1 00:00:00,760 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day, we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,520 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,600 --> 00:00:18,400 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:22,800 Speaker 1: at Bloomberg dot com slash podcast. It's going to Ira Jersey, 7 00:00:22,840 --> 00:00:25,720 Speaker 1: Chief US Interest rate Strategist, because you know, we talk 8 00:00:25,760 --> 00:00:28,240 Speaker 1: about earnings, but the reality is we still have to 9 00:00:28,280 --> 00:00:30,880 Speaker 1: talk to Ira Jersey. As much as we want to 10 00:00:30,920 --> 00:00:33,199 Speaker 1: try to avoid talking about the Fed, the Fed is 11 00:00:33,320 --> 00:00:37,199 Speaker 1: moving continues to move this market. So, Ira, what's some 12 00:00:37,240 --> 00:00:39,599 Speaker 1: of the latest work you and your team have been 13 00:00:39,640 --> 00:00:42,520 Speaker 1: doing about kind of what's going on in the treasury market. Again, 14 00:00:42,560 --> 00:00:44,680 Speaker 1: we got a two year four point seven percent to 15 00:00:44,800 --> 00:00:48,440 Speaker 1: ten year three point nine I'm sorry three point nine 16 00:00:48,520 --> 00:00:51,880 Speaker 1: three percent? Wow, what are you guys looking at? Yeah, 17 00:00:51,920 --> 00:00:54,639 Speaker 1: so that three point nine percent on the ten year 18 00:00:54,720 --> 00:00:57,760 Speaker 1: was a pretty important technical level, and you know, even 19 00:00:57,760 --> 00:01:00,200 Speaker 1: though a longer term I'm a bit constructive on the 20 00:01:00,240 --> 00:01:04,039 Speaker 1: long end of the market, there's clearly clearly the market 21 00:01:04,160 --> 00:01:06,840 Speaker 1: is very offered right now and we're likely to see 22 00:01:07,200 --> 00:01:09,560 Speaker 1: UM a break now above four percent and a ten 23 00:01:09,640 --> 00:01:12,440 Speaker 1: year in the near term, so that the next important 24 00:01:12,480 --> 00:01:15,039 Speaker 1: technical level is actually around four and a quarter percent 25 00:01:15,520 --> 00:01:19,160 Speaker 1: on the ten year. And I think there's two things 26 00:01:19,240 --> 00:01:22,040 Speaker 1: driving this number. One is just the idea that inflation 27 00:01:22,160 --> 00:01:24,400 Speaker 1: is going to continue to be a problem. You have 28 00:01:24,920 --> 00:01:27,679 Speaker 1: UM some of the services numbers, like some of the 29 00:01:27,720 --> 00:01:31,600 Speaker 1: manufacturing data PMI data that just came out looking pretty strong. 30 00:01:31,680 --> 00:01:34,479 Speaker 1: You know, the Philadelphia Services Index come out this morning 31 00:01:34,480 --> 00:01:38,039 Speaker 1: and positive territory after being in negative territory, and that 32 00:01:38,040 --> 00:01:42,200 Speaker 1: that tends to follow um excuse me, the services inflation 33 00:01:42,240 --> 00:01:47,720 Speaker 1: tends to follow what some of these services indexes are doing. UM. So, 34 00:01:47,720 --> 00:01:50,320 Speaker 1: so the fact that you have positive Philly fed UM 35 00:01:50,600 --> 00:01:54,160 Speaker 1: Services index going up is you know, suggesting that you're 36 00:01:54,200 --> 00:01:57,320 Speaker 1: not going to get a decline in inflation. And I 37 00:01:57,360 --> 00:01:59,480 Speaker 1: think that's one of the reasons why you're seeing inflation 38 00:01:59,480 --> 00:02:02,000 Speaker 1: expectation today up by five basis points. By the way, 39 00:02:02,040 --> 00:02:05,080 Speaker 1: do we have uh, hey, ken fella, you do we 40 00:02:05,200 --> 00:02:10,799 Speaker 1: have Philadelphia terrestrial radio station? No? No, all right, who 41 00:02:10,800 --> 00:02:15,359 Speaker 1: cares about Philadelphia? Ira Love? Why why does it matter? Philly? 42 00:02:15,400 --> 00:02:17,520 Speaker 1: By the way, I've I've actually listened to eleven three 43 00:02:17,560 --> 00:02:22,000 Speaker 1: zero in Philadelphia. Okay, we love Philadelphia. We love you Philadelphians. 44 00:02:22,680 --> 00:02:26,200 Speaker 1: How important is this? I mean Philadelphia Fed survey versus 45 00:02:26,240 --> 00:02:29,760 Speaker 1: Atlanta versus New York. Are these very regional surveys or 46 00:02:29,800 --> 00:02:33,520 Speaker 1: do they all do national work? Now, those are all 47 00:02:33,680 --> 00:02:37,760 Speaker 1: regional surveys, um. And then they they then they do 48 00:02:37,840 --> 00:02:40,880 Speaker 1: have a national survey for UH for the PMI, and 49 00:02:41,160 --> 00:02:44,040 Speaker 1: obviously the different Fed districts kind of get together and 50 00:02:44,080 --> 00:02:47,040 Speaker 1: create something called the Beige Book. And these are these 51 00:02:47,080 --> 00:02:50,880 Speaker 1: monthly survey data are part of that larger narrative as 52 00:02:50,880 --> 00:02:54,400 Speaker 1: to what's going on in the different Federal Reserve Bank regions. UM. 53 00:02:54,480 --> 00:02:57,400 Speaker 1: But but Philadelphia is is big enough and has enough 54 00:02:57,760 --> 00:03:00,200 Speaker 1: you know, both services and manufacturing that that you know, 55 00:03:00,240 --> 00:03:03,400 Speaker 1: it has over the course of many decades, been at 56 00:03:03,480 --> 00:03:05,320 Speaker 1: least a little bit of a leading indicator, you know, 57 00:03:05,360 --> 00:03:08,000 Speaker 1: sometimes better than others. So you have to take the 58 00:03:08,040 --> 00:03:10,440 Speaker 1: full mosaic and look at all of these data. And 59 00:03:10,480 --> 00:03:12,720 Speaker 1: certainly there's going to be some regions that are doing 60 00:03:13,120 --> 00:03:15,239 Speaker 1: better than others and some that are obviously going to 61 00:03:15,320 --> 00:03:17,640 Speaker 1: be doing worse. UM. You know, we had a significant 62 00:03:17,639 --> 00:03:20,799 Speaker 1: period of time in the intermeding period over the last 63 00:03:20,840 --> 00:03:24,079 Speaker 1: decade in between the two crises, where you know, the 64 00:03:24,440 --> 00:03:26,839 Speaker 1: South and southeast were doing very well, so you had 65 00:03:26,880 --> 00:03:29,760 Speaker 1: like the president of the you know, Dallas FED would 66 00:03:29,760 --> 00:03:32,280 Speaker 1: be very hawkish, whereas everyone else was like, things aren't 67 00:03:32,280 --> 00:03:34,880 Speaker 1: so rosy because California was still doing bad. New York 68 00:03:34,880 --> 00:03:38,720 Speaker 1: and Northeast were doing bad. So you know, Boston, New York, Philadelphia, Um, 69 00:03:39,200 --> 00:03:41,840 Speaker 1: you know, feder reserve presidents were saying, well, we're not 70 00:03:41,880 --> 00:03:45,400 Speaker 1: as optimistic as you are, maybe down in Texas. So 71 00:03:45,400 --> 00:03:47,640 Speaker 1: so again, like the federal Federal Reserve obviously is looking 72 00:03:47,640 --> 00:03:50,480 Speaker 1: at the whole country, but there are certainly regional differences 73 00:03:50,480 --> 00:03:53,200 Speaker 1: and that's and quite frankly, that is one of the 74 00:03:53,240 --> 00:03:57,400 Speaker 1: benefits of having the Federal Reserve system be similar to 75 00:03:57,440 --> 00:04:00,440 Speaker 1: how it is with all of these regions doing their 76 00:04:00,480 --> 00:04:04,080 Speaker 1: own work and trying to determine what's going on within 77 00:04:04,120 --> 00:04:07,040 Speaker 1: their their you know, one of their twelve districts, all right, Ira, 78 00:04:07,160 --> 00:04:09,720 Speaker 1: So what's the market telling us now in terms of 79 00:04:09,720 --> 00:04:11,520 Speaker 1: what this FED is going to do over the remainder 80 00:04:11,600 --> 00:04:13,320 Speaker 1: of this year? Is it? Because I think at one 81 00:04:13,320 --> 00:04:16,520 Speaker 1: point we're seeing twenty five bases points maybe a second 82 00:04:16,520 --> 00:04:18,560 Speaker 1: twenty five bases point than a pause and maybe even 83 00:04:18,560 --> 00:04:21,960 Speaker 1: cutting rates later in the year. Is where are we now? Yeah, 84 00:04:21,960 --> 00:04:24,680 Speaker 1: so now we're still three twenty five bases point hikes 85 00:04:24,720 --> 00:04:28,520 Speaker 1: now is more or less what's priced, Um, some small 86 00:04:28,600 --> 00:04:30,680 Speaker 1: chance of a fifty basis point in there for the 87 00:04:30,760 --> 00:04:33,080 Speaker 1: for the March meeting. I think that they're going to 88 00:04:33,120 --> 00:04:35,520 Speaker 1: be in in doing twenty fives. Now the question is 89 00:04:35,520 --> 00:04:37,640 Speaker 1: how many more twenty five bases point hikes and do 90 00:04:37,680 --> 00:04:40,400 Speaker 1: they get you know, towards six percent. I don't think 91 00:04:40,400 --> 00:04:42,640 Speaker 1: that they'll get there, but then again, you know, some 92 00:04:42,760 --> 00:04:47,200 Speaker 1: of this data is just is as surprisingly strong, so 93 00:04:47,400 --> 00:04:50,640 Speaker 1: you can't completely discount the possibility. So the market is 94 00:04:50,680 --> 00:04:53,040 Speaker 1: thinking now five and a half percent on the upper 95 00:04:53,080 --> 00:04:56,440 Speaker 1: bound for the Fed funds rate and then still some 96 00:04:56,880 --> 00:04:59,200 Speaker 1: pretty high chance of a cut before the end of 97 00:04:59,240 --> 00:05:01,320 Speaker 1: the year. And I still think that that's what the 98 00:05:01,360 --> 00:05:04,760 Speaker 1: market's mispricing. It's not necessarily mispricing five and a quarter 99 00:05:04,800 --> 00:05:06,520 Speaker 1: or five and a half. It's more that you know, 100 00:05:06,600 --> 00:05:09,560 Speaker 1: we're we're pricing for for cuts before year end, which 101 00:05:09,600 --> 00:05:12,720 Speaker 1: which I think is very unlikely. I just heard um 102 00:05:12,760 --> 00:05:18,000 Speaker 1: somebody may not be buying Liverpool and we're still we 103 00:05:18,080 --> 00:05:20,359 Speaker 1: still care about Manu. In fact, Paul, did you know 104 00:05:20,440 --> 00:05:25,120 Speaker 1: MANU Manchester United the soccer team. It's US listed and traded. Yes, 105 00:05:28,080 --> 00:05:31,520 Speaker 1: it sounds like for a reindeer, like an Inuit name. 106 00:05:31,520 --> 00:05:35,719 Speaker 1: But anyway, man you why uh? Oh, Well they have 107 00:05:35,720 --> 00:05:39,320 Speaker 1: an American owner, um so, and they went and they 108 00:05:39,320 --> 00:05:41,720 Speaker 1: went public. They're actually for sale according to a lot 109 00:05:41,760 --> 00:05:45,800 Speaker 1: of reporting being done actually on by Bloomberg in the sports, 110 00:05:46,080 --> 00:05:49,400 Speaker 1: like a six billion dollars sale. Yeah. So it's it's 111 00:05:49,440 --> 00:05:51,880 Speaker 1: a reasonably big company, right, it's a global brand, um 112 00:05:51,920 --> 00:05:53,960 Speaker 1: and they're playing in a cup final this coming week. 113 00:05:54,000 --> 00:05:56,000 Speaker 1: So before Paul asked me what I'm watching this weekend, 114 00:05:55,960 --> 00:05:59,880 Speaker 1: it is Manchester United versus Newcastle a currently middle e 115 00:06:01,480 --> 00:06:05,000 Speaker 1: cloud versus a likely to be cloud going to be 116 00:06:05,080 --> 00:06:07,599 Speaker 1: playing in a cup final and in English and English. Yeah, 117 00:06:07,720 --> 00:06:10,440 Speaker 1: exact stuff all right, Ira, great stuff as always, Ira Jersey. 118 00:06:10,640 --> 00:06:13,960 Speaker 1: He's our chief US interest rate strategist for Bloomberg Intelligence. 119 00:06:14,360 --> 00:06:22,839 Speaker 1: Also a avid soccer fan. Deepot reported some numbers forecast 120 00:06:22,880 --> 00:06:26,200 Speaker 1: a little disappointing stocks off about let's call it five 121 00:06:26,320 --> 00:06:29,120 Speaker 1: percent here, three hundred dollars a share. This is a 122 00:06:29,160 --> 00:06:33,000 Speaker 1: company with a three hundred billion dollars market cap. Let's 123 00:06:33,000 --> 00:06:35,080 Speaker 1: break it down with Drew Reading. He covers the stock 124 00:06:35,120 --> 00:06:38,520 Speaker 1: for Bloomberg Intelligence. He's research annalists over there. Hey, Drew, 125 00:06:38,600 --> 00:06:40,680 Speaker 1: talk to us about HD. I mean what I was 126 00:06:40,720 --> 00:06:44,280 Speaker 1: in an HD store a couple of weeks ago. Packed. Um, 127 00:06:44,480 --> 00:06:46,839 Speaker 1: I don't know. Seems like people are still buying wood 128 00:06:46,839 --> 00:06:48,880 Speaker 1: and nails and hammers and stuff, doing that do it 129 00:06:48,920 --> 00:06:52,240 Speaker 1: yourself thing. What's going on? Yeah, I mean home Depot 130 00:06:52,279 --> 00:06:55,560 Speaker 1: has been really resilient. If you look over the last 131 00:06:55,600 --> 00:06:58,080 Speaker 1: couple of years, they've grown sales over forty percent. They've 132 00:06:58,120 --> 00:07:01,120 Speaker 1: added about fifty billion dollars in sales over the last 133 00:07:01,120 --> 00:07:03,640 Speaker 1: three years. But we're in a little bit of a 134 00:07:03,640 --> 00:07:06,159 Speaker 1: different environment now where we're starting to see some more 135 00:07:06,200 --> 00:07:09,000 Speaker 1: stress on the consumer. And I think that's what their 136 00:07:09,000 --> 00:07:11,440 Speaker 1: guidance really hint at. It's that there's going to be 137 00:07:11,480 --> 00:07:15,120 Speaker 1: some spending pullback among consumers who've got a weaker housing market, 138 00:07:15,680 --> 00:07:18,760 Speaker 1: You've got some anxiety over where home prices are heading. 139 00:07:19,160 --> 00:07:20,480 Speaker 1: And then at the same time, if you put on 140 00:07:20,560 --> 00:07:22,480 Speaker 1: top of that, they're going to have some margin contraction 141 00:07:22,520 --> 00:07:26,880 Speaker 1: because of investments they're making to their hourly employees. So 142 00:07:26,920 --> 00:07:31,880 Speaker 1: that's what's weighing on the stock today. And they've underperformed 143 00:07:31,920 --> 00:07:33,880 Speaker 1: this year as well. You know, while the rest of 144 00:07:33,960 --> 00:07:37,040 Speaker 1: us have been rallying, home Depot is little changed with 145 00:07:37,120 --> 00:07:42,040 Speaker 1: today's dropped their down five percent year to date. Do 146 00:07:42,200 --> 00:07:45,320 Speaker 1: investors not like the home depost story as is it 147 00:07:45,360 --> 00:07:49,000 Speaker 1: not kind of techy enough? Did it not do as 148 00:07:49,080 --> 00:07:53,360 Speaker 1: badly last year as the other winners this year? Yes, 149 00:07:53,440 --> 00:07:56,720 Speaker 1: so they're actually up about twenty five percent since September, 150 00:07:56,760 --> 00:07:58,640 Speaker 1: so they've had a nice rally. But I think what 151 00:07:59,080 --> 00:08:01,760 Speaker 1: we're seeing now, and you know, this is kind of 152 00:08:01,760 --> 00:08:03,760 Speaker 1: how I'm thinking about the guide is they haven't really 153 00:08:03,840 --> 00:08:07,280 Speaker 1: de risked twenty twenty three fully, and I think that's 154 00:08:07,360 --> 00:08:10,600 Speaker 1: something investors are concerned about. When we were thinking about 155 00:08:10,600 --> 00:08:14,080 Speaker 1: the market next year home improvement broadly, we were looking 156 00:08:14,080 --> 00:08:17,240 Speaker 1: at the market being down about mid single digits, home 157 00:08:17,280 --> 00:08:21,240 Speaker 1: Depot outperforming, maybe down two to three percent. Their guidance 158 00:08:21,280 --> 00:08:24,360 Speaker 1: suggest that the broader market for home improvement will be 159 00:08:24,400 --> 00:08:27,000 Speaker 1: down about only one to two percent call it, and 160 00:08:27,000 --> 00:08:29,440 Speaker 1: they'll be about flat. So I think there's still some 161 00:08:29,480 --> 00:08:31,760 Speaker 1: concern out there in the market that there is room 162 00:08:31,840 --> 00:08:34,199 Speaker 1: for four things to deteriorate a little bit more than 163 00:08:34,240 --> 00:08:38,959 Speaker 1: what they're indicating. They also called out some compensation issues. 164 00:08:38,960 --> 00:08:41,520 Speaker 1: They're going to pay people more, you know, the smart 165 00:08:41,520 --> 00:08:43,320 Speaker 1: people that help you out in the aisles and tell 166 00:08:43,360 --> 00:08:45,200 Speaker 1: you where to find stuff, because they're going to pay 167 00:08:45,200 --> 00:08:48,040 Speaker 1: them more. Right, Yeah, that's what the investment is in. 168 00:08:48,120 --> 00:08:50,960 Speaker 1: It's really in that customer service aspect, something Home Depot 169 00:08:50,960 --> 00:08:53,280 Speaker 1: has been well known for. So they're going to invest 170 00:08:53,320 --> 00:08:56,960 Speaker 1: in additional one billion dollars in their hourly employees over 171 00:08:57,000 --> 00:08:59,120 Speaker 1: the next year. That's going to contribute to about a 172 00:08:59,200 --> 00:09:03,760 Speaker 1: sixty base this point contraction in operating margin. And you know, 173 00:09:03,880 --> 00:09:06,880 Speaker 1: it was a little surprising just because they've made so 174 00:09:06,920 --> 00:09:10,960 Speaker 1: many investments over the last years with their employees through COVID. 175 00:09:11,040 --> 00:09:13,360 Speaker 1: But I think it really just highlights, you know, the 176 00:09:13,400 --> 00:09:16,040 Speaker 1: tight labor market that's out there and how difficult it 177 00:09:16,200 --> 00:09:19,560 Speaker 1: is to attract employees and also to retain the ones 178 00:09:19,559 --> 00:09:22,480 Speaker 1: that they already have. So I put up the comp screen. 179 00:09:22,679 --> 00:09:25,400 Speaker 1: I always like to look at just a five year 180 00:09:25,880 --> 00:09:30,439 Speaker 1: shot of any company. Home Depot is over the last 181 00:09:30,559 --> 00:09:35,079 Speaker 1: five years up total return eighty five percent, so not bad. 182 00:09:35,200 --> 00:09:39,080 Speaker 1: That's better than the S ANDP total return sixty three percent, 183 00:09:39,480 --> 00:09:42,400 Speaker 1: and it's they're both better than Lows, which is only 184 00:09:42,480 --> 00:09:45,640 Speaker 1: up twenty five percent over the past five years. Why 185 00:09:45,720 --> 00:09:48,360 Speaker 1: is Lows such a big underperformer as Home Depot just 186 00:09:48,880 --> 00:09:53,360 Speaker 1: kicking it or is Lows dropping the ball? So when 187 00:09:53,360 --> 00:09:55,280 Speaker 1: I think, I think when you're talking about the comparison 188 00:09:55,320 --> 00:09:57,559 Speaker 1: between two, it probably makes sense to look a little 189 00:09:57,800 --> 00:10:00,720 Speaker 1: bit more near term because Lows has been and some 190 00:10:00,840 --> 00:10:03,240 Speaker 1: of a turnaround story over the last several years. They 191 00:10:03,280 --> 00:10:06,640 Speaker 1: brought in new management, they're re emphasizing the professional customer 192 00:10:07,160 --> 00:10:09,880 Speaker 1: somewhere that they've been underpenetrated, and that's really been one 193 00:10:09,880 --> 00:10:12,240 Speaker 1: of the sources of out performance from a home depot 194 00:10:12,720 --> 00:10:15,839 Speaker 1: versus the Lows. As home depots forty five percent exposure 195 00:10:16,240 --> 00:10:19,640 Speaker 1: to professional customers versus Lows at about twenty five percent. 196 00:10:20,440 --> 00:10:23,080 Speaker 1: At the same time, Lows is starting to reinvest in 197 00:10:23,120 --> 00:10:25,680 Speaker 1: their online business, which is something they've neglected over the 198 00:10:25,720 --> 00:10:28,800 Speaker 1: last several years. So Los is more of a turnaround story. 199 00:10:28,840 --> 00:10:31,720 Speaker 1: They've made some good strides, they're improving their profitability, and 200 00:10:31,720 --> 00:10:34,920 Speaker 1: they've also narrowed that comp gap with Home Depot that 201 00:10:35,040 --> 00:10:37,720 Speaker 1: has been you know, pretty wide over the last several 202 00:10:37,800 --> 00:10:40,800 Speaker 1: years and drew. In addition to home depot, I know 203 00:10:40,840 --> 00:10:43,720 Speaker 1: you cover the housing industry overall. Here we got existing 204 00:10:43,760 --> 00:10:46,960 Speaker 1: home sales came in with a seven percent decline month 205 00:10:46,960 --> 00:10:49,959 Speaker 1: over a month. Consensus was for a two percent increase, 206 00:10:50,040 --> 00:10:54,440 Speaker 1: So rule under performance. There are people not buying homes? 207 00:10:54,440 --> 00:10:56,320 Speaker 1: Are they not listing homes? What's going on in the 208 00:10:56,320 --> 00:10:59,679 Speaker 1: housing market. So the fact that people aren't listing homes 209 00:10:59,840 --> 00:11:03,760 Speaker 1: is is definitely one of the issues. You know, ninety 210 00:11:03,800 --> 00:11:06,720 Speaker 1: two percent of outstanding mortgages have a rate below five 211 00:11:06,720 --> 00:11:08,760 Speaker 1: and a half percent, so there's a lot of distancented 212 00:11:08,840 --> 00:11:10,720 Speaker 1: for people to move, so they're not putting their homes 213 00:11:10,720 --> 00:11:13,480 Speaker 1: on the market. At the same time, unlike what we 214 00:11:13,520 --> 00:11:16,920 Speaker 1: saw in the last downturn, you don't have those forced sellers, 215 00:11:16,920 --> 00:11:19,319 Speaker 1: and that's because people are locked into fixed rate mortgages 216 00:11:19,600 --> 00:11:22,600 Speaker 1: and they don't have the adjustable mortgages. So a big 217 00:11:22,640 --> 00:11:25,360 Speaker 1: part of it is certainly inventory, but let's not ignore 218 00:11:25,360 --> 00:11:28,319 Speaker 1: the fact that affordability is, you know, near the worst 219 00:11:28,360 --> 00:11:32,080 Speaker 1: that it's ever been. We heard some commentary from some 220 00:11:32,120 --> 00:11:34,840 Speaker 1: of the builders recently that as we got into January 221 00:11:34,880 --> 00:11:38,320 Speaker 1: and rates pulled back to just under six percent from 222 00:11:38,320 --> 00:11:41,040 Speaker 1: as highest seven percent in November, that buyers started to 223 00:11:41,040 --> 00:11:44,920 Speaker 1: come back out into the market. So demand was pretty 224 00:11:44,960 --> 00:11:48,400 Speaker 1: strong in January and early February. But at the same time, 225 00:11:48,440 --> 00:11:50,520 Speaker 1: over the last couple of weeks, rates are back up 226 00:11:50,679 --> 00:11:53,920 Speaker 1: eighty basis points, so you know, we're approaching seven percent again. 227 00:11:53,960 --> 00:11:56,400 Speaker 1: So we think just as quickly as demands kind of 228 00:11:56,400 --> 00:11:58,760 Speaker 1: bounced back, you know, we could see things kind of 229 00:11:58,760 --> 00:12:01,120 Speaker 1: fall off in the other direction. Are there any that 230 00:12:01,160 --> 00:12:03,040 Speaker 1: you like better than the rest when you look at 231 00:12:03,160 --> 00:12:09,000 Speaker 1: k Lnar Poult at all the home builders? So I 232 00:12:09,000 --> 00:12:11,000 Speaker 1: think there, you know, there's a couple of different criteria 233 00:12:11,480 --> 00:12:13,920 Speaker 1: that we look at when we think about how we 234 00:12:14,200 --> 00:12:17,920 Speaker 1: look at the builders on a relative thence, in a 235 00:12:17,960 --> 00:12:22,200 Speaker 1: slowing economic environment, we like those with scale because they can, 236 00:12:22,720 --> 00:12:25,160 Speaker 1: you know, leverage the trades more, they could spread their 237 00:12:25,160 --> 00:12:28,480 Speaker 1: costs out, they could push back against their suppliers, So 238 00:12:28,520 --> 00:12:30,440 Speaker 1: those names would be a Dr. Hort and Lenar. And 239 00:12:30,480 --> 00:12:32,640 Speaker 1: then from a product perspective, we like builders who are 240 00:12:32,720 --> 00:12:36,760 Speaker 1: focused more on affordability. We don't care so much what 241 00:12:36,800 --> 00:12:39,560 Speaker 1: they call their segments, whether it's entry level, move up, 242 00:12:39,600 --> 00:12:43,160 Speaker 1: but we want builders who are competing by price with 243 00:12:43,240 --> 00:12:45,640 Speaker 1: the resale market. So some of the names that come 244 00:12:46,400 --> 00:12:51,160 Speaker 1: to mind there again Dr Horton, a KB home LGI. 245 00:12:51,400 --> 00:12:54,320 Speaker 1: Over the longer terms, so Drew just real quickly here. 246 00:12:54,360 --> 00:12:57,280 Speaker 1: I mean, when we think about the new home market 247 00:12:57,320 --> 00:13:00,280 Speaker 1: in that affordability segment, that's been a role on the 248 00:13:00,280 --> 00:13:03,680 Speaker 1: industry that they just haven't built enough affordable and lower 249 00:13:03,800 --> 00:13:06,000 Speaker 1: end or you know, kind of first time buyer units. 250 00:13:06,040 --> 00:13:09,040 Speaker 1: Is that changing in the industry. So it has started 251 00:13:09,040 --> 00:13:11,200 Speaker 1: to change over the last several years. When we were, 252 00:13:11,480 --> 00:13:13,160 Speaker 1: you know, in the early days of the cycle, all 253 00:13:13,160 --> 00:13:15,760 Speaker 1: the emphasis was placed on the move up market because 254 00:13:16,160 --> 00:13:18,280 Speaker 1: that's where the demand was, that's where the margins were. 255 00:13:18,280 --> 00:13:20,080 Speaker 1: But over the last couple of years, we have seen 256 00:13:20,080 --> 00:13:22,679 Speaker 1: a shift towards the lower end of the market because 257 00:13:22,679 --> 00:13:25,679 Speaker 1: from a demographic perspective, that's where the demand is going 258 00:13:25,720 --> 00:13:28,520 Speaker 1: to come from. You know, we think that will continue 259 00:13:28,520 --> 00:13:30,200 Speaker 1: to be the case once we kind of get through 260 00:13:30,720 --> 00:13:33,480 Speaker 1: the down part of this cycle. We do think that 261 00:13:33,520 --> 00:13:36,560 Speaker 1: the lower end of the market will show relative strength. 262 00:13:37,400 --> 00:13:40,320 Speaker 1: All Right, Drew great stuff appreciated as always Drew Reading. 263 00:13:40,320 --> 00:13:42,640 Speaker 1: He's a research channels to Bloomberg Intelligence. He follows the 264 00:13:42,679 --> 00:13:45,880 Speaker 1: housing market and all the industries around that, including the 265 00:13:45,960 --> 00:13:49,800 Speaker 1: do it yourself retailers like home Depot and Lows and 266 00:13:49,920 --> 00:13:53,920 Speaker 1: Home Depot Forecasting lower earnings in part due to some 267 00:13:53,960 --> 00:13:56,840 Speaker 1: concerns about the top line intercessionary environment, but also because 268 00:13:56,840 --> 00:14:00,280 Speaker 1: their wage costs are increasing. It again, home depot was 269 00:14:00,480 --> 00:14:02,959 Speaker 1: half a million people, so yeah, you got to pay 270 00:14:03,000 --> 00:14:08,280 Speaker 1: those folks that are in the aisles. Also joining us 271 00:14:08,320 --> 00:14:11,480 Speaker 1: here in our Bloomberg interactive brooks sho shine, shold shine. 272 00:14:11,559 --> 00:14:13,160 Speaker 1: Let me just let me just give you a definition. 273 00:14:13,160 --> 00:14:16,040 Speaker 1: Shol Schein debt. This is, according to Bloomberg News, is 274 00:14:16,040 --> 00:14:19,160 Speaker 1: a German promissory note syndicated like both loans and bonds 275 00:14:19,440 --> 00:14:22,000 Speaker 1: that can have both fixed and floating rates. It's turning 276 00:14:22,000 --> 00:14:25,840 Speaker 1: into a niche German instrument to increasingly popular funding option 277 00:14:26,040 --> 00:14:28,320 Speaker 1: for big European companies. I learned something new, and I 278 00:14:28,360 --> 00:14:30,800 Speaker 1: say she will know because Amanda Robello just walked in 279 00:14:30,840 --> 00:14:33,800 Speaker 1: the studio. She has head of passive sales US on 280 00:14:33,920 --> 00:14:37,200 Speaker 1: shore but for DWS GROW. So Amanda, talk to us 281 00:14:37,240 --> 00:14:39,520 Speaker 1: about how you're viewing the markets here. We've had a 282 00:14:39,600 --> 00:14:41,200 Speaker 1: kind of a it feels like a little bit of 283 00:14:41,200 --> 00:14:42,960 Speaker 1: a sea change over the past few weeks, maybe in 284 00:14:43,000 --> 00:14:45,040 Speaker 1: response to some economic data that came in maybe a 285 00:14:45,040 --> 00:14:49,120 Speaker 1: little bit hotter than expected and CPI PPI retail sales. 286 00:14:49,440 --> 00:14:52,040 Speaker 1: However you want to look, we at some PMI data today, 287 00:14:52,160 --> 00:14:54,160 Speaker 1: it seems like the Fed maybe has a little bit 288 00:14:54,160 --> 00:14:57,320 Speaker 1: more support for hire for longers that how you guys 289 00:14:57,320 --> 00:15:00,640 Speaker 1: are reading it. Yeah, we think that it's not all 290 00:15:00,720 --> 00:15:03,120 Speaker 1: doom and gloom, but we think it's still worthwhile thinking 291 00:15:03,120 --> 00:15:05,680 Speaker 1: about potential volatility in the market's going forward. I think, 292 00:15:05,720 --> 00:15:09,320 Speaker 1: you know Biden and the trip that everyone's been speaking about, 293 00:15:09,560 --> 00:15:12,080 Speaker 1: He's really thrown the cash among the pigeons. So volatility 294 00:15:12,160 --> 00:15:13,680 Speaker 1: is going to be here for the rest of the year. 295 00:15:14,280 --> 00:15:16,640 Speaker 1: There are some biopportunities though, and we think it makes 296 00:15:16,680 --> 00:15:21,920 Speaker 1: sense to think about burdenhand theory, locking in dividends, having 297 00:15:22,000 --> 00:15:25,440 Speaker 1: less focus on price appreciation of stocks. Really so we've 298 00:15:25,480 --> 00:15:27,400 Speaker 1: actually heard from somebody night you but this was a 299 00:15:27,480 --> 00:15:29,360 Speaker 1: several weeks ago, and it's just stuck with me because 300 00:15:29,360 --> 00:15:33,280 Speaker 1: I simple catchphrases stick with me, Like the decade of 301 00:15:33,320 --> 00:15:36,760 Speaker 1: the dividend. I mean, I don't know, do I go 302 00:15:36,840 --> 00:15:38,480 Speaker 1: out just buy some of these big three, four or 303 00:15:38,480 --> 00:15:41,040 Speaker 1: five percent yielding stocks and then maybe put the rest 304 00:15:41,040 --> 00:15:43,120 Speaker 1: of it a two year treasury, build a four point 305 00:15:43,160 --> 00:15:46,800 Speaker 1: seven percent or you can buy a dividen focus ets Okay, 306 00:15:47,120 --> 00:15:50,000 Speaker 1: to tell me about that? Definitely, So We've got two 307 00:15:50,040 --> 00:15:52,160 Speaker 1: on our side which had been quite interesting in the 308 00:15:52,160 --> 00:15:55,160 Speaker 1: past couple of weeks and months. So the first one SMPD. 309 00:15:56,040 --> 00:15:58,160 Speaker 1: We've spoken in the past with you guys about our 310 00:15:58,400 --> 00:16:01,560 Speaker 1: ESG SMP five hundred fun this is now an ESG 311 00:16:02,400 --> 00:16:07,880 Speaker 1: SMP Dividend Aristocrats fund. The one on there, it's an 312 00:16:07,880 --> 00:16:10,400 Speaker 1: ETF with dividend paying stacks that are also good at 313 00:16:10,560 --> 00:16:14,320 Speaker 1: ESG companies exactly as you get everything in there. And 314 00:16:14,360 --> 00:16:16,720 Speaker 1: the reason why the ESG part here is interesting is 315 00:16:16,760 --> 00:16:19,040 Speaker 1: because ESG is also a very good way to think 316 00:16:19,040 --> 00:16:23,240 Speaker 1: about intangible off balance sheets risks, so that's kind of 317 00:16:23,240 --> 00:16:27,239 Speaker 1: helping with the volatility component. Also, the dividend Aristocrats methodology, 318 00:16:27,240 --> 00:16:29,200 Speaker 1: I think a lot of investors are familiar with. This 319 00:16:29,280 --> 00:16:33,160 Speaker 1: is about quality, sustainable dividends, so not just names which 320 00:16:33,160 --> 00:16:35,240 Speaker 1: are going to pay out four five percent, but then 321 00:16:35,560 --> 00:16:40,160 Speaker 1: not investing CAPEX, for example, So that's an interesting side 322 00:16:40,200 --> 00:16:42,240 Speaker 1: from that perspective. And the fund is yielding about five 323 00:16:42,640 --> 00:16:47,200 Speaker 1: fifty basis points sorry, more than just SMP alone, but 324 00:16:47,320 --> 00:16:50,000 Speaker 1: international equities as well also quite interesting as well, So 325 00:16:50,040 --> 00:16:52,880 Speaker 1: these typically yield more than US equities, so thinking about 326 00:16:52,880 --> 00:16:55,840 Speaker 1: more diversification in the portfolio and now you can be 327 00:16:55,920 --> 00:16:59,080 Speaker 1: yielding as much as five point two five percent. Are 328 00:16:59,120 --> 00:17:02,440 Speaker 1: we in an age where I mean you say ESG 329 00:17:03,120 --> 00:17:09,000 Speaker 1: and it makes me think of you know, climate change, 330 00:17:09,119 --> 00:17:11,879 Speaker 1: global warming. We're against that sort of thing, right, But 331 00:17:11,920 --> 00:17:15,720 Speaker 1: this dividend holds x on Mobile. Yeah, this dividend holds 332 00:17:15,760 --> 00:17:19,399 Speaker 1: Coca Cola. Yeah. Um, can you just put anything you 333 00:17:19,440 --> 00:17:22,439 Speaker 1: want in an EESG ETF as long as you call 334 00:17:22,480 --> 00:17:24,959 Speaker 1: it ESG, it's a better seller because those things are 335 00:17:25,000 --> 00:17:29,280 Speaker 1: not good for like humanity or the environment. You're equating 336 00:17:29,320 --> 00:17:31,920 Speaker 1: Coca Cola with big energy. Well, no Coca I mean, 337 00:17:32,240 --> 00:17:36,960 Speaker 1: I would say even executives there would have to acknowledge 338 00:17:37,600 --> 00:17:42,400 Speaker 1: a huge part of giving people diabetes globally, right, and 339 00:17:43,320 --> 00:17:45,760 Speaker 1: x on Mobile I don't even have to explain that one. 340 00:17:45,840 --> 00:17:48,520 Speaker 1: We all know that doesn't sound like an ESG name. 341 00:17:48,800 --> 00:17:51,520 Speaker 1: So um, sad but true that you know, maybe Coca 342 00:17:51,560 --> 00:17:55,240 Speaker 1: Cola is added to the obest crisis an xomobile. Maybe 343 00:17:55,359 --> 00:17:59,120 Speaker 1: it's a good thing. But going on this rabbit hole, 344 00:17:59,359 --> 00:18:01,639 Speaker 1: it's the The thing is, though, it's about which of 345 00:18:01,680 --> 00:18:05,800 Speaker 1: the companies which also have most scope for CAPEX in diversifying. 346 00:18:05,880 --> 00:18:08,680 Speaker 1: So Coca Cola, for example, is included because there isn't 347 00:18:08,680 --> 00:18:11,360 Speaker 1: a great deal of capex, which is in like diversifying 348 00:18:11,359 --> 00:18:14,200 Speaker 1: their revenue streams to things like water and health drinks 349 00:18:14,200 --> 00:18:17,359 Speaker 1: and so forth, health products as well. Then on the 350 00:18:17,520 --> 00:18:19,600 Speaker 1: health drinks are for the most part packed with sugar 351 00:18:20,359 --> 00:18:23,879 Speaker 1: and a spossible consumption is just fine. Yeah, And do 352 00:18:23,880 --> 00:18:28,800 Speaker 1: you think a large part of Americans are responsibly? So 353 00:18:29,000 --> 00:18:33,399 Speaker 1: all right, So, Amanda, give us another sense of where 354 00:18:33,440 --> 00:18:36,359 Speaker 1: you're seeing flows right now. I mean, I kind of 355 00:18:36,359 --> 00:18:39,680 Speaker 1: feel like ESG has peaked in terms of interest level. 356 00:18:39,720 --> 00:18:41,440 Speaker 1: I don't know if that's right or wrong. Maybe that's 357 00:18:41,440 --> 00:18:43,879 Speaker 1: just here in the US. I know it's still probably 358 00:18:43,920 --> 00:18:46,119 Speaker 1: a little bit more popular in Europe. Give us a 359 00:18:46,160 --> 00:18:47,920 Speaker 1: sense of where you're seeing flows right now. So we've 360 00:18:47,960 --> 00:18:50,240 Speaker 1: been seeing a lot of flows going into China, especially 361 00:18:51,000 --> 00:18:55,480 Speaker 1: ahead or when we saw the reopening of society, seeing 362 00:18:55,720 --> 00:18:58,080 Speaker 1: higher consumer spending again just because people are out and 363 00:18:58,119 --> 00:19:01,040 Speaker 1: about at the end of the day. Offend Asher has 364 00:19:01,040 --> 00:19:03,560 Speaker 1: been quite popular because it's tracking the local index, so 365 00:19:03,680 --> 00:19:06,320 Speaker 1: the equivalent of the SMP five hundred for China, which 366 00:19:06,359 --> 00:19:10,200 Speaker 1: is the CSI three hundred. And we've also seen as 367 00:19:10,240 --> 00:19:13,480 Speaker 1: well a lot of interest in this international dividend plan 368 00:19:13,560 --> 00:19:16,920 Speaker 1: that I spoke about before HDF that's been driven very 369 00:19:17,000 --> 00:19:20,280 Speaker 1: much by just thinking about the hurdle rate that investors 370 00:19:20,320 --> 00:19:23,399 Speaker 1: need to overcome versus the risk free rate at the moment, 371 00:19:23,720 --> 00:19:27,720 Speaker 1: and international dividend focus strategies are definitely providing an opportunity there. 372 00:19:28,560 --> 00:19:31,639 Speaker 1: What are just ETF funds in general? What have the 373 00:19:31,680 --> 00:19:33,440 Speaker 1: flow has been like? Last year was such a bad 374 00:19:33,520 --> 00:19:36,800 Speaker 1: year for investors equity Fixingcome, there's no place to hide 375 00:19:36,800 --> 00:19:40,159 Speaker 1: in your sixty forty portfolio. Kind of great year for 376 00:19:40,200 --> 00:19:43,080 Speaker 1: ETF launches though, great year for ETF launcher. So tell 377 00:19:43,119 --> 00:19:46,560 Speaker 1: us about how the ETF market kind of behaved or 378 00:19:46,600 --> 00:19:49,280 Speaker 1: evolved in last year going into this year. Yeah, so 379 00:19:49,359 --> 00:19:51,400 Speaker 1: last year and we already start to see the trend 380 00:19:51,440 --> 00:19:53,320 Speaker 1: as well this year. I think on the ETF side 381 00:19:53,320 --> 00:19:56,200 Speaker 1: that continues to be a lot of innovation, much easier 382 00:19:56,200 --> 00:19:59,000 Speaker 1: to bring funds to market then on the mutual funds side, 383 00:19:59,320 --> 00:20:01,760 Speaker 1: and just because you don't have investors looking for the 384 00:20:01,760 --> 00:20:03,720 Speaker 1: three year track record, they can kind of buy them 385 00:20:03,720 --> 00:20:06,960 Speaker 1: typically straight away. Then we've seen flows going into some 386 00:20:07,000 --> 00:20:08,600 Speaker 1: of those new products. So we do still see a 387 00:20:08,640 --> 00:20:11,360 Speaker 1: lot of ESG products. But I think you're absolutely right 388 00:20:11,400 --> 00:20:15,439 Speaker 1: that maybe there's been more focus on risk management and 389 00:20:15,480 --> 00:20:18,240 Speaker 1: things that we're more familiar with. So what's been interesting 390 00:20:18,320 --> 00:20:20,760 Speaker 1: is you've actually seen some value come back as well, 391 00:20:20,880 --> 00:20:23,720 Speaker 1: So we've seen a lot of the value ETF to 392 00:20:23,760 --> 00:20:27,080 Speaker 1: start to attract assets. Also short duration as well, so 393 00:20:27,160 --> 00:20:29,480 Speaker 1: just in light of the uncertainty, cash plus kind of 394 00:20:29,520 --> 00:20:32,000 Speaker 1: products as well, they're doing very well too, short duration 395 00:20:32,880 --> 00:20:35,600 Speaker 1: treasury focus funds. And then on the flip side of that, 396 00:20:35,640 --> 00:20:38,240 Speaker 1: we've seen high yield, but high yield that's very considered. 397 00:20:38,280 --> 00:20:40,199 Speaker 1: So just thinking about the boost that you get in 398 00:20:40,240 --> 00:20:46,640 Speaker 1: the yield, investors advisors being paid for adding risk the portfolios. 399 00:20:46,840 --> 00:20:50,679 Speaker 1: High yield is actually not as terrible as historically. The 400 00:20:50,800 --> 00:20:53,200 Speaker 1: corporate default rate is actually pretty low at the moment 401 00:20:53,280 --> 00:20:56,359 Speaker 1: versus historically, so high yield is providing opportunities to But 402 00:20:56,480 --> 00:20:59,720 Speaker 1: in general, do you see inflows continuing, do you see 403 00:20:59,800 --> 00:21:03,720 Speaker 1: more or you know, mutual fund conversions, more launches, just 404 00:21:03,840 --> 00:21:07,960 Speaker 1: the ETF industry growing further in twenty twenty three, definitely, 405 00:21:07,960 --> 00:21:10,520 Speaker 1: and I think that uncertainty in the market the ETF 406 00:21:10,600 --> 00:21:12,440 Speaker 1: is definitely adding a lot of value. On the active side, 407 00:21:12,440 --> 00:21:15,439 Speaker 1: the transparency that suffered is really invaluable to investors at 408 00:21:15,480 --> 00:21:17,320 Speaker 1: the moment. They just need to know what's going on. 409 00:21:17,359 --> 00:21:21,560 Speaker 1: I think everyone understands that transparency and low costs, right, 410 00:21:21,600 --> 00:21:24,920 Speaker 1: and that's huge. Exactly ten basis points makes a huge 411 00:21:24,960 --> 00:21:27,640 Speaker 1: difference over a decade when you're suffering a loss. Right, Yes, 412 00:21:27,920 --> 00:21:30,160 Speaker 1: what is the fidelity do of the world? The big 413 00:21:30,200 --> 00:21:32,440 Speaker 1: mutual fund companies are they are they getting into the 414 00:21:32,480 --> 00:21:36,600 Speaker 1: ETF game. So I don't tend to comment to competitors, 415 00:21:36,720 --> 00:21:38,480 Speaker 1: but yeah, they have launched a number of funds, and 416 00:21:38,480 --> 00:21:41,560 Speaker 1: we've also seen a number of other typically active houses 417 00:21:41,600 --> 00:21:43,840 Speaker 1: starting to enter in the ETF space. Let's say. Yeah, 418 00:21:43,840 --> 00:21:47,800 Speaker 1: in general, other companies are getting big into it. Like 419 00:21:48,400 --> 00:21:51,000 Speaker 1: your head hunter is calling you more and more often, 420 00:21:51,840 --> 00:21:54,280 Speaker 1: like Amanda, I've got a lot of job offers for you, 421 00:21:54,440 --> 00:21:57,560 Speaker 1: and you're like, no, I love DWS because it's such 422 00:21:57,600 --> 00:22:01,040 Speaker 1: a great company, right, because I get too about exactly 423 00:22:01,440 --> 00:22:04,320 Speaker 1: all right, So, I mean I just can't what is 424 00:22:04,320 --> 00:22:07,160 Speaker 1: this ETF business goal? Do you think? I mean, maybe 425 00:22:07,240 --> 00:22:09,359 Speaker 1: just give us a sense of the I don't know 426 00:22:09,400 --> 00:22:11,240 Speaker 1: the third party managed money out there, how much is 427 00:22:11,240 --> 00:22:14,040 Speaker 1: ets versus mutual funds and kind of how's that changing? Yeah, 428 00:22:14,040 --> 00:22:16,480 Speaker 1: we're actually expecting the next year the amount of assets 429 00:22:16,480 --> 00:22:19,800 Speaker 1: and ets versus mutual funds is going to take over. 430 00:22:20,000 --> 00:22:22,440 Speaker 1: So at the moment, mutual funds are still slightly ahead, 431 00:22:22,480 --> 00:22:25,560 Speaker 1: but ETFs will take over next year. One of the 432 00:22:25,640 --> 00:22:28,240 Speaker 1: key I think it's really about this cost component and 433 00:22:28,280 --> 00:22:31,720 Speaker 1: also about the transparency as well, but also operationally as well. 434 00:22:31,760 --> 00:22:33,439 Speaker 1: If you think about it, with a mutual fund, you 435 00:22:33,440 --> 00:22:35,320 Speaker 1: don't need to sign up to a transfer agent. If 436 00:22:35,359 --> 00:22:37,280 Speaker 1: you've got access to the exchange, you can just buy 437 00:22:37,320 --> 00:22:39,440 Speaker 1: it that way. It's very easy dealing costs also very 438 00:22:40,200 --> 00:22:42,200 Speaker 1: very cheap as well. When you think about the pricing 439 00:22:42,200 --> 00:22:45,480 Speaker 1: mechanics too, you don't have the swing pricing component where 440 00:22:45,720 --> 00:22:49,479 Speaker 1: existing investors are penalized by new flows or outflows from 441 00:22:49,600 --> 00:22:53,920 Speaker 1: existing investors. So there's also kind of a more fairness, 442 00:22:53,960 --> 00:22:56,840 Speaker 1: so to speak. But I think what clients are looking 443 00:22:56,840 --> 00:22:59,640 Speaker 1: for at the moment in these tough markets is just 444 00:23:00,320 --> 00:23:05,560 Speaker 1: more niche exposures. All right, man, what a story this 445 00:23:05,600 --> 00:23:07,040 Speaker 1: has been over the last Just for me, I've been 446 00:23:07,080 --> 00:23:08,880 Speaker 1: aware of the last ten or fifteen years, but boy, 447 00:23:09,240 --> 00:23:11,640 Speaker 1: the ETF growth has just been extraordinary. If I'm Abigail 448 00:23:11,720 --> 00:23:13,760 Speaker 1: Johnson up at Fidelity, I'm like, oh my good, where's 449 00:23:13,840 --> 00:23:16,639 Speaker 1: my growth coming from? Amanda Rebello, head of Passive Sales 450 00:23:16,720 --> 00:23:19,720 Speaker 1: US on Shore at DWS Group, joining us to give 451 00:23:19,760 --> 00:23:24,320 Speaker 1: us the latest on the ETF space continues to attract assets. 452 00:23:28,080 --> 00:23:30,919 Speaker 1: This is the conversation of the morning. Let's get right 453 00:23:30,960 --> 00:23:34,200 Speaker 1: to it. Chevin Yelticin, dean at the University of Rochester 454 00:23:34,320 --> 00:23:37,359 Speaker 1: Business School, joins us here in our Bloomberg Interactive Brokers studio. 455 00:23:38,080 --> 00:23:43,160 Speaker 1: What a resume. Undergraduate from Wellesley, PhD from Stanford, former 456 00:23:43,200 --> 00:23:46,480 Speaker 1: assistant professor at economics at Cullout School, those good folks 457 00:23:46,520 --> 00:23:51,280 Speaker 1: out in Chicago, president, former professor of economics at Carnegie 458 00:23:51,359 --> 00:23:55,760 Speaker 1: Mellon and now at University of Rochester. So great, great stuff. 459 00:23:55,800 --> 00:23:58,240 Speaker 1: And she is also Turkish, and she has been kind 460 00:23:58,359 --> 00:24:01,240 Speaker 1: enough to share maybe a quick view of kind of 461 00:24:01,280 --> 00:24:04,240 Speaker 1: what's going on in Turkey right now. It's so many difficult, 462 00:24:04,240 --> 00:24:07,879 Speaker 1: difficult times over there with all of the earthquakes. Another 463 00:24:07,960 --> 00:24:10,200 Speaker 1: earthquake just a couple of days ago. Chevin, thanks so 464 00:24:10,320 --> 00:24:12,440 Speaker 1: much for joining us here in studio. I know you're 465 00:24:12,440 --> 00:24:14,680 Speaker 1: gonna be going back to Turkey you mentioned next week. 466 00:24:14,760 --> 00:24:17,120 Speaker 1: Kind of give us an overview of what you're hearing 467 00:24:17,160 --> 00:24:20,960 Speaker 1: from friends and family about. Yes, it's a it's thank 468 00:24:21,000 --> 00:24:23,800 Speaker 1: you for having me. And it's a complete devastation. Really, 469 00:24:24,400 --> 00:24:27,640 Speaker 1: two major earthquakes hit about two weeks ago. As everybody knows. 470 00:24:29,440 --> 00:24:32,119 Speaker 1: What I'm hearing is that the situation on the ground 471 00:24:32,160 --> 00:24:35,920 Speaker 1: is actually much worse than even what the news can depict. 472 00:24:36,920 --> 00:24:42,400 Speaker 1: There's just not very much organized help going to various regions. 473 00:24:42,480 --> 00:24:47,000 Speaker 1: It's spent ten cities. So that's another reason why getting 474 00:24:47,080 --> 00:24:50,280 Speaker 1: kind of that scale of help. You know, we're now 475 00:24:50,320 --> 00:24:54,680 Speaker 1: almost nearing fifty thousand lives lost and a lot more 476 00:24:54,800 --> 00:24:58,680 Speaker 1: to come because not everybody has been identified or rescued, 477 00:24:59,200 --> 00:25:03,280 Speaker 1: and another kid just yesterday in the same region. So 478 00:25:03,320 --> 00:25:06,360 Speaker 1: there's a lot of anxiety, a lot of sadness. Just 479 00:25:07,560 --> 00:25:09,639 Speaker 1: there's a lot of anxiety over whether there's going to 480 00:25:09,680 --> 00:25:13,760 Speaker 1: be more earthquakes on the northern fourth line, and it's 481 00:25:13,800 --> 00:25:16,320 Speaker 1: really the Cold country is in a state of mourning. 482 00:25:16,560 --> 00:25:21,840 Speaker 1: And before we get to you know, any anything else, 483 00:25:22,040 --> 00:25:26,680 Speaker 1: is the economic situation there making it so much more difficult. 484 00:25:26,760 --> 00:25:29,840 Speaker 1: I know, Turkey has had huge inflation problems, they've got 485 00:25:30,400 --> 00:25:34,639 Speaker 1: incredibly high interest rates, and hopefully the international community steps 486 00:25:34,680 --> 00:25:37,159 Speaker 1: in as much as possible, but it's got to be 487 00:25:37,200 --> 00:25:41,160 Speaker 1: more difficult. Yes, absolutely, the economic situation had not been great. 488 00:25:41,840 --> 00:25:44,920 Speaker 1: You know, the Turkish era had deteriorated against the dollar 489 00:25:44,960 --> 00:25:49,320 Speaker 1: and major currency. We talked about the Turkish a lot exactly. 490 00:25:49,600 --> 00:25:52,919 Speaker 1: So the other thing is that the Turkish growth in 491 00:25:52,960 --> 00:25:55,160 Speaker 1: the last sort of fifteen to twenty years has been 492 00:25:55,240 --> 00:25:59,600 Speaker 1: growth by construction, and that's what we're seeing the repercussions 493 00:25:59,640 --> 00:26:02,879 Speaker 1: of because some of these buildings that are relatively brand 494 00:26:02,880 --> 00:26:05,320 Speaker 1: new should not have collapsed, being that we live in 495 00:26:05,320 --> 00:26:09,919 Speaker 1: an earthquake region. And that's because this sort of the 496 00:26:09,960 --> 00:26:15,000 Speaker 1: economic stimulus through construction has led to this overblown investment 497 00:26:15,560 --> 00:26:18,600 Speaker 1: that's not always up to code, that's not always well done, 498 00:26:19,240 --> 00:26:22,760 Speaker 1: lots of amnesties right before elections to be able to 499 00:26:22,760 --> 00:26:26,159 Speaker 1: get the votes. And so it's it's now pressure on 500 00:26:26,200 --> 00:26:29,000 Speaker 1: the government building, do you think, or it's the government 501 00:26:29,160 --> 00:26:31,719 Speaker 1: is just sort of giving a lot of you know, 502 00:26:31,800 --> 00:26:35,600 Speaker 1: basically signing off on a lot of development in areas 503 00:26:35,640 --> 00:26:38,600 Speaker 1: that would be really not a good idea if you 504 00:26:38,680 --> 00:26:42,800 Speaker 1: ask the engineers and everybody else. So let's talk about 505 00:26:44,680 --> 00:26:48,600 Speaker 1: sort of this the fiscal stimulus issue from our point 506 00:26:48,600 --> 00:26:50,159 Speaker 1: of view here in the US and how it's affecting 507 00:26:50,160 --> 00:26:51,760 Speaker 1: the US count I mean, we're obviously We're going to 508 00:26:51,760 --> 00:26:55,840 Speaker 1: continue to cover that disaster, the tragedy there, and hope 509 00:26:55,880 --> 00:26:58,600 Speaker 1: that everyone can help out as much as possible. Here 510 00:26:58,600 --> 00:27:03,040 Speaker 1: in the US, we also had a ton of economic stimulus, 511 00:27:03,160 --> 00:27:06,800 Speaker 1: I mean trillions of dollars obviously from the government, and 512 00:27:06,840 --> 00:27:09,840 Speaker 1: then the FED blew up its balance sheet to like 513 00:27:09,920 --> 00:27:12,919 Speaker 1: nine trillion, and now we're, I guess, dealing with the 514 00:27:12,960 --> 00:27:18,880 Speaker 1: repercussions of that. It looked like a guaranteed recession as 515 00:27:18,880 --> 00:27:21,520 Speaker 1: the FED started to fight inflation and more people now 516 00:27:21,760 --> 00:27:25,320 Speaker 1: are talking optimistically about a soft landing or no landing. 517 00:27:25,480 --> 00:27:28,160 Speaker 1: What's your view. I have been, actually, I've been only 518 00:27:28,200 --> 00:27:31,920 Speaker 1: optimistic part for a long time now because the labor 519 00:27:32,000 --> 00:27:34,520 Speaker 1: market has been very, very strong as we see it, 520 00:27:34,760 --> 00:27:41,679 Speaker 1: and also just businesses finances and liquidity and household finances 521 00:27:41,760 --> 00:27:45,160 Speaker 1: have not been in bad It's that's why I think 522 00:27:45,200 --> 00:27:47,960 Speaker 1: there's just so much been resilience in certain pockets of 523 00:27:48,000 --> 00:27:50,760 Speaker 1: the economy that I was never one of those that 524 00:27:50,960 --> 00:27:53,760 Speaker 1: said that the recession is very likely. The problem though, is, 525 00:27:54,640 --> 00:27:56,679 Speaker 1: you know, obviously the labor market is strong and the 526 00:27:56,720 --> 00:27:59,480 Speaker 1: economy was growing, but if the FED comes in and 527 00:27:59,560 --> 00:28:04,920 Speaker 1: raises raises rates by four hundred and fifty basis points 528 00:28:04,920 --> 00:28:07,159 Speaker 1: in the year and says they're on a path to 529 00:28:07,280 --> 00:28:10,439 Speaker 1: keep going. That's the concern, right, The concern is that, 530 00:28:11,480 --> 00:28:14,119 Speaker 1: you know, when we see mortgages, for example, going up 531 00:28:14,119 --> 00:28:17,560 Speaker 1: to seven percent in the market where houses are already 532 00:28:17,760 --> 00:28:21,240 Speaker 1: not affordable, that just makes it more difficult for the 533 00:28:21,240 --> 00:28:24,399 Speaker 1: economy to keep humming along. Yes, I mean, we're definitely 534 00:28:24,440 --> 00:28:26,960 Speaker 1: seeing that correction in the in the housing market. And 535 00:28:27,080 --> 00:28:30,360 Speaker 1: I think there's a distribution issue as well. You know, 536 00:28:30,480 --> 00:28:35,600 Speaker 1: who's it really affecting it. It's not affecting necessarily kind 537 00:28:35,600 --> 00:28:38,840 Speaker 1: of you know, the better of companies that have some 538 00:28:38,920 --> 00:28:42,720 Speaker 1: liquidity base. It's not really affecting sort of higher income folks. 539 00:28:42,720 --> 00:28:45,480 Speaker 1: But credit has tightened for a lot of small and 540 00:28:45,960 --> 00:28:49,360 Speaker 1: medium businesses and they've already hurting because of the wage 541 00:28:49,360 --> 00:28:52,760 Speaker 1: bill has been going up with that kind of unemployment figure, 542 00:28:53,200 --> 00:28:56,200 Speaker 1: and costs have been going up. Inflation is there. So 543 00:28:56,240 --> 00:28:58,680 Speaker 1: for them, it's less about the recession. It's about the 544 00:28:58,720 --> 00:29:02,400 Speaker 1: cost of doing business, whether it's being able to borrow 545 00:29:02,960 --> 00:29:06,080 Speaker 1: and or being able to kind of pay the wage bill. 546 00:29:06,160 --> 00:29:08,840 Speaker 1: And that's what I worry about. It's really that and 547 00:29:08,880 --> 00:29:12,080 Speaker 1: that feels inflation too, because as small and medium sized 548 00:29:12,120 --> 00:29:17,160 Speaker 1: businesses struggle, they don't present as much competition to bigger businesses, 549 00:29:17,160 --> 00:29:20,320 Speaker 1: and we end up seeing a lot more market power concentrated, 550 00:29:20,760 --> 00:29:24,080 Speaker 1: which means ability to just do a larger markups and 551 00:29:24,080 --> 00:29:26,920 Speaker 1: fuel inflation. Are you concerned that this federal Reserve may 552 00:29:27,200 --> 00:29:30,400 Speaker 1: overdo it maybe too hawks year, because I think even 553 00:29:30,480 --> 00:29:32,080 Speaker 1: as recently as maybe a couple of weeks ago, this 554 00:29:32,120 --> 00:29:34,200 Speaker 1: market was thinking about, Hey, they're going to pause and 555 00:29:34,200 --> 00:29:35,880 Speaker 1: then they're gonna start cutting rates in the back half 556 00:29:35,920 --> 00:29:37,479 Speaker 1: of the year. I'm not sure we think that today. 557 00:29:37,600 --> 00:29:40,960 Speaker 1: But are you concerned that maybe they'll overdo it overtighten. 558 00:29:41,160 --> 00:29:43,880 Speaker 1: I'm not terribly concerned. I think they're going to sort 559 00:29:43,880 --> 00:29:45,920 Speaker 1: of maybe slow down a little bit in the way 560 00:29:45,920 --> 00:29:48,440 Speaker 1: that they raise rates. I mean, the GDP figure came 561 00:29:48,480 --> 00:29:53,760 Speaker 1: on strong. Inflation is down, but it's still relatively high, 562 00:29:53,800 --> 00:29:55,280 Speaker 1: so I don't think they're going to want to take 563 00:29:55,280 --> 00:29:57,240 Speaker 1: their foot off the break. Whether or not they're going 564 00:29:57,280 --> 00:30:00,080 Speaker 1: to really push it too far, I'm not quite sure. 565 00:30:00,120 --> 00:30:02,640 Speaker 1: I think they're really hoping that this time around they 566 00:30:02,640 --> 00:30:05,280 Speaker 1: can souf land the economy. I mean, this seems like 567 00:30:06,040 --> 00:30:09,640 Speaker 1: such an exciting time to study business, you know, or 568 00:30:09,840 --> 00:30:11,720 Speaker 1: to be in your job as the dean of a 569 00:30:11,760 --> 00:30:18,959 Speaker 1: business school. What incredible experiments you have to evaluate, from 570 00:30:19,480 --> 00:30:24,760 Speaker 1: you know, initially quantitative easing to a zero interest rate 571 00:30:24,960 --> 00:30:30,640 Speaker 1: policy to you know, fiscal stimulus that amounts to you know, 572 00:30:30,960 --> 00:30:34,360 Speaker 1: double digit percentages of a GDP in one of the 573 00:30:34,440 --> 00:30:36,960 Speaker 1: largest nations in the world. How exciting is this for 574 00:30:37,000 --> 00:30:39,640 Speaker 1: you and for your students right now? It's extremely exciting. 575 00:30:39,640 --> 00:30:41,640 Speaker 1: There's no shortage. If this is the one time that 576 00:30:41,720 --> 00:30:44,680 Speaker 1: I think, well, I'm not teaching this this year because 577 00:30:44,720 --> 00:30:46,840 Speaker 1: of my dean duties, I wish I was, because I 578 00:30:47,160 --> 00:30:49,960 Speaker 1: really get excited being able to bring all of the 579 00:30:50,000 --> 00:30:54,840 Speaker 1: news into There's no shortage of topics, everything including with 580 00:30:54,880 --> 00:30:58,320 Speaker 1: the COVID and the labor market and supply chain and 581 00:30:58,400 --> 00:31:02,400 Speaker 1: now you know the dead Sea lying obviously the geopolitics. 582 00:31:02,440 --> 00:31:05,480 Speaker 1: It is both a uncertain but from sort of a 583 00:31:05,560 --> 00:31:08,840 Speaker 1: research and business study and economic study time of a 584 00:31:09,000 --> 00:31:13,160 Speaker 1: very exciting phase. What are the students, what are their 585 00:31:13,160 --> 00:31:14,920 Speaker 1: interests right now? Like when I was in business school 586 00:31:14,960 --> 00:31:18,720 Speaker 1: thirty some odd years ago, it was consulting and investment banking. 587 00:31:19,160 --> 00:31:22,560 Speaker 1: Now there's so many other companies recruiting on campus. There's 588 00:31:22,560 --> 00:31:25,719 Speaker 1: so many technology is such a big draft what are 589 00:31:25,760 --> 00:31:28,880 Speaker 1: the interests of these kids today? Do you have altruistic students? 590 00:31:28,920 --> 00:31:31,240 Speaker 1: Because when Paul was in business school, it was about money, 591 00:31:31,280 --> 00:31:34,240 Speaker 1: money and money, that's right, So we do we do. 592 00:31:34,360 --> 00:31:36,719 Speaker 1: There has been a shift and that's been going on, 593 00:31:36,760 --> 00:31:38,920 Speaker 1: I would say for about a decade if not a 594 00:31:38,920 --> 00:31:42,120 Speaker 1: little bit longer, about students wanting to go to kind 595 00:31:42,160 --> 00:31:46,440 Speaker 1: of sustainable, more sort of socially responsible companies. You know, 596 00:31:46,480 --> 00:31:49,160 Speaker 1: they want to take classes in ESG. They want to 597 00:31:49,240 --> 00:31:53,520 Speaker 1: understand sort of what the social and environmental impact and 598 00:31:53,600 --> 00:31:55,600 Speaker 1: as and also sort of you know, what are the 599 00:31:55,640 --> 00:31:58,360 Speaker 1: diversity measures that the companies are employing. So it's not 600 00:31:58,400 --> 00:32:01,880 Speaker 1: all about money. Consulting is still big investment, banking less. 601 00:32:01,880 --> 00:32:05,560 Speaker 1: So I would say the tech industry, especially for schools 602 00:32:05,560 --> 00:32:09,120 Speaker 1: where I've been I've worked at, Yes, we're very tech 603 00:32:09,160 --> 00:32:12,440 Speaker 1: heavy where a STEM, NBA and and you know, and 604 00:32:12,520 --> 00:32:15,280 Speaker 1: so our students are going to the tech industry quite 605 00:32:15,320 --> 00:32:17,440 Speaker 1: a bit with different kinds of roles. You know, they're 606 00:32:17,520 --> 00:32:22,320 Speaker 1: everywhere from marketing analysts to sort of product managers. But 607 00:32:22,800 --> 00:32:25,640 Speaker 1: that happens to be the biggest during the pandemic when 608 00:32:25,680 --> 00:32:27,800 Speaker 1: we had those supply chain issues for you know, a 609 00:32:27,840 --> 00:32:30,120 Speaker 1: couple of years. I said, boy, I shouldn't have skipped 610 00:32:30,160 --> 00:32:32,560 Speaker 1: all those supply chain manager classes. The Duke and or 611 00:32:32,720 --> 00:32:35,880 Speaker 1: played golf and decided not to go, because those folks 612 00:32:35,880 --> 00:32:39,080 Speaker 1: are the ones that were really, you know, the lynchpin 613 00:32:39,120 --> 00:32:42,720 Speaker 1: in this economy. Yes, absolutely, And now I mean whether 614 00:32:42,760 --> 00:32:45,560 Speaker 1: you know, even if we're out of hopefully the acute 615 00:32:45,560 --> 00:32:48,520 Speaker 1: phase of COVID, we're still still seeing the geopolitics play 616 00:32:48,520 --> 00:32:51,400 Speaker 1: in incredible roles. Is there demand or what is the 617 00:32:51,440 --> 00:32:55,080 Speaker 1: demand from international students to come study at the schools 618 00:32:55,080 --> 00:32:59,920 Speaker 1: you've been at, so um the biggest group that comes 619 00:33:00,040 --> 00:33:02,120 Speaker 1: so the United States as a single country tends to 620 00:33:02,120 --> 00:33:05,200 Speaker 1: be China. We've been seeing, at least in graduate education 621 00:33:05,240 --> 00:33:08,240 Speaker 1: a decline and applications across the board. In business schools 622 00:33:08,240 --> 00:33:10,760 Speaker 1: at least, there's also some provisions about what kind of 623 00:33:10,800 --> 00:33:13,480 Speaker 1: research they can be involved in because of sort of 624 00:33:13,520 --> 00:33:18,320 Speaker 1: IP concerns, and so we've seen a decline. We're seeing 625 00:33:18,440 --> 00:33:22,479 Speaker 1: some replacement by India, a little bit from Africa, a 626 00:33:22,480 --> 00:33:27,280 Speaker 1: little bit from places like Indonesia and Vietnam. But you 627 00:33:27,320 --> 00:33:30,880 Speaker 1: know the scale of China is so big, it's all yes, impossible. Well, 628 00:33:30,920 --> 00:33:34,480 Speaker 1: and what amazes me is I think it's great that 629 00:33:34,560 --> 00:33:37,360 Speaker 1: you have that kind of diversity. It's helpful to the 630 00:33:37,440 --> 00:33:41,520 Speaker 1: other students, it's helpful for academia, and you know, the 631 00:33:41,600 --> 00:33:46,000 Speaker 1: quest for more knowledge. What to me is insane is 632 00:33:46,040 --> 00:33:50,840 Speaker 1: that we give these international students the best education on 633 00:33:50,960 --> 00:33:53,720 Speaker 1: earth and then send them back to their countries and 634 00:33:53,840 --> 00:33:57,400 Speaker 1: don't give them visas to work here. It's like if 635 00:33:57,440 --> 00:34:00,200 Speaker 1: we had, you know, Chinese carpenters coming over and we say, here, 636 00:34:00,200 --> 00:34:02,200 Speaker 1: we'll give you the very best tools we can possive, 637 00:34:02,240 --> 00:34:04,680 Speaker 1: money can possibly buy, and but you can't use them 638 00:34:04,720 --> 00:34:08,320 Speaker 1: in this country. Yes, I I you're you're you're speaking 639 00:34:08,360 --> 00:34:10,520 Speaker 1: to the choiet here. If I could, you know, with 640 00:34:10,600 --> 00:34:13,480 Speaker 1: one hand, sort of change one policy, it would be 641 00:34:13,600 --> 00:34:19,520 Speaker 1: about getting visas for educated folks in the United States 642 00:34:19,600 --> 00:34:22,799 Speaker 1: because it is it is very fraught, um, it is 643 00:34:22,840 --> 00:34:25,560 Speaker 1: a very difficult causes a lot of anxiety, It causes 644 00:34:25,600 --> 00:34:28,440 Speaker 1: a lot of uncertainty, and there's just not you know, 645 00:34:28,440 --> 00:34:30,760 Speaker 1: it's all tied to the job. If they change jobs, 646 00:34:30,760 --> 00:34:33,640 Speaker 1: then they have to go through the process again. It's 647 00:34:33,719 --> 00:34:36,800 Speaker 1: I do not understand, given that we don't have a 648 00:34:37,400 --> 00:34:41,040 Speaker 1: we have an aging population, why we're not giving more 649 00:34:41,160 --> 00:34:44,560 Speaker 1: visas to qualified folks that we have a lot that 650 00:34:44,880 --> 00:34:47,600 Speaker 1: we educate, right, that we educate, but we have invest 651 00:34:47,960 --> 00:34:52,560 Speaker 1: a tremendous amount of resources. Exactly exactly it should come with. 652 00:34:52,680 --> 00:34:55,279 Speaker 1: I feel like the acceptance letter from the University of 653 00:34:55,360 --> 00:34:58,960 Speaker 1: Rochester Business School should also come with like a five 654 00:34:59,080 --> 00:35:03,799 Speaker 1: year working right, because you're prepared. It's only beneficial to 655 00:35:03,840 --> 00:35:06,120 Speaker 1: the US economy if you let them work here. Yes, 656 00:35:06,239 --> 00:35:08,960 Speaker 1: I mean we have stem Stamp programs which gives them 657 00:35:09,000 --> 00:35:11,840 Speaker 1: three years of visa, but I'd like to be able 658 00:35:11,880 --> 00:35:17,399 Speaker 1: to stay pule a green card to their diplomaslutely all right, Chevin, 659 00:35:17,440 --> 00:35:19,799 Speaker 1: thanks so much for joining us. Chevin Yelkin, Dean at 660 00:35:19,800 --> 00:35:23,400 Speaker 1: the University of Rochester Business School, returning to your homeland 661 00:35:23,440 --> 00:35:25,719 Speaker 1: of Turkey next week for a business so hopefully that 662 00:35:25,840 --> 00:35:29,520 Speaker 1: will be positive experience as those folks continue to deal 663 00:35:29,560 --> 00:35:36,160 Speaker 1: with very, very tough conditions. Thanks for listening to the 664 00:35:36,160 --> 00:35:40,120 Speaker 1: Bloomberg Markets podcast. You can subscribe and listen to interviews 665 00:35:40,120 --> 00:35:44,399 Speaker 1: of Apple Podcasts or whatever podcast platform you prefer. I'm 666 00:35:44,440 --> 00:35:48,200 Speaker 1: Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three, 667 00:35:48,640 --> 00:35:51,120 Speaker 1: and I Fall Sweeney I'm on Twitter at pt Sweeney. 668 00:35:51,160 --> 00:35:53,839 Speaker 1: Before the podcast, you can always Catch us worldwide at 669 00:35:53,840 --> 00:35:54,600 Speaker 1: Bloomberg Radio.