WEBVTT - Bloomberg Businessweek Weekend - September 20th, 2024 0:00:01.080 --> 0:00:05.480 This is Bloomberg Business Week inside from the reporters and 0:00:05.640 --> 0:00:09.240 editors who bring you America's most trusted business magazine, plus 0:00:09.320 --> 0:00:12.600 global business, finance and tech news. As it happened this 0:00:12.680 --> 0:00:17.079 Bloomberg Business Week with Carol Messer and Tim Stenebeck on 0:00:17.400 --> 0:00:18.400 Bloomberg Radio. 0:00:19.239 --> 0:00:22.040 Hi, everyone, Welcome to the weekend edition of Bloomberg Business Week. 0:00:22.079 --> 0:00:24.880 Tim is off this week, and just before the FED 0:00:24.920 --> 0:00:27.800 decided to cut rates by fifty basis points, I headed 0:00:27.840 --> 0:00:31.400 out west to Huntington Beach, California for the future Proof Festival. 0:00:31.760 --> 0:00:35.600 It's a gathering of the wealth management ecosystem, so financial advisors, 0:00:35.680 --> 0:00:39.920 wealth management execs, and limited partners talking about trends impacting 0:00:39.920 --> 0:00:44.040 the advisory industry and the future of wealth creation. With 0:00:44.159 --> 0:00:47.000 me at future Proof Barry Ridtholts, host of the Bloomberg 0:00:47.040 --> 0:00:50.960 podcasts Masters in Business and at the Money, and chairman 0:00:51.040 --> 0:00:54.280 and CIO of Ridtholt's Wealth Management, which is a close 0:00:54.320 --> 0:00:57.120 partner with the event. Over the next couple of hours, 0:00:57.160 --> 0:00:59.240 we've got a round above some well known names in 0:00:59.280 --> 0:01:03.880 the financial advice and wealth management spaces, among them Sarah Mallik. 0:01:04.240 --> 0:01:06.679 She is CIO at Nouven, one of the world's largest 0:01:06.680 --> 0:01:10.120 investment managers, plus two members of the JP Morgan Asset 0:01:10.120 --> 0:01:14.720 Managements team, including the chief Global market Strategist, David Kelly, 0:01:14.959 --> 0:01:18.240 who weighs in on the mood of investors. Also, how 0:01:18.280 --> 0:01:21.560 about an academic approach to investing shaped by a handful 0:01:21.680 --> 0:01:25.399 of Nobel laureates. That's what they do at Dimensional Investing. 0:01:25.440 --> 0:01:27.440 We'll hear more, and we've got to check on the 0:01:27.440 --> 0:01:30.720 pulse of private credit with Alona Gornick. She is senior 0:01:30.760 --> 0:01:34.680 investment strategist at Churchill Asset Management. Keep in mind, these 0:01:34.760 --> 0:01:39.200 interviews all happening ahead of that Wednesday FED decision, and 0:01:39.280 --> 0:01:41.720 so with that in mind, we begin this hour with 0:01:41.800 --> 0:01:45.399 a new survey of Bloomberg terminal subscribers showing a Kamala 0:01:45.440 --> 0:01:49.200 Harris victory in November's US presidential election is seen as 0:01:49.320 --> 0:01:52.040 better for treasuries and worse for stocks than a win 0:01:52.120 --> 0:01:54.960 for Donald Trump. So weighing in on all of this 0:01:55.160 --> 0:01:59.000 Priya Misra, portfolio manager of Global fixed Income, Currency and 0:01:59.000 --> 0:02:02.360 Commodities at j P Morgan Asset Management who joined us 0:02:02.400 --> 0:02:03.240 at Future Proof. 0:02:03.520 --> 0:02:06.960 So we are all we're all definitely thinking about the elections. 0:02:07.000 --> 0:02:09.919 It's a big election. It's a very close election. But 0:02:09.960 --> 0:02:12.160 I'll make a couple of points. You know, the presidency 0:02:12.200 --> 0:02:15.480 is clearly extremely important, but Congress is very important to 0:02:15.480 --> 0:02:18.320 get a lot of things done, you know, or not done, 0:02:18.520 --> 0:02:22.359 because the twenty seventeen tax cuts are likely to expire 0:02:22.639 --> 0:02:25.480 if Congress doesn't do anything. So beyond the presidency, we're 0:02:25.480 --> 0:02:28.400 looking at the Senate races, the House races, So the 0:02:28.560 --> 0:02:31.800 entirety of the election is going to be important. Secondly, 0:02:31.840 --> 0:02:34.160 there's a lot of policies that are up in the air, 0:02:34.240 --> 0:02:40.000 right from tariff, immigration, you know, regulation. I talked about taxes, spending. 0:02:40.480 --> 0:02:42.359 I think it may be a little simplistic to say 0:02:42.360 --> 0:02:46.360 that one outcome is necessarily good for the economy or 0:02:46.360 --> 0:02:48.240 good for markets. I think we also have this deficit 0:02:48.280 --> 0:02:51.840 issue which is out there either of them, for either 0:02:51.840 --> 0:02:55.840 of them exactly, whether it's spending or it's taxes or tariffs, 0:02:55.880 --> 0:02:59.280 they all have fiscal implications. I mean, what I'll say is, 0:02:59.280 --> 0:03:01.800 as I manage of portfolio is one our position for 0:03:01.880 --> 0:03:03.880 one way or the other. It really from a risk 0:03:03.919 --> 0:03:06.280 towards standpoint. Given that the election is won by not 0:03:06.320 --> 0:03:08.800 a lot of forty thousand votes or one hundred thousand votes, 0:03:08.800 --> 0:03:13.520 we're talking not about, you know, a very clear dividea. 0:03:13.560 --> 0:03:16.040 So I would say it's best not to position before 0:03:16.080 --> 0:03:19.120 the election, to see the election outcome and then to 0:03:19.160 --> 0:03:23.480 see what, you know, what policies are prioritized. Is it 0:03:23.520 --> 0:03:26.560 going to be taxes first? Is it tariffs first, which 0:03:26.600 --> 0:03:29.000 is going to have a very different implication. There's also 0:03:29.120 --> 0:03:30.880 so I would say when we look at the election 0:03:31.000 --> 0:03:32.799 and the outcome on markets, I look at the impact 0:03:32.840 --> 0:03:35.040 on growth and inflation, I look at the impact on 0:03:35.040 --> 0:03:38.440 the deficit, and then what I really hope is FED independence, 0:03:39.320 --> 0:03:40.920 you know, remains, but that is I don't think we 0:03:40.920 --> 0:03:43.160 should take that for granted. Is there any impact there, 0:03:43.160 --> 0:03:45.400 because that's going to have an impact on treasuries as 0:03:45.440 --> 0:03:47.480 a safe haven, the dollar is a safe have and 0:03:47.520 --> 0:03:50.119 these are all things which require an independence center bank. 0:03:50.160 --> 0:03:52.680 So there's a lot. But I would Saylely. 0:03:52.320 --> 0:03:55.240 Did say for independence, you really are concerned. 0:03:55.480 --> 0:03:56.720 I am a little concerned. 0:03:56.760 --> 0:03:59.720 I mean, we've seen this little bit before, and I 0:03:59.760 --> 0:04:02.680 think now with the fact that the FED was late 0:04:02.800 --> 0:04:05.120 in hiking rates, are they going to be late in 0:04:05.160 --> 0:04:07.560 cutting rates? They're about to embark on a cutting cycle. 0:04:07.840 --> 0:04:10.600 And if we have the President or Congress talk too 0:04:10.680 --> 0:04:14.320 much about what about FED policy. It's not great to 0:04:14.480 --> 0:04:17.159 inspire conference in the US capal markets, and we need 0:04:17.320 --> 0:04:20.120 we need foreign investments. And as the FED cut rates, 0:04:20.160 --> 0:04:22.839 I actually think foreigners will look at US fixed income, 0:04:22.920 --> 0:04:25.280 they look at the US equity market. So I do 0:04:25.640 --> 0:04:28.880 hope that that FED independence remains. I think it's something 0:04:29.200 --> 0:04:30.840 we should keep at the back of our mind as 0:04:30.839 --> 0:04:32.719 we think about market implications of the election. 0:04:32.920 --> 0:04:36.520 So the FED has taken rates high enough that money 0:04:36.560 --> 0:04:40.279 market funds are yielding over five percent. They now stand 0:04:40.440 --> 0:04:43.960 over six trillion dollars. That's a lot of money. What 0:04:44.120 --> 0:04:47.200 happens as the FED begins to cut rates, where does 0:04:47.279 --> 0:04:49.760 that capital go looking for yield? 0:04:50.040 --> 0:04:50.360 Sure? 0:04:50.480 --> 0:04:53.839 And that's the question I would say every asset management person, 0:04:53.880 --> 0:04:55.600 every wealth manager, is salivating at the. 0:04:55.520 --> 0:04:56.679 Thought of that six trillion. 0:04:57.400 --> 0:05:00.760 Historically, that money does move once the FED starts to 0:05:00.800 --> 0:05:03.760 cut rates, starts to move first into fixed income and 0:05:03.800 --> 0:05:07.440 then into risky assets. But here's the catch. We're in 0:05:07.480 --> 0:05:10.560 a soft landing, and soft landing rate cuts are rare, 0:05:10.920 --> 0:05:13.719 So can we apply the Historically the FED is cutting 0:05:13.760 --> 0:05:16.160 in a recession, so the money moves into fixed income 0:05:16.200 --> 0:05:19.280 because well, equities might look a little scary this time 0:05:19.320 --> 0:05:21.720 around if the soft landing is maintained, and that's a 0:05:21.800 --> 0:05:24.560 that's an if. I think there's a case we're in 0:05:24.600 --> 0:05:26.960 a good spot. If the FED was to cut rates 0:05:27.080 --> 0:05:29.279 quickly enough, we might stay in that soft landing. 0:05:29.320 --> 0:05:29.960 We have a chance. 0:05:30.040 --> 0:05:32.000 It's a narrow path, but I think there's a chance 0:05:32.040 --> 0:05:35.440 we stay there. I think that money moves into different 0:05:35.440 --> 0:05:38.000 asset classes, not all of it. There is a reason 0:05:38.160 --> 0:05:42.200 people own cash, liquidity, cash management, but a certain portion 0:05:42.279 --> 0:05:45.839 of it, especially as you realize that there's reinvestment risk. 0:05:45.960 --> 0:05:47.880 That money is not going to stay at five percent. 0:05:47.920 --> 0:05:51.120 As the FED cut rates and forwards are arguing for 0:05:51.120 --> 0:05:53.560 a little below three percent, that cash is going to 0:05:53.560 --> 0:05:56.479 give you three percent. As people start to internalize that, 0:05:56.560 --> 0:05:59.720 and I think the FED cutting starts that, that money then, 0:05:59.760 --> 0:06:04.560 in a soft lining, moves into equities, credit and government bonds. 0:06:04.920 --> 0:06:06.960 If the economy slows down, I think you're going to 0:06:06.960 --> 0:06:08.760 see more into fixed income. So there's a bit of 0:06:08.800 --> 0:06:12.919 a bifurcated outlook for that money depending on how the 0:06:12.960 --> 0:06:14.279 economy evolves from here. 0:06:14.720 --> 0:06:17.279 If the FED is starting on a longer cycle of 0:06:17.320 --> 0:06:20.080 rate cuts, and some people have talked about high three 0:06:20.160 --> 0:06:22.680 low four percent, is where they end up, what do 0:06:22.680 --> 0:06:24.479 you do with your duration? Where do you want to 0:06:24.520 --> 0:06:28.280 have your bonds? What sort of longevity you're looking for 0:06:28.520 --> 0:06:29.279 in the whole things. 0:06:29.360 --> 0:06:32.560 Sure, I think bonds finally give you income. So I 0:06:32.680 --> 0:06:35.520 joke that fixed income finally has income in it, which. 0:06:35.320 --> 0:06:36.920 Is good real income. 0:06:37.080 --> 0:06:38.960 You know, not only are you getting that nominal income, 0:06:39.000 --> 0:06:44.000 but net of inflation, you're actually earning real returns. The 0:06:44.080 --> 0:06:46.760 other thing bonds are giving you is diversification, which you 0:06:46.800 --> 0:06:50.480 talked about twenty two is the opposite of diversification. Because 0:06:50.600 --> 0:06:54.520 risk assets struggled and bond struggled. That's changed. And actually 0:06:54.520 --> 0:06:55.960 you don't have to take my word for it. Look 0:06:55.960 --> 0:06:58.359 at the last couple of months, just the last two 0:06:58.440 --> 0:07:02.000 payroll reports that come I've been a little weaker than before, 0:07:02.520 --> 0:07:04.839 and this fear of a hard landing or a recession 0:07:04.920 --> 0:07:09.040 starts to come up. Risk asset struggle and bonds do 0:07:09.200 --> 0:07:09.760 really well. 0:07:09.880 --> 0:07:13.440 That was Priamsra, portfolio manager of Global fixed Income, Currency 0:07:13.440 --> 0:07:17.080 and Commodities at JP Morgan Asset Management. We got another 0:07:17.120 --> 0:07:20.400 take on the investing environment from Sarah Mallik. She's chief 0:07:20.440 --> 0:07:22.960 investment officer and head of Equities and fixed Income of 0:07:23.040 --> 0:07:26.600 Nuveen Asset Management, one of the world's largest investment managers 0:07:26.600 --> 0:07:29.480 with one point two trillion dollars in assets under management. 0:07:29.800 --> 0:07:32.520 She is also president of Nouveene Equities and Fixed Income 0:07:32.600 --> 0:07:34.640 and a member of the executive management team. 0:07:34.720 --> 0:07:35.800 Let's start with technology. 0:07:35.840 --> 0:07:38.440 I think July tenth was an important day for tech 0:07:38.480 --> 0:07:41.120 stocks acts where in second quarter earnings people decided they 0:07:41.160 --> 0:07:43.120 weren't good enough. So even with Nvidia and there are 0:07:43.120 --> 0:07:45.200 one hundred and twenty two percent revenue growth in this 0:07:45.320 --> 0:07:47.480 second quarter, these socks had gotten crowded. 0:07:47.120 --> 0:07:49.280 And it just wasn't good enough and stock started. 0:07:49.080 --> 0:07:51.760 Sound crazy in your view, Well, it just you know, 0:07:51.920 --> 0:07:53.960 it's tough to say what's really priced in in terms 0:07:53.960 --> 0:07:56.120 of artificial intelligence. And I think what people are really 0:07:56.160 --> 0:07:59.040 waiting for, though, is some signs of return on investment 0:07:59.080 --> 0:08:02.600 or monetization from all these huge AI investments that companies 0:08:02.600 --> 0:08:04.520 have may and in any cycle where we're in this 0:08:04.840 --> 0:08:07.480 ultra growth cycle, you're not just going to see that immediately. 0:08:07.560 --> 0:08:09.720 So a bit of a pause here as we wait 0:08:09.760 --> 0:08:12.360 to see that these stocks are even though they're growing gangbusters, 0:08:12.400 --> 0:08:14.320 still there's there's so much crowding in them and the 0:08:14.360 --> 0:08:16.680 valuations and everything just I think you know, they roll 0:08:16.680 --> 0:08:18.800 over for a bit until we get the next catalyst, which, 0:08:18.920 --> 0:08:21.200 by the way, Jensen's on the road in early October 0:08:21.320 --> 0:08:22.320 that could be a catalyst. 0:08:22.360 --> 0:08:23.680 No more delays from Blackwell. 0:08:23.720 --> 0:08:26.480 And also, you know, the stock is not incredibly expensive, 0:08:26.520 --> 0:08:28.480 so I think that could also be another reason why 0:08:28.600 --> 0:08:31.000 Video does eventually bounce off the bottom and go up. 0:08:31.040 --> 0:08:33.360 But in the meantime, probably training range of one hundred, 0:08:33.360 --> 0:08:34.000 one hundred and forty. 0:08:34.160 --> 0:08:36.880 Okay, you know, we're almost done with September. We're coming 0:08:36.960 --> 0:08:40.760 up on you know, Q three earnings. By every estimate 0:08:40.760 --> 0:08:42.680 that looks like we're going to be at or near 0:08:42.800 --> 0:08:45.679 record earnings. Isn't that what's going to drive stock prices high? 0:08:45.920 --> 0:08:48.080 Well, before we get to those third quarter earnings, let's 0:08:48.080 --> 0:08:50.080 talk about being almost done with September, because it is 0:08:50.120 --> 0:08:52.440 the middle of September. For the past four years in 0:08:52.480 --> 0:08:55.319 a row, the second half of September has seasonally. 0:08:55.000 --> 0:08:56.520 Been the worst two weeks of the year for the 0:08:56.559 --> 0:08:57.160 stock market. 0:08:57.200 --> 0:08:58.160 Earnings have been strong. 0:08:58.240 --> 0:09:00.120 And even if a recession is coming, and we are 0:09:00.160 --> 0:09:02.520 in that camp, but the recession east to camp, as 0:09:02.720 --> 0:09:05.520 Bob was talking about earlier today on my panel, you know, 0:09:05.760 --> 0:09:08.080 the earnings are not showing that yet employment markets are 0:09:08.080 --> 0:09:11.040 still reasonably strong, consumer's showing some signs of cracking. So 0:09:11.040 --> 0:09:13.280 I think we're okay for now, but we do have 0:09:13.280 --> 0:09:15.000 the last two weeks of September to contend with. 0:09:15.280 --> 0:09:17.320 I got to ask a question because every time someone 0:09:17.360 --> 0:09:19.960 says the FED knows something we don't know. The FED 0:09:19.960 --> 0:09:22.480 didn't know inflation was coming they were eight. The FED 0:09:22.480 --> 0:09:24.960 didn't know inflation was peaked. They were eight. What do 0:09:24.960 --> 0:09:27.560 you say, ED didn't know that inflation had bottom. I'm 0:09:27.559 --> 0:09:32.160 saying they're a large, cautious institution that tends to move 0:09:32.320 --> 0:09:37.079 very deliberately, and so the FED knowing what we don't 0:09:37.120 --> 0:09:40.280 know is less of a concern than hey, when are 0:09:40.360 --> 0:09:42.600 these guys going to figure out what we've already figured out. 0:09:43.120 --> 0:09:44.400 I look at it differently than you. 0:09:44.679 --> 0:09:47.320 Well, I agree with you on the FED being cautious. 0:09:47.480 --> 0:09:49.920 Economy is slowing, but it's not on the precipice of 0:09:49.960 --> 0:09:52.520 a recession. But on the second part of you know, 0:09:52.640 --> 0:09:54.000 I guess it has a little bit more to do 0:09:54.040 --> 0:09:55.679 with if the Fed sneezes of the rest of us 0:09:55.720 --> 0:09:57.600 catch a cold. It's not necessarily do they know a 0:09:57.640 --> 0:10:00.079 recession is coming. It's that if they're so concerned about it, 0:10:00.080 --> 0:10:01.720 should the rest of the world be concerned about it? 0:10:01.760 --> 0:10:04.040 You have an SMP that's trading around fifty six hundred. 0:10:04.120 --> 0:10:06.160 Obviously the S and B five hundred is not concerned 0:10:06.200 --> 0:10:08.160 about a recession. It's this rate, So that would be 0:10:08.200 --> 0:10:09.679 I think what would get people unnerved. 0:10:09.800 --> 0:10:12.720 So my favorite question anytime we're talking about the FED 0:10:12.800 --> 0:10:15.000 is what's the terminal rate? Where did they end up 0:10:15.040 --> 0:10:16.520 when everything is said and done. 0:10:16.960 --> 0:10:18.199 I think that's the challenge. 0:10:18.240 --> 0:10:20.480 So, first of all, this year, so intellection, your FED 0:10:20.520 --> 0:10:22.440 tends to do more rather than less, So that's another 0:10:22.480 --> 0:10:24.400 reason I think they start slowly. You might get one 0:10:24.480 --> 0:10:26.120 or two more rate cuts by the end of this year. 0:10:26.200 --> 0:10:28.160 Then it just depends on are we going to get 0:10:28.200 --> 0:10:30.120 that recession that we've now talked about for two years 0:10:30.160 --> 0:10:32.240 straight or not. I think that we are. If we 0:10:32.280 --> 0:10:34.080 get to that, then I think we get multiple rate 0:10:34.080 --> 0:10:35.120 cuts next year. 0:10:35.240 --> 0:10:36.560 So our view is they start. 0:10:36.320 --> 0:10:38.160 Off a little bit slow, maybe more slowly than. 0:10:38.120 --> 0:10:40.480 The market expects, but then they start to accelerate as 0:10:40.480 --> 0:10:43.320 employment markets really crack and the consumer continues to slow, 0:10:43.679 --> 0:10:45.000 and then you know, we get to a level where 0:10:45.160 --> 0:10:47.640 you know, depending on the level of the recession. You know, 0:10:47.679 --> 0:10:49.439 then we'll sort of see where the FED finally ends 0:10:49.480 --> 0:10:50.560 up in terms of its terminal rate. 0:10:50.640 --> 0:10:52.440 Is there a trade that we should be talking about. 0:10:53.000 --> 0:10:55.000 I think we should first of all, Okay, so fixed 0:10:55.000 --> 0:10:57.840 income tends to outperform equities into twelve months after rate cuts, 0:10:57.840 --> 0:11:00.520 so we should be talking about fixed income. Secondarily, I 0:11:00.520 --> 0:11:02.760 think we should be talking about quality overall, if we 0:11:02.800 --> 0:11:05.400 are going into this recession, companies with strong balance sheet, 0:11:05.440 --> 0:11:08.559 companies with the ability to continue to grow their dividends. 0:11:08.160 --> 0:11:09.719 And provide income for investors. 0:11:09.840 --> 0:11:12.520 Also, rate sensitive sectors like reats, which tend to have 0:11:12.640 --> 0:11:15.120 lagged for the two years as a FED raise rates, 0:11:15.160 --> 0:11:17.600 reach should outperform as a FED cuts rates. So looking 0:11:17.640 --> 0:11:19.200 for this is a little different than what we've been 0:11:19.240 --> 0:11:21.439 thinking about last years has been about who can survive 0:11:21.520 --> 0:11:24.679 rate hikes, who can survive ultra high inflation. Now we're 0:11:24.720 --> 0:11:27.400 thinking about who performs well during rate cuts, Which companies 0:11:27.480 --> 0:11:29.960 might will be able to survive some form of a recession. 0:11:30.280 --> 0:11:33.920 So you mentioned some consumers are showing signs of cracking. 0:11:34.679 --> 0:11:37.200 A lot of the bottom half of the economy is 0:11:37.280 --> 0:11:40.400 reliant on credit cards. If we see rate cuts, does 0:11:40.440 --> 0:11:42.440 that start to alleviate some of that pain. 0:11:42.880 --> 0:11:43.600 I think it could. 0:11:43.720 --> 0:11:46.920 Already we're seeing we are seeing consumer delinquencies pick up. 0:11:46.960 --> 0:11:50.480 Second quarter earnings companies were not super optimistic on the 0:11:50.480 --> 0:11:51.960 consumer rate cuts I think. 0:11:51.880 --> 0:11:54.160 Will help, But the question will be will it be enough? 0:11:54.200 --> 0:11:54.840 Is it too little? 0:11:54.880 --> 0:11:55.400 Too late? 0:11:55.480 --> 0:11:58.199 I think given what you already, what we've experienced in 0:11:58.280 --> 0:12:00.000 terms of rate hikes for the last couple of years, 0:12:00.320 --> 0:12:02.120 and the fact that we think the FED starts slowly, 0:12:02.160 --> 0:12:04.480 I'm not sure that a couple of rate cuts is 0:12:04.559 --> 0:12:06.480 enough to get us into the soft landing camp that 0:12:06.480 --> 0:12:07.160 we all hope for. 0:12:07.280 --> 0:12:08.800 All Right, I was going to ask you what's the 0:12:08.840 --> 0:12:11.080 big risk that we have to worry about? Five seconds? 0:12:11.080 --> 0:12:11.760 What's the big risk? 0:12:11.960 --> 0:12:15.120 Probably geopolitics, one that we're not talking about as much anymore, 0:12:15.559 --> 0:12:17.200 and you know, will that bubble up in any of 0:12:17.200 --> 0:12:19.520 the you know, unfortunately where it's happening. I think, you know, 0:12:19.600 --> 0:12:21.640 non US markets are something that people aren't talking that 0:12:21.720 --> 0:12:22.480 much about right now. 0:12:22.559 --> 0:12:25.079 That's Sarah Malak, chief investment officer and head of Equities 0:12:25.120 --> 0:12:28.160 and fixed Income of New Veen Asset Management. You're listening 0:12:28.200 --> 0:12:30.960 to a special edition of Bloomberg Business Week featuring our 0:12:31.040 --> 0:12:34.560 favorite conversations from the future Proof Festival coming up. What 0:12:34.600 --> 0:12:37.840 happens when you focus on academic research, often drawn from 0:12:37.920 --> 0:12:42.440 Nobel laureates, and plow that into investment strategy. We find 0:12:42.480 --> 0:12:44.839 out from a firm that does just that. That's next 0:12:44.960 --> 0:12:46.119 on Bloomberg BusinessWeek. 0:12:48.040 --> 0:12:58.000 Question please see is Bloomberg Business Week with Carol Messer 0:12:58.320 --> 0:13:01.040 and Tim Stenebek Bloomberg Radio. 0:13:02.920 --> 0:13:05.320 I'm Carol Master along with Barry Ripholtz in for Tim 0:13:05.320 --> 0:13:07.200 this week. He of course is the host of the 0:13:07.240 --> 0:13:11.360 Masters in Business broadcast and podcast on Bloomberg. Our coverage 0:13:11.400 --> 0:13:13.960 of the future Proof Festival this past week in Huntington Beach, 0:13:14.000 --> 0:13:18.000 California continues. We were both there with Marlena Lee, global 0:13:18.040 --> 0:13:22.199 head of Investment Solutions at the registered investment advisor Dimensional Investing, 0:13:22.400 --> 0:13:24.600 which has seven hundred and forty billion dollars in firm 0:13:24.600 --> 0:13:28.440 wide assets under management. If you're not familiar with Dimensional, well, 0:13:28.480 --> 0:13:32.040 the firm was founded some forty years ago and historically 0:13:32.040 --> 0:13:36.120 applies academic research to practical investing. We wanted to know 0:13:36.160 --> 0:13:37.680 what research is top. 0:13:37.480 --> 0:13:38.960 Of mind from the very beginning. 0:13:38.960 --> 0:13:41.280 Our founders were actually folks who worked on some of 0:13:41.320 --> 0:13:46.280 the very first index funds and they kind of really 0:13:46.400 --> 0:13:48.120 liked some of the ideas that were coming out of 0:13:48.160 --> 0:13:51.800 the academic research around different drivers of expected return, but 0:13:51.880 --> 0:13:56.200 also just that flexibility has value. So from our very 0:13:56.280 --> 0:13:59.400 beginning we had these ideas that, hey, you want really 0:13:59.480 --> 0:14:03.160 low cost diversified portfolios that an index fund would give you, 0:14:03.440 --> 0:14:05.440 but you do leave money on the table when you 0:14:05.440 --> 0:14:08.440 have the rigidities of index funds. So adding some flexibility 0:14:08.920 --> 0:14:12.520 and using academic research to pursue out performance is a 0:14:12.559 --> 0:14:15.640 winning strategy and we have forty years of track record 0:14:15.679 --> 0:14:16.120 to show it. 0:14:16.280 --> 0:14:18.720 So we have I think five Nobel. 0:14:18.480 --> 0:14:21.840 Laureates that are associated in some way with the firm, 0:14:21.960 --> 0:14:26.320 either through as academic consultants, advisors to the firm, or 0:14:26.560 --> 0:14:29.280 on the fun board, so representing our investors in the fund. 0:14:29.640 --> 0:14:33.440 And they all joined and got involved before they want 0:14:33.440 --> 0:14:38.880 their Nobel laureates, so really deep academic ties. Yes, absolutely right, Barry. 0:14:38.920 --> 0:14:42.080 That our very first fund was focused on this small 0:14:42.080 --> 0:14:46.120 cap premium that was well before smart beta or factory investing. 0:14:46.160 --> 0:14:48.560 Was your original smart beta so well. 0:14:48.520 --> 0:14:51.120 I like to call it pioneers of factor based investing. 0:14:51.160 --> 0:14:54.920 You know, we're absolutely the first value came on the scene. 0:14:55.040 --> 0:14:58.200 Of course, right as Fama and French were writing their 0:14:58.200 --> 0:15:03.680 three factor model paper. These days we're looking at profitability 0:15:04.000 --> 0:15:08.320 adding that to the lineup. Profitability is a fantastic compliment 0:15:08.360 --> 0:15:11.320 for value because those premiums tend not to show up 0:15:11.360 --> 0:15:13.920 at the same times. So we do think that when 0:15:13.920 --> 0:15:16.320 you build a portfolio that focus on both, you can 0:15:16.320 --> 0:15:17.280 help smooth out the ride. 0:15:17.440 --> 0:15:19.800 You are a teaching assistant, right for Eugene Fama, I 0:15:20.040 --> 0:15:21.760 was tell us at how did that shape you? Or 0:15:21.760 --> 0:15:23.320 tell us a little bit about that experience. 0:15:23.600 --> 0:15:26.440 Oh my gosh, it was the best experience. I would 0:15:26.440 --> 0:15:28.720 have done it for free. Yeah, I was a Belle laureate. 0:15:29.240 --> 0:15:31.800 He wasn't at the time, right, but he did become so. 0:15:31.920 --> 0:15:34.720 Before arriving at Dimensional, I was doing my PhD at 0:15:34.720 --> 0:15:38.320 the University of Chicago, studied under Professor Fama, and then 0:15:38.400 --> 0:15:41.600 became his teaching assistant. And when I told him, he 0:15:41.640 --> 0:15:44.400 was also on my dissertation committee. And when I told 0:15:44.440 --> 0:15:46.600 him I didn't really want to do the academic thing, 0:15:47.040 --> 0:15:51.760 he was so kind because my other advisors they tried 0:15:51.760 --> 0:15:55.479 to convince me otherwise. But Fama he connected me to Dimensional, 0:15:56.000 --> 0:15:58.280 And it's such a perfect fit because I got to 0:15:58.320 --> 0:16:02.320 continue focusing on this academic research that I had spent 0:16:02.360 --> 0:16:06.160 five years of my life learning and studying, and instead 0:16:06.200 --> 0:16:09.520 being able to apply it and helping to explain it 0:16:09.600 --> 0:16:15.000 to investors who deeply care because it does help. Understanding 0:16:15.000 --> 0:16:18.000 the research just leads to a better investment dot com. 0:16:18.000 --> 0:16:21.200 I think if you understand that there's a more of robust, 0:16:21.240 --> 0:16:24.920 a better way to pursue higher returns than stock picking 0:16:25.120 --> 0:16:28.520 or trying to time the markets, and just the confidence 0:16:28.560 --> 0:16:31.800 that it gives someone to be a long term discipline investors, 0:16:32.000 --> 0:16:34.000 which I think is really important to be able to 0:16:34.000 --> 0:16:36.680 stick with market downturns and get. 0:16:36.520 --> 0:16:39.040 You an environment where trades move so quickly and react 0:16:39.080 --> 0:16:42.560 to day to day news events, whether it's company stock 0:16:42.560 --> 0:16:45.440 specific or just macro specific, that when you really understand 0:16:45.440 --> 0:16:47.680 the deep research behind something right, you can have a 0:16:47.720 --> 0:16:50.480 lot more conviction behind an investment, whether to buy or sell. 0:16:50.560 --> 0:16:50.760 Yeah. 0:16:50.800 --> 0:16:54.440 Absolutely, I think that we are most investors are investing 0:16:54.440 --> 0:16:57.360 for decades. Yeah, and we should have a decade long 0:16:57.520 --> 0:16:58.480 investment horizon. 0:16:58.600 --> 0:17:00.680 And the research speaks to dec its long of. 0:17:01.680 --> 0:17:05.040 Patterns and data as opposed to like what's going to 0:17:05.040 --> 0:17:07.879 happen tomorrow or what's going to happen in the you know, 0:17:07.920 --> 0:17:09.359 in the next few months. 0:17:09.359 --> 0:17:12.720 You're essentially an academic at heart. What's the most interesting 0:17:12.800 --> 0:17:17.119 new research you're finding that might eventually become some form 0:17:17.200 --> 0:17:20.800 of real life application of theory. 0:17:21.200 --> 0:17:23.720 Well, there's always little improvements that we can make, but 0:17:23.800 --> 0:17:27.120 I would say profitability was the last really big one. 0:17:28.240 --> 0:17:30.880 Some people might think of it as quality, and once 0:17:30.920 --> 0:17:33.880 you capture profitability, a lot of those other variables, they're 0:17:33.920 --> 0:17:35.000 not important. 0:17:34.560 --> 0:17:36.240 For explaining it over revenue growth. 0:17:36.960 --> 0:17:39.800 Well, revenue growth, so we it's just so funny we 0:17:39.800 --> 0:17:41.600 talk so much about the importance of like growing your 0:17:41.600 --> 0:17:44.199 business because profitability great profits you can play around with. 0:17:44.560 --> 0:17:46.600 Well, let's let's back it up and just talk about 0:17:46.600 --> 0:17:50.359 why profitability should help explain returns in the first place. 0:17:50.720 --> 0:17:52.280 When you invest in a company, you. 0:17:52.240 --> 0:17:56.320 Get future cash flows and it's all discounted back to 0:17:56.400 --> 0:17:57.159 a price today. 0:17:57.200 --> 0:17:58.080 That's the stock price. 0:17:58.640 --> 0:18:00.680 That discount rate is the expected return. 0:18:01.400 --> 0:18:03.960 So what we want is we don't get to look 0:18:04.040 --> 0:18:06.040 up the expected return in Bloomberg. 0:18:06.320 --> 0:18:07.000 Instead, we have. 0:18:07.000 --> 0:18:10.600 To infer it from two variables that we can sort 0:18:10.640 --> 0:18:13.800 of see. We definitely get to see price today, but 0:18:13.840 --> 0:18:15.760 we don't get a perfect view. 0:18:15.720 --> 0:18:17.959 Of those expected future cash flows. 0:18:18.440 --> 0:18:22.359 But it turns out today's profitability just levels our pretty 0:18:22.440 --> 0:18:25.200 dang good predictor of those profits several. 0:18:24.960 --> 0:18:26.119 Years out into the future. 0:18:26.200 --> 0:18:29.480 The most the most profitable companies today tend to stay 0:18:29.480 --> 0:18:33.920 the most profitable companies for many years now. Profitability growth 0:18:34.200 --> 0:18:38.000 is another aspect that does help a little bit, but 0:18:38.240 --> 0:18:41.400 the most important one to capture is the level of profits. 0:18:41.840 --> 0:18:44.520 And then the challenge with profitability growth is it does 0:18:44.560 --> 0:18:46.919 introduce a lot of additional turnover. So it's something that 0:18:46.960 --> 0:18:51.320 we're actively partnering with. Robert Novi marks another academic that 0:18:51.359 --> 0:18:54.600 we work very closely with to see if there's there's 0:18:54.600 --> 0:18:57.280 certainly something there in the data, but whether it would 0:18:57.320 --> 0:19:00.640 survive transactions, costs things like that are also very important 0:19:00.680 --> 0:19:03.159 before you add something to a live portfolio, where you 0:19:03.200 --> 0:19:04.800 have to patrading costs and things like that. 0:19:04.920 --> 0:19:09.320 Yeah, so I want to unpack why profitability has persistence 0:19:09.359 --> 0:19:13.480 into the future and what's so different from just profits 0:19:13.520 --> 0:19:16.240 because most people think of pe as their measure, but 0:19:16.400 --> 0:19:20.280 profitability means it's a company that sometimes has a moat 0:19:20.520 --> 0:19:23.879 and a strategic advantage that they're not carrying a lot 0:19:23.960 --> 0:19:27.639 of debt that can eventually eat into future profits. What 0:19:27.760 --> 0:19:32.040 other elements are you looking at that explain why profitability 0:19:32.080 --> 0:19:34.400 tends to persist out into the distance. 0:19:34.600 --> 0:19:38.080 That's a fantastic question, Barry, because actually, across a lot 0:19:38.119 --> 0:19:41.439 of different measures of profitability, you see that companies with 0:19:41.520 --> 0:19:45.440 higher profitability have higher returns than companies with low profitability. 0:19:45.640 --> 0:19:48.320 That's you can look at a very top line number 0:19:48.400 --> 0:19:51.040 like revenues, you can look at net income, so at 0:19:51.040 --> 0:19:54.480 the very bottom it all helps create spreads and returns. 0:19:54.560 --> 0:19:57.320 So that's really important because it gives you a better 0:19:57.359 --> 0:19:59.840 sense that's that's something that's real and the data. You're 0:19:59.840 --> 0:20:03.560 not just cherry picking something that's really like a fragile 0:20:03.560 --> 0:20:07.960 academic result, and so that's comforting. What we end up 0:20:08.040 --> 0:20:11.920 using in our portfolios we call operating profitability because we 0:20:12.000 --> 0:20:14.639 want something that's going to predict future profitability. So you 0:20:14.640 --> 0:20:17.320 don't want things that are super variable your year or 0:20:17.400 --> 0:20:21.520 one one time events. So operating profitability gets to the 0:20:21.560 --> 0:20:25.600 heart of what are kind of a more stable stream 0:20:25.760 --> 0:20:31.040 of revenues minus costs, and that's what we see or 0:20:31.080 --> 0:20:32.680 what we use in the portfolios. 0:20:33.040 --> 0:20:35.680 That is something that is stable enough where. 0:20:35.480 --> 0:20:38.800 We can run a portfolio that focuses on high profitability. 0:20:39.000 --> 0:20:41.720 Names in a portfolio without a lot of turnover. 0:20:42.080 --> 0:20:45.080 Is there an overlap between profitability and momentum or is 0:20:45.119 --> 0:20:46.560 that just something completely different? 0:20:46.800 --> 0:20:47.959 It turns out to be different. 0:20:48.680 --> 0:20:52.000 The thing that's more related to momentum or price momentum, 0:20:52.080 --> 0:20:54.840 which is what we usually think of as momentum, is 0:20:54.880 --> 0:20:56.360 earning's momentum is related. 0:20:56.400 --> 0:20:58.200 So Robert Novemarks. 0:20:57.760 --> 0:20:59.520 Did have a paper a few years back where he 0:20:59.600 --> 0:21:01.600 showed that those two things are quite related. 0:21:02.040 --> 0:21:04.080 We do take account momentum in. 0:21:04.080 --> 0:21:05.760 The portfolios as well. 0:21:06.080 --> 0:21:08.600 But the thing with momentum, just like I was saying 0:21:08.640 --> 0:21:11.800 with profitability growth, is that it does tend to have 0:21:12.520 --> 0:21:13.560 high turnover. 0:21:13.320 --> 0:21:15.320 If you try to pursue it directly. 0:21:15.800 --> 0:21:19.160 So a better way to take advantage of momentum is 0:21:19.400 --> 0:21:22.120 if you're already managing a portfolio. Let's just say that's 0:21:22.200 --> 0:21:26.359 pursuing size, value profitability. You want to trade a little 0:21:26.359 --> 0:21:28.720 bit every day in order to make sure you're focused 0:21:28.720 --> 0:21:32.440 on those premiums, not introducing style drift into the portfolios. 0:21:32.760 --> 0:21:36.840 But you can take into account something like price momentum 0:21:36.880 --> 0:21:39.560 at that point of trade. So I could say, hey, 0:21:39.840 --> 0:21:43.119 here's the stock I want to buy, but it's down momentum, 0:21:43.520 --> 0:21:46.840 Therefore it should continue to underperform for a little while, 0:21:47.000 --> 0:21:49.760 Let's just wait before I buy it, or vice versa. 0:21:49.840 --> 0:21:52.160 If I want to sell something that has up momentum, 0:21:52.400 --> 0:21:53.840 I could just wait a little. 0:21:53.960 --> 0:21:56.520 Just I just want to follow up with that because 0:21:57.000 --> 0:21:59.920 I understand the way we use dimensional funds in our shop. 0:22:00.359 --> 0:22:02.520 I understand the way they operate. But I want you 0:22:02.560 --> 0:22:05.520 to clarify something because I don't want people to misunderstand 0:22:05.560 --> 0:22:09.280 what you say. What you said, It's not that you 0:22:09.440 --> 0:22:11.320 think you have to trade every day for the sake 0:22:11.359 --> 0:22:14.240 of trading. You what I The way I know the 0:22:14.240 --> 0:22:17.720 way you guys have run various funds are you are 0:22:17.880 --> 0:22:22.719 opportunistically looking for your time and place to pick up 0:22:22.720 --> 0:22:26.159 specific things. And it's not like, hey, let's go trade today. 0:22:26.200 --> 0:22:29.000 It's let's see if anything that's on our by list 0:22:29.040 --> 0:22:32.639 that we're looking to accumulate has become a more attractive 0:22:32.640 --> 0:22:33.200 price point. 0:22:33.440 --> 0:22:34.600 Am I? Am I doing that? 0:22:34.640 --> 0:22:35.320 Any justice? 0:22:35.920 --> 0:22:36.400 So great? 0:22:36.800 --> 0:22:40.560 That's absolutely right. When I say we look to trade 0:22:40.560 --> 0:22:41.119 every day. 0:22:41.240 --> 0:22:45.040 The turnover in our portfolios are is very low, So 0:22:45.359 --> 0:22:48.640 a core portfolio might have something in the high single digits. 0:22:49.160 --> 0:22:52.680 A higher, more narrow portfolio like a small value portfolio, 0:22:52.680 --> 0:22:55.920 for example, might be somewhere between twenty to thirty percent turnover. 0:22:56.320 --> 0:22:59.960 Just to translate that a twenty five percent annualized turnover 0:23:00.080 --> 0:23:02.399 or means when I buy a stock, I expect to 0:23:02.400 --> 0:23:06.520 hold it for four years, So it's a long holding period, 0:23:06.800 --> 0:23:09.600 which we think is really important because as you're incurring 0:23:09.640 --> 0:23:12.479 trading costs, you can spread that across the long holding period. 0:23:12.880 --> 0:23:14.679 But the daily rebalancing. 0:23:14.160 --> 0:23:16.200 Also just gives us a lot of flexibility. 0:23:16.480 --> 0:23:20.719 So those are index like levels of turnover, like passive 0:23:20.720 --> 0:23:23.760 indices like level of turnover right, But whereas an index 0:23:23.880 --> 0:23:27.240 might try to drive all of that turnover into defined 0:23:27.320 --> 0:23:31.040 reconstitution dates once to four times per year, we can 0:23:31.080 --> 0:23:33.800 spread it across two hundred and twenty trading days a year, 0:23:33.800 --> 0:23:36.240 which makes it really easy to control training costs. 0:23:36.240 --> 0:23:36.359 More. 0:23:36.680 --> 0:23:37.919 Does the macro play into this? 0:23:38.359 --> 0:23:40.480 You know, I would love to be able to say 0:23:40.520 --> 0:23:42.960 here's when the premiums are going to be higher or lower, 0:23:43.119 --> 0:23:46.080 but the data is just too noisy. So we view, 0:23:46.680 --> 0:23:49.679 at least in these equity portfolios, we want to be 0:23:50.080 --> 0:23:53.639 focused on these premiums day and day out, and macro 0:23:54.119 --> 0:23:57.680 environments don't really change that view. And it goes back 0:23:57.760 --> 0:23:59.720 to that idea for why we see these premiums in 0:23:59.720 --> 0:24:03.280 the first it's low prices combined with good future cash flows, 0:24:03.840 --> 0:24:07.520 and that should always indicate higher expector returns than something 0:24:07.520 --> 0:24:09.920 with a high price and low cash flow. And that's 0:24:10.000 --> 0:24:14.400 true regardless of what the Fed's going to do. Recession, expansion, regardless. 0:24:13.960 --> 0:24:16.280 Of recession, long recession, doesn't matter. 0:24:16.800 --> 0:24:21.120 Those premiums are not correlated with all of these macroeconomic variables. 0:24:21.160 --> 0:24:23.040 And we would love to be able to figure out 0:24:23.240 --> 0:24:25.280 to crack the nut of how to focus on these 0:24:25.280 --> 0:24:27.639 premiums during certain times, but we think it's best to 0:24:27.640 --> 0:24:28.639 do it every day. 0:24:29.040 --> 0:24:31.960 Really interesting, very cool stuff in a nutshell ten seconds, 0:24:31.960 --> 0:24:35.199 the market environment an interesting one, a hard one, a 0:24:35.240 --> 0:24:35.920 complex one. 0:24:35.960 --> 0:24:37.400 How would you describe it? 0:24:37.400 --> 0:24:39.720 It's always complex, it's always changing. 0:24:42.720 --> 0:24:43.359 It is easy. 0:24:43.560 --> 0:24:46.679 But I do think that when you have a long term. 0:24:46.600 --> 0:24:49.120 View right now today, it doesn't matter or what. 0:24:49.320 --> 0:24:51.600 It doesn't matter, like we're going to be positioned on 0:24:51.680 --> 0:24:55.400 these premiums regardless of and that's part of why our 0:24:55.400 --> 0:24:57.560 clients like this because they know what to expect from us. 0:24:57.640 --> 0:25:00.280 That was Marlena Lee, global head of investment Solutions at 0:25:00.280 --> 0:25:04.119 the registered investment advisor Dimensional Investing. Our coverage of the 0:25:04.119 --> 0:25:07.440 future Proof Investival this past week continues still to come, 0:25:07.480 --> 0:25:10.399 the often cited and fast growing one point seven trillion 0:25:10.440 --> 0:25:13.600 dollar private credit market and what cracks, if any are 0:25:13.680 --> 0:25:16.359 showing up. We'll check in with Alona Gornik at Churchill 0:25:16.400 --> 0:25:19.680 Asset Management. Churchill It is the more than fifty billion 0:25:19.720 --> 0:25:23.639 dollar private capital affiliate of Nuvene, providing financing solutions to 0:25:23.720 --> 0:25:27.000 middle market private equity firms and their portfolio companies across 0:25:27.000 --> 0:25:29.680 the capital structure. You're listening to a special edition of 0:25:29.680 --> 0:25:32.080 Bloomberg BusinessWeek. This is Bloomberg. 0:25:43.000 --> 0:25:47.280 This is Bloomberg Business Week and inside from the reporters 0:25:47.280 --> 0:25:50.720 and editors who bring you America's most trusted business magazine 0:25:50.800 --> 0:25:54.399 plus global business, finance and tech news. As it happened 0:25:54.440 --> 0:25:58.520 this Bloomberg Business Week with Kroo Messer and Tim Stenebek 0:25:58.880 --> 0:25:59.840 on Bloomberg. 0:26:01.080 --> 0:26:03.800 I'm Kel Masser, along with Barry Ridholts, of course, the 0:26:03.840 --> 0:26:07.359 host of the Master's in Business broadcast and podcast on Bloomberg. 0:26:07.680 --> 0:26:10.320 Our coverage of the future Proof Festival held this past 0:26:10.320 --> 0:26:13.679 week in California, continuing with another voice well known to 0:26:13.680 --> 0:26:17.159 the Bloomberg community and audience. We are talking about David Kelly, 0:26:17.160 --> 0:26:20.040 who has been JP Morgan Asset Management's chief Global market 0:26:20.080 --> 0:26:23.159 strategists for more than sixteen and a half years. By 0:26:23.200 --> 0:26:25.560 the way, JP Morgan Asset Management is a partner in 0:26:25.640 --> 0:26:29.080 the event. David weighed in on the always important metric 0:26:29.440 --> 0:26:30.360 investor sentiment. 0:26:30.520 --> 0:26:32.840 Mean, it's been a very good year for markets, you know, 0:26:32.880 --> 0:26:34.200 the S and p FO. I found that it's up 0:26:34.200 --> 0:26:38.439 eighteen percent year today. Bondiels are down. The economy is 0:26:38.480 --> 0:26:41.040 doing fine. I mean, it's slowing down, but it was 0:26:41.040 --> 0:26:44.800 supposed to slow down, you know, but unemployment slow, inflations 0:26:44.840 --> 0:26:48.200 come down, so the backdrop is good. I think the 0:26:48.320 --> 0:26:51.879 financial industry is doing very well right now, and I 0:26:51.960 --> 0:26:55.120 just think that there's a little nervousness that the FED 0:26:55.240 --> 0:26:56.600 might somehow scare people. 0:26:56.680 --> 0:26:59.399 Bill Dudley, former head of the New York FED, you know, 0:26:59.680 --> 0:27:01.640 think the Fed should be more aggressive. 0:27:02.080 --> 0:27:03.720 I think that he should have done that. They should 0:27:03.720 --> 0:27:04.800 have done it probably already. 0:27:05.080 --> 0:27:05.439 Well. 0:27:05.560 --> 0:27:08.399 I agree that they should have started cutting earlier. Yes, 0:27:08.760 --> 0:27:11.159 but bringing interest rates down is like lowering a piano 0:27:11.280 --> 0:27:12.480 down from the fourth. 0:27:12.320 --> 0:27:13.040 Floor of a building. 0:27:13.440 --> 0:27:16.919 You need to do it slowly and carefully. And what 0:27:17.080 --> 0:27:20.520 I think the FED misses is the fact that initially 0:27:20.520 --> 0:27:22.320 you cut rates, you hurt the economy. 0:27:23.359 --> 0:27:23.919 Why is that? 0:27:24.400 --> 0:27:26.960 Because you know you talk about long and variable ags. 0:27:27.040 --> 0:27:27.320 What happen? 0:27:27.359 --> 0:27:28.879 There are three very bad things that happen with the 0:27:28.880 --> 0:27:31.080 FED cuts. And first of all, you squeeze the interest 0:27:31.119 --> 0:27:34.800 income of all those American consumers have got money in 0:27:35.160 --> 0:27:38.520 money market funds, particularly older Americans. Second of all, the 0:27:38.680 --> 0:27:41.359 thing is going to immediately happen is on programs like this, 0:27:41.440 --> 0:27:43.640 and all over all over American people say, what are. 0:27:43.560 --> 0:27:44.399 They so scared about it? 0:27:44.640 --> 0:27:46.679 They must see a recesion. They're gonna get all these numbers. 0:27:46.760 --> 0:27:48.440 So if I'm going to hire somebody, maybe I wait 0:27:48.440 --> 0:27:49.760 a while. I was going to buy a car, Maybe 0:27:49.760 --> 0:27:51.440 I should put that off. That's what people want to 0:27:51.480 --> 0:27:55.040 wait and see. The third thing that happens, which is terrible, 0:27:55.440 --> 0:27:57.320 is that you know you're thinking about taking out a mortgage. 0:27:57.320 --> 0:27:58.680 You're gonna take it a mortage day, you want to. 0:27:58.600 --> 0:27:59.000 Wait a while? 0:27:59.040 --> 0:28:00.679 I think I wait a while, right. The problem is 0:28:00.720 --> 0:28:02.600 they don't get this. I wish I could get people 0:28:02.600 --> 0:28:04.600 to understand this. There is a J curve effect. You 0:28:04.640 --> 0:28:06.880 actually hurt the economy before you help. But and that's 0:28:06.880 --> 0:28:09.720 what Frankly Bill Dudley doesn't get that's what all the 0:28:09.720 --> 0:28:13.720 people are calling for. Aggressive cutting. Don't get this economy 0:28:13.800 --> 0:28:16.680 is fine, don't mess with it. Take rates down slowly, 0:28:16.840 --> 0:28:17.399 nothing going. 0:28:17.280 --> 0:28:19.480 On over here, don't take great adjustment. 0:28:19.200 --> 0:28:19.880 Just take it down. 0:28:19.920 --> 0:28:20.800 It's a fine economy. 0:28:20.880 --> 0:28:22.840 When you're working on somebody's back, right, you know, just 0:28:23.080 --> 0:28:23.399 it's you. 0:28:24.680 --> 0:28:27.199 They're like, you know, it's like medieval medicine. I mean, 0:28:27.359 --> 0:28:29.000 you know, the most dangerous thing is when you're told 0:28:29.040 --> 0:28:31.240 the doctor is going to come to cure you, because 0:28:31.280 --> 0:28:32.000 they'll probably kill you. 0:28:32.000 --> 0:28:36.720 I mean, just just amputation. So let's let's take this 0:28:37.400 --> 0:28:39.520 down a couple of months. It feels like they're way 0:28:39.560 --> 0:28:42.760 behind the curve. Where do they end up? Where do 0:28:42.800 --> 0:28:45.960 you see this going by the first quarter of next year. 0:28:46.000 --> 0:28:48.120 Well, there is I mean, I don't think they're way 0:28:48.160 --> 0:28:50.040 behind the curve. I don't think they should have pushed 0:28:50.080 --> 0:28:52.200 rates up high as high as they did. I think 0:28:52.200 --> 0:28:55.400 they should have started earlier. But let's not overestimate the 0:28:55.440 --> 0:28:58.160 importance of all this for the economy. The rates are 0:28:58.240 --> 0:29:01.000 too high because the economy is basically good place, and 0:29:01.040 --> 0:29:03.520 you need to gradually bring rates down to a normal level. 0:29:03.480 --> 0:29:05.000 And I think normal is probably three and a half 0:29:05.040 --> 0:29:06.640 to four percent of the federal funds. So you need 0:29:06.680 --> 0:29:09.959 to gradually do that. They don't need to do this aggressively. 0:29:10.120 --> 0:29:13.120 The the damage they did by pushing rates up too 0:29:13.200 --> 0:29:15.640 high is already been done. But bringing it down to 0:29:15.760 --> 0:29:17.920 faust will actually make the problem worse. 0:29:18.000 --> 0:29:19.880 Recession off the table at this point, David. 0:29:19.920 --> 0:29:22.040 Recession is never off the table. What I say is 0:29:22.480 --> 0:29:27.200 we're not going to get an indulgenous recession. In other words, 0:29:27.240 --> 0:29:29.240 it's not something that's built in the system right now. 0:29:29.280 --> 0:29:30.120 An external shock. 0:29:30.280 --> 0:29:31.360 It's got to be an external shock. 0:29:31.360 --> 0:29:32.080 I mean, I'm looking at. 0:29:32.240 --> 0:29:33.640 So do you rule at external shocks? 0:29:33.920 --> 0:29:34.920 No, of course we're going to know. 0:29:35.280 --> 0:29:36.840 The history of the twenty first century is nothing but 0:29:36.960 --> 0:29:40.800 external shocks. I mean, that's what happens, and eventually that'll 0:29:40.840 --> 0:29:43.440 get us. But it is important to realize that the 0:29:43.480 --> 0:29:47.400 traditional business cycle, that stress is already behind us. The 0:29:47.440 --> 0:29:50.440 point at which high interest rates cause a collapse in investments, 0:29:50.480 --> 0:29:52.880 there has been no collapse in investments spending. There's been 0:29:52.920 --> 0:29:55.240 no collaps in GDP growth either. By the way, you know, 0:29:55.360 --> 0:29:57.040 GDP is up three point one percent a year of 0:29:57.080 --> 0:29:59.200 the year. In the second quarter, we think about two 0:29:59.200 --> 0:30:02.440 percent of the third, so there's really no pritical problem there. 0:30:02.520 --> 0:30:05.680 That's David Kelly, chief Global market Strategist at JP Morgan 0:30:05.680 --> 0:30:08.760 Asset Management. Well, you know, we talk a lot about 0:30:08.760 --> 0:30:12.120 private credit here at Bloomberg. Just last month, Bloomberg News 0:30:12.200 --> 0:30:14.720 out with a story noting how the one point seven 0:30:14.800 --> 0:30:18.120 trillion dollar private credit industry has grown rapidly in the 0:30:18.120 --> 0:30:21.160 past few years as higher rates forced buyout firms to 0:30:21.160 --> 0:30:25.200 look further afield for funding, while traditional lenders pulled back. 0:30:25.720 --> 0:30:28.720 Banks have become more competitive in recent months as they 0:30:28.760 --> 0:30:32.560 try to retain leverage loan market share. In response, credit 0:30:32.560 --> 0:30:35.960 funds started pushing their pricing down, raising concerns about a 0:30:35.960 --> 0:30:39.120 potential race to the bottom. For a view on whether 0:30:39.240 --> 0:30:43.080 that is indeed happening, we turned to Alona Gornik, Managing 0:30:43.080 --> 0:30:46.720 director and senior investment strategist at Churchill Asset Management, which, 0:30:46.720 --> 0:30:48.959 as we like to remind our audience, is the more 0:30:49.040 --> 0:30:52.760 than fifty billion dollar private capital affiliate of Novine, providing 0:30:52.760 --> 0:30:56.040 customized financing solutions to middle market private equity firms and 0:30:56.080 --> 0:30:58.960 their portfolio companies across the capital structure. 0:30:59.360 --> 0:31:02.360 Sure, it's been a really interesting competitive landscape as we 0:31:02.400 --> 0:31:04.840 think about the different segments of the middle market. I 0:31:04.880 --> 0:31:08.600 feel like they are individually, each facing this sort of 0:31:08.640 --> 0:31:10.920 bank pressure in a very different way. I think a 0:31:10.920 --> 0:31:13.800 lot of the activity you're talking about is largely hitting 0:31:13.800 --> 0:31:16.040 that upper middle market segment, which makes a lot of 0:31:16.040 --> 0:31:18.760 sense for corporate barers of the size that banks. 0:31:18.520 --> 0:31:20.000 Really want to attract. 0:31:20.520 --> 0:31:23.280 In the core middle market, where Churchill's focus, we generally 0:31:23.280 --> 0:31:25.880 see a little bit less of that bank interaction or 0:31:25.920 --> 0:31:28.120 bank threat if you will, in that same traditional sense. 0:31:28.360 --> 0:31:30.400 But generally what we are seeing is a little bit 0:31:30.440 --> 0:31:33.720 more competition for the most part, with some upper middle 0:31:33.760 --> 0:31:37.240 market direct lenders somewhat coming down market, given there isn't 0:31:37.280 --> 0:31:40.360 as much activity that they can pursue in that upper 0:31:40.360 --> 0:31:42.320 middle market, or a little bit more of a competitive threat, 0:31:42.320 --> 0:31:44.560 they might want to expand their wings, if you will. 0:31:45.040 --> 0:31:47.400 But there are ways in the core middle market where 0:31:47.400 --> 0:31:50.040 we can really expand and stay disciplined and avoid some 0:31:50.080 --> 0:31:52.320 of that race to the bottom, which can come in 0:31:52.320 --> 0:31:55.600 the form of maybe tighter spreads, looser. 0:31:55.200 --> 0:31:56.880 Covenants to no covenants. 0:31:57.040 --> 0:31:59.040 Coming down in market in terms of the size of 0:31:59.040 --> 0:32:01.440 the business is really where we want to stay away from. 0:32:01.560 --> 0:32:04.120 So private credit has generally been very focused on the 0:32:04.160 --> 0:32:06.800 institutional market. It really makes a lot of sense to 0:32:06.880 --> 0:32:09.720 have committed capital locked up where you can draw it 0:32:09.800 --> 0:32:11.120 down over time as a manager. 0:32:11.480 --> 0:32:12.520 But what'll be seen has. 0:32:12.440 --> 0:32:15.400 Been incredible opportunity set in the wealth market that is 0:32:15.680 --> 0:32:19.640 just tapping the surface right of starting to explore private markets, 0:32:19.680 --> 0:32:22.960 private equity, private credit. But in size the wealth market 0:32:23.000 --> 0:32:25.760 is equal in terms of the institutional market. So think 0:32:25.800 --> 0:32:29.640 about going from zero percent effectively up to five percent. 0:32:30.040 --> 0:32:32.760 When you think about institutions and their exposure private credit, 0:32:33.000 --> 0:32:36.360 they're generally anywhere between five to fifteen percent. I mean 0:32:36.440 --> 0:32:39.040 Kelper's was out I think last week talking about targeting 0:32:39.200 --> 0:32:42.880 five going to eight percent massive institution. Think about the 0:32:42.920 --> 0:32:45.240 wealth channel getting from zero to even five. That's a 0:32:45.400 --> 0:32:48.800 huge untapped opportunity that we would like to meet. But 0:32:48.920 --> 0:32:51.520 to do that we need more accessful products. It has 0:32:51.560 --> 0:32:54.719 been very difficult to think about wealth coming into a 0:32:54.760 --> 0:32:57.560 product that has a five million dollar minimum that is 0:32:57.600 --> 0:33:00.320 nowhere near what a wealth manager or an advisor can touch. 0:33:00.440 --> 0:33:03.200 So we're really focused on this market. This is a 0:33:03.240 --> 0:33:06.120 great conference to do it. There's about two thousand advisors here, 0:33:06.160 --> 0:33:08.240 but when I think about the wealth channel, I think 0:33:08.240 --> 0:33:12.520 there's about three hundred thousand advisors. It's so fragmented. How 0:33:12.640 --> 0:33:15.480 is Churchill going to access this market? So we absolutely 0:33:15.520 --> 0:33:20.320 need education, We need resources, We need distribution folks on 0:33:20.400 --> 0:33:22.840 the ground all over the country, We need specialists to 0:33:22.840 --> 0:33:25.880 help with that education. And we need partners, you know, 0:33:26.200 --> 0:33:29.120 like technology platforms like case and I Capital help us 0:33:29.160 --> 0:33:33.200 create funds and ultimately product development that have lower minimums. 0:33:33.320 --> 0:33:36.400 These non traded, perpetually non traded BDCs that allow you 0:33:36.440 --> 0:33:39.200 to come in for twenty five hundred dollars instead of 0:33:39.240 --> 0:33:42.720 five million and ten ninety nine's much more easy to access, 0:33:42.840 --> 0:33:43.440 really simple. 0:33:43.560 --> 0:33:47.360 Do you think investors are ready for the possibility of 0:33:47.400 --> 0:33:51.160 it having higher risk as an investment or also having 0:33:51.160 --> 0:33:54.360 their money maybe locked up and not as liquid in 0:33:54.440 --> 0:33:55.320 these kinds of deals. 0:33:55.440 --> 0:33:58.320 I'd say the top three concerns or at least hesitation 0:33:58.400 --> 0:34:00.760 points that advisors have when I'm on the road are 0:34:00.840 --> 0:34:05.640 number one, the liquidity risk, Number two default risk in 0:34:05.680 --> 0:34:08.000 the asset class that they're not very familiar with, and 0:34:08.120 --> 0:34:12.120 number three it would generally be accessibility, like how am 0:34:12.160 --> 0:34:14.880 I going to get access to this product and comfortably 0:34:14.880 --> 0:34:16.960 get it if in fact we are in a rate 0:34:17.000 --> 0:34:21.040 declining environment? How will that impact my return picture. With liquidity, 0:34:21.080 --> 0:34:23.520 you have to really educate folks that these are ultimately 0:34:24.120 --> 0:34:25.360 not traded assets. 0:34:25.440 --> 0:34:25.560 Right. 0:34:25.560 --> 0:34:28.600 We're putting it in a wrapper that affords you potentially 0:34:28.680 --> 0:34:32.640 some liquidity and a quarterly redemption, but underneath it, the 0:34:32.680 --> 0:34:35.040 assets aren't really meant to trade. So you really have 0:34:35.080 --> 0:34:37.239 to educate the client and thinking if this is something 0:34:37.239 --> 0:34:39.359 your portfolio that you will not touch for a very 0:34:39.400 --> 0:34:43.440 long time, enjoy current income along the way. That's what 0:34:43.520 --> 0:34:45.960 you want to really think about and diversify the portfolio 0:34:46.000 --> 0:34:47.040 with an enhanced return. 0:34:47.280 --> 0:34:48.759 I think that's what's really resonating. 0:34:48.880 --> 0:34:50.840 What's the typical lockup period? 0:34:51.000 --> 0:34:52.960 So we don't have one in these funds and a 0:34:52.960 --> 0:34:56.359 non traded BDC, you're actually first twelve months, you'll have 0:34:56.400 --> 0:34:58.960 a soft lock at ninety eight, but then after that 0:34:59.280 --> 0:35:02.360 you can really read your entire amount up to a 0:35:02.400 --> 0:35:04.839 cap where we as a manager would cap it at 0:35:04.880 --> 0:35:06.879 five percent of the enemy of the fund. 0:35:06.600 --> 0:35:08.960 For three years, five years, seven years. What sort of 0:35:08.960 --> 0:35:09.920 expectation do you have. 0:35:10.160 --> 0:35:12.360 I think what's great with advisors is really trying to 0:35:12.360 --> 0:35:15.359 help them educate their clients about a very long term 0:35:15.400 --> 0:35:18.160 hold here. I think what's really resonating in terms of 0:35:18.200 --> 0:35:22.439 benefits about private credit are one that income generation. It's 0:35:22.480 --> 0:35:24.719 incredible to think about income generation in terms of a 0:35:24.719 --> 0:35:27.520 predictable path to retirement. So if it's on your way 0:35:27.640 --> 0:35:29.759 or when you're in retirement, that is a multi year 0:35:29.800 --> 0:35:32.000 potential investment addition to your portfolio. 0:35:32.440 --> 0:35:33.240 But if you think. 0:35:33.120 --> 0:35:35.960 About the income component of that, it's very similar to 0:35:36.000 --> 0:35:39.080 fixed income and public credit, but with a really nice 0:35:39.360 --> 0:35:40.239 yield premium to it. 0:35:40.239 --> 0:35:41.560 And you were talking about this earlier. 0:35:41.880 --> 0:35:45.160 Historically, the yield premium for private credit, particularly direct lending 0:35:45.480 --> 0:35:48.480 versus the upper kind of large corporate credit has been 0:35:48.480 --> 0:35:50.400 anywhere between one hundred and fifty to two hundred and 0:35:50.440 --> 0:35:53.600 fifty basis points. That's pretty historically kind of where the 0:35:53.640 --> 0:35:56.000 average has been around two hundred. Right now we're actually 0:35:56.000 --> 0:35:58.839 seeing it widen out to about two fifty two sixty five, 0:35:59.200 --> 0:36:01.160 which has been beca because of that really that. 0:36:01.160 --> 0:36:02.440 Comeback in the bank market. 0:36:02.719 --> 0:36:06.080 When things come back, activity picks up, spreads tighten out, 0:36:06.239 --> 0:36:08.440 but not as much in that middle market. 0:36:08.520 --> 0:36:10.280 So our premium is actually increasing. 0:36:10.600 --> 0:36:13.239 So current income is really going to be really attractive 0:36:13.239 --> 0:36:15.839 for advisors when they think about multi year in terms 0:36:15.840 --> 0:36:17.840 of at three, is it, five, is it seven. 0:36:17.920 --> 0:36:18.719 Is it for the long haul? 0:36:18.960 --> 0:36:21.160 Is there any stress that you guys are seeing. I mean, 0:36:21.200 --> 0:36:23.400 I do think that there was, you know, milk in 0:36:23.440 --> 0:36:25.600 the last couple of years and milk in this year. 0:36:25.680 --> 0:36:29.000 Like the concerns about stresses in the private credit area 0:36:29.040 --> 0:36:31.160 because we feel like that there isn't enough transparency. 0:36:31.200 --> 0:36:33.560 You know, you know the arguments, but I'm just. 0:36:33.560 --> 0:36:37.279 Curious, you know, re renegotiating the terms of deals to 0:36:37.280 --> 0:36:40.440 make sure that you know there's no defaults and that 0:36:40.480 --> 0:36:41.799 you can kind of see the deal through. 0:36:42.400 --> 0:36:43.880 What are you seeing on that front? 0:36:44.239 --> 0:36:47.239 I think that there are pockets of stress or distress 0:36:47.280 --> 0:36:49.239 happening in the market, and I think it's going to 0:36:49.280 --> 0:36:53.120 be vintage specific still, yes, and actually showing it's it's 0:36:53.440 --> 0:36:55.640 it's ugly head a little bit more so when you 0:36:55.680 --> 0:36:59.759 think about the most aggressive deals we're generally done in 0:36:59.840 --> 0:37:02.280 our around the time where we saw massive recovery post 0:37:02.320 --> 0:37:07.120 COVID Alah twenty twenty one, valuations were really high, really 0:37:07.160 --> 0:37:11.840 fantastic software healthcare services businesses were getting bought from double 0:37:11.880 --> 0:37:15.000 digit multiples, and along with that came a pretty heavy 0:37:15.000 --> 0:37:18.879 dose of leverage, pretty easy kind of money, very low 0:37:18.920 --> 0:37:21.320 to no covenants, it's that which we're seeing. 0:37:21.400 --> 0:37:22.400 If you had any. 0:37:22.239 --> 0:37:26.120 Issue before COVID and now in an interest rate environment 0:37:26.120 --> 0:37:28.759 that's been twice as high as it was two years ago, 0:37:29.040 --> 0:37:30.839 you're going to feel a little bit of pain right now. 0:37:30.880 --> 0:37:32.880 So we're starting to see a little bit of that unfold. 0:37:33.120 --> 0:37:35.839 So that stress that those cracks. But I'd say it 0:37:35.880 --> 0:37:39.080 isn't broad based across all of private credit. I'd say 0:37:39.120 --> 0:37:41.879 it's sort of isolated to vintages and then even certain 0:37:41.920 --> 0:37:43.600 parts of the market where you took a little too 0:37:43.680 --> 0:37:46.600 much leverage than the business should be able to handle. 0:37:46.719 --> 0:37:50.000 That's a load of Gornick, Managing Director, senior investment strategist 0:37:50.040 --> 0:37:52.839 at Churchill Acid Management. And that wraps up our first 0:37:52.840 --> 0:37:54.960 hour of the weekend edition of Bloomberg Business Week from 0:37:54.960 --> 0:37:57.840 Bloomberg Radio. Ahead in our next hour, more from the 0:37:57.880 --> 0:38:02.560 future Proof Festival, including a financial advisor oversees some three 0:38:02.640 --> 0:38:06.800 hundred billion dollars in investor assets. Also Joe Anne Bradford, 0:38:06.840 --> 0:38:09.759 president at Domain Money. You know that's the company that 0:38:09.840 --> 0:38:13.720 Ashton Kutcher and Mark Bennioff of Salesforce invested in. Plus 0:38:13.760 --> 0:38:17.560 Betterment CEO Sarah Levy on the next generation of investors 0:38:17.960 --> 0:38:20.600 our coverage from future Proof continues. I'm Carol Masser with 0:38:20.640 --> 0:38:23.560 Barry Rittholtz in for Tim. Stay with us. Today's top 0:38:23.600 --> 0:38:26.720 stories and global business headlines are coming up right now. 0:38:33.120 --> 0:38:37.520 This is Bloomberg Business Week inside from the reporters and 0:38:37.680 --> 0:38:41.280 editors who bring you America's most trusted business magazine plus 0:38:41.360 --> 0:38:45.279 global business, finance and tech news as it happens. Bloomberg 0:38:45.320 --> 0:38:50.440 Business Week with Carol Messer and Tim Stenebeck on Bloomberg Radio. 0:38:51.680 --> 0:38:53.600 Hi, everyone, welcome to the second hour of the weekend 0:38:53.680 --> 0:38:56.480 edition of Bloomberg Business Week. Tim is off this week. 0:38:56.800 --> 0:38:58.640 As you know, we are highlighting our coverage of the 0:38:58.640 --> 0:39:01.040 future Proof Festival that was held early in the week 0:39:01.080 --> 0:39:05.080 in Huntington Beach, California. The event brings together financial advisors, 0:39:05.120 --> 0:39:08.560 wealth managers, and the company executives all involved in the 0:39:08.560 --> 0:39:11.400 wealth ecosystem to talk about the future of the business 0:39:11.760 --> 0:39:15.320 and the factors impacting investor money. With me at Futureproof. 0:39:15.360 --> 0:39:18.840 Barry Ridholts, host of the Bloomberg podcasts and broadcast Masters 0:39:18.840 --> 0:39:21.440 in Business and at the Money. He's also chairman and 0:39:21.480 --> 0:39:24.880 CIO of Ridtholt's Wealth Management, which is a close partner 0:39:25.040 --> 0:39:28.200 with the future Proof event. Coming up from Futureproof in 0:39:28.280 --> 0:39:32.760 this second hour, Betterman CEO Sarah Levy plus Peter Maluke, 0:39:32.760 --> 0:39:35.280 who has been named as the top independent financial advisor 0:39:35.320 --> 0:39:37.160 in America by Barons for several. 0:39:36.960 --> 0:39:37.759 Years in a row. 0:39:38.280 --> 0:39:41.480 And a residential real estate play by one fintech entrepreneur 0:39:41.520 --> 0:39:43.800 who left London for the sunny West coast of the 0:39:43.920 --> 0:39:47.280 United States. Let's get it going though with joe Ann Bradford. 0:39:47.320 --> 0:39:50.120 She is President and Chief Money Officer at Domain Money, 0:39:50.360 --> 0:39:53.080 which was founded in twenty twenty two by Adam Dell, 0:39:53.560 --> 0:39:56.839 former head of Product at Marcus by Goldman Sachs. The 0:39:56.840 --> 0:40:00.920 financial advisory firm handles everything from real estate and retirement planning, 0:40:00.960 --> 0:40:05.560 to education planning, tax strategy, and more. Joanne's background includes 0:40:05.600 --> 0:40:09.319 executive roles as President of Honey, COO of Sofi, Chief 0:40:09.320 --> 0:40:12.320 revenue Officer at Microsoft, and Head of Partnerships at Pinterest. 0:40:12.640 --> 0:40:15.279 I do two things here. I advise a company called 0:40:15.280 --> 0:40:18.440 wealth dot Com and they announced a thirty million dollars 0:40:18.520 --> 0:40:23.279 Series A led by Google Ventures and City Congratulations, which 0:40:23.360 --> 0:40:25.960 was exciting and it shows you that like, hey, look, 0:40:26.120 --> 0:40:29.520 it's time for some automation and some technology and for 0:40:29.600 --> 0:40:33.239 some AI to be applied to this category because it's 0:40:33.239 --> 0:40:36.640 sort of the last one to break, you know. I 0:40:36.680 --> 0:40:38.960 was in the advertising business, which they said will always 0:40:38.960 --> 0:40:42.840 be sold over Martini's people to people, and this business 0:40:42.840 --> 0:40:44.960 has said the same. And I think we're sort of 0:40:45.040 --> 0:40:50.000 seeing the beginnings of that in this part of the business, 0:40:50.040 --> 0:40:53.640 not you know, like the Visa's MasterCards, plaid stripes, those things, 0:40:53.680 --> 0:40:56.960 but actually in the in the wealth management side of it. 0:40:57.680 --> 0:40:59.680 So it's exciting to see that to be a part 0:40:59.719 --> 0:41:03.080 of it. I think there are sort of two camps here, 0:41:03.719 --> 0:41:06.720 and all the people I've talked to one is, hey, look, 0:41:07.200 --> 0:41:09.560 I'm just going to keep doing what I'm doing and 0:41:09.840 --> 0:41:11.680 I hope that I get to the end of my 0:41:11.760 --> 0:41:14.800 career before the iceberg melts. And then there's other people 0:41:14.840 --> 0:41:17.319 that are like, no, I actually I'm going to try 0:41:17.400 --> 0:41:20.200 to change this. I want to be digital first. I 0:41:20.239 --> 0:41:22.879 want to go after millennials. I want to talk about 0:41:22.960 --> 0:41:27.040 how people have different needs around their money today. 0:41:27.080 --> 0:41:27.319 You know. 0:41:27.600 --> 0:41:30.000 So those are the two sort of camps, and I 0:41:30.040 --> 0:41:32.480 think it sort of happens in every industry, but it's 0:41:32.560 --> 0:41:34.880 clear it's playing out here, Joanne. 0:41:34.920 --> 0:41:39.640 Are those two very different generations? Is it philosophical or 0:41:39.719 --> 0:41:42.359 is it the fifty and older group is like, I'm 0:41:42.360 --> 0:41:44.840 just going to run out the clock, and the thirty 0:41:44.920 --> 0:41:47.680 forty somethings are like, no, it's got to be digital. 0:41:47.680 --> 0:41:50.720 It's got to be technology. That's what our clients want. 0:41:50.920 --> 0:41:55.520 I think it's both the providers and the customers right, 0:41:56.440 --> 0:41:59.200 because you know, I think the last conference we were at 0:41:59.280 --> 0:42:01.440 they said, you know, in the next ten years, a 0:42:01.480 --> 0:42:05.799 third of this industry is going to retire. And then 0:42:05.920 --> 0:42:08.400 you know, I worked at so Far and we built 0:42:08.400 --> 0:42:11.719 a digital first tool right where everybody wants to do 0:42:11.800 --> 0:42:15.880 everything on a device, wants to have it done, and 0:42:15.920 --> 0:42:18.320 then they still do want to know that there's human 0:42:18.560 --> 0:42:20.759 and a person that understands their values on the other 0:42:20.840 --> 0:42:21.359 side of it. 0:42:21.800 --> 0:42:23.080 I think it's happened. 0:42:22.719 --> 0:42:27.359 Everywhere in life except in personal wealth management. So it's 0:42:27.400 --> 0:42:30.719 finally going to show up here, but it's not. We're 0:42:30.719 --> 0:42:31.839 not quite ready for it yet. 0:42:31.880 --> 0:42:33.040 But how does it change? 0:42:33.040 --> 0:42:35.480 How do you see the transformation in terms of it 0:42:35.560 --> 0:42:39.440 becoming more digital or digital, you know, and embracing of technology. 0:42:39.840 --> 0:42:43.800 Yeah, I mean I literally I have a private wealth manager. 0:42:43.800 --> 0:42:45.360 I don't really want to talk to them. I just 0:42:45.440 --> 0:42:47.880 open up my schwab every day and look. 0:42:47.719 --> 0:42:50.800 At it and we'll first stop opening it every day. 0:42:50.600 --> 0:42:54.200 Please every No, I like it once a week. 0:42:54.480 --> 0:42:55.319 It makes me feel good. 0:42:55.400 --> 0:42:57.520 Just had a conversation about long term investing. 0:42:57.760 --> 0:42:58.879 Every day is too much. 0:42:59.440 --> 0:43:01.879 Every day? I look at my AMEX bill every day. 0:43:01.920 --> 0:43:03.319 You want to show me your AMEX bill on the 0:43:03.320 --> 0:43:03.799 credit card? 0:43:03.800 --> 0:43:04.520 Like, what did I buy? 0:43:04.600 --> 0:43:06.319 Well, my husband says, let's look at the AMEX bill. 0:43:06.400 --> 0:43:10.560 I'm like, my husband calls it the BOD and he's 0:43:10.600 --> 0:43:13.160 not talking about Board of directors box of the day. 0:43:13.280 --> 0:43:15.759 So he's like a box of the day showed up 0:43:15.760 --> 0:43:16.040 for you. 0:43:16.320 --> 0:43:19.960 But what does it mean for estate planning and tax 0:43:20.040 --> 0:43:21.720 planning and educational planning? 0:43:21.760 --> 0:43:23.800 Like, how do you guys think about because that's your world. 0:43:23.880 --> 0:43:26.040 Yeah, so when we want to let's talk about domain 0:43:26.200 --> 0:43:29.720 money for a second. So our average customer is thirty 0:43:29.800 --> 0:43:32.720 nine years old, makes two hundred and fifty thousand dollars 0:43:32.719 --> 0:43:37.120 a year, and doesn't really want to put their money 0:43:37.160 --> 0:43:41.239 into aum. They have made some money, they're trying to 0:43:41.239 --> 0:43:43.279 figure it out. They might have some stock, they get 0:43:43.320 --> 0:43:45.759 a bonus, and they just don't know what to do. 0:43:45.880 --> 0:43:50.960 They're overwhelmed. They may have gotten married, may have gotten divorced, 0:43:51.880 --> 0:43:54.920 and they want some professional help. So it's a flat 0:43:54.960 --> 0:43:57.680 fee financial plan. We saw one for twenty five hundred dollars. 0:43:57.680 --> 0:43:59.360 We look at all your expend to, we look at 0:43:59.360 --> 0:44:02.399 all your spending, we analyze it. We use a bunch 0:44:02.440 --> 0:44:05.719 of technologies in AI. We put together a plan with 0:44:05.800 --> 0:44:07.880 a paraplanner, and then we give it back to you 0:44:07.920 --> 0:44:10.000 in a ninety minute discussion, and then we set up 0:44:10.040 --> 0:44:11.720 a discussion after that with all. 0:44:11.600 --> 0:44:12.960 Your to dos and follow ups. 0:44:12.960 --> 0:44:16.879 Well, actually log into Zoom your Schwab account on Zoom 0:44:16.920 --> 0:44:19.040 with you and help you change, like move that there, 0:44:19.120 --> 0:44:21.600 because that's really where people freak out is they don't 0:44:21.640 --> 0:44:24.960 know how to do that. Our NPS score is ten 0:44:25.040 --> 0:44:28.120 out of ten. Its NPS Net Promoter score. It means 0:44:28.239 --> 0:44:31.239 would you recommend it? And we use it again? And 0:44:31.280 --> 0:44:34.200 on a one out of ten that's unheard of, get it, 0:44:34.400 --> 0:44:35.000 we get a ten. 0:44:35.239 --> 0:44:36.240 That's a perfect score. 0:44:36.280 --> 0:44:38.960 It is a perfect score because everybody at the end 0:44:39.000 --> 0:44:41.920 of it is like, Wow, you helped me, you heard me, 0:44:42.360 --> 0:44:45.040 I got value and I know what to do. We 0:44:45.080 --> 0:44:47.200 have a twenty five hundred dollars version of forty five 0:44:47.280 --> 0:44:49.920 hundred dollars version, and that's seventy five hundred dollars version. 0:44:50.360 --> 0:44:52.799 Most people end up taking forty five hundred because they 0:44:52.840 --> 0:44:56.640 want actually a year or one time plenty and then 0:44:56.680 --> 0:44:59.200 they can come back to us for three to five 0:44:59.239 --> 0:45:01.120 hundred dollars an hour to be like, hey, I want 0:45:01.120 --> 0:45:01.880 to check to get is. 0:45:01.840 --> 0:45:03.320 That How long do people stay with you guys? 0:45:03.440 --> 0:45:06.759 Well, I mean, you know, it's they come back a 0:45:06.760 --> 0:45:08.840 little bit every couple of years. But I think it 0:45:08.880 --> 0:45:11.760 should be like the dentist you you know, right, you 0:45:11.760 --> 0:45:14.440 you know, if you're using a sonic toothbrush, maybe you 0:45:14.440 --> 0:45:17.239 don't go every year, right, you know, you know, the 0:45:17.760 --> 0:45:20.000 dental industry came up with you need to go every 0:45:20.000 --> 0:45:20.880 six months. 0:45:20.640 --> 0:45:22.759 That's three times a year. They want cleaning three times 0:45:22.800 --> 0:45:23.040 a year. 0:45:23.120 --> 0:45:23.839 That's really But I. 0:45:23.760 --> 0:45:25.840 Wonder if you can tell there's a trajectory of somebody 0:45:25.840 --> 0:45:27.759 who comes to you when they first get married, and 0:45:27.800 --> 0:45:30.319 then maybe they go through a divorce, they come back, 0:45:30.360 --> 0:45:31.680 and then they get married again, and then they have 0:45:31.760 --> 0:45:33.680 kids and they have to think about college planning, and 0:45:33.680 --> 0:45:35.799 then they have to think about, you know, retirement. 0:45:36.120 --> 0:45:37.799 So do you see that trajectory. 0:45:37.960 --> 0:45:40.359 There's four there's four personas. 0:45:40.440 --> 0:45:44.960 There's the twenty nine year old that's like, hey, I 0:45:45.320 --> 0:45:47.040 need some help here. I have a good paying job 0:45:48.000 --> 0:45:50.359 and I just I like to be prepared. I call 0:45:50.440 --> 0:45:52.400 them like sharp pencil people, you know. They're like, I 0:45:52.400 --> 0:45:54.640 want help. I'm going to hire a trainer, I'm going 0:45:54.719 --> 0:45:56.360 to go to a therapist. I'm going to have the 0:45:56.360 --> 0:45:59.440 best to check check. Then the next group is like 0:45:59.480 --> 0:46:02.680 a thirty nine year old that's like, I didn't do anything, 0:46:03.160 --> 0:46:07.000 and please help me catch up very fast so we 0:46:07.080 --> 0:46:10.640 can do that. The next group is a fifty year 0:46:10.640 --> 0:46:12.759 old who is like, wow, I had something happen in 0:46:12.760 --> 0:46:17.800 my life, health, in my family, divorce, partner, I hate 0:46:17.840 --> 0:46:20.200 my career, I can't do it for the rest of 0:46:20.239 --> 0:46:22.440 my life, and I need to know how do I 0:46:22.480 --> 0:46:25.120 get out of this, and they want a financial plan 0:46:25.239 --> 0:46:28.160 for that. And then there's a group of people that 0:46:28.280 --> 0:46:31.359 need to help family members where they're like, hey, I'm 0:46:31.400 --> 0:46:34.279 now the Sandwich generation. I have to take care of 0:46:34.320 --> 0:46:36.640 a parent and I have to take care of a kid. 0:46:36.840 --> 0:46:39.680 And there's really not anybody that serves that right. 0:46:39.960 --> 0:46:43.160 So real, So like scrip you know, and I've talked, 0:46:43.360 --> 0:46:47.720 I've I listened to every conversation. I know this audience 0:46:47.800 --> 0:46:52.080 from my time at so far, and there's nobody really 0:46:52.120 --> 0:46:56.240 serving that market, right. We don't tell them what products 0:46:56.239 --> 0:46:59.000 you use. We're like, use Fidelity, U Schwab, do whatever. 0:46:59.360 --> 0:47:02.080 In my entire your sort of mission in life is 0:47:02.800 --> 0:47:05.279 I don't care who you use for your financial plan. 0:47:05.440 --> 0:47:07.680 I just want you to actually have one. I don't 0:47:07.719 --> 0:47:10.359 care if you do it yourself. I don't care if 0:47:10.400 --> 0:47:13.319 you sign up for you know, missus dow Jane's and 0:47:13.440 --> 0:47:14.040 take the course. 0:47:14.040 --> 0:47:14.759 A friend of mine the. 0:47:14.680 --> 0:47:17.399 Other day she works at Apple, she has worked there 0:47:17.400 --> 0:47:20.600 for thirteen years, never sold a sheriff's stock. I said, 0:47:20.600 --> 0:47:22.440 how do you manage your money? And she said, oh, 0:47:22.440 --> 0:47:26.359 I'm taking a course on the weekend. Yes, And I said, okay, great. 0:47:26.800 --> 0:47:29.759 And you know, she's mother of three. She's like, I 0:47:29.800 --> 0:47:31.839 got a safe for college. I have to do these things. 0:47:31.920 --> 0:47:32.600 Da da da dah. 0:47:33.120 --> 0:47:35.399 And I'm like, well, I'm glad you have a plan, right, 0:47:36.239 --> 0:47:39.600 And she paid three thousand dollars for that course, and 0:47:39.640 --> 0:47:41.200 I'm like, well, you could have just paid someone to 0:47:41.280 --> 0:47:43.400 do it for you and not spent your sundays and 0:47:43.440 --> 0:47:46.280 a course. But like whatever, you know, I'm just happy 0:47:46.360 --> 0:47:50.480 that people are doing it doing something because you and 0:47:50.520 --> 0:47:52.960 I know the power of compounding the power of starting 0:47:53.000 --> 0:47:57.200 it off and it just really matters. And so at SOFI, 0:47:57.280 --> 0:47:59.799 I saw so many people with student loan debt. I 0:48:00.080 --> 0:48:02.840 you know, met thousands and thousands of people at dinners 0:48:02.840 --> 0:48:05.400 with them once a week, and I know this customer 0:48:05.640 --> 0:48:07.719 and I know most people do not pay attention to 0:48:07.760 --> 0:48:08.240 their finance. 0:48:08.600 --> 0:48:13.200 So, Joanne, you started out by discussing how it's digital first, 0:48:13.239 --> 0:48:16.319 there's technology driven. But what I'm really hearing from you 0:48:16.840 --> 0:48:19.920 with these four different categories of people are that they 0:48:19.960 --> 0:48:23.080 want somebody, a live human to talk to yes and 0:48:23.200 --> 0:48:26.520 hear what their issues are. How do you marry technology 0:48:26.800 --> 0:48:28.120 with live human advice. 0:48:28.640 --> 0:48:30.000 Well, we do it all on Zoom. 0:48:30.320 --> 0:48:32.799 We have an app where they upload all their documents, 0:48:32.840 --> 0:48:35.280 makes it easy for them. We give them the report 0:48:35.320 --> 0:48:38.120 and the action items. Afterwards, we let them schedule all 0:48:38.120 --> 0:48:42.520 their meetings and times via technology. We follow up with them. 0:48:42.840 --> 0:48:46.600 So everything that is possible to take out of the 0:48:46.680 --> 0:48:50.719 process of friction of humans, we do accept that conversation 0:48:51.080 --> 0:48:54.520 and the review of the plan and the input and 0:48:54.719 --> 0:48:57.680 really understanding your values. Some people are like, I want adventures. 0:48:57.719 --> 0:48:59.399 Some people are like I want a career. Some people 0:48:59.440 --> 0:49:01.240 are like, I'd like to get rid of my spouse, 0:49:01.800 --> 0:49:04.960 you know, you know, there's just everybody has something and 0:49:05.880 --> 0:49:07.920 they want someone on the other end of it to 0:49:07.960 --> 0:49:09.120 hear them and to acknowledge. 0:49:09.120 --> 0:49:10.840 What's the most common mistake? Is it just people not 0:49:10.880 --> 0:49:11.399 having a plan. 0:49:11.600 --> 0:49:15.560 It is just not knowing the number, not ever looking 0:49:15.680 --> 0:49:16.440 at the numbers. 0:49:16.600 --> 0:49:18.200 What do you mean just everything? 0:49:18.560 --> 0:49:19.680 Yeah, it's in their head. 0:49:19.680 --> 0:49:22.520 It's sort of juggled, like what's your checking balance? I 0:49:22.560 --> 0:49:23.480 don't know, it's around this. 0:49:23.840 --> 0:49:25.440 I'll give you a perfect example. 0:49:25.480 --> 0:49:28.560 I was talking to a and just got about forty seconds. 0:49:28.600 --> 0:49:32.000 Yeah, a Bloomberg reporter one day and she said, not me, 0:49:32.239 --> 0:49:34.600 I have student loans And I said, how much do 0:49:34.640 --> 0:49:36.719 you owe? What's your interest rate? And when will you 0:49:36.719 --> 0:49:38.840 be done? And she said, I don't know. I just 0:49:38.880 --> 0:49:42.479 know one day it'll be gone. Okay, so I don't 0:49:42.480 --> 0:49:43.359 care who you are. 0:49:43.840 --> 0:49:45.280 You got to look at the number. 0:49:46.320 --> 0:49:47.160 Really interesting me. 0:49:47.200 --> 0:49:48.319 If you don't know what you have, how do you 0:49:48.440 --> 0:49:48.959 figure out? 0:49:48.960 --> 0:49:51.600 No, And most people don't. Yeah, they just don't. 0:49:52.160 --> 0:49:55.120 Really cool stuff, so fun, really cool. 0:49:54.920 --> 0:49:56.560 Stuff, really really cool stuff. 0:49:56.640 --> 0:49:59.040 I'm kind of taking note. It's going to share, folks. 0:49:59.160 --> 0:50:01.120 I told you before. That's where she came on. She's 0:50:01.160 --> 0:50:04.640 a fascinating person with an amazing background, and I love 0:50:04.680 --> 0:50:08.759 how she's combined technology and human advice into one and 0:50:08.880 --> 0:50:10.960 bringing so far in with the student loans on top 0:50:11.000 --> 0:50:11.200 of it. 0:50:11.200 --> 0:50:12.600 It is pretty cool, Like how all the stuff you 0:50:12.640 --> 0:50:14.160 did led up to where you are. 0:50:14.320 --> 0:50:17.279 Honey coupon code, one click coupon code. We sold it 0:50:17.320 --> 0:50:20.200 for four billion dollars. There's always a tech solution there. 0:50:20.480 --> 0:50:21.000 There you go. 0:50:21.120 --> 0:50:24.240 That's Joanne Bradford, President, Chief money Officer at Domain Money. 0:50:24.600 --> 0:50:27.279 You're listening to a special edition of Bloomberg Business Week 0:50:27.320 --> 0:50:31.359 featuring our favorite conversations from the future Proof Festival. Coming 0:50:31.400 --> 0:50:34.839 up Betterman CEO Sarah Levy on the next generation of investors. 0:50:35.120 --> 0:50:35.960 This is Bloomberg. 0:50:40.360 --> 0:50:44.759 This is Bloomberg Business Week inside from the reporters and 0:50:44.920 --> 0:50:48.520 editors who bring you America's most trusted business magazine, plus 0:50:48.600 --> 0:50:52.520 global business, finance and tech news as it happens. Bloomberg 0:50:52.560 --> 0:50:57.680 Business Week with Carol Messer and Tim Stenebeck on Bloomberg Radio. 0:50:58.440 --> 0:51:00.920 I'm Carol Masser, back with Barry Ride, host of the 0:51:00.920 --> 0:51:04.279 Masters in Business podcast and broadcast on Bloomberg. Throughout the 0:51:04.360 --> 0:51:07.680 day at the future Proof Festival, there were various panels 0:51:07.719 --> 0:51:10.279 and discussions, including well with Jeff Goodlock of Double Lime. 0:51:10.560 --> 0:51:12.920 He was one of the key speakers, which was timely 0:51:12.960 --> 0:51:15.439 ahead of the FED meeting this past week. For full 0:51:15.480 --> 0:51:17.560 coverage of the fed's half a point cut, be sure 0:51:17.600 --> 0:51:19.200 to check out Bloomberg dot com or head to the 0:51:19.200 --> 0:51:22.000 Bloomberg terminal. Meantime, With the FED in the raid environment 0:51:22.040 --> 0:51:24.600 in mind, we wanted to include this next conversation from 0:51:24.640 --> 0:51:27.720 future Proof. It was with Callie Cox, chief market strategist 0:51:27.719 --> 0:51:30.319 at Ridtholt's Wealth Management. It's the firm that, of course 0:51:30.360 --> 0:51:33.800 bears Barry's name and of which he is chairman and CIO. 0:51:34.280 --> 0:51:37.000 Let's talk a little bit about how you look at 0:51:37.000 --> 0:51:41.080 the world. You're relatively young compared to old timers like me. 0:51:41.840 --> 0:51:44.759 Do you what is the lens that optimistic Cali the 0:51:44.880 --> 0:51:48.640 name of your regular publication, How do you see the world? 0:51:49.000 --> 0:51:51.279 Yeah, well it's in the name Barry I like to 0:51:51.320 --> 0:51:54.000 call myself. I would say I'm an optimist. Of course, 0:51:54.040 --> 0:51:56.719 I have those risks that I see around me, and 0:51:56.760 --> 0:51:58.800 I think it's I think it's naive to be blind 0:51:58.880 --> 0:52:01.960 to risk. But in my letter that you mentioned, Verry Optimistically, 0:52:02.080 --> 0:52:05.000 I try to focus on the context that investors need 0:52:05.040 --> 0:52:08.240 to understand this rapid fire of information that they're reading 0:52:08.239 --> 0:52:10.759 every day, looking back to how markets work, have they 0:52:10.800 --> 0:52:13.799 worked in the past, what really matters for the economy, 0:52:14.000 --> 0:52:16.120 And I bring the data along with me too. I've 0:52:16.120 --> 0:52:18.960 been an analyst for over a decade now, and I 0:52:19.080 --> 0:52:21.839 like to have number former Bloomberger for former Bloomberger as 0:52:21.840 --> 0:52:25.879 well a reporter in the options market, right yeah, yeah, 0:52:26.000 --> 0:52:28.960 which is big on data applied volatilities, So you know, 0:52:29.080 --> 0:52:31.000 I like to hone in on that background, but also 0:52:31.520 --> 0:52:34.520 bring it down to an average investor level, so anybody 0:52:34.520 --> 0:52:37.319 can understand how you know their money works and markets work. 0:52:37.360 --> 0:52:39.200 How do you wead through the information then, I mean, 0:52:39.200 --> 0:52:41.439 there is so much information out there, but then you've 0:52:41.440 --> 0:52:43.120 got to weed through and kind of figure out what 0:52:43.160 --> 0:52:43.840 really matters. 0:52:44.200 --> 0:52:46.239 Well, I'm going to go back to my Bloomberg days. 0:52:46.880 --> 0:52:49.000 Bloomberg taught me how to do size and scope, which 0:52:49.120 --> 0:52:51.719 was if there's a number or if there's a move 0:52:51.760 --> 0:52:54.520 in markets that hasn't happened in a while, it's probably important. 0:52:54.520 --> 0:52:57.120 It's probably news and there's a story behind it. So 0:52:57.400 --> 0:53:00.520 that was the nugget that got me started, and I've 0:53:00.600 --> 0:53:02.600 essentially built my analysis off of that. Of course, I've 0:53:02.680 --> 0:53:05.319 learned the fundamentals of stock the stock market. I've you know, 0:53:05.400 --> 0:53:08.040 learned the fundamentals of you know, the time value of 0:53:08.080 --> 0:53:11.000 money and compounding over time. But it all kind of 0:53:11.000 --> 0:53:13.680 goes back to that. If I see a weird jump 0:53:13.680 --> 0:53:16.120 in prices, if I see a weird move in data, 0:53:16.600 --> 0:53:18.319 then I dig into the story behind it, and I 0:53:18.360 --> 0:53:20.880 really hone into that journalist attitude. 0:53:21.239 --> 0:53:23.760 So let's let's talk about size and scope. You recently 0:53:23.800 --> 0:53:26.719 had a piece that I really liked talking about one 0:53:26.760 --> 0:53:29.680 percent days, and you dug into the data of how 0:53:29.719 --> 0:53:32.600 often we get these half a percent, one percent, three 0:53:32.600 --> 0:53:34.920 percent days. Tell us what your research found. 0:53:35.360 --> 0:53:37.640 Well, first of all, most days in the stock market 0:53:37.680 --> 0:53:39.959 are pretty boring, which is kind of crazy to think about, 0:53:39.960 --> 0:53:41.799 because the news is screaming at you every day about 0:53:41.800 --> 0:53:45.200 how important it is. I believe I think it was 0:53:45.360 --> 0:53:48.280 more than half of days where twenty five basis points 0:53:48.360 --> 0:53:51.400 or excuse me, fifty bases point point. 0:53:51.640 --> 0:53:53.960 Sure, data is fifty three percent of the days is 0:53:54.120 --> 0:53:58.879 fifty half of fifty BIPs of half a percent. 0:53:58.640 --> 0:54:00.960 Or less correct, which is kind of crazy. 0:54:01.080 --> 0:54:03.479 More than half the day is like nothing's really going on. 0:54:03.560 --> 0:54:06.520 Exactly, and stock market math is a little weird, right. 0:54:06.600 --> 0:54:08.840 I mean when I think about percents, I think about sales, 0:54:08.880 --> 0:54:10.720 like going to a clothing store and seeing a sale, 0:54:10.840 --> 0:54:13.239 and if I saw one percent off, a one percent 0:54:13.320 --> 0:54:16.320 drop in prices, I'd be like, Okay, see you tomorrow. 0:54:16.600 --> 0:54:18.239 Give me something a little bit better. But in the 0:54:18.239 --> 0:54:19.800 stock market, that's actually quite. 0:54:19.600 --> 0:54:21.759 A big day. I mean about twenty percent, less than 0:54:21.760 --> 0:54:22.400 twenty percent of. 0:54:22.400 --> 0:54:24.560 Days context or when we see a. 0:54:24.520 --> 0:54:27.480 One percent move, So one percent is important, and being 0:54:27.480 --> 0:54:30.120 able to provide that kind of information can really help 0:54:30.280 --> 0:54:33.879 an average investor understand those headlines that say, oh my god, 0:54:33.920 --> 0:54:36.239 the S and P fell one percent. It's important to 0:54:36.280 --> 0:54:39.400 our clients too, write Barry, because we get more questions, 0:54:39.480 --> 0:54:43.000 more contact with our advisors when they see those headlines 0:54:43.000 --> 0:54:44.200 and those big moves in. 0:54:44.280 --> 0:54:48.200 Markets, and it's our job to anticipate that and tell 0:54:48.239 --> 0:54:51.680 people in advance, hey, this is normal. So let's let's 0:54:51.719 --> 0:54:54.239 stay with this line. How often do we see two 0:54:54.320 --> 0:54:55.399 or three percent moves in. 0:54:55.360 --> 0:54:58.560 The market, So that's less often. I know, we've seen 0:54:58.600 --> 0:55:00.680 a couple of those in the past month or so. 0:55:01.600 --> 0:55:03.120 You know, Barry, you're putting me on the spot, But 0:55:03.239 --> 0:55:06.560 it doesn't happen a lot. Remember twenty percent of days 0:55:06.560 --> 0:55:09.120 you see a one percent move higher or lower, and 0:55:09.160 --> 0:55:11.080 you also have to remember a two percent move higher. 0:55:11.080 --> 0:55:13.480 People care a little bit less about that because we're 0:55:13.520 --> 0:55:17.080 all happy we're making money. So you know, two percent days, 0:55:17.160 --> 0:55:19.279 three percent days, they're a lot more rare. I know 0:55:19.360 --> 0:55:21.799 one point five percent days happened about ten percent of 0:55:21.800 --> 0:55:24.359 the time. And that's the point in my mind where 0:55:24.360 --> 0:55:27.040 I say this is serious, especially if there's a headline 0:55:27.080 --> 0:55:30.040 behind it. So you know, if we say sea days 0:55:30.040 --> 0:55:32.680 like August fifth, you know where the market melted down 0:55:32.840 --> 0:55:35.040 because of the young carry trade imploding. 0:55:35.120 --> 0:55:38.200 August is just a bad month for stocks. Go on vacation. 0:55:38.320 --> 0:55:38.799 I'm all through. 0:55:39.200 --> 0:55:41.680 I though, if they say that about September, yeah, September. 0:55:41.400 --> 0:55:43.160 Supposed to be a bit it's supposed to be. 0:55:43.160 --> 0:55:44.719 But I have to tell you, I mean I often 0:55:44.760 --> 0:55:47.359 go on vacation in August and there's always something going 0:55:47.400 --> 0:55:48.680 on or something bad happening. 0:55:49.200 --> 0:55:51.160 Well, there's not as much volume, so it makes sense 0:55:51.200 --> 0:55:52.080 there's a big gap. 0:55:52.280 --> 0:55:55.440 I always used to hear the expression rookies manning the 0:55:55.520 --> 0:55:58.719 terminals because everybody who was senior would be away for 0:55:58.800 --> 0:56:01.520 the month of August, and they left the kids on 0:56:01.520 --> 0:56:02.160 the trading desk. 0:56:02.560 --> 0:56:05.080 Yeah, you're not wrong. I mean I go to the 0:56:05.080 --> 0:56:06.000 beach in August too. 0:56:06.920 --> 0:56:08.640 I am curious how you think about the markets as 0:56:08.719 --> 0:56:11.799 kind of a more efficient clearing house because there is 0:56:11.800 --> 0:56:13.880 so much information and then if there are worries out there, 0:56:13.920 --> 0:56:15.480 they kind of get it gets out there and we 0:56:15.520 --> 0:56:19.160 will often see kind of a big move in I 0:56:19.200 --> 0:56:22.000 feel like from peak to trough in an individual name 0:56:22.120 --> 0:56:23.960 or even in the markets, and we kind of clear 0:56:24.000 --> 0:56:27.319 out some noise and then we see investors come back in. 0:56:27.600 --> 0:56:27.839 Yeah. 0:56:27.880 --> 0:56:29.440 Well, I think you're absolutely right, Carol. 0:56:29.480 --> 0:56:31.120 I think a lot about that since the drop we 0:56:31.160 --> 0:56:33.839 saw in twenty twenty and one of the fastest bear 0:56:33.920 --> 0:56:37.360 markets ever that special situation. It was a special situation. 0:56:37.400 --> 0:56:39.880 I mean that was a once in a hundred years pandemic. 0:56:40.239 --> 0:56:43.399 But the flow of information is just so fast these 0:56:43.440 --> 0:56:46.000 days that you do see it manifested markets, and what 0:56:46.000 --> 0:56:49.719 that leads to is more emotions, you know, more contexts 0:56:49.719 --> 0:56:51.480 that we need to manage on the advisor side, and 0:56:51.480 --> 0:56:54.280 that's where roles like mine, rolls like berries are quite important. 0:56:54.320 --> 0:56:57.160 That's Kelly Cox, chief Market Strategies at Ridthill's Wealth Management. 0:56:57.160 --> 0:56:59.600 We caught up with her just before that FED decision. 0:57:00.080 --> 0:57:02.160 Now not sure if Cali is a gen Z, maybe 0:57:02.320 --> 0:57:06.080 probably close to it. On that we've talked about gen 0:57:06.200 --> 0:57:09.880 Z shunning the sixty to forty investment portfolio and opting 0:57:09.920 --> 0:57:13.040 for investing in things like sneakers and crypto, or perhaps 0:57:13.040 --> 0:57:15.720 taking on too much risk and not having enough diversification 0:57:15.880 --> 0:57:19.680 despite being better educated on the investing environment. We've also 0:57:19.680 --> 0:57:22.280 talked a lot and often about the great wealth transfer, 0:57:22.320 --> 0:57:25.360 as baby boomers and the silent generation will pass down 0:57:25.360 --> 0:57:28.400 to combined eighty four point four trillion dollars in assets 0:57:28.440 --> 0:57:31.920 to younger generations. Well, our next guest participated in a 0:57:31.960 --> 0:57:34.880 panel at the future Proof Festival. It was about capturing 0:57:34.880 --> 0:57:37.760 the next generation of investors. She's the CEO of the 0:57:37.760 --> 0:57:41.200 independent digital investment advisor Betterment. Here's Sarah Levy. 0:57:41.480 --> 0:57:46.600 So, Betterment Advisor Solutions is really our ria platform that 0:57:46.760 --> 0:57:50.960 helps this next generation of advisors reach the next generation 0:57:51.000 --> 0:57:54.560 of investors, right and so one step removed, if you will, 0:57:54.720 --> 0:57:59.040 And what we offer is really a seamless platform to 0:57:59.160 --> 0:58:04.040 move between investing and cash and retirement, and I think 0:58:04.160 --> 0:58:06.720 the key to this generation. There's a lot that is 0:58:06.760 --> 0:58:09.600 the same with this generation as the prior generation, right, 0:58:09.640 --> 0:58:11.640 a long term outlook. I want to be better off 0:58:11.680 --> 0:58:13.240 down the road than I am today. I want to 0:58:13.240 --> 0:58:16.880 pay low taxes. But what's different is their expectation of technology. 0:58:17.120 --> 0:58:17.320 Right. 0:58:17.400 --> 0:58:20.800 Fundamentally, they have grown up in a world where everything 0:58:20.840 --> 0:58:24.200 from e commerce to streaming is delightful and easy, and 0:58:24.240 --> 0:58:26.840 they expect the same of the platform they use for 0:58:26.920 --> 0:58:27.680 financial advice. 0:58:27.720 --> 0:58:29.080 And I can access on my phone. 0:58:29.160 --> 0:58:31.360 I can access on my phone whenever I want. 0:58:31.560 --> 0:58:36.200 Right, So latest use of technology, friction free. What else 0:58:36.200 --> 0:58:38.760 are they looking for? Are they different than their parents 0:58:39.080 --> 0:58:41.760 in terms of what they want? In terms of their portfolios? 0:58:42.560 --> 0:58:44.840 I don't think they're different. We don't see them being 0:58:44.840 --> 0:58:47.000 different in terms of their portfolios. I mean, I think 0:58:47.240 --> 0:58:50.120 there's a lot of theory around how the sixty forty 0:58:50.160 --> 0:58:52.120 portfolio has evolved, because. 0:58:51.920 --> 0:58:53.920 We've done stories about gen Z kind of shunning the 0:58:53.960 --> 0:58:56.720 sixty forty and more interested in, you know, investing in 0:58:56.760 --> 0:58:59.560 things like sneakers and you know, rather than stock. So 0:58:59.760 --> 0:59:02.880 help us understand, well, can you say that they kind 0:59:02.880 --> 0:59:04.120 of have the same goals? 0:59:04.200 --> 0:59:08.440 Well, I think ultimately their goals are to retire comfortably, 0:59:08.800 --> 0:59:11.960 and when you think about social security and the challenges that, 0:59:12.120 --> 0:59:15.320 you know, they're unlike their predecessors, you know, and the 0:59:15.320 --> 0:59:18.440 prior generations. They're not as comfortable with the role government 0:59:18.520 --> 0:59:20.440 is going to play, and they're fearful about what's going 0:59:20.480 --> 0:59:23.640 to happen in social security. They don't have the luxury 0:59:23.720 --> 0:59:27.280 of a pension right which their predecessors had. And so 0:59:27.480 --> 0:59:30.560 I think the idea that personal investing and a defined 0:59:30.600 --> 0:59:34.440 contribution plan is is their future. Means they have to 0:59:34.440 --> 0:59:37.959 take more control. And I think what's challenging about taking 0:59:38.040 --> 0:59:40.840 more control is that there's tons of information out there, 0:59:41.360 --> 0:59:44.640 and there's disinformation. There's misinformation, right, So how do you 0:59:44.680 --> 0:59:47.000 make sense of it all? I think is the biggest 0:59:47.000 --> 0:59:49.640 struggle for them. And so they're seeking advice, and the 0:59:49.640 --> 0:59:52.360 ones who get great advice from advisors are the ones 0:59:52.400 --> 0:59:54.440 who are more confident that they will be able to 0:59:54.480 --> 0:59:55.320 retire comfortably. 0:59:55.720 --> 1:00:00.800 Huh. Really interesting. So technology, we've talking about AI constantly 1:00:00.840 --> 1:00:05.520 this whole week. You guys have been embracing AI. Explain 1:00:05.720 --> 1:00:10.040 how you use AI to deliver a better product and 1:00:10.080 --> 1:00:12.680 better performance for your clients and their clients. 1:00:13.120 --> 1:00:17.160 So I think of AI really as a continuum from automation. 1:00:17.400 --> 1:00:21.520 We've been delivering fantastic automation for advisors and for retail 1:00:21.520 --> 1:00:24.920 customers for a decade and a half, and AI really 1:00:25.000 --> 1:00:28.120 supercharges what we've been doing right. You know, there's a 1:00:28.160 --> 1:00:31.720 lot of fear around which I think is unnecessary, around 1:00:32.000 --> 1:00:34.360 you know, is AI going to take over the jobs? 1:00:34.560 --> 1:00:36.600 And I think the better way to think about it 1:00:36.680 --> 1:00:40.720 is AI. People who don't understand AI, those are the 1:00:40.800 --> 1:00:42.640 ones who are whose jobs are going to be threatened 1:00:42.680 --> 1:00:45.320 because you need to harness the power of AI to 1:00:45.400 --> 1:00:49.720 basically accelerate and supercharge everything the humans are doing right. 1:00:49.760 --> 1:00:55.080 And so whether that's paraplanning, whether that's marketing, collateral customer service, 1:00:55.120 --> 1:00:58.360 there are all sorts of ways where generative AI can 1:00:58.440 --> 1:01:02.800 basically strengthen the advisor's relationship with their customer by freeing 1:01:02.880 --> 1:01:05.800 up time and money, which is ultimately what they're after. 1:01:06.040 --> 1:01:10.680 I mean, it's all about making things easier, right and seamless, easier, faster, cheaper. 1:01:13.000 --> 1:01:17.080 I am curious too in terms of the younger generation. 1:01:17.360 --> 1:01:20.160 I mean, are they feeling like it is going to 1:01:20.160 --> 1:01:22.280 be largely you talked about four O one k's and 1:01:22.920 --> 1:01:25.320 that it's going to be the financial markets, Because I 1:01:25.320 --> 1:01:26.920 think I have you know, I had a dad who 1:01:26.960 --> 1:01:30.200 had a pension and VA benefits and four oh one 1:01:30.280 --> 1:01:33.200 K and like just multiple things. And there's a generation 1:01:33.320 --> 1:01:35.000 that isn't going to have it. Is it going to 1:01:35.000 --> 1:01:36.760 be all about the markets? And they've got to figure 1:01:36.800 --> 1:01:37.200 this out. 1:01:37.400 --> 1:01:40.280 Well, you're exactly right, and I think that is the 1:01:40.320 --> 1:01:42.880 fear that they have, right, is that I'm not going 1:01:42.960 --> 1:01:45.320 to have the same kind of social safety net that 1:01:45.400 --> 1:01:47.480 my parents had, and so I'm going to need defend 1:01:47.520 --> 1:01:50.360 for myself. And then to the sort of asset class 1:01:50.440 --> 1:01:54.200 question they're wondering also, some of them have a different 1:01:54.520 --> 1:01:56.960 set of beliefs or you know, a social frame that 1:01:57.000 --> 1:01:58.840 they want to put around their investing, and so they 1:01:58.880 --> 1:02:02.240 want to make choices, whether that's at the margin or 1:02:02.280 --> 1:02:06.760 completely about where is that money going ultimately in service 1:02:06.840 --> 1:02:08.240 of a comfortable retirement. 1:02:08.880 --> 1:02:12.640 So you'd mentioned there's not that different goal, but a 1:02:12.680 --> 1:02:15.640 different method to get there. If you're a twenty something 1:02:15.720 --> 1:02:18.960 or a thirty something, does a sixty forty really make sense? 1:02:19.040 --> 1:02:22.000 You have decades before you retire. How do you feel 1:02:22.000 --> 1:02:25.240 about the people who advocate just straight equity, no bonds. 1:02:26.240 --> 1:02:31.480 So we think about diversification and we believe from a 1:02:31.560 --> 1:02:37.520 long term perspective, you want to be diversified domestic, international, equity, bonds, 1:02:37.640 --> 1:02:41.280 some alternatives as a part of that portfolio. And I 1:02:41.280 --> 1:02:44.600 think where you are in your life stage that that 1:02:44.760 --> 1:02:46.120 affects the mix. 1:02:46.240 --> 1:02:48.960 So not necessarily sixty forty seventy thirty eighty twenty. 1:02:48.720 --> 1:02:51.920 Correcting, correct, The mix is about your risk tolerance and 1:02:51.960 --> 1:02:52.600 your timeline. 1:02:53.680 --> 1:02:55.960 Last question, and just got about ten to fifteen seconds. 1:02:56.200 --> 1:02:59.400 Does a younger generation want investment advice or do they 1:02:59.400 --> 1:03:01.160 want to do more on their own or is it 1:03:01.200 --> 1:03:01.800 a combination. 1:03:02.080 --> 1:03:04.640 The smart ones want investment advice, they do so they 1:03:04.680 --> 1:03:04.960 just go. 1:03:05.000 --> 1:03:08.200 Back absolutely, particularly as their lives get more complicated. 1:03:08.400 --> 1:03:11.920 That was betterman CEO Sarah Levy. Bloomberg BusinessWeek from future 1:03:11.960 --> 1:03:15.200 Proof continues featuring some of our favorite conversations from our 1:03:15.200 --> 1:03:17.480 two day coverage of the event out on the West Coast. 1:03:17.760 --> 1:03:21.040 Straight Ahead, Top financial advisor Peter bl Luke on today's 1:03:21.080 --> 1:03:23.640 investing environment and figuring out success. 1:03:24.000 --> 1:03:24.800 This is Bloomberg. 1:03:34.120 --> 1:03:37.720 Please see is Bloomberg Business Week with Carol Messer and 1:03:37.800 --> 1:03:40.480 Tim Stenebeck from Bloomberg Radio. 1:03:42.280 --> 1:03:45.240 He's a lawyer recognized successful financial planner who has been 1:03:45.240 --> 1:03:48.880 given various accolades, including being named as the top independent 1:03:48.920 --> 1:03:51.400 financial advisor to America by Barons for several years in 1:03:51.440 --> 1:03:54.000 a row. He co hosts the Down the Middle podcast. 1:03:54.040 --> 1:03:56.600 He's a New York Times bestselling author, and he was 1:03:56.640 --> 1:03:59.000 fresh off the Ocean stage at the future Proof Festival 1:03:59.040 --> 1:04:02.280 talking about how he's done so much so successfully, sharing 1:04:02.280 --> 1:04:05.520 his blueprint for success. Here's Barry Ridtholts of Master's in 1:04:05.560 --> 1:04:08.760 Business on Bloomberg in my conversation with Peter Bluke, who 1:04:08.800 --> 1:04:12.160 is president and CEO of the registered investment advisor Creative Planning, 1:04:12.480 --> 1:04:15.000 which has, as we said, been recognized as being among 1:04:15.080 --> 1:04:18.040 the top ARIA firms by Barons and the Financial Times. 1:04:18.360 --> 1:04:21.280 Creative Planning and its affiliates have combined assets under management 1:04:21.360 --> 1:04:24.120 or advisement of three hundred billion dollars as of the 1:04:24.240 --> 1:04:25.280 end of last year. 1:04:25.400 --> 1:04:27.720 Things couldn't be better. Nothing to complain about. 1:04:28.200 --> 1:04:28.760 Is it really? 1:04:28.880 --> 1:04:28.960 No? 1:04:29.120 --> 1:04:31.240 Seriously, Yeah, things are fantastic. 1:04:31.280 --> 1:04:33.560 I think a lot of running a firm or just 1:04:33.600 --> 1:04:34.800 money coming in well. 1:04:34.840 --> 1:04:35.280 I think both. 1:04:35.440 --> 1:04:37.480 You can't be running a firm and having it going 1:04:37.480 --> 1:04:39.800 well if money's not coming in. That's ultimately the sign 1:04:39.840 --> 1:04:41.160 that the market likes what you're doing. 1:04:41.440 --> 1:04:42.720 So we're the one thing. 1:04:42.600 --> 1:04:45.120 I look at every day is are people coming to 1:04:45.280 --> 1:04:48.720 creative planning? And that net inflow tells us that. 1:04:48.720 --> 1:04:49.760 We're doing the right things. 1:04:49.800 --> 1:04:51.439 And so we're really looking and saying for that ultra 1:04:51.440 --> 1:04:54.560 fluent client or that highitworth client, are they hiring creative 1:04:54.560 --> 1:04:58.160 planning many many more times than they might have money leave? 1:04:58.200 --> 1:05:00.240 And if that's the case, things are going well. 1:05:00.320 --> 1:05:02.640 And you know, when I first met Peter back in 1:05:02.720 --> 1:05:07.400 twenty eighteen, twenty nineteen, you were still a reasonable sized firm, 1:05:07.440 --> 1:05:11.120 but you were like forty or so billion dollars. Five 1:05:11.200 --> 1:05:13.200 years later nearly. 1:05:13.160 --> 1:05:13.800 A ten x. 1:05:13.880 --> 1:05:17.240 That's a giant gain. How have you been growing the 1:05:17.240 --> 1:05:20.680 business so successfully? What has made creative planning such a 1:05:20.800 --> 1:05:21.800 force in the industry? 1:05:22.080 --> 1:05:23.600 Well, I think we're for the end client. 1:05:23.640 --> 1:05:25.520 We're known for working with that high net worth investor 1:05:25.520 --> 1:05:27.840 that has the million dollars or two million dollars, But 1:05:27.880 --> 1:05:30.000 we also have sixteen hundred clients that have twenty five 1:05:30.080 --> 1:05:32.280 million on average with us, and that group is the 1:05:32.280 --> 1:05:33.320 group growing the fastest. 1:05:33.320 --> 1:05:35.640 But both of these are growing at a rapid clip. 1:05:35.640 --> 1:05:37.400 But I think that they like Number one, you see 1:05:37.400 --> 1:05:39.760 people moving from brokerage firms to independent first, they're also 1:05:39.760 --> 1:05:42.200 moving to larger independent firms where they know there's more services, 1:05:42.240 --> 1:05:44.640 There might be more due diligence, better cybersecurity, all of 1:05:44.640 --> 1:05:48.320 those things that give those high networth clients comfort. 1:05:48.560 --> 1:05:50.680 And they also like the specialization of services we have. 1:05:50.760 --> 1:05:53.040 We look at the investment portfolio through a tax lens 1:05:53.040 --> 1:05:55.760 and an estate planning lens, and the world has gotten 1:05:55.760 --> 1:05:58.560 so complicated that you know, whether someone's got five hundred 1:05:58.560 --> 1:06:00.760 thousand or fifty million, they tend to value that more 1:06:00.800 --> 1:06:01.920 than they did in a decade ago. 1:06:02.080 --> 1:06:04.600 So talk about that. You use the phrase that I'm 1:06:04.680 --> 1:06:07.960 very much enamored with of being the quarterback for their 1:06:08.120 --> 1:06:11.680 entire financial life. What does that mean to the average creating, 1:06:11.760 --> 1:06:13.000 creative planning client. 1:06:13.080 --> 1:06:15.200 It's like a creative planning client knows, Okay, they're not 1:06:15.240 --> 1:06:17.000 just going to take my money and say this is 1:06:17.040 --> 1:06:18.880 my age or this is my risk tolerance and I'm 1:06:18.920 --> 1:06:20.040 just going to go invest. 1:06:19.720 --> 1:06:21.440 In ABC, plug and play. Right that. 1:06:21.520 --> 1:06:23.760 They know that's not happening. So they're coming to us saying, Okay, 1:06:23.760 --> 1:06:25.600 this is a firm that's going to have a certified 1:06:25.600 --> 1:06:27.600 financial planner. Figure out where am I, what am I 1:06:27.600 --> 1:06:29.640 trying to accomplish, what state do I live in, what's 1:06:29.640 --> 1:06:32.120 my tax bracket, what's my legal situation? 1:06:32.200 --> 1:06:33.200 What am I trying to accomplish? 1:06:33.200 --> 1:06:35.080 Am I charitably inclined to or onably the biggest inheritance 1:06:35.120 --> 1:06:37.280 possible for my kids and my short of retirement. We 1:06:37.320 --> 1:06:40.640 go through this pretty long multi meeting exercise to figure out, well, 1:06:40.640 --> 1:06:42.000 where are they, what they want to do, and then 1:06:42.000 --> 1:06:43.920 we construct a portfolio that we think has the highest 1:06:43.920 --> 1:06:47.360 probability of creating the outcome they want, taking into account 1:06:47.360 --> 1:06:48.800 what's already going on in their life. If they own 1:06:48.800 --> 1:06:50.600 a bunch of real estate, they're not gonna get real 1:06:50.680 --> 1:06:53.920 estate in the portfolio. I think that customization, then adding 1:06:53.960 --> 1:06:56.360 the tax sensitivity to it really being able to help 1:06:56.360 --> 1:06:58.040 them have a much better return on an. 1:06:57.920 --> 1:06:58.880 After tax basis. 1:06:59.320 --> 1:07:01.880 I think high net worth people appreciate that approach, and 1:07:01.880 --> 1:07:03.280 I think we're sitting at the center of that. 1:07:03.400 --> 1:07:06.120 You mentioned sexy earlier, But how much of your investors 1:07:06.120 --> 1:07:08.720 are looking for, especially the higher net worth individuals are 1:07:08.720 --> 1:07:11.400 looking for sexier investments, and especially I think about the 1:07:11.440 --> 1:07:15.000 private world, private credit, private equity, private equity, but especially 1:07:15.040 --> 1:07:15.600 private credit. 1:07:15.680 --> 1:07:17.919 Are they pushing for something with something more? 1:07:18.080 --> 1:07:19.479 Yes, So we do at creative planning. 1:07:19.480 --> 1:07:21.280 We're a very big believer in private investment, so we 1:07:21.320 --> 1:07:24.400 do use private equity, private credit, private real estate. Private 1:07:24.680 --> 1:07:26.960 credit is obviously kind of taken the world by storm, 1:07:27.040 --> 1:07:28.840 and I don't know that people fully appreciate the risk 1:07:28.920 --> 1:07:29.400 reward there. 1:07:29.440 --> 1:07:30.760 I'm a big believer in private credit. 1:07:30.960 --> 1:07:34.120 Talked about talking with a lot of explanation to people 1:07:34.200 --> 1:07:36.360 really understand, you know, and private credits. 1:07:36.560 --> 1:07:37.480 It's like saying bonds. 1:07:37.600 --> 1:07:39.240 You know, there's all kinds of bonds and all kinds 1:07:39.240 --> 1:07:41.840 of different profiles, and so really understanding what you're getting 1:07:41.880 --> 1:07:43.880 into is a very big deal. But you know a 1:07:43.880 --> 1:07:46.240 lot of them want those types of investments or hedge funds. 1:07:46.280 --> 1:07:47.600 We were not a big believer in hedge funds, so 1:07:47.640 --> 1:07:49.800 we don't use them. But I would say, is the 1:07:49.840 --> 1:07:52.440 higher networth you go, the more demand there is for 1:07:52.520 --> 1:07:53.600 private credit, private equity. 1:07:53.680 --> 1:07:55.160 I want to ask you, do you think private credit 1:07:55.160 --> 1:07:57.560 should be available to the masses, whether it's even fractional 1:07:57.640 --> 1:07:58.760 ownership of some sort. 1:07:59.440 --> 1:08:02.640 I think if if you have semi liquid I don't 1:08:02.680 --> 1:08:04.040 like that word very much, if you have things that 1:08:04.040 --> 1:08:06.320 people can get out of every six months or every year, 1:08:06.800 --> 1:08:09.440 then I think these sorts of investments should be available 1:08:09.480 --> 1:08:12.400 to people that have less money. I mean this idea 1:08:12.400 --> 1:08:14.320 they have to be a qualified purchaser and a credit investor. 1:08:14.680 --> 1:08:16.680 I think it made sense five or ten, maybe say 1:08:16.720 --> 1:08:19.439 ten years ago when these were tied up for seven 1:08:19.479 --> 1:08:21.920 years and you had a very very sophisticated to understand it. 1:08:22.280 --> 1:08:25.599 What happened in O eight oh nine is the government 1:08:25.680 --> 1:08:28.559 really pushed credit out of the banks and into the 1:08:28.560 --> 1:08:31.240 private markets. They didn't want the destabilization of the banking system. 1:08:31.240 --> 1:08:34.360 Banks that we can't do the due diligence to do this. Now, 1:08:34.400 --> 1:08:36.280 if you look at firms with revenues of twenty five 1:08:36.320 --> 1:08:39.639 million to over a billion, eighty three percent of their 1:08:39.680 --> 1:08:43.040 borrowing is coming from private credit. Basically, these eight thousand 1:08:43.040 --> 1:08:45.280 public companies are now only forty five hundred or so. 1:08:45.880 --> 1:08:48.120 Private companies can stay private longer because of all the 1:08:48.120 --> 1:08:51.519 private credit available. So it's become a very mainstream asset clash. 1:08:51.560 --> 1:08:53.640 You can't freeze out the average American from that. 1:08:54.000 --> 1:08:58.520 And growing really fast. This is probably the fastest attracting cash. 1:08:58.800 --> 1:09:02.240 Maybe Crypto various times in its cycle is a little faster. 1:09:02.360 --> 1:09:05.479 We've seen it certainly explode and then pull back, but 1:09:05.880 --> 1:09:09.920 private credit seems to be growing so rapidly what percentage 1:09:09.960 --> 1:09:13.400 of someone's portfolio should they be thinking about for private credit, 1:09:13.920 --> 1:09:17.040 especially in the mid both the mid level and the 1:09:17.080 --> 1:09:18.000 high net worth level. 1:09:18.040 --> 1:09:20.080 So I always start by telling clients like, there's only 1:09:20.160 --> 1:09:21.840 really only two investments. You're an owner or you're a 1:09:21.880 --> 1:09:24.719 lender with everything right, and so when you're a lender, 1:09:25.120 --> 1:09:28.439 the next question becomes, well, how much of my portfolio should. 1:09:28.240 --> 1:09:28.840 I be a lender? 1:09:29.120 --> 1:09:32.519 Because you really accumulate wealth being an owner, whether it's 1:09:32.520 --> 1:09:34.559 private equity or stocks or a business or real estate, 1:09:34.600 --> 1:09:36.800 and a lender is more preservation or you know what 1:09:36.800 --> 1:09:38.400 your income is going to be, but you can't compete 1:09:38.400 --> 1:09:40.200 with being an owner. It's why the Forbes list is 1:09:40.240 --> 1:09:41.439 full of owners, not lenders. 1:09:41.520 --> 1:09:41.720 Right. 1:09:42.000 --> 1:09:43.640 So but if you look at that private side, then 1:09:43.640 --> 1:09:45.800 you could say, well, what part of the private of 1:09:45.880 --> 1:09:47.640 the lending side, what part of the lending side of 1:09:47.640 --> 1:09:50.240 my portfolio do I not need access to for the 1:09:50.240 --> 1:09:52.640 next couple months or a couple of years. If you've 1:09:52.680 --> 1:09:54.960 got money that's years out, that's the part of the 1:09:55.000 --> 1:09:57.000 lending part of the portfolio that can be private credit. 1:09:57.000 --> 1:09:58.439 And that's how I back into the allocation. 1:09:58.560 --> 1:10:00.559 Do you think it becomes much more ACCESSI I don't 1:10:00.560 --> 1:10:01.960 know in a few years, like what does it take. 1:10:02.000 --> 1:10:03.720 Oh, I think it's happening at lightning speed. I think 1:10:03.760 --> 1:10:07.519 we're at Creative Planning. We're starting to added private equity 1:10:07.560 --> 1:10:09.080 into for when Kate plans will be one of the 1:10:09.080 --> 1:10:10.240 first firms in the country, if. 1:10:10.080 --> 1:10:10.920 Not the first to do that. 1:10:11.000 --> 1:10:13.200 Really, I think private credit is going to come very 1:10:13.280 --> 1:10:13.679 very quickly. 1:10:13.760 --> 1:10:14.160 Thereafter. 1:10:14.240 --> 1:10:17.799 That's Peter Maluke, President and CEO of the RIA Creative Planning. 1:10:18.120 --> 1:10:20.760 Before we wrap up our coverage from future Proof, we 1:10:21.040 --> 1:10:23.600 wanted to share our chat with Christian Phase, founder and 1:10:23.640 --> 1:10:26.919 CEO Phasing Company, which is an investment firm that actively 1:10:26.960 --> 1:10:30.559 builds an invest in technology enabled direct lending businesses across 1:10:30.640 --> 1:10:34.120 the UK, Ireland, Australia and the United States. He is 1:10:34.120 --> 1:10:37.240 also founder of the fintech and property mortgage firm lend Invest, 1:10:37.280 --> 1:10:39.800 which is listed in London. We kicked it all off 1:10:39.840 --> 1:10:41.759 with what he is doing though right now. 1:10:42.080 --> 1:10:44.559 So we we're a private credit fund. We run a 1:10:44.560 --> 1:10:47.760 private credit fund that gives a credited investors the opportunity 1:10:47.760 --> 1:10:49.439 to get exposure to what we think is a really 1:10:49.439 --> 1:10:53.280 interesting asset class, and that's real estate. Bridging fondants against 1:10:53.360 --> 1:10:54.720 residential property. 1:10:54.640 --> 1:10:55.719 Something you know a little bit about. 1:10:55.960 --> 1:10:57.919 I do know a little bit about. Yeah, so ive 1:10:57.960 --> 1:11:01.360 been involved in the sector for almost twenty years. Originally 1:11:01.400 --> 1:11:02.960 was a lawyer. Grew up in Australia, which it might 1:11:02.960 --> 1:11:03.840 be able to tell from. 1:11:03.680 --> 1:11:06.000 My accent, spend time over in London. 1:11:06.160 --> 1:11:08.320 Spent time in London. Yeah, so recovering lawyer as well. 1:11:08.320 --> 1:11:11.880 Barry so a lawyer. 1:11:11.880 --> 1:11:16.120 That's half of the lawyers aren't practicing seven years after graduation. 1:11:16.400 --> 1:11:19.080 Why is it that? Because another podcast, that's. 1:11:19.000 --> 1:11:21.479 A whole nother conversation. So what sort of real estate 1:11:21.479 --> 1:11:24.040 p you guys focus on? Is it just residential or 1:11:24.080 --> 1:11:25.400 is it a variety of sectors. 1:11:25.479 --> 1:11:28.640 No, it's residential, So we're very careful to explain that 1:11:28.680 --> 1:11:31.599 to to investors. Obviously, there's parts of the real estate 1:11:31.640 --> 1:11:34.080 market that are quite troubled and sort of making headlines, 1:11:34.120 --> 1:11:38.360 like commercial and different parts. But we're small, balanced, single 1:11:38.360 --> 1:11:41.000 family residential. Our average loan size is four hundred and 1:11:41.040 --> 1:11:43.719 fifty thousand dollars, so it is kind of really targeting 1:11:43.720 --> 1:11:47.519 what we describe as property entrepreneurs buying the worst house 1:11:47.520 --> 1:11:51.000 on a nice street, replacing the bathrooms, kitchen, and then 1:11:51.120 --> 1:11:53.639 selling for the flip. Right, Yeah, it's fix and flip. 1:11:53.640 --> 1:11:56.080 It is fix and flip finance, and you know, it's 1:11:56.080 --> 1:11:57.839 a big market in the US. It's a big opportunity. 1:11:57.920 --> 1:11:59.519 Like you're saying, I've done a lot of business in 1:11:59.520 --> 1:12:01.800 the UK. There was very active in the fixed and 1:12:01.800 --> 1:12:04.679 flip market. That's now the largest non bank mortgage lender 1:12:04.720 --> 1:12:07.160 in the UK and now being active in the US 1:12:07.240 --> 1:12:09.439 for the last two years. And it's a huge market here. 1:12:09.479 --> 1:12:11.360 I these the investors who are like constantly sending me 1:12:11.439 --> 1:12:12.720 texts and then I want to buy your house? 1:12:12.840 --> 1:12:14.479 Are these the people that you like are dealing no 1:12:15.479 --> 1:12:15.880 all the time? 1:12:15.960 --> 1:12:16.120 Right? 1:12:16.400 --> 1:12:18.080 I guess those on houses I don't even know them. 1:12:18.080 --> 1:12:20.559 I'm like, yes, send me, you definitely want to sell 1:12:20.560 --> 1:12:20.800 that one. 1:12:21.640 --> 1:12:23.840 Here's my price, and it's like you know some crazy 1:12:23.920 --> 1:12:25.240 number you want it? It's yours. 1:12:25.280 --> 1:12:27.840 But now tell me like like we're dealing with We 1:12:27.960 --> 1:12:29.840 described them as property entrepreneurs. I mean, I think that 1:12:29.880 --> 1:12:31.640 it's a bit of a misnomer because a lot of 1:12:31.680 --> 1:12:33.760 people turn on the TV and see the glamorous couple, 1:12:33.800 --> 1:12:35.960 you know, flipping houses, making lots of money, and it 1:12:36.000 --> 1:12:38.880 all looks quite easy. It's not that. In reality, it 1:12:38.920 --> 1:12:41.599 is kind of they're real hustlers. They have to work hard, 1:12:42.080 --> 1:12:45.479 and we target property professionals. They're they're doing this full time, 1:12:46.439 --> 1:12:49.000 and they do it multiple times a year, so five, 1:12:49.080 --> 1:12:51.599 ten times a year, and so they're good customers for us. 1:12:51.600 --> 1:12:53.759 Once we acquire them, we can be their funding partner 1:12:53.760 --> 1:12:57.200 of choice. They keep coming back to us, and so yeah, 1:12:57.200 --> 1:12:59.639 so it's a very entrepreneurial borrow. 1:13:00.240 --> 1:13:04.720 But so my brother has been doing this for years, right, 1:13:04.960 --> 1:13:06.920 sort of a side hustle, but he does four or 1:13:06.960 --> 1:13:11.040 five houses a year, and the conversation has always been, hey, 1:13:11.080 --> 1:13:14.360 I'm funding this primarily with my own money. I asked him, 1:13:14.360 --> 1:13:17.559 have you thought about getting venture funding or any sort 1:13:17.600 --> 1:13:20.120 of credit for this, because you could turn this into 1:13:20.160 --> 1:13:22.960 eight or ten houses a year if you really want to. 1:13:23.000 --> 1:13:26.200 And it's some of these houses are fairly it's not 1:13:26.280 --> 1:13:29.680 always the worst house in a nice block. Sometimes it's 1:13:29.680 --> 1:13:31.360 a very nice house on a really nice block. 1:13:31.439 --> 1:13:31.599 Yeah. 1:13:31.680 --> 1:13:32.960 Yeah, well, I'll have to give you my number you 1:13:32.960 --> 1:13:34.720 can give to your brother for afterwards. 1:13:34.360 --> 1:13:36.040 And we see the deals happening. 1:13:36.560 --> 1:13:39.040 I prooved people that are not trying to sort of 1:13:39.040 --> 1:13:41.840 maximize leverage. So the average LTV across our books less 1:13:41.840 --> 1:13:44.439 than sixty percent. So they're pretty conservative, but with a 1:13:44.439 --> 1:13:46.360 bit of leverage, they can do a couple of projects 1:13:46.360 --> 1:13:48.360 as opposed to being exposed to just a few, you know, 1:13:48.439 --> 1:13:51.280 the lesser number, and there's a lot of tailwinds for 1:13:51.320 --> 1:13:53.920 the asset class. You know, there's just fundamentally not enough 1:13:53.960 --> 1:13:56.280 houses being built here in the US, the same as 1:13:56.280 --> 1:13:57.280 in many parts of the world. 1:13:57.439 --> 1:13:59.880 But that's a whole other story because it's in terms of, 1:14:00.040 --> 1:14:01.800 you know, acquisition of land and you've got to get 1:14:01.800 --> 1:14:03.760 neighborhoods to sign on. It's not just a case of 1:14:03.880 --> 1:14:04.880 here's the money and build. 1:14:05.000 --> 1:14:07.240 Oh sure, it's not just a funding issue. But then 1:14:07.439 --> 1:14:09.679 the other sort of addition to that is that over 1:14:09.760 --> 1:14:11.760 sixty percent of housing stock in the US is over 1:14:11.800 --> 1:14:13.800 forty years old, so you do have a lot of 1:14:13.880 --> 1:14:17.040 aging stock that does need to be referbed. And so 1:14:17.160 --> 1:14:19.439 with not enough housing stock and a lot of older 1:14:19.479 --> 1:14:21.840 stock in the market, you know, referbing is kind of 1:14:22.200 --> 1:14:23.439 is something that's very much needed. 1:14:23.520 --> 1:14:24.920 Something I've got to ask you though, and I'm curious 1:14:24.920 --> 1:14:26.400 about what your brother says, is that you know, there 1:14:26.400 --> 1:14:28.759 are people who want to do projects. There aren't plumbers, 1:14:28.760 --> 1:14:31.680 there aren't electricians, there aren't contractors, and there isn't a 1:14:31.720 --> 1:14:34.720 younger generation. I have two contractors in the family too, 1:14:34.760 --> 1:14:36.880 and but there is not a younger generation who wants 1:14:36.880 --> 1:14:37.800 to do this kind of stuff. 1:14:37.840 --> 1:14:39.720 Yeah, definitely, and I think through COVID that's been a 1:14:39.720 --> 1:14:42.040 difficult time as well, you know, costs or even crease, 1:14:42.360 --> 1:14:44.840 yeah even still, Yeah, it's tough. And also you don't 1:14:44.840 --> 1:14:46.479 have a lot of end borrowers that want to take 1:14:46.479 --> 1:14:49.559 a seven percent mortgage, you know, to buy the end product. 1:14:49.680 --> 1:14:52.280 So it's kind of a time of disruption. I kind 1:14:52.280 --> 1:14:54.559 of see that as a time of opportunity in many respects. 1:14:54.560 --> 1:14:57.200 You know, banks aren't actively in this market. They're just 1:14:57.200 --> 1:14:59.880 not really equipped to provide the quick sort of stream 1:15:00.080 --> 1:15:03.200 on finance that we provide, and so so I think 1:15:03.240 --> 1:15:06.000 it's a great opportunity for investors to get a superior 1:15:06.080 --> 1:15:09.080 risk adjusted return against what is a relatively liquid underlying 1:15:09.120 --> 1:15:09.799 asset class. 1:15:09.840 --> 1:15:12.760 That's Christian Phase, founder and CEO a phasing company. And 1:15:12.760 --> 1:15:14.800 that wraps up the weekend edition oft Bloomberg Business Week 1:15:14.800 --> 1:15:17.959 from Bloomberg Radio, featuring highlights from the future Proof Festival. 1:15:18.400 --> 1:15:20.120 If you want to hear more, just head to our 1:15:20.160 --> 1:15:23.040 podcast feed. Thanks so much to you, Barry Ridholtz for 1:15:23.120 --> 1:15:25.080 filling in for Tim this week, and thank you so 1:15:25.160 --> 1:15:27.479 much for joining us. Be sure to tune into Bloomberg 1:15:27.479 --> 1:15:29.720 Business Week Monday through Friday, starting at two pm Wall 1:15:29.760 --> 1:15:32.840 Street Time, on Bloomberg TV, Bloomberg Radio, and on Series 1:15:32.920 --> 1:15:35.360 XM Channel one twenty one. You can also listen to 1:15:35.439 --> 1:15:38.640 us on Apple CarPlay and Android Auto. It's free in 1:15:38.680 --> 1:15:41.080 the Apple app Store or on Google Play. You can 1:15:41.080 --> 1:15:43.519 also watch our daily broadcast on YouTube just search Bloomberg 1:15:43.520 --> 1:15:47.000 Global News, or subplecast on Bloomberg Originals available at Bloomberg 1:15:47.000 --> 1:15:51.480 dot com, Slash Originals, and streaming platforms including Roku, Amazon, fireTV, 1:15:51.600 --> 1:15:55.040 Simsung TV Plus and more. Find our Bloomberg BusinessWeek podcast 1:15:55.040 --> 1:15:57.960 at Bloomberg dot com, Apple or wherever you get your podcasts, 1:15:58.200 --> 1:16:01.160 and the latest edition of the magazine on newsstands and 1:16:01.280 --> 1:16:03.920 at Bloomberg dot com, and always on the Bloomberg terminal. 1:16:04.240 --> 1:16:06.920 I'm Carol Master, along with Barry Ridholts and for Tim. 1:16:07.320 --> 1:16:09.640 Have a good and safe weekend, everyone, Stay with us 1:16:09.640 --> 1:16:12.920 today's top stories and global business headlines coming up right now. 1:16:17.600 --> 1:16:17.640 ES