Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Let's get over right
Speaker 1: now to SETI Costarelity. He's the CEO of TAT Global Alternatives,
Speaker 1: and we're gonna talk about marijuana legalization, which is big
Speaker 1: here in the US. I don't think the Germans smoke pot.
Speaker 1: They basically it's just if you're a beer. If you
Speaker 1: smell someone smoking weed in Germany, it's usually a brit
Speaker 1: or An American living in East Berlin. But I just
Speaker 1: walked up Lexington Avenue and saw a store that was
Speaker 1: selling actual weed and gummies with THHC none of the
Speaker 1: cb D you know, fake fakeery going on. Um there said,
Speaker 1: is this going to sweep the nation? Is it going
Speaker 1: to sweep the globe and be come as normal as
Speaker 1: you know, drinking liquor. Well, first of all, thanks for
Speaker 1: having me on UM. I do think that it has
Speaker 1: the absolute potential to do that. Um, you know, it's
Speaker 1: obviously a burgeoning category. There's there's a number of countries
Speaker 1: that have started to legalize it now and I think
Speaker 1: in the US, once those laws start to pass, you'll
Speaker 1: likely see, um, obviously a lot more uptake in the market.
Speaker 1: All right, say so, the big issue for the development
Speaker 1: of the cannabis market in the US has been federal legalization.
Speaker 1: And we've had a lot of states, a lot of
Speaker 1: big states, including New York and New Jersey, legalize it.
Speaker 1: So where are we in terms of federal legislation. Well,
Speaker 1: think they they've tried to pass a number of these
Speaker 1: laws through the House. Ultimately, you know, when when you
Speaker 1: kind of take a look at this, it's always just
Speaker 1: this plug a war between fear and greed. And I think,
Speaker 1: you know, for for as much as cannabis has been
Speaker 1: elite goal federally in the US, you'd be hard pressed
Speaker 1: to find any American or very few Americans that haven't
Speaker 1: tried it up until this point. Now, I do think
Speaker 1: that society as a whole is becoming a lot more
Speaker 1: progressive and open to the idea. So I think it's
Speaker 1: just a matter of time before it does end up passing,
Speaker 1: but even though certain states have legalized it, in order
Speaker 1: for it to really take hold, you need that federal
Speaker 1: legalization so that banks can now start getting involved in
Speaker 1: providing financing and really allowing these companies to generate sort
Speaker 1: of the capital and access to capital markets in a
Speaker 1: way that they can become large organizations, which is really
Speaker 1: what's needed in the US if you want to see
Speaker 1: this market flourish. I mean, the banking issue is I
Speaker 1: would say, probably the biggest in terms of growth. Right,
Speaker 1: what kind of growth do you expect from from marijuana? Well,
Speaker 1: I think it's again it's still a burgeoning category. And
Speaker 1: when you kind of take a look at the product itself,
Speaker 1: I think in the getting a lot of people thought
Speaker 1: that cannabis was going to compete with tobacco um, but
Speaker 1: as a whole it really does. In cannabis competes more
Speaker 1: with alcohol given sort of the drugs that are involved.
Speaker 1: The CD is going to compete with alcohol. CBD, on
Speaker 1: the other hand, does have the ability to compete, uh
Speaker 1: with tobacco, which is what you know our company is
Speaker 1: primarily focused on because it helps you quit smoking tobacco
Speaker 1: or one well, exactly right, I think one of the
Speaker 1: things that we're really proud of is that we've been
Speaker 1: able to apply hemp, which is a derivative of cannabis
Speaker 1: that doesn't have any t HC but does contain CDD.
Speaker 1: We've been able to figure out that when you can
Speaker 1: apply CBD to a cigarette smoker, it does have a
Speaker 1: high likelihood of helping them eliminate that nicotine addiction because
Speaker 1: CBD in and of itself isn't addictive. It's also not psychoactive. Right,
Speaker 1: so when you think about the pool of smokers, which
Speaker 1: is immense, and a lot of people don't really understand
Speaker 1: how big the tobacco market is. It's it's like the
Speaker 1: Mount everest of markets. Um, you know, comparatively to water,
Speaker 1: the bottled water market is about two fifty billion dollars
Speaker 1: a year globally, Tobacco is approaching a trillion dollars a year.
Speaker 1: The CBD is not addictive, it's not psychoactive, and it
Speaker 1: doesn't cause lung cancer. And you know, people behind you
Speaker 1: on the street don't hate you for it. I mean,
Speaker 1: there's so many, uh, you know, there's so many arguments
Speaker 1: for it. My question is on the th HC side,
Speaker 1: and and maybe this isn't you know your wheelhouse, But
Speaker 1: I just wonder, are we going to find out that
Speaker 1: a kid who smoked a ton of weed in high
Speaker 1: school and college. I know a lot of kids like
Speaker 1: that very very well, um ends up having some kind
Speaker 1: of mental health issues later in life because I know
Speaker 1: a lot of kids like that too. Well. Look, I
Speaker 1: think you one of the things that they're going to
Speaker 1: have to figure out is the regulations around the substance
Speaker 1: now different than they have the regulations around alcohol. Right
Speaker 1: at a certain point when the cognitive factors of the
Speaker 1: brain that's sort of finished developing, you know, consider these
Speaker 1: substances won't have the same effect as when you consume
Speaker 1: them when you're in the developmental stage. So as they
Speaker 1: right as they kind of progress on on the regulatory side,
Speaker 1: those are the things that they're going to have to
Speaker 1: figure out. And it would probably make sense that they
Speaker 1: regulate the substance similar to how they would regulate alcohol
Speaker 1: and put um certain age limits on when someone would
Speaker 1: be able to legally go in and buy it, Like
Speaker 1: we wouldn't expect the three year old or ten year
Speaker 1: old to want to go in and buy cannabis legally.
Speaker 1: I wouldn't expect a ten year old to walk into
Speaker 1: a store and buy a Cannabio said, he talked to
Speaker 1: us about the tat cigarettes. What are they, how do they?
Speaker 1: How do they work? So basically, what we've done is
Speaker 1: we've taken a hemp biomass and we've processed it in
Speaker 1: a way so that it tastes and behaves like tobacco,
Speaker 1: which is fundamentally different than what other let's call it
Speaker 1: hemp cigarettes in the market would have been able to
Speaker 1: do because one of the key things for smokers is
Speaker 1: that they want a taste profile that resembles a cigarette. Now,
Speaker 1: one thing I can tell you is that the number
Speaker 1: of smokers that exist, there's almost forty million smokers in
Speaker 1: the U s alone, about them have tried date. Yet
Speaker 1: if you take a look at the market of smokers,
Speaker 1: the number of smokers still weighs the number of vapors
Speaker 1: twenty one, which tells you what to prefer delivery mechanism is. However,
Speaker 1: you know, I used to work at Philip Morris and
Speaker 1: I understand this quite well. You'd be hard pressed to
Speaker 1: find the smoker that enjoys the factory because's a nicotine
Speaker 1: and when you take a look at a lot of
Speaker 1: the vape companies. They're trying to sell you on this
Speaker 1: reduced risk element. However, they're still overly reliant on the
Speaker 1: crutch of addiction in order to sell their wares, which
Speaker 1: I think is absurd reliant, that's the point. Yeah, But
Speaker 1: I mean, it's so easy to any other product. There
Speaker 1: isn't any other product on it. If you have to
Speaker 1: buy because you're addicted to it, you can buy it
Speaker 1: because you like it, and there's still a market to
Speaker 1: be had. So why can't we apply that similar mindset
Speaker 1: to tobacco and provide smokers with something that they can
Speaker 1: consume by choice, not by me. And that's exactly what
Speaker 1: we're doing. So we've eliminated the tobacco, we've eliminated the nicotine.
Speaker 1: We give you the same format as a cigarette, but
Speaker 1: deliver CBD instead, which will still satiate a smoker the
Speaker 1: same way nicotine will, but won't create an addiction. And
Speaker 1: that way we can give the freedom to choose to
Speaker 1: smokers and they can decide you want to smoke, smoke,
Speaker 1: you don't want to smoke, don't smoke any chance, you
Speaker 1: gotta chewing tobacco alternative can you can you help me
Speaker 1: get get rid of the Copenhagen you like? You like
Speaker 1: to dip? I mean yes. I don't know if I
Speaker 1: should say that publicly because it's kind of embarrassing, especially
Speaker 1: at my age, but yeah, especially if I'm at a
Speaker 1: baseball game or driving a pickup truck or listen to
Speaker 1: country music, I like to throw on a lip. It's
Speaker 1: a great it's a great alternative. Before you're looking at
Speaker 1: the markets here and Matt, we had that big sell
Speaker 1: off on Monday, concern about growth, concern about the delta
Speaker 1: variant and its impact on this economy. But boy, the
Speaker 1: market recovered, to say the least, over this past four days.
Speaker 1: And uh again, let's get a sense of where we
Speaker 1: go from here. Brenda O'Connor joins us. She's a senior
Speaker 1: vice president financial advisor UBS International, based in Miami. I believe,
Speaker 1: if my notes are correct, we can talk about what's
Speaker 1: going on down there in southern Florida, all the exodus
Speaker 1: from Wall Street. But Brenda, give us a sense of
Speaker 1: how you because some of the conversations you had with
Speaker 1: your clients this week after that big sell off on
Speaker 1: Monday and the subsequent rebound for the remainder of the week.
Speaker 1: What are some of the conversations you were having. Yeah,
Speaker 1: I mean, it was a pretty wild start of the week,
Speaker 1: and you know, when the markets traded off around two percent,
Speaker 1: you know, it looked pretty familiar to how and what
Speaker 1: we saw at the beginning of the pandemic. You know,
Speaker 1: we saw the relly of the US dollar, a drop
Speaker 1: in equities, a drop in oil, and an increase in
Speaker 1: bond meals. And as you said, you know, this was
Speaker 1: quickly reversed on Tuesday, and we've seen markets grind fire
Speaker 1: throughout the weekend. Here we are on Friday. The SMP
Speaker 1: is up over sixteen percent year to date, and so,
Speaker 1: you know, while some investors are concerned about the strength
Speaker 1: of the recovery, whether that's because of the delta variant
Speaker 1: or inflation, you know, for the most part are clients
Speaker 1: are big proponents that this recovery will stay intact. And
Speaker 1: we're so positive on christ As. What do you do
Speaker 1: though with clients. I had dinner with a bunch of
Speaker 1: traders last night who have just made so much money
Speaker 1: that they want to get some of it into cash
Speaker 1: before this turns around. Not like it's going to turn
Speaker 1: aroundy time soon. But you don't need to ride out
Speaker 1: the last hundred points of the S and P five hundred.
Speaker 1: Do you start moving them out? No, So we're not
Speaker 1: big proponents of moving to cash. I think the tactical
Speaker 1: things that we've been speaking to clients this week about
Speaker 1: are taking profit in sectors like US tech for example.
Speaker 1: I mean, the Nasdaq was up thirty eight percent last year,
Speaker 1: it's up another fourteenth this year, and so this is
Speaker 1: an opportunity given where valuations are, where we're happy to
Speaker 1: take a little profit off the table and allocated to
Speaker 1: sectors that we do like. So, Bret, I think talk
Speaker 1: to us about how you're talking to your clients about
Speaker 1: international exposure. I know that in Miami that you get
Speaker 1: tends to be a nice international community, a global community
Speaker 1: down there, and I'm guessing that's reflected a little bit
Speaker 1: in your book. How are you and your clients thinking
Speaker 1: about international investment opportunities? Al Right, So we're still positive
Speaker 1: on equities on a whole, and you know, they're still
Speaker 1: spectors of the U S market that we like, although
Speaker 1: you know, we do like certain parts of Asia, and
Speaker 1: a lot of my families aren't even looking at equities,
Speaker 1: they're turning to things like an alternative investment. So, you know,
Speaker 1: these are our clients tend to have very long term
Speaker 1: time horizons. They're great correlation benefits to alternative asset classes. Um.
Speaker 1: You know, investors are often rewarded for a little with
Speaker 1: a liquidity premium. So we've been looking at things like
Speaker 1: private private real estate and private equities, specifically in the
Speaker 1: secondary space. Well, luckily, some private equity firms are raising
Speaker 1: some big funds right now. Carlisle raising twenties seven billion
Speaker 1: dollar fund right, Blackstone just wrapped up last year at
Speaker 1: twenty six billion dollar fund. Um. I think five d
Speaker 1: twenty billion dollars came into private equity in the first half.
Speaker 1: There's a lot of cash washing around, isn't there. Yeah, there,
Speaker 1: there definitely is. And so there are certain parts of
Speaker 1: the private equity market that we maybe stay away from.
Speaker 1: But again, um there are subsets like um um secondaries
Speaker 1: that we're really big fans of, and we still think
Speaker 1: that you can get kind of mid teen high team
Speaker 1: net returns on these asset classes. And if we look
Speaker 1: forward um to the next five years and we look
Speaker 1: at ubs as capital market assumptions, I mean those returns
Speaker 1: kind of beat what we think equities may do over
Speaker 1: the next three to five years or the market cycle. Brenda,
Speaker 1: you know, get it. Love to get a sense of
Speaker 1: how you're viewing US equities. What are some of the
Speaker 1: sectors you like, because there is a little bit of
Speaker 1: a push and pool out there between some of the
Speaker 1: folks that are saying, boy, I'm sticking with those growth names,
Speaker 1: the the Amazons, the apples of the world that have
Speaker 1: done so well for me for such a long time.
Speaker 1: And then there's obviously people that are you know, kind
Speaker 1: of rotated into the more cyclical side of the market
Speaker 1: and may be benefited from the some of this reopening trade.
Speaker 1: If you will, let me get a sense kind of
Speaker 1: where you are putting your client's assets right here in
Speaker 1: the US. Yeah. So I'll talk about two sectors that
Speaker 1: we like right now, and that's consumer discretionary and financials.
Speaker 1: I mean with financials, yes, you know, the sector is
Speaker 1: up twenty year to date, but we still think there's
Speaker 1: upside here and that's really based on two reasons. Um.
Speaker 1: The first is, you know, in an interest rate increasing environment,
Speaker 1: this um this this subset will will tend to outperform.
Speaker 1: And then a lot of the banks that raise these
Speaker 1: big provisions for loan losses are now starting to release
Speaker 1: some of this capital, and we think that's gonna benefit
Speaker 1: bank and financial names. The other area we're looking into
Speaker 1: is consumer discretionary, and this is really on the notion
Speaker 1: that there is just a ton of cash sitting on
Speaker 1: corporate and household balance sheets. If we look at household
Speaker 1: balance sheets as an example, I mean US savings as
Speaker 1: a percentage of disposable income is around twelve orcent. Listen,
Speaker 1: it's not as high as it was earlier in the
Speaker 1: pandemic at thirty five percent, but it's much higher than
Speaker 1: the five to seven that's the historical average. So our
Speaker 1: view is as this cash continues to work its way
Speaker 1: through the system, it will benefit sectors like consumer discretionary,
Speaker 1: anything you like in fixed income. I mean, I know, um,
Speaker 1: it's tough to chase returns there, find returns there even um,
Speaker 1: the further you've got the risk spectrum. Yeah, So you know,
Speaker 1: most of my clients view their portfolios as an overall
Speaker 1: asset allocation and a diverse by portfolio. So we still
Speaker 1: have strategic allocations to fix income, but we tend and
Speaker 1: are tending to UM stay away from that now, but
Speaker 1: we still have You know, I would argue ten to
Speaker 1: allocated to liquidity, cash and fixed income. Hey, Brenda, thanks
Speaker 1: so much for joining us. We really appreciate you taking
Speaker 1: the time. Brenda O'Connor, Senior vice president, Financial advisor for
Speaker 1: UBS International. Her clients take a look at private equity
Speaker 1: here and search for return. Since it was a suggesting
Speaker 1: boy in the fix income mark with a ten year one.
Speaker 1: Tough to find some yield out there. So some of
Speaker 1: the folks with longer term investment horizons putting some of
Speaker 1: the money to work in the private equity. And has
Speaker 1: mentioned some big, big money is being raised out there
Speaker 1: by some of these big funds. Now, let's talk real estate.
Speaker 1: Cushman and Wakefield's head of head Economists and head of
Speaker 1: retail research, Ken McCarthy joins us. And this is a
Speaker 1: hot topic, UM hot industry, and you know, pricing on
Speaker 1: at least on the retail side, the residential side, I
Speaker 1: should say, has been amazing. But I have to say,
Speaker 1: can as I walk through UM the valley of Manhattan
Speaker 1: and look left and right, everything looks closed, It looks empty.
Speaker 1: I mean here in our I guess Bornado building. Right,
Speaker 1: we have no more UM anchor tenants. Home depot is gone. UH,
Speaker 1: container store is gone. H and M is gone and
Speaker 1: no one's replaced them. So it looks really bad. How
Speaker 1: is it? So? Thanks very much. I don't think it's
Speaker 1: as bad as it looks, you know. I think retail
Speaker 1: has been challenged for a little while now because of
Speaker 1: e commerce penetration, and then when COVID hit, it was
Speaker 1: considered that this was going to be the end of retail,
Speaker 1: the apocalypse. Uh. And definitely there have been some store closings,
Speaker 1: there's been some movement around in where companies or retailers
Speaker 1: decides to locate, but overall, the amount that's being spent
Speaker 1: by consumers continues to grow. I think it's just a
Speaker 1: matter of location more than anything else. You know. Many cities,
Speaker 1: particularly cities like New York, which rely heavily on public transit,
Speaker 1: have seen much slower adoption of back to work UH.
Speaker 1: And that's particularly in a place like Midtown where most
Speaker 1: of the retail is in office buildings. That's creating some challenges.
Speaker 1: But overall, as we look at the retail sector in
Speaker 1: commercial real estate, it actually performed surprisingly well in the downturn,
Speaker 1: So I know it's interesting. I know for retail, the strategy,
Speaker 1: the buzzword for many years has been omni channel. You know. Uh,
Speaker 1: an example that would be, you know, buying something online
Speaker 1: but picking it up at the physical store, so that
Speaker 1: brings some life into a lot of the retailers in
Speaker 1: terms of the bricks and mortar. Is that a long
Speaker 1: term trend? Do you think? Well? Certainly, right now the
Speaker 1: consumer is king in the retail world. Whatever the consumer wants,
Speaker 1: retailers are trying to get it to them. Uh, it's
Speaker 1: it's going to be a combination. I think you're right.
Speaker 1: Omni channel is a good way of describing it, but
Speaker 1: it's also about um, it's about digitally native brands think
Speaker 1: Amazon as an example, are now going into bricks and mortar.
Speaker 1: So it's a fusion of both of those at the
Speaker 1: same time. Uh, that's gonna content that's gonna lead to
Speaker 1: higher demand for bricks and mortar as well. I think
Speaker 1: net net consumer spending is rising, It's probably going to
Speaker 1: continue to grow, and as it does, the pie is
Speaker 1: going to get bigger. But the question is, you know,
Speaker 1: how much of it is going to be e commerce?
Speaker 1: How much of it is gonna be bricks and mortar
Speaker 1: net net, most of it's going to be bricks and
Speaker 1: mortar in terms of overall as it is today again,
Speaker 1: as you're speaking, we're watching the SMPI extend gains to
Speaker 1: set yet another intra day record high. So you know,
Speaker 1: at least if you're invested, your wealth is rising. Companies
Speaker 1: have more power in the stock market. And although a
Speaker 1: lot of debt has been taken on as we were
Speaker 1: you know, just talking um, uh with our previous guests
Speaker 1: about financing costs are basically nothing. So, um, what does
Speaker 1: this mean for the market? Um? Is there is there
Speaker 1: opportunity to come in and get some deals here? Is
Speaker 1: there value out there? Or um, you know, is it
Speaker 1: fairly valued now? So? I think that's very location sensitive
Speaker 1: first of all. But second of all, I think there
Speaker 1: was value. I think a lot of that has already
Speaker 1: taken place. Uh that as we go forward, there the
Speaker 1: opportunities are starting to diminish a little bit. Uh. There
Speaker 1: There definitely if you're an occupier, there are places you
Speaker 1: can go and take advantage of softer markets. But overall,
Speaker 1: I think the market is probably pretty close to fairly
Speaker 1: priced right now. It's a good point to keep reminding us,
Speaker 1: by the way, that it's very location specific, and I'm
Speaker 1: sure can you probably have to remind people about this
Speaker 1: a lot because it is such a It's not um,
Speaker 1: you know, one solid America is very big. Um. Commercial
Speaker 1: real estate is global, I'm assuming you know. And so
Speaker 1: it's it's difficult for for the lay person to really
Speaker 1: get that through, or for me at least to get
Speaker 1: that through my thick skull. Sure, now I feel the
Speaker 1: same way when I walk the streets. I think this
Speaker 1: is the way it is everywhere, and you have to
Speaker 1: step back and say, no. You know, some cities, cities
Speaker 1: that don't have as heavier reliance on public transity, for example,
Speaker 1: a lot of people drive to work. They're seeing much
Speaker 1: higher occupancy rates than cities that do rely on transit,
Speaker 1: and that affects them, you know, effects where retailer is
Speaker 1: going to open, where they're going to go in the future,
Speaker 1: things like that. So, as they always say, in real estate,
Speaker 1: it's all about location, all right, Well, my location is
Speaker 1: midtown Manhattan. So here's my question, will Midtown man will
Speaker 1: Manhattan in general, what's the expectation within the commercial real
Speaker 1: estate community, what needs to happen for this to come back,
Speaker 1: because the vacancy rates, as Matt mentioned, are just stunning
Speaker 1: to to behold, and is it just simply a question
Speaker 1: of they got all over the rates. So I think
Speaker 1: it's going to be about economic growth. That's the fundamental driver.
Speaker 1: We need to see more people in in the city
Speaker 1: going to work in the office space. When that happens,
Speaker 1: then you'll see more retailers come back with them and
Speaker 1: start to reopen stores that may have been shut down.
Speaker 1: But the key thing is going to be getting more
Speaker 1: people on the streets a little long run. It's a
Speaker 1: good point. I went over to Chick phil A this
Speaker 1: morning at six am to try and, uh, get my
Speaker 1: first taste of that fast food chain. I've never been
Speaker 1: there before, and um, there was a sign on the
Speaker 1: window that said we're closed until later because there's no
Speaker 1: one here, and well then it's probably no one to
Speaker 1: staff it as well. It's also a probably big issue, yeah,
Speaker 1: I think, you know. And after that, I walk around
Speaker 1: and I noticed all of the deli's are just not
Speaker 1: open as early as they used to. And why would
Speaker 1: they be because I was the only person walking around
Speaker 1: the streets, especially on a Friday morning. Quite frankly, I'm
Speaker 1: in the office. But you know, it's it's a bit
Speaker 1: slow to to to pick up overall, and I think
Speaker 1: you're right, Um, it's going to take a while. So
Speaker 1: where where Where are the strong places for commercial real
Speaker 1: estate right now? Well, if you look at migration, that's
Speaker 1: a good indicator. A lot of it is in UH
Speaker 1: in the Sun Belt. So places like Texas and Florida
Speaker 1: which have UH, which recovered a little bit sooner, they're
Speaker 1: also seeing faster growth in demand for office space, more
Speaker 1: occupancy than we saw and driving that also is going
Speaker 1: you know, as we see more people moving migrating into
Speaker 1: the Sun Belt, which is in a long term trend.
Speaker 1: It's not a new trend. Um that's gonna drive demand.
Speaker 1: That's gonna drive demand, and demand is gonna drive more occupiers,
Speaker 1: whether they're retailers or or office occupiers into those areas
Speaker 1: to tap into that growth. All right, Ken, thanks so
Speaker 1: much for joining us. Kevin McCarthy is an economist and
Speaker 1: the retail research lead over at Kushman and Wakefield talking
Speaker 1: to us about commercial real estate and the retail side.
Speaker 1: I wish we saw these vacancies and in residential real
Speaker 1: estate like, especially in Westchester, that would be fantastic for me,
Speaker 1: but unfortunately it's quite the opposite. But what a week
Speaker 1: it's been here. It was a decidedly risk off day
Speaker 1: on Monday, and again calls about the delta variant and
Speaker 1: the impact on economic growth. But boy, the markets have
Speaker 1: kind of turned it around since then. Greg Staples had
Speaker 1: a fixed income for the Americas for dw S Group,
Speaker 1: which stands for in German Deutsche vert Papier Specialists and like,
Speaker 1: all right, Greg, thanks so much for joining us. Greg,
Speaker 1: talk to us about what you're seeing in your credit markets,
Speaker 1: you know, over the recent trading days. You know, it's
Speaker 1: actually been a pretty interesting market. We actually, we were
Speaker 1: pretty positive on credit overall. It's it's good that American
Speaker 1: corporations have taken this opportunity with low interest rates and
Speaker 1: tight spreads over the past year to issue to issue
Speaker 1: a fair amount of death, and market has been receptive.
Speaker 1: And they strengthened their balance sheet and they pushed out maturities.
Speaker 1: So there and it's gonna shape as we've ever seen them.
Speaker 1: So we're pretty positive on credit overall. And and now
Speaker 1: they've got the positive of grouping economic and market conditions
Speaker 1: if you dig right in there, if a client comes
Speaker 1: and gives you some money to put to work, what
Speaker 1: do you like best. Well, it's a tough market because
Speaker 1: in the fixed income markets, with interest rates tenure at
Speaker 1: one thirty and credit it spreads extremely tight. There's not
Speaker 1: a lot of upside here, but you are going to
Speaker 1: earn some coupon interest, which is pretty decent. So we
Speaker 1: like investment grade credit got to be selective. We like
Speaker 1: high you'ld at the upper end of the credit spectrum,
Speaker 1: and there are some opportunities and structured finance as well,
Speaker 1: like floating rate debt, because we do think that the
Speaker 1: FED is going to start raising interest rates probably at
Speaker 1: the end of next year, and you do get that
Speaker 1: upside as they start to move shorter term rates up. Hey, Greg,
Speaker 1: talk to us about just credit quality in general. It
Speaker 1: seems like with the FED being so accommodative, we the
Speaker 1: credit quality has really kind of hung in there, and
Speaker 1: you know, going into this pandemic, you know, I was
Speaker 1: kind of looking across the high old space saying, oh boy,
Speaker 1: here are a lot of credits that are going to
Speaker 1: be at risk. Here, We're gonna see a lot of defaults.
Speaker 1: But we really haven't have we No, And we've said
Speaker 1: a lot of upgrades as well. I'd say again, for
Speaker 1: the most part, corporations have have taken the opportunity to
Speaker 1: strengthen their balance sh They've got a lot of liquidity there,
Speaker 1: and they pushed off maturities, meaning they refinance but prepaying
Speaker 1: near term maturity debt and refinancing with longer term maturity debt.
Speaker 1: Overall debt levels are high. Let's let's not ignore that.
Speaker 1: But the point is they've been refinancing with lower coupon
Speaker 1: as well to dept service meaning what they have to
Speaker 1: actually pay on an annual basis to meet those interest payments,
Speaker 1: and ultimately in the maturities, that's an actually pretty good shape.
Speaker 1: So we think it's a positive. But you're not getting
Speaker 1: the returns um that that you'd like to I'm sure
Speaker 1: for for the risk. Are you getting paid for the risk?
Speaker 1: I think you're getting paid for the risk and not
Speaker 1: too much more than that. And yes, you're not going
Speaker 1: to get the returns. It's not a situation where of course,
Speaker 1: in the bond market you're benefiting from declining interest rates.
Speaker 1: If you want a bond with a high coupon and
Speaker 1: high in a high interest rate environment, and rates come down,
Speaker 1: the price of your bond goes up, and there's where
Speaker 1: a lot of the return comes from. But in terms
Speaker 1: of the current coup on the current yield right now,
Speaker 1: you're gonna be earning maybe two percent on a good
Speaker 1: investment grade bond and maybe four on a on a
Speaker 1: high old bond, which which isn't fantastic, but given the
Speaker 1: alternatives that are available elsewhere in the marketplace, I mean,
Speaker 1: you've got cash earning virtually zero, and you know, equity
Speaker 1: dividends are okay, it still it's probably not a bad
Speaker 1: place to park your money. All right, talk to us
Speaker 1: about this Federal Reserve. How are you viewing you know,
Speaker 1: the risk here, the tapering risk to the marketplace. It
Speaker 1: seems like the FED is, you know, doing all that
Speaker 1: they can to kind of communicate and signal and all
Speaker 1: of that good stuff, trying to avoid a taper tantrum? Again,
Speaker 1: is is that kind of how you view it? Are
Speaker 1: are you kind of pricing in some some risk here
Speaker 1: as maybe races start to tighten. Well, first off, we
Speaker 1: do think that the FED is going to begin tapering,
Speaker 1: and I think that Powell and the rest of the
Speaker 1: FED are going to try and inoculate the market as
Speaker 1: much as they can by talking about it, talking about it,
Speaker 1: talking about it, and probably don't won't implement it until
Speaker 1: the end of the year call it December January, and
Speaker 1: probably through a reduction in their mortgage back purchases. Initially,
Speaker 1: they're scared to doubt about what was what we would
Speaker 1: call a taper tantrum, meaning the pulling back of that
Speaker 1: quantitative using injecting a fair amount of volatility in the marketplace.
Speaker 1: There was an episode in two thousand and thirteen that
Speaker 1: was really egg on the face of of the fedback then.
Speaker 1: To be honest with you, I think, no matter what
Speaker 1: they do, there was going to be volatility. I think
Speaker 1: when you when you remove the biggest whale in the
Speaker 1: marketplace that's been buying a hundred and twenty billion hours
Speaker 1: of treasuries and mortgages every month, and you start to
Speaker 1: pull back from that, no matter what you think, there's
Speaker 1: going to be some volatility there. There's really not much
Speaker 1: you can do about it. The impacts are seen and unseen,
Speaker 1: and it's worked its way through the equity markets and
Speaker 1: the overall risk markets. It's a little bit like pulling
Speaker 1: uh I I hate to go here, but but a
Speaker 1: drug addict off the drug and there's gonna be some
Speaker 1: some volatility as resolved, but there's there's no way to
Speaker 1: get away from it. How important is Jackson Hole for you?
Speaker 1: How important is it for you know, fixte income investors
Speaker 1: to pay attention in August? Well, it's obviously what they communicate,
Speaker 1: and we think this could be the place where they
Speaker 1: do start to talk about tapering. The FED meets next week,
Speaker 1: and I know it's going to be a big item
Speaker 1: of discussion. We won't find it out until what they
Speaker 1: really talk about until the minutes come out somewhere after that.
Speaker 1: But I think there is an expectation, or at least
Speaker 1: a possibility that at the Jackson Hole meeting they do
Speaker 1: start to grouch this tapering idea and present the framework
Speaker 1: for the pulling back later in the year. Just real quick, Greg,
Speaker 1: at thirty seconds, where are you and your team doing
Speaker 1: your work today? What we're doing in our work work?
Speaker 1: Are you home in the office. I'm sorry, I was
Speaker 1: asking about that. We're in a hybrid right now, but
Speaker 1: we expect to be going back on a on a
Speaker 1: more dedicated basis after Labor Day. Uh, three days a week,
Speaker 1: four days a week, and we've got some people in
Speaker 1: Manhattan that quite frankly want to be in five days
Speaker 1: a week during studio apartments and would rather be in
Speaker 1: the office and out. People on the other side with
Speaker 1: long commutes would be happy two days a week, but
Speaker 1: we're being sensitive to our employees needs and looking to
Speaker 1: go back on that positive hybrid basis after labor dat
Speaker 1: all right, Greig, thanks so much for joining us. Always
Speaker 1: appreciate hearing from you, getting your thoughts on these credit
Speaker 1: markets fixtae point. Yeah, I had a fixing come for
Speaker 1: the America's at DWS GRIP. Thanks for listening to the
Speaker 1: Bloomberg Markets podcast. You can subscribe and listen to interviews
Speaker 1: with Apple Podcasts or whatever podcast platform you prefer. I'm
Speaker 1: Matt Miller. I'm on Twitter at Matt Miller V three
Speaker 1: on false Sweeney I'm on Twitter at pt Sweeney. Before
Speaker 1: the podcast. You can always catch us worldwide at Bloomberg Radio.