Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moven news.
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Speaker 1: All right, let's keep an eye on the market here,
Speaker 1: as John was just reporting kind of a red day
Speaker 1: on the screen here to s and p off one
Speaker 1: percent and to me, the question is where do you
Speaker 1: go here? This fed is going to keep it higher
Speaker 1: for longer. Let's check in with our next guest. He's
Speaker 1: probably got an informed opinion. David Diets, managing principle and
Speaker 1: senior portfolio strategist at pepac Private Wealth Management. David, thanks
Speaker 1: for joining us again here. I'm a little concerned here
Speaker 1: that at the very least this stock market is range
Speaker 1: bound until we get a better sense of what this
Speaker 1: Federal Reserve is going to do here.
Speaker 3: Well, it could be worse than range bound, as we
Speaker 3: saw in September, where is the worst month of the
Speaker 3: year for many sectors of the market. The s and p.
Speaker 3: Five hundred. If this ten year treasury yield keeps rising,
Speaker 3: that just puts pressure on all assets, whether that be
Speaker 3: real estate, whether that be stocks, whether that be tech
Speaker 3: stocks or utility stocks and so forth, because it reduces
Speaker 3: that present value. The question is what is ultimately going
Speaker 3: to break the rise and this interest rates, And we're
Speaker 3: just not sure. But we're obviously we're looking at inflation,
Speaker 3: We're looking at the federal Reserve, We're looking at the
Speaker 3: amount of debt being issued by our federal government. We're
Speaker 3: wondering what central banks overseas are doing with their catch
Speaker 3: of US treasury securities that's all in the mix.
Speaker 4: And looking at some of these long term yields here,
Speaker 4: I mean, the thirty are just on absolute tear today.
Speaker 4: Anything really that's like, you know, standing out to you
Speaker 4: in that part of the curve right now.
Speaker 5: Well, certainly uncertainty.
Speaker 3: We just got a piece of information today, the so
Speaker 3: called Jolt survey, which showed there were more job openings
Speaker 3: than we're expected, and that's really an athem about to
Speaker 3: bond prices and going to create higher yields because one
Speaker 3: of the concerns of the bond market is if this
Speaker 3: economy stays strong and the one of the most important
Speaker 3: parts of it is labor, then there's going to be
Speaker 3: more demand for borrowing, there's going to be more inflation,
Speaker 3: there's going to be increasingly hawkish FED. So that has
Speaker 3: helped push yields up again today, and of course we're
Speaker 3: seeing the fallout of the market.
Speaker 4: You know, I was taking a look into the jolt
Speaker 4: support a little bit further here, and I'm not sure
Speaker 4: how much of it you've seen, but you know, most
Speaker 4: of this rise in job openings came pretty much exclusively
Speaker 4: from professional business services and finance and insurance jobs like
Speaker 4: that was like the more or less the bulk of
Speaker 4: the jump and openings here. How much do you think
Speaker 4: the FED reads into something like that? And of course,
Speaker 4: you know, there is the bigger picture. The labor market
Speaker 4: is still very strong. There still are a lot of
Speaker 4: job openings. But just looking at this one report here,
Speaker 4: seeing as it was so concentrated.
Speaker 3: Yeah, so absolutely, well, you know, I do think that
Speaker 3: these are the types of jobs that pay a little
Speaker 3: bit better as opposed to the service sectors. So there's
Speaker 3: a couple of things you could read into it. One
Speaker 3: is that this initial surge and service sector jobs post
Speaker 3: pandemic is starting to ease. Maybe that's reflective of middle
Speaker 3: and lower income Americas having to pull in their belts
Speaker 3: just a little bit as interest rates go up and
Speaker 3: inflation bites. And of course the other thing, if these
Speaker 3: higher paying jobs are the ones that are still most
Speaker 3: in demand, those ultimately pay a little bit more and
Speaker 3: that could exacerbate inflation. So you could make the case
Speaker 3: that this is not the best mixed from the point
Speaker 3: of view the Federal Reserve valuation.
Speaker 1: David, You know, I guess there's a couple of ways
Speaker 1: to look at valuation here. A the market's pretty pricey
Speaker 1: given where rates are, but if you back out the
Speaker 1: magnificent seven, maybe it's not as bad. How do you
Speaker 1: think about valuation as we guroup for another round of earnings?
Speaker 3: Yeah, absolutely, it is a tail to markets and so
Speaker 3: many different metrics. And Paul, your right to focus and
Speaker 3: valuation because now after the September and indeed the last
Speaker 3: two months of Q three plus of course Monday is mixed. Outing.
Speaker 3: If you strip out that magnificance magnificent seven, you've got
Speaker 3: a pe on the market that's only fifteen. You know,
Speaker 3: that's actually below what the average has been over the
Speaker 3: last decade. But you're also right to point too. You know,
Speaker 3: you need to always compare these things versus the yields
Speaker 3: available on benchmark treasuries, of course, and you know, so
Speaker 3: people are gonna say, well, gee, if I can get
Speaker 3: four point seven percent risk free from a treasury, admittedly
Speaker 3: with no growth of that income, that looks pretty good,
Speaker 3: even relative to a fifteen pe on the market, particularly
Speaker 3: given the risk of recession and increasingly hawkers fed, so
Speaker 3: valuations look better. That's reasons for optimism. But we're still
Speaker 3: looking over our shoulder at the bond market.
Speaker 4: You know, David, I'm an economy person and I was
Speaker 4: personally banking on this week being fairly quiet, expecting there
Speaker 4: to be no Joltz report, no jobs report, but no
Speaker 4: such thing. You know, we got a deal and the
Speaker 4: government is the lights are on for now. So looking
Speaker 4: ahead a little bit to Friday, what are you thinking
Speaker 4: ahead of the jobs report?
Speaker 3: Well, so it seems like the consensus on Wall Street
Speaker 3: is maybe some job creation, maybe one hundred thousand, and
Speaker 3: so we're going to be determining whether, you know, the
Speaker 3: actual jobs created are less or more. Unfortunately, we're in
Speaker 3: this situation here Molly, where good news has taken us
Speaker 3: bad news because you know, a better economy means potentially
Speaker 3: higher yields, which is going to cause people to rotate
Speaker 3: out of stocks into these bombs. And so I think
Speaker 3: from Wall Street's perspective, you may want something under one hundred.
Speaker 3: Certainly if you are a bond investor, you want something
Speaker 3: well less than a hundred. And that could help us
Speaker 3: get you know, our feet back on the ground, and
Speaker 3: of course gives some pause to the Fed who keeps
Speaker 3: talking about higher for longer. If those job if that
Speaker 3: job creation comes in softer, that's to watch. Of course,
Speaker 3: two other things to watch. One is you know the
Speaker 3: the weekly pay is that showing inflationary trends or backing
Speaker 3: off a little bit? And of course do they change
Speaker 3: the numbers for past months? If they revise them down,
Speaker 3: that could be a positive. The so called bad news
Speaker 3: is good news for stocks or could go the other way.
Speaker 1: Corporate earnings start up and you know a week to
Speaker 1: ten days here, Yet again, what are you looking for
Speaker 1: in this earnings? Have we seen the worst of this
Speaker 1: earning cycle? Or we still have some more pain to
Speaker 1: go here?
Speaker 3: In Q three, well, you know we are going to
Speaker 3: see some pain because the latest factset pronouncements show that
Speaker 3: on average we should just be a little bit below
Speaker 3: the flat line, which is going to reflect the third
Speaker 3: or fourth quarter in a row of negative year over
Speaker 3: year earnings. Well, you know, you buy stocks for earnings.
Speaker 3: If they're not making more money than they were the
Speaker 3: prior year, Well, what's the point. Well, the point's going
Speaker 3: to be that forecasters are looking for a close to
Speaker 3: twelve percent jump in earnings in twenty twenty four, and
Speaker 3: you buy a stock not for the past quarters earnings,
Speaker 3: but for the upcoming earnings. So you know, all lives
Speaker 3: are really going to be focused, not necessarily in what
Speaker 3: they report, but what they say about conditions going forward.
Speaker 3: If they're upbeat and constructive, that's the reason to jump
Speaker 3: back in. If not, people may want to hold their power,
Speaker 3: and that could be a more slogging that we're going
Speaker 3: to have to do in the market.
Speaker 4: Here, tell us where you're at, David, for you know,
Speaker 4: looking into the November FOMC at this point and expectations
Speaker 4: for the rest of the year as well.
Speaker 3: So I think it's a coin toss right now as
Speaker 3: to whether they're going to be another hike in November.
Speaker 3: Counseling for it is they don't want to have to
Speaker 3: say they're done, have assets take off and create another
Speaker 3: inflationary problem. Want they don't want to say that they're
Speaker 3: done and then have to come back in again. But
Speaker 3: on the other hand, you know, these interest rate hikes
Speaker 3: act with a long and variable lag. You know, I'm
Speaker 3: still looking at this residence or real estate market where
Speaker 3: mortgage rates have more than doubled. You know, all things
Speaker 3: being equal, that means carrying costs have doubled. How can
Speaker 3: residents or real estate prices stay where they are? And
Speaker 3: that's consumer's biggest asset. So I think that there's a
Speaker 3: lot of reasons for caution on the part of the
Speaker 3: Federal Reserve. And so my best guess is they sit tight,
Speaker 3: but they say they're going to stay vigilant. But we
Speaker 3: all see all right.
Speaker 1: David, thanks so much for joining us. We always appreciate
Speaker 1: getting your thoughts. David Deets, managing Principal and senior portfolio
Speaker 1: strategist at Peepeck Private Wealth Management.
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Speaker 1: Let's go to our next guest, because I'm looking at
Speaker 1: this market and we had the job market, the job
Speaker 1: opening is the Jolts thing MEJIGGI that came in really strong,
Speaker 1: higher than any forecast out there. So of course the
Speaker 1: market says, well, the Fed's not going to be cutting
Speaker 1: rates anytime soon, maybe even raise rates. So let's check
Speaker 1: in with Meghan Horneman. She's a chief investment officer at Verdants. Megan,
Speaker 1: what do you make of the Jolts data we saw
Speaker 1: this morning and the market's reaction to it.
Speaker 7: So it is one month, we have to remember that
Speaker 7: it has been consistently coming down. It was surprising to us.
Speaker 7: I mean it was very concentrated in some of the
Speaker 7: white collar jobs in finance, business education. It's going to
Speaker 7: be more important on how that translates into Friday's number,
Speaker 7: if it does at all. The one thing we took
Speaker 7: out of that report is the quits rate, So that's
Speaker 7: the amount of people that are voluntarily leaving their job,
Speaker 7: and that still is very low. So that shows that
Speaker 7: there isn't a ton of confidence in the future of
Speaker 7: the labor market. People are holding on to their current jobs.
Speaker 7: Let's just see what happens on Friday. We've already been
Speaker 7: in the camp that there's more of a chance the
Speaker 7: FED will have to raise rates at least one more
Speaker 7: time this year. Whether it's November or December really will
Speaker 7: depend on the data that's coming in. Right now. We
Speaker 7: do see, you know, the labor market in its entirety
Speaker 7: is still relatively strong, so the Fed can't necessarily pull
Speaker 7: back what they're doing. The other thing that has concerned
Speaker 7: us has been the fact that oil prices are back
Speaker 7: on the rise, So that's going to cost some volatility
Speaker 7: in the inflation data and make the job for the
Speaker 7: FED even more difficult.
Speaker 4: You also mentioned in the Joltz report there's a layoffs
Speaker 4: also stayed low in addition to quits. And looking ahead
Speaker 4: then to Friday with the jobs report, I mean, where
Speaker 4: do you see the weakness coming from. It looks like,
Speaker 4: you know, people have been calling for the hiring to
Speaker 4: be slowing, and it is slowing. But I don't know.
Speaker 4: Some of these estimates in here, for like one hundred
Speaker 4: thousand down from one hundred and eighty seven that would
Speaker 4: be a huge drop off.
Speaker 7: I mean, as far as weakness in the labor market,
Speaker 7: let's remember that the labor market is a lagging indicator.
Speaker 7: So a lot of people put so much kind of
Speaker 7: credence into every month's jobs report and the fact that
Speaker 7: it's strong and the Fed's going to have to do
Speaker 7: so much more. Let's just remember it's a lagging indicator.
Speaker 7: It is what's kept the economy afloat for this entire year.
Speaker 7: But going forward, there are some cracks that are starting
Speaker 7: to emerge. When you look at some of the underlying
Speaker 7: indicators and some of the indexes in manufacturing or even
Speaker 7: the service side, this is showing weakness. We know that
Speaker 7: from the construction side there's weakness there with the housing
Speaker 7: market being in such disarray. So I don't necessarily think that,
Speaker 7: you know, from the weakness in the labor market will
Speaker 7: continue to materialize. It's just not going to materialize immediately. Also,
Speaker 7: we do, in reality have a structural issue with labor
Speaker 7: market right now. We have some demographics that are concerning.
Speaker 7: But I do think if you look over a long
Speaker 7: period of time, so I'm not talking about this month
Speaker 7: or next month, there are other things that we have
Speaker 7: to member like AI. This will come in and also
Speaker 7: help with some of the structural issues in the labor market.
Speaker 7: I just think it's going to make the Fed's job
Speaker 7: very difficult and they're going to have to tread very
Speaker 7: lightly with this. Unfortunately, it looks like they're going to
Speaker 7: push the economy into a recession, a needed recession. There
Speaker 7: are some excesses that need to be cleared out, but unfortunately,
Speaker 7: with the amount of tightening that they're doing and that
Speaker 7: they need to do, it's likely pushing the economy into recession.
Speaker 1: Oh boy, all right, So I had taken recession off
Speaker 1: the table, Megan, three months ago, So we'll have to
Speaker 1: see how that plays out.
Speaker 5: But I trust your opinion a lot more than mine.
Speaker 5: Looking at the S and P.
Speaker 1: Five hundred, Megan, you know, we're still up ten percent
Speaker 1: for the year, but you know, down eight percent or
Speaker 1: so from that. I guess that high back in the
Speaker 1: July or so. Has a market adequally priced in higher
Speaker 1: for longer?
Speaker 5: Or do we have more to go? Or are we
Speaker 5: going to tread water?
Speaker 1: How do you kind of view the next three to
Speaker 1: six months.
Speaker 7: I still don't think it's completely over. I think a
Speaker 7: lot of it has been done the damage, and we've
Speaker 7: seen this has been a pretty rapid move. I just
Speaker 7: don't think from a valuation perspective, there's two things. I
Speaker 7: think PE multiples still are a little too high given
Speaker 7: the higher for longer, and I also don't think I
Speaker 7: know you mentioned you took recession off the table three
Speaker 7: months ago. We've kind of always been in the camp
Speaker 7: that there'd be a recession, but now there's more people
Speaker 7: coming back into the camp that unfortunately this will end
Speaker 7: in in a recession, whether it's a short and shallow recession,
Speaker 7: but some sort of a recession. The earnings expectations for
Speaker 7: next year aren't really reflecting that yet, so I'm afraid
Speaker 7: that we're going to see earnings expectations come down lower
Speaker 7: for next year, So that could put some more downward
Speaker 7: pressure on the market.
Speaker 4: There's still so much division within the FED right now
Speaker 4: of where do we go from here, And you know,
Speaker 4: I want to ask Megan, maybe you've got a better
Speaker 4: idea then than they do right now of what the
Speaker 4: data is telling you in terms of the direction of rates.
Speaker 4: Right now, you think another hike maybe possible this year?
Speaker 7: Yeah, And I won't say I'm smarter than anybody at
Speaker 7: the FED. But I will say that I think it
Speaker 7: is good to have some of the division there in
Speaker 7: the committee because we are walking such a line. Inflation
Speaker 7: is extraordinarily easy to reignite, especially if you start to
Speaker 7: give the signs that hey, we are done, rate cuts
Speaker 7: are done, or rate hikes, sorry, rate hikes are done,
Speaker 7: because then eventually people are going to be looking for
Speaker 7: that rate cut. What my concern is that that rate
Speaker 7: cut isn't going to happen anytime soon because they're walking
Speaker 7: such a fine line with inflation. With the PCE core,
Speaker 7: we did just get below four percent on a year
Speaker 7: of a year basis. That's good, Inflation is going in
Speaker 7: the right direction. But there are some other factors that
Speaker 7: we're concerned what just cause a lot of volatility and
Speaker 7: inflation and make us getting from that four or five
Speaker 7: percent inflation down to two percent much more difficult.
Speaker 1: WTI crude oil back around ninety dollars a barrel. Is
Speaker 1: there still an energy trade here for investors or has
Speaker 1: that kind of played out?
Speaker 7: I think if you're just looking at from a return perspective,
Speaker 7: it is. Look, a lot of it has been priced
Speaker 7: into the market. We think it's definitely an issue from
Speaker 7: the inflation standpoint, but it's also something that can really
Speaker 7: hurt the consumer. Sometimes the cure for high prices is
Speaker 7: high prices, and energy is one of those things. If
Speaker 7: this causes demand to pull back substantially, for the economy
Speaker 7: to fall into recession, commodities including oil, they're not They
Speaker 7: can't escape that weakness when we do fall into an
Speaker 7: economic contraction.
Speaker 1: All right, Megan, thank you so much for joining us again.
Speaker 1: I always appreciate getting your thoughts. Megan Horneman, a chief
Speaker 1: investment officer at Verdants.
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Speaker 1: Josh Joseph, CEO of Big Plan Holdings, he joins us
Speaker 1: live here on our Bloomberg Interactive Broker studio. Josh, thanks
Speaker 1: so much for joining us here. What is Big Plan
Speaker 1: Holdings and how'd you get here?
Speaker 6: Yeah?
Speaker 8: Thank you for having me. Big Plan Holdings is a
Speaker 8: diversified family office that my wife and daughters run out
Speaker 8: of Nashville, Tennessee at this point, focused in cannabis, real estate, hospitality, fashion,
Speaker 8: professional sports, music, and entertainment.
Speaker 1: You funded this family office with the sale.
Speaker 8: Of your cannabis company, yeah, out of Chicago.
Speaker 5: Yeah.
Speaker 8: We founded a company in Chicago in the Chicago Land
Speaker 8: area back in twenty fourteen fifteen, and grew that to
Speaker 8: the largest privately held cannabis company in the US upon
Speaker 8: an exit in July twenty two. Would you to cure
Speaker 8: Leaf acquired US. That's a public traded yeah company, Yeah,
Speaker 8: public Canadian company. Yeah, you can only be public right
Speaker 8: now in Canada in the cannabis space.
Speaker 5: That's a good American story. Yeah.
Speaker 4: So what's the steely this story with the legality of
Speaker 4: cannabis and Tennessee right now?
Speaker 5: Not much of one. Yeah, not much Yeah, not much
Speaker 5: of one. Yeah.
Speaker 8: Tennessee is going to be one of the last remaining
Speaker 8: states to fall, is my guess at this point. So
Speaker 8: has that you know, Tennessee is a very strong state.
Speaker 8: So you know, more often than not, the states will
Speaker 8: jump in because of you know, needing some additional money
Speaker 8: to come in and you know, right size budgets, et cetera.
Speaker 8: Tennessee's fiscally strong. I think politics also, of course plays
Speaker 8: a role in that as well. And I think that
Speaker 8: they'll be one of the last states to fall.
Speaker 4: So when you say fiscally strong, AKA, they don't have
Speaker 4: much of a financial incentive here, correct.
Speaker 1: Okay, So where we on the national legislation for cannabis,
Speaker 1: because it feels like that domino has to fall before
Speaker 1: banking can have you know, it just seems like that
Speaker 1: has to happen.
Speaker 5: At some point.
Speaker 8: Yeah, A lot of people think that federal legalization is
Speaker 8: the key. I actually don't. I think a lot of
Speaker 8: us who've been in the business, you know, I've been
Speaker 8: in it since twenty fourteen, which is, you know, about
Speaker 8: fifty years in any other industry, I think federal legalization
Speaker 8: really is We're fine keeping it at the state level
Speaker 8: in this industry. But how about like banking, Yeah, what
Speaker 8: we need to happen, what we need to have happened,
Speaker 8: or two or three things there, three or four things really. Recently,
Speaker 8: the Department of Health and Human Services just about two
Speaker 8: weeks ago made a recommendation to reschedule cannabis to a
Speaker 8: Schedule three drug from a Schedule one that would allow
Speaker 8: a couple of things, a couple dominoes to fall into place,
Speaker 8: that would allow hopefully what will be safe banking to
Speaker 8: be passed on Capitol Hill, which has already passed through
Speaker 8: the House seven times and has failed in the Senate
Speaker 8: each time. So we're hoping that with this most recent
Speaker 8: subcommittee bipartisan subcommittee legislation from a week or two ago
Speaker 8: that came.
Speaker 5: Through that hopefully we'll get that passed.
Speaker 8: There's something in the IRS tax co to ADE that
Speaker 8: we are not allowed to use in cannabis.
Speaker 5: We are very very hopeful.
Speaker 8: That we will be allowed to use to ADE and
Speaker 8: exercise that to allow for the appropriate deductions to be taken,
Speaker 8: which will almost automatically allow for all the big MSOs
Speaker 8: and larger operators to be profitable right away, almost overnight,
Speaker 8: and then being uplisted and being allowed to be listed
Speaker 8: on the Nasdaq would be absolutely tremendous. So right now
Speaker 8: you can only be listed in Canada. So that's why
Speaker 8: federal legalization really it doesn't matter if that makes sense
Speaker 8: all that much.
Speaker 4: It looks like this bill that that just went through
Speaker 4: the Senate Banking Committee seems pretty serious. This is kind
Speaker 4: of crazy to me. I had no idea that cannabis
Speaker 4: related companies right now are forced to operate using only cash.
Speaker 4: Is that true?
Speaker 8: Yeah, Yeah, it's aund so archaic.
Speaker 5: It's really really antiquated. Yeah, really antiquated.
Speaker 8: It's a real challenge in the industry for you know,
Speaker 8: as you scale your business, it's a tremendous, tremendous challenge.
Speaker 8: Is a consumer or a patient or a consumer, it's
Speaker 8: a challenge. And so this would allow really, you know,
Speaker 8: for the big banks, the FDIC insured banks, to be
Speaker 8: able to take our money and also provide loans to us,
Speaker 8: because as of now, to scale your business in the
Speaker 8: cannabis industry, it's really all cash. You can't provide any
Speaker 8: no one can provide you any leverage in the public markets.
Speaker 8: So you're getting leveraged from private investors like ourselves. You know,
Speaker 8: we'll we'll, we'll lend to certain cannabis operators, et cetera.
Speaker 8: But they don't come they don't come cheap.
Speaker 4: Yep.
Speaker 1: All right, So we have legal cannabis here in New York.
Speaker 1: But if you I'm sure you've walked down the streets
Speaker 1: of New York City there's these cheesy weed shops two
Speaker 1: or three to every block.
Speaker 5: What did the city do so get.
Speaker 1: So incredibly wrong here?
Speaker 5: Yeah?
Speaker 8: The state, So it's yeah, it's it's at the state level.
Speaker 8: And in my opinion, it's it's at the state level.
Speaker 8: States state will you know, enact legislation, filled adopt rules
Speaker 8: and rigs as we call them, and you know, and
Speaker 8: then New York like so many other states, unfortunately, will
Speaker 8: roll out a program and they're just not ready for it.
Speaker 8: And time and time again we've seen this over the
Speaker 8: last decade when states roll them out, especially in limited
Speaker 8: license states. There's rightfully, there's been a real big push
Speaker 8: for DEI diversity, equity and inclusion, social equity participation in
Speaker 8: the cannabis industry, and there are just not the appropriate
Speaker 8: tool for a lot of these states when they roll
Speaker 8: out programs to allow for the influx of interest that
Speaker 8: they're getting that these cannabis commissions are getting. And so
Speaker 8: New York is one of many many states. Really, Yeah,
Speaker 8: can you put the genie back in the bottle here?
Speaker 8: It's tough. It's hard. Yeah, it's hard. You know, they're
Speaker 8: going to try, they're trying right now. But it's a challenge.
Speaker 1: Because you're supposed to have approved, state approved dispensaries, which
Speaker 1: we have a couple or three here in the city.
Speaker 1: Matt Miller would know the details better than me. But
Speaker 1: then we have the unlicensed ones, right, and I guess
Speaker 1: the law enforcements just has chosen not to enforce.
Speaker 8: Yeah, that's that's what they've chosen to do. You know,
Speaker 8: at this point, you know they're a bigger fish to
Speaker 8: fry from a law enforcement standpoint, and so it is
Speaker 8: tough to put the genie back in the bottle.
Speaker 5: To your question, is.
Speaker 4: That a problem in other states too? Or is it
Speaker 4: just US city folks complaining here?
Speaker 5: No, I think it is.
Speaker 8: I think New York, though, has really has a real issue.
Speaker 8: Actually job yeah, yeah, I think I think you have
Speaker 8: a real issue. Coming from Illinois, coming from the Chicagoland area,
Speaker 8: I will say as is screwed up as our state,
Speaker 8: my home, my former home state of Illinois is in
Speaker 8: many respects Illinois cannabis program. We were the eleventh state
Speaker 8: back in twenty fourteen. They actually did a really nice
Speaker 8: job crafting a program that did not provide for what
Speaker 8: is happening here in New York.
Speaker 1: What are the economics for a state for the cannabis.
Speaker 5: Business, does it?
Speaker 1: What are the what are the revenue arguments that are
Speaker 1: being made have been made, and are they coming to fruition?
Speaker 5: Yeah? They are? Yeah.
Speaker 8: I mean you know, Illinois recently, you know, had more
Speaker 8: in sales tax revenue, as an example, in cannabis sales.
Speaker 5: Than alcohol sales.
Speaker 8: Really yeah, and you're going to continue to see that
Speaker 8: trend around the country, is my guess. So you know,
Speaker 8: when these states are putting together annual budgets, you know,
Speaker 8: this cannabis tax that's coming in is rather significant. You know,
Speaker 8: I can talk to you, you know about Illinois just
Speaker 8: for a second, just because that was where I started.
Speaker 8: And you know, if you're a medical patient, you're going
Speaker 8: to pay about three or four percent. I want to say,
Speaker 8: if you're an adult use customer, you're going to pay
Speaker 8: somewhere between thirty and forty percent of tax based upon
Speaker 8: you So figure you're you're at a thirty five percent
Speaker 8: average tax.
Speaker 5: So yeah, it adds up, you know, pretty significantly.
Speaker 4: When we're looking at you know, next states that could
Speaker 4: legalize weed, cannabis.
Speaker 5: Cannabis, cannabis, yes, cannabis.
Speaker 4: Is proper word. Here can we not say weed.
Speaker 6: Is that weird?
Speaker 5: Of course?
Speaker 4: Okay, oh right, yes, excuse me, right, that one of
Speaker 4: our new favorite tickers. But when we're looking at legalization
Speaker 4: for future states, I mean, is it really a political argument?
Speaker 4: Is it a fiscal one?
Speaker 3: Like?
Speaker 4: What are the big talking points here?
Speaker 5: Yeah?
Speaker 8: What happens is every every state will always roll out
Speaker 8: a medical program first, every single one. They will typically
Speaker 8: let that go for a year, two years. They'll see
Speaker 8: how it goes. They will notice that there is not
Speaker 8: an uptick in criminal activity, they will notice that there
Speaker 8: is not an uptick in DUIs and all of that
Speaker 8: kind of stuff that folks get scared of, that officials
Speaker 8: get scared of. Then they start talking about adult use.
Speaker 8: You're a recreational use, and so it takes a couple
Speaker 8: of minutes for a state to come around, and you know,
Speaker 8: and then once they do it, then takes a little
Speaker 8: bit more time for them to enact adult use legislation.
Speaker 8: We're seeing it move a little bit quicker now, just
Speaker 8: because we have so many states that have opted into
Speaker 8: medical programs. I think we're up to thirty seven I
Speaker 8: want to say states plus four territories that I could
Speaker 8: be off by one or two, but around that number
Speaker 8: that have at least medical programs, and then when you
Speaker 8: break that down, you're having the low twenties on adult use.
Speaker 5: Hey, Josh, thanks so much for joining us. Really appreciate
Speaker 5: you coming in here.
Speaker 1: Josh Joseph, CEO of Big Plan Holdings talking about the
Speaker 1: cannabis business. Make a lot of movement here on the
Speaker 1: state level.
Speaker 6: You're listening to the Team Can't Live program Bloomberg Markets
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Speaker 5: Satalie Traetrevetic Joints.
Speaker 1: So she's had an investment grade credit strategy at paid
Speaker 1: in and regal. What should I do with a credit
Speaker 1: side because for the first time in like forever, I
Speaker 1: can get yield here.
Speaker 9: Yield at six point one five percent are pretty attractive.
Speaker 9: But these days it always seems like the best day
Speaker 9: to buy bonds is tomorrow. So it seems to be
Speaker 9: going higher and higher. We think we are near the
Speaker 9: top and you kind of can lock in rates today
Speaker 9: at these higher levels. You mentioned the two year at
Speaker 9: five in a little bit is nice, but we were
Speaker 9: seeing investors want to go further out the curve, even
Speaker 9: if it means taking the lower yield, you can still
Speaker 9: get close to those six percent on ten year corporates,
Speaker 9: and we find that pretty compelling.
Speaker 1: Natalie True Trevethic Joints is she's had investment grade credit
Speaker 1: strategy at paid In and Regal.
Speaker 4: Thanks Natalie for joining us. And yeah, you know, Paul
Speaker 4: was right. I am a bit of a credit person,
Speaker 4: at least in a former life here, and you know,
Speaker 4: I'm looking at investment grade bond yields right now, and
Speaker 4: spreads are still pretty tight all things considered. There there
Speaker 4: is a little bit of widening here. But I guess
Speaker 4: like the question for you right now is probably what
Speaker 4: like there probably is no need to take any credit
Speaker 4: risk right like, you know, duration is just like doing
Speaker 4: all the work for you.
Speaker 9: Duration is doing the bulk of the work. But getting
Speaker 9: that extra one hundred and twenty five basis points by
Speaker 9: going into id credit still seems to make sense. There
Speaker 9: has been this tug of war between credit looking rich
Speaker 9: on a spread basis but attractive on a yield basis,
Speaker 9: and all factors are signaling that people are yield buyers
Speaker 9: and are really looking at these high yields that you
Speaker 9: can get in high yield a year or two ago
Speaker 9: and seeing it as a relatively safe have in place
Speaker 9: to park their money.
Speaker 1: Natalie, how do you guys think about it over there
Speaker 1: at paid and Regal in terms of what this filter
Speaker 1: reserve is going to do here? Is there another one
Speaker 1: move higher or do you think they can stay here?
Speaker 9: We think there's one move higher. The issue which we
Speaker 9: think is going to propel that is just still strong employment.
Speaker 9: Consumers still have a lot of money. Maybe the savings
Speaker 9: rate is coming down, but their expenditures are still below
Speaker 9: what they're earning, so we still feel that the consumer
Speaker 9: has some strength behind them.
Speaker 4: Yeah, that's got to be a factor. Then concerning for
Speaker 4: the Fed here and we obviously saw the jolts support
Speaker 4: this morning, job openings not coming down. You must be
Speaker 4: looking ahead then to Friday and I'm the next catalyst
Speaker 4: then on the jobs report then for rates, any expectations
Speaker 4: as we're looking into later this week.
Speaker 9: Yeah, we think as long as you get one hundred
Speaker 9: thousand of job growth per month, that could keep us
Speaker 9: at an unemployment rate of three point eight percent. So
Speaker 9: for the catalyst for the unemployment rate to move higher,
Speaker 9: which would really maybe give the FED more reason to pause.
Speaker 9: We just don't really see that in the cards in
Speaker 9: the near term.
Speaker 1: Not only in a credit space. Are there certain industries
Speaker 1: that you guys feel more comfortable here or some industries
Speaker 1: that maybe represent better value right here given where we
Speaker 1: are in the economic cycle.
Speaker 9: Sure, from the credit perspective, we're actually liking the utility
Speaker 9: sector right now. We've seen valuations cheap and up there,
Speaker 9: and they tend to be higher quality bonds which are
Speaker 9: also secured, so we're seeing better value in that sector today.
Speaker 9: We're also seeing value in some of the consumer sectors.
Speaker 9: Autos have also cheapened up a little because of the strike,
Speaker 9: and we don't think this is going to be a
Speaker 9: long term burden on their ability to continue to earn
Speaker 9: strong cash flows. So that's a sector we also like
Speaker 9: buying on this little bit of weakness.
Speaker 4: How about in terms of credit quality, you think this
Speaker 4: is a time to maybe be greedy, reached down a
Speaker 4: little bit, or no need.
Speaker 9: Well, we like investment, great credit, but we are fine
Speaker 9: going down into the triple B space. A lot of
Speaker 9: the single lay names have had so much demand that
Speaker 9: you aren't offering you a big premium over treasuries. We
Speaker 9: also think there's some value in the high yield market.
Speaker 9: We don't think there's going to be a big wave
Speaker 9: of defaults here, so playing some of that crossover space
Speaker 9: is pretty attractive because then you get yields closer to
Speaker 9: seven percent.
Speaker 5: How about do you.
Speaker 1: Guys have much exposure to the mortgage backed securities market,
Speaker 1: because it just seems crazy with mortgage rates and what's
Speaker 1: going on in the housing market.
Speaker 5: I'm not sure if that's where you guys play as well.
Speaker 3: Yeah.
Speaker 9: Paydon as a firm has a lot of investments across mbs.
Speaker 9: It's not my area of expertise, though.
Speaker 4: Do you look at anything else in like the asset backspace?
Speaker 4: I mean, I guess I would also maybe be a
Speaker 4: little concerned with like auto loans right now and just
Speaker 4: anything as you're saying, you know, if consumer spending might
Speaker 4: be slowing here just looking at it from that macro perspective.
Speaker 9: Yeah, from the macro perspective, we do see a little
Speaker 9: bit of weakness, but the strength of some of these securities,
Speaker 9: particularly in the triple A buckets, it's still very strong,
Speaker 9: and we have seen valuations cheapen up here, so it
Speaker 9: actually can be a bit of an opportunity to buy
Speaker 9: in this weakness.
Speaker 1: Now on what is seeing the new issue market, I'd
Speaker 1: be you know, I can I wonder what the issuers
Speaker 1: are thinking about here with these rates continuing to move higher.
Speaker 5: What do you have like when your discussions with new issuers.
Speaker 9: Yeah, there's been a lot of issuance in September, but
Speaker 9: at underwhelmed relative to expectations. And what we're seeing is
Speaker 9: a little bit of a dichotomy between what buyers want
Speaker 9: to buy, which is ten and thirty year bonds, and
Speaker 9: what issuers want to issue, which is really the front
Speaker 9: end of the curve. We're seeing a lot more to
Speaker 9: your issuance this year than we have before, and deals
Speaker 9: are with a lot of two three, five sevens because
Speaker 9: they rather have these higher rates for a shorter period
Speaker 9: of time. And they also bought so much thirty year
Speaker 9: paper post pandemic at virtually free rates, so they already
Speaker 9: have that part of their maturity wall very full. So
Speaker 9: we see them kind of topping up more the belly
Speaker 9: of the curve here.
Speaker 4: So what are your contacts on the sell side saying
Speaker 4: about this? Are the issues going to start giving you
Speaker 4: what you want.
Speaker 9: No, deals have been coming up very tight levels, very
Speaker 9: aggressive typically, you know, pricing twenty five basis points tighter
Speaker 9: than their initial price talk and dealers and investors aren't
Speaker 9: dropping from these deals. So the demand just is outweighing
Speaker 9: the supply right now. So we think it's a little
Speaker 9: bit more of a seller's market. And also you have
Speaker 9: to think that these companies aren't refinancing their entire debt
Speaker 9: stack at these higher yields of six percent. They've been
Speaker 9: able to borrow very cheaply for many years, so they
Speaker 9: aren't going to stop boring just because interest rates have
Speaker 9: gone up. They want to maintain their access to the
Speaker 9: capital markets.
Speaker 1: All right, Natalie, thanks so much for joining us. Really
Speaker 1: appreciate you taking the time as always. Natalie Trevithick, head
Speaker 1: of investment grade credit strategy at Payden and Regal.
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
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Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 2: at Matt Miller nineteen seventy three.
Speaker 1: And I'm Paul Sweeney. I'm on Twitter at pt Sweeney
Speaker 1: before the podcast. You can always catch us worldwide at
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