Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. It's going to Ira Jersey,
Speaker 1: Chief US Interest rate Strategist, because you know, we talk
Speaker 1: about earnings, but the reality is we still have to
Speaker 1: talk to Ira Jersey. As much as we want to
Speaker 1: try to avoid talking about the Fed, the Fed is
Speaker 1: moving continues to move this market. So, Ira, what's some
Speaker 1: of the latest work you and your team have been
Speaker 1: doing about kind of what's going on in the treasury market. Again,
Speaker 1: we got a two year four point seven percent to
Speaker 1: ten year three point nine I'm sorry three point nine
Speaker 1: three percent? Wow, what are you guys looking at? Yeah,
Speaker 1: so that three point nine percent on the ten year
Speaker 1: was a pretty important technical level, and you know, even
Speaker 1: though a longer term I'm a bit constructive on the
Speaker 1: long end of the market, there's clearly clearly the market
Speaker 1: is very offered right now and we're likely to see
Speaker 1: UM a break now above four percent and a ten
Speaker 1: year in the near term, so that the next important
Speaker 1: technical level is actually around four and a quarter percent
Speaker 1: on the ten year. And I think there's two things
Speaker 1: driving this number. One is just the idea that inflation
Speaker 1: is going to continue to be a problem. You have
Speaker 1: UM some of the services numbers, like some of the
Speaker 1: manufacturing data PMI data that just came out looking pretty strong.
Speaker 1: You know, the Philadelphia Services Index come out this morning
Speaker 1: and positive territory after being in negative territory, and that
Speaker 1: that tends to follow um excuse me, the services inflation
Speaker 1: tends to follow what some of these services indexes are doing. UM. So,
Speaker 1: so the fact that you have positive Philly fed UM
Speaker 1: Services index going up is you know, suggesting that you're
Speaker 1: not going to get a decline in inflation. And I
Speaker 1: think that's one of the reasons why you're seeing inflation
Speaker 1: expectation today up by five basis points. By the way,
Speaker 1: do we have uh, hey, ken fella, you do we
Speaker 1: have Philadelphia terrestrial radio station? No? No, all right, who
Speaker 1: cares about Philadelphia? Ira Love? Why why does it matter? Philly?
Speaker 1: By the way, I've I've actually listened to eleven three
Speaker 1: zero in Philadelphia. Okay, we love Philadelphia. We love you Philadelphians.
Speaker 1: How important is this? I mean Philadelphia Fed survey versus
Speaker 1: Atlanta versus New York. Are these very regional surveys or
Speaker 1: do they all do national work? Now, those are all
Speaker 1: regional surveys, um. And then they they then they do
Speaker 1: have a national survey for UH for the PMI, and
Speaker 1: obviously the different Fed districts kind of get together and
Speaker 1: create something called the Beige Book. And these are these
Speaker 1: monthly survey data are part of that larger narrative as
Speaker 1: to what's going on in the different Federal Reserve Bank regions. UM.
Speaker 1: But but Philadelphia is is big enough and has enough
Speaker 1: you know, both services and manufacturing that that you know,
Speaker 1: it has over the course of many decades, been at
Speaker 1: least a little bit of a leading indicator, you know,
Speaker 1: sometimes better than others. So you have to take the
Speaker 1: full mosaic and look at all of these data. And
Speaker 1: certainly there's going to be some regions that are doing
Speaker 1: better than others and some that are obviously going to
Speaker 1: be doing worse. UM. You know, we had a significant
Speaker 1: period of time in the intermeding period over the last
Speaker 1: decade in between the two crises, where you know, the
Speaker 1: South and southeast were doing very well, so you had
Speaker 1: like the president of the you know, Dallas FED would
Speaker 1: be very hawkish, whereas everyone else was like, things aren't
Speaker 1: so rosy because California was still doing bad. New York
Speaker 1: and Northeast were doing bad. So you know, Boston, New York, Philadelphia, Um,
Speaker 1: you know, feder reserve presidents were saying, well, we're not
Speaker 1: as optimistic as you are, maybe down in Texas. So
Speaker 1: so again, like the federal Federal Reserve obviously is looking
Speaker 1: at the whole country, but there are certainly regional differences
Speaker 1: and that's and quite frankly, that is one of the
Speaker 1: benefits of having the Federal Reserve system be similar to
Speaker 1: how it is with all of these regions doing their
Speaker 1: own work and trying to determine what's going on within
Speaker 1: their their you know, one of their twelve districts, all right, Ira,
Speaker 1: So what's the market telling us now in terms of
Speaker 1: what this FED is going to do over the remainder
Speaker 1: of this year? Is it? Because I think at one
Speaker 1: point we're seeing twenty five bases points maybe a second
Speaker 1: twenty five bases point than a pause and maybe even
Speaker 1: cutting rates later in the year. Is where are we now? Yeah,
Speaker 1: so now we're still three twenty five bases point hikes
Speaker 1: now is more or less what's priced, Um, some small
Speaker 1: chance of a fifty basis point in there for the
Speaker 1: for the March meeting. I think that they're going to
Speaker 1: be in in doing twenty fives. Now the question is
Speaker 1: how many more twenty five bases point hikes and do
Speaker 1: they get you know, towards six percent. I don't think
Speaker 1: that they'll get there, but then again, you know, some
Speaker 1: of this data is just is as surprisingly strong, so
Speaker 1: you can't completely discount the possibility. So the market is
Speaker 1: thinking now five and a half percent on the upper
Speaker 1: bound for the Fed funds rate and then still some
Speaker 1: pretty high chance of a cut before the end of
Speaker 1: the year. And I still think that that's what the
Speaker 1: market's mispricing. It's not necessarily mispricing five and a quarter
Speaker 1: or five and a half. It's more that you know,
Speaker 1: we're we're pricing for for cuts before year end, which
Speaker 1: which I think is very unlikely. I just heard um
Speaker 1: somebody may not be buying Liverpool and we're still we
Speaker 1: still care about Manu. In fact, Paul, did you know
Speaker 1: MANU Manchester United the soccer team. It's US listed and traded. Yes,
Speaker 1: it sounds like for a reindeer, like an Inuit name.
Speaker 1: But anyway, man you why uh? Oh, Well they have
Speaker 1: an American owner, um so, and they went and they
Speaker 1: went public. They're actually for sale according to a lot
Speaker 1: of reporting being done actually on by Bloomberg in the sports,
Speaker 1: like a six billion dollars sale. Yeah. So it's it's
Speaker 1: a reasonably big company, right, it's a global brand, um
Speaker 1: and they're playing in a cup final this coming week.
Speaker 1: So before Paul asked me what I'm watching this weekend,
Speaker 1: it is Manchester United versus Newcastle a currently middle e
Speaker 1: cloud versus a likely to be cloud going to be
Speaker 1: playing in a cup final and in English and English. Yeah,
Speaker 1: exact stuff all right, Ira, great stuff as always, Ira Jersey.
Speaker 1: He's our chief US interest rate strategist for Bloomberg Intelligence.
Speaker 1: Also a avid soccer fan. Deepot reported some numbers forecast
Speaker 1: a little disappointing stocks off about let's call it five
Speaker 1: percent here, three hundred dollars a share. This is a
Speaker 1: company with a three hundred billion dollars market cap. Let's
Speaker 1: break it down with Drew Reading. He covers the stock
Speaker 1: for Bloomberg Intelligence. He's research annalists over there. Hey, Drew,
Speaker 1: talk to us about HD. I mean what I was
Speaker 1: in an HD store a couple of weeks ago. Packed. Um,
Speaker 1: I don't know. Seems like people are still buying wood
Speaker 1: and nails and hammers and stuff, doing that do it
Speaker 1: yourself thing. What's going on? Yeah, I mean home Depot
Speaker 1: has been really resilient. If you look over the last
Speaker 1: couple of years, they've grown sales over forty percent. They've
Speaker 1: added about fifty billion dollars in sales over the last
Speaker 1: three years. But we're in a little bit of a
Speaker 1: different environment now where we're starting to see some more
Speaker 1: stress on the consumer. And I think that's what their
Speaker 1: guidance really hint at. It's that there's going to be
Speaker 1: some spending pullback among consumers who've got a weaker housing market,
Speaker 1: You've got some anxiety over where home prices are heading.
Speaker 1: And then at the same time, if you put on
Speaker 1: top of that, they're going to have some margin contraction
Speaker 1: because of investments they're making to their hourly employees. So
Speaker 1: that's what's weighing on the stock today. And they've underperformed
Speaker 1: this year as well. You know, while the rest of
Speaker 1: us have been rallying, home Depot is little changed with
Speaker 1: today's dropped their down five percent year to date. Do
Speaker 1: investors not like the home depost story as is it
Speaker 1: not kind of techy enough? Did it not do as
Speaker 1: badly last year as the other winners this year? Yes,
Speaker 1: so they're actually up about twenty five percent since September,
Speaker 1: so they've had a nice rally. But I think what
Speaker 1: we're seeing now, and you know, this is kind of
Speaker 1: how I'm thinking about the guide is they haven't really
Speaker 1: de risked twenty twenty three fully, and I think that's
Speaker 1: something investors are concerned about. When we were thinking about
Speaker 1: the market next year home improvement broadly, we were looking
Speaker 1: at the market being down about mid single digits, home
Speaker 1: Depot outperforming, maybe down two to three percent. Their guidance
Speaker 1: suggest that the broader market for home improvement will be
Speaker 1: down about only one to two percent call it, and
Speaker 1: they'll be about flat. So I think there's still some
Speaker 1: concern out there in the market that there is room
Speaker 1: for four things to deteriorate a little bit more than
Speaker 1: what they're indicating. They also called out some compensation issues.
Speaker 1: They're going to pay people more, you know, the smart
Speaker 1: people that help you out in the aisles and tell
Speaker 1: you where to find stuff, because they're going to pay
Speaker 1: them more. Right, Yeah, that's what the investment is in.
Speaker 1: It's really in that customer service aspect, something Home Depot
Speaker 1: has been well known for. So they're going to invest
Speaker 1: in additional one billion dollars in their hourly employees over
Speaker 1: the next year. That's going to contribute to about a
Speaker 1: sixty base this point contraction in operating margin. And you know,
Speaker 1: it was a little surprising just because they've made so
Speaker 1: many investments over the last years with their employees through COVID.
Speaker 1: But I think it really just highlights, you know, the
Speaker 1: tight labor market that's out there and how difficult it
Speaker 1: is to attract employees and also to retain the ones
Speaker 1: that they already have. So I put up the comp screen.
Speaker 1: I always like to look at just a five year
Speaker 1: shot of any company. Home Depot is over the last
Speaker 1: five years up total return eighty five percent, so not bad.
Speaker 1: That's better than the S ANDP total return sixty three percent,
Speaker 1: and it's they're both better than Lows, which is only
Speaker 1: up twenty five percent over the past five years. Why
Speaker 1: is Lows such a big underperformer as Home Depot just
Speaker 1: kicking it or is Lows dropping the ball? So when
Speaker 1: I think, I think when you're talking about the comparison
Speaker 1: between two, it probably makes sense to look a little
Speaker 1: bit more near term because Lows has been and some
Speaker 1: of a turnaround story over the last several years. They
Speaker 1: brought in new management, they're re emphasizing the professional customer
Speaker 1: somewhere that they've been underpenetrated, and that's really been one
Speaker 1: of the sources of out performance from a home depot
Speaker 1: versus the Lows. As home depots forty five percent exposure
Speaker 1: to professional customers versus Lows at about twenty five percent.
Speaker 1: At the same time, Lows is starting to reinvest in
Speaker 1: their online business, which is something they've neglected over the
Speaker 1: last several years. So Los is more of a turnaround story.
Speaker 1: They've made some good strides, they're improving their profitability, and
Speaker 1: they've also narrowed that comp gap with Home Depot that
Speaker 1: has been you know, pretty wide over the last several
Speaker 1: years and drew. In addition to home depot, I know
Speaker 1: you cover the housing industry overall. Here we got existing
Speaker 1: home sales came in with a seven percent decline month
Speaker 1: over a month. Consensus was for a two percent increase,
Speaker 1: So rule under performance. There are people not buying homes?
Speaker 1: Are they not listing homes? What's going on in the
Speaker 1: housing market. So the fact that people aren't listing homes
Speaker 1: is is definitely one of the issues. You know, ninety
Speaker 1: two percent of outstanding mortgages have a rate below five
Speaker 1: and a half percent, so there's a lot of distancented
Speaker 1: for people to move, so they're not putting their homes
Speaker 1: on the market. At the same time, unlike what we
Speaker 1: saw in the last downturn, you don't have those forced sellers,
Speaker 1: and that's because people are locked into fixed rate mortgages
Speaker 1: and they don't have the adjustable mortgages. So a big
Speaker 1: part of it is certainly inventory, but let's not ignore
Speaker 1: the fact that affordability is, you know, near the worst
Speaker 1: that it's ever been. We heard some commentary from some
Speaker 1: of the builders recently that as we got into January
Speaker 1: and rates pulled back to just under six percent from
Speaker 1: as highest seven percent in November, that buyers started to
Speaker 1: come back out into the market. So demand was pretty
Speaker 1: strong in January and early February. But at the same time,
Speaker 1: over the last couple of weeks, rates are back up
Speaker 1: eighty basis points, so you know, we're approaching seven percent again.
Speaker 1: So we think just as quickly as demands kind of
Speaker 1: bounced back, you know, we could see things kind of
Speaker 1: fall off in the other direction. Are there any that
Speaker 1: you like better than the rest when you look at
Speaker 1: k Lnar Poult at all the home builders? So I
Speaker 1: think there, you know, there's a couple of different criteria
Speaker 1: that we look at when we think about how we
Speaker 1: look at the builders on a relative thence, in a
Speaker 1: slowing economic environment, we like those with scale because they can,
Speaker 1: you know, leverage the trades more, they could spread their
Speaker 1: costs out, they could push back against their suppliers, So
Speaker 1: those names would be a Dr. Hort and Lenar. And
Speaker 1: then from a product perspective, we like builders who are
Speaker 1: focused more on affordability. We don't care so much what
Speaker 1: they call their segments, whether it's entry level, move up,
Speaker 1: but we want builders who are competing by price with
Speaker 1: the resale market. So some of the names that come
Speaker 1: to mind there again Dr Horton, a KB home LGI.
Speaker 1: Over the longer terms, so Drew just real quickly here.
Speaker 1: I mean, when we think about the new home market
Speaker 1: in that affordability segment, that's been a role on the
Speaker 1: industry that they just haven't built enough affordable and lower
Speaker 1: end or you know, kind of first time buyer units.
Speaker 1: Is that changing in the industry. So it has started
Speaker 1: to change over the last several years. When we were,
Speaker 1: you know, in the early days of the cycle, all
Speaker 1: the emphasis was placed on the move up market because
Speaker 1: that's where the demand was, that's where the margins were.
Speaker 1: But over the last couple of years, we have seen
Speaker 1: a shift towards the lower end of the market because
Speaker 1: from a demographic perspective, that's where the demand is going
Speaker 1: to come from. You know, we think that will continue
Speaker 1: to be the case once we kind of get through
Speaker 1: the down part of this cycle. We do think that
Speaker 1: the lower end of the market will show relative strength.
Speaker 1: All Right, Drew great stuff appreciated as always Drew Reading.
Speaker 1: He's a research channels to Bloomberg Intelligence. He follows the
Speaker 1: housing market and all the industries around that, including the
Speaker 1: do it yourself retailers like home Depot and Lows and
Speaker 1: Home Depot Forecasting lower earnings in part due to some
Speaker 1: concerns about the top line intercessionary environment, but also because
Speaker 1: their wage costs are increasing. It again, home depot was
Speaker 1: half a million people, so yeah, you got to pay
Speaker 1: those folks that are in the aisles. Also joining us
Speaker 1: here in our Bloomberg interactive brooks sho shine, shold shine.
Speaker 1: Let me just let me just give you a definition.
Speaker 1: Shol Schein debt. This is, according to Bloomberg News, is
Speaker 1: a German promissory note syndicated like both loans and bonds
Speaker 1: that can have both fixed and floating rates. It's turning
Speaker 1: into a niche German instrument to increasingly popular funding option
Speaker 1: for big European companies. I learned something new, and I
Speaker 1: say she will know because Amanda Robello just walked in
Speaker 1: the studio. She has head of passive sales US on
Speaker 1: shore but for DWS GROW. So Amanda, talk to us
Speaker 1: about how you're viewing the markets here. We've had a
Speaker 1: kind of a it feels like a little bit of
Speaker 1: a sea change over the past few weeks, maybe in
Speaker 1: response to some economic data that came in maybe a
Speaker 1: little bit hotter than expected and CPI PPI retail sales.
Speaker 1: However you want to look, we at some PMI data today,
Speaker 1: it seems like the Fed maybe has a little bit
Speaker 1: more support for hire for longers that how you guys
Speaker 1: are reading it. Yeah, we think that it's not all
Speaker 1: doom and gloom, but we think it's still worthwhile thinking
Speaker 1: about potential volatility in the market's going forward. I think,
Speaker 1: you know Biden and the trip that everyone's been speaking about,
Speaker 1: He's really thrown the cash among the pigeons. So volatility
Speaker 1: is going to be here for the rest of the year.
Speaker 1: There are some biopportunities though, and we think it makes
Speaker 1: sense to think about burdenhand theory, locking in dividends, having
Speaker 1: less focus on price appreciation of stocks. Really so we've
Speaker 1: actually heard from somebody night you but this was a
Speaker 1: several weeks ago, and it's just stuck with me because
Speaker 1: I simple catchphrases stick with me, Like the decade of
Speaker 1: the dividend. I mean, I don't know, do I go
Speaker 1: out just buy some of these big three, four or
Speaker 1: five percent yielding stocks and then maybe put the rest
Speaker 1: of it a two year treasury, build a four point
Speaker 1: seven percent or you can buy a dividen focus ets Okay,
Speaker 1: to tell me about that? Definitely, So We've got two
Speaker 1: on our side which had been quite interesting in the
Speaker 1: past couple of weeks and months. So the first one SMPD.
Speaker 1: We've spoken in the past with you guys about our
Speaker 1: ESG SMP five hundred fun this is now an ESG
Speaker 1: SMP Dividend Aristocrats fund. The one on there, it's an
Speaker 1: ETF with dividend paying stacks that are also good at
Speaker 1: ESG companies exactly as you get everything in there. And
Speaker 1: the reason why the ESG part here is interesting is
Speaker 1: because ESG is also a very good way to think
Speaker 1: about intangible off balance sheets risks, so that's kind of
Speaker 1: helping with the volatility component. Also, the dividend Aristocrats methodology,
Speaker 1: I think a lot of investors are familiar with. This
Speaker 1: is about quality, sustainable dividends, so not just names which
Speaker 1: are going to pay out four five percent, but then
Speaker 1: not investing CAPEX, for example, So that's an interesting side
Speaker 1: from that perspective. And the fund is yielding about five
Speaker 1: fifty basis points sorry, more than just SMP alone, but
Speaker 1: international equities as well also quite interesting as well, So
Speaker 1: these typically yield more than US equities, so thinking about
Speaker 1: more diversification in the portfolio and now you can be
Speaker 1: yielding as much as five point two five percent. Are
Speaker 1: we in an age where I mean you say ESG
Speaker 1: and it makes me think of you know, climate change,
Speaker 1: global warming. We're against that sort of thing, right, But
Speaker 1: this dividend holds x on Mobile. Yeah, this dividend holds
Speaker 1: Coca Cola. Yeah. Um, can you just put anything you
Speaker 1: want in an EESG ETF as long as you call
Speaker 1: it ESG, it's a better seller because those things are
Speaker 1: not good for like humanity or the environment. You're equating
Speaker 1: Coca Cola with big energy. Well, no Coca I mean,
Speaker 1: I would say even executives there would have to acknowledge
Speaker 1: a huge part of giving people diabetes globally, right, and
Speaker 1: x on Mobile I don't even have to explain that one.
Speaker 1: We all know that doesn't sound like an ESG name.
Speaker 1: So um, sad but true that you know, maybe Coca
Speaker 1: Cola is added to the obest crisis an xomobile. Maybe
Speaker 1: it's a good thing. But going on this rabbit hole,
Speaker 1: it's the The thing is, though, it's about which of
Speaker 1: the companies which also have most scope for CAPEX in diversifying.
Speaker 1: So Coca Cola, for example, is included because there isn't
Speaker 1: a great deal of capex, which is in like diversifying
Speaker 1: their revenue streams to things like water and health drinks
Speaker 1: and so forth, health products as well. Then on the
Speaker 1: health drinks are for the most part packed with sugar
Speaker 1: and a spossible consumption is just fine. Yeah, And do
Speaker 1: you think a large part of Americans are responsibly? So
Speaker 1: all right, So, Amanda, give us another sense of where
Speaker 1: you're seeing flows right now. I mean, I kind of
Speaker 1: feel like ESG has peaked in terms of interest level.
Speaker 1: I don't know if that's right or wrong. Maybe that's
Speaker 1: just here in the US. I know it's still probably
Speaker 1: a little bit more popular in Europe. Give us a
Speaker 1: sense of where you're seeing flows right now. So we've
Speaker 1: been seeing a lot of flows going into China, especially
Speaker 1: ahead or when we saw the reopening of society, seeing
Speaker 1: higher consumer spending again just because people are out and
Speaker 1: about at the end of the day. Offend Asher has
Speaker 1: been quite popular because it's tracking the local index, so
Speaker 1: the equivalent of the SMP five hundred for China, which
Speaker 1: is the CSI three hundred. And we've also seen as
Speaker 1: well a lot of interest in this international dividend plan
Speaker 1: that I spoke about before HDF that's been driven very
Speaker 1: much by just thinking about the hurdle rate that investors
Speaker 1: need to overcome versus the risk free rate at the moment,
Speaker 1: and international dividend focus strategies are definitely providing an opportunity there.
Speaker 1: What are just ETF funds in general? What have the
Speaker 1: flow has been like? Last year was such a bad
Speaker 1: year for investors equity Fixingcome, there's no place to hide
Speaker 1: in your sixty forty portfolio. Kind of great year for
Speaker 1: ETF launches though, great year for ETF launcher. So tell
Speaker 1: us about how the ETF market kind of behaved or
Speaker 1: evolved in last year going into this year. Yeah, so
Speaker 1: last year and we already start to see the trend
Speaker 1: as well this year. I think on the ETF side
Speaker 1: that continues to be a lot of innovation, much easier
Speaker 1: to bring funds to market then on the mutual funds side,
Speaker 1: and just because you don't have investors looking for the
Speaker 1: three year track record, they can kind of buy them
Speaker 1: typically straight away. Then we've seen flows going into some
Speaker 1: of those new products. So we do still see a
Speaker 1: lot of ESG products. But I think you're absolutely right
Speaker 1: that maybe there's been more focus on risk management and
Speaker 1: things that we're more familiar with. So what's been interesting
Speaker 1: is you've actually seen some value come back as well,
Speaker 1: So we've seen a lot of the value ETF to
Speaker 1: start to attract assets. Also short duration as well, so
Speaker 1: just in light of the uncertainty, cash plus kind of
Speaker 1: products as well, they're doing very well too, short duration
Speaker 1: treasury focus funds. And then on the flip side of that,
Speaker 1: we've seen high yield, but high yield that's very considered.
Speaker 1: So just thinking about the boost that you get in
Speaker 1: the yield, investors advisors being paid for adding risk the portfolios.
Speaker 1: High yield is actually not as terrible as historically. The
Speaker 1: corporate default rate is actually pretty low at the moment
Speaker 1: versus historically, so high yield is providing opportunities to But
Speaker 1: in general, do you see inflows continuing, do you see
Speaker 1: more or you know, mutual fund conversions, more launches, just
Speaker 1: the ETF industry growing further in twenty twenty three, definitely,
Speaker 1: and I think that uncertainty in the market the ETF
Speaker 1: is definitely adding a lot of value. On the active side,
Speaker 1: the transparency that suffered is really invaluable to investors at
Speaker 1: the moment. They just need to know what's going on.
Speaker 1: I think everyone understands that transparency and low costs, right,
Speaker 1: and that's huge. Exactly ten basis points makes a huge
Speaker 1: difference over a decade when you're suffering a loss. Right, Yes,
Speaker 1: what is the fidelity do of the world? The big
Speaker 1: mutual fund companies are they are they getting into the
Speaker 1: ETF game. So I don't tend to comment to competitors,
Speaker 1: but yeah, they have launched a number of funds, and
Speaker 1: we've also seen a number of other typically active houses
Speaker 1: starting to enter in the ETF space. Let's say. Yeah,
Speaker 1: in general, other companies are getting big into it. Like
Speaker 1: your head hunter is calling you more and more often,
Speaker 1: like Amanda, I've got a lot of job offers for you,
Speaker 1: and you're like, no, I love DWS because it's such
Speaker 1: a great company, right, because I get too about exactly
Speaker 1: all right, So, I mean I just can't what is
Speaker 1: this ETF business goal? Do you think? I mean, maybe
Speaker 1: just give us a sense of the I don't know
Speaker 1: the third party managed money out there, how much is
Speaker 1: ets versus mutual funds and kind of how's that changing? Yeah,
Speaker 1: we're actually expecting the next year the amount of assets
Speaker 1: and ets versus mutual funds is going to take over.
Speaker 1: So at the moment, mutual funds are still slightly ahead,
Speaker 1: but ETFs will take over next year. One of the
Speaker 1: key I think it's really about this cost component and
Speaker 1: also about the transparency as well, but also operationally as well.
Speaker 1: If you think about it, with a mutual fund, you
Speaker 1: don't need to sign up to a transfer agent. If
Speaker 1: you've got access to the exchange, you can just buy
Speaker 1: it that way. It's very easy dealing costs also very
Speaker 1: very cheap as well. When you think about the pricing
Speaker 1: mechanics too, you don't have the swing pricing component where
Speaker 1: existing investors are penalized by new flows or outflows from
Speaker 1: existing investors. So there's also kind of a more fairness,
Speaker 1: so to speak. But I think what clients are looking
Speaker 1: for at the moment in these tough markets is just
Speaker 1: more niche exposures. All right, man, what a story this
Speaker 1: has been over the last Just for me, I've been
Speaker 1: aware of the last ten or fifteen years, but boy,
Speaker 1: the ETF growth has just been extraordinary. If I'm Abigail
Speaker 1: Johnson up at Fidelity, I'm like, oh my good, where's
Speaker 1: my growth coming from? Amanda Rebello, head of Passive Sales
Speaker 1: US on Shore at DWS Group, joining us to give
Speaker 1: us the latest on the ETF space continues to attract assets.
Speaker 1: This is the conversation of the morning. Let's get right
Speaker 1: to it. Chevin Yelticin, dean at the University of Rochester
Speaker 1: Business School, joins us here in our Bloomberg Interactive Brokers studio.
Speaker 1: What a resume. Undergraduate from Wellesley, PhD from Stanford, former
Speaker 1: assistant professor at economics at Cullout School, those good folks
Speaker 1: out in Chicago, president, former professor of economics at Carnegie
Speaker 1: Mellon and now at University of Rochester. So great, great stuff.
Speaker 1: And she is also Turkish, and she has been kind
Speaker 1: enough to share maybe a quick view of kind of
Speaker 1: what's going on in Turkey right now. It's so many difficult,
Speaker 1: difficult times over there with all of the earthquakes. Another
Speaker 1: earthquake just a couple of days ago. Chevin, thanks so
Speaker 1: much for joining us here in studio. I know you're
Speaker 1: gonna be going back to Turkey you mentioned next week.
Speaker 1: Kind of give us an overview of what you're hearing
Speaker 1: from friends and family about. Yes, it's a it's thank
Speaker 1: you for having me. And it's a complete devastation. Really,
Speaker 1: two major earthquakes hit about two weeks ago. As everybody knows.
Speaker 1: What I'm hearing is that the situation on the ground
Speaker 1: is actually much worse than even what the news can depict.
Speaker 1: There's just not very much organized help going to various regions.
Speaker 1: It's spent ten cities. So that's another reason why getting
Speaker 1: kind of that scale of help. You know, we're now
Speaker 1: almost nearing fifty thousand lives lost and a lot more
Speaker 1: to come because not everybody has been identified or rescued,
Speaker 1: and another kid just yesterday in the same region. So
Speaker 1: there's a lot of anxiety, a lot of sadness. Just
Speaker 1: there's a lot of anxiety over whether there's going to
Speaker 1: be more earthquakes on the northern fourth line, and it's
Speaker 1: really the Cold country is in a state of mourning.
Speaker 1: And before we get to you know, any anything else,
Speaker 1: is the economic situation there making it so much more difficult.
Speaker 1: I know, Turkey has had huge inflation problems, they've got
Speaker 1: incredibly high interest rates, and hopefully the international community steps
Speaker 1: in as much as possible, but it's got to be
Speaker 1: more difficult. Yes, absolutely, the economic situation had not been great.
Speaker 1: You know, the Turkish era had deteriorated against the dollar
Speaker 1: and major currency. We talked about the Turkish a lot exactly.
Speaker 1: So the other thing is that the Turkish growth in
Speaker 1: the last sort of fifteen to twenty years has been
Speaker 1: growth by construction, and that's what we're seeing the repercussions
Speaker 1: of because some of these buildings that are relatively brand
Speaker 1: new should not have collapsed, being that we live in
Speaker 1: an earthquake region. And that's because this sort of the
Speaker 1: economic stimulus through construction has led to this overblown investment
Speaker 1: that's not always up to code, that's not always well done,
Speaker 1: lots of amnesties right before elections to be able to
Speaker 1: get the votes. And so it's it's now pressure on
Speaker 1: the government building, do you think, or it's the government
Speaker 1: is just sort of giving a lot of you know,
Speaker 1: basically signing off on a lot of development in areas
Speaker 1: that would be really not a good idea if you
Speaker 1: ask the engineers and everybody else. So let's talk about
Speaker 1: sort of this the fiscal stimulus issue from our point
Speaker 1: of view here in the US and how it's affecting
Speaker 1: the US count I mean, we're obviously We're going to
Speaker 1: continue to cover that disaster, the tragedy there, and hope
Speaker 1: that everyone can help out as much as possible. Here
Speaker 1: in the US, we also had a ton of economic stimulus,
Speaker 1: I mean trillions of dollars obviously from the government, and
Speaker 1: then the FED blew up its balance sheet to like
Speaker 1: nine trillion, and now we're, I guess, dealing with the
Speaker 1: repercussions of that. It looked like a guaranteed recession as
Speaker 1: the FED started to fight inflation and more people now
Speaker 1: are talking optimistically about a soft landing or no landing.
Speaker 1: What's your view. I have been, actually, I've been only
Speaker 1: optimistic part for a long time now because the labor
Speaker 1: market has been very, very strong as we see it,
Speaker 1: and also just businesses finances and liquidity and household finances
Speaker 1: have not been in bad It's that's why I think
Speaker 1: there's just so much been resilience in certain pockets of
Speaker 1: the economy that I was never one of those that
Speaker 1: said that the recession is very likely. The problem though, is,
Speaker 1: you know, obviously the labor market is strong and the
Speaker 1: economy was growing, but if the FED comes in and
Speaker 1: raises raises rates by four hundred and fifty basis points
Speaker 1: in the year and says they're on a path to
Speaker 1: keep going. That's the concern, right, The concern is that,
Speaker 1: you know, when we see mortgages, for example, going up
Speaker 1: to seven percent in the market where houses are already
Speaker 1: not affordable, that just makes it more difficult for the
Speaker 1: economy to keep humming along. Yes, I mean, we're definitely
Speaker 1: seeing that correction in the in the housing market. And
Speaker 1: I think there's a distribution issue as well. You know,
Speaker 1: who's it really affecting it. It's not affecting necessarily kind
Speaker 1: of you know, the better of companies that have some
Speaker 1: liquidity base. It's not really affecting sort of higher income folks.
Speaker 1: But credit has tightened for a lot of small and
Speaker 1: medium businesses and they've already hurting because of the wage
Speaker 1: bill has been going up with that kind of unemployment figure,
Speaker 1: and costs have been going up. Inflation is there. So
Speaker 1: for them, it's less about the recession. It's about the
Speaker 1: cost of doing business, whether it's being able to borrow
Speaker 1: and or being able to kind of pay the wage bill.
Speaker 1: And that's what I worry about. It's really that and
Speaker 1: that feels inflation too, because as small and medium sized
Speaker 1: businesses struggle, they don't present as much competition to bigger businesses,
Speaker 1: and we end up seeing a lot more market power concentrated,
Speaker 1: which means ability to just do a larger markups and
Speaker 1: fuel inflation. Are you concerned that this federal Reserve may
Speaker 1: overdo it maybe too hawks year, because I think even
Speaker 1: as recently as maybe a couple of weeks ago, this
Speaker 1: market was thinking about, Hey, they're going to pause and
Speaker 1: then they're gonna start cutting rates in the back half
Speaker 1: of the year. I'm not sure we think that today.
Speaker 1: But are you concerned that maybe they'll overdo it overtighten.
Speaker 1: I'm not terribly concerned. I think they're going to sort
Speaker 1: of maybe slow down a little bit in the way
Speaker 1: that they raise rates. I mean, the GDP figure came
Speaker 1: on strong. Inflation is down, but it's still relatively high,
Speaker 1: so I don't think they're going to want to take
Speaker 1: their foot off the break. Whether or not they're going
Speaker 1: to really push it too far, I'm not quite sure.
Speaker 1: I think they're really hoping that this time around they
Speaker 1: can souf land the economy. I mean, this seems like
Speaker 1: such an exciting time to study business, you know, or
Speaker 1: to be in your job as the dean of a
Speaker 1: business school. What incredible experiments you have to evaluate, from
Speaker 1: you know, initially quantitative easing to a zero interest rate
Speaker 1: policy to you know, fiscal stimulus that amounts to you know,
Speaker 1: double digit percentages of a GDP in one of the
Speaker 1: largest nations in the world. How exciting is this for
Speaker 1: you and for your students right now? It's extremely exciting.
Speaker 1: There's no shortage. If this is the one time that
Speaker 1: I think, well, I'm not teaching this this year because
Speaker 1: of my dean duties, I wish I was, because I
Speaker 1: really get excited being able to bring all of the
Speaker 1: news into There's no shortage of topics, everything including with
Speaker 1: the COVID and the labor market and supply chain and
Speaker 1: now you know the dead Sea lying obviously the geopolitics.
Speaker 1: It is both a uncertain but from sort of a
Speaker 1: research and business study and economic study time of a
Speaker 1: very exciting phase. What are the students, what are their
Speaker 1: interests right now? Like when I was in business school
Speaker 1: thirty some odd years ago, it was consulting and investment banking.
Speaker 1: Now there's so many other companies recruiting on campus. There's
Speaker 1: so many technology is such a big draft what are
Speaker 1: the interests of these kids today? Do you have altruistic students?
Speaker 1: Because when Paul was in business school, it was about money,
Speaker 1: money and money, that's right, So we do we do.
Speaker 1: There has been a shift and that's been going on,
Speaker 1: I would say for about a decade if not a
Speaker 1: little bit longer, about students wanting to go to kind
Speaker 1: of sustainable, more sort of socially responsible companies. You know,
Speaker 1: they want to take classes in ESG. They want to
Speaker 1: understand sort of what the social and environmental impact and
Speaker 1: as and also sort of you know, what are the
Speaker 1: diversity measures that the companies are employing. So it's not
Speaker 1: all about money. Consulting is still big investment, banking less.
Speaker 1: So I would say the tech industry, especially for schools
Speaker 1: where I've been I've worked at, Yes, we're very tech
Speaker 1: heavy where a STEM, NBA and and you know, and
Speaker 1: so our students are going to the tech industry quite
Speaker 1: a bit with different kinds of roles. You know, they're
Speaker 1: everywhere from marketing analysts to sort of product managers. But
Speaker 1: that happens to be the biggest during the pandemic when
Speaker 1: we had those supply chain issues for you know, a
Speaker 1: couple of years. I said, boy, I shouldn't have skipped
Speaker 1: all those supply chain manager classes. The Duke and or
Speaker 1: played golf and decided not to go, because those folks
Speaker 1: are the ones that were really, you know, the lynchpin
Speaker 1: in this economy. Yes, absolutely, And now I mean whether
Speaker 1: you know, even if we're out of hopefully the acute
Speaker 1: phase of COVID, we're still still seeing the geopolitics play
Speaker 1: in incredible roles. Is there demand or what is the
Speaker 1: demand from international students to come study at the schools
Speaker 1: you've been at, so um the biggest group that comes
Speaker 1: so the United States as a single country tends to
Speaker 1: be China. We've been seeing, at least in graduate education
Speaker 1: a decline and applications across the board. In business schools
Speaker 1: at least, there's also some provisions about what kind of
Speaker 1: research they can be involved in because of sort of
Speaker 1: IP concerns, and so we've seen a decline. We're seeing
Speaker 1: some replacement by India, a little bit from Africa, a
Speaker 1: little bit from places like Indonesia and Vietnam. But you
Speaker 1: know the scale of China is so big, it's all yes, impossible. Well,
Speaker 1: and what amazes me is I think it's great that
Speaker 1: you have that kind of diversity. It's helpful to the
Speaker 1: other students, it's helpful for academia, and you know, the
Speaker 1: quest for more knowledge. What to me is insane is
Speaker 1: that we give these international students the best education on
Speaker 1: earth and then send them back to their countries and
Speaker 1: don't give them visas to work here. It's like if
Speaker 1: we had, you know, Chinese carpenters coming over and we say, here,
Speaker 1: we'll give you the very best tools we can possive,
Speaker 1: money can possibly buy, and but you can't use them
Speaker 1: in this country. Yes, I I you're you're you're speaking
Speaker 1: to the choiet here. If I could, you know, with
Speaker 1: one hand, sort of change one policy, it would be
Speaker 1: about getting visas for educated folks in the United States
Speaker 1: because it is it is very fraught, um, it is
Speaker 1: a very difficult causes a lot of anxiety, It causes
Speaker 1: a lot of uncertainty, and there's just not you know,
Speaker 1: it's all tied to the job. If they change jobs,
Speaker 1: then they have to go through the process again. It's
Speaker 1: I do not understand, given that we don't have a
Speaker 1: we have an aging population, why we're not giving more
Speaker 1: visas to qualified folks that we have a lot that
Speaker 1: we educate, right, that we educate, but we have invest
Speaker 1: a tremendous amount of resources. Exactly exactly it should come with.
Speaker 1: I feel like the acceptance letter from the University of
Speaker 1: Rochester Business School should also come with like a five
Speaker 1: year working right, because you're prepared. It's only beneficial to
Speaker 1: the US economy if you let them work here. Yes,
Speaker 1: I mean we have stem Stamp programs which gives them
Speaker 1: three years of visa, but I'd like to be able
Speaker 1: to stay pule a green card to their diplomaslutely all right, Chevin,
Speaker 1: thanks so much for joining us. Chevin Yelkin, Dean at
Speaker 1: the University of Rochester Business School, returning to your homeland
Speaker 1: of Turkey next week for a business so hopefully that
Speaker 1: will be positive experience as those folks continue to deal
Speaker 1: with very, very tough conditions. Thanks for listening to the
Speaker 1: Bloomberg Markets podcast. You can subscribe and listen to interviews
Speaker 1: of Apple Podcasts or whatever podcast platform you prefer. I'm
Speaker 1: Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three,
Speaker 1: and I Fall Sweeney I'm on Twitter at pt Sweeney.
Speaker 1: Before the podcast, you can always Catch us worldwide at
Speaker 1: Bloomberg Radio.