WEBVTT - What's Next For Businesses Amid Delta Variant Spread 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 0:00:11.560 --> 0:00:15.520 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.919 at Bloomberg dot com slash podcast. Let's talk about Don 0:00:23.000 --> 0:00:25.160 McCree joins us right now, head of commercial banking at 0:00:25.200 --> 0:00:29.600 Citizens Financial Group and Don um. We have over the 0:00:29.680 --> 0:00:36.240 last really our heard um, some really pessimistic outlooks due 0:00:36.320 --> 0:00:40.720 to the resurgence of the delta variant and maybe MoU 0:00:41.120 --> 0:00:44.680 or whatever other Greek letters are upon us. Um. How 0:00:44.720 --> 0:00:48.440 does it look in your world? Well, I think we're 0:00:48.520 --> 0:00:50.519 we're seeing a little bit of a slowdown, but I 0:00:50.560 --> 0:00:53.479 have to say that we continue to be quite optimistic 0:00:53.520 --> 0:00:56.120 and we we think we're going to get through some 0:00:56.240 --> 0:01:00.120 of these variants. Our clients are actually doing quite well, 0:01:00.160 --> 0:01:02.640 and our transactional businesses, our M and A business, and 0:01:02.640 --> 0:01:05.720 our capital markets businesses are all time highs and the 0:01:05.720 --> 0:01:09.000 pipelines continue to build. So we continue to be, you know, 0:01:09.080 --> 0:01:12.679 focused on Delta and the and the potential new viruses, 0:01:12.720 --> 0:01:15.720 but quite optimistic as we look forward and I see 0:01:15.720 --> 0:01:18.920 that you bought j MP Group. UM is a capital 0:01:18.959 --> 0:01:21.200 markets business that I'm familiar within US and folks to 0:01:21.280 --> 0:01:23.640 work there talk to us about j MP and kind 0:01:23.640 --> 0:01:25.399 of what you guys are thinking about in terms of 0:01:25.640 --> 0:01:27.720 you know, making this acquisition in terms of your capital 0:01:27.800 --> 0:01:30.920 markets capabilities. Yeah, so it's it's really exciting for us. 0:01:30.959 --> 0:01:34.320 We've been on a five year kind of UH strategy 0:01:34.520 --> 0:01:37.720 to build out our capability sets UH to be able 0:01:37.760 --> 0:01:39.640 to do really whatever our client states to do at 0:01:39.640 --> 0:01:43.280 any pointant time. So built out to big syndicated financing business, 0:01:43.360 --> 0:01:46.120 built out I bought three M and a boutiques, recently 0:01:46.120 --> 0:01:49.720 bought a valuation firm, have a great debt capital market 0:01:49.760 --> 0:01:52.640 securities business, and what we were missing was was equities. 0:01:52.960 --> 0:01:55.960 And j MP is just built a tremendous business over 0:01:56.000 --> 0:02:00.120 the last several years. It's really recording record results and 0:02:00.120 --> 0:02:02.880 and it also brings us deep sector experience and some 0:02:03.000 --> 0:02:08.400 really exciting sectors namely healthcare, UM technology, real estate, and 0:02:08.440 --> 0:02:11.360 financial services. So we think we think it really is 0:02:11.360 --> 0:02:14.440 complementary to us. There's very little overlap, so it's kind 0:02:14.440 --> 0:02:17.800 of a hundred synergistic for us. And most importantly, I 0:02:17.840 --> 0:02:21.320 think is the the culture there is very similar to 0:02:21.360 --> 0:02:24.440 our culture and uh, and that's really the most important 0:02:24.440 --> 0:02:26.760 thing when you're when you're when you're buying a capital 0:02:26.800 --> 0:02:30.240 markets firm, like like j MP, what's your what's what's 0:02:30.240 --> 0:02:32.400 your d n A, what's their DNA. What's the similarity 0:02:32.440 --> 0:02:35.400 and culture that you like? I'd say client focus, uh, 0:02:35.440 --> 0:02:38.359 you know, first and foremost, and really a premium on 0:02:38.440 --> 0:02:43.000 building really deep relationships where deep industry expert these is 0:02:43.040 --> 0:02:46.000 delivered and we've become really the trusted partner with with 0:02:46.080 --> 0:02:48.960 each of our clients and that just tends to expand 0:02:49.040 --> 0:02:52.000 the the ways that we can engage with every other 0:02:52.000 --> 0:02:54.280 every client. What we've been able to do for the 0:02:54.360 --> 0:02:57.920 last several years is really bring three, four or five 0:02:58.000 --> 0:03:00.440 six different products to the table, you know, as we 0:03:00.520 --> 0:03:03.160 built at our client franchise, and j MP thinks very 0:03:03.200 --> 0:03:05.360 similar to that in terms of the way they really 0:03:05.360 --> 0:03:08.280 try to build deep client relationships. Don tell tell us 0:03:08.280 --> 0:03:11.400 about loan demand out there. There's so much liquidity in 0:03:11.440 --> 0:03:14.079 the marketplace. There's a lot of fiscal stimulus, and we've 0:03:14.120 --> 0:03:16.440 heard some of the the bank, some of the bigger 0:03:16.480 --> 0:03:18.880 money center banks and the ernest calls talk about, you know, 0:03:18.919 --> 0:03:24.080 the loan demand isn't there um necessarily what are you 0:03:24.120 --> 0:03:26.600 seeing with with your clients in your markets. It's it's 0:03:26.639 --> 0:03:30.160 it's reasonably muted right now, and you hit the nail 0:03:30.160 --> 0:03:32.080 on the head is a lot of clients are sitting 0:03:32.120 --> 0:03:33.840 with a lot of liquidity and they're going to need 0:03:33.880 --> 0:03:36.680 to use that liquidity before loan demand really picks up. 0:03:36.720 --> 0:03:39.640 Where we're seeing it is in utilization rates of our 0:03:39.680 --> 0:03:43.520 of our facilities, which are six to seven points lower 0:03:43.560 --> 0:03:47.280 than they normally would be as economy recovers. So the 0:03:47.320 --> 0:03:49.040 good news on the on the flip side is what 0:03:49.160 --> 0:03:51.920 we're seeing as record capital markets fees. So if companies 0:03:52.040 --> 0:03:55.680 are financing and needing to raise capital, we're experiencing, you know, 0:03:55.760 --> 0:03:58.440 very strong capital markets flows which offset some of the 0:03:58.480 --> 0:04:00.640 weakness on the loan side. But we think, we think 0:04:00.640 --> 0:04:03.040 it begins to come back. Our loan pipelines are looking 0:04:03.160 --> 0:04:05.480 you know, reasonably good towards the back end of the year. 0:04:06.080 --> 0:04:08.960 Uh and and some I would call it transactional loan 0:04:09.040 --> 0:04:13.000 facilities like abs, warehousing and things like that are beginning 0:04:13.000 --> 0:04:15.760 to get a lot more active. Does the rates environment 0:04:16.880 --> 0:04:19.560 depress you. I mean, it doesn't seem like even the 0:04:19.640 --> 0:04:23.440 terminal rate if you look at it, depressed me emotionally. Yes, 0:04:24.520 --> 0:04:27.000 it's it's tough. I mean with the flat with rates 0:04:27.000 --> 0:04:28.760 where they are in a flat yield curve. You know, 0:04:28.800 --> 0:04:31.919 the spreads are under pressure. We've been able to you know, 0:04:32.000 --> 0:04:35.920 lower our deposit costs in my business reasonably aggressively, so 0:04:35.920 --> 0:04:38.520 we've been able to hold our net interest margin. Um 0:04:38.600 --> 0:04:41.000 so so far, so good. But but you know, the 0:04:41.000 --> 0:04:44.320 spread income is is certainly under pressure for the entire industry. 0:04:44.560 --> 0:04:46.640 Don talk to us about the credit quality. What are 0:04:46.640 --> 0:04:49.200 you seeing in terms of credit quality for your portfolio? 0:04:49.279 --> 0:04:51.400 And again, it seems it's come in much much better 0:04:51.440 --> 0:04:54.080 than expected. It seems like over the last eighteen months, 0:04:54.120 --> 0:04:57.200 given the economic disruptions, what are you see? It's terrific. 0:04:57.279 --> 0:05:00.520 I mean every I won't say everyone, but the vast 0:05:00.560 --> 0:05:03.160 majority of our companies are doing better than we expected 0:05:03.200 --> 0:05:06.560 them to do. So they're they're clearly seeing, you know, um, 0:05:07.400 --> 0:05:10.320 positive things on the horizon. And a lot of it 0:05:10.400 --> 0:05:13.360 is because a lot of these companies really hunkered down. 0:05:13.400 --> 0:05:16.400 And I've said that this this downturn, the COVID downturn 0:05:16.760 --> 0:05:18.760 was much different than prior downturns, and that it was 0:05:18.800 --> 0:05:22.680 immediate and it was deep. So CEOs and CFOs got 0:05:22.800 --> 0:05:25.960 very serious and right sized their businesses very quickly, and 0:05:25.960 --> 0:05:29.440 that allowed them to build up liquidity and and actually 0:05:29.600 --> 0:05:32.599 come out of the beginnings of the return with huge 0:05:32.600 --> 0:05:36.320 amounts of excess capacity. So that's resulted in all the 0:05:36.360 --> 0:05:38.320 releases that you're seeing all the banks make in terms 0:05:38.320 --> 0:05:41.120 of their credit reserves. And we still we still see 0:05:41.440 --> 0:05:43.520 very bright things on the future and we we really 0:05:44.800 --> 0:05:47.600 have moved beyond the credit issues that we we we 0:05:47.600 --> 0:05:49.280 were staring at about you know, a year and a 0:05:49.279 --> 0:05:54.080 half ago. Surely fiscal spending didn't hurt and when we 0:05:54.440 --> 0:05:57.360 I mean, it's it's not gonna last like that forever, right, 0:05:57.400 --> 0:06:01.120 So eventually, um, the federal government going to stop spending 0:06:01.440 --> 0:06:05.279 you know, multiple trillions of dollars extra every year um 0:06:05.400 --> 0:06:07.039 or or will they What do you think about that? 0:06:07.120 --> 0:06:09.400 Is there a fiscal cliff or or or is there not? 0:06:10.120 --> 0:06:13.159 It's it's there. There's there's a there's a fiscal cliff 0:06:13.200 --> 0:06:16.440 in terms of removing some of the stimulus that's been there. 0:06:16.680 --> 0:06:18.240 Some of that will be offset with things like the 0:06:18.240 --> 0:06:22.320 infrastructure program. So it will be different forms of spending 0:06:22.320 --> 0:06:26.000 which will continue to be simulative stimulated. That that it's 0:06:26.080 --> 0:06:28.640 not really worrying the client base right now. What's worrying 0:06:28.640 --> 0:06:31.360 the client base is the supply chain. And if if 0:06:31.400 --> 0:06:34.240 we hear a common theme from from a broad set 0:06:34.240 --> 0:06:38.039 of clients, it's the inability to get goods that they're 0:06:38.080 --> 0:06:40.640 trying to source in the market. And people do expect 0:06:40.680 --> 0:06:43.919 that to continue for a while. So that's it's in 0:06:43.960 --> 0:06:46.240 a funny way, that's having a constraining effect on the 0:06:46.240 --> 0:06:49.600 performance of some companies, even if their order books or strengthening, 0:06:49.960 --> 0:06:51.960 so as well as they're doing, they would be doing 0:06:52.000 --> 0:06:54.120 even better if they weren't having the supply chain and 0:06:54.160 --> 0:06:56.240 in fact their labor problems that a lot of them 0:06:56.240 --> 0:06:58.640 are facing in terms of if you can hire someone, 0:06:58.760 --> 0:07:02.200 the cost of the as hires are going up quite substantially. 0:07:02.360 --> 0:07:04.720 All right, done, You, like a lot of other bankers 0:07:04.760 --> 0:07:07.160 are saying business is good. What's the biggest risk out there? 0:07:07.160 --> 0:07:10.040 What's the worry for you guys? I think a big 0:07:10.360 --> 0:07:13.520 resurgence of covid um so that I think that and 0:07:13.760 --> 0:07:17.280 or some geopolitical event that nobody can anticipate. I mean 0:07:17.400 --> 0:07:19.920 so so but the thing we're focused on is tracking 0:07:20.080 --> 0:07:23.280 you know, COVID. It feels okay to us now and uh, 0:07:23.360 --> 0:07:25.680 you know, we're out traveling seeing clients, were getting good 0:07:25.680 --> 0:07:29.240 reports from uh, you know, most of our clients, and um, 0:07:29.280 --> 0:07:32.160 we're pretty optimistic. And five seconds here, are you back 0:07:32.160 --> 0:07:34.680 in the offices. Are your teams back? Yes, they are. 0:07:34.800 --> 0:07:36.960 I'm sitting in New York right now, and uh, we 0:07:37.400 --> 0:07:39.840 we were trying to get people back. I think it's 0:07:39.840 --> 0:07:43.320 super important from a cultural standpoint. Yeah. Absolutely, Okay, that's 0:07:43.360 --> 0:07:46.480 the debate here for a lot of companies. Don McCree, 0:07:46.480 --> 0:07:48.120 thanks so much for joining us. Yet again, we'd love 0:07:48.160 --> 0:07:50.960 getting your perspective on what's going on out there. Uh. 0:07:51.000 --> 0:07:53.800 In corporate America, Don McRee is ahead of commercial banking 0:07:53.880 --> 0:07:57.280 for Citizens Financial Group. And again is what we've heard 0:07:57.280 --> 0:08:00.360 from a lot of bankers. Business is good. They're clients 0:08:00.440 --> 0:08:04.960 are continuing to invest. Uh. They are looking forward, Yeah, 0:08:05.000 --> 0:08:08.600 looking for capital, looking for returns. Uh. And business is 0:08:08.640 --> 0:08:17.040 good despite a flat yield curve and low interest rate environment. Now, 0:08:17.080 --> 0:08:18.760 as Paul has been saying, we're gonna bring in Randy 0:08:18.760 --> 0:08:21.440 Swimmer right now, Senior Managing Director and co heed of 0:08:21.520 --> 0:08:25.200 Senior lending. At Churchill Asset Management, they have thirty one 0:08:25.200 --> 0:08:30.560 billion dollars in committed capital and UM. One of the 0:08:30.640 --> 0:08:35.040 things that that obviously people are looking for UM desperately 0:08:35.120 --> 0:08:39.680 and not finding very easily, Randy, is return. I heard 0:08:39.760 --> 0:08:42.240 Howard Marks the other day say he thinks, you know, 0:08:42.280 --> 0:08:46.160 three basis points is enough reward for the risk of 0:08:46.320 --> 0:08:48.480 high yield debt, of junk debt, which I thought was 0:08:48.520 --> 0:08:53.400 pretty amazing. Where are you finding return? Yeah, so if 0:08:53.400 --> 0:08:56.720 you think about where high yield used to be, it 0:08:56.800 --> 0:08:59.240 used to be high yield, it used to be you know, 0:08:59.400 --> 0:09:02.680 high sing old digits UM. It has not been the 0:09:02.720 --> 0:09:06.079 case for a while. There's reasons, technical reasons why that's 0:09:06.120 --> 0:09:09.240 the case. But what's happened with investors. They're looking at 0:09:09.240 --> 0:09:13.320 the private market now because the premium, the so called 0:09:13.360 --> 0:09:17.560 illiquidity premium, because the private market typically doesn't trade the 0:09:17.600 --> 0:09:20.600 way the bond market does. That premium is anywhere from 0:09:20.600 --> 0:09:25.760 a hundred to three hundred basis points over the liquid 0:09:25.920 --> 0:09:31.200 credit markets, and that's attractive for investors. So, Randy, give 0:09:31.280 --> 0:09:34.440 us a sense of you know, the credit quality in 0:09:34.520 --> 0:09:38.640 the you know, the private capital business, UM, in the 0:09:38.720 --> 0:09:42.880 leverage loan business, UM, because it seems like it's been 0:09:43.400 --> 0:09:46.160 better than expected, you know, after just coming through eighteen 0:09:46.160 --> 0:09:49.920 months of this economic disruption brought about by the pandemic. 0:09:50.120 --> 0:09:52.800 What are you seeing? Yeah? And in fact, if you 0:09:52.840 --> 0:09:57.200 look at the overall direct lending and private credit business 0:09:57.679 --> 0:10:02.120 defaults over the last eighteen months been lower than the 0:10:02.200 --> 0:10:05.480 broadly syndicated market, which are the large liquid loans and 0:10:05.480 --> 0:10:08.040 then the high yield market. And in part I think 0:10:08.400 --> 0:10:13.720 that's because the private credit market has been focused more 0:10:13.760 --> 0:10:18.240 on defensive industries in general, less on things like oil 0:10:18.320 --> 0:10:22.599 and gas and retail, which obviously have gotten hammered um, 0:10:22.640 --> 0:10:25.600 you know, through the COVID period, and more on defensive 0:10:26.080 --> 0:10:33.440 business to business sectors like healthcare, software, technology, and business services. 0:10:33.520 --> 0:10:36.560 And so being an active manager in private credit um 0:10:36.679 --> 0:10:40.120 meant certainly for us going into COVID, we focused on 0:10:40.160 --> 0:10:44.600 those sectors that are less correlated to consumer spending because 0:10:44.720 --> 0:10:47.800 historically we've been doing this for fifteen years under the 0:10:47.840 --> 0:10:51.320 Churchill banner, we've known that recessions do tend to be 0:10:51.520 --> 0:10:54.760 you know, led on the consumer side, and so the 0:10:54.840 --> 0:10:58.319 less consumer facing businesses you have generally the better when 0:10:58.360 --> 0:11:01.080 you go into these And that's exactly it happened for 0:11:01.240 --> 0:11:03.800 us and a few others in the COVID period. We 0:11:03.800 --> 0:11:06.679 have no defaults or losses related to COVID, and so 0:11:06.720 --> 0:11:09.880 then you come out and you're still how the tail 0:11:09.960 --> 0:11:12.640 wind here with these these we call them to have businesses, 0:11:12.679 --> 0:11:15.760 the businesses that have done well and have been relatively 0:11:15.840 --> 0:11:21.360 unaffected by COVID. I wonder about the still the underperformance 0:11:21.640 --> 0:11:26.280 of UM. You mentioned oil and gas energy, the underperformance 0:11:26.320 --> 0:11:31.040 of basic materials producers. We haven't seen them bounce back 0:11:31.320 --> 0:11:32.800 with the rest of the market. And I know at 0:11:32.840 --> 0:11:36.839 least the in Europe we see basic materials and energy 0:11:36.880 --> 0:11:40.240 trading just about half the forward pease of the broader market. 0:11:40.880 --> 0:11:44.960 Is that going to change? Well. Part of the focus 0:11:45.120 --> 0:11:48.400 now is related to the economy as a whole. And 0:11:48.520 --> 0:11:52.480 one of the things we recognized about the biological threat 0:11:52.559 --> 0:11:57.520 that COVID represented was that it really UM was moving 0:11:57.600 --> 0:12:04.079 around the the the economy and how businesses were reacting 0:12:04.160 --> 0:12:07.160 to that threat. And what was interesting was as you 0:12:07.280 --> 0:12:10.520 think about where we were and predicting what was happening 0:12:10.559 --> 0:12:13.360 with the economy a year ago versus where we are today. 0:12:14.000 --> 0:12:15.679 The iron is, we thought we were going to be 0:12:15.840 --> 0:12:20.000 coming out of the downturn UM and at the point 0:12:20.040 --> 0:12:22.120 where we were going to be looking towards the end 0:12:23.440 --> 0:12:26.559 with a pretty pretty clear sailing and that would be 0:12:26.840 --> 0:12:29.560 could be measured across the economy in terms of overall 0:12:29.679 --> 0:12:32.840 GDP growth and so forth. And what we have discovered 0:12:32.920 --> 0:12:37.320 instead is that the delta variant has had has really 0:12:37.440 --> 0:12:41.240 weighed down on the potential growth that we could see 0:12:41.240 --> 0:12:45.760 across the economy. And obviously things like commodities are driven 0:12:45.880 --> 0:12:48.840 by that growth. And you can see in the equities markets, 0:12:48.880 --> 0:12:51.679 since you know, kind of returning from the labor day weekend, UM, 0:12:51.800 --> 0:12:54.559 there's investors are kind of concerned about what what does 0:12:54.640 --> 0:12:58.360 that mean in terms of the growth for this year? 0:12:58.960 --> 0:13:02.240 UM certainly employed him. We've seen that impacted in the 0:13:02.320 --> 0:13:04.839 most recent label reports. What does that mean sort of 0:13:04.960 --> 0:13:07.480 medium term for growth because that is going to impact 0:13:07.840 --> 0:13:11.559 some of these more cyclical businesses. And Randy thanks so 0:13:11.640 --> 0:13:14.120 much for joining us. We really appreciated getting a look 0:13:14.280 --> 0:13:17.360 at the middle market private lending business. It is a 0:13:17.800 --> 0:13:21.160 increasingly liquid business where you can get some very attractive 0:13:21.679 --> 0:13:25.280 relative returns UH and Randy Schremmer gives us some color there. 0:13:25.360 --> 0:13:28.280 Randy Schremmer, Senior Managing Director, CO head of senior lending 0:13:28.800 --> 0:13:31.480 at Churchill Asset Management. Think about thirty one billion dollars 0:13:31.520 --> 0:13:35.280 in committed capital. Uh. He is a alum of the 0:13:35.400 --> 0:13:37.880 JP Morgan Chase. That's early in my career. I was 0:13:37.920 --> 0:13:42.160 at Chase Manhattan Bank. We were leverage lenders to media 0:13:42.280 --> 0:13:45.319 companies and um. It is a very good business, but 0:13:45.440 --> 0:13:48.360 it is all about credit quality and doing the really 0:13:48.440 --> 0:13:50.760 deep dive and credit analysis to see if the cash 0:13:50.800 --> 0:13:53.600 flow is there to pay you back. As you're lending 0:13:53.640 --> 0:13:55.719 against cash flow, and a lot of these businesses not 0:13:55.880 --> 0:13:58.880 against assets like inventory or hard assets, so you can 0:13:58.960 --> 0:14:01.960 have to do the really good cash flow analysis. Right 0:14:04.280 --> 0:14:07.240 fifty four highs for the SP five hundred this year, 0:14:07.400 --> 0:14:12.680 strong earnings, an accommodative Federal reserve, although tapering is certainly 0:14:12.720 --> 0:14:16.000 on the table later this year. What is an investor 0:14:16.120 --> 0:14:18.160 to do? Let's bring in Jordan Jackson. He's a global 0:14:18.200 --> 0:14:21.880 market strategist for JP Morgan Asset Management. He's also a 0:14:21.960 --> 0:14:24.440 Wahoo from the University of Virginia, but we won't hold 0:14:24.480 --> 0:14:27.840 that against him. Jordan, thanks so much for joining us here. 0:14:28.720 --> 0:14:31.400 What are you telling your clients here at JP Morgan 0:14:31.440 --> 0:14:36.360 Asset Management about this market? Right here? Well, it's as 0:14:36.400 --> 0:14:39.160 certainly an interesting market. You know, I'm still of the 0:14:39.200 --> 0:14:43.400 opinion I'm fairly bullish on the market. I I stay 0:14:43.440 --> 0:14:45.880 constructive due to a couple of reasons. So I think 0:14:45.920 --> 0:14:48.520 we have a powerful tail wind from the FED um 0:14:48.640 --> 0:14:52.200 individual fiscal stimulus. I think the key there is tapering 0:14:52.320 --> 0:14:54.680 is not tightening. Right, We're still looking at an additional 0:14:54.920 --> 0:14:57.800 rest least seven hundred eight eight hundred billion in fiscal 0:14:57.880 --> 0:15:00.560 stimulus that should kit the market, uh between now in 0:15:00.600 --> 0:15:02.680 the middle of the middle of next year. I think 0:15:02.760 --> 0:15:05.200 bibacks are going to be strong and and may accelerate 0:15:05.280 --> 0:15:07.560 from here on out. And I think corporate balance sheets 0:15:07.640 --> 0:15:10.480 are sitting on high levels of cash with with low leverage, 0:15:10.480 --> 0:15:12.680 and that should should be supportive of subsher hold the 0:15:12.720 --> 0:15:15.640 distributions going forward. Um. You know, look, I think growth 0:15:15.720 --> 0:15:17.760 is still going to remain above trend as well. And 0:15:18.040 --> 0:15:20.560 you know, I think all those paints are pretty goldilocks 0:15:20.560 --> 0:15:23.320 scenario for for equity markets. Where do you see the 0:15:23.400 --> 0:15:25.400 best valuations or where do you see the best value? 0:15:25.440 --> 0:15:29.200 I should probably phrase that differently. Sure, you know, I 0:15:29.680 --> 0:15:32.600 still see some value in the more cyclical, value orientated 0:15:32.680 --> 0:15:35.200 parts of the market, but I think investors should really 0:15:35.280 --> 0:15:38.240 start to strike a bit more of a balanced tone 0:15:38.680 --> 0:15:41.280 when we start talking about, you know, value versus growth. 0:15:42.480 --> 0:15:45.200 Obviously that the large tech names continue to kind of 0:15:45.240 --> 0:15:47.680 play a bit more defense and in a market like this, 0:15:47.880 --> 0:15:51.000 as growth concerns continue to weary the markets, and and 0:15:51.040 --> 0:15:53.640 the delta bar continues to spook the markets as well. 0:15:54.240 --> 0:15:56.960 But I still think we're a biased for uh steeper 0:15:57.080 --> 0:16:00.560 yeld curves. I still think that we're of yields are 0:16:00.600 --> 0:16:03.840 at today. They're just not aligned with the fundamental picture 0:16:04.120 --> 0:16:06.600 or the fundamental outlook, and so um I think in 0:16:06.680 --> 0:16:08.960 that environment, you know, financials can still do well. I 0:16:09.000 --> 0:16:12.440 still think energy and industrials again, those value orientated parts 0:16:12.440 --> 0:16:14.400 of the market can can do well as the economy 0:16:14.440 --> 0:16:17.040 continues to reopen. So it's a it's a it's less 0:16:17.040 --> 0:16:19.960 so about you know, trying to overweight value versus growth. 0:16:20.080 --> 0:16:22.080 But I think striking a bit of a balance between 0:16:22.080 --> 0:16:24.560 the two makes makes a whole lot of sense. How 0:16:24.560 --> 0:16:28.040 about that sixty forty portfolio, Jordan, Is that still a 0:16:28.320 --> 0:16:30.960 thing or is that a thing of the past, Given 0:16:31.080 --> 0:16:36.280 where global yields are right now, I'd argue that it's 0:16:36.280 --> 0:16:38.680 it's it's it's it's a thing of the past. You know, 0:16:38.760 --> 0:16:41.600 when we look at sort of valuations on the equity 0:16:41.680 --> 0:16:44.280 side and on the fixed income side, you kind of 0:16:44.320 --> 0:16:46.480 put those two together. On the forward returns that you're 0:16:46.520 --> 0:16:49.880 getting out of sixty forty portfolio, um including you know, 0:16:50.000 --> 0:16:52.960 baking in inflation, are are roughing around one to two 0:16:53.320 --> 0:16:55.360 on it on a real real return going forward over 0:16:55.360 --> 0:16:57.680 the next five or ten years. So that's just not 0:16:57.760 --> 0:17:00.440 going to cut it for for investor. But I think 0:17:00.480 --> 0:17:02.520 it's it's less about you know, how much of a 0:17:02.600 --> 0:17:04.520 sixty you need or or how much of a floor 0:17:04.560 --> 0:17:07.080 do you need, but more so about you know, looking 0:17:07.160 --> 0:17:10.879 at the overall portfolio and identifying where the opportunities to 0:17:10.920 --> 0:17:14.040 add things like alternatives where you can sort of uh 0:17:14.680 --> 0:17:16.560 more liquid alternative if you can head some of that 0:17:16.680 --> 0:17:19.440 equity downside, but also complimenting that with some of some 0:17:19.560 --> 0:17:22.800 more private alternatives as well, things like real estated infrastructure 0:17:22.840 --> 0:17:27.160 for those qualified investors who that can provide a uncorrelated 0:17:27.280 --> 0:17:30.600 return stream um to to the overall portfolio. So I 0:17:30.680 --> 0:17:33.640 think there's gonna be a lot more conversations around alternatives 0:17:34.000 --> 0:17:37.600 within that sixty forty portfolio because we know just returns 0:17:37.640 --> 0:17:39.480 in public markets just aren't going to be there going 0:17:39.560 --> 0:17:43.119 for it? What about crypto? A lot of people are 0:17:43.160 --> 0:17:50.200 talking about forty one portfolio. I mean, look, if you're 0:17:50.200 --> 0:17:53.040 talking about discussions, I'm sure these these are discussions you're 0:17:53.040 --> 0:17:55.720 having with investors, whether or not you're allocating money to it, 0:17:55.880 --> 0:17:59.520 right absolutely, And and and investors are are you know, 0:17:59.640 --> 0:18:01.920 asking for you know, where are their vehicles and and 0:18:02.000 --> 0:18:05.240 avaluence they can access access to market? Um. You know, look, 0:18:05.280 --> 0:18:07.440 I I think for those investors who are willing to 0:18:07.600 --> 0:18:10.159 to stomach that kind of volatility, obviously, the move that 0:18:10.240 --> 0:18:13.120 you've seen in the crypto markets over the past couple 0:18:13.160 --> 0:18:15.760 of days certainly comind us that it is is a 0:18:15.960 --> 0:18:18.760 very very volatile market. But you know, I think cryptal 0:18:18.840 --> 0:18:21.360 is here to stay. Um. And again, for those investors 0:18:21.400 --> 0:18:24.159 who are able to craft out a sleeve of the 0:18:24.280 --> 0:18:27.080 portfolio making some of the volatility, I think, I think 0:18:27.119 --> 0:18:29.920 go for it. Jordian, do you think this market is 0:18:30.000 --> 0:18:34.080 going to rationally I guess I'll use that term um 0:18:34.520 --> 0:18:38.520 kind of discount the tapering that is expected later this year. 0:18:38.600 --> 0:18:41.280 Do you expect a taper tantrum of any sort or 0:18:41.280 --> 0:18:42.560 do you think that that's done a good job of 0:18:42.640 --> 0:18:45.080 kind of signaling where it's going. I like the phrase 0:18:45.160 --> 0:18:48.800 tapering is not tightening, yes, because they're still growing the 0:18:48.880 --> 0:18:52.360 balance sheet right, just at a slower pace. Again, absolutely, 0:18:52.640 --> 0:18:54.560 as I mentioned earlier about about another you know, eight 0:18:54.640 --> 0:18:57.159 hundred billions, so still set to liquidity. It's set to 0:18:57.200 --> 0:18:58.920 hit the market from now until the middle of the 0:18:59.000 --> 0:19:01.000 middle of next year. You know. I think the Fed 0:19:01.080 --> 0:19:04.200 has done a pretty good job at um you know, 0:19:04.359 --> 0:19:07.960 communicating tapering is on the table and when tapering is 0:19:08.480 --> 0:19:10.520 likely to occur, and so I think the markets have 0:19:10.760 --> 0:19:13.800 more or less are are prepared for it. And I 0:19:13.880 --> 0:19:16.600 think the big difference that that I got really out 0:19:16.640 --> 0:19:19.200 of the Jackson hole and the difference that I've identified 0:19:19.640 --> 0:19:24.560 um or I'm seeing with relative to taper is the 0:19:25.000 --> 0:19:28.480 chair has been really good at separating tapering from when 0:19:28.680 --> 0:19:31.800 interest rate hypes are are expected to come. When Ben 0:19:31.840 --> 0:19:35.520 Berniki came out and made thirteen and made comments about tapering, 0:19:35.800 --> 0:19:38.280 you saw you saw the front end, oh I s 0:19:38.400 --> 0:19:41.600 markets essentially moved from pricing in no rate hikes over 0:19:41.640 --> 0:19:44.200 the next two years to pricing in five rate hyps 0:19:44.240 --> 0:19:47.320 by September thirteen, UM. And so there was just this 0:19:47.440 --> 0:19:50.879 there's this idea that you know, a tapering the balance 0:19:50.920 --> 0:19:54.320 sheet was immediately going to uh push the push the 0:19:54.359 --> 0:19:57.119 FED to begin hiking rates once tapering was done. I 0:19:57.160 --> 0:19:58.959 think their own power did a really good job at 0:19:59.040 --> 0:20:03.560 separating the tapering discussion from the interest rate high discussion, 0:20:03.640 --> 0:20:05.200 and so where I was a bit more in the 0:20:05.320 --> 0:20:07.280 camp that the BED would be a little bit more 0:20:07.320 --> 0:20:09.399 aggressive to tape of the balance you to open up 0:20:09.720 --> 0:20:12.800 the pathway to high grade from sometimes maybe the fourth 0:20:12.880 --> 0:20:16.040 quarter of next year, of the first half of I 0:20:16.160 --> 0:20:18.680 think they've done a good job at sort of sitting 0:20:18.720 --> 0:20:20.480 on the silines and saying that, hey, it made me 0:20:20.600 --> 0:20:23.960 the second half before we see some rate hikes. Jordan, 0:20:24.000 --> 0:20:26.280 thanks so much for joining us. Pleasure having you on 0:20:26.359 --> 0:20:30.480 the program. Jordan Jackson, global market strategist with JP Morgan 0:20:30.640 --> 0:20:39.159 Asset Management. This is Bloomberg. Well, the delta variant is 0:20:39.400 --> 0:20:43.040 keeping this pandemic on the front burner for investors as 0:20:43.160 --> 0:20:46.720 an issue. The questions include what will this mean for 0:20:46.800 --> 0:20:50.520 economic growth on a global basis going forward. Let's bring 0:20:50.640 --> 0:20:54.560 in Constance Hunt, our chief economists for KPMG. Constant, thanks 0:20:54.560 --> 0:20:56.440 so much for for joining us. We really appreciate you 0:20:56.560 --> 0:20:59.680 taking the time here, how are you factoring into your 0:20:59.760 --> 0:21:05.840 g DP model. Um, this lingering pandemic driven by the 0:21:05.920 --> 0:21:08.920 delta variant. Yeah, hey Paul, great to be with you. 0:21:09.920 --> 0:21:13.680 It really comes across in two key dimensions. One of course, 0:21:14.080 --> 0:21:18.280 is the global supply chain. So with the pandemic lingering, 0:21:18.440 --> 0:21:23.000 it means that factories have the susceptibility to be shut down, 0:21:23.880 --> 0:21:26.680 that people have the susceptibility of course of calling in 0:21:26.840 --> 0:21:30.320 sick and being unable to work, and and of course 0:21:30.359 --> 0:21:33.720 all the issues with shipping. I mean getting someone to 0:21:33.840 --> 0:21:37.560 work in the merchant marine ship sector during a pandemic 0:21:37.880 --> 0:21:41.280 is really really difficult. So they're in addition to the 0:21:41.760 --> 0:21:46.520 supply chain bottlenecks at the factory floor, there are supply 0:21:46.640 --> 0:21:50.720