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Speaker 2: We are going to stay with definitely inflation and the
Speaker 2: inflation print today, so let's continue with it. We talked
Speaker 2: about on the headline and the core certainly an improvement,
Speaker 2: a cooling, if you will, So let's get to We've
Speaker 2: also heard from a lot of FED speakers, so let's
Speaker 2: get to. Bloomberg News International Economics and Policy correspondent Michael
Speaker 2: McKee on zoom from the Rocky Mountain Economics Summit in Idaho.
Speaker 3: Yes he's had his hat.
Speaker 2: We love, we Love, we Love, and Bloomberg News Economics
Speaker 2: editor Mollie Smith in our Bloomberg Interactive Broker student without
Speaker 2: our hat, but.
Speaker 3: Still we love, we Love, we love.
Speaker 2: All right, Mike, First of all, gosh, is everybody there
Speaker 2: talking about this? I mean, is every there yet?
Speaker 4: Not everybody is there yet, but a good number of
Speaker 4: people are. And it's not that the data released itself,
Speaker 4: but overall business conditions that people have been talking about.
Speaker 4: And the interesting thing is that it sort of mirrors
Speaker 4: the story that's been told nationwide. I was sitting with
Speaker 4: a table of CEOs last night and they were all saying,
Speaker 4: business is really good, surprisingly good, but we can't find employees,
Speaker 4: and so a strong labor market is still going to
Speaker 4: keep the FED worried. And that's one reason that we'll
Speaker 4: get this July rate increase, and it'll keep it on
Speaker 4: the table for the future unless we get some additional
Speaker 4: inflation information that really drops down. But I think the
Speaker 4: labor market strength is what is paramount for most of
Speaker 4: the people running companies in America today.
Speaker 5: And I guess, Ollie. I was looking at ECFC the
Speaker 5: economic forecasts on the Bloomberg terminal, and it's showing that
Speaker 5: I guess economists are forecasting six months of negative non
Speaker 5: farm payrolls in a row starting in October. So is
Speaker 5: this thing going to turn around?
Speaker 4: Big?
Speaker 6: I find that really hard to believe where things are
Speaker 6: at right now, But don't hold me to it if
Speaker 6: six months from now I'm wrong. But I think you know,
Speaker 6: the only explanation I would really have for that is
Speaker 6: if you're really taking the FEDS unemployment forecast to heart,
Speaker 6: and that would really be the only way for them
Speaker 6: to materialize.
Speaker 3: That you would have to have.
Speaker 6: That much job like job many job losses between now
Speaker 6: and then to get to that kind of unemployment rate.
Speaker 2: Mike, we talk about things being sticky, right, We've talked
Speaker 2: about this before when it comes to inflationary pressures. I'm
Speaker 2: just gonna tell everybody, I went to buy deodorant last night,
Speaker 2: nineteen dollars for once little stick I'm sure no, I
Speaker 2: was out of there. I was out of there. I
Speaker 2: am wearing deodorant, but I did not buy it. It
Speaker 2: was ridiculous. But some things, like what wages sheltered, they're sticky.
Speaker 4: They are sticky, but a zero fault for buying that
Speaker 4: Kardash stuff. But yeah, sticky prices are what concerns the
Speaker 4: FED because the easy stuff has gone away. One reason
Speaker 4: we saw a big drop in the year over year
Speaker 4: numbers for CPI headline number is because energy prices have
Speaker 4: fallen so much that stuff has gone We're getting down
Speaker 4: into the range between two and three percent, which is
Speaker 4: going to be much harder to bring down. Because prices
Speaker 4: are sticky, things don't come down as fast as they
Speaker 4: do in some other areas, but the Atlanta Sticky wage
Speaker 4: tracker does show some progress in that area, and other
Speaker 4: wage trackers have as well that we're not seeing declines
Speaker 4: in pay, but we're seeing a leveling off of what
Speaker 4: companies are paying, and I think that is going to
Speaker 4: contribute to the numbers on a statistical basis. And then
Speaker 4: the question becomes this was it was a topic today
Speaker 4: at breakfast at the summit. Then it becomes how do
Speaker 4: people feel about the economy, And that's going to become
Speaker 4: a really interesting question because it will affect whether or
Speaker 4: not we have recession, but it also will have a
Speaker 4: big impact on the elections next year. So it's going
Speaker 4: to be interesting to see whether people start to feel
Speaker 4: better as these good numbers keep coming in.
Speaker 5: You talk about sentiment a lot, man, Yes, I think
Speaker 5: sentiments really important, and I think the FED also pays
Speaker 5: very close attention, especially to inflation expectations.
Speaker 6: Right, yeah, I think you know, to the point of
Speaker 6: how people feel about this, Like, of course, it's one
Speaker 6: thing when you see that inflation was nine point one
Speaker 6: percent a year ago and it's three percent today.
Speaker 2: No one's like progress to me, pretty amazing, and.
Speaker 6: No one's discounting that but that's not somebody's lived experience
Speaker 6: of inflation, right. The fact is that that hamburger that
Speaker 6: used to cost you sixteen dollars now maybe cost you
Speaker 6: twenty five dollars. And even though it's not going up
Speaker 6: five dollars a month, it's maybe still going up two
Speaker 6: dollars a month. So the fact is prices are.
Speaker 5: The oldant was that I would.
Speaker 2: Love to know native deodorant in those materials. It's like, yeah,
Speaker 2: but then I went to Amazon it was still sixteen bucks.
Speaker 2: It's not usually been that.
Speaker 5: Checked out old spice.
Speaker 2: Yeah, now I know actually likes old spies, but no,
Speaker 2: it's just it's kind of crazy. I agree, like you know, Molly, Mike,
Speaker 2: we Mike, I keep looking at you and I think
Speaker 2: I'm watching Yellowstone. I'm just gonna tell you.
Speaker 5: That is a compliment.
Speaker 2: It is a compliment. But so I don't know, Mike,
Speaker 2: So it does feel like things are still so expensive.
Speaker 2: Help me out here.
Speaker 4: Well, that's that's the Fence issue, and it will be
Speaker 4: an issue for the Democratic incumbents in the Senate and
Speaker 4: for President and the Republicans on the House side. Is
Speaker 4: people relate to their own personal experience and their personal experiences.
Speaker 4: Either gas prices are going up or down, food prices
Speaker 4: are going up or down, and it takes a while
Speaker 4: for even those things to penetrate. People have been complating
Speaker 4: about food prices, but food prices are only up a
Speaker 4: tenth of a percent this past month. And then you
Speaker 4: have the things that are stick here, and people don't
Speaker 4: realize that inflation doesn't getting rid of inflation doesn't mean
Speaker 4: prices are going to go back down. So you're going
Speaker 4: to go in and you're going to pay that nineteen
Speaker 4: dollars for the deodorant, and next year you're still going
Speaker 4: to pay that nineteen dollars, if not more. And so
Speaker 4: you're going to say, inflation's terrible, even though it's not rising.
Speaker 5: It it is terrible. I mean, the price of a
Speaker 5: Jeep Grand Wagoneer that starts at ninety thousand dollars before delivery, No,
Speaker 5: thank you. That's why.
Speaker 4: Yeah, that's why you buy a Tesla now because Tesla
Speaker 4: keeps cutting prices.
Speaker 7: That's true, that's so true.
Speaker 5: That's very a great story about Scott Painter. Yeah, I
Speaker 5: know I need to do Lomberg terminal because he started
Speaker 5: a business buying Tesla's and now he has an eighty
Speaker 5: five million dollar fleet that's only worth fifty seven million dollars.
Speaker 7: Thank you you, Molly.
Speaker 5: What do you and your team watch most closely as
Speaker 5: an indicator to tell you whether or not this economy
Speaker 5: is going.
Speaker 7: To keep growing?
Speaker 5: Because if you look at five hundred and twenty five
Speaker 5: basis points of rate hikes, you know at some point
Speaker 5: those long and variable lags are going to catch up
Speaker 5: and they're going to hit us pretty hard.
Speaker 6: I mean, that's what people have been saying at some
Speaker 6: point for a long time now, and it still hasn't
Speaker 6: happened yet. I think, you know, really at the center
Speaker 6: of all this is still the labor market. That's what's
Speaker 6: really keeping the whole economy going right now. So that
Speaker 6: would be, you know, as a total, the leading indicator
Speaker 6: right now, whether you're looking at that based on payrolls,
Speaker 6: on unemployment claims, job openings, the unemployment rate. So that would,
Speaker 6: for me, would be where the cracks really need to
Speaker 6: be substantially forming for us to get a slow down
Speaker 6: in consumer spending and therefore growth as well.
Speaker 2: Mike, do you feel like Jay Pal's feeling pretty good
Speaker 2: though about this report and where things are moving well?
Speaker 4: He has to feel pretty good about it, but he's
Speaker 4: also got to be wary. We've played and I think
Speaker 4: we mentioned this the last time we played Whackable with inflation,
Speaker 4: something goes down and then the next month that goes
Speaker 4: back up again. And what they want to see his
Speaker 4: things continuously going down. But I don't know if you
Speaker 4: saw Paul Krugman's column today in the New York Times,
Speaker 4: The headline was, Dude, where's my recession? Because people have
Speaker 4: been predicting it for so long. And it was one
Speaker 4: year ago at this event that FED Governor Chris Waller
Speaker 4: said we can't have inflation come down without a big
Speaker 4: rise in unemployment. And if you remember, Larry Summers and
Speaker 4: Olivier blons Chard got really mad about that and they
Speaker 4: posted a paper that said Waller is wrong, and then
Speaker 4: Waller wrote a retort to that, and they went back
Speaker 4: and forth for a while. Well, I just spoke with
Speaker 4: a FED official here who grinned had said Waller's winning.
Speaker 2: I love an economist fight. Yeahs, I'll take care. I'll
Speaker 2: take this curve and up one curve.
Speaker 5: I just feel like you've got to give these lags time,
Speaker 5: right if they're supposed to take to twelve to eighteen months,
Speaker 5: it's only been a year or a year and a
Speaker 5: half of increases.
Speaker 7: Yeah.
Speaker 6: Well, I think another reason though to be wary building
Speaker 6: out what Mike was saying there is that, remember, this
Speaker 6: is where the so called base effects are going to
Speaker 6: start to get a lot less favorable going forward. We're
Speaker 6: right now at the peak of where we're comparing to
Speaker 6: June twenty twenty two when inflation was at the high.
Speaker 6: So as long as all of those increases from June
Speaker 6: twenty two forward, we're lower, we're comparing to a lower
Speaker 6: year over year print, so we're not going to see
Speaker 6: as many of these big drops going forward.
Speaker 4: To Mike, come on in, Well, I was going to
Speaker 4: just point out that Laurie Logan from the Dallas Fed
Speaker 4: just said this past week, but she thinks that the
Speaker 4: lags have already expired because the markets, now, with information
Speaker 4: being what it is, they started pricing FED rate increases
Speaker 4: before the FED started raising rates, So you already have
Speaker 4: an effect of higher rates on the economy.
Speaker 7: And the St.
Speaker 4: Louis Boys, Jim Bullard and Chris Waller, that's one of
Speaker 4: the arguments that they make for being more hawkish, because
Speaker 4: if we're at this level now and we've already had
Speaker 4: maybe eighteen months for the policies that they've done to hit,
Speaker 4: then that probably means they need to do more.
Speaker 6: I'm going to take a guess a Goolsby and Bostic
Speaker 6: don't feel that way.
Speaker 4: I know Raphael doesn't feel that way. I think Austin's
Speaker 4: been hedging his bets.
Speaker 2: It's interesting. Then there was a guest on surveillance this
Speaker 2: more and talk about rate hikes right cuts like in
Speaker 2: the first half of the next year. I know, I know,
Speaker 2: I know, all right, Mike McKee and of course Molly Smith. Guys,
Speaker 2: thank you so much Gidea app. Mister McKee, this is Bloomberg.
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Speaker 2: Really exciting to you. If you got big bank earnings
Speaker 2: coming up, they start on Friday, they follow off into
Speaker 2: next week as well, common tax among them. So what's
Speaker 2: up with GS? Because as we do get ready for
Speaker 2: their results among the others, they seem to be working
Speaker 2: over time to lower expectations and to unimpress. This story
Speaker 2: is one our most read on the Bloomberg today. I
Speaker 2: think it's like number two or number one. It's kind
Speaker 2: of been going.
Speaker 7: Back and forth.
Speaker 2: Bloomberg News Senior financial Reproductriya Rajan wrote it, He's here
Speaker 2: in our Bloomberg Interactive broker studio what's up with GS?
Speaker 3: And rightfully, they're working hard to try and lower expectation
Speaker 3: because the results that they will post next week will
Speaker 3: not be great. I mean that much is clear. They
Speaker 3: have dropped enough deliberate clues in the market in the
Speaker 3: last several weeks to highlight some of the issues. Some
Speaker 3: of them are things that affect the broader industry and
Speaker 3: some are very specific to Goldman Sax. What affects the
Speaker 3: industry the slowdown in the investment bank, investment banking, deal making,
Speaker 3: capital markets training.
Speaker 2: They're not alone in that one.
Speaker 3: They're not alone in that, but they are the best
Speaker 3: at what they at that part of the business better
Speaker 3: than anyone else. So when there is a slowdown in
Speaker 3: that space, it tends to have an outsized impact on
Speaker 3: Goldman Sacks. But when you step beyond that, there are
Speaker 3: also Goldman's own you know, missteps, if you may. The
Speaker 3: consumer banking expansion that they're trying so hard to unwind,
Speaker 3: they're going to take a hefty right down tied to
Speaker 3: this Green Sky lending platform that they're now looking to sell.
Speaker 3: It was one of the biggest acquisitions in two decades
Speaker 3: when they bought it just over a year ago. There
Speaker 3: are big real estate markdowns that they'll have to take
Speaker 3: because not only does Goldman lend to that sector, it
Speaker 3: also has a lot of equity investments in that space
Speaker 3: where it uses principle from its balance sheet. So when
Speaker 3: you add all of those things together, it kind of
Speaker 3: becomes a bit of a dismal quarter. And we had
Speaker 3: Mike may Or, the dean of banking analysts, tell us
Speaker 3: that there are about half a dozen things in Goldman's
Speaker 3: earnings this quarrel. They'll be weak, bad, or ugly.
Speaker 5: Yeah, I saw that, and it made me sort of question,
Speaker 5: is Goldman just downplaying their results so that they can
Speaker 5: beat You know, companies have been doing that decades now,
Speaker 5: which is why seventy six percent of companies in the
Speaker 5: S and P five hundred routinely beat analyst estimates. Or
Speaker 5: is this a really bad quarter for Goldman or is
Speaker 5: it both?
Speaker 3: It could be both, right, it could be a terrible quarter.
Speaker 3: Analysts could expect your profits to be down fifty percent
Speaker 3: and you're down just forty nine percent. Technically that is
Speaker 3: a beat, but that's nothing to write home about, right, Well.
Speaker 2: Are we had they pre announced? Technically they really have
Speaker 2: it right, but it feels like it.
Speaker 3: That's what Mike Mayo seems to think. And part of
Speaker 3: the reason why it's different is actually, if you look
Speaker 3: across the landscape, most other banks do a reasonably good
Speaker 3: job of providing intra quarter guidance. The reason we found
Speaker 3: this surprising and it's actually interesting, it's clear after having
Speaker 3: spoken to a number of executives at Goldman Sachs, having
Speaker 3: spoken to a number of investors analysts who speak with
Speaker 3: Goldman Sacks, that it is a very concerted effort on
Speaker 3: the part of the bank to do something that they're
Speaker 3: not used to doing. Because Goldman has been famously reticent
Speaker 3: about quantifying a trading performance, a banking performance it's mid quarter,
Speaker 3: or identifying how much of a hit they could have
Speaker 3: in certain this sector or that sector. They've never done that.
Speaker 3: They're doing that here, and you've got to think about
Speaker 3: the bigger picture. What happened in January when they reported earnings.
Speaker 3: It was bad performance for them for Q four twenty
Speaker 3: twenty two, But on the day of earnings the stock
Speaker 3: was down six and a half percent. That is a
Speaker 3: lot for a bank stock. What made things worse the
Speaker 3: same day, Morgan Stanley there are trival reported earnings and
Speaker 3: that stock shot up six percent. That can easily make
Speaker 3: anyone's blood boil inside goldman sack. So that wasn't good them.
Speaker 3: Came around April. Their trading division, They're mighty trading unit,
Speaker 3: didn't quite live up to expectations. But again the stock
Speaker 3: was punished, and if you look over the stretch of
Speaker 3: those four or five earnings days in April, Goldman significantly
Speaker 3: underperformed the rest of the market. So they want to
Speaker 3: avoid a trifecta of earnings day misery if you want,
Speaker 3: by guiding expectations lower, by making it clear to the
Speaker 3: market that there is no way that they're posting earnings
Speaker 3: of eight dollars per share. It's going to be much
Speaker 3: lower than that, and you're likely seeing that when they
Speaker 3: report numbers on Wednesday.
Speaker 5: Is David Solomon, Goldman's Bob Jaypek, I mean, did Lloyd
Speaker 5: blank Find, you know, win a five year version and
Speaker 5: David Solomon is the loser, or did blank Find set
Speaker 5: Solomon up for this? Was it blank Find's you know
Speaker 5: plans that sent Goldman into the I don't know if
Speaker 5: it's a tailspin, but into the situation that it's in.
Speaker 3: So your first question, I'll ask you, is Bob Chapek
Speaker 3: a DJ and a kite surfer? I think not, So
Speaker 3: there is no comparison there, Matt.
Speaker 5: So, I mean those things are awesome, right, I don't
Speaker 5: know is that is that taking too much of Solomon's
Speaker 5: attention away or is he working on No?
Speaker 3: I think, look, those things stick out, but I think
Speaker 3: it would be unfair to say it's taking too much
Speaker 3: of a attention. Clearly he's focused on the business and
Speaker 3: he wants the business to do well when he took
Speaker 3: over five years ago. And this goes back to your
Speaker 3: other question, the more important question of whether it's blank
Speaker 3: Fine legacy or this is David Solomon's doing. We're five
Speaker 3: years into the tenure of David Solomon. There is very
Speaker 3: little here that you could pin down on Lloyd blank Fine. Now,
Speaker 3: everything that happens at the firm David Solomon over well.
Speaker 5: The consumer facing plans were laid by Blank, fined.
Speaker 3: By Blank, fine, but David Solomon completely embraced it, double
Speaker 3: down on it. At one point said that they would
Speaker 3: be a leader in consumer banking just the way they
Speaker 3: are in investment banking and training. They had to do
Speaker 3: a big about turn on that, and you know what,
Speaker 3: perhaps that's also a sign of good leadership. Acknowledging your mistake,
Speaker 3: not sticking with it out of embarrassment, but willing to say, Okay,
Speaker 3: we've gotten too much heat on this. It's not doing
Speaker 3: what we hoped it would. Let's cut our losses and
Speaker 3: sell a new story.
Speaker 5: And that's what they're trying to sign. A good leadership.
Speaker 5: I mean more leaders should.
Speaker 7: Do that, right.
Speaker 3: Yeah, And they have now committed to a new strategy.
Speaker 3: The good news for them, perhaps is over the last
Speaker 3: five years, the stock never got re rated. They never
Speaker 3: got that higher multiple, which was one of David Solomon's
Speaker 3: goals when he took over as CEO in October twenty eighteen.
Speaker 3: I'll tell you why that's important. Book value at that time,
Speaker 3: whatever it was, has expanded pretty well in the last
Speaker 3: five years because their core businesses of banking and trading
Speaker 3: did so well through the pandemic that allowed access earnings
Speaker 3: to flow into book value, expand their book value, and
Speaker 3: the stock kept pace with that. But what has not
Speaker 3: changed is on day one, David Solomon and his leadership
Speaker 3: team told you told investors to ADL analysts that are
Speaker 3: priced to book multiple. There's no reason why we should
Speaker 3: be at like a one point one multiple to book value.
Speaker 3: It should be much higher multiple. Where are we today?
Speaker 3: We're below one, So clearly that rerating has not happened.
Speaker 3: And that's also where there lies a silver lining for
Speaker 3: Goldman Sachs that in five years of the stock has
Speaker 3: not been re rated. You could argue that there is
Speaker 3: limited downside from here and on the opportunity app and
Speaker 3: if they actually go ahead and finally execute, even if
Speaker 3: it's five years too late, if they actually execute and
Speaker 3: convince markets that they can execute, you will also see
Speaker 3: them to pull expansion.
Speaker 2: What's going on internally, and I bring that up you
Speaker 2: write this in the story. Larry Fink had a black
Speaker 2: Rock TV interview last week here at Bloomberg or I
Speaker 2: don't know if it was ours, maybe something was.
Speaker 3: It was on Fox.
Speaker 2: Sorry, okay, sorry. TV interview last week, he talked about
Speaker 2: a schism within the organization. Is that though something that
Speaker 2: has got to be fixed?
Speaker 3: Is he right? First of all, this a is clearly
Speaker 3: a lot of noise. You know, a lot of the
Speaker 3: people we talked to clearly indicate there is a lot
Speaker 3: of internal squabbling, bickering, complaints about leadership. But that's not
Speaker 3: a story of the last two month. That's the story
Speaker 3: of the last two en off. It is surprising when
Speaker 3: someone as prominent as Larry Fink. That's why it's publicly
Speaker 3: willing to say, Look, it's obvious there is a schism
Speaker 3: within the organization that can never be a good look.
Speaker 3: To be fair, he does go out and say that
Speaker 3: he's supportive of Solomon, thinks he's done a good job,
Speaker 3: thinks he's elevated the firm. But still when we heard
Speaker 3: that comment, when he goes on air and says, it's
Speaker 3: obvious there is a schism in the organization that makes
Speaker 3: you sit up and take notice. And that's what we've
Speaker 3: heard from a lot of executives of the film. They're saying,
Speaker 3: when we're talking to clients, we're actually spending a decent
Speaker 3: junk of our time trying to explain the tensions inside
Speaker 3: Goldman Sachs instead of devoting all our time into discussing business.
Speaker 5: If you said that, they'd start canceling interviews.
Speaker 3: No comment.
Speaker 2: No, it's just kind of interesting, And you know, you
Speaker 2: do wonder did David's oly pick up the phone? Hey, Larry,
Speaker 2: Hey got a problem to be so public and a
Speaker 2: voice like that to come out and say, it's kind
Speaker 2: of interesting.
Speaker 3: We got a run. I'd love to say in Wall
Speaker 3: Street hierarchy, Larry Fingers died a few steps above mister
Speaker 3: David Solomon right.
Speaker 2: Now, I would say so too. All right, Shinatarajan, thank
Speaker 2: you so much, senior finance reporter. Here at Bloomberg.
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Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 2: We've been talking about this the last couple of days, Matt,
Speaker 2: Amazon Prime. Did you do any shopping? I did?
Speaker 3: You can go home and do some shopping.
Speaker 5: No, okay, because I'd already bought like everything the day
Speaker 5: before Prime did you really I don't know if I
Speaker 5: really would have gotten such discounts, such amazing discounts.
Speaker 2: Well, consumer spending six point four billion online in the
Speaker 2: first twenty four hours of Amazon's Prime Day. That's according
Speaker 2: to Adobe, up six percent from a year ago, but
Speaker 2: apparently falling short of estimates. I guess people are hunting
Speaker 2: around for bargains. So we've got a guest on though,
Speaker 2: that has some thoughts on how to trade the event,
Speaker 2: or maybe trade the Amazon story.
Speaker 7: So let's get to it.
Speaker 2: Shaanahara is with US president at pacer ETFs, which has
Speaker 2: twenty five billion dollars in assets under management, on Zoom
Speaker 2: from Pennsylvania. Sean, nice to have you back.
Speaker 1: How are you.
Speaker 8: I'm great, Carl, Thanks for having me. It's nice to
Speaker 8: be here.
Speaker 2: Yeah, nice to have you here. So talk to us
Speaker 2: a little bit about Amazon Prime Day. And you guys
Speaker 2: have two ets specifically that you think are great plays
Speaker 2: on kind of the Amazon story.
Speaker 7: Walk us through it. Yeah.
Speaker 8: So we identified a little over five years ago that
Speaker 8: e commerce was going to continue to accelerate in terms
Speaker 8: of adoption and usage, and so we launched an ETP
Speaker 8: that trades that owns the publicly traded real estate names
Speaker 8: that basically provide that mission critical infrastructure that allows for
Speaker 8: us to shop online. So you're thinking about logistics buildings
Speaker 8: and warehouses, and it sounds like a simple concept, you know,
Speaker 8: And when you drive by these big facilities on the highway,
Speaker 8: they look so simple. They look like four big labs
Speaker 8: of concrete with a flat roof and a bunch of
Speaker 8: garage doors, but are actually quite technical, quite a bit
Speaker 8: of technology involved. So we launched i NDS, which is
Speaker 8: sort of a differentiated way to play the e commerce trade,
Speaker 8: particularly for those people who are invested in real estate,
Speaker 8: because there are some potential pitfalls in the real estate market,
Speaker 8: most notably commercial, So shifting your focus to a part
Speaker 8: of the real estate market that has good, solid growth
Speaker 8: ahead of it. We're not going to shop less online.
Speaker 8: It's going to continue. We're still somewhat underbuilt in this area.
Speaker 8: There's a lot of them investment going on, and so
Speaker 8: we think there's pretty good trajectory for that type of
Speaker 8: an investment. So SRVR owns the mission critical real estate
Speaker 8: that makes e commerce in shopping online possible, and then
Speaker 8: last year, we had this idea that we would just
Speaker 8: sort of take that concept and go to the next level,
Speaker 8: which was we wanted to own some of the software
Speaker 8: and logistics names that you know, basically power this process
Speaker 8: because it's very complex to get something that you order
Speaker 8: today online there tomorrow or even later that day, so
Speaker 8: there's a lot of technology involved in that. And then
Speaker 8: we also own sort of the name like GXO Logistics
Speaker 8: or SAP for example, big in that space. And then
Speaker 8: we own you know, the transportation names because there are
Speaker 8: going to be a lot of.
Speaker 2: Them, right a lot of them ups FedEx, Norfolk, CSX, you.
Speaker 8: Know, railroad and air freight. And so it's basically a
Speaker 8: one two punch for e commerce. It's not necessarily buying
Speaker 8: Amazon at its valuation. But if you believe the trend
Speaker 8: is a real trend, which we do, and we think
Speaker 8: we're all going to continue to shop more and more online,
Speaker 8: then this is as as I said, it's a differentiated
Speaker 8: to play it. You can play the real estate side
Speaker 8: of it, or you can play the logistics and transportation.
Speaker 5: Side of it, and you've got decent year to date
Speaker 5: return in SHPP. I think it's up about seventeen percent.
Speaker 5: What's what's ion DS doing in terms of its performance?
Speaker 5: And by the way, how many assets do you have
Speaker 5: in these two ETFs?
Speaker 8: So SHPP is fairly small, it's relatively new. We just
Speaker 8: launched it at i NDS I think is just a
Speaker 8: hair about over two hundred and fifty million, and it's
Speaker 8: outperforming the broad based real estate you know, the ny
Speaker 8: READ Index year to date pretty substantially. Again because when
Speaker 8: you think about real estate, you know there's a lot
Speaker 8: of potential issues out there with commercial and you know,
Speaker 8: one point five trillion dollars worth of debt that has
Speaker 8: to be refinanced and rollover and it's going to be
Speaker 8: rolled over to eye popping numbers for some of these folks.
Speaker 8: And so we're not sure that, you know, we want
Speaker 8: to be positioned there. But if you want to own
Speaker 8: real estate in a portfolio, because it's not correlated on
Speaker 8: real estate that has a good growth story attached to it,
Speaker 8: which is what IONDS does for us.
Speaker 2: Though when it's not just Amazon though right it's just
Speaker 2: everything that we're own e commerce.
Speaker 8: We actually don't own Amazon, but it's.
Speaker 2: The logistical side of all of your commerce.
Speaker 8: It's also supply chain oriented, right, So you know, we
Speaker 8: had a major disruption with COVID and so we kind
Speaker 8: of learned a few lessons around you know, how maybe
Speaker 8: fragile or supply chains were. And so you know, these buildings,
Speaker 8: as I said, they're not just all these big giants,
Speaker 8: they're sort of networks of buildings. They're like you know,
Speaker 8: big giant warehouses that sort of moved the product down
Speaker 8: the chain to that last mile. And so it's just
Speaker 8: a different way to play the e commerce story. If
Speaker 8: you don't want to buy the retailer side of it
Speaker 8: or the Amazon Amazon side of it on publicly trade stops,
Speaker 8: you can own the real estate that empowers that it.
Speaker 8: We call it mission critical real estate can have e
Speaker 8: commerce without these types of buildings.
Speaker 5: So traffic has done the best of this year of
Speaker 5: your ETF t RFK. That's just an AI play, I
Speaker 5: guess right, Well, that's just that's.
Speaker 8: The the sibling story to I n DS. So we
Speaker 8: launched two real estate ETFs that this same time, over
Speaker 8: five years ago, SRVR, which owns the data centers and
Speaker 8: the cell phone towers, because we thought there was a
Speaker 8: big digital revolution going on, and there is, and you
Speaker 8: know now with the advent of AI becoming so prominent,
Speaker 8: it's going to gobble up more and more data. That data,
Speaker 8: so if you think about like streaming AI, the cloud,
Speaker 8: autonomous vehicles, e commerce sort of fits in there as well.
Speaker 8: You have blockchain. All these sort of transformational technologies are
Speaker 8: going to be a big, big part of our economy
Speaker 8: and effect almost every one of us, But none of
Speaker 8: them can happen without that mission critical real estate. The
Speaker 8: data centers in the cell phone towers. We started there
Speaker 8: just like we did with I nds, and then we said, well,
Speaker 8: let's pull all the guts out of the buildings. So
Speaker 8: we both pulled all the software devices, chip makers, everything
Speaker 8: that that makes those component parts of those giant servers
Speaker 8: and all of the networking work, and so that's traffic
Speaker 8: tr FK. So we sort of did the same thing
Speaker 8: we started with the real estate story. We said, e
Speaker 8: commerce is big, and we think data centers are big.
Speaker 8: We think this digital revolution is for real. Let's launch
Speaker 8: two specific real est state based etf that own public
Speaker 8: trade of real estate names. They had success, and then
Speaker 8: what we said was right, Now, let's take it one
Speaker 8: step further. Let's figure out how to make that story
Speaker 8: a second iteration of that potential concept.
Speaker 5: I want to just quickly ask about cows. It's my favorite,
Speaker 5: one of my favorite of all the ETFs. It's the
Speaker 5: cash cows, all right, and it's a mass a ton
Speaker 5: of assets. I think thirteen or fourteen billion dollars in assets. Yeah,
Speaker 5: how do you expect that to play if we go
Speaker 5: into a recession?
Speaker 8: Here, Sean, Well, I think based on valuations, I think
Speaker 8: we would be better positioned than the broad market for sure.
Speaker 8: You know, if we have a recession, you know, the
Speaker 8: broad market earnings will slow, we think, maybe slow more
Speaker 8: than the names that we own, the names that we
Speaker 8: own in cows, even though it's traditional, we say it's value.
Speaker 8: They tend to grow their earnings faster than the broad
Speaker 8: based indexes. So I think we'd be fine there if
Speaker 8: we have a recession. What's interesting about cows is it's,
Speaker 8: you know, again doing what it has been doing, which
Speaker 8: is beating its value benchmark. So far here to make
Speaker 8: the funny story or the good story.
Speaker 2: About only got about ten seconds?
Speaker 7: Go ahead?
Speaker 8: Okay, well, we have a whole series of cows small cap.
Speaker 8: There is calf that one's doing really really well. Right,
Speaker 8: way to investment.
Speaker 2: Where's five seconds? Where's most of the money flowing among
Speaker 2: your funds? Real quickly?
Speaker 8: All across the cows platform.
Speaker 2: Yeah, all right, good stuff, Sean b Wow. Sean O'Hara,
Speaker 2: president of pacer et f's twenty five billion in assets
Speaker 2: under management on Zoom from Pennsylvania, cows Calf with.
Speaker 1: The dead ummac the journal.
Speaker 5: How about you let me drive?
Speaker 1: Oh no, no, no, no, please, going to.
Speaker 5: Drive, honey?
Speaker 1: Please? How do the riding gravel? Let's wat?
Speaker 2: I want to drive.
Speaker 5: It's a good question.
Speaker 1: This is the drive to the Globes dot com for me.
Speaker 3: I think, well, the Brier run.
Speaker 1: Each other down on Bloomberg Radio.
Speaker 2: All right, everybody, eighteen minutes left, just under getting ready
Speaker 2: to wrap up the Wednesday trade stocks around here. I
Speaker 2: do feel like Matt, it's really about the treasury trade
Speaker 2: though today, coming off that inflation print, because you have
Speaker 2: seen in less than a week quite a move down
Speaker 2: when you look at the twos, fives, and tens. Really
Speaker 2: the whole yield curve based on what we were where
Speaker 2: we were like last week.
Speaker 5: Yeah, absolutely, and you're still seeing ninety basis points spread
Speaker 5: between the twos and the tens, so very inverted, but
Speaker 5: you are seeing investors buying bonds across the curve, even
Speaker 5: the twos right now, which are trading at four seventy four,
Speaker 5: so down thirteen basis points.
Speaker 2: All right, So let's see what our drive to the closed.
Speaker 2: Guest has to say back with us, Tony Roth, CIO
Speaker 2: at Wilmington Trust Investment Advisors. It's the investment advisory arm
Speaker 2: of Wilmington Trust and M and T Bank joining us
Speaker 2: on zoom from Philadelphia. Hey, Tony, nice to have you here.
Speaker 2: It is an interesting day, interesting in terms of the
Speaker 2: inflation print. How does it, if at all change You're
Speaker 2: thinking about what the FED does then ultimately how it
Speaker 2: all impacts assets.
Speaker 7: Yeah, guys, good afternoon. Things for having me. It does
Speaker 7: incrementally have an impact because we continue to see I
Speaker 7: think a pretty clear and definitive disinflationary environment, and I
Speaker 7: would describe it as broadly disinflationary. So earlier in the
Speaker 7: cycle we saw, of course the disinflation, if not deflation
Speaker 7: and goods. Then the FEDS focused on the so called supercore,
Speaker 7: which is the area of the inflation complex where the
Speaker 7: wage pressures were thought to be coming through most strongly,
Speaker 7: which is essentially services non including shelter et cetera. There
Speaker 7: we got today a reading of zero in the supercore
Speaker 7: after readings of I think point one point two the
Speaker 7: last couple of months, So clearly we're not seeing wage
Speaker 7: pressures come through and impact companies. And then as the
Speaker 7: FED had brought them out to look at core inflation again,
Speaker 7: we saw areas like used cars and shell alter continued
Speaker 7: away and we've seen significant a millienation there now. And
Speaker 7: so when you put it all together, I guess the
Speaker 7: best way I would frame it is, is it more
Speaker 7: likely that we have one more hike of the cycle
Speaker 7: or three more hikes this cycle? And I think that
Speaker 7: after today's data, I think it's more likely that we
Speaker 7: have one hike left, which is namely the July hike,
Speaker 7: than three hikes, because the inflation is in fact so
Speaker 7: definitively disinflationary and moving quickly towards the fed's target.
Speaker 5: Tony, when do we start seeing damage to the economy
Speaker 5: that freaks people out? I mean not just negative GDP
Speaker 5: growth but job losses. Is that coming or can we
Speaker 5: avoid it?
Speaker 7: Well, that's the sixty four thousand hour question, and it
Speaker 7: all is going to depend I think on the FED,
Speaker 7: namely how strong are the lag and variable effects are
Speaker 7: that are still coming. There are a lot of smart
Speaker 7: folks out there that do think a recession is largely coming,
Speaker 7: because it usually takes up to eighteen months from when
Speaker 7: the FED starts to cycle to when you really see
Speaker 7: those hikes start to bite, and it has been an
Speaker 7: historically steep hiking cycle. But on the other hand, it's
Speaker 7: pretty clear that what the FED is engaged in right
Speaker 7: now is a cycle of insurance hikes because they don't
Speaker 7: want to start and stop. Really now those insurance hikes
Speaker 7: are becoming I think it's increasingly apparent that they're probably unnecessary.
Speaker 7: And so if the FED decides to not hike in November,
Speaker 7: if the FED were to hike every other time, the
Speaker 7: next hike after July would in fact be November. So
Speaker 7: a lot of interviewing data. If that data continues to
Speaker 7: corroborate the narrative around strong disinflation, and on the business
Speaker 7: end of the data, not year over year, but month
Speaker 7: over month, three month annualized, really getting into that two
Speaker 7: percent arena, which I think we're going to be, the
Speaker 7: FED may have a strong case for backing off, particularly
Speaker 7: as the approaching election year next year, where it's not
Speaker 7: going to want to be perceived to be unduly impacting
Speaker 7: the economy and pushing it into recession. So we don't know,
Speaker 7: is the answer. We don't know what the whether or
Speaker 7: not we're going to have that recession, but there's a
Speaker 7: good chance we want.
Speaker 2: But is it smart to be right now having that
Speaker 2: conversation that maybe the Fed's overdoing it since there is
Speaker 2: that twelve to eighteen month lag and I'm assuming that's
Speaker 2: the twelve to eighteen months from the last FED rate increase, right,
Speaker 2: that's still a full year and then some a year
Speaker 2: year and a half, So there is the potential of
Speaker 2: the FED overdoing it.
Speaker 7: Well, the way that we normally think about it is
Speaker 7: from the beginning of the cycle, it takes eighteen months
Speaker 7: before the FED is really able to see the full
Speaker 7: force of its rate increases on the economy. And so
Speaker 7: if you think about the cycle starting in earnest last
Speaker 7: year around mid year, we have until roughly speaking, the
Speaker 7: end of this year until you see the full force
Speaker 7: of the beginning of the rate hikes, and then of
Speaker 7: course you'll see more as time goes on. And so
Speaker 7: if we're already in an area where three month annualized
Speaker 7: inflation has a two handle, and we already can see
Speaker 7: the precedents too much a weaker consumer spending, and specifically,
Speaker 7: we had over three trillion dollars of excess cash and
Speaker 7: consumer balance sheets right after the pandemic. That number has
Speaker 7: been cut down to six hundred thousand as of March
Speaker 7: thirty first, and excuse me, six hundred million as of
Speaker 7: March thirty first, six hundred billion as of March thirty first,
Speaker 7: and it's even lower today. Of course, three or four
Speaker 7: months later is probably you know, two three hundred million,
Speaker 7: So the consumer could be reaching a state of exhaustion
Speaker 7: due to scarce resources, and we're seeing consumer credit start
Speaker 7: to roll over as well. So for all those reasons,
Speaker 7: it's sort of a race to see whether or not
Speaker 7: the economy enters of recession before FED decides to try
Speaker 7: to do something about it and move to less restrictive
Speaker 7: monetary conditions.
Speaker 2: Jamie Diamond already right in The Economist yesterday, releasing an
Speaker 2: interview in the predicting consumers will exhaust their pandemic savings
Speaker 2: by Christmas and warns of much greater threats than recession.
Speaker 2: But that reducing of the balance sheet. So I mean
Speaker 2: that's going to go.
Speaker 7: I think he's right, and I think that he's being conservative,
Speaker 7: and I think that it's likely to happen before them.
Speaker 5: So what happens to markets? I mean, we're looking at
Speaker 5: S and P five hundred at forty five hundred right now,
Speaker 5: it's just the rally continues. Is anything going to stop it?
Speaker 2: Time to go to cash?
Speaker 7: Yeah, so I think that's going to I think that
Speaker 7: when we think about markets, we think about the factors
Speaker 7: that drive markets in the short term. Momentum when you're
Speaker 7: in a scenario like this is always the most powerful factor.
Speaker 7: And so unless there's a trigger or a catalyst to
Speaker 7: reverse the market, I don't think you're going to see
Speaker 7: the momentum of bait. But I do think that you're
Speaker 7: going to see different players in the market perform over
Speaker 7: the course of the summer. You'll see the rally continue
Speaker 7: to broad on out to lower quality names. I think
Speaker 7: that you'll see small small cap start to participate more strongly.
Speaker 7: It has a bit and fits and starts, but we
Speaker 7: really look at it from the beginning of the year,
Speaker 7: it hasn't done that well. And so before we arrive
Speaker 7: at a determination, possibly as early as September, that we're
Speaker 7: going to have a recession. I think that the market
Speaker 7: is going to have room to run within those specific areas.
Speaker 7: But it is a stock keepers market, and I think
Speaker 7: that is important to be very selective and not play
Speaker 7: the broad indices, but find your spots.
Speaker 5: All right.
Speaker 2: Good lad there, hey Tony. Great to check in with you. Tony,
Speaker 2: Robbie's chief investment officer over at will maintain trust on
Speaker 2: zoom from Philadelphia.
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