 1: mean them a lot. They certainly are. And if you 316 00:17:03,720 --> 00:17:05,840 Speaker 1: take a look at the Beige Book yesterday and the 317 00:17:05,920 --> 00:17:08,760 Speaker 1: reports from all the districts of the Federal Reserve UM, 318 00:17:08,840 --> 00:17:10,679 Speaker 1: that's the one thing that jumps out at you is 319 00:17:10,680 --> 00:17:13,199 Speaker 1: that companies are telling us that there's a little bit 320 00:17:13,240 --> 00:17:15,879 Speaker 1: of margin pressure. And there's a little bit of margin pressure, 321 00:17:15,960 --> 00:17:18,840 Speaker 1: largely because the upward pressure that they're starting to see. 322 00:17:18,840 --> 00:17:21,720 Speaker 1: It's not significant, But they're seeing upward pressure on wages. 323 00:17:21,800 --> 00:17:25,080 Speaker 1: Number One, they've had to compete very very actively in 324 00:17:25,119 --> 00:17:26,919 Speaker 1: the markets to try to get people to come to 325 00:17:26,960 --> 00:17:29,520 Speaker 1: work for them. They've given a lot of non cash 326 00:17:29,560 --> 00:17:32,399 Speaker 1: benefits for those to those people to get them to 327 00:17:32,480 --> 00:17:34,000 Speaker 1: come to work for them. And then of course there's 328 00:17:34,040 --> 00:17:37,119 Speaker 1: the supply problems, which we hear about every day. The 329 00:17:37,160 --> 00:17:40,120 Speaker 1: supply problems of course, meaning that of course that they're 330 00:17:40,119 --> 00:17:43,840 Speaker 1: not getting the supplies. The backlogs are very significant. Uh. 331 00:17:43,840 --> 00:17:46,360 Speaker 1: And and that's creating some a little bit upward pressure 332 00:17:46,400 --> 00:17:49,520 Speaker 1: on the prices that purchasing managers have to pay. So 333 00:17:50,040 --> 00:17:53,679 Speaker 1: you bet margins are under pressure. And uh if we 334 00:17:53,760 --> 00:17:56,840 Speaker 1: believe German Paul that a lot of these pressures, labor 335 00:17:56,880 --> 00:17:59,960 Speaker 1: pressures as well as the supply pressures, are gonna obey 336 00:18:00,240 --> 00:18:02,880 Speaker 1: as we moved through the remainder of two thousand twenty one. 337 00:18:03,440 --> 00:18:05,879 Speaker 1: All Right, you, given that you're in the camp with 338 00:18:05,960 --> 00:18:11,600 Speaker 1: that chairman Pow, where are you guys allocating capital these days? Um? 339 00:18:11,640 --> 00:18:14,199 Speaker 1: Given where we are, well, I tell you, you know, 340 00:18:14,280 --> 00:18:16,800 Speaker 1: it's a good, great question because we're still bullish on 341 00:18:16,800 --> 00:18:19,560 Speaker 1: a long term basis. We really do believe in our 342 00:18:19,640 --> 00:18:22,240 Speaker 1: sort of mantra, which is time not timing is a 343 00:18:22,280 --> 00:18:25,119 Speaker 1: secret to success in the financial markets. But on a 344 00:18:25,160 --> 00:18:27,880 Speaker 1: short term basis, we think things are a little bit high. 345 00:18:27,920 --> 00:18:30,520 Speaker 1: You know, we've had really great markets and two thousand 346 00:18:30,600 --> 00:18:32,520 Speaker 1: twenty and of course the first part of two thousand 347 00:18:32,560 --> 00:18:34,840 Speaker 1: twenty one, and I think the markets a little bit 348 00:18:34,840 --> 00:18:38,160 Speaker 1: ahead of itself. Particularly now. Remember we're we've really seen 349 00:18:38,240 --> 00:18:40,399 Speaker 1: the peak and g d P and ernest growth in 350 00:18:40,400 --> 00:18:43,400 Speaker 1: the second quarter, and they're those numbers are gonna still 351 00:18:43,400 --> 00:18:45,120 Speaker 1: be positive, but they're gonna come down. We're not gonna 352 00:18:45,119 --> 00:18:47,760 Speaker 1: see those kinds of growth rates. So we really think 353 00:18:47,760 --> 00:18:49,720 Speaker 1: we're a little bit ahead of ourselves and they're due 354 00:18:49,760 --> 00:18:52,040 Speaker 1: for I don't want to say a major correction, but 355 00:18:52,080 --> 00:18:53,600 Speaker 1: a little bit of a pull back, and we're waiting 356 00:18:53,600 --> 00:18:55,920 Speaker 1: for a pull back to prices that make a little 357 00:18:55,920 --> 00:18:59,160 Speaker 1: bit more sense. When we do see that pullback, we're 358 00:18:59,200 --> 00:19:01,840 Speaker 1: not going to be the inflation team. We're gonna be 359 00:19:01,880 --> 00:19:05,840 Speaker 1: looking very hard at consumer discretionary stocks, very hard at 360 00:19:05,880 --> 00:19:09,200 Speaker 1: communication services, some of those companies you know, the facebooks 361 00:19:09,200 --> 00:19:11,840 Speaker 1: of this world. We're looking very hard at those, and 362 00:19:11,840 --> 00:19:13,439 Speaker 1: those are where we're going to start to add to 363 00:19:13,480 --> 00:19:16,680 Speaker 1: our portfolio. Google is another one. Apple is another one. 364 00:19:17,160 --> 00:19:19,399 Speaker 1: We'd be adding to those, but not at these levels. 365 00:19:19,400 --> 00:19:20,640 Speaker 1: We want to see a little bit of a pull 366 00:19:20,720 --> 00:19:22,920 Speaker 1: back to levels that make a little bit more sense 367 00:19:22,920 --> 00:19:25,000 Speaker 1: and a little more compelling. Are you going to be 368 00:19:25,080 --> 00:19:28,080 Speaker 1: adding to those based on a call that yields may 369 00:19:28,119 --> 00:19:31,639 Speaker 1: not rise. Yeah, we would be probably adding to them, 370 00:19:31,640 --> 00:19:33,640 Speaker 1: and I would say in a longer term basis, keep 371 00:19:33,680 --> 00:19:36,440 Speaker 1: in mind something very important, and that is when you're 372 00:19:36,480 --> 00:19:39,080 Speaker 1: looking at Apple, Facebook, you're looking at these companies, some 373 00:19:39,160 --> 00:19:42,480 Speaker 1: of them communication services, some of them technology. We've often 374 00:19:42,520 --> 00:19:46,240 Speaker 1: referred to them as being volatile and economically sensitive, that 375 00:19:46,280 --> 00:19:49,520 Speaker 1: they depend very heavily on the economy doing well. That's 376 00:19:49,560 --> 00:19:52,440 Speaker 1: no longer the case. These companies have been doing well, 377 00:19:52,560 --> 00:19:55,040 Speaker 1: giving us the kind of revenue growth, that kind of 378 00:19:55,119 --> 00:19:57,680 Speaker 1: cash flow on their balance sheets, that kind of free 379 00:19:57,680 --> 00:20:01,240 Speaker 1: cash flow, and their earnings reports that spen very steady, 380 00:20:01,440 --> 00:20:04,399 Speaker 1: even though the economic conditions, as you know, have been 381 00:20:04,480 --> 00:20:07,320 Speaker 1: very volatile and difficult. And and that's the kind of 382 00:20:07,359 --> 00:20:10,040 Speaker 1: company that's almost I hate to say it, it's not 383 00:20:10,119 --> 00:20:13,040 Speaker 1: an offensive or bowl. Market sectors. These are starting to 384 00:20:13,040 --> 00:20:16,200 Speaker 1: act like defensive sectors are good places to be if 385 00:20:16,200 --> 00:20:18,439 Speaker 1: the economy goes into a period which I think it's 386 00:20:18,480 --> 00:20:21,080 Speaker 1: gonna and that is where we see the growth rates 387 00:20:21,119 --> 00:20:25,040 Speaker 1: of the economy of earnings, employment, you name it, are 388 00:20:25,080 --> 00:20:27,240 Speaker 1: gonna slow down. They're gonna be positive, but they're gonna 389 00:20:27,240 --> 00:20:29,119 Speaker 1: slow down. And those are the kinds of companies I 390 00:20:29,119 --> 00:20:31,439 Speaker 1: think you want to all Right, you thanks so much 391 00:20:31,440 --> 00:20:33,919 Speaker 1: for joining us to really appreciate that. Hugh Johnson, Chairman 392 00:20:34,080 --> 00:20:36,560 Speaker 1: CEE IO and member of the Investment Strategy Committee of 393 00:20:36,640 --> 00:20:40,040 Speaker 1: Hugh Johnson Advisers, based in Albany, New York. It's gonna 394 00:20:40,040 --> 00:20:42,040 Speaker 1: be interesting a tailor to see, how you know, to 395 00:20:42,080 --> 00:20:44,240 Speaker 1: the extent we do get a pullback in this market, 396 00:20:44,280 --> 00:20:47,159 Speaker 1: which some people are calling for, including Hugh Johnson. You know, 397 00:20:47,359 --> 00:20:49,639 Speaker 1: where will people put their money? Will be still in 398 00:20:49,640 --> 00:20:52,280 Speaker 1: that rotation trade into the cyclical names, it's the reopening 399 00:20:52,359 --> 00:20:54,840 Speaker 1: names into the reflation trades, or will it be into 400 00:20:54,880 --> 00:20:57,720 Speaker 1: the tried and true apples and amazons and facebooks of 401 00:20:57,720 --> 00:20:59,680 Speaker 1: the world. You know. John author is of our bloom 402 00:20:59,680 --> 00:21:02,080 Speaker 1: Bergers Opinion out with a great note this morning saying 403 00:21:02,119 --> 00:21:05,600 Speaker 1: that guilds aren't behaving the way we might think. If 404 00:21:05,640 --> 00:21:08,439 Speaker 1: you think inflation is going to be higher, maybe you 405 00:21:08,520 --> 00:21:11,560 Speaker 1: get some of that cyclical trade. Yields should be risering, 406 00:21:11,880 --> 00:21:14,040 Speaker 1: but they're not. So are we pricing in a Fed 407 00:21:14,160 --> 00:21:18,920 Speaker 1: policy mistake? Really really good column here debating the future 408 00:21:19,080 --> 00:21:21,879 Speaker 1: of yields. Yeah, exactly right, And you know it's it's 409 00:21:21,920 --> 00:21:24,280 Speaker 1: tough to see where a pullback comes. We've had so 410 00:21:24,320 --> 00:21:26,640 Speaker 1: much uncertaint yet the market continues to pool hire. Would 411 00:21:26,640 --> 00:21:29,280 Speaker 1: there be a mistake perhaps from the Federal Reserve? Would 412 00:21:29,320 --> 00:21:32,080 Speaker 1: that be the catalyst? We'll have to see more coming up, 413 00:21:32,600 --> 00:21:38,520 Speaker 1: This is Bloomberg. Let's bring in David Diets here. He's 414 00:21:38,520 --> 00:21:42,480 Speaker 1: managing principal senior portfolio manager at Pepack Private Wealth Management, 415 00:21:42,600 --> 00:21:47,520 Speaker 1: nine point four billion dollars under management, located in Bucolic Summit, 416 00:21:47,680 --> 00:21:51,120 Speaker 1: New Jersey. Hey, David, let's start with the bond market. Boy, 417 00:21:51,440 --> 00:21:55,359 Speaker 1: ten year one point three four, the thirty year still 418 00:21:55,400 --> 00:21:59,520 Speaker 1: below two percent at one point nine. What's the treasury 419 00:21:59,560 --> 00:22:02,240 Speaker 1: market telling us about growth? Do we need to be 420 00:22:02,280 --> 00:22:05,400 Speaker 1: concerned about growth on the back side of this pandemic? Well, 421 00:22:05,440 --> 00:22:07,080 Speaker 1: I think you put your finger on it. This is 422 00:22:07,080 --> 00:22:10,359 Speaker 1: the most perplexing problem because we've got all sorts of 423 00:22:10,440 --> 00:22:14,240 Speaker 1: metrics suggesting there's inflation. All the economists are telling us 424 00:22:14,240 --> 00:22:18,160 Speaker 1: that we're coming out of the pandemic induced slumber and 425 00:22:18,200 --> 00:22:20,880 Speaker 1: growth is ahead of us for seeing great corporate earnings. 426 00:22:21,119 --> 00:22:24,680 Speaker 1: But that bond market that yields just keep falling, and 427 00:22:24,840 --> 00:22:30,440 Speaker 1: typically yields fall when fixed income investors see, uh, the 428 00:22:30,520 --> 00:22:34,639 Speaker 1: lack of inflation, lack of growth, and so which is 429 00:22:34,760 --> 00:22:38,879 Speaker 1: right here? I still think that all signs point for 430 00:22:39,119 --> 00:22:42,000 Speaker 1: and expanding economy. And here's the thing. If you go 431 00:22:42,080 --> 00:22:45,439 Speaker 1: a year ago, uh, Matt, you know you're you're interest 432 00:22:45,520 --> 00:22:48,119 Speaker 1: rate to attain your treasury about a half of one percent. 433 00:22:48,680 --> 00:22:51,560 Speaker 1: At the start of the year, we're under one percent. 434 00:22:51,680 --> 00:22:54,360 Speaker 1: Now that is true. We ratchet quickly all the way 435 00:22:54,440 --> 00:22:56,920 Speaker 1: up to about one point seven top in March. Now 436 00:22:56,960 --> 00:22:59,600 Speaker 1: we're just over one point three. But still I think 437 00:22:59,640 --> 00:23:04,119 Speaker 1: the end is up. Remember two thousand nineteen we saw 438 00:23:04,160 --> 00:23:07,200 Speaker 1: the ten years highest two point nine. All signs are 439 00:23:07,240 --> 00:23:10,720 Speaker 1: saying that ultimately we're going to normalize, maybe not in 440 00:23:10,720 --> 00:23:12,840 Speaker 1: the next three months, but over the next twelve months. 441 00:23:12,840 --> 00:23:15,600 Speaker 1: So I gotta see interest rates ultimately moving up. And 442 00:23:15,640 --> 00:23:19,840 Speaker 1: I think actually the stock investors will appreciate that. Are 443 00:23:19,880 --> 00:23:23,680 Speaker 1: you positioning a portfolio for higher inflation? Because I hate 444 00:23:23,720 --> 00:23:26,359 Speaker 1: to say it, every single question that Powell is getting 445 00:23:26,640 --> 00:23:32,040 Speaker 1: it's on inflation. Um, so you know, no one knows 446 00:23:32,080 --> 00:23:36,040 Speaker 1: for sure whether it's transitory or more permanent. I mean, 447 00:23:36,160 --> 00:23:39,520 Speaker 1: in some things, everything in life is transitory ultimately. But 448 00:23:39,640 --> 00:23:43,120 Speaker 1: I think it's it's a risky game that they're playing here, 449 00:23:43,160 --> 00:23:46,280 Speaker 1: because if it turns out that it's not transitory, the 450 00:23:46,320 --> 00:23:48,639 Speaker 1: problem with monetary policy is to act for the lag 451 00:23:48,720 --> 00:23:51,200 Speaker 1: and so they would be very much behind the eight ball. 452 00:23:51,480 --> 00:23:53,800 Speaker 1: And of course the real wild card is how to 453 00:23:53,960 --> 00:23:58,399 Speaker 1: consumers act here. If consumers start to think inflations around 454 00:23:58,400 --> 00:24:00,880 Speaker 1: the corner and they rush out the stuff and order, 455 00:24:01,000 --> 00:24:05,000 Speaker 1: it will become self fulfilling. So we are certainly tilting 456 00:24:05,240 --> 00:24:09,280 Speaker 1: towards areas of the market I think can benefit UH 457 00:24:09,560 --> 00:24:13,800 Speaker 1: from inflation. I think if there's inflation, ultimately higher interest rates, 458 00:24:13,880 --> 00:24:16,920 Speaker 1: that's manner from heaven for the financials. Of course, you've 459 00:24:16,920 --> 00:24:20,359 Speaker 1: got your cyclicals, your industrials, your materials, your energy place 460 00:24:20,640 --> 00:24:23,679 Speaker 1: all should do it better with prices going up. All right, 461 00:24:23,760 --> 00:24:26,960 Speaker 1: higher interest rates in your scenario good for financials, as 462 00:24:26,960 --> 00:24:28,640 Speaker 1: you just mentioned. I know in the past we've talked 463 00:24:28,640 --> 00:24:30,760 Speaker 1: about Wells Fargo, that's a name you've liked, and that 464 00:24:30,800 --> 00:24:33,200 Speaker 1: they reported some numbers this week stock's done really well 465 00:24:33,200 --> 00:24:36,159 Speaker 1: this year, up nearly fift What is your calling the 466 00:24:36,200 --> 00:24:41,120 Speaker 1: financials and Wells? Well, so, the financials, I do think 467 00:24:41,160 --> 00:24:44,560 Speaker 1: that they are trading at about discount in terms of 468 00:24:44,640 --> 00:24:47,439 Speaker 1: price to earnings, price to book than they normally do, 469 00:24:47,600 --> 00:24:49,800 Speaker 1: and of course the overall stock markets elevated, so I 470 00:24:49,880 --> 00:24:53,479 Speaker 1: think that financials could provide an opportunity. But I do 471 00:24:53,560 --> 00:24:56,560 Speaker 1: think it all comes down to the economy and interest rates. 472 00:24:56,560 --> 00:24:59,120 Speaker 1: If the economy picks up, then the loan demand will 473 00:24:59,200 --> 00:25:00,919 Speaker 1: kick in. That the kind of a thorn in the 474 00:25:00,960 --> 00:25:03,200 Speaker 1: side right now, not a lot alone demand. Of course, 475 00:25:03,200 --> 00:25:05,719 Speaker 1: they're build to charge higher rates. The fitnesstrants to go up, 476 00:25:06,040 --> 00:25:10,359 Speaker 1: So then uh like generally would overwege financials drilling down 477 00:25:10,560 --> 00:25:13,720 Speaker 1: why Wells Fargo? You know, Wells Fargo has one of 478 00:25:13,760 --> 00:25:16,520 Speaker 1: the best franchises here in the country. Coast to coast, 479 00:25:16,520 --> 00:25:19,800 Speaker 1: gives the tremendous economies to scale. I actually like the 480 00:25:19,840 --> 00:25:23,080 Speaker 1: fact that they're not focused on a lot of trading 481 00:25:23,119 --> 00:25:25,119 Speaker 1: activity that some of the New York banks focused on 482 00:25:25,160 --> 00:25:27,520 Speaker 1: because that tends to be cyclical. They're kind of middle 483 00:25:27,600 --> 00:25:32,280 Speaker 1: market um consumer lending and so forth, and historically they've 484 00:25:32,320 --> 00:25:36,080 Speaker 1: been good judges of credit quality have been conservative. Uh, 485 00:25:36,280 --> 00:25:39,840 Speaker 1: they've of course still associated with a lot of bad activities. 486 00:25:39,880 --> 00:25:42,160 Speaker 1: A couple of years ago, a new guy in there 487 00:25:42,160 --> 00:25:44,399 Speaker 1: from Bank of New York I think is writing that ship. 488 00:25:44,480 --> 00:25:46,480 Speaker 1: And of course, as you pointed out, just had a 489 00:25:46,480 --> 00:25:49,560 Speaker 1: great earnings announcement. They got they went through the stress 490 00:25:49,600 --> 00:25:53,040 Speaker 1: test with flying colors, They doubled the dividend. They announced 491 00:25:53,040 --> 00:25:56,679 Speaker 1: the stock buyback of eighteen billion. That's about ten percent 492 00:25:56,760 --> 00:25:59,840 Speaker 1: of the value the overall companies. Another ten percent of 493 00:25:59,840 --> 00:26:04,200 Speaker 1: the shares go away. That's good for stock investors. Finally, 494 00:26:04,240 --> 00:26:06,639 Speaker 1: here when we talk about some of the loan demand 495 00:26:06,640 --> 00:26:08,880 Speaker 1: with the banks, you have to talk about housing prices 496 00:26:08,920 --> 00:26:10,879 Speaker 1: and some of the housing stocks that have started to 497 00:26:10,960 --> 00:26:12,480 Speaker 1: roll over. I'm just taking a look at the I 498 00:26:12,600 --> 00:26:15,840 Speaker 1: t B for example, the E t F of housing stocks, 499 00:26:15,880 --> 00:26:19,159 Speaker 1: as lumber has also started to roll over. What do 500 00:26:19,200 --> 00:26:22,080 Speaker 1: you make of the housing sector? Well, you know, I 501 00:26:22,119 --> 00:26:24,639 Speaker 1: think it's a little bit like with the the the 502 00:26:24,680 --> 00:26:27,240 Speaker 1: interest rates and the tenure treasury. I think there was 503 00:26:27,640 --> 00:26:32,800 Speaker 1: too much acceleration too quickly. We're seeing a pullback. Marcus, 504 00:26:32,880 --> 00:26:35,640 Speaker 1: do not go on a straight line. I gotta believe 505 00:26:35,720 --> 00:26:38,920 Speaker 1: that the two or three years from now lumber prices 506 00:26:38,960 --> 00:26:41,880 Speaker 1: will be higher. Of course that's a tricky indicator because 507 00:26:41,920 --> 00:26:46,920 Speaker 1: of relationships between Canada United States. Um. You, you are 508 00:26:46,960 --> 00:26:51,520 Speaker 1: absolutely right. The housing stocks, the paulties and Lenar's have 509 00:26:51,680 --> 00:26:54,200 Speaker 1: kind of come back down here, but remember they practically 510 00:26:54,240 --> 00:26:56,359 Speaker 1: doubled from a year ago, so they were due for 511 00:26:56,480 --> 00:27:01,920 Speaker 1: a pause here. Um uh. In with with better employment situation, 512 00:27:02,000 --> 00:27:04,240 Speaker 1: I think people that demand for housing will continue to 513 00:27:04,280 --> 00:27:07,760 Speaker 1: stay strong. All right, David, Thanks as always for checking 514 00:27:07,760 --> 00:27:10,479 Speaker 1: in with us. We always appreciate getting your thoughts and opinions. 515 00:27:10,560 --> 00:27:14,280 Speaker 1: David dts And, Managing Principal Senior PM for p Peck 516 00:27:14,560 --> 00:27:17,359 Speaker 1: Private Wealth Management, getting his thoughts on this market. Still 517 00:27:17,400 --> 00:27:20,240 Speaker 1: likes the cyclical trade, still likes that reflation trade, that 518 00:27:20,320 --> 00:27:24,840 Speaker 1: reopening trade, and again with rates where they are lots 519 00:27:24,880 --> 00:27:27,520 Speaker 1: of questions there, but we'll have more coming up. Thanks 520 00:27:27,560 --> 00:27:31,000 Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe 521 00:27:31,040 --> 00:27:34,760 Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast 522 00:27:34,800 --> 00:27:38,320 Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at 523 00:27:38,359 --> 00:27:42,159 Speaker 1: Matt Miller three. On fal Sweeney, I'm on Twitter at 524 00:27:42,200 --> 00:27:45,040 Speaker 1: pt Sweeney. Before the podcast, you can always catch us 525 00:27:45,119 --> 00:27:46,480 Speaker 1: worldwide at Bloomberg radio