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Speaker 2: Stephanie Roth joined us from Wolf and was really, really
Speaker 2: quite good about the moment. None of that mattered. The
Speaker 2: conversation is ancient history. She joins us for a reset
Speaker 2: after what we've witnessed in the last say, seventy two
Speaker 2: hours as well, I don't want you to do it?
Speaker 2: What if I want you to do how the fed
Speaker 2: Ex post waiting for data adapts and adjusts to the
Speaker 2: instabilities coming out of the Oval office in sixteen under Pennsylvania.
Speaker 3: Don't tell me. They just ignore it.
Speaker 4: But they don't just ignore it, but they probably don't
Speaker 4: do much because it doesn't make sense for them to
Speaker 4: be cutting if there's the potential for tariffs to be moving,
Speaker 4: inflation expectations higher.
Speaker 2: Are they more frozen than they were forty eight hours ago?
Speaker 5: No? Probably not.
Speaker 3: So.
Speaker 4: Okay, here's what we learned right, Tariffs on Canada and Mexico.
Speaker 4: That's what was really going to impact the US economy.
Speaker 4: That was going to be a real inflationary force. Could
Speaker 4: have boosted inflation by fifty plus basis points. It got
Speaker 4: delayed a month base cases. They probably just don't happen.
Speaker 4: I think that's what kind of that's what the message was.
Speaker 4: Trump probably wanted to do the China tariffs regardless, so
Speaker 4: the fact that that was a much smaller ten percent
Speaker 4: that was probably gonna happen either way, and he's going
Speaker 4: to continue to wratchet up tariffs on China. The Canada
Speaker 4: Mexico ones made a lot less sense, especially when we're
Speaker 4: talking in Canada.
Speaker 6: So have you adjusted your inflation out look at all
Speaker 6: for these tariffs or you're just kind of waiting to
Speaker 6: see what actually gets enacted if anything.
Speaker 4: So, based on our numbers, the China tariffs could boost
Speaker 4: infation by about ten basis points this year and hit
Speaker 4: GDP by about ten basis points as well. So at
Speaker 4: this point, I'm just going to wait and see what
Speaker 4: happens in the next two weeks.
Speaker 5: Could that be plus or minus ten baks points for sure?
Speaker 4: The rest of it, Yeah, but we're we're not assuming
Speaker 4: certainly any of the broader tariffs going to effect at this.
Speaker 2: Point, I'm absolutely fascinated by Atlanta GDP, which is a
Speaker 2: squishy number out on your four percent real GDP. Let's
Speaker 2: say that's an anomaly. But do we just continue to
Speaker 2: get the growthiness surprise that is made up the last
Speaker 2: eighteen months.
Speaker 4: At some point it will probably cool down, but we're
Speaker 4: still looking, we're.
Speaker 5: Rating, and we're still your own palls doing well. That's
Speaker 5: what your own powers. And there's things.
Speaker 4: There's a couple of things that are truly boosting the
Speaker 4: US economy and equity equity valuations are a big part
Speaker 4: of it. Networth in the US economy has been incredibly strong,
Speaker 4: over fifteen trillion dollars above the prior trend. And if
Speaker 4: you assume a couple cents on the dollar, that's a
Speaker 4: real boost to consumer spending something of the two and
Speaker 4: of one to two percent. And then, by the way, crypto,
Speaker 4: which you know doesn't go talking about quite as much,
Speaker 4: but there's also real wealth there and the marginal propensity
Speaker 4: to consume or the desire to consume for every dollar
Speaker 4: of wealth and in the crypto space is higher than.
Speaker 5: What it would be.
Speaker 3: This is important.
Speaker 2: You think the PhDs that the equities building, the echos
Speaker 2: building are looking at the marginal propensity to consume a
Speaker 2: bit dog.
Speaker 4: I think they're starting to because it seems like there's
Speaker 4: a legitimate impact.
Speaker 5: At this point, you can't really ignore.
Speaker 6: It, all right, Stephanie, So what is your GDP call
Speaker 6: for twenty twenty five and twenty twenty six.
Speaker 4: GDP for twenty twenty five is two point two inflation
Speaker 4: of two three twenty twenty six, we're looking at something
Speaker 4: closer to two percent. But I'm starting to get worried
Speaker 4: that terrifs will become a real issue for twenty twenty six,
Speaker 4: which would then put GDP below two percent.
Speaker 6: And is that driven by I mean, again, the consumer
Speaker 6: is seventy percent of this economy, so having any growth
Speaker 6: this year and next year flies that you have some
Speaker 6: confidence in the consumer.
Speaker 4: I do have confidence in the consumer. The consumer is
Speaker 4: doing just fine, especially if they don't get hit by
Speaker 4: these massive tariff at least this year. They have wealth
Speaker 4: and inequities in real estate. The labor market is just fine.
Speaker 4: We didn't talk about that, but jobs are probably going
Speaker 4: to be print another solid one this month, and that's
Speaker 4: what drives the consumer. They might be upset about the
Speaker 4: price of a lot of goods, especially when it comes
Speaker 4: to groceries.
Speaker 5: But we just have largely kept up with a lot
Speaker 5: of those goods.
Speaker 2: Jason Furman does a lot of work on an ecumenical
Speaker 2: inflation call, looking at different sum to annualized returns three
Speaker 2: month to annualize six months.
Speaker 3: All of them are sub three percent.
Speaker 2: As a general statement, will the shock that we see
Speaker 2: out the next three months, two three, four FED meetings
Speaker 2: be one or some of those annualized returns being under
Speaker 2: two percent?
Speaker 4: I wouldn't bet on the key one numbers being under
Speaker 4: two percent because we still have seasonal problems that if
Speaker 4: you have to be a dress the data.
Speaker 5: But Q two certainly could be Wow.
Speaker 2: I mean that's a that's a wild observation, and that inflation,
Speaker 2: you know, Oeer finally becomes well behaved in real estate
Speaker 2: becomes well behaved. Is that enough to generate a rate
Speaker 2: cut discussion? I just don't buy it. Given the political
Speaker 2: madness in.
Speaker 4: Washington we have, we have a rain cut in our
Speaker 4: forecast for May. But to be fair, that one's very.
Speaker 3: Much would you like to make some news here?
Speaker 4: Certainly not, but that one's really into that one's going
Speaker 4: to really rely on the employment data in the next
Speaker 4: couple of months being a little bit softer and inflation
Speaker 4: being subdued. We're going to have to get past the
Speaker 4: first January, February, March prints in terms of inflation, because
Speaker 4: that's where you see the real seasonality problems and that's
Speaker 4: going to continue again.
Speaker 6: Well on Friday, we are going to get the change
Speaker 6: in nonfarm and payrolls, and you know, one hundred and
Speaker 6: seventy thousand is the consensus. Quite a normal discussion about
Speaker 6: Friday exactly, and that big print last month of two
Speaker 6: hundred and fifty six thousand. What is your view of
Speaker 6: the labor market. I mean, we're going to get some
Speaker 6: some people are concerned that, Okay, nobody's firing anybody, but
Speaker 6: nobody's really hiring either.
Speaker 4: How do you think about the labor market, Yeah, the
Speaker 4: labor market's doing okay. There's been a lot of volatility
Speaker 4: when it comes to strikes and but weather, so it's
Speaker 4: hard to look through it. But our base case is
Speaker 4: the trend in payrolls is somewhere around one hundred and
Speaker 4: sixty thousand, which is really quite solid. This year is
Speaker 4: going to present some challenges though, because immigration trends are
Speaker 4: going to be going the other way than what they've
Speaker 4: been the past couple of years. So a lot of people,
Speaker 4: rough were estimate about three point six million people are
Speaker 4: going to lose their visas to work over the next
Speaker 4: two years, which will pose some challenges for the labor market.
Speaker 4: And that's a lot of that role that's going to
Speaker 4: happen in the bout half of this year.
Speaker 6: Like have you looked back over the last three four
Speaker 6: years about migration, legal and illegal, how that contributed to
Speaker 6: the labor force, because it feels like it's been a
Speaker 6: non you know, a fairly significant driver.
Speaker 4: It's probably one of the single biggest reasons why the
Speaker 4: Fed was able to actually rebalance the economy without causing
Speaker 4: our session is because we've got the supply side of
Speaker 4: the labor market actually helping to bring down inflation, so
Speaker 4: we didn't need the demand side of the economy to
Speaker 4: slow down quite as much. Now this is going the
Speaker 4: other way, which is into some degree okay, because now
Speaker 4: demand for labor has cooled compared to where we were
Speaker 4: two years ago. But this could present some challenges. We
Speaker 4: might start to see wage inflation pick up towards the
Speaker 4: back part of this year as labor supply again becomes constrained.
Speaker 3: Paul mentioned this in Ana Wong and Bloomberg Economics.
Speaker 2: Has provided global leadership on this, and this is the
Speaker 2: fourteen it's like Howard Johnson's It's like the pistachio revision
Speaker 2: or the butternut maple nut or revision. The revisions like
Speaker 2: this job's day. Are there one or two to study
Speaker 2: or is it just chaos through the spring and revisions
Speaker 2: of the job market.
Speaker 4: So this is going to be a chaotic report because
Speaker 4: this report, because we get annual revisions to both the
Speaker 4: headline jobs numbers and then also the data that associated
Speaker 4: with the unemployment rate.
Speaker 5: To what's going to.
Speaker 4: Happen is we're going to get a large upward revisi
Speaker 4: into the population which is tied to the measure for
Speaker 4: the unemployment rate.
Speaker 5: So it's going to be very confusing.
Speaker 4: You can't compare the January reading to December numbers because
Speaker 4: the revisions kind of don't don't work so well that way.
Speaker 4: But so there's gonna be a lot of noise the
Speaker 4: combination of massive revisions to the prior prior years. By
Speaker 4: the way, they're going to be adding three point six
Speaker 4: million people roughly to the labor force that weren't previously there.
Speaker 4: And then we also have the impact of the fires
Speaker 4: on going to be impacting the payroll's numbers, so that's
Speaker 4: where there could be a surprise that might be difficult
Speaker 4: to summer.
Speaker 2: Here, we're going to see a higher unemployment ratar we
Speaker 2: shock with revisions and go to three point nine.
Speaker 4: Percent, So for this part we're looking for four to
Speaker 4: one because they're going to revise both the numerator and
Speaker 4: the denominator, so in theory it should be all kind
Speaker 4: of help.
Speaker 2: This is the differential equations part of the show enumerator
Speaker 2: and the denominator a wise one.
Speaker 4: Yes, the moving the numertor and the denominator a base case.
Speaker 3: Which partial differential is most important.
Speaker 4: What we'll see is we'll get a little bit of
Speaker 4: upward pressure on the unemployment rate because there's going to
Speaker 4: be more people that have a slightly higher unemployment rate.
Speaker 4: So just the mixshift of people will be slightly higher
Speaker 4: terms of uneplom rate, but it shouldn't be massive. The
Speaker 4: thing that we're going to see over the next year,
Speaker 4: which is important, is that the unemployment rate will probably
Speaker 4: nudge down throughout the course of twenty twenty five, as
Speaker 4: labor comes constrained as a result of immigration, trends being
Speaker 4: pulled back pretty substantially.
Speaker 3: Interesting.
Speaker 2: See when you were in class and everybody who's pulling
Speaker 2: the quality See.
Speaker 3: Yeah, Stephanie was up in the third take a notes,
Speaker 3: nailing the.
Speaker 2: Curve shift it right out to it at AAA plus.
Speaker 3: We hated her.
Speaker 6: Yeah, gentlemen, c I was planning my next tea time
Speaker 6: across the street to do golf course. Stephanie, step back here.
Speaker 6: Talk to us about just a little bit more of
Speaker 6: a global view here. What's the impact on the global economy,
Speaker 6: on the US economy if China just does not get
Speaker 6: back on its feet.
Speaker 4: You know, we've been pretty insulated from China's economy for
Speaker 4: the past couple of years.
Speaker 5: And I think it's going to be more of the same.
Speaker 4: The US economy has been exceptional and Chinese economy has
Speaker 4: been quite sluggish.
Speaker 5: And I don't think that's going to change anytime soon.
Speaker 6: And I mean there's also the European economy has been
Speaker 6: weaker than they would certainly like. Certainly Germany, with its
Speaker 6: reliance on China and with its reliance on Russian for fuel,
Speaker 6: has been challenged as well, but that hasn't seemed to
Speaker 6: really impacted the US economy that much.
Speaker 4: No, it's been it's been pretty independent of the global cycle.
Speaker 4: And I think that's a lesson that we've learned as
Speaker 4: we've over time just shifted to become our sort of
Speaker 4: independent business cycle.
Speaker 5: And that will probably be the case for quite some time, and.
Speaker 4: The US economy will probably continue to remain fairly robust
Speaker 4: and the global economy might be kind of sluggish like
Speaker 4: we've seen for the past couple of years.
Speaker 3: Well, how's Paul doing.
Speaker 2: I mean, to me, they have to work ex posts,
Speaker 2: they have to be data dependent. You are brilliant unforded
Speaker 2: forward guidance at the fed to side show. But the
Speaker 2: answer is just they you know, they just they have
Speaker 2: to go day by day, months by month.
Speaker 3: Now.
Speaker 4: Yeah, And I mean it's tough for the for market
Speaker 4: participants because we don't really know exactly what the framework
Speaker 4: looks like. They haven't said a very clear framework for
Speaker 4: how they're thinking about it what to look for. The
Speaker 4: clearest thing that we've learned so far is it's going
Speaker 4: to a lot of it's going to come down to
Speaker 4: inflation expectations. Powell has pointed us to the September twenty
Speaker 4: eighteen teal book, and that basically said they had two
Speaker 4: different scenarios for how triffs impact the economy, and the
Speaker 4: differentiating factor between whether they have to cause a recession
Speaker 4: or not is if inflation expectations are angered.
Speaker 2: Step Thank you Stephanie roth Wolf research with us just
Speaker 2: really got a huge response when she's on some real
Speaker 2: clarity there about an ex post Central Bank.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
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Speaker 2: Let us talk about President Trump's fascination with a gilded age,
Speaker 2: which is up to World War Two.
Speaker 3: There was an artist in Paris and then in.
Speaker 2: America immediately acclaimed as a young lad named Gus Sangoden,
Speaker 2: and in nineteen fourteen he made a gold coin, a
Speaker 2: twenty dollars double eagle gold coin, which is, you know,
Speaker 2: it's about the price of a weekend ticket right now,
Speaker 2: three thousand dollars for that. But the answer is there
Speaker 2: was a time where there were gold coins and they mattered,
Speaker 2: and it was a gilded age, and the president is
Speaker 2: fixated on that time. James Steele owns a high ground
Speaker 2: on this it joins us this morning. Gold at twenty
Speaker 2: eight hundred dollars an ounce is gold within a non
Speaker 2: flexible system, a far more dynamic system made more dynamic
Speaker 2: by Richard Nixon in nineteen seventy one. Are we in
Speaker 2: a gilded age of your gold as we were in
Speaker 2: nineteen fourteen with the twenty dollars double eagle?
Speaker 7: Well, what we are thank you for having me, Tom,
Speaker 7: And what we are is in a situation, is in
Speaker 7: a climate ever since Richard Nixon released us from Bretton
Speaker 7: Woods August seventy one. Yes, indeed, I remember it. I
Speaker 7: was at Catholic school at the time, and I remember
Speaker 7: when that was released and gold was allowed to begin
Speaker 7: to float freely and was freely completely freed by nineteen
Speaker 7: seventy three, and gold has continued. Gold fell throughout the nineties,
Speaker 7: but on balance has risen and we are in an
Speaker 7: age where government does not dictate what the gold price.
Speaker 3: That's where I want to go. Okay.
Speaker 2: We had a static, rules driven, government driven environment up
Speaker 2: until Bretonwoods nineteen forty four, and the Nixon destroyed it.
Speaker 2: And yet now the paper reports are we've got bars
Speaker 2: of gold coming from London.
Speaker 3: Over to New York.
Speaker 2: You're expert on this government's trying to control gold now,
Speaker 2: trying to get us back to that time and place.
Speaker 3: I don't think they can do it.
Speaker 7: No, no, and I don't think in that sense that
Speaker 7: they that they want to. One of the things about
Speaker 7: when we were on a gold standard save from the
Speaker 7: end of the Napoleonic War up until the First War,
Speaker 7: and it was enormously successful. Sterling was the world's reserve
Speaker 7: currency backed by gold. But the reason that it worked
Speaker 7: was because that was at a time of incredible expansion
Speaker 7: in the supply of gold. That's when the North America, Australia,
Speaker 7: Southern Africa really opened up, so and effectively the increase
Speaker 7: in gold was like raising the money supply. And we're
Speaker 7: not in that situation now. We couldn't have the world's
Speaker 7: currencies tied back to the dollar.
Speaker 3: Again.
Speaker 7: The gold market isn't big enough or fluid enough in
Speaker 7: the modern times. But it worked, and it sufficed for
Speaker 7: a long period and made trade very very stable.
Speaker 3: Did it but.
Speaker 2: Kept the rich rich and subdued the middle class. And
Speaker 2: then we said we needed a credit expansion, and that
Speaker 2: was an overlay out of the New Deal, the depression
Speaker 2: and all that into World War Two. So what's the
Speaker 2: next step here for gold? Paul?
Speaker 3: You bought it at what one thousand an ounce? Eight hundred?
Speaker 3: I mean, what's the next step? James Deal?
Speaker 7: Well, indeed, I mean, and I do like the historical
Speaker 7: reference because William Jennings Bryan said, not a crossify us
Speaker 7: on a cross of silver, because we were on a
Speaker 7: by metallic Is.
Speaker 3: Donald Trump saying it right now? I think there's some
Speaker 3: element of that.
Speaker 7: Well, I think that what we're seeing is a geopolitical uncertainty,
Speaker 7: uncertainty over trade and taris and what gold is, it's
Speaker 7: it's a release valve. It allows for that uncertainty to
Speaker 7: be made visible.
Speaker 6: So China, where are they in terms of demand here
Speaker 6: for gold?
Speaker 3: Because I know the.
Speaker 6: Last several times we spoke, you were really explained to
Speaker 6: us how China, the government, China the population are incremental
Speaker 6: buyers of gold, and that's been one of the reasons
Speaker 6: that gold's been moving higher. Is that still the case?
Speaker 3: Yes?
Speaker 7: On balance, China is in the unusual position of being
Speaker 7: both the world's largest producer of gold and the world's
Speaker 7: largest consumer and often the world's largest importer, rivaling with
Speaker 7: India depending upon the year. So if you can think
Speaker 7: about taking corn to Iowa, I mean, that's what their
Speaker 7: importing gold is like. But high prices have curbed retail
Speaker 7: demand fifty percent of all physical demand in the world.
Speaker 7: I'm not talking about what we trade on Wall Street
Speaker 7: or the city, but underlying demand is between China and India. Yes,
Speaker 7: and these high prices.
Speaker 3: It's our great honor to bring you. James Steele of
Speaker 3: HSBC and I want to go to care Nada.
Speaker 2: Kin Ross was an amalgamation of three or four companies,
Speaker 2: you know, typical Canadian.
Speaker 3: Mining out of Toronto and that. But you've been to
Speaker 3: their mine in Alberta. Is it like a Disney movie?
Speaker 3: Did you go with White Fang?
Speaker 7: Well, without without speaking about to say anyone mine in particular,
Speaker 7: I have been to mines in Canada, the US, and Australia.
Speaker 7: It's always a it's always interesting. You have to dig
Speaker 7: deep for gold. One of the interesting things about mining
Speaker 7: is that the or grade all over the world is dropping.
Speaker 7: We've mined a great deal of gold, about fifty percent
Speaker 7: of all of my gold that's ever been mined was
Speaker 7: mine between nineteen fourteen and up into the fifties, and
Speaker 7: so we have to go to further and further out
Speaker 7: like Papua New Guinea, into the jungle in Indonesia, places
Speaker 7: like that.
Speaker 2: The gold in this Bulgari snake bracelet that Lisa is
Speaker 2: looking at for Valentine's Day is that.
Speaker 3: Newly mine gold. Where does that gold come from? It's
Speaker 3: likely to be.
Speaker 7: But the marvelous thing about gold is that it's never
Speaker 7: consumed and it doesn't tarnish. So you could have a
Speaker 7: piece of jewelry around your neck that goes back to
Speaker 7: ancient Rome or ancient Egypt. It's unlikely, but you might scam.
Speaker 3: You just described you.
Speaker 7: You can't guarantee it, especially after it's been refined into
Speaker 7: a bar and the bar has been re refined.
Speaker 2: Fort Ontario twenty six percent. I did, Quebec, yeah, twenty
Speaker 2: six percent, Quebec nine percent, British Columbia and the rest
Speaker 2: is a Disney movie up in the mountains with they
Speaker 2: wear ll bean boots.
Speaker 6: We've been talking a lot about gold because it is
Speaker 6: up almost eight percent this year, but silver is up
Speaker 6: ten percent.
Speaker 3: What's going on?
Speaker 7: With silver, well, silver very often. I wouldn't go so
Speaker 7: our as to say it's the handmaiden of gold, but
Speaker 7: it does have a correlation what typically happened. But the
Speaker 7: big difference between silver and gold is that over fifty
Speaker 7: percent of silver is used industrially and only six percent
Speaker 7: of gold is used industrially. Less than a fifth is
Speaker 7: in jewelry and less than a fifth is in coins
Speaker 7: and bars. So industry is really what powers the demand,
Speaker 7: and that demand is inelastic. Nobody's stop making a cell
Speaker 7: phone because the silver price went out. But as far
Speaker 7: as the trading goes, a lot of people will look
Speaker 7: at a gold silver ratio, and for much of my
Speaker 7: career it was fifty to seventy. Now it's sort of
Speaker 7: seventy to ninety. When it gets above ninety, you tend
Speaker 7: to see silver being bought quite rapidly. So it's also
Speaker 7: a much smaller market, so the volatility is there.
Speaker 2: I got time for one more question. We still never
Speaker 2: enough time with James Steele. I know you don't do
Speaker 2: by holed cell three years out, five years out, ten
Speaker 2: years out, gold up just because they're running out of it.
Speaker 7: No, not necessarily, and that's because it's stored. There's a
Speaker 7: lot of gold around the world. There's a lot of
Speaker 7: silver around the world. A recycling process can be thirty
Speaker 7: to ninety days to get it back on the market,
Speaker 7: much quicker than mining. Okay, So when the price goes
Speaker 7: up enough and we're at levels now in both gold
Speaker 7: and silver where the recycling element is rising very quickly,
Speaker 7: and that's an element of supply that's rarely talked about.
Speaker 2: Lisa, you could melt a bracelet and go see the
Speaker 2: weekend for front row seats in June.
Speaker 3: Genius.
Speaker 6: Genius.
Speaker 7: Well, for example, we think that one out of every
Speaker 7: eight or nine ounces of golden world is in India, and.
Speaker 3: The gold is.
Speaker 7: Held almost exclusively in the hands of housewives, and when
Speaker 7: the price rises to a certain degree, right, they will
Speaker 7: hand that gold in and maybe buy something else, got
Speaker 7: some rupees or play it like that, the very sensitives
Speaker 7: of the price.
Speaker 3: James Steele, thank you so much. Never never, always, come
Speaker 3: always come here. James Steele with HSBC. That was just
Speaker 3: scimilating on gold fabulous. He is with HSBC.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: We're gonna talk now about quiet money, college endowments making
Speaker 2: a return, the huge pressures. I look at Lafayette College here.
Speaker 3: End of January, dorm infested with mice. Up. It's Christian
Speaker 3: Mammani's fault. He joins us.
Speaker 2: Now CIO at lafay at College. Do you have a
Speaker 2: mouse fund at your endowment? Is you have something there
Speaker 2: like to take care of the mice.
Speaker 8: I didn't expect to start on that topic, but we're
Speaker 8: working on it.
Speaker 2: I look at what Lafaiatte has done. Just tell us
Speaker 2: about the last two three years. What's your return? How
Speaker 2: is your return?
Speaker 3: Ben?
Speaker 8: The return last year was eleven and change, so above
Speaker 8: a lot of people. Yes, we were in the top
Speaker 8: quartile as far as endowments are concerned.
Speaker 3: Okay, I'll make it right to it.
Speaker 2: The major thing we study at Bloomberg is a focus
Speaker 2: on alternative investments. Are you heavy into an alternative formula
Speaker 2: or is it more traditional asset classes?
Speaker 8: Okay, so I think we are heavy into private equities.
Speaker 8: We have a substantial allocation into private equities. People call
Speaker 8: them alternatives, but that's not the right way to think
Speaker 8: about it. The right way to think about private equity
Speaker 8: is basically it's a better equity. That's how we explain it.
Speaker 8: That is, you have a longer investment horizon and your
Speaker 8: returns are expected to be or you expect the returns
Speaker 8: to be higher than the public equities three hundred basis.
Speaker 2: Let me ask a rude question because Paul's too polite
Speaker 2: to ask it, which is, you make eleven percent, But
Speaker 2: are you saying, but we're going to get a pop
Speaker 2: from private equity because they weren't able to liquefy over
Speaker 2: the last two, three, four years. Do you look at
Speaker 2: private equity to pop that return?
Speaker 8: So overall, from a long term strategic allocation standpoint, we
Speaker 8: have a substantial allocation in private equities, expecting private equities
Speaker 8: over the long term, not one year, not three year,
Speaker 8: but long term to outperform public equities or three hundred
Speaker 8: basis ones?
Speaker 3: Is that not too rude? Puts possible?
Speaker 6: I mean, is it is that kind of what I
Speaker 6: think folks refer to as a Yale model it's not
Speaker 6: just the sixty forty equities bonds, but also alternatives to
Speaker 6: kind of generate the better returns.
Speaker 8: So, you know, the Yale model comes in multiple flavors,
Speaker 8: and how people think about that, I think is critically important.
Speaker 8: The way we think about it is our portfolio is
Speaker 8: roughly seventy thirty seventy percent inequities and thirty percent in bonds.
Speaker 8: And for equities, we basically have forty five percent private
Speaker 8: public equities and twenty five percent in private equities, thinking
Speaker 8: that those private equities over the long term will outperform
Speaker 8: public equities. So better equities is how we think about
Speaker 8: it as opposed to alternatives.
Speaker 6: So we've had in just in the equity markets the
Speaker 6: past two years, very strong returns north of twenty percent
Speaker 6: for the S and P five hundred. How do you
Speaker 6: think about twenty five twenty six? I mean, what's your
Speaker 6: investment out work here? Maybe given some of the political backdrop,
Speaker 6: the economic factor.
Speaker 8: Of so A, that's a really good question. You know,
Speaker 8: as kind of perpetual investors, we don't make significant changes
Speaker 8: in terms of our allocation based on what our near
Speaker 8: term outlook is. What we are looking to do is
Speaker 8: generate something north of eight and a half percent, as
Speaker 8: time was talking about before. And to do that, we
Speaker 8: have to have a substantial allocation in equities because otherwise
Speaker 8: you can't generate those types of returns. The the bond
Speaker 8: part is really more to keep yourself saying and make
Speaker 8: sure you know we don't have a significant issue and
Speaker 8: concern when equity markets get very volatile.
Speaker 2: Christian mommoney with us folks of Lafayette College and of
Speaker 2: course iconic at Investco and others over the years, I
Speaker 2: want you to speak to people scared stiff. Now your
Speaker 2: hallmark is you have to participate. You've got to be
Speaker 2: in the game to win. You're doing that at a
Speaker 2: college endowment.
Speaker 3: Now, how do.
Speaker 2: People participate in this bifurcated massively Barbell market.
Speaker 8: Well, so, I think from a longer term perspective, having
Speaker 8: a decent allocation equities is as important for us as
Speaker 8: it is for anybody else because bonds, if you are
Speaker 8: a taxable investors, generating after tax returns out of bonds
Speaker 8: is going to be has been very difficult, and we'll
Speaker 8: will likely remain very very very very difficult. Again, having
Speaker 8: an allocation equity helps your portfolio grow over the long term,
Speaker 8: and I think the key word there is long term.
Speaker 8: That's what we are focused on. That's what people should
Speaker 8: be focused on. From a tactical standpoint, that is, you know,
Speaker 8: the market outlook today coming into the year as opposed
Speaker 8: to last two years coming into this year. The one
Speaker 8: thing I concluded was having a view is going to
Speaker 8: be hurtful for your financial wellbeing because we just don't know.
Speaker 8: There's a whole lot in play, you know, as we
Speaker 8: found out over the last week and as we are
Speaker 8: likely to find out over the next three six months
Speaker 8: as to where policy outlook from a fiscal standpoint, from
Speaker 8: an administrative policy standpoint will shake out. Having a significant
Speaker 8: kind of play in the middle of all of that
Speaker 8: doesn't seem that prudent to us.
Speaker 6: So how do you position a portfolio in a world
Speaker 6: where there is a lot of uncertainty? You may not
Speaker 6: want to take a view? Is it just quality quality, quality,
Speaker 6: both on stocks end bonds or.
Speaker 8: Well so you know, again, when you don't have a view,
Speaker 8: you get close to your benchmark, whatever that is. In
Speaker 8: our case, it's roughly, you know, seventy thirty equities in
Speaker 8: bonds as opposed to as opposed to significantly higher weight
Speaker 8: and equities. Having having said that, I think the key
Speaker 8: here is risk management, making sure that you don't get
Speaker 8: cutted out or don't get into a situation where you
Speaker 8: have to sell a position because things are going badly AGAINCIA,
Speaker 8: and that that would certainly happen. I think having a
Speaker 8: long term view certainly helps you in maintaining your maintaining
Speaker 8: a position, not being out of out of position in
Speaker 8: a significant way, also helps you in that context with.
Speaker 2: Your with your work, and particularly you know in mechanical
Speaker 2: engineering and all the technology work you've done. How do
Speaker 2: you state MAG seven to very conservative, very frightened college
Speaker 2: academics popping an eighty seven thousand dollars all intuition, how
Speaker 2: do you how do you say to them MAG seven
Speaker 2: in growth in America is your salvation?
Speaker 3: How do you do that well?
Speaker 8: So I think those are the facts. That is, if
Speaker 8: you look at the performance of the US equity market
Speaker 8: over the last ten to fifteen years, it has been
Speaker 8: driven by It has been driven by technology. In fact,
Speaker 8: US markets have done spectacularly better than international markets, primarily
Speaker 8: on the back of performance of MAX seven or some
Speaker 8: version of MAX seven at various points. So their profitability
Speaker 8: is extraordinarily good. Their cash flows are extraordinarily good. They
Speaker 8: are on a cash flow bench, and evaluations are high.
Speaker 8: So I think the last two factors is what you
Speaker 8: have to kind of consider more from a tactical standpoint.
Speaker 3: From a long term.
Speaker 8: Perspective, the tech sector is still a very good sector.
Speaker 8: And if you are going to participate in the market,
Speaker 8: especially in the US, participating in tech sector, which can
Speaker 8: generate outside returns is something that you absolutely have to.
Speaker 3: Well what you just.
Speaker 2: Said there, which is classic sham of money. Do you
Speaker 2: get a lot of pushback from you know, philosophy professors
Speaker 2: and you know drama drama the head of the drama department.
Speaker 8: So thankfully they are not in the weeds in the portfolio.
Speaker 8: So the answer is the answer is no. But I
Speaker 8: think what they are interested in is making sure that
Speaker 8: the college generates significant amount of return so that we
Speaker 8: can support the mission of the college. And they and
Speaker 8: they understand that to do that you have to take
Speaker 8: some amount of risk because just investing in bonds, which
Speaker 8: would be the safe way to do it, you just
Speaker 8: can't generate the sort of returns that we have to do.
Speaker 2: I mean, they lost to Lehigh in basketball the other
Speaker 2: arch rivals. I mean, they clearly need to Saint John's
Speaker 2: like basketball.
Speaker 3: Ricapitulagage is that.
Speaker 2: They're paying some guy out of the seventy six ors
Speaker 2: eight million.
Speaker 3: Dollars a year to come exactly basketball.
Speaker 6: So Christian, I just google Lafia College endowment about a
Speaker 6: billion dollars but on an endowment per student, very very high, yes,
Speaker 6: and that is critical for the financials the finances of
Speaker 6: a college university. What are the colleges and universities that
Speaker 6: do that don't have that endowment support.
Speaker 8: I mean, that's tough, right, So that's a that's a
Speaker 8: really good question again, and we are very lucky that is.
Speaker 8: Lafayette College is a great college and the alumni are
Speaker 8: nuts in that in their support for the college and
Speaker 8: have been very very generous, and we expect they'll continue
Speaker 8: to remain very generous in their in their giving.
Speaker 4: Uh.
Speaker 8: The higher ed challenges is very very apparent to everyone,
Speaker 8: especially for students and parents who send their kids to college.
Speaker 8: The cost of education is definitely high. One of the
Speaker 8: primary uses of the endowment at lafa Atte College is
Speaker 8: to basically support needy students in providing financial support. We
Speaker 8: whatever we contribute. It almost matches dollar for dollar for
Speaker 8: financial aid.
Speaker 3: That we provide. Do you lecture an engineering there? I can't.
Speaker 2: I mean, Lafayette is such a tradition of engineering.
Speaker 3: Do you go into the classroom and yell at the students?
Speaker 8: I don't think the professors would like that very much.
Speaker 8: But it's a fantastic engineering program, and I think the
Speaker 8: strength of Lafayette College is it's engineering program along with
Speaker 8: the humanities. That combination is what differentiates differentiates us from
Speaker 8: a lot of our just playing liberal arts peers.
Speaker 2: How about Paul, that active management fee right now within
Speaker 2: the mutual fund ETF business. Katie Greifeld from Haverford was
Speaker 2: in earlier this morning.
Speaker 3: Look at it? What seven basis points?
Speaker 6: Yeah, exactly seven basis points for the ETFs. What I
Speaker 6: mean that's been in a development in your career, Tom Square,
Speaker 6: my career, this growth of ETFs you, how do you
Speaker 6: guys think about that?
Speaker 8: Well, so you know, from a from a cost perspective
Speaker 8: ETFs that versus active mutual funds. That train left a long.
Speaker 3: Long time ago. Yeah, you were on the other train.
Speaker 8: Yes, I was on the other train at Appenhama Funds
Speaker 8: as well, and That's why Appenhamo funds got sold because
Speaker 8: I think that the flows speak the story, that is
Speaker 8: that flows into ETFs are massive and flows out of
Speaker 8: mutual funds are massive. The way we think about it
Speaker 8: is relatively simple, which is cost is certainly one component,
Speaker 8: and but returns are also a significant component as well.
Speaker 8: So in our equity portfolio, we have substantial allocation into
Speaker 8: all sorts of diversified strategies, including active funds. We have
Speaker 8: some ETFs, but we have active funds as well, and
Speaker 8: those active funds basically at the way we construct the
Speaker 8: portfolio is all of them have to contribute something something
Speaker 8: to the portfolio, but in a very benchmark aware way.
Speaker 8: We want to make sure that all of it comes
Speaker 8: back to our benchmark, which is MSCI.
Speaker 3: Aqui do you have a position in gold?
Speaker 8: No, we do not have a position. Why well, so
Speaker 8: you know, again, in our construct of seventy percent equities
Speaker 8: thirty percent bombs, assets like gold just don't fit into
Speaker 8: that picture. So it would be a speculative bet, and
Speaker 8: we we just have decided that we'll stick to our
Speaker 8: knitting things that we know where managers we can evaluate
Speaker 8: and not take on that additional volatile.
Speaker 3: I know what it is.
Speaker 2: But the last six months or so, I mean in
Speaker 2: Bloomberg Surveillance, in Nexus at Philadelphia Schools, Lehigh, Lafayette, Haverford, Yep,
Speaker 2: BRNMAR They're all been represented.
Speaker 3: Yeah, this has been wonderful.
Speaker 2: Thank you so much for coming in. Thank you at
Speaker 2: Oppenheimer and Invesco just legendary decided to go off and
Speaker 2: manage what Paul billion dollars?
Speaker 3: Yeah? Nice, it's only working a twenty eight dollars work,
Speaker 3: you know, that's physical. That's it gets three months off.
Speaker 3: Are you paying houses.
Speaker 6: Journey summer time exactly, Christian.
Speaker 3: Thank you so much.
Speaker 2: Wonderful to have you, and don't be a stranger as well.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple, Corplay and Android
Speaker 1: Auto with the Bloomberg Business app. You can also watch
Speaker 1: us live every weekday on YouTube and always on the
Speaker 1: Bloomberg terminal.
Speaker 2: There you look at the front pages as we stagger
Speaker 2: to the weekend with Lisa Matteo.
Speaker 3: Lisa, what do you have?
Speaker 5: All right?
Speaker 9: We're talking streaming, Okay, So analysts are saying that forget
Speaker 9: those standalone streaming services. They say, the mega bundle is
Speaker 9: what's gonna happen.
Speaker 5: This is the way to go.
Speaker 9: They're saying, what a Brother Discovery, Disney paramount. They have
Speaker 9: to return to that wholesale business rather than continuing to
Speaker 9: build on those direct to consumer products. So they say
Speaker 9: this mega streaming bundle distributed by Apple, Amazon, Google or
Speaker 9: cable companies like Comcast.
Speaker 5: They say, that's the way to go.
Speaker 6: I think there's gotta be something here. It's just the
Speaker 6: delivery mechanisms is we just nobody knows what they're paying
Speaker 6: for it, and nobody knows what they really have in
Speaker 6: the What's really interesting is it used to be almost
Speaker 6: impossible to cancel your cable subscription. Now you just click
Speaker 6: a button and you're off of your streaming service, no friction.
Speaker 2: Well like the sports thing that we saw, is there
Speaker 2: any evidence people want a bundled streaming subscription?
Speaker 3: Probably do.
Speaker 6: They probably do bundles work. They worked for seventy years.
Speaker 6: You know, I'm not sure what well.
Speaker 9: You a Disney part of me with Warner Brothers, Discovery,
Speaker 9: like the Disney, Hulu, Max hold Yep Combo.
Speaker 3: Now, yeah, it's a mess.
Speaker 9: But they say, one company who doesn't need to bundle
Speaker 9: is Netflix, but the bundling could give Netflix some competition.
Speaker 9: Then finally, yeah, yeah, potentially who knows who knows next? Okay,
Speaker 9: the head of the NFL. So you have NFL Commissioner
Speaker 9: Roger Goodell saying he is standing behind diversity initiatives despite
Speaker 9: the President's moved against DEI. We've been hearing a lot
Speaker 9: about this lately. He says, their efforts are fundamental. They've
Speaker 9: made the NFL better, shows that they give them different perspectives.
Speaker 9: So that's what he's saying.
Speaker 5: They just to break.
Speaker 9: Down the rules for those of you who are not familiar.
Speaker 9: It requires each team with an ongoing key position to
Speaker 9: have these in person interviews with at least two minority
Speaker 9: candidates from outside the organization. But the thing is, there's
Speaker 9: controversy behind it because some people are saying they're just
Speaker 9: bringing them in just to go with the regulations and
Speaker 9: for show exactly and not going along with I've.
Speaker 2: Seen a little bit of pushback from the President. Selected
Speaker 2: let's change, change, change everything. There's selected companies. I think
Speaker 2: JP Morgan is staying with the thing.
Speaker 6: But the head coach of the Pittsburgh Steelers, he was
Speaker 6: hired in large part due to the ruining rule, which
Speaker 6: is refurther Okay, yeah, Mike Tomlin, Yep, thanks, there you go.
Speaker 9: All right, we'll take you from professional sports to high
Speaker 9: school sports.
Speaker 5: This one stood out to me.
Speaker 9: More athletes are signing endorsement deals before their senior prom Okay,
Speaker 9: so let me just put in perspective. No, I wish
Speaker 9: so Indetas they named a star baseball shortstop its newest
Speaker 9: big name endorser. He's from Stillwater High School in Oklahoma. Okay,
Speaker 9: he's likely the number one pick this year's MLB draft
Speaker 9: though he's seventeen years old. But this is some new
Speaker 9: data out. It's open doors, they say. Forty state high
Speaker 9: school associations in the US they allow students to sign
Speaker 9: these nil deals.
Speaker 2: We're gonna rip up the script your first, Lisa, you
Speaker 2: have a gifted offspring who's in the mix of this.
Speaker 3: What do you think?
Speaker 9: I personally think they should wait until after they're done
Speaker 9: with high school. I think it's too much distraction amongst everything.
Speaker 3: They're high school kids, Paul, are going to have deals
Speaker 3: before they go to Duke?
Speaker 6: Yes, yes, absolutely, And here's just some numbers. Brands. Brands
Speaker 6: spent three hundred and thirty eight million dollars on nil
Speaker 6: deals two student athletes last year, primarily college students. That's
Speaker 6: up from one hundred and seventy one million twenty twenty three.
Speaker 6: Just to show you the growth there.
Speaker 9: Yeah, and how much you're getting paid. Okay, so these
Speaker 9: top high school athletes can earn between five hundred two
Speaker 9: thousand dollars for one social media post. Some of them, though,
Speaker 9: the superviarers make upwards of six figures multi year endorsements.
Speaker 2: So if your daughter does that, you could afford to
Speaker 2: go to the weekend.
Speaker 9: Maybe I should rethink that, and it can also help
Speaker 9: to pay well. They think these kids aren't going to
Speaker 9: have to pay for college, so they don't need I
Speaker 9: don't know.
Speaker 5: It's a whole.
Speaker 6: Yes, it's a whole.
Speaker 9: It's a whole, And the teachers and educators are against
Speaker 9: it though, because they're saying it's going to be a distraction.
Speaker 2: Section seven, two thousand and six hundred dollars. Here's the
Speaker 2: Lisa's running out of time because I can see the
Speaker 2: sun light up the sky, so I hit the road
Speaker 2: in overdrive to the weekend met Live first week of June.
Speaker 9: Yes, I know, I got the text message you already reminder.
Speaker 3: Yeah, Lisa Matteo, thank you so much.
Speaker 2: The newspapers the weekend out of the great new album.
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,
Speaker 1: seven to ten am Easter and on Bloomberg dot com,
Speaker 1: the iHeartRadio Appune, and the Bloomberg Business app. You can
Speaker 1: also watch us live every weekday on YouTube and always
Speaker 1: on the Bloomberg terminal