WEBVTT - India, Rates, and Markets 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.520 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:21.040 at Bloomberg dot com slash podcast. You know, one of 0:00:21.079 --> 0:00:23.000 the stories that I've been hearing more and more about 0:00:23.040 --> 0:00:26.200 over last year or so is you know, as China 0:00:26.280 --> 0:00:29.080 turns more inward, if you will, and they continue to 0:00:29.120 --> 0:00:32.120 deal with COVID zero, however they're going to proceed from here. 0:00:32.960 --> 0:00:35.919 Maybe one of the best growth emerging markets out there 0:00:36.000 --> 0:00:38.440 is India. Uh And that's kind of what I've been 0:00:38.440 --> 0:00:40.559 hearing more and more. And it's a rural opportunity. It's 0:00:40.560 --> 0:00:42.280 always been a growth story, but maybe even a little 0:00:42.280 --> 0:00:46.320 bit better here. Josina Krishnan joins US. Managing partner at 0:00:46.560 --> 0:00:50.720 l of Our Equity UM joins us from India. Joson, 0:00:50.800 --> 0:00:52.360 I thanks so much for joining us here. I'd love 0:00:52.400 --> 0:00:54.680 to get a sense of what you folks at l 0:00:54.720 --> 0:00:57.360 of Our Equity are doing. How are your approaching India 0:00:57.440 --> 0:01:01.400 these days? Thanks for having me on the show. And 0:01:01.840 --> 0:01:04.280 it's music to my years and the recognition for India 0:01:04.319 --> 0:01:07.840 as a market and it's really emerging these days. Uh 0:01:08.040 --> 0:01:11.320 Elva has a unique personality type, if I may call it. 0:01:11.440 --> 0:01:14.640 So we're a cross breed between venture capital and private equity. 0:01:15.400 --> 0:01:19.520 We typically form a highly concentrated portfolio by a venture standards, 0:01:19.840 --> 0:01:22.720 we have very low lost ratios and yet we go 0:01:22.760 --> 0:01:25.840 on right at the beginning at early stages, very often 0:01:25.920 --> 0:01:28.280 being the first and suitial capital. And part of the 0:01:28.280 --> 0:01:31.120 reason is that we have a very strong thesis around 0:01:31.160 --> 0:01:33.679 the end market as to what the customers are willing 0:01:33.720 --> 0:01:36.199 to buy UM in the sense that the product market 0:01:36.200 --> 0:01:38.640 fit is known to us before we make an investment, 0:01:38.680 --> 0:01:42.679 even at that early stage. So callus p P callers. 0:01:42.720 --> 0:01:45.920 We see which our way. So where do you see 0:01:45.959 --> 0:01:49.080 the most opportunity for growth in India? I mean, is 0:01:49.120 --> 0:01:54.560 it UM in manufacturing products for export or is there 0:01:54.600 --> 0:01:59.880 a domestic opportunity there? What? What's front and center? So 0:02:00.120 --> 0:02:02.800 our thesis is fairly unique in the sense we're not 0:02:02.880 --> 0:02:05.040 sectoral and how we think about it, but we have 0:02:05.160 --> 0:02:08.120 customer centric which means we underwrite the wallet of an 0:02:08.200 --> 0:02:11.640 end massive market population which is maybe about half a 0:02:11.680 --> 0:02:15.239 billion people um. These are people who are aspiring for 0:02:15.360 --> 0:02:18.640 quality and growth and have not yet been addressed by 0:02:18.760 --> 0:02:23.200 large scale corporate entities. What is fascinated about this customer 0:02:23.280 --> 0:02:27.160 segment is that the non linear growth potential comes from 0:02:27.280 --> 0:02:31.440 intergenerational growth ambitions in the sense previous generations in these 0:02:31.480 --> 0:02:35.280 markets have probably figured out survival, but the current generation 0:02:35.400 --> 0:02:38.880 is aspirational for a better quality life. They're focused on quality, 0:02:38.919 --> 0:02:42.040 they want better lives for themselves and their children. And 0:02:42.080 --> 0:02:45.440 it triggers a very interesting twin fly wheel effect in 0:02:45.480 --> 0:02:48.640 the sense that businesses start growing because their customers start growing, 0:02:48.840 --> 0:02:51.959 and that's fascinating to watch. So we we see very 0:02:52.000 --> 0:02:56.240 clear and fascinating trends across sectors because of this customer dynamic. 0:02:56.919 --> 0:03:01.240 So give us, Josina, maybe some in examples of some 0:03:01.760 --> 0:03:04.079 types of deals that you've invested in. You know, it 0:03:04.120 --> 0:03:05.760 give us a sense of kind of how you think 0:03:05.760 --> 0:03:09.239 about your market. Yeah, so if you if you think 0:03:09.240 --> 0:03:11.960 about the foundation that was laid by let's say micro 0:03:12.040 --> 0:03:15.040 finance in these markets, you see this customer now getting 0:03:15.080 --> 0:03:18.080 aspirational in terms of the quality of financial services product. 0:03:18.320 --> 0:03:21.840 They're ready for more sophisticated products based on business loans, 0:03:22.360 --> 0:03:25.200 based on underwriting, the robustness of cash flows so working 0:03:25.200 --> 0:03:29.800 capital needs, asset backed lending. All of those are emerging 0:03:29.840 --> 0:03:32.960 trends within financial services for a market that banks did 0:03:33.000 --> 0:03:35.960 not address all these years. Uh. There are two three 0:03:35.960 --> 0:03:39.120 other trends which I find fascinating. For example, the investment 0:03:39.160 --> 0:03:42.360 mindset in this market. They're looking to upgrade the quality 0:03:42.400 --> 0:03:45.680 of life and are often willing to pay interesting sums 0:03:45.680 --> 0:03:47.760 of amount to see that shift. So they're willing to 0:03:47.800 --> 0:03:50.600 invest in small businesses that are launched at their end, 0:03:50.680 --> 0:03:52.240 so you can work with them on a lot of 0:03:52.280 --> 0:03:56.720 these opportunities. And small business services, for example, those that 0:03:56.960 --> 0:04:00.800 take shopify down another segment to and even smaller business 0:04:01.120 --> 0:04:04.840 would be fascinating themes you're looking at um. Similarly, you 0:04:04.920 --> 0:04:09.840 look at the affinity to course solutions as against just 0:04:10.000 --> 0:04:12.680 products are transactions. And just to take an example there, 0:04:12.960 --> 0:04:16.440 if you think about courting classes, that's still a single product. 0:04:16.560 --> 0:04:18.520 But if you look at in the entire case world 0:04:18.520 --> 0:04:22.440 of education that gives the child better chances of employability, 0:04:22.480 --> 0:04:26.680 that's a core solution. Right. Think about farmer information services, 0:04:26.720 --> 0:04:30.120 that's the transactional service where you think about market linkages 0:04:30.240 --> 0:04:33.880 and working capital solutions bundled together. That's a core solution. 0:04:34.279 --> 0:04:38.440 Tele consultation tele medicine is transactional, but a full stack 0:04:38.480 --> 0:04:41.719 primary healthcare solution is a core solution. And the minute 0:04:41.720 --> 0:04:45.280 you see this market gravitating towards core solutions, you know 0:04:45.360 --> 0:04:47.880 that you have them. For the long run, your cost 0:04:47.920 --> 0:04:51.120 of acquisition is lower, the customers tend to grow their 0:04:51.120 --> 0:04:54.240 business with you, and you end up having a loyal, growing, 0:04:54.360 --> 0:04:57.960 massive customer base. Can you tell us about just give 0:04:58.040 --> 0:05:01.800 us a sense of kind of how Indian affair through 0:05:01.839 --> 0:05:04.719 the pandemic, Where are you now? How did that maybe 0:05:04.800 --> 0:05:07.840 impact your business and some of the clients you you 0:05:07.880 --> 0:05:12.679 deal with. Yeah, that's a very interesting question, to be honest. 0:05:12.760 --> 0:05:15.600 The first couple of months of the pandemic, we were like, 0:05:16.120 --> 0:05:18.000 God knows how this segment is going to come out, 0:05:18.040 --> 0:05:20.640 because the external perception at some level is that it's 0:05:20.640 --> 0:05:24.120 a vulnerable segment. However, our thesis, of course, over the 0:05:24.160 --> 0:05:26.560 last fifteen years of investing has been that there's a 0:05:26.560 --> 0:05:29.240 lot of resilience, And in a way, I'm kind of 0:05:29.279 --> 0:05:31.880 happy the last two or three years panned out because 0:05:32.040 --> 0:05:35.719 everybody is now seen that this market is super resilient. 0:05:36.320 --> 0:05:39.800 The companies that were lending did have to provide somewhat 0:05:39.920 --> 0:05:42.880 or initially, but that happened across the board globally. But 0:05:43.120 --> 0:05:46.120 what we saw interestingly was that the end market was 0:05:46.320 --> 0:05:49.719 very nimble in terms of adjusting. In fact, small businesses 0:05:50.080 --> 0:05:54.359 in India did not really necessarily get wait for any 0:05:54.600 --> 0:05:59.480 major subsidies or or support. They tend to innovate and 0:05:59.480 --> 0:06:02.800 and trans asition into business models very very quickly in 0:06:02.880 --> 0:06:05.440 emerging markets. In fact, we saw this both across India 0:06:05.480 --> 0:06:08.400 and Latin America, and they came out beautifully at the 0:06:08.480 --> 0:06:12.680 end of it, so that nimbleness makes them very resilient. Likewise, 0:06:12.760 --> 0:06:17.120 for education, we saw a massive shift towards digital solutions, 0:06:17.160 --> 0:06:20.680 both in healthcare and education, and that adoption definitely did 0:06:20.720 --> 0:06:25.039 speed up through the pandemic. But again, extremely smart purchasing 0:06:25.040 --> 0:06:27.720 decisions made by this market in a way that they 0:06:27.800 --> 0:06:31.000 managed cash flows well through the pandemic and switched back 0:06:31.040 --> 0:06:34.200 into growth and investment more the minute they could come 0:06:34.279 --> 0:06:36.839 out of it. In some sense, I see this market 0:06:36.960 --> 0:06:40.520 is far more resilient than some of the larger or 0:06:40.640 --> 0:06:43.400 or higher income customer segments that do business. I mean 0:06:43.560 --> 0:06:47.960 it's just been phenomenal watching the resilience grow. The one 0:06:48.000 --> 0:06:50.800 pieces that I think the world of capital probably took 0:06:50.839 --> 0:06:53.839 a little longer to recognize this resilience, So some of 0:06:53.880 --> 0:06:57.719 these businesses did take longer to raise funds. But it's 0:06:57.760 --> 0:07:00.440 great to see that that the core dn of these 0:07:00.480 --> 0:07:04.120 companies as such that they weren't really as subject to 0:07:04.120 --> 0:07:08.400 the liquidity ebbs and flows. Uh. They were building core, core, 0:07:08.440 --> 0:07:12.360 profitable businesses. Um. It's it's perfectly fine for some of 0:07:12.360 --> 0:07:15.160 our companies to raise money a year later than what 0:07:15.320 --> 0:07:18.160 was planned and they still managed to generate capitals through 0:07:18.160 --> 0:07:21.200 customer revenues. And that's been great alright, great stuff. Really 0:07:21.200 --> 0:07:24.760 appreciate getting your perspective. Their Drutson A. Krishnan, managing partner 0:07:24.920 --> 0:07:28.520 l of our Equity. They are based in India, investing 0:07:28.560 --> 0:07:34.000 in India. Our Jersey covers all the rate stuff for 0:07:34.160 --> 0:07:38.160 Bloomberg Intelligence. He's in studio here, but as we all know, 0:07:38.240 --> 0:07:41.600 he is a soccer guru here in the US and 0:07:41.680 --> 0:07:45.040 Jonathan Tyson in studio he's usually based in London. He 0:07:45.040 --> 0:07:47.640 covers all the European banks force, but he's here in studio. 0:07:47.680 --> 0:07:51.160 And we were just lamenting the England side and lost 0:07:51.400 --> 0:07:53.840 to France. But let's start it off. And by the way, 0:07:53.840 --> 0:07:57.280 we should say we do have a deep dive into 0:07:57.880 --> 0:08:01.120 soccer slash football later on in the program. Am we do? Yeah, 0:08:01.120 --> 0:08:04.720 because we have Darren fantastic and nature of Van Tassel, 0:08:04.760 --> 0:08:07.160 the owners of the South Georgia torment to FC, and 0:08:07.200 --> 0:08:11.000 maybe maybe maybe I can come back for that. We'll see. 0:08:11.040 --> 0:08:12.720 I mean he's in the office. I mean that's in 0:08:12.760 --> 0:08:15.160 and of itself as a wonderful thing. Yeah, it's only 0:08:15.160 --> 0:08:16.520 a second time I've ever seen him in real life, 0:08:16.560 --> 0:08:18.160 and I've been working for twenty three years. I know 0:08:18.280 --> 0:08:19.920 it's this whole thing. I don't get it, but that's 0:08:19.960 --> 0:08:22.280 what the kids are doing these days. All right, your 0:08:22.320 --> 0:08:25.080 Feller Reserve meeting Wednesday. What are we going to hear? 0:08:25.120 --> 0:08:27.200 What are you looking for? Yeah? So, so it's gonna 0:08:27.200 --> 0:08:29.640 be a fifty basis point hike. I think the reaction 0:08:29.760 --> 0:08:33.840 function and what Powell says during the post meeting press 0:08:33.880 --> 0:08:37.280 conference is going to be hyper important because will they 0:08:37.320 --> 0:08:41.560 if they see reasonably high inflation print and inflation doesn't 0:08:41.559 --> 0:08:43.600 come down as quickly as they want in January? Will 0:08:43.640 --> 0:08:45.760 they then go fifty basis points again in February, and 0:08:45.760 --> 0:08:48.880 I think that that's that's currently the question that is 0:08:49.520 --> 0:08:51.760 in the minds of a lot of market participants. And 0:08:51.920 --> 0:08:55.679 we're priced fifty fifty basically right now for that eventuality. 0:08:55.800 --> 0:08:57.760 So um, we do get new dots, we do get 0:08:57.800 --> 0:09:00.000 a new summary of economic projections. You know, where where 0:09:00.120 --> 0:09:03.240 does where do FED members see inflation going next year? 0:09:03.320 --> 0:09:05.360 That's going to be another big focus right at two 0:09:05.360 --> 0:09:07.720 o'clock when we get the when we get so right 0:09:07.760 --> 0:09:10.360 now we're at four percent is the upper bound? Right? 0:09:10.360 --> 0:09:13.600 They're gonna bring it to four fifty on Wednesday, and 0:09:13.600 --> 0:09:18.240 then the next meeting is February, February one, and it's likely, 0:09:18.960 --> 0:09:22.680 I know that the pricing is split, but isn't the 0:09:22.679 --> 0:09:26.360 the mood kind of an expectation of another fifty basis 0:09:26.360 --> 0:09:28.199 point hike while they can get it in Yeah, I 0:09:28.520 --> 0:09:30.599 think so. And we do think that they're going to 0:09:30.720 --> 0:09:32.800 probably go to five and a quarter in the upper bound, 0:09:32.880 --> 0:09:35.720 So you know, even though they're that's your terminal rate expectations. 0:09:35.800 --> 0:09:38.320 So after February, the next meeting will be only twenty 0:09:38.400 --> 0:09:41.040 five basis points in March and then and then they're 0:09:41.080 --> 0:09:44.960 going to be completely in March see at some point, 0:09:45.200 --> 0:09:47.000 at some point, they were going to always have to 0:09:47.040 --> 0:09:50.080 downshift because they want to kind of tweak where that 0:09:50.240 --> 0:09:54.880 terminal rate is and basically calibrate their their upper bound. Right, 0:09:54.880 --> 0:09:57.760 So could they go to five and a quarter for example, Yes, 0:09:57.840 --> 0:09:59.520 that's where we think they're going. Could they go to 0:09:59.520 --> 0:10:01.880 five and al f in May if inflation still is 0:10:01.880 --> 0:10:04.679 pretty high? Yes, but that gives them more optionality to 0:10:04.800 --> 0:10:07.160 hike more if they're at twenty five bas point increments 0:10:07.200 --> 0:10:09.839 instead of fifty. All right, Johnason Tyson, we've got you 0:10:09.920 --> 0:10:12.160 in studio here, a rare event, almost as rare as 0:10:12.200 --> 0:10:16.080 having Ivy here. Well, but in Jonathan's defense, that's because 0:10:16.120 --> 0:10:18.760 he lives in England. Okay, alright, I got it. Yeah, 0:10:18.800 --> 0:10:21.240 John Tyson is one of the top banks analysts in 0:10:21.280 --> 0:10:24.120 the city of London, been doing it for decades. So 0:10:24.160 --> 0:10:26.360 we got interest rates rising, Jonathan, what does that mean 0:10:26.480 --> 0:10:30.440 for the European banks that you follow? H right, Um, well, 0:10:30.559 --> 0:10:33.760 we've already seen an awful of the upgrades, no income upgrades, 0:10:33.840 --> 0:10:36.600 margin upgrades. Take Lloyds, for example, it's going to make 0:10:36.640 --> 0:10:39.480 an extra two billion top line next year purely because 0:10:39.520 --> 0:10:42.520 the banks grades grades. But I think if you think 0:10:42.559 --> 0:10:45.599 about Europe in the US, it's quite clear that it 0:10:45.640 --> 0:10:48.680 has been aggressive. If you're the ECB, you don't have 0:10:48.720 --> 0:10:50.839 a straightforward decision to make because you've still got to 0:10:50.880 --> 0:10:55.120 think Italy. We all remember two thousand, twelve thirteen sovereign crisis, 0:10:55.160 --> 0:10:58.120 all of that. So while a lot of commentators would 0:10:58.160 --> 0:11:00.960 think in Europe behind the curve, you do have to 0:11:01.080 --> 0:11:04.080 understand that we have a very big Italian bank system 0:11:04.080 --> 0:11:06.960 that is still not that strong. Still well, I mean 0:11:07.000 --> 0:11:11.000 Mounti Passes, they just had another capital raised after twenty 0:11:11.080 --> 0:11:13.959 years of troubles. Um, And yes, the spreads have come 0:11:13.960 --> 0:11:15.880 back between Italy and Germany. But the e CP is 0:11:15.960 --> 0:11:17.840 very very aware that, yes, we could inflation, but we 0:11:17.880 --> 0:11:21.240 do not want to kick start some form of a 0:11:21.559 --> 0:11:25.360 sovereign fragmentation, which is what kicked off into Well. Well, 0:11:26.000 --> 0:11:28.680 you know, if the healthy banks are making more and 0:11:28.720 --> 0:11:30.840 more money with higher rates, are they going to be 0:11:30.920 --> 0:11:32.880 able to do a little m and a and maybe 0:11:32.880 --> 0:11:35.920 take out Amani Pasky. I mean they probably nobody wants 0:11:35.960 --> 0:11:38.840 that bank. But um, are we going to see cross 0:11:38.880 --> 0:11:41.040 finally see cross border m and a that the CEO 0:11:41.200 --> 0:11:43.120 is back. You know, over the past few years, I 0:11:43.120 --> 0:11:44.800 have said no, we can't do because of zero intrograte 0:11:44.840 --> 0:11:50.280 policy and because um the um EU rules aren't yet finished. 0:11:50.400 --> 0:11:52.680 In that regard that the rules are very big part 0:11:52.679 --> 0:11:54.640 of it. Um. If you look at b MP, they're 0:11:54.640 --> 0:11:57.160 selling the US business. They've got seven billions to reinvest 0:11:57.240 --> 0:11:59.400 next year. But even they have said we're not going 0:11:59.440 --> 0:12:01.000 to do a big we don't need to do a 0:12:01.000 --> 0:12:03.400 big deal. So we're two or three years away from 0:12:03.440 --> 0:12:06.599 a big cross border deal still because you've got liquidity concerns, 0:12:07.120 --> 0:12:11.559 it's not straightforward, and captors capital is strong. But we're 0:12:11.600 --> 0:12:13.560 now you're heading into a recession and we know that 0:12:13.600 --> 0:12:16.320 bad debts are going back up. So again you normally 0:12:16.320 --> 0:12:18.280 buy a smaller bank. How can you price a smaller 0:12:18.280 --> 0:12:20.280 bank when you're not quite sure what the environment looks like? 0:12:20.400 --> 0:12:23.160 How can What are the banks saying the European banks, Charnathan, 0:12:23.240 --> 0:12:25.840 what are they saying about a recession in Europe? I mean, 0:12:25.880 --> 0:12:28.200 plus you've got the added issue of the war in Ukraine. 0:12:28.440 --> 0:12:31.320 So what are the big European banks saying about the 0:12:31.320 --> 0:12:34.920 next twelve months? Actually very sanguine. I mean, we we 0:12:35.000 --> 0:12:38.120 saw them all over provision for COVID, so most of 0:12:38.120 --> 0:12:39.840 the banks have still got a pretty decent cushion that 0:12:39.880 --> 0:12:43.679 they're running down a couple, haven't um And because of 0:12:43.720 --> 0:12:45.160 all of this sort of it's four and a half 0:12:45.160 --> 0:12:49.480 trillion access liquidity, you've got retail deposits, you've got corporate deposits. 0:12:49.520 --> 0:12:52.839 The starting position for the man on the street is 0:12:52.840 --> 0:12:56.120 a lot better than it was. So they're still pretty 0:12:56.120 --> 0:12:58.720 sanguine and they've got a lot of room to play with. 0:12:59.760 --> 0:13:02.800 I I think your Federal Reserve should pause. I think 0:13:02.800 --> 0:13:06.080 they've been raising rates like crazy. Okay, Jonathan's European banks 0:13:06.120 --> 0:13:09.160 of benefiting, the US banks are benefiting. But you know 0:13:09.240 --> 0:13:12.360 we're going to get a CPI print tomorrow that's showing that, Yeah, 0:13:12.480 --> 0:13:15.920 not only is inflation peak, but it's coming down consistently. 0:13:16.880 --> 0:13:21.040 Why don't they pause? I might not considerably. I'm consistently 0:13:21.120 --> 0:13:23.319 right that the problem is we're just not seeing inflation 0:13:23.679 --> 0:13:26.240 reduced at the speed we thought it would be. Yeah, 0:13:26.240 --> 0:13:28.000 so let's say it comes to where the markets pricing 0:13:28.000 --> 0:13:30.400 it around seven point two percent. I think the consensus 0:13:30.440 --> 0:13:33.080 on the Bloomberg terminals telling me seven point three percent 0:13:33.160 --> 0:13:37.120 year on year CPI UM, So it's that's still relatively high, 0:13:37.200 --> 0:13:39.400 but but your point, Paul, you know, the month on 0:13:39.440 --> 0:13:41.679 month prints are much much lower than they were, right. 0:13:41.720 --> 0:13:43.439 So a lot of this is base effects and the 0:13:43.480 --> 0:13:45.360 fact that we had very high inflation early in the 0:13:45.440 --> 0:13:48.959 year UM, because at this point the FED promised that 0:13:49.000 --> 0:13:53.439 they were going higher right going to five. Powell even said, 0:13:53.679 --> 0:13:55.360 you know, even when he was dovish a couple of 0:13:55.360 --> 0:13:58.560 weeks ago at the Brookins Institution, he said, you know, 0:13:58.640 --> 0:14:01.400 we're going to be higher than last UM summary of 0:14:01.440 --> 0:14:05.400 economic projections was so, which was four and you know 0:14:05.400 --> 0:14:08.120 four sixty five. Basically, so if they're gonna be higher 0:14:08.120 --> 0:14:10.640 than that, they want to deliver on that promise. And 0:14:10.640 --> 0:14:13.400 and you know that the FED doesn't want to under deliver, 0:14:13.559 --> 0:14:15.880 particularly when inflation is such a problem in such a 0:14:15.960 --> 0:14:19.120 high priority globally. And if US inflation comes down, that 0:14:19.160 --> 0:14:22.240 probably will feed into other markets, that will feed into Europe, 0:14:22.280 --> 0:14:25.040 that will feed into the UK, that will feed into Japan. UM. 0:14:25.160 --> 0:14:27.120 So you know, we do want to get UM kind 0:14:27.120 --> 0:14:31.640 of demand and UM supply balance back into back into 0:14:31.680 --> 0:14:34.160 some semblance of normalcy. And the only way to do 0:14:34.200 --> 0:14:36.760 that really is too slow US demand. That the problem 0:14:36.760 --> 0:14:39.680 I think with US inflation in particular is that it's 0:14:39.680 --> 0:14:41.760 a lot of it's in the service sector, which isn't 0:14:41.800 --> 0:14:45.360 directly impacted as much by UM by interest rates because 0:14:45.400 --> 0:14:47.360 you don't you know, you don't buy you don't go 0:14:47.400 --> 0:14:50.960 into McDonald's and buy a big mac on credit usually. Well, 0:14:50.960 --> 0:14:53.920 and even if it is UM, isn't the lag like 0:14:54.040 --> 0:14:58.280 three to five quarters that policy lag. I mean, it 0:14:58.360 --> 0:14:59.960 was funny to hear you say they want to cow 0:15:00.000 --> 0:15:04.560 celebrate something. I mean they're working with a sledge hammer. Um. 0:15:04.600 --> 0:15:09.920 So this is not the kind of delicate scalpel work 0:15:10.080 --> 0:15:14.560 that um you would hope that monetary policy is. Yeah. 0:15:14.560 --> 0:15:17.640 So so generally speaking, monetary policy takes between six and 0:15:17.640 --> 0:15:20.240 eighteen months to flow through, so we're only starting to 0:15:20.280 --> 0:15:23.840 see the effects right now. Alright, great stuff, Iver Jersey, 0:15:24.000 --> 0:15:27.160 Bloomberg Intelligence rate analysts here in our Bloomberg and Actors 0:15:27.160 --> 0:15:30.280 broker studio and a rare treat. Jonathan Tyson, he covers 0:15:30.320 --> 0:15:33.400 European banks for Bloomberg Intelligence. He's based in London, So 0:15:33.440 --> 0:15:35.240 if you're ever in London, go to look up Jonathan Tyson. 0:15:35.320 --> 0:15:41.600 Bia pint. Megan Horneman, chief investment officer at Verden's Capital, 0:15:42.000 --> 0:15:44.880 joins us here. Megan, I'm gonna just you know, I've 0:15:44.880 --> 0:15:48.720 been telling Matt two, I'm done with It's it's so over. 0:15:48.920 --> 0:15:52.360 I'm looking at three. What's your outlook? What are you 0:15:52.360 --> 0:15:54.400 telling your clients? What are you penning in your year 0:15:54.480 --> 0:15:57.160 head kind of letter. But I think that we've seen 0:15:57.200 --> 0:16:00.520 a lot of the equity damage and and even the 0:16:00.520 --> 0:16:04.960 fixed income damage, but we're just starting to see the 0:16:05.000 --> 0:16:09.320 economic damage from whether it's the um you know, slow 0:16:09.360 --> 0:16:12.200 down in the economic growth or the tightening of the 0:16:12.200 --> 0:16:15.440 said policy. We're just starting to see that. So unfortunately, 0:16:15.480 --> 0:16:18.720 going into next year, uh, there's gonna be a lot 0:16:18.760 --> 0:16:21.560 of the same. When it comes to the economic situation. 0:16:21.680 --> 0:16:24.000 The economy is going to be weaker, Um, it's going 0:16:24.080 --> 0:16:26.640 to be quite volatile. We think the consumer is going 0:16:26.680 --> 0:16:29.280 to be um, the one thing that's going to give in. 0:16:30.920 --> 0:16:33.800 They've been very resilient this year as far as spending, 0:16:33.840 --> 0:16:37.040 and we'll get retail sales tomorrow as well. But I 0:16:37.120 --> 0:16:39.480 don't think it's sustainable when you look at the level 0:16:39.600 --> 0:16:41.880 of spending and then you look at how they're spending 0:16:41.920 --> 0:16:45.040 and that is basically turning to credit cards, which are 0:16:45.080 --> 0:16:49.080 growing at a double digit pace over an annual basis. Um, 0:16:49.160 --> 0:16:52.960 are you worried about the or are you watching the 0:16:52.960 --> 0:16:56.320 credit card legislation. I can't remember the name of the bill, um, 0:16:56.320 --> 0:17:00.400 but it's like the credit card competition bill or something 0:17:00.400 --> 0:17:03.000 that's apparently going to open up another pay rail and 0:17:03.000 --> 0:17:06.679 give retailers more of a choice. Um. No, I'm not 0:17:06.720 --> 0:17:09.200 following that so much as far as the what people 0:17:09.240 --> 0:17:11.760 are doing and taking out debt in any respect in 0:17:11.800 --> 0:17:15.280 the slowing economic economy is not something that consumers want 0:17:15.280 --> 0:17:19.040 to do. While balance shees are relatively healthy, we're still 0:17:19.080 --> 0:17:23.040 seeing savings and savings rates pretty much dwindled down. So um, 0:17:23.080 --> 0:17:26.760 I think turning to credit is not the right thing 0:17:26.840 --> 0:17:29.920 at Okay, I sorry, sorry, I misunderstood. I thought you 0:17:29.920 --> 0:17:31.760 were saying that you like the credit card companies here. 0:17:31.960 --> 0:17:34.119 Oh no, no, no, for sure, if if, if the 0:17:34.119 --> 0:17:37.240 consumer is taking is putting more and more money, more 0:17:37.240 --> 0:17:40.920 and more purchases on plastic, that's a problem, um. And 0:17:41.520 --> 0:17:43.440 that's the kind of the kind of sign that we've 0:17:43.480 --> 0:17:46.439 been looking for. What's your expectation for a recession in 0:17:46.480 --> 0:17:48.760 twenty three or some people have been saying maybe won't 0:17:48.800 --> 0:17:52.680 come till early now. I think I think it's highly likely. 0:17:52.840 --> 0:17:56.200 In ine, and I actually would lean more towards this 0:17:56.320 --> 0:18:00.159 the first half of three because we've had such a 0:18:00.800 --> 0:18:03.840 like I said, a resilient year from the consumer spending 0:18:03.920 --> 0:18:08.879 standpoint in I think after the holidays, after this spending 0:18:08.880 --> 0:18:10.960 has been done for this year, that people will sit 0:18:11.000 --> 0:18:14.119 back reassess. UM they're going to see the credit cards, 0:18:14.160 --> 0:18:17.520 not only their credit card bills, the actual number on 0:18:17.520 --> 0:18:20.120 the credit card build. But don't forget that credit card 0:18:20.200 --> 0:18:22.840 rates are rising just along with the rest of interest rates. 0:18:22.920 --> 0:18:25.560 So credit card interest rates right now are very high, 0:18:25.600 --> 0:18:27.400 and I think this is just going to be challenging 0:18:27.440 --> 0:18:30.840 for consumers. So I think from a UM spending standpoint, 0:18:30.960 --> 0:18:33.280 that's going to pull back. You have that at the 0:18:33.320 --> 0:18:37.840 same time where you have manufacturing that's now in contraction territory, UM, 0:18:37.920 --> 0:18:41.440 you have housing that continues to be challenged by higher 0:18:41.480 --> 0:18:45.240 interest rates and high costs. These three things could be 0:18:45.520 --> 0:18:48.520 UM could weigh on the economic scenario in the first 0:18:48.560 --> 0:18:52.600 half of next year. So Megan, you know, we we 0:18:52.880 --> 0:18:54.600 It seems like a lot of economists say we might 0:18:54.640 --> 0:18:56.480 have a you know, a tough or first half of 0:18:56.520 --> 0:18:59.480 but then maybe better second half. As you think about 0:18:59.520 --> 0:19:02.600 kind of where you want to position your portfolio, are 0:19:02.640 --> 0:19:05.639 you guys kind of constructive on the markets here or 0:19:06.040 --> 0:19:08.000 are you kind of wait and see a little bit 0:19:08.000 --> 0:19:11.880 as we get into next year. So we're long term investors, 0:19:11.880 --> 0:19:14.879 so we're always constructive on the market. But you know, 0:19:15.000 --> 0:19:17.080 right now, for for the near term, what we're trying 0:19:17.080 --> 0:19:19.120 to do is raise a little bit of cash going 0:19:19.119 --> 0:19:20.879 into the year at the end of the year, especially 0:19:20.920 --> 0:19:24.119 since we've had such a tremendous rebound um since that 0:19:24.200 --> 0:19:27.520 October twelfth low, so and take last week out of 0:19:27.560 --> 0:19:30.440 the equation, we still have had a pretty decent upside there. 0:19:30.480 --> 0:19:32.719 So there's some areas that we may want to just 0:19:32.840 --> 0:19:36.000 overall reduce some risk, increase that dry powder, get a 0:19:36.040 --> 0:19:38.639 little bit more cash because I do believe that in 0:19:38.680 --> 0:19:40.399 the first half of next year there's going to be 0:19:40.400 --> 0:19:43.480 a lot more opportunities to put more money into the 0:19:43.520 --> 0:19:47.720 equity markets for the long run. Tax loss harvesting is 0:19:47.760 --> 0:19:49.320 a phrase we've been hearing a lot. Is that what 0:19:49.359 --> 0:19:52.399 you're talking about? Yeah, So it's not just only tax 0:19:52.440 --> 0:19:55.840 loss harvesting, because remember, tax loss harvesting is um you know, 0:19:55.920 --> 0:19:59.359 you're you're taking the tax off and maybe implementing something 0:19:59.640 --> 0:20:02.080 as ah like an e t F or something that 0:20:02.280 --> 0:20:05.639 so you're staying participated. But this is an overall tactical 0:20:05.680 --> 0:20:07.960 move in the market where you want to reduce your 0:20:08.000 --> 0:20:11.320 overall risk in the portfolio. So take losses where you can, 0:20:11.800 --> 0:20:15.439 but also then look at maybe just reducing some of 0:20:15.560 --> 0:20:18.040 those areas of the market that have rallied so much 0:20:18.480 --> 0:20:21.720 here in the past six weeks. Megan, you know, as 0:20:21.760 --> 0:20:25.040 a long term investor, where does technology fit into your 0:20:25.040 --> 0:20:27.480 perfect just going to ask about the Fang stocks see 0:20:27.560 --> 0:20:30.399 a great minds think alike off front running a little bit. 0:20:30.440 --> 0:20:32.399 But again, the fang stocks have been so good to 0:20:32.440 --> 0:20:35.000 Matt and me and everybody else over the last dozen 0:20:35.080 --> 0:20:37.760 years or so, So we think about those types of names. 0:20:38.400 --> 0:20:40.639 Will they continue to be leaders in this market or 0:20:40.720 --> 0:20:42.800 is there time as a as a market leader passed? 0:20:43.960 --> 0:20:48.399 So there was like a three part questionnaire. The first 0:20:48.400 --> 0:20:50.879 one is, um, what do we think of technology in 0:20:50.920 --> 0:20:52.959 the long run? And then and then you had mentioned 0:20:53.080 --> 0:20:56.439