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Speaker 2: Another piece of data that came out tore that got
Speaker 2: my attention.
Speaker 3: Thirty year fixed mortgage dropping down to six point four
Speaker 3: to four percent, the lowis since twenty twenty three.
Speaker 2: What does that mean for real estate? What does it
Speaker 2: mean for the mortgage market? What does it mean for
Speaker 2: mortage backer securities?
Speaker 3: Fortunately, we have an expert that does that kind of
Speaker 3: stuff here, Erica Aidelberg, Chief Morket Market Little, chief mortgage
Speaker 3: backed security strategist for Bloomberg Intelligence. She joins us here
Speaker 3: in our Bloomberg Interactive Brokers studio. So, Erica, We've got it.
Speaker 3: Seems like everybody's paying.
Speaker 2: Attention to fed chair Pal, who's very clear. On Friday,
Speaker 2: richi'l coming down.
Speaker 3: We're even singing in the mortgage market in terms of
Speaker 3: what you have to pay for thirty year mortgage?
Speaker 2: What's that, dude? The mortgage backed securities.
Speaker 4: Market, what's that? Do so it's very interesting.
Speaker 5: As you said, the data came out today and one
Speaker 5: of the other telling parts of the data that comes
Speaker 5: out not only does the Mortgage Banker Association tell you
Speaker 5: what the mortgage rate is that you know people are
Speaker 5: taking out right now, but they also tell you about
Speaker 5: what type of mortgage loan demand they're seeing. There's the
Speaker 5: loan application indices, and at this point we are seeing.
Speaker 4: Refinancings pick up.
Speaker 5: They actually picked up earlier this month to the highest
Speaker 5: in two years. Still very low historically because there's not
Speaker 5: that many people with higher rate mortgages, but it's barely
Speaker 5: moving the needle for mortgage purchase loan demand, which is
Speaker 5: very telling. It means the housing market is still pretty
Speaker 5: much stuck at these levels. Whether you know it depends
Speaker 5: on who you talk to. Some people think that home
Speaker 5: buyers are just being patient. They think rates will fall
Speaker 5: given the Defense going to cut interest rates. They may
Speaker 5: be sorry that home prices go up and it may
Speaker 5: not get easier for them. The other question is maybe
Speaker 5: it's really still a bailability issue because mortgage I'm sorry,
Speaker 5: home inventories are they're for your.
Speaker 4: Highs and listenings have picked up but still low.
Speaker 5: Again by historical standard, especially relative to the number of
Speaker 5: households out there. But I think it really comes down
Speaker 5: to still an affordability challenge for people who want to
Speaker 5: take out mortgages. You know, there's still barely fifty percent
Speaker 5: of barers who can really afford to take out a
Speaker 5: mortgage at this level relative to the median sized home
Speaker 5: because home prices again have just continued to go up
Speaker 5: with limited inventory.
Speaker 1: Yeah.
Speaker 6: Well, it's fascinating to me to think about, you know,
Speaker 6: your average consumer who's contemplating a home purchase, especially those
Speaker 6: first time buyers, how educated they really are on sort
Speaker 6: of the link between FED policy and mortgage rates. I mean,
Speaker 6: do you think that general public has become aware enough
Speaker 6: to know that maybe if I wait six months, I'll
Speaker 6: get a lower rate than if I go today.
Speaker 5: I mean maybe if you're really in the home for
Speaker 5: a mortgage, and maybe if you're paying tention to the
Speaker 5: USA Today headlines. But ya, six and a half six
Speaker 5: forty four is still quite expensive historically, and a lot
Speaker 5: of people who do know anything about mortgage rates is like, oh, well,
Speaker 5: my friend has a four percent mortgage rate, So I
Speaker 5: don't know if you know mortgage rates above six and
Speaker 5: a half percent is going to trigger much and especially
Speaker 5: if you're an existing home owner with a mortgage rate
Speaker 5: in the three percent range, you know, then you know
Speaker 5: it's still pretty inhibiting to think about a new home.
Speaker 3: So I'm looking, so I'm looking at the end go
Speaker 3: function to Bloomberg Index browser. I see the Bloomberg Mortgage
Speaker 3: Backed Security Index up three.
Speaker 2: Point seventy nine percent this year. Where do we go
Speaker 2: from here? Do you think? I mean, what's the call
Speaker 2: out there? We talk to your clients.
Speaker 5: Well, getting back to the FED question in a way,
Speaker 5: because mortgage durations, their sensitivity to interest rates is actually
Speaker 5: based more on the longer part of the curve. We've
Speaker 5: had a pretty good rally in ten year rates, for instance,
Speaker 5: and that's really a lot of We've had a little
Speaker 5: spread tightening, but that's really what's driven a lot of
Speaker 5: the turns for the mortgage backed Security Index. The problem
Speaker 5: is the FED doesn't control the longer end of the
Speaker 5: mortgage market, and they don't control the longer end of
Speaker 5: the interest rate market, and longer end rates tend to
Speaker 5: price in what they see going forward. Okay, so they're
Speaker 5: already pricing in a lot of the FED cuts the
Speaker 5: forward rate curve, which you know tells you kind of
Speaker 5: what market expectations are, only have longer rates falling by
Speaker 5: another ten to fifty by the end of the year,
Speaker 5: so you know, good for mortgage returns. And one of
Speaker 5: the things that I wrote about today actually is the
Speaker 5: fact that to the extent that the yield cver is
Speaker 5: uninverting and it's getting cheaper for banks to hold their
Speaker 5: funding and buy, mortgage backed securities are more attractive. We're
Speaker 5: saying banks begin to come back into the mortgage backed
Speaker 5: securities market and they're a key less economic buyer. So
Speaker 5: when they do that, mortgage spreads have more rooms to tighten,
Speaker 5: and that could add to mortgage returns between here and
Speaker 5: your end if that trend continues.
Speaker 6: Yeah, I wanted to ask you about that. I noticed
Speaker 6: in one of your recent notes you pointed that out
Speaker 6: that banks MBI holdings happen rising. So that's not a
Speaker 6: sign of less demand from investors. That's more of the
Speaker 6: banks are actively holding more of these securities.
Speaker 7: Yeah.
Speaker 5: Banks like mortgages for a couple of reasons, and they
Speaker 5: haven't liked them very much in the past two years.
Speaker 5: They like mortgages because they have a good margin versus
Speaker 5: their deposits, for instance, that they're paying out on not
Speaker 5: so true in an inverted yield curve.
Speaker 4: And they like them, especially when they think.
Speaker 5: Making loans might be a little bit riskier. You know,
Speaker 5: they kind of weigh that variability between outright loans, whether
Speaker 5: it's commercial or residential loans, and mortgage backed securities. And
Speaker 5: it's also possible that with banks worried about it, but
Speaker 5: of a slowdown in the economy, that they may actually
Speaker 5: think mortgage backed securities, which are guaranteed principal and interest
Speaker 5: from Fanny and Freddie or Jinny, that those are safer
Speaker 5: bet right now than loans.
Speaker 2: All right, Erica, thank you so much for joining us.
Speaker 3: Erica Adelberg, she's chief mortgage back security strategist for Bloomberg Intelligence.
Speaker 3: Joining us live here on a Bloomberg Interactive broker studio,
Speaker 3: the news and in the more Burg's business today, as
Speaker 3: we have the thirty year fixed mortgage dropping to six
Speaker 3: point four to four percent, that is a lowest since
Speaker 3: twenty twenty three, so in anticipation of I guess the
Speaker 3: FED lowering rates. So we got some confirmation of that
Speaker 3: trend on Friday out of Jackson Hole when FED Chairman
Speaker 3: J Powell was pretty clear that that was the intention
Speaker 3: of the Federal Reserve, perhaps starting as soon as the
Speaker 3: September meeting. So we're seeing some movement there in the
Speaker 3: morge backed securities market.
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Speaker 3: I guess it's all in Nvidia all day today because
Speaker 3: we have ed Ludlow from It's like a housean Francisco.
Speaker 3: Bloomberg Technology will have a live program with Jensen Wang,
Speaker 3: the CEO of in Vidio, today six thirty pm Wall
Speaker 3: Street Time.
Speaker 6: I believe it is the time we should almost have
Speaker 6: like an AI chat bot be the co host today
Speaker 6: exactly and just or a guest and just ask, you know,
Speaker 6: chat cheapt what's going to happen with Nvidia earnings.
Speaker 3: Yeah, it it's really interesting how it's become such a
Speaker 3: big name and then you see a super microcomputer, which
Speaker 3: you know kind of was from a stock price performance perspective,
Speaker 3: kind of in that same breath, but it's getting taken
Speaker 3: out to the woodshed. Today's they've got some company specific
Speaker 3: problems with the other stocks down twenty three percent. Let's talk
Speaker 3: to somebody who does this stuff for a living, Shelby McFadden,
Speaker 3: investment analyst at Motley Full Asset Management. You've joined us
Speaker 3: live here in our Bloomberg Interactive Broker studio. You get
Speaker 3: extra points for that. So Shelby, let's just step back.
Speaker 3: Mike and I were just talking about nvidio. It's kind
Speaker 3: of on the top of everybody's list. How do you
Speaker 3: think about a company like Nvidia AI. It's been it's
Speaker 3: really taken over almost the not just the tech narrative,
Speaker 3: but almost the narrative for the entire market.
Speaker 2: Yeah.
Speaker 8: Absolutely, I mean it's definitely been pervasive in a positive way.
Speaker 8: Right when we look at nvideo, we see a company
Speaker 8: that gets to benefit from a massive secular change coming
Speaker 8: in the market. So despite all of the extra fluff
Speaker 8: in valuation, we cannot deny that there is a sort
Speaker 8: of step change that we're witnessing here and how business
Speaker 8: is going to be done and how labor is going
Speaker 8: to be paid for if we also think about it
Speaker 8: that way. But as active investors, we also need to
Speaker 8: consider the fact that you have to look at your timeline,
Speaker 8: you have to understand the risk that you're willing to take,
Speaker 8: and understanding that in this situation, it's not just going
Speaker 8: to be oh, let's take a look at standard deviation, right,
Speaker 8: it's taking a look at these sort of macro factors
Speaker 8: that get involved. We're looking at something that's deeply affected
Speaker 8: by policy, something that's much more affected by their own
Speaker 8: forward looking statements, and also affected by the customers that
Speaker 8: they serve very deeply. So if we have the hyperscalers say,
Speaker 8: you know what, these projects aren't paying off. Our shareholders
Speaker 8: are not willing to tolerate this low roich that we're
Speaker 8: delivering them on some of these projects. That then comes
Speaker 8: back and affects the videos of the world as well
Speaker 8: as their suppliers and other fabricators.
Speaker 6: Yeah, I think That's a great point that's often lost
Speaker 6: in the discussion of in videos, that every incremental dollar
Speaker 6: of new revenue they find is a dollar of costline
Speaker 6: for some other company. And you know, when people get
Speaker 6: you know, restless about when those investments pay off, what
Speaker 6: does that mean for in videos? So I think that's,
Speaker 6: you know, a really fascinating component of this. But Shelby,
Speaker 6: one thing I find really fascinating about in videos. I
Speaker 6: look at their history of reporting earnings, and this is
Speaker 6: one of those companies that always tends to surprise surprise.
Speaker 6: We beat estimates again this quarter, and not by small matters,
Speaker 6: you know, a twelve percent one quarter, twenty percent another quarter,
Speaker 6: thirty one percent another quarter. When you get to be
Speaker 6: the size of a video though, a three trillion dollar stock,
Speaker 6: I feel like you can't quite get away with that
Speaker 6: like you used to. You know, how hard do they
Speaker 6: have to beat estimates to really move the needle? Now
Speaker 6: do you think like a match of estimates I feel
Speaker 6: like would be a disaster for a company like this.
Speaker 8: Oh, you're absolutely right, because when we think about mature
Speaker 8: companies that have a sort of history of under promising
Speaker 8: and over delivering, investors sort of celebrate that. We're fine
Speaker 8: with it, especially if let's say there's a dividend, they
Speaker 8: kind of coast. But when investors are paying for your growth,
Speaker 8: that's not necessarily a luxury that you have.
Speaker 4: And we've seen.
Speaker 8: That with the likes of Micron sort of delivering more
Speaker 8: mature growth, a little bit more flat on their optimism
Speaker 8: about the future, and the stock price was punished for that.
Speaker 8: So we've seen what happens when that starts to taper off,
Speaker 8: the moment that that surprise gap begins to shrink. It
Speaker 8: will all depend on how rational investors are feeling that day.
Speaker 6: Yeah, you just at a buyback announcement to it.
Speaker 8: Exactly, our investors feeling like, you know what, I knew
Speaker 8: this was coming, I priced it in, or is it
Speaker 8: more of this is outrageous? You know this won't work
Speaker 8: for me. And then on top of that, what kind
Speaker 8: of outlook are they pointing to for the future? That's
Speaker 8: sort of the potion.
Speaker 3: Are there other ways that you guys are thinking about
Speaker 3: getting exposure to this AI wave above and beyond Nvidia.
Speaker 8: I think we like to pop the hood a bit
Speaker 8: more so instead of getting direct exposure via some of
Speaker 8: the megacap tech and we do have exposure there and
Speaker 8: we you know, sort of change our allocations accordingly. We
Speaker 8: look at companies that really do have an opportunity to
Speaker 8: start leveraging data in a way that they haven't before,
Speaker 8: in a way that is, if you don't start doing
Speaker 8: it this way, you may be left behind. And so
Speaker 8: their peer group may move as a pack. But if
Speaker 8: they're sort of the top of their peer group in
Speaker 8: dipping into those new functionalities, that's where we want to be.
Speaker 8: So sometimes that tends to be in smalls, right because
Speaker 8: they have the biggest runway, if you will, comparatively. So
Speaker 8: it's a look at what sort of systems or platforms
Speaker 8: can they start using to do their business in a
Speaker 8: more efficient way, and then we get a.
Speaker 6: Hold of those rains, you know, Shelby, I think a
Speaker 6: lot of people tend to forget on Nvidia earnings day
Speaker 6: there actually are other stocks in the stock market, yes, right,
Speaker 6: you know there are other opportunities out there. I know
Speaker 6: you've kept a close eye on the retail companies late
Speaker 6: in the game reporting earnings as you u what are
Speaker 6: some of the big takeaways there? You know, everyone is
Speaker 6: trying to sort of get a feel for the sort
Speaker 6: of macro story of where the consumer is now. Are
Speaker 6: they trading down to the Walmarts of the world. What's
Speaker 6: your take sort of big picture wise on how the
Speaker 6: consumer is doing after reading all these retailer earnings records.
Speaker 8: Yeah, I think the take is that staples are still
Speaker 8: king right now, and in staples, they're going to do
Speaker 8: a little bit of trade down to value. We've seen
Speaker 8: that in the retailer space, but also in the brand
Speaker 8: space within those retailers. And then when it comes to
Speaker 8: discretionary discount is what is starting to take space again.
Speaker 8: So you know, when it comes to soft lines, they're
Speaker 8: wanting to get that little bit of a froth off
Speaker 8: the top to be able to still have some fun.
Speaker 8: But there's definitely a difference in the way that they
Speaker 8: were spending last year.
Speaker 6: Is that relate back to sort of a draw down
Speaker 6: of the savings of the consumer? You know, we everyone
Speaker 6: built up those savings during the pandemic and now that's
Speaker 6: all gone.
Speaker 8: Absolutely, it's the draw down. And it's also the fact
Speaker 8: that earlier in the year we had a lot of
Speaker 8: the credit zerros and banks tell us that at the
Speaker 8: lower end of credit, folks were just saying you know what,
Speaker 8: it is time to stop using extra credit. At the
Speaker 8: upper end, folks are using it and they're just saying,
Speaker 8: you know what, will spread out our payments because we're
Speaker 8: not going to have to deal with the APR. But
Speaker 8: we do know that the savings are pretty much gone,
Speaker 8: and then there is a reluctancy to be using credit
Speaker 8: because of those high rates. So there's a little bit
Speaker 8: of punishment there to be had by brands and retailers.
Speaker 2: I was going to ask you.
Speaker 3: How you phil about that the retail the consumer out there,
Speaker 3: But two of your stock picks are pretty consumer oriented
Speaker 3: Starbucks and Walmart.
Speaker 2: Yeah, Starbucks, what a wild.
Speaker 3: Ride you shift your ceo and boom. I mean, is
Speaker 3: any ceo worth twenty five percent popping the stock?
Speaker 8: Well, that's something that we still have to learn, right, So,
Speaker 8: and the thing about Starbucks is s it's such a
Speaker 8: fun case because in our assessment of quality at MALI
Speaker 8: Fulasset Management, the first pillar is management, culture and incentives,
Speaker 8: And so when we look at something like this, we see, Okay,
Speaker 8: he's been hired to solve a problem, and we do
Speaker 8: know that his track record is a lot of cutting
Speaker 8: and that he's done great for shareholders in doing so.
Speaker 8: But the thing we have to also consider is what's
Speaker 8: going to be the new identity for the Starbucks customer.
Speaker 8: What's he going to contribute to that, and what's he
Speaker 8: going to contribute to culture there and the labor force.
Speaker 8: That's going to be a big task. So we love
Speaker 8: Starbucks because of their scale, their primacy, their competitive advantage,
Speaker 8: but it doesn't mean that a new CEO is going
Speaker 8: to be perfect in active management is watching how well
Speaker 8: or not he's gonna do.
Speaker 6: Shelby, I can't let you go without asking about the hats,
Speaker 6: the old Motley Fool hats. I'm old enough to remember
Speaker 6: whenever someone from mottnany Motley Fool showed up in the media,
Speaker 6: they'd have one of those great Chester hats.
Speaker 2: What happened?
Speaker 6: Can we bring them back?
Speaker 8: I mean, I've got to ask my legal team and
Speaker 8: all of my right but we I mean, we do
Speaker 8: still have them and a lot of our our merchandise.
Speaker 8: You see a sticker, anything branded is gonna have that
Speaker 8: Jester hat on it. But let me see what I
Speaker 8: can do.
Speaker 3: All right, So you know a company like a Starbucks,
Speaker 3: what's the story on Walmart?
Speaker 2: Here? Is that a is that just a GDP play.
Speaker 8: The thing about Walmart is I think if you look
Speaker 8: over the past ten years, probably that's how a lot
Speaker 8: of analysts were modeling it out. But when we've looked
Speaker 8: probably since twenty twenty, really they were being treated like
Speaker 8: a growth stock for quite some time, and so we
Speaker 8: actually trimmed our allocation accordingly because our investment thesis for
Speaker 8: Walmart is not a growth stock, right, so we wanted
Speaker 8: to sort of a trim as we needed to. But
Speaker 8: what they have started to do is they have showed
Speaker 8: that they have the power to capture things like retail
Speaker 8: media a lot faster than some of their smaller competitors.
Speaker 8: So it looked like, ah, they're just kind of asleep
Speaker 8: at the wheel. No, it's a sleeping there. So they
Speaker 8: have a lot of capacity, and they do have a
Speaker 8: pretty nice yield when the stock is trading as a
Speaker 8: GDP PLA, so it is a bit safe, but right
Speaker 8: now it is also quite an earner. So it's a
Speaker 8: nice thing to have in our in our yield portfolio
Speaker 8: and sometimes in core.
Speaker 3: Yeah, I mean it's kind of DIPPDENI had one point
Speaker 3: one percent Shelby mcfadd and thank you so much.
Speaker 2: For joiningus.
Speaker 3: Shelby Mthad, and she's an investment analyst at Motley Full
Speaker 3: Asset Management based down in Alexandria, Virginia.
Speaker 2: But here in our New York studio, we appreciate.
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Speaker 2: Let's talk a little bit of retail. How about some
Speaker 2: retail earnings here.
Speaker 3: We've got Coals after Crombie Nords from all that kind
Speaker 3: of good stuff coming Mary Ross Gilbert senior analysts for
Speaker 3: Bloomberg Intelligence covering the equity space.
Speaker 2: Mary Ross, thanks so much for joining us here. What
Speaker 2: are you hearing from some of the retailers?
Speaker 9: Thank you, Paul. Yeah, So, I would say mixed results
Speaker 9: coming out of retailers. So, for example, on Coals, they
Speaker 9: missed on the sales line, so the comp sales came
Speaker 9: in down about five percent and analysts were expecting down
Speaker 9: two and a half percent. But the good news was
Speaker 9: that they beat on the bottom line and they raised
Speaker 9: their earnings guidance for the year, so they're now expecting
Speaker 9: something closer to two dollars whereas before they are expecting
Speaker 9: something less than a dollar eighty previously. So while that
Speaker 9: is good news, they do need to get the top
Speaker 9: line right sided. And with Tom Kingsbury as the CEO,
Speaker 9: and he's has an amazing track record. He's the one
Speaker 9: who took Burlington from sort of a mall based type
Speaker 9: discount retailer to an off price, fast growing company, so
Speaker 9: there's a lot of faith in him. He's bringing in
Speaker 9: a new categories that so Fara business did well. It
Speaker 9: was up low teens on a comp basis, with total
Speaker 9: beauty sales up forty five percent. But now we need
Speaker 9: conversion and yes there's headwinds from the consumer. So then
Speaker 9: if you take it over to Abercrombie on the other
Speaker 9: side of the picture, their customer base for both brands,
Speaker 9: Hollister and the Abercrombie and Fitch brands, their household income
Speaker 9: is one hundred to one hundred and fifty thousand, not
Speaker 9: like Cohal's where you're under seventy five in household income,
Speaker 9: and so you really have to be very discerning. So
Speaker 9: an Abercromby is executing very, very well, and that explains
Speaker 9: why they had double digit increases in comp sales. The
Speaker 9: Abercrombie brand was up twenty one percent on a comp basis,
Speaker 9: and you had a fifteen percent increase on Hollister, and
Speaker 9: that's on top of double digit increases a year ago.
Speaker 9: And they're seeing strength early in the third quarter. They're
Speaker 9: constantly extending the categories because they know what their gen
Speaker 9: Z for the Hollister and Millennial on the Abercrombie side
Speaker 9: customers want. So that's a company that's executing very well
Speaker 9: with just great results. And then Nordstrom is sort of
Speaker 9: in that similar category, and we did see good numbers
Speaker 9: come out of them late yesterday. The sales were a
Speaker 9: little lighter than Consensus estimated. Other comp sales for Rack
Speaker 9: were up four percent. Consensus was looking for six percent,
Speaker 9: and the full line store was up just under one
Speaker 9: percent on a comp basis, but they were looking for
Speaker 9: something more than one percent, like one point three. But
Speaker 9: they had strong full price sales. That's very encouraging and
Speaker 9: the fact that the business is actually generating positive sales
Speaker 9: something that we're not seeing really in department stores. Of course,
Speaker 9: when we had Macy's report with disappointing numbers. So again
Speaker 9: that speaks to their hire income consumer also in that base,
Speaker 9: and of course rack total revenues were up almost nine percent.
Speaker 9: It's the off price story. Ye, you know something that
Speaker 9: we saw out of the off price last week with
Speaker 9: TJX and Ross.
Speaker 6: You know, Mary, if I listen to everything you're saying
Speaker 6: from sort of a macro economics lens, I wonder if
Speaker 6: there's like a big theme to be taken away here,
Speaker 6: you know, excluding sort of the execution hits and misses
Speaker 6: from each company. But it sounds to me like, you know,
Speaker 6: those lower income consumers are struggling a little bit, the
Speaker 6: higher income consumers are still spending. I mean, is it
Speaker 6: is that simple takeaway? Is that too simplified or is
Speaker 6: that really kind of the story that is emerging from
Speaker 6: the earning season for retailers.
Speaker 9: Yeah, I think that's fair. And even you know, as
Speaker 9: we get up into the higher income they're also trying
Speaker 9: to save money too. I think that you saw that
Speaker 9: in the news out last week with walmartin Target and
Speaker 9: so a lot of them are taking advantage of the
Speaker 9: better prices there, but that also keeps them in a
Speaker 9: good position to continue spending elsewhere, you know, so for
Speaker 9: things that are more desirable. So yes, I think clearly
Speaker 9: the lower income, lower middle income consumer and even middle
Speaker 9: income consumer is just having a hard time dealing with
Speaker 9: high food and energy prices and that's showing up in
Speaker 9: their very discerning spending. That's exactly what you're seeing.
Speaker 3: So Mary, helping me understand what's happening with the Amercrombie
Speaker 3: stock today. It's down sixteen percent on the news. So
Speaker 3: I guess the sales boost was good but not good enough.
Speaker 9: Yeah, it could be, but I also view it is
Speaker 9: potentially short lived as well. So sometimes when you have reactions,
Speaker 9: for example on Coals, even though they had the big
Speaker 9: sales miss, right, you see those stocks up very strong there,
Speaker 9: But I think part of it's probably due to short covering,
Speaker 9: and you know, there's probably some optimism that with they're
Speaker 9: getting the babies r us those just started to flow
Speaker 9: in this month, so we're not really seeing the benefits
Speaker 9: of that, and they're seeing good momentum in the new
Speaker 9: categories that they brought. We're just not seeing it convert
Speaker 9: all the way to lifting sales. But as we start
Speaker 9: to cycle looking out a year from now, which of course,
Speaker 9: we know that's really how equities and investors think they're
Speaker 9: going to be going against these easy comparisons, and it
Speaker 9: may make it easier for them to show a sales lift.
Speaker 9: But we'll see, you.
Speaker 6: Know, Mary, I just sent my youngest two kids off
Speaker 6: to the school today. They back to school already we
Speaker 6: started early in the touching. But it got me thinking
Speaker 6: of that whole that really important back to school shopping season,
Speaker 6: especially for you know, your Abercrombie's of the world. What's
Speaker 6: the outlook there? I mean, if you could put, you know,
Speaker 6: break out your crystal ball and tell us what the
Speaker 6: next quarter numbers are going to look like, do you think,
Speaker 6: you know, is there going to be some weakness because
Speaker 6: of all these issues you're describing.
Speaker 9: Yeah, so it's a good question. I think once again,
Speaker 9: well we'll probably have some mixed results. But Abercromby is
Speaker 9: seeing very good reaction to some of the initial categories
Speaker 9: that they have. So for example, in Hollister, they've got
Speaker 9: their collegiate line that they've launched and it's more extended.
Speaker 9: It covers about thirty two universities if you look at it.
Speaker 9: On the Abercrombie side, they have the NFL line by Abercrombie,
Speaker 9: and they've had that. This is the third year running now,
Speaker 9: but each year they extend it further and further because
Speaker 9: the demand is so strong, and that's sort of part
Speaker 9: of their strategy. So we are seeing I think good
Speaker 9: results there now as we start to get more media
Speaker 9: coverage of the election uncertainty we have seen in past
Speaker 9: times around this election cycle where there is that uncertainty,
Speaker 9: it can sometimes have an impact on consumer spending. But generally,
Speaker 9: I think it's really going to come down to, you know,
Speaker 9: those that are executing and those that are skewing to
Speaker 9: a more of a premium consumer or ones with greater
Speaker 9: discretionary income fascinating out platform, whereas the lower income underperforming.
Speaker 6: Fascinating Paul that we were also obsessed with politics, that
Speaker 6: the upcoming election can influence our spending path exactly.
Speaker 2: We'll see how it to blaze out.
Speaker 3: Mary Ross Gilbert, thank you so much for joining us.
Speaker 3: Mary Ross Gilbert senior Ecody analysts covering the retail space
Speaker 3: for Bloomberg Intelligence. She's based out there in Los Angeles, California.
Speaker 3: So again, some of the retailers putting us some decent numbers.
Speaker 3: Sometimes the guidance is not as good and so you
Speaker 3: get a little bit of a pullback like in Abercrombie,
Speaker 3: but that slacks up still up sixty percent year to date,
Speaker 3: so maybe just a little profit taking their.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
Speaker 1: Auto with the Bloomberg Business app. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station
Speaker 1: just say Alexa playing Bloomberg eleven thirty.
Speaker 3: And we also have some great guests from the world
Speaker 3: of Global Wall Street to help us understand what's going
Speaker 3: on in the world of ETFs. One of those is
Speaker 3: Sylvia Jablonski, chief of executive Officer and Chief investment Officer
Speaker 3: of Defiance ETFs. Sylvia, thanks so much for joining us here.
Speaker 3: You know, for better or worse, the talk of the day,
Speaker 3: if not the week, has been in Nvidia From an
Speaker 3: ETF perspective, How do you guys at Defiance try to
Speaker 3: give some product opportunities for AI to your clients.
Speaker 7: Good morning and thanks thanks for having me today.
Speaker 10: Well, we have a bunch of them, actually we have
Speaker 10: several two times LEVERTYTF single stock products that tracks semiconductor
Speaker 10: have you know, like a two beta Broadcom to two
Speaker 10: beta super micro computers, two beta micro strategy, and so
Speaker 10: you know those definitely participate when the video flies.
Speaker 7: And then we have an ai E t F.
Speaker 10: Basically machine learning and supercomputing and that's and that's quantum.
Speaker 10: It has a huge position in n video and all
Speaker 10: the chip stock. So you know, there are lots of
Speaker 10: ways to get this, whether it's through single stock exposure
Speaker 10: and a video stock itself or some of the ETFs
Speaker 10: like ours out there lots of options.
Speaker 6: H Cyphia, I wanted to ask you about those single
Speaker 6: name uh Leverage ETFs. I know you have one for
Speaker 6: Eli Lilly Broadcom micro Strategy. How big is the potential
Speaker 6: market for those? Do you think? I mean? Is is
Speaker 6: it conceivable to see half d S and P or
Speaker 6: something like that have LeVert ETFs on all these names.
Speaker 10: You know, it's it's a fairly new phenomenon in Leverty
Speaker 10: tf so Lever and innversitytfs have been around, you know
Speaker 10: forever at this point, well over a decade and decades
Speaker 10: if you count.
Speaker 7: The mutual phone products that I said.
Speaker 10: Before people levered up btfs themselves but the leverage single
Speaker 10: stock has been a pretty new concept. It's just been
Speaker 10: out for you know, really the last few years, and
Speaker 10: billions of dollars have flown into that space.
Speaker 7: You know.
Speaker 10: The levered en video that granted Shaars has is just massive,
Speaker 10: got massive.
Speaker 7: Out of the gates direction has some of them. And
Speaker 7: you know, we had a great test case.
Speaker 10: We launched a two x micro strategy m STX just
Speaker 10: a few days ago and it's you know, there are
Speaker 10: some days where it's trading like one hundred million in
Speaker 10: volume already, So the upsite is certainly there from these
Speaker 10: tactical traders that know how to use them.
Speaker 7: So I think the sky is the limit.
Speaker 10: And you know, I think with LEVERTYTFS two, people tend
Speaker 10: to like some of the names that are more popular, right,
Speaker 10: Definitely the mag seven, Definitely the semiconductor names. So whether
Speaker 10: or not we get half of the S and P
Speaker 10: five hundred, I don't know, but I think we'll definitely
Speaker 10: get kind of like the as Belchunas who you mentioned before,
Speaker 10: likes to say hot, saucy ish names out there.
Speaker 3: One of the names that you've got a leverage ticker
Speaker 3: on is Eli Lilly tell Us why you guys launched
Speaker 3: that product.
Speaker 10: Yeah, so that one's actually pretty interesting because if you
Speaker 10: look at Eli Lilly's stock, you know, it's kind of
Speaker 10: just had this like nice steady, you know, very low
Speaker 10: range bound volatility, tends to be a trending you know,
Speaker 10: upward stock, and I think it's their menu of services
Speaker 10: that interests us. There's this phenomenon with the weight loss drugs.
Speaker 10: Obviously with set bounds. You know, they get credit for
Speaker 10: kind of having one of the best ones. Their earnings
Speaker 10: call actually was one of the most positive in terms
Speaker 10: of being able to supply you know, the amount of
Speaker 10: medication needed for the demand out there, the growth that
Speaker 10: they see going forward. They have Manjaro, they have a
Speaker 10: whole bunch of like cancer trials going on, Alzheimer's trials
Speaker 10: going on, and you know, well they're like setbacks here
Speaker 10: and there. For every drug company, it's it's one of
Speaker 10: the company that tends to have the most robust product
Speaker 10: lineup and then you know, great balance sheet, they pay
Speaker 10: a dividend, aging baby boomer population, defensive qualities.
Speaker 7: Why not Eli Lilly, right, and why not lever it up?
Speaker 6: Yeah, Well, obviously, Sylvi, you know, there is a lot
Speaker 6: of risk inherit in using leverage in the stock market.
Speaker 6: And I'm just curious, you know who where the demand
Speaker 6: for these is coming from. Is it from the hedge
Speaker 6: funds or the retail side. And you know, if there's
Speaker 6: a lot of retail demand, it strikes me as you know,
Speaker 6: a bit of risk for defiance as well to be
Speaker 6: providing these products to traders who might not really appreciate
Speaker 6: how risky they are. Is there any sort of way
Speaker 6: you're navigating that issue.
Speaker 7: Yeah, that's a good question.
Speaker 10: And I think, like you know, for the because lever
Speaker 10: and universityfs have been out for so long, there's been
Speaker 10: so much of an effort both by regulators, you know,
Speaker 10: the sec the issuers themselves, the trading brokerash platforms, things
Speaker 10: like that.
Speaker 7: Bloomberg, you guys do a ton of this.
Speaker 10: There's so much education out there and also just so
Speaker 10: many learning labels, right like these are daily products.
Speaker 7: Make sure you're.
Speaker 10: Making a decision every single day if you want to
Speaker 10: continue holding it, or if you know, if you've got
Speaker 10: your gains for the day and you're no longer bullish
Speaker 10: on a bull fund, sell it.
Speaker 7: Things like this.
Speaker 10: So we're very clear in the perspectus and all of
Speaker 10: our materials about you know, these are day trading tools,
Speaker 10: and retail is such a broad thing, right. I mean,
Speaker 10: I've learned this in my career. There are some retail
Speaker 10: traders out there that are as skilled as you know,
Speaker 10: the top hedge funds in the world.
Speaker 7: Right. So to answer your question, it's a mix of everything.
Speaker 7: It's it's day.
Speaker 10: Traders, you know, savvy, technical, tactical retail traders, it's hedge funds,
Speaker 10: large institutions, pensions.
Speaker 7: Really runs the gamut on this and it always has.
Speaker 3: Actually historically, I look at when I just kind of
Speaker 3: study this industry read Eric's work on the industry. Is
Speaker 3: I'm uncomfortable about the concentration. There's so there's a handful
Speaker 3: of really really big ETF houses out there, whether it's
Speaker 3: the vanguards or the state streets, and then there's just
Speaker 3: a gajillion smaller ones. Is that a healthy structure?
Speaker 2: Do you think?
Speaker 10: You know, it's like the mag seven of the SSC
Speaker 10: five hundred, right, the rest of us small and midcalfs
Speaker 10: or you know, trying to catch some tailwinds, We're coming
Speaker 10: up with good products. Rates falling is always a helpful thing.
Speaker 10: It's the same old thing, right. I think you have
Speaker 10: ETF shops that come out and you know, as long
Speaker 10: as we have some tenure and you know, have a
Speaker 10: good amount of product lineups and the right digligences all
Speaker 10: that kind of thing. I think investors are willing to
Speaker 10: give products a try now, regardless of who the issuer was.
Speaker 10: That being said, you know, a company like Defiance is
Speaker 10: never going to come out and try to launch you know,
Speaker 10: a free S and P five hundred black Rock Vanguard
Speaker 10: Stage Street. I mean, it's there, they won that game, right,
Speaker 10: But I think we can be creative with products that
Speaker 10: don't exist in the marketplace yet and that there's appetite for.
Speaker 10: And the good thing about being a smaller shop is
Speaker 10: like we can we can kind of see what all
Speaker 10: the bohemits have done and just try to, you know,
Speaker 10: kind of like figure out what's missing and put our
Speaker 10: own secret sauce on it. So I do think there's
Speaker 10: room for a whole lot of us small guys.
Speaker 7: And you know, we're all growing.
Speaker 10: We've all had some pretty successful launches in the last
Speaker 10: couple of years, so we'll catch up.
Speaker 6: Yeah, Sylviya, I'm curious how you're thinking about the market overall.
Speaker 6: I mean to me, it's it's kind of a weird
Speaker 6: environment we're in right now. Everyone's bracing for somewhat aggressive
Speaker 6: Federal Reserve interest rate cuts, and yet we've got the
Speaker 6: stock market near high. I'm looking at the Nasdaq one
Speaker 6: hundred valuations, you know, p's in the thirties. It's Does
Speaker 6: it feel weird to be bullish on the equity market
Speaker 6: when the FED is about to go on an aggressive
Speaker 6: rate cutting campaign?
Speaker 7: Yeah, it's a strange.
Speaker 10: I think we're in a period in the markets where
Speaker 10: it's going to be, you know, where we're going to
Speaker 10: start to see some slower growth. But I don't necessarily
Speaker 10: think that, you know, the all bets are.
Speaker 7: Off for stock appreciation.
Speaker 10: The good news is that even when rates have been
Speaker 10: super high, corporate America has performed right. And I think
Speaker 10: a lot of the reasons you see these higher multiples
Speaker 10: is because their earnings have actually have actually matched what
Speaker 10: you know, what's been kind of like dictated on these stocks.
Speaker 10: And I think that shor and corporate earnings like, yes,
Speaker 10: jobs are you know, kind of weakening a little bit,
Speaker 10: but it's nothing to be concerned of in terms of
Speaker 10: historical unemployment rate, retail consumers are strong. You can see
Speaker 10: that across some of the earnings. You know, wages have
Speaker 10: been pretty steady, There's lots of cash on the sidelines,
Speaker 10: and so I think that there will be this period
Speaker 10: of time in and you know, in coming months, really
Speaker 10: where the market's going to really like these rate cuts,
Speaker 10: and I think that stocks will be rewarded from it.
Speaker 7: And then the second thing I'll say is.
Speaker 10: I think we're going to see breath expansion right when
Speaker 10: those rates actually lower, and companies like small caps and
Speaker 10: mid caps can actually you know, have that show up
Speaker 10: in their bottom lines. I think, you know, I think
Speaker 10: you get some breath expansion there. But the MAC seven,
Speaker 10: you know, unless you think innovation and AI are dead,
Speaker 10: it's just a difference.
Speaker 7: It's a tech heavy world. So I'm always going to
Speaker 7: buy those companies.
Speaker 10: And to your point, even if I'm totally wrong and
Speaker 10: the market pulls back, I want to have quality companies
Speaker 10: with huge balance sheets. And again that takes me back
Speaker 10: to the MAC seven. So I don't think that story
Speaker 10: is over.
Speaker 2: All, right, Sylvia, thank you so much for joining us.
Speaker 2: Really appreciate it.
Speaker 3: Sylvia Tablonski, Chief executive Officer and chief Investment officer defines ETFs.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
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Speaker 1: on Amazon Alexa from our flagship New York station Just
Speaker 1: Say Alexa playing Bloomberg eleven thirty.
Speaker 2: Let's switch hears here.
Speaker 3: One of the top red stories on the Bloomberg terminal
Speaker 3: here is about a hedge fund, About the hedge fund business.
Speaker 3: No surprise, a lot of hedge fund folks have Bloomberg terminals,
Speaker 3: so they.
Speaker 2: Read stuff about it.
Speaker 3: Hema Parmar Joints as she is the hedge fund reporter
Speaker 3: for Bloomberg News, talk to us about two Sigma, Who
Speaker 3: is two Sigma and what's happening today with this big
Speaker 3: hedge fund.
Speaker 11: Yes, giant hedge fund, sixty billion dollars, big quant pioneer,
Speaker 11: meaning they use computer algorithms to trade across a variety
Speaker 11: of assets. The two founders, John Ovidek and David Siegel,
Speaker 11: founded the firm twenty odd years ago, but over the
Speaker 11: years they had a rift. They didn't get along. They've
Speaker 11: been feuding for the past few years, so much so
Speaker 11: that the firm had to in their public disclosures and
Speaker 11: a regulatory filing, which is a very strange thing for
Speaker 11: hedge fund to do. She close disclose that that the
Speaker 11: feud was so bad that it was a material risk
Speaker 11: to investors.
Speaker 6: That's unbelievable people, But it doesn't sound like they've you know,
Speaker 6: even after they disclosed that. It doesn't seem like there
Speaker 6: was a lot of outflows out of the fund or anything.
Speaker 6: Do you think that changes with this announcement now that
Speaker 6: people realize, wait a minute, this something's really going wrong here.
Speaker 11: I think what's interesting about a firm like this is
Speaker 11: because it's quantitative. There are so many teams. It's kind
Speaker 11: of an institution the way it's built out. It's not
Speaker 11: like if we think of a fundamental longtered equity fund
Speaker 11: where everything relies on the PM or the one person
Speaker 11: at the very top. Here, it's kind of a team structure,
Speaker 11: and it can sort of be business as usual in
Speaker 11: some ways, even with a rift like this. So the
Speaker 11: performance has been relatively unchanged and redemptions have been relatively
Speaker 11: unchanged to you haven't seen a mass exodus of clients
Speaker 11: in the wake of news like this, which is really interesting.
Speaker 11: Because if it was many other funds, you know, you
Speaker 11: might have seen that.
Speaker 2: How's their performance been? Has it affected their performance?
Speaker 11: It hasn't really affected their performance. The performance has been
Speaker 11: has been I would say, unchanged up about ten percent
Speaker 11: and one of their funds this year, which is not bad,
Speaker 11: up about seven for the other. It's it's okay, it's fine.
Speaker 6: I guess once you put those systematic strategies in place
Speaker 6: and turn the computer on, you can fight all you want.
Speaker 6: It doesn't matter. But is there any sense of what
Speaker 6: this feud is all about? Is it just a personality conflict?
Speaker 6: Do we know anything about what set the heart of it?
Speaker 11: Yes, they disagree about a disagree on a number of
Speaker 11: different things about the firms. So it could be organizational structure,
Speaker 11: succession planning, the roles of senior executives, and it got
Speaker 11: to such a point where employees struggled to actually implement initiatives,
Speaker 11: and it could have or began to impact retention of talent.
Speaker 11: So when you're seeing the material impacts of it, which
Speaker 11: there were some, you know that may have led to
Speaker 11: them needing to publicly disclose all.
Speaker 3: Right, So, as Hedge fund reporter for Bloomberg News, how
Speaker 3: how is the industry? Are funds flowing into the industry
Speaker 3: out of the industry. How's did it industry doing?
Speaker 7: Yeah?
Speaker 11: So, for for years, the industry has generally grown bigger
Speaker 11: and bigger. What's fascinating is that typically the assets are
Speaker 11: going to the biggest funds, so the bigger funds continue
Speaker 11: to get larger. If we look within the multi strategy
Speaker 11: hedge fund space with these are funds that trade across
Speaker 11: all kinds of assets and little pods of teams. That
Speaker 11: strategy has generally attracted a ton of assets, and you've
Speaker 11: seen these firms grow from twenty billion to sixty billion
Speaker 11: in just a few years.
Speaker 6: Yeah. But in a year like this, when the stock
Speaker 6: market just keeps ripping higher, it's not necessarily the best
Speaker 6: back drop for a hedge fund, especially as you point
Speaker 6: it out a long short. Are there any sort of
Speaker 6: strategies pockets that are performing especially well, you know, trend
Speaker 6: following I imagine is doing well anything else?
Speaker 11: Yeah, Equity funds have generally done well. Longstert equity fundamental
Speaker 11: stock pickers are up in the twenty percent so far ish,
Speaker 11: depending on the funds. Keep in mind that a lot
Speaker 11: of these guys buy tech stocks, so if they've time
Speaker 11: to correctly, have sort of like ridden the wave up,
Speaker 11: but have felt pain as well too, so it's been
Speaker 11: kind of a rocky rider. Looking at the fund, this
Speaker 11: industry is quite a fun specific space, so it depends
Speaker 11: on the strategy, the manager, the size of the vehicle,
Speaker 11: how they handle risk. So they're depending on the appetite
Speaker 11: of the investor and how diversified they want to be.
Speaker 11: They may choose one type of fund versus the yah.
Speaker 2: Know the two Sigma news today that you report on.
Speaker 3: It highlights one of the risks I think investing in
Speaker 3: the space, which is this is pretty common. That is,
Speaker 3: the founders are really what you're investing in. I'm investing
Speaker 3: with Stevie Cohen at point seventy two. I'm trusting him.
Speaker 3: Is the England or a millennium. I'm investing with those
Speaker 3: people in their names. But if they leave or they
Speaker 3: get hit by a truck, that's a real issue.
Speaker 11: It depends on the strategy. So for a stock picker
Speaker 11: for the Tiger Cubs for example, where the people at
Speaker 11: the very top really have a lot of impact on
Speaker 11: the actual investments, yes, it can matter if one of
Speaker 11: those people who are to step away for a firm
Speaker 11: like to Stigma, where a lot of the investments are
Speaker 11: sort of made many layers down, it may not impact
Speaker 11: investor sentiment to the point where it would impact redemptions
Speaker 11: or flows. That said, you do look to the very
Speaker 11: top of a firm and you want the people at
Speaker 11: the very top to be working together. And clearly they
Speaker 11: were not working well enough for the firm to have
Speaker 11: two brand new co CEOs step in place and try
Speaker 11: to fix things and try to get everyone working better
Speaker 11: and more efficient. You don't want an inefficient firm, regardless
Speaker 11: of the strategy.
Speaker 6: And to be sure, over Deck and Siegel aren't actually
Speaker 6: leaving the firm, right, They're just kind of stepping down
Speaker 6: from the CEO.
Speaker 11: They're giving up the co CEO title. Will remain co
Speaker 11: chairman of the firm, which is the role.
Speaker 4: That they have.
Speaker 11: They are the biggest investors in the funds. They have
Speaker 11: the largest equity stake in the fund, so they do
Speaker 11: have influence. They will continue to advise and continue to
Speaker 11: help guide the direction of the firm.
Speaker 2: Yesmah, thank you so much for joining us. Really appreciate
Speaker 2: Hima Palmer. She's hedge fund.
Speaker 3: Reporter for bloom Bloomberg News Journeys live here in our
Speaker 3: Bloomberg studio here in midtown Manhattan.
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