1 00:00:02,920 --> 00:00:08,680 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:09,960 --> 00:00:13,840 Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live 3 00:00:13,920 --> 00:00:17,000 Speaker 2: weekdays at ten am Eastern on affle Cardplay and Android 4 00:00:17,000 --> 00:00:20,120 Speaker 2: Auto with the Bloomberg Business App. Listen on demand wherever 5 00:00:20,160 --> 00:00:23,360 Speaker 2: you get your podcasts, or watch us live on YouTube. 6 00:00:24,880 --> 00:00:27,040 Speaker 3: All right, well, one stock this down about fifty percent 7 00:00:27,120 --> 00:00:30,400 Speaker 3: is b Riley. It's facing a wider probe on some 8 00:00:30,520 --> 00:00:33,520 Speaker 3: risk disclosure disclosure. So we want to get a little 9 00:00:33,520 --> 00:00:36,680 Speaker 3: bit more into this with David Viacos. He is Bloomberg 10 00:00:36,760 --> 00:00:39,440 Speaker 3: Legal reporter. Can you just explain to me, David, what's 11 00:00:39,479 --> 00:00:41,159 Speaker 3: going on here? What this probe is. 12 00:00:42,280 --> 00:00:46,879 Speaker 4: The Security and Exchange Commission has been investigating for several 13 00:00:46,920 --> 00:00:52,159 Speaker 4: months the accuracy of the financial disclosures from b Riley, 14 00:00:52,200 --> 00:00:56,520 Speaker 4: which is a Los Angeles based investment firm, and we 15 00:00:56,760 --> 00:01:00,600 Speaker 4: reported this morning that they're also looking into whether they've 16 00:01:00,640 --> 00:01:05,000 Speaker 4: adequately disclosed the risk in some of the assets, and 17 00:01:05,040 --> 00:01:09,399 Speaker 4: they're looking at possible improper trading by insiders as well. 18 00:01:10,319 --> 00:01:15,559 Speaker 4: The company today announced that it's likely to miss its 19 00:01:15,680 --> 00:01:21,319 Speaker 4: earnings by a good bit and so I think the 20 00:01:21,480 --> 00:01:27,440 Speaker 4: poor earnings announcement, combined with the SEC news, is punishing 21 00:01:27,480 --> 00:01:28,559 Speaker 4: the shriffs. 22 00:01:28,360 --> 00:01:33,120 Speaker 5: Down fifty four percent over the trailing twelve months. That 23 00:01:33,160 --> 00:01:36,440 Speaker 5: really does suggest that the stock market is really concerned 24 00:01:36,480 --> 00:01:39,280 Speaker 5: about this thing. Is there a solution here? Is there 25 00:01:39,319 --> 00:01:42,520 Speaker 5: a restructuring out there? Is there just is there something 26 00:01:42,520 --> 00:01:45,240 Speaker 5: out there that can save this company and shareholders and 27 00:01:45,360 --> 00:01:45,959 Speaker 5: bond holders? 28 00:01:45,959 --> 00:01:48,960 Speaker 4: I guess, well that's the question. I mean, Bryan Riley, 29 00:01:49,040 --> 00:01:52,920 Speaker 4: the founder and CEO, said today that they're refocusing their 30 00:01:52,960 --> 00:01:56,559 Speaker 4: business on their core operations, and I guess we'll see 31 00:01:57,720 --> 00:02:01,160 Speaker 4: how investors react. Their problem is they have a lot 32 00:02:01,200 --> 00:02:04,680 Speaker 4: of problematic debt that they're going to have to work 33 00:02:04,720 --> 00:02:11,280 Speaker 4: through now. And they also, uh, it's unknown just the 34 00:02:11,320 --> 00:02:16,240 Speaker 4: precise nature of their relationship with a guy named Brian Khan, 35 00:02:16,480 --> 00:02:22,440 Speaker 4: who be Riley helped take his company, Franchise Group public 36 00:02:22,800 --> 00:02:26,040 Speaker 4: and then help him take it private, and so there's 37 00:02:26,040 --> 00:02:29,440 Speaker 4: a lot of interlocking relationships between the two of them, 38 00:02:30,200 --> 00:02:33,640 Speaker 4: and there's a criminal investigation that's caught up Brian Khan. 39 00:02:34,760 --> 00:02:39,200 Speaker 3: So why would anyone own the stock right now? I mean, 40 00:02:39,200 --> 00:02:42,200 Speaker 3: what's in it for investors to hold onto the stock? 41 00:02:43,280 --> 00:02:45,840 Speaker 3: Like how soon will this legal worries be resolved or not? 42 00:02:46,080 --> 00:02:47,320 Speaker 3: Like how drawn out? Could this be? 43 00:02:48,880 --> 00:02:48,960 Speaker 5: It? 44 00:02:49,880 --> 00:02:53,160 Speaker 4: The company is contracting pretty rapidly. If you look at 45 00:02:53,200 --> 00:02:57,360 Speaker 4: its market share, it's down considerably. So this could go quickly. 46 00:02:58,520 --> 00:03:01,240 Speaker 4: And I guess it's a matter of whether investors still 47 00:03:01,280 --> 00:03:03,320 Speaker 4: have faith in this company to right itself. 48 00:03:03,880 --> 00:03:05,600 Speaker 5: You know, I'm just looking at you know, when you 49 00:03:05,600 --> 00:03:09,160 Speaker 5: think about these investors, banks, these brokers, firms, it's in 50 00:03:09,200 --> 00:03:11,120 Speaker 5: the marketplace, it's all about trust. We saw that with 51 00:03:11,200 --> 00:03:14,440 Speaker 5: Lehman Brothers, bear Stearns, much bigger firms. But if you 52 00:03:14,560 --> 00:03:18,760 Speaker 5: lose that counterparty trust, you're done. Everybody just walks away 53 00:03:18,760 --> 00:03:21,680 Speaker 5: from you. Is that kind of It feels like we're 54 00:03:21,720 --> 00:03:22,920 Speaker 5: kind of at that point right now. 55 00:03:23,200 --> 00:03:26,880 Speaker 4: It does feel like we're at an inflection point, you know, 56 00:03:26,919 --> 00:03:32,840 Speaker 4: whether investors will continue to trust and so I guess 57 00:03:32,840 --> 00:03:36,120 Speaker 4: we'll have to see how the investigations play out as well. 58 00:03:36,760 --> 00:03:39,120 Speaker 5: All Right, David, thank you very much for that reporting. 59 00:03:39,240 --> 00:03:41,640 Speaker 5: It looks like a brutal day for b Riley and 60 00:03:41,640 --> 00:03:45,480 Speaker 5: A shareholders down fifty percent. Here David Orriaco's Bloomberg legal reporter, 61 00:03:45,560 --> 00:03:47,840 Speaker 5: talking to us about b Riley. R I l Y 62 00:03:48,840 --> 00:03:50,240 Speaker 5: is the ticker. 63 00:03:51,560 --> 00:03:55,440 Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live 64 00:03:55,560 --> 00:03:58,640 Speaker 2: weekdays at ten am Eastern on applecar Play and and 65 00:03:58,840 --> 00:04:01,520 Speaker 2: right OUTO with the bloom Business at You can also 66 00:04:01,600 --> 00:04:04,760 Speaker 2: listen live on Amazon Alexa from our flagship New York 67 00:04:04,840 --> 00:04:08,119 Speaker 2: station Just Say Alexa playing Bloomberg eleven. 68 00:04:07,920 --> 00:04:12,320 Speaker 3: Thirty, Malex Steel Paul SWEENI will be back momentarily. This 69 00:04:12,360 --> 00:04:14,880 Speaker 3: is the Bloomberg Intelligence Radio. We bring you all the 70 00:04:14,920 --> 00:04:17,640 Speaker 3: top news in business and finance and economics. There are 71 00:04:17,720 --> 00:04:20,239 Speaker 3: lens of our Bloomberg Intelligence folks. They cover two thousand 72 00:04:20,320 --> 00:04:23,560 Speaker 3: companies and one hundred and thirty industries worldwide. We also 73 00:04:23,640 --> 00:04:26,080 Speaker 3: take you outside the Bloomberg Intelligence universe to get the 74 00:04:26,120 --> 00:04:28,240 Speaker 3: read on what people are doing with their money, and 75 00:04:28,240 --> 00:04:30,520 Speaker 3: for that we go to Christina Hooper, a chief Global 76 00:04:30,520 --> 00:04:33,600 Speaker 3: market strategist at Invesco. She joins us. Now, Christina, you're 77 00:04:33,640 --> 00:04:36,800 Speaker 3: one of the best about putting situations in the market 78 00:04:36,960 --> 00:04:41,200 Speaker 3: into context, into perspective. So just let's start broad. How 79 00:04:41,200 --> 00:04:44,120 Speaker 3: would you categorize the last couple weeks within the within 80 00:04:44,120 --> 00:04:45,840 Speaker 3: the market. 81 00:04:46,320 --> 00:04:48,880 Speaker 6: So Alex, I would characterize it this way. We have 82 00:04:49,120 --> 00:04:53,440 Speaker 6: seen valuations get stretched. Let's face it, We've seen a 83 00:04:53,560 --> 00:04:57,839 Speaker 6: very very strong rally over multiple multiple months without much 84 00:04:57,839 --> 00:05:00,800 Speaker 6: of a pullback, So it makes sense that when stocks 85 00:05:00,800 --> 00:05:06,360 Speaker 6: are closer to being priced for perfection, jitters enter the 86 00:05:06,400 --> 00:05:13,120 Speaker 6: market environment, especially when we see some cracks appearing in 87 00:05:13,160 --> 00:05:16,560 Speaker 6: the economy at the same time that the FED is 88 00:05:16,720 --> 00:05:20,240 Speaker 6: holding rates at very high levels. What I would argue 89 00:05:20,640 --> 00:05:26,000 Speaker 6: is very restrictive given the level of disinflationary progress we've 90 00:05:26,000 --> 00:05:28,760 Speaker 6: seen thus far. So I think of it as something 91 00:05:28,800 --> 00:05:33,359 Speaker 6: of a small but almost perfect storm that caused a 92 00:05:33,480 --> 00:05:37,479 Speaker 6: sell off. Certainly that was the case in the United States, 93 00:05:37,520 --> 00:05:41,720 Speaker 6: of course, greatly exacerbated and initially triggered by what happened 94 00:05:41,720 --> 00:05:45,200 Speaker 6: in Japan with the carry trade. The banker Japan gave 95 00:05:45,240 --> 00:05:51,320 Speaker 6: a somewhat surprising rate hike, and that triggered an unwind. 96 00:05:51,560 --> 00:05:56,080 Speaker 6: And so we had several different events that came together 97 00:05:56,440 --> 00:05:59,760 Speaker 6: to cause the sell off. But just as quickly as 98 00:05:59,800 --> 00:06:04,400 Speaker 6: at occurred, we saw a retracing of much of it 99 00:06:04,480 --> 00:06:09,040 Speaker 6: because those proximate causes dissipated. And by that I mean 100 00:06:09,120 --> 00:06:11,839 Speaker 6: we heard from the Bank of Japan that in fact, 101 00:06:11,839 --> 00:06:13,599 Speaker 6: they're going to be a lot more cautious with any 102 00:06:13,640 --> 00:06:17,600 Speaker 6: more rate hikes if there is market turmoil or instability. 103 00:06:18,000 --> 00:06:22,280 Speaker 6: And number two, we got a data point in labor. 104 00:06:22,320 --> 00:06:25,239 Speaker 6: The initial jobless claims that was better than expected because 105 00:06:25,279 --> 00:06:27,919 Speaker 6: in the US, the trigger, of course for concerns about 106 00:06:27,960 --> 00:06:33,040 Speaker 6: a heightened probability of recession came from the July jobs report, 107 00:06:33,600 --> 00:06:37,360 Speaker 6: and that increased in unemployment. So we've seen something of 108 00:06:37,800 --> 00:06:41,440 Speaker 6: a recovery. I think we're going to continue to see 109 00:06:41,600 --> 00:06:45,320 Speaker 6: investors walking on eggshells in the near term because there's 110 00:06:45,320 --> 00:06:47,640 Speaker 6: still a lot of uncertainty out there. But I think 111 00:06:47,680 --> 00:06:49,880 Speaker 6: it definitely was an over sold situation. 112 00:06:50,520 --> 00:06:53,320 Speaker 3: So then how does that set us up into CPI 113 00:06:53,400 --> 00:06:56,680 Speaker 3: this week? Although I might say initial jobless claims before CPI, 114 00:06:56,800 --> 00:07:00,000 Speaker 3: for example, more important, and then Jackson Hole, if position 115 00:07:00,320 --> 00:07:02,200 Speaker 3: is kind of cleaned out a little bit, if we've 116 00:07:02,240 --> 00:07:07,080 Speaker 3: kind of delevered enough, if technically we've already sort of stabilized, 117 00:07:07,120 --> 00:07:08,200 Speaker 3: how does that set us up? 118 00:07:10,200 --> 00:07:14,000 Speaker 6: So I think we certainly will have jitters around, not 119 00:07:14,120 --> 00:07:17,320 Speaker 6: just initial jobless claims, but clearly CPI, But we have 120 00:07:17,360 --> 00:07:19,040 Speaker 6: to take it with a grain of salt, right because 121 00:07:19,080 --> 00:07:23,920 Speaker 6: we are seeing other signs of disinflation. In fact, I 122 00:07:23,920 --> 00:07:26,280 Speaker 6: thought the most important data point from the July jobs 123 00:07:26,280 --> 00:07:29,360 Speaker 6: report was wage growth, which has fallen to three point 124 00:07:29,400 --> 00:07:33,040 Speaker 6: six percent year over year. But certainly we'll have markets 125 00:07:33,360 --> 00:07:38,040 Speaker 6: hypersensitive to the data this week, especially CPI, and then 126 00:07:38,080 --> 00:07:42,200 Speaker 6: of course we'll have a lot of sensitivity around Jackson Hole. 127 00:07:42,640 --> 00:07:45,640 Speaker 6: Now I look to history and say that typically that 128 00:07:45,840 --> 00:07:51,920 Speaker 6: is used as an opportunity for central bankers to signal 129 00:07:52,000 --> 00:07:55,400 Speaker 6: shifts in monetary policy, and I would expect that to 130 00:07:55,520 --> 00:07:58,400 Speaker 6: happen at Jackson Hole, not in every speech, but I 131 00:07:58,400 --> 00:08:02,040 Speaker 6: think we should get some sense that the Fed will 132 00:08:02,120 --> 00:08:04,280 Speaker 6: cut in September. Now, I don't think we're going to 133 00:08:04,280 --> 00:08:06,760 Speaker 6: get an emergency cut before then. I don't think we're 134 00:08:06,760 --> 00:08:09,760 Speaker 6: going to get bigger than fifty basis points because the 135 00:08:09,800 --> 00:08:12,440 Speaker 6: Fed seems to be very confident in their approach. And 136 00:08:12,520 --> 00:08:15,360 Speaker 6: keep in mind, they did a similar thing back in 137 00:08:15,400 --> 00:08:19,120 Speaker 6: twenty twenty two. Many thought they were behind I think 138 00:08:19,240 --> 00:08:21,160 Speaker 6: they thought they might be behind it, but they still 139 00:08:21,160 --> 00:08:24,200 Speaker 6: only started with twenty five basis points, and I think 140 00:08:24,200 --> 00:08:25,640 Speaker 6: we'll see the same in September. 141 00:08:25,840 --> 00:08:29,000 Speaker 3: So to that point, how does the FED signal cuts 142 00:08:29,080 --> 00:08:31,600 Speaker 3: when the market's already pricing in one hundred basis points 143 00:08:31,640 --> 00:08:33,960 Speaker 3: of cuts? So it's like if they go too far 144 00:08:33,960 --> 00:08:35,040 Speaker 3: and then all of a sudden, we're going to be 145 00:08:35,040 --> 00:08:37,480 Speaker 3: looking at what fifty again are being priced in. 146 00:08:38,960 --> 00:08:42,560 Speaker 6: Well, I think it's a reiteration that we're going to 147 00:08:42,559 --> 00:08:47,040 Speaker 6: be gradual, that we are going to start cutting, but 148 00:08:47,240 --> 00:08:50,400 Speaker 6: don't expect it to be at the level you think 149 00:08:50,440 --> 00:08:54,119 Speaker 6: it is, because we're very comfortable with where the economy 150 00:08:54,280 --> 00:08:57,920 Speaker 6: is right now, although monetary policy is too restrictive, so 151 00:08:57,960 --> 00:09:01,520 Speaker 6: I think that's going to be the approach. So certainly 152 00:09:01,600 --> 00:09:07,000 Speaker 6: not not hawkish, but not the dubvishness that markets are 153 00:09:07,040 --> 00:09:08,439 Speaker 6: pricing in at this point. 154 00:09:08,760 --> 00:09:11,120 Speaker 3: Do you feel, then, from that perspective that the carry 155 00:09:11,640 --> 00:09:14,600 Speaker 3: trade unwine blow up thing that we saw is that over? 156 00:09:14,679 --> 00:09:16,559 Speaker 3: Because the funny thing is if the FED cuts more 157 00:09:16,600 --> 00:09:19,360 Speaker 3: than we think, that's actually worse for the carry trade 158 00:09:19,360 --> 00:09:22,440 Speaker 3: blow up. Do we think that that part of the 159 00:09:22,480 --> 00:09:23,760 Speaker 3: market turmoil is done? 160 00:09:25,640 --> 00:09:29,160 Speaker 6: I think it's largely done. I would say it's entirely 161 00:09:29,880 --> 00:09:33,200 Speaker 6: but I do take comfort in the reassurances from the 162 00:09:33,240 --> 00:09:35,920 Speaker 6: Bank of Japan and frankly, I don't think they need 163 00:09:36,200 --> 00:09:40,160 Speaker 6: to hike again for some time. But yeah, certainly there 164 00:09:40,200 --> 00:09:43,000 Speaker 6: could be wrenches thrown into it if the FED, for example, 165 00:09:43,080 --> 00:09:45,200 Speaker 6: is more dubbish. I just don't see that on the 166 00:09:45,320 --> 00:09:46,520 Speaker 6: very near term horizon. 167 00:09:46,920 --> 00:09:48,600 Speaker 3: All right, fair enough, what do you think we are 168 00:09:48,640 --> 00:09:50,680 Speaker 3: going to see for CPI? On Wednesday. 169 00:09:52,640 --> 00:09:55,920 Speaker 6: I think we'll probably see it somewhat in line with expectations. 170 00:09:55,960 --> 00:09:58,280 Speaker 6: But I always take a step back and say, Okay, 171 00:09:58,520 --> 00:10:01,440 Speaker 6: let's say that the month over month number is higher 172 00:10:02,040 --> 00:10:04,240 Speaker 6: than we'd want to see. At the end of the day, 173 00:10:04,440 --> 00:10:07,040 Speaker 6: the FED is looking at a mosaic of data, and 174 00:10:07,320 --> 00:10:09,760 Speaker 6: more important to the FED, of course, is forre PCEE. 175 00:10:10,400 --> 00:10:14,040 Speaker 6: And also I think we often overlook that an important 176 00:10:14,040 --> 00:10:17,760 Speaker 6: part of the Fed's calculus is consumer inflation expectations. We'll 177 00:10:17,760 --> 00:10:21,040 Speaker 6: get the Michigan numbers on Friday, and I think that 178 00:10:21,120 --> 00:10:23,400 Speaker 6: plays a role. Keep in mind that back in June 179 00:10:23,440 --> 00:10:25,800 Speaker 6: of twenty twenty two, when the FED decided to hike 180 00:10:25,880 --> 00:10:29,520 Speaker 6: rate seventy five basis points rather than fifty, they gave 181 00:10:29,600 --> 00:10:32,120 Speaker 6: as their argument in the press conference a couple of 182 00:10:32,120 --> 00:10:34,800 Speaker 6: different data points that they had received, not just CPI 183 00:10:35,200 --> 00:10:38,679 Speaker 6: but inflation expectations. So I think that's an important part of. 184 00:10:38,600 --> 00:10:41,360 Speaker 3: The Calculus's such a good point. And it's also like 185 00:10:41,360 --> 00:10:44,719 Speaker 3: the trend, you know, the directionality to be important there too. 186 00:10:44,800 --> 00:10:46,720 Speaker 3: So when my husband texts me and says, oh my gosh, 187 00:10:46,760 --> 00:10:48,360 Speaker 3: look at this market, what are we doing here? We 188 00:10:48,440 --> 00:10:50,400 Speaker 3: have to do something. What do I tell him like, 189 00:10:50,440 --> 00:10:52,400 Speaker 3: calm down, stay in your positions, or are we going 190 00:10:52,440 --> 00:10:53,240 Speaker 3: to buy the dip? Here? 191 00:10:53,360 --> 00:10:53,440 Speaker 7: Like? 192 00:10:53,480 --> 00:10:55,160 Speaker 3: How do you deal with it as a market participant? 193 00:10:56,640 --> 00:10:59,000 Speaker 6: Well, I look at it this way. If we had 194 00:10:59,080 --> 00:11:02,079 Speaker 6: been sparn enough to turn off our. 195 00:11:01,960 --> 00:11:07,199 Speaker 8: Bloomberg terminals, this is so true, and turned on the 196 00:11:07,240 --> 00:11:10,240 Speaker 8: TV and just watched the Olympics since the start, and 197 00:11:10,280 --> 00:11:14,480 Speaker 8: then turned back everything on today, it wouldn't seem like 198 00:11:14,559 --> 00:11:17,839 Speaker 8: anything dramatic, very dramatic had happened while we were enjoying 199 00:11:17,840 --> 00:11:19,880 Speaker 8: the Olympics, including the break dancing section. 200 00:11:20,440 --> 00:11:26,439 Speaker 6: And yet that is not what we as humans tend 201 00:11:26,480 --> 00:11:29,480 Speaker 6: to do. We fixate on every move and every data point. 202 00:11:29,679 --> 00:11:32,080 Speaker 6: So I think to a certain extent, putting blinders on 203 00:11:32,440 --> 00:11:36,880 Speaker 6: and thinking about the long term trajectory of where inflation 204 00:11:37,000 --> 00:11:39,400 Speaker 6: is going, where the FED is going, can be helpful. 205 00:11:39,840 --> 00:11:42,040 Speaker 6: I think we get so caught up in the short 206 00:11:42,160 --> 00:11:46,719 Speaker 6: term data and market moves when we often as investors, 207 00:11:46,960 --> 00:11:49,280 Speaker 6: we typically have much longer time horizons. 208 00:11:49,679 --> 00:11:51,319 Speaker 3: It's true, it's such a good point. I knew that 209 00:11:51,480 --> 00:11:54,880 Speaker 3: double tasking here well on my terminal with my little 210 00:11:54,920 --> 00:11:56,760 Speaker 3: TV up on the screen was the right call. Thank 211 00:11:56,800 --> 00:11:59,560 Speaker 3: you for validating me, Christina. So does that mean that 212 00:11:59,800 --> 00:12:02,880 Speaker 3: it's it's still going to be sort of growth or quality. 213 00:12:02,920 --> 00:12:06,680 Speaker 3: Maybe you go out with quality quality over cyclicals or something. 214 00:12:07,040 --> 00:12:08,760 Speaker 3: Is that a good way to also think about it. 215 00:12:10,080 --> 00:12:11,640 Speaker 6: Well, probably in the near term it's going to be 216 00:12:11,760 --> 00:12:14,720 Speaker 6: quality because there is a nervousness. There still is some 217 00:12:14,960 --> 00:12:18,240 Speaker 6: risk off sentiment, even though I think certainly conditions became 218 00:12:18,280 --> 00:12:22,400 Speaker 6: over sold. Having said all that, if the FED begins 219 00:12:22,400 --> 00:12:26,760 Speaker 6: to cut and we start to see an improvement in 220 00:12:26,840 --> 00:12:30,320 Speaker 6: economic data, then I think there's this assumption on the 221 00:12:30,360 --> 00:12:33,520 Speaker 6: part of markets that there will be a reacceleration. That's 222 00:12:33,559 --> 00:12:37,599 Speaker 6: my base case, and we'll see. In my opinion, markets 223 00:12:37,800 --> 00:12:41,319 Speaker 6: anticipate that in advance, discount that in advance, which we 224 00:12:41,360 --> 00:12:46,160 Speaker 6: would mean small caps and cyclicals are likely to outperform. 225 00:12:46,320 --> 00:12:48,800 Speaker 3: All right, Christina, did you like break dancing? Like? How 226 00:12:48,800 --> 00:12:50,520 Speaker 3: do we feel about that? In the Olympics so no 227 00:12:50,559 --> 00:12:52,240 Speaker 3: one else will talk about this with me in radio? 228 00:12:52,320 --> 00:12:53,240 Speaker 3: How did you feel about it? 229 00:12:54,520 --> 00:12:56,840 Speaker 6: Well, I was very curious about it. I have to 230 00:12:56,920 --> 00:12:59,559 Speaker 6: say that's something that I think of fondly as a 231 00:13:00,040 --> 00:13:04,040 Speaker 6: out of the eighties. But I'm not sure I've seen 232 00:13:04,080 --> 00:13:06,040 Speaker 6: breakdance moves like the ones I saw at the Olympics, 233 00:13:06,040 --> 00:13:07,800 Speaker 6: so I didn't know if there were different rules in place. 234 00:13:08,000 --> 00:13:10,360 Speaker 3: This is fair enough. John Tucker has something he wants 235 00:13:10,320 --> 00:13:14,600 Speaker 3: to say, sport. No, it's not a whatever. Skate Do 236 00:13:14,600 --> 00:13:16,240 Speaker 3: you think skateboarding is a sport? 237 00:13:16,760 --> 00:13:17,000 Speaker 2: Yes? 238 00:13:17,280 --> 00:13:21,360 Speaker 3: Okay, So what's the difference because they're on a board? Okay, 239 00:13:21,480 --> 00:13:24,000 Speaker 3: I don't know. I don't know about that. I loved it. 240 00:13:24,080 --> 00:13:26,720 Speaker 3: I'm so sad it's over all getting into a curmudgeon. 241 00:13:26,880 --> 00:13:29,720 Speaker 3: By the way, I'm not turning you into anything. I'm 242 00:13:29,720 --> 00:13:32,480 Speaker 3: just setting you up with certain questions. All right, Christina, 243 00:13:32,480 --> 00:13:36,160 Speaker 3: thanks a lot. We appreciated Christina Hooper, chief Global market 244 00:13:36,200 --> 00:13:39,480 Speaker 3: strategist at Invesco, to be totally fair to John Tucker. 245 00:13:39,640 --> 00:13:42,040 Speaker 3: I'm not entirely clear on the break dancing thing either, 246 00:13:42,760 --> 00:13:45,440 Speaker 3: but I support winners and that's all fine. 247 00:13:45,800 --> 00:13:49,679 Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live 248 00:13:49,760 --> 00:13:52,400 Speaker 2: weekdays at ten am Eastern on Apple car Playing and 249 00:13:52,559 --> 00:13:55,480 Speaker 2: broyd Otto with the Bloomberg Business app. Listen on demand 250 00:13:55,520 --> 00:14:00,160 Speaker 2: wherever you get your podcasts, or watch us live on YouTube. 251 00:14:00,960 --> 00:14:03,240 Speaker 3: The headline in a good way is Gocha Bank buying 252 00:14:03,280 --> 00:14:05,760 Speaker 3: about fourteen point nine percent of Key Corp for about 253 00:14:05,760 --> 00:14:09,560 Speaker 3: two point eight billion dollars. Now, remember Key Corp was 254 00:14:09,559 --> 00:14:12,079 Speaker 3: one of the regional banks that was hit pretty hard 255 00:14:12,360 --> 00:14:15,559 Speaker 3: in the tumult of twenty twenty three. So naturally, who 256 00:14:15,559 --> 00:14:18,120 Speaker 3: do we go to? Herman Chan Bloomberg Intelligence senior analyst 257 00:14:18,200 --> 00:14:20,760 Speaker 3: for US regional banks. Usually we call on him when 258 00:14:20,800 --> 00:14:22,840 Speaker 3: things are going poorly. But this feels to be a 259 00:14:22,840 --> 00:14:25,240 Speaker 3: good thing for Key Corp. Can you walk us through. 260 00:14:26,040 --> 00:14:29,040 Speaker 3: Let's walk us through what Key Corp actually was before 261 00:14:29,280 --> 00:14:30,800 Speaker 3: a Scochia bank decided to get in here. 262 00:14:30,920 --> 00:14:34,520 Speaker 9: Sure, so Key Corp regional bank based in Ohio Cleveland, 263 00:14:35,640 --> 00:14:41,000 Speaker 9: strong presence in commercial ending and has a really robust 264 00:14:41,240 --> 00:14:44,360 Speaker 9: investment bank and capital markets capability for its size. On 265 00:14:44,440 --> 00:14:48,640 Speaker 9: the flip side, the bank was really has been really 266 00:14:48,680 --> 00:14:52,360 Speaker 9: pressured by the higher interest re environment. It got caught 267 00:14:52,360 --> 00:14:55,440 Speaker 9: off sides a little bit by both its hedging strategy 268 00:14:55,480 --> 00:14:58,520 Speaker 9: and its investments in lowly yielding securities when interest rates 269 00:14:58,520 --> 00:15:02,320 Speaker 9: were near zero. So it's it's margin and profitability has 270 00:15:02,400 --> 00:15:04,640 Speaker 9: lagged the peer group over the past couple of years. 271 00:15:05,600 --> 00:15:09,960 Speaker 9: That being said, things were improving and didn't require any 272 00:15:10,000 --> 00:15:14,760 Speaker 9: additional capital infusion. There was on a path to self help. 273 00:15:16,000 --> 00:15:19,160 Speaker 9: Margin had already reached the bottom. But now the with 274 00:15:19,360 --> 00:15:22,480 Speaker 9: the two point eight billion capital infusion from Scotia Bank, 275 00:15:22,520 --> 00:15:27,000 Speaker 9: they can accelerate that earnings profitability improvement story. 276 00:15:27,520 --> 00:15:30,160 Speaker 3: How long does it take to get something like this done? Like, 277 00:15:30,200 --> 00:15:31,520 Speaker 3: has this been in the works for a while or what? 278 00:15:31,800 --> 00:15:36,320 Speaker 9: Yeah, it seems like based on both the calls that 279 00:15:36,320 --> 00:15:39,880 Speaker 9: that Key Corp. And Scotia Bank conducted earlier this morning, 280 00:15:40,680 --> 00:15:46,800 Speaker 9: the CEOs had ongoing conversations about a potential investment. From 281 00:15:46,880 --> 00:15:49,840 Speaker 9: what I understand, Scotia Bank wanted to expand in the 282 00:15:49,960 --> 00:15:54,080 Speaker 9: US and had done a lot of due diligence in 283 00:15:54,240 --> 00:15:57,560 Speaker 9: looking at opportunities, and Key Porp was their top choice. 284 00:15:58,320 --> 00:16:04,120 Speaker 9: So it adds a great earning stream and exposure to 285 00:16:04,560 --> 00:16:07,280 Speaker 9: the US for Scotia Bank and for Key Corp. It 286 00:16:07,440 --> 00:16:11,440 Speaker 9: really improves its capital and liquidity and really puts them 287 00:16:11,440 --> 00:16:13,760 Speaker 9: on offense rather than playing defense for the past couple 288 00:16:13,800 --> 00:16:14,160 Speaker 9: of years. 289 00:16:14,240 --> 00:16:17,040 Speaker 3: How are the banks like Key Corp doing as interest 290 00:16:17,120 --> 00:16:19,600 Speaker 3: rates may fall somewhat soon. 291 00:16:19,840 --> 00:16:23,560 Speaker 9: Yeah, I guess I would contrast it with the tumult 292 00:16:23,680 --> 00:16:28,520 Speaker 9: of March and April of last year. The banks had 293 00:16:28,640 --> 00:16:33,640 Speaker 9: largely been very defensive pretty much up to the end 294 00:16:33,720 --> 00:16:39,000 Speaker 9: of last year. Reducing its lending capacity, trying to improve 295 00:16:39,040 --> 00:16:43,960 Speaker 9: its capital and liquidity ahead of both fears about deposits 296 00:16:44,040 --> 00:16:48,560 Speaker 9: leaving and also higher regulatory burden. Right now, it seems 297 00:16:48,600 --> 00:16:51,640 Speaker 9: like they're in a much stronger position. Capital has been 298 00:16:52,120 --> 00:16:55,280 Speaker 9: built up, they're back to lending. The only issue is 299 00:16:55,320 --> 00:16:58,160 Speaker 9: there's not a lot of demand, and the banks are 300 00:16:58,200 --> 00:17:02,640 Speaker 9: positioned for potentially or interest rates that can improve some 301 00:17:02,760 --> 00:17:05,840 Speaker 9: lending going forward. They've had a lot of the potential 302 00:17:05,920 --> 00:17:09,040 Speaker 9: rate decline, so they're in a fairly good position to 303 00:17:09,440 --> 00:17:11,800 Speaker 9: really prosecute the opportunity. 304 00:17:12,480 --> 00:17:17,640 Speaker 3: What about deposits? Has deposit flight stopped, particularly if rates 305 00:17:17,680 --> 00:17:19,720 Speaker 3: wind up coming down. I'm just waiting for my market's 306 00:17:19,760 --> 00:17:21,960 Speaker 3: account all of a sudden started to tick lower and 307 00:17:22,119 --> 00:17:23,960 Speaker 3: yield where are we here with that? 308 00:17:24,359 --> 00:17:28,360 Speaker 9: My high savings account is already ticked down in anticipation 309 00:17:28,480 --> 00:17:31,520 Speaker 9: for Rencooks, so American Express, I'm not a big fan 310 00:17:31,600 --> 00:17:36,040 Speaker 9: of that. I would say that the posits have really stabilized. 311 00:17:36,440 --> 00:17:39,879 Speaker 9: There's no real rush to build the posits now because 312 00:17:39,920 --> 00:17:42,600 Speaker 9: as I said before, there's not a lot of demand 313 00:17:42,680 --> 00:17:45,160 Speaker 9: for the lending side, so you don't need a lot 314 00:17:45,160 --> 00:17:48,200 Speaker 9: of deposits to really fuel that that you know, the 315 00:17:49,200 --> 00:17:53,359 Speaker 9: muted demand appetite out there for loans. That being said, 316 00:17:53,760 --> 00:17:56,919 Speaker 9: the positle cards aren't rising either, and they're pretty stable 317 00:17:56,960 --> 00:18:01,080 Speaker 9: because the Feds stabilized there the Fed funds rate for 318 00:18:01,520 --> 00:18:05,680 Speaker 9: a bit now, and we'd expect, you know, some stable 319 00:18:05,800 --> 00:18:09,000 Speaker 9: margin depending on the bank, some could be upcome, some 320 00:18:09,040 --> 00:18:11,240 Speaker 9: could be down over the next year just based on 321 00:18:11,280 --> 00:18:12,080 Speaker 9: their balance sheets. 322 00:18:12,440 --> 00:18:16,560 Speaker 3: Are there other potential targets for investments from other banks 323 00:18:16,600 --> 00:18:17,640 Speaker 3: in this kind of scenario. 324 00:18:17,880 --> 00:18:22,639 Speaker 9: Yeah, from what I understand that there's a unique way 325 00:18:22,680 --> 00:18:28,320 Speaker 9: of accounting for the Canadians where some small portion of 326 00:18:29,640 --> 00:18:36,679 Speaker 9: investments in financial institutions has a as a positive capital calculation, 327 00:18:36,840 --> 00:18:40,360 Speaker 9: So it might be more focused on the Canadians in general. 328 00:18:40,800 --> 00:18:43,880 Speaker 9: But that being said that we have seen some pickup 329 00:18:44,119 --> 00:18:46,520 Speaker 9: in traditional M and A activity in the United States. 330 00:18:48,040 --> 00:18:50,880 Speaker 9: Discover Capital one is the biggest one that we're still 331 00:18:50,880 --> 00:18:54,560 Speaker 9: waiting for regulatory regulatory approval, and then there's some smaller 332 00:18:54,600 --> 00:18:57,639 Speaker 9: banks that have done some deals as well. So it 333 00:18:57,800 --> 00:19:01,480 Speaker 9: seems like that the the activity is going to rebound 334 00:19:01,480 --> 00:19:03,320 Speaker 9: even more once we get rate cuts. 335 00:19:03,600 --> 00:19:05,720 Speaker 3: All right, really good stuff, Thank you so much. Herman 336 00:19:05,800 --> 00:19:08,399 Speaker 3: chan He is so happy when he comes in and 337 00:19:08,440 --> 00:19:11,399 Speaker 3: doesn't have to talk about banks blowing up, so exactly. 338 00:19:11,200 --> 00:19:13,639 Speaker 9: I'm no longer the grim Reapers. 339 00:19:14,480 --> 00:19:16,399 Speaker 3: It was like Sam Fizzelli for a while with COVID, 340 00:19:16,440 --> 00:19:17,879 Speaker 3: and it was Herman Chan with the bank blow up, 341 00:19:17,880 --> 00:19:19,399 Speaker 3: and now you know, we're in a different places. Herman 342 00:19:19,480 --> 00:19:22,639 Speaker 3: Chan Bloomberg Intelligence, senior analysts for US regional banks. We 343 00:19:22,760 --> 00:19:24,439 Speaker 3: very much appreciate that. 344 00:19:26,000 --> 00:19:29,880 Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live 345 00:19:29,960 --> 00:19:33,520 Speaker 2: weekdays at ten am Eastern on applecar Play and Android 346 00:19:33,520 --> 00:19:36,280 Speaker 2: Auto with the Bloomberg Business App. You can also listen 347 00:19:36,400 --> 00:19:39,520 Speaker 2: live on Amazon Alexa from our flagship New York station 348 00:19:39,880 --> 00:19:42,560 Speaker 2: Just Say Alexa, Play Bloomberg eleven. 349 00:19:42,359 --> 00:19:46,120 Speaker 5: Thirty, Alex Stee, Paul Swinny live here in our Bloomberg 350 00:19:46,119 --> 00:19:50,959 Speaker 5: Interactive Broker's studio. Also streaming video on YouTube ahead over 351 00:19:51,000 --> 00:19:53,960 Speaker 5: YouTube dot com and search Bloomberg Podcast. That's where you 352 00:19:53,960 --> 00:19:56,080 Speaker 5: will find us. Boy, if you think back a week ago, 353 00:19:56,359 --> 00:20:00,000 Speaker 5: right now, the market was panicking. It felt like, I mean, people, 354 00:20:00,040 --> 00:20:02,480 Speaker 5: we're selling everything across the board, and it is a 355 00:20:02,520 --> 00:20:05,000 Speaker 5: real confluence of events there that really spooked the market. 356 00:20:05,440 --> 00:20:07,959 Speaker 5: The market stabilized kind of midday and into the afternoon 357 00:20:08,000 --> 00:20:10,399 Speaker 5: on Monday, and then kind of clawed back some of 358 00:20:10,400 --> 00:20:13,760 Speaker 5: that selling later in the week, which brings us today 359 00:20:13,880 --> 00:20:15,600 Speaker 5: kind of a mixed market, red and green on the 360 00:20:15,600 --> 00:20:17,080 Speaker 5: screen here. But let's see where we go from here, 361 00:20:17,240 --> 00:20:22,200 Speaker 5: and we do that with a professional. Sarah Ponzik, Financial Advisor, UBS, 362 00:20:22,200 --> 00:20:26,919 Speaker 5: Private Wealth Management, full disclosure. That's where the Sweeney pile 363 00:20:26,920 --> 00:20:29,600 Speaker 5: of cash is at UBS. So they have a whole 364 00:20:29,640 --> 00:20:32,479 Speaker 5: wing just taking care of me. That's nice. Yes, I've 365 00:20:32,520 --> 00:20:37,800 Speaker 5: heard that Tonio c He does it just because he 366 00:20:38,560 --> 00:20:41,639 Speaker 5: likes me. All right, Sarah, what were you What kind 367 00:20:41,640 --> 00:20:44,400 Speaker 5: of conversations were you having with your clients last week? 368 00:20:44,440 --> 00:20:46,560 Speaker 5: It must have been Monday. Must have been a little dicey, 369 00:20:46,800 --> 00:20:47,439 Speaker 5: it was. 370 00:20:47,560 --> 00:20:50,040 Speaker 1: And what a difference just a couple of days makes 371 00:20:50,640 --> 00:20:53,439 Speaker 1: On Monday, if you woke up and you looked at 372 00:20:53,440 --> 00:20:56,240 Speaker 1: the headlines, then you saw what had happened overseas, and 373 00:20:56,280 --> 00:20:58,240 Speaker 1: then you looked at futures markets, and then the market 374 00:20:58,320 --> 00:21:00,480 Speaker 1: opened at nine thirty am and it was just a 375 00:21:00,520 --> 00:21:01,119 Speaker 1: sea of red. 376 00:21:01,359 --> 00:21:03,520 Speaker 10: It felt like the world was falling apart. And I did. 377 00:21:03,560 --> 00:21:07,520 Speaker 1: I mean I had incoming calls all day long from 378 00:21:07,560 --> 00:21:09,840 Speaker 1: clients asking what is going on? 379 00:21:10,119 --> 00:21:11,440 Speaker 10: Do we need to be concerned? 380 00:21:11,640 --> 00:21:14,520 Speaker 1: Should we be selling our stock portfolio, and the answer 381 00:21:14,800 --> 00:21:17,720 Speaker 1: was emphatically no, because as we saw by the end 382 00:21:17,760 --> 00:21:20,600 Speaker 1: of the week, what a difference a couple of days makes. 383 00:21:20,640 --> 00:21:24,280 Speaker 1: And if we think back to why why did Monday happen? 384 00:21:24,359 --> 00:21:27,159 Speaker 1: Last week, there was a confluence of events. Yes, we 385 00:21:27,200 --> 00:21:30,600 Speaker 1: saw the yen carry trade unwinding. It was, you know, 386 00:21:31,160 --> 00:21:36,920 Speaker 1: just more concerns about recession posts that jobs report, and 387 00:21:37,240 --> 00:21:40,760 Speaker 1: just also consider the fact that we had seen almost 388 00:21:40,800 --> 00:21:44,200 Speaker 1: no volatility this year. We were due for some volatility, 389 00:21:45,160 --> 00:21:47,000 Speaker 1: and then it just took a couple of days an 390 00:21:47,040 --> 00:21:49,120 Speaker 1: initial job as claim suport, which showed maybe the labor 391 00:21:49,160 --> 00:21:53,000 Speaker 1: market isn't as dire as the prior Friday had really suggested, 392 00:21:53,280 --> 00:21:55,800 Speaker 1: which usually doesn't move markets, but it did. And then 393 00:21:55,920 --> 00:21:57,800 Speaker 1: by the end of the week, if you had fallen 394 00:21:57,800 --> 00:22:00,000 Speaker 1: asleep the entire week, you would have never known Monday happened. 395 00:22:00,160 --> 00:22:02,040 Speaker 1: The S and P five hundred was unchanged by the end. 396 00:22:02,240 --> 00:22:05,119 Speaker 3: I so wish that I had done that. I sleeping 397 00:22:05,119 --> 00:22:07,520 Speaker 3: as my superpower. I could definitely have done that for 398 00:22:07,600 --> 00:22:10,520 Speaker 3: like a whole week. So, Sarah, I guess the question 399 00:22:10,560 --> 00:22:12,560 Speaker 3: then is, so if someone says, oh my gosh, I'm panicking, 400 00:22:12,560 --> 00:22:14,320 Speaker 3: do I change what I do. You're like, no, just 401 00:22:14,359 --> 00:22:17,000 Speaker 3: hang tight, But can you rotate kind of within that 402 00:22:17,600 --> 00:22:20,040 Speaker 3: and take advantage then of some of the opportunity that 403 00:22:20,560 --> 00:22:21,160 Speaker 3: came about. 404 00:22:21,200 --> 00:22:25,160 Speaker 1: Absolutely last week presented opportunity. So especially if you're someone 405 00:22:25,200 --> 00:22:28,200 Speaker 1: who's been sitting on cash and it's been great, you 406 00:22:28,240 --> 00:22:30,000 Speaker 1: can sid in a money market, you're earning you know, 407 00:22:30,080 --> 00:22:32,480 Speaker 1: five and a half percent in cash, fantastic. 408 00:22:32,960 --> 00:22:34,400 Speaker 10: But now we're closer than. 409 00:22:34,359 --> 00:22:37,480 Speaker 1: Ever to really believing that that's not going to be 410 00:22:37,560 --> 00:22:39,480 Speaker 1: the case in quite some time. We're going to see 411 00:22:39,480 --> 00:22:40,879 Speaker 1: interest rates coming down. So what do you want to 412 00:22:40,880 --> 00:22:43,560 Speaker 1: do with that cash? Obviously, if you're conservative, you could 413 00:22:43,600 --> 00:22:47,600 Speaker 1: go by high quality fixed income. But last week really 414 00:22:47,680 --> 00:22:49,720 Speaker 1: presented an opportunity in the stock market. If you were 415 00:22:49,760 --> 00:22:53,200 Speaker 1: someone who's been waiting for an entry port, entry point, 416 00:22:53,520 --> 00:22:56,639 Speaker 1: last Monday presented that self, you know, start putting that 417 00:22:56,680 --> 00:22:59,680 Speaker 1: cash to work, getting invested, putting a plan in place 418 00:22:59,720 --> 00:23:01,600 Speaker 1: to get invested in the equity market, And when you 419 00:23:01,600 --> 00:23:04,119 Speaker 1: think about certain pockets of the market, I mean, we 420 00:23:04,200 --> 00:23:08,720 Speaker 1: just saw tech absolutely hammered last week, and tech is 421 00:23:08,760 --> 00:23:11,919 Speaker 1: still a place that we're really still optimistic about. And 422 00:23:12,000 --> 00:23:15,800 Speaker 1: if you look at US tech valuations last month, they 423 00:23:15,800 --> 00:23:18,480 Speaker 1: were trading around thirty two times twelve month forward earnings. 424 00:23:18,680 --> 00:23:21,840 Speaker 1: Now they're down to around twenty seven, so more reasonable 425 00:23:22,200 --> 00:23:25,080 Speaker 1: and again an opportunity to get invested in a place 426 00:23:25,080 --> 00:23:27,919 Speaker 1: that had been so high flying and many were just 427 00:23:28,000 --> 00:23:30,240 Speaker 1: scared chase returns in the beginning of the year. 428 00:23:30,800 --> 00:23:33,320 Speaker 5: So aside from technology, which again a lot of folks 429 00:23:33,359 --> 00:23:36,880 Speaker 5: are saying, stick with it, stick with it, where else 430 00:23:36,880 --> 00:23:38,960 Speaker 5: do you guys see opportunities at there? Because there are 431 00:23:39,000 --> 00:23:40,920 Speaker 5: again a lot of people that are thinking about if 432 00:23:40,960 --> 00:23:43,160 Speaker 5: interest rates are coming down, this might be a time 433 00:23:43,200 --> 00:23:46,080 Speaker 5: for me to think about doing take on more risk Bres. 434 00:23:46,200 --> 00:23:47,239 Speaker 10: Yes, absolutely so. 435 00:23:47,760 --> 00:23:50,119 Speaker 1: We've still been very much pushing at the top of 436 00:23:50,160 --> 00:23:52,199 Speaker 1: our list, I would say high quality growth, which you 437 00:23:52,200 --> 00:23:54,000 Speaker 1: know at the top of that list is tech. But 438 00:23:54,040 --> 00:23:57,160 Speaker 1: when you think about more so tactical trades, maybe looking 439 00:23:57,200 --> 00:23:58,080 Speaker 1: to small caps. 440 00:23:58,440 --> 00:24:00,159 Speaker 10: You know, we did see a big. 441 00:24:00,080 --> 00:24:03,160 Speaker 1: Rotation to small caps in July when we started thinking 442 00:24:03,160 --> 00:24:05,440 Speaker 1: about interest rates potentially coming down. When we think about 443 00:24:05,440 --> 00:24:07,800 Speaker 1: interest rates moving lower, small caps are going to be 444 00:24:07,840 --> 00:24:09,760 Speaker 1: that prime beneficiary of that. They have a lot of 445 00:24:09,760 --> 00:24:12,600 Speaker 1: debt on their balance sheets. But at the same time, 446 00:24:13,080 --> 00:24:15,440 Speaker 1: if you're someone who is concerned about a recession, and 447 00:24:15,520 --> 00:24:18,080 Speaker 1: I will say for now a soft landing is still 448 00:24:18,080 --> 00:24:20,600 Speaker 1: our base case. But in the case of a recession, 449 00:24:20,760 --> 00:24:22,399 Speaker 1: small cap small caps. 450 00:24:22,160 --> 00:24:24,200 Speaker 10: Is really not where you want to be overweight, so. 451 00:24:24,280 --> 00:24:27,280 Speaker 1: Finding that balance but small caps potentially, and then also 452 00:24:27,320 --> 00:24:30,000 Speaker 1: you can look at some other cyclical industries like industrials. 453 00:24:30,280 --> 00:24:33,320 Speaker 1: If we do start to see you know, growth continue 454 00:24:33,359 --> 00:24:37,000 Speaker 1: to move forwards, interest rates come down, maybe balancing out 455 00:24:37,000 --> 00:24:39,720 Speaker 1: that high growth exposure with a little bit of cyclicality. 456 00:24:39,880 --> 00:24:42,600 Speaker 1: But again, if we do see more concerns that a 457 00:24:42,640 --> 00:24:45,879 Speaker 1: recession might be on the horizon cyclicals and small caps, 458 00:24:46,040 --> 00:24:47,439 Speaker 1: that's where it can get a little bit dicey. 459 00:24:47,480 --> 00:24:49,000 Speaker 3: It was interesting though, I'm just looking at a one 460 00:24:49,040 --> 00:24:51,399 Speaker 3: month comp chart of the S and P and the 461 00:24:51,480 --> 00:24:54,639 Speaker 3: rustle and they didn't really diverge that much. Like small 462 00:24:54,640 --> 00:24:56,960 Speaker 3: caps didn't tank in relation to the S and P. 463 00:24:57,119 --> 00:24:58,960 Speaker 3: They sort of moved in tandem. Today they're a little 464 00:24:58,960 --> 00:25:01,560 Speaker 3: bit off, maybe a little bit more than but like 465 00:25:01,720 --> 00:25:02,360 Speaker 3: not that much. 466 00:25:02,520 --> 00:25:04,800 Speaker 1: No, it really was when we think about the rotation 467 00:25:04,840 --> 00:25:07,719 Speaker 1: we saw in July, it was a one week major 468 00:25:07,760 --> 00:25:10,600 Speaker 1: snap in which we saw small caps outperform. And now, 469 00:25:10,640 --> 00:25:13,159 Speaker 1: like like you mentioned, Alex, we really haven't seen a 470 00:25:13,200 --> 00:25:15,880 Speaker 1: continuation of that, and we are actually of the belief, Look, 471 00:25:16,040 --> 00:25:18,240 Speaker 1: you should have diversification, you should have a little bit 472 00:25:18,240 --> 00:25:20,200 Speaker 1: of small caps mid caps in your portfolio. 473 00:25:20,560 --> 00:25:23,480 Speaker 10: But when we think about where, where is really where 474 00:25:23,520 --> 00:25:24,160 Speaker 10: are we going. 475 00:25:24,000 --> 00:25:25,920 Speaker 1: To see the bulk of the growth and the bulk 476 00:25:25,960 --> 00:25:29,320 Speaker 1: of returns and outperformance in the years to come. We 477 00:25:29,359 --> 00:25:32,920 Speaker 1: still believe that's high quality growth, large cap tech, and 478 00:25:33,040 --> 00:25:36,600 Speaker 1: large part because look, we went from talking about great 479 00:25:36,640 --> 00:25:40,560 Speaker 1: economic projections to talking about maybe a recession, and frankly, 480 00:25:41,040 --> 00:25:44,399 Speaker 1: if there are recession concerns, where do people go. They 481 00:25:44,440 --> 00:25:46,800 Speaker 1: want high quality, they want growth, they want earnings, and 482 00:25:46,840 --> 00:25:48,960 Speaker 1: nowadays that has become megacap tech. 483 00:25:49,119 --> 00:25:51,000 Speaker 10: So we still are optimistic there. 484 00:25:51,040 --> 00:25:54,040 Speaker 1: Yes, you want diversification, but we're not huge proponents of 485 00:25:54,080 --> 00:25:55,760 Speaker 1: a major rotation, just quite yet. 486 00:25:56,080 --> 00:25:58,680 Speaker 5: All right, you're in South Florida. It seems like everybody 487 00:25:58,680 --> 00:25:59,840 Speaker 5: and your brother's coming down there. 488 00:26:00,080 --> 00:26:01,800 Speaker 3: Yeah, sure, she's from there. 489 00:26:01,840 --> 00:26:04,560 Speaker 1: So well, that's actually what I say all the time, 490 00:26:04,600 --> 00:26:07,040 Speaker 1: alex Is, Look I did. I moved down to Florida 491 00:26:07,280 --> 00:26:10,360 Speaker 1: twenty twenty one, when the entire world living in Florida, 492 00:26:10,640 --> 00:26:12,800 Speaker 1: everyone's still moving there. But I say, in defense, look 493 00:26:13,040 --> 00:26:13,720 Speaker 1: I was here first. 494 00:26:13,760 --> 00:26:16,160 Speaker 10: I grew up here. I promise I'm not an outsider. 495 00:26:17,040 --> 00:26:19,199 Speaker 5: Is it still is it? Are they still coming? Do 496 00:26:19,200 --> 00:26:20,959 Speaker 5: you think? I mean, I know you and your office 497 00:26:21,040 --> 00:26:23,880 Speaker 5: and all the other folks down there are welcoming everybody down. 498 00:26:23,800 --> 00:26:26,400 Speaker 1: It's Look, it's it's not twenty twenty one, twenty twenty 499 00:26:26,400 --> 00:26:29,199 Speaker 1: two anymore. It's definitely slowed. Even if you look at 500 00:26:29,240 --> 00:26:31,800 Speaker 1: the real estate market by US prices haven't come down, 501 00:26:32,359 --> 00:26:35,439 Speaker 1: but they are not, you know, sky continuing to skyrocket 502 00:26:35,880 --> 00:26:39,880 Speaker 1: at ridiculous, ridiculous paces. So I would say, yes, every 503 00:26:39,920 --> 00:26:41,920 Speaker 1: now and then, I'm still meeting people on the street 504 00:26:42,000 --> 00:26:43,520 Speaker 1: you say, oh, I just moved here from New York, 505 00:26:43,520 --> 00:26:45,280 Speaker 1: I just moved here from New Jersey. I just moved 506 00:26:45,320 --> 00:26:49,840 Speaker 1: here from California. All the time, but it has slowed 507 00:26:50,000 --> 00:26:52,439 Speaker 1: from you know, the breakneck pace at which we were 508 00:26:52,480 --> 00:26:53,640 Speaker 1: seeing just a couple of years ago. 509 00:26:53,680 --> 00:26:55,760 Speaker 3: All those stories that like there's not enough schools, like 510 00:26:55,800 --> 00:26:59,680 Speaker 3: not a private schools, not enough highways for all the traffic. 511 00:26:59,440 --> 00:27:04,159 Speaker 1: Like I know, yes, there's traffic has gotten a lot worse. 512 00:27:05,280 --> 00:27:08,679 Speaker 1: And at the same time, anyone who has kids, not 513 00:27:08,800 --> 00:27:11,959 Speaker 1: yet me, but thinking about if you're moving down here, 514 00:27:11,920 --> 00:27:14,440 Speaker 1: you've got to get your kid on waitless for school. 515 00:27:15,000 --> 00:27:18,480 Speaker 1: Public schools are all overcrowded for trying to get you know, 516 00:27:18,520 --> 00:27:21,159 Speaker 1: a young child into daycare. They're the first person you 517 00:27:21,160 --> 00:27:23,440 Speaker 1: have to tell that you might be having a child, 518 00:27:23,480 --> 00:27:26,520 Speaker 1: because you know, you have to get on the weight load. 519 00:27:26,840 --> 00:27:29,240 Speaker 1: All my neighbors are telling me this. But yeah, I 520 00:27:29,240 --> 00:27:31,200 Speaker 1: know it's it's it's definitely different. 521 00:27:31,280 --> 00:27:31,840 Speaker 10: It's very real. 522 00:27:31,880 --> 00:27:34,679 Speaker 1: All those stories that you hear, they come from a 523 00:27:34,680 --> 00:27:35,280 Speaker 1: place of truth. 524 00:27:35,960 --> 00:27:37,760 Speaker 5: It's just you wonder how, I mean, how long that 525 00:27:37,960 --> 00:27:40,840 Speaker 5: economy can support all that? I mean, I. 526 00:27:41,320 --> 00:27:41,960 Speaker 10: Wonder the same. 527 00:27:42,400 --> 00:27:44,600 Speaker 1: No, we have seen a slowing it's it's not the same, 528 00:27:44,800 --> 00:27:47,080 Speaker 1: but we're still welcoming people down there. 529 00:27:47,560 --> 00:27:50,040 Speaker 3: With Florida taxes, like, you don't pay a lot of tax, no. 530 00:27:50,640 --> 00:27:51,440 Speaker 10: State income tax. 531 00:27:52,560 --> 00:27:55,119 Speaker 3: Wait, doesn't that change because you got to like build 532 00:27:55,160 --> 00:27:56,640 Speaker 3: the stuff like or just. 533 00:27:56,720 --> 00:27:57,480 Speaker 5: Get its revenue. 534 00:27:57,760 --> 00:28:01,320 Speaker 1: Property taxes are higher, Okay, so are higher property taxes, 535 00:28:02,400 --> 00:28:05,680 Speaker 1: you know, real estate taxes. But yeah, no state income tax, 536 00:28:05,880 --> 00:28:07,600 Speaker 1: of which I would also say, you know, I have 537 00:28:07,640 --> 00:28:08,560 Speaker 1: a lot of clients up here. 538 00:28:08,560 --> 00:28:10,040 Speaker 10: That's why I'm in studio today. 539 00:28:10,040 --> 00:28:13,080 Speaker 1: I'm right here visiting clients, a lot of people trying 540 00:28:13,080 --> 00:28:16,000 Speaker 1: to change residency for that very reason really, So it's 541 00:28:16,119 --> 00:28:19,120 Speaker 1: definitely a factor that comes into play, you know, with 542 00:28:19,240 --> 00:28:19,800 Speaker 1: the alert. 543 00:28:19,960 --> 00:28:23,960 Speaker 5: So that's that's why if your financial advisor, like Sarah, 544 00:28:24,080 --> 00:28:26,879 Speaker 5: you have to be up on the municipal bond market buying. 545 00:28:27,160 --> 00:28:30,040 Speaker 5: See we're going to get Alex into the municipal bond market. 546 00:28:30,359 --> 00:28:32,480 Speaker 3: Hey man, I have to handle all those segments when 547 00:28:32,480 --> 00:28:35,359 Speaker 3: you're out. On Friday, I started sending prep messages to 548 00:28:35,440 --> 00:28:35,959 Speaker 3: our producer. 549 00:28:36,040 --> 00:28:38,040 Speaker 10: Great tax free income, Alex, Great tax free. 550 00:28:38,120 --> 00:28:40,920 Speaker 3: No, it's just it hurts my brain. But before we 551 00:28:41,000 --> 00:28:43,160 Speaker 3: let you go, though, I had a question about the 552 00:28:43,200 --> 00:28:45,920 Speaker 3: cash so money market fun cash, right, that's sitting there, 553 00:28:45,960 --> 00:28:47,760 Speaker 3: You're like five percent that's going to go away. Is 554 00:28:47,760 --> 00:28:49,920 Speaker 3: there like a level where you guys think about where 555 00:28:49,960 --> 00:28:52,240 Speaker 3: you're like, if it hits three percent, that's when the 556 00:28:52,280 --> 00:28:54,320 Speaker 3: cash really moves, Like I've been thinking about that with 557 00:28:54,400 --> 00:28:55,960 Speaker 3: say my high savings account. 558 00:28:56,120 --> 00:28:57,280 Speaker 10: That is a good question. 559 00:28:57,360 --> 00:28:59,640 Speaker 1: I don't know if there's really a level in which 560 00:28:59,640 --> 00:29:01,320 Speaker 1: people are going to say, oh my gosh, now I 561 00:29:01,320 --> 00:29:03,840 Speaker 1: need to start moving cash. I think that mentality, that 562 00:29:03,880 --> 00:29:07,040 Speaker 1: psychological shift needs to start happening now because look, interest 563 00:29:07,120 --> 00:29:09,120 Speaker 1: rates are going to come down. We more so think 564 00:29:09,160 --> 00:29:10,800 Speaker 1: about it, especially if you're someone who's living off of 565 00:29:10,800 --> 00:29:13,480 Speaker 1: your portfolio, think of it, Okay, how much are you 566 00:29:13,480 --> 00:29:14,880 Speaker 1: spending every year off your portfolio? 567 00:29:15,080 --> 00:29:16,240 Speaker 10: Maybe you still want to keep. 568 00:29:16,080 --> 00:29:18,440 Speaker 1: That in cash or cash like securities like a CD 569 00:29:18,640 --> 00:29:20,880 Speaker 1: or a Treasury bill, so you know that even if 570 00:29:20,880 --> 00:29:23,240 Speaker 1: there's volatility in the market, you don't have to sell 571 00:29:23,240 --> 00:29:25,520 Speaker 1: your stocks at a discount. You're not worried about that 572 00:29:25,600 --> 00:29:28,840 Speaker 1: you have enough cash on hand anything beyond that unless 573 00:29:28,880 --> 00:29:31,160 Speaker 1: you have something that that cash is Earmark tour, you 574 00:29:31,280 --> 00:29:32,560 Speaker 1: probably want to get that invested. 575 00:29:32,680 --> 00:29:35,239 Speaker 5: So in a typical you know, ubs account that that 576 00:29:35,280 --> 00:29:38,280 Speaker 5: you handle. Have your clients been holding more cash because they, 577 00:29:38,320 --> 00:29:40,400 Speaker 5: in fact can make a decent return. 578 00:29:40,800 --> 00:29:41,560 Speaker 10: I would say yes. 579 00:29:41,600 --> 00:29:45,400 Speaker 1: Over the last year we've been trying to encourage them 580 00:29:45,840 --> 00:29:48,320 Speaker 1: to get invested, and most of the time, look, we 581 00:29:48,440 --> 00:29:50,680 Speaker 1: like to put an entire plan in place and say look, 582 00:29:50,840 --> 00:29:52,880 Speaker 1: especially if you're someone look work, we work with a 583 00:29:52,920 --> 00:29:55,720 Speaker 1: lot of business owners. You come at a liquidity event 584 00:29:55,960 --> 00:29:57,200 Speaker 1: and all of a sudden, you have a lot of 585 00:29:57,200 --> 00:30:00,520 Speaker 1: cash on hand. That's scary. You would control over your business, 586 00:30:00,560 --> 00:30:02,760 Speaker 1: you don't have control over the capital markets. How do 587 00:30:02,800 --> 00:30:05,240 Speaker 1: you think about investing that? So it's not as though 588 00:30:05,280 --> 00:30:06,560 Speaker 1: you were going to go ahead and you're going to 589 00:30:06,600 --> 00:30:09,280 Speaker 1: get all of that cash invested in a month. You're 590 00:30:09,320 --> 00:30:11,800 Speaker 1: going to take time to get that invested, but maybe 591 00:30:11,920 --> 00:30:15,120 Speaker 1: locking in yields and fixed income now before yields come down, 592 00:30:15,440 --> 00:30:17,520 Speaker 1: and then on the stock side, figuring out how much 593 00:30:17,600 --> 00:30:20,640 Speaker 1: risk are you comfortable with and maybe dollar cost averaging 594 00:30:20,720 --> 00:30:23,920 Speaker 1: over six months, twelve months, even eighteen months, depending on 595 00:30:23,920 --> 00:30:27,520 Speaker 1: your risk tolerance. But that's really where the psychological psychological 596 00:30:27,520 --> 00:30:30,000 Speaker 1: shift takes place, when you go from running a business 597 00:30:30,040 --> 00:30:33,200 Speaker 1: where you have so much control over your income to 598 00:30:33,280 --> 00:30:35,240 Speaker 1: all of a sudden being subject to volatility in the 599 00:30:35,240 --> 00:30:37,800 Speaker 1: capital markets. It's working through that change. 600 00:30:37,960 --> 00:30:40,200 Speaker 5: Interesting, all right, Sarah, thank you so much for joining us. 601 00:30:40,240 --> 00:30:42,640 Speaker 5: Always great to see you. Sarah as a former reporter 602 00:30:42,760 --> 00:30:43,840 Speaker 5: here at Bloomberg. 603 00:30:43,920 --> 00:30:46,520 Speaker 3: Now she's doing I haven't seen you since Kaley's wedding. 604 00:30:46,520 --> 00:30:48,880 Speaker 1: It's fine, right, I just saw Kelly. She's in town 605 00:30:48,960 --> 00:30:50,200 Speaker 1: just for the day, so I was so lucky I 606 00:30:50,240 --> 00:30:50,920 Speaker 1: got to say hi. 607 00:30:51,440 --> 00:30:54,040 Speaker 5: All right, Sarah Pinzac. She's a financial advisor ubs private 608 00:30:54,080 --> 00:30:59,240 Speaker 5: wealth management down there in Boca Ratona, Florida. This is 609 00:30:59,280 --> 00:30:59,960 Speaker 5: hot in the summer. 610 00:31:00,120 --> 00:31:03,800 Speaker 3: But why do you go to California? From to Florida. Well, 611 00:31:04,000 --> 00:31:05,000 Speaker 3: they're like the same for me. 612 00:31:05,080 --> 00:31:08,920 Speaker 10: No, no, no, it's in the taxas. 613 00:31:09,000 --> 00:31:11,400 Speaker 5: The weather in California is not warm. I guess that's 614 00:31:11,440 --> 00:31:14,200 Speaker 5: true unless you're inland and then it's crazy hot. But 615 00:31:14,240 --> 00:31:16,160 Speaker 5: on the coast it's cool. They have instead of having fog, 616 00:31:16,280 --> 00:31:17,920 Speaker 5: you know what, they have marine layer. 617 00:31:18,600 --> 00:31:19,480 Speaker 10: Marine layer. 618 00:31:19,800 --> 00:31:22,240 Speaker 5: It's not fog. It's a marine layer. That's how they 619 00:31:22,320 --> 00:31:27,760 Speaker 5: do in San Diego, Carmel. It's just fog. So we'll see. 620 00:31:28,240 --> 00:31:32,120 Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live 621 00:31:32,200 --> 00:31:35,720 Speaker 2: weekdays at ten am Eastern on applecar Play and Android 622 00:31:35,760 --> 00:31:38,520 Speaker 2: Auto with the Bloomberg Business app. You can also listen 623 00:31:38,640 --> 00:31:41,720 Speaker 2: live on Amazon Alexa from our flagship New York station, 624 00:31:42,120 --> 00:31:46,600 Speaker 2: Just Say Alexa play Bloomberg eleven thirty. 625 00:31:46,320 --> 00:31:49,160 Speaker 3: Bloomberg Intelligence Radio. We are live from the INTERACTI Broker 626 00:31:49,240 --> 00:31:51,880 Speaker 3: Studio right here in Midtown Manhattan. Also check us out 627 00:31:52,320 --> 00:31:56,560 Speaker 3: on YouTube. The Big Take story are always the best stories. 628 00:31:56,600 --> 00:31:59,640 Speaker 3: They dig into different topics that not only Wall Street 629 00:31:59,680 --> 00:32:02,200 Speaker 3: but also Main Street can kind of sync their teeth into. 630 00:32:02,320 --> 00:32:05,760 Speaker 3: And today's big story, A Big Take story is no different. 631 00:32:05,800 --> 00:32:10,000 Speaker 3: The title is Hedge Funds Smell Blood as lenders turn 632 00:32:10,120 --> 00:32:12,360 Speaker 3: on each other. The title was so good I read 633 00:32:12,400 --> 00:32:14,080 Speaker 3: the whole piece before I even knew I was doing 634 00:32:14,080 --> 00:32:17,680 Speaker 3: this segment. Eliza Reynolds Hannon joins us. She's senior debt 635 00:32:17,720 --> 00:32:20,920 Speaker 3: reporter and she's standing by, so Eliza, before we get 636 00:32:20,920 --> 00:32:23,240 Speaker 3: into the nuts and bolts of the story. The way 637 00:32:23,280 --> 00:32:25,280 Speaker 3: I think of it is, Okay, you're a company, you 638 00:32:25,320 --> 00:32:27,920 Speaker 3: need money, you go, you go to lenders, you take 639 00:32:27,960 --> 00:32:30,959 Speaker 3: out some loans, and there's a capital structure, and that's it. 640 00:32:31,000 --> 00:32:32,880 Speaker 3: And if I default, then the person on the bottom 641 00:32:32,920 --> 00:32:34,840 Speaker 3: end of the capitol structure doesn't get a money, doesn't 642 00:32:34,840 --> 00:32:37,960 Speaker 3: get the money, or it gets a reduced payment. And 643 00:32:38,400 --> 00:32:41,520 Speaker 3: that's normal, right, That's not where we are anymore in 644 00:32:41,520 --> 00:32:44,080 Speaker 3: this world. No, it's not. 645 00:32:44,400 --> 00:32:48,040 Speaker 7: It's like the security that you thought you once enjoyed 646 00:32:48,080 --> 00:32:50,520 Speaker 7: as a lender, especially as secured lender or a top 647 00:32:50,560 --> 00:32:54,160 Speaker 7: priority lender, just kind of can disappear right before your. 648 00:32:54,000 --> 00:32:54,959 Speaker 6: Eyes these days. 649 00:32:55,160 --> 00:33:00,040 Speaker 7: And that's because the lender protections on these leverage loans 650 00:33:00,120 --> 00:33:03,840 Speaker 7: or high yield bonds has just eroded over a decade 651 00:33:04,000 --> 00:33:07,360 Speaker 7: of high competition for the higher yielding paper in the 652 00:33:07,400 --> 00:33:10,880 Speaker 7: market in a bid to get a chunk of some 653 00:33:10,960 --> 00:33:14,960 Speaker 7: of those rare, really nice, high yielding loans. Investors have 654 00:33:15,000 --> 00:33:17,720 Speaker 7: agreed to waive all sorts of terms and protections that 655 00:33:17,800 --> 00:33:19,280 Speaker 7: once put them in the position to be able to 656 00:33:19,320 --> 00:33:20,680 Speaker 7: say not so fast. 657 00:33:20,880 --> 00:33:22,160 Speaker 10: You know, I basically own. 658 00:33:22,040 --> 00:33:26,640 Speaker 3: You now, which is really crazy because then it also 659 00:33:26,760 --> 00:33:29,440 Speaker 3: opens the door to then a company going to all 660 00:33:29,480 --> 00:33:32,840 Speaker 3: its different creditors right and trying to strike different deals. 661 00:33:32,880 --> 00:33:34,520 Speaker 3: Can you walk me through that part? 662 00:33:35,000 --> 00:33:35,200 Speaker 4: Right? 663 00:33:35,440 --> 00:33:39,640 Speaker 7: So what happens is the company needs often at least 664 00:33:39,840 --> 00:33:46,080 Speaker 7: a majority, bare majority, of lenders to agree to pulling 665 00:33:46,120 --> 00:33:49,440 Speaker 7: some of these maneuvers, like stripping assets from the collateral 666 00:33:49,440 --> 00:33:52,280 Speaker 7: package of one loan and moving them into a new, 667 00:33:52,480 --> 00:33:55,640 Speaker 7: unrestricted subsidiary, in order to all of a sudden have 668 00:33:55,760 --> 00:33:59,000 Speaker 7: new collateral that it can raise that against. So it 669 00:33:59,040 --> 00:34:02,200 Speaker 7: goes to lenders and says, hey, if you agree to this, 670 00:34:03,400 --> 00:34:05,760 Speaker 7: you know, you and a few friends who all together 671 00:34:05,840 --> 00:34:08,400 Speaker 7: hold fifty one percent of this loan. Sometimes it's a 672 00:34:08,480 --> 00:34:12,360 Speaker 7: higher percentage, we will let you actually skip ahead of 673 00:34:12,400 --> 00:34:15,000 Speaker 7: the rest in the new capital structure. We'll let you, 674 00:34:15,280 --> 00:34:17,960 Speaker 7: for instance, be the funds who can put in the 675 00:34:18,000 --> 00:34:21,440 Speaker 7: new debt that we're asking for, which we'll be backed 676 00:34:21,440 --> 00:34:23,319 Speaker 7: by the old assets that you used to think you 677 00:34:23,400 --> 00:34:27,400 Speaker 7: already had as collateral, and for that reason, you actually 678 00:34:27,480 --> 00:34:29,319 Speaker 7: won't have to write off this whole investment. You'll have 679 00:34:29,360 --> 00:34:33,640 Speaker 7: another chance at collecting even more yield and eventually getting 680 00:34:33,680 --> 00:34:34,520 Speaker 7: repaid on everything. 681 00:34:34,840 --> 00:34:36,239 Speaker 3: So how do hedge funds come in on this? 682 00:34:36,320 --> 00:34:40,800 Speaker 7: Then, well, the hedge funds have you know, distressed investors 683 00:34:40,840 --> 00:34:45,600 Speaker 7: are no stranger to underhanded tactics or kind of just 684 00:34:45,880 --> 00:34:50,560 Speaker 7: rough strategies, but nevertheless you have sort of seen them 685 00:34:50,560 --> 00:34:52,960 Speaker 7: go through stages of grief, it seems, with regard to 686 00:34:52,960 --> 00:34:57,880 Speaker 7: this new order. So in the beginning, somewhere in denial, 687 00:34:58,000 --> 00:35:00,600 Speaker 7: you saw them say not my not my company, not. 688 00:35:00,600 --> 00:35:02,000 Speaker 6: My private equity sponsor. 689 00:35:02,040 --> 00:35:03,239 Speaker 10: They wouldn't do me like that. 690 00:35:03,920 --> 00:35:06,719 Speaker 7: And as it's happened, even more and more they started saying, Okay, 691 00:35:06,760 --> 00:35:08,440 Speaker 7: we need to go on the defensive. We need to 692 00:35:09,239 --> 00:35:14,160 Speaker 7: organize to you know, almost protest that this that this happened, 693 00:35:14,160 --> 00:35:17,520 Speaker 7: and say, already, you know sixty percent of us have 694 00:35:17,560 --> 00:35:19,359 Speaker 7: gotten together and said we're not going to work with you, 695 00:35:19,640 --> 00:35:22,040 Speaker 7: and so you can't actually pull this off. And that's 696 00:35:22,160 --> 00:35:24,080 Speaker 7: we talk about in the story, that's the co op 697 00:35:24,120 --> 00:35:29,279 Speaker 7: agreement phenomenon. But others are now saying forget defensive. We 698 00:35:29,320 --> 00:35:33,640 Speaker 7: need to get offensive, And so they are piling up 699 00:35:34,239 --> 00:35:37,040 Speaker 7: on cash so that when indeed the company does say, 700 00:35:37,840 --> 00:35:40,000 Speaker 7: whoever here can give us new money, We're going to 701 00:35:40,080 --> 00:35:42,439 Speaker 7: put you in the prime position and you can kick 702 00:35:42,560 --> 00:35:46,360 Speaker 7: all your peers down in the repayment line. You know, 703 00:35:46,400 --> 00:35:48,600 Speaker 7: we're going to give you the actual the new claim 704 00:35:48,640 --> 00:35:51,680 Speaker 7: to that collateral as long as you top us off 705 00:35:51,680 --> 00:35:54,879 Speaker 7: with some new financing. So the way to play this 706 00:35:55,520 --> 00:35:59,399 Speaker 7: new phenomenon well and when is to always have cash 707 00:35:59,440 --> 00:36:01,759 Speaker 7: on hand that you can and say, hey, put me 708 00:36:01,840 --> 00:36:03,640 Speaker 7: in the best position and I'll give you a little 709 00:36:03,640 --> 00:36:04,320 Speaker 7: more financing. 710 00:36:04,680 --> 00:36:07,520 Speaker 3: Man, this makes my head hurt. I mean, this is 711 00:36:07,560 --> 00:36:09,920 Speaker 3: a dumb question. But if I'm a senior debt lender, 712 00:36:10,480 --> 00:36:12,239 Speaker 3: why do I want to get involved in this at all? 713 00:36:12,320 --> 00:36:13,600 Speaker 3: If I don't know if I could go to bed 714 00:36:13,600 --> 00:36:15,680 Speaker 3: one night and feel very secure in my investment and 715 00:36:15,680 --> 00:36:17,759 Speaker 3: the next morning wake up and have like thirty cents 716 00:36:17,800 --> 00:36:19,520 Speaker 3: on the dollar, Like, why would I even do that? 717 00:36:20,520 --> 00:36:22,600 Speaker 6: Well, you kind of don't have a choice. 718 00:36:22,640 --> 00:36:25,759 Speaker 7: There's not anywhere else to go in the market up 719 00:36:25,840 --> 00:36:28,839 Speaker 7: until now to get those high returns that will keep 720 00:36:28,840 --> 00:36:32,240 Speaker 7: you employed as a portfolio manager or keep you getting 721 00:36:32,360 --> 00:36:35,560 Speaker 7: new money in. It's a little bit of a you know, 722 00:36:37,440 --> 00:36:40,400 Speaker 7: an immediacy bias that you want. You're only looking to 723 00:36:40,440 --> 00:36:43,040 Speaker 7: the next quarter or the quarter after that. You need 724 00:36:43,080 --> 00:36:45,640 Speaker 7: to be churning out these high yields for your investors 725 00:36:45,680 --> 00:36:47,920 Speaker 7: to stay happy, and you really are just kind of 726 00:36:47,920 --> 00:36:51,680 Speaker 7: crossing your fingers and hoping it doesn't come to your company. 727 00:36:51,719 --> 00:36:55,680 Speaker 7: But then when it does, these liability management exercises, so 728 00:36:55,719 --> 00:36:59,160 Speaker 7: they're called, or the instances of violence, are often designed 729 00:36:59,400 --> 00:37:02,680 Speaker 7: to actually give the company another chance at a turnaround. 730 00:37:02,760 --> 00:37:05,520 Speaker 7: So if the obstacles to the company are a bit 731 00:37:06,080 --> 00:37:10,719 Speaker 7: macroeconomic based or you know, supply demand, there's some sort 732 00:37:10,719 --> 00:37:15,319 Speaker 7: of phenomenon that's not totally secular. They say, you know what, 733 00:37:16,040 --> 00:37:17,400 Speaker 7: we can take on a little bit more of an 734 00:37:17,440 --> 00:37:19,879 Speaker 7: interest burden, and if we can just get to next year, 735 00:37:19,920 --> 00:37:22,120 Speaker 7: when all of a sudden this or that regulation will change, 736 00:37:22,120 --> 00:37:26,120 Speaker 7: this company can actually turn it around. We avoid filing 737 00:37:26,120 --> 00:37:28,759 Speaker 7: for bankruptcy, and then everything will work out fine. So, 738 00:37:29,360 --> 00:37:31,760 Speaker 7: you know, the hedge fund managers who go to sleep 739 00:37:31,760 --> 00:37:34,719 Speaker 7: and decide to keep investing in this are kind of 740 00:37:34,719 --> 00:37:37,279 Speaker 7: feeling like they don't have anywhere else to turn to 741 00:37:37,440 --> 00:37:39,320 Speaker 7: generate the iells that they need to generate. 742 00:37:39,360 --> 00:37:41,840 Speaker 3: How many of those companies actually do survive, though. 743 00:37:42,360 --> 00:37:45,359 Speaker 7: That's the important question, and so some of that data 744 00:37:45,440 --> 00:37:47,440 Speaker 7: is really trickling out now, and we do analyze it 745 00:37:47,440 --> 00:37:52,560 Speaker 7: in the story. Some of them survive, but we have 746 00:37:52,640 --> 00:37:56,320 Speaker 7: seen increasingly the companies that do one of these exercises 747 00:37:56,360 --> 00:37:59,000 Speaker 7: in say twenty twenty one, by twenty twenty three, they 748 00:37:59,120 --> 00:38:02,200 Speaker 7: ended up having to file for bankruptcy anyway, and that's 749 00:38:02,200 --> 00:38:05,320 Speaker 7: where you see. You might think that that means the 750 00:38:05,360 --> 00:38:08,520 Speaker 7: whole exercise was meaningless, but in a way, it becomes 751 00:38:08,560 --> 00:38:13,000 Speaker 7: all the more meaningful because that's where the removal of 752 00:38:13,120 --> 00:38:17,000 Speaker 7: collateral or the transfer of collateral really becomes relevant. Because 753 00:38:17,040 --> 00:38:19,840 Speaker 7: in a bankruptcy, and say the company is getting liquidated, 754 00:38:19,920 --> 00:38:22,960 Speaker 7: or even if it's not, all those creditors got pushed 755 00:38:23,000 --> 00:38:25,439 Speaker 7: down and their collateral was taken away from them. They're 756 00:38:25,440 --> 00:38:28,920 Speaker 7: recovering zero cents on the dollar or one or two 757 00:38:29,040 --> 00:38:30,719 Speaker 7: or three cents we show in a chart. 758 00:38:30,920 --> 00:38:31,600 Speaker 10: And those who. 759 00:38:31,800 --> 00:38:33,839 Speaker 7: Frogged them by putting a new capital. 760 00:38:34,040 --> 00:38:35,280 Speaker 10: They come out pretty well. 761 00:38:35,360 --> 00:38:38,600 Speaker 7: They get ninety cents on the dollar, ninety five seventy 762 00:38:38,800 --> 00:38:44,480 Speaker 7: Just you see the devastating impact that the original asset 763 00:38:44,520 --> 00:38:47,040 Speaker 7: Shift has on creditors. When all is said and done 764 00:38:47,080 --> 00:38:50,640 Speaker 7: in the company needs to hand out its assets in 765 00:38:50,719 --> 00:38:51,840 Speaker 7: order to give people recoveries. 766 00:38:52,239 --> 00:38:54,279 Speaker 3: Eliza really appreciate it. I also heard it's your day 767 00:38:54,280 --> 00:38:57,719 Speaker 3: off and you're doing this anyway. That shows dedication. Thank 768 00:38:57,760 --> 00:39:01,080 Speaker 3: you very much, Eliza, Roynald Hannah and a senior debt reporter. 769 00:39:01,200 --> 00:39:03,759 Speaker 3: Really great story is today's Big Take. You can check 770 00:39:03,760 --> 00:39:05,719 Speaker 3: it out. You can read more of this story on 771 00:39:05,719 --> 00:39:08,840 Speaker 3: the Bloomberg and at bloomberg dot com slash Big Take 772 00:39:08,920 --> 00:39:13,520 Speaker 3: again that headline hedge funds smell blood as lenders turn 773 00:39:13,680 --> 00:39:16,359 Speaker 3: on each other. Definitely go ahead and check that out. 774 00:39:16,640 --> 00:39:21,160 Speaker 2: This is the Bloomberg Intelligence podcast, available on apples, Spotify, 775 00:39:21,360 --> 00:39:24,560 Speaker 2: and anywhere else you'll get your podcasts. Listen live each 776 00:39:24,600 --> 00:39:27,960 Speaker 2: weekday ten am to noon Eastern on Bloomberg dot com, 777 00:39:28,040 --> 00:39:31,480 Speaker 2: the iHeartRadio app, tune In, and the Bloomberg Business app. 778 00:39:31,600 --> 00:39:34,719 Speaker 2: You can also watch us live every weekday on YouTube 779 00:39:34,800 --> 00:39:36,680 Speaker 2: and always on the Bloomberg terminal