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Speaker 2: This is Bloomberg business Week, Insight from the reporters and
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Speaker 3: Global business, finance and tech news.
Speaker 2: The Bloomberg business Week Podcast with Carol Masser and Tim
Speaker 2: Stenovek on Bloomberg Radio.
Speaker 4: All Right, everybody, welcome to Bloomberg Business Week. You have
Speaker 4: been looking at BusinessWeek. We're live at the Bloomberg invest Summit.
Speaker 1: The idea of a cautious market moving forward is certainly
Speaker 1: something that is top of mind for us and for
Speaker 1: the guests here today on at Bloomberg business Week and
Speaker 1: at Bloomberg Invest. We're going to have a chat about
Speaker 1: the cautious path for ray cuts. A little later, we're
Speaker 1: going to hear from John Williams, President of the Federal
Speaker 1: Reserve Bank of New York.
Speaker 4: Well, it's going to talk about AI and tech. We're
Speaker 4: going to do that with the chief AI officer over
Speaker 4: at Dell Computer. So looking forward to what John Rose
Speaker 4: has to say. In the meantime, let's talk about the
Speaker 4: Marcus because it is top of mind in our invest conference.
Speaker 4: Year is very timely. Mina Flynn is with us co
Speaker 4: head of Global Private wealth Management at gold Min sax
Speaker 4: Here at Bloomberg invest Hello, Hello, You've been very patient.
Speaker 4: There's a lot coming out investors today. How do you
Speaker 4: make sense of this environment?
Speaker 5: I think the number one thing that we have to
Speaker 5: remember is that when it comes to individuals, the first
Speaker 5: thing you focus on is portfolio construction. Portfolio construction drives
Speaker 5: ninety percent of a client's returns and it's something that
Speaker 5: we talk about upfront and then on an ongoing basis
Speaker 5: with them. And the reason why this is so important
Speaker 5: is in times of volatility such as we've had this
Speaker 5: week that we've had today, and what you don't want
Speaker 5: is you don't want investors to be taking so much
Speaker 5: risk that they become uncomfortable and they sell, they crystallize
Speaker 5: a loss versus staying put or buying. But on the
Speaker 5: flip side, we want to make sure that we encourage
Speaker 5: clients to take enough risks so that they offset inflation
Speaker 5: on an after tax, after spending basis, so our portfolios
Speaker 5: are really constructed with investment, great high quality fixed income
Speaker 5: and then a good amount of equities and alternatives.
Speaker 1: Let's talk about the equities first in terms of geographic
Speaker 1: exposure for those equities. What has it traditionally been? And look,
Speaker 1: we know it's not a monolith. Every client is certainly different.
Speaker 1: But in general, how do you think about US equities
Speaker 1: versus equities outside of the US?
Speaker 5: Sure, so we prefer US equities, and we prefer that
Speaker 5: both in both public markets as well as private markets.
Speaker 5: Big picture, we have roughly about a forty percent allocation
Speaker 5: to public equities. The largest allocation of that is to
Speaker 5: US equities, and then outside of that developed international equities,
Speaker 5: we do have a small percentage to emerging markets. But
Speaker 5: then also I would say we have recently increased our
Speaker 5: allocation to private markets and to private equity, and specifically
Speaker 5: as it relates to buyout and growth. And the reason
Speaker 5: why is because these are two subsectors of alternatives where
Speaker 5: you see a significant amount of alpha relative to public
Speaker 5: market markets, and also the distributions of returns is much
Speaker 5: more narrow than other subasset classes within alternatives.
Speaker 4: In terms of private equity, are you upbeat about the
Speaker 4: ability exit to see start seeing exits which is something
Speaker 4: that has been really difficult over the last few years.
Speaker 5: It has been difficult as it relates to public markets.
Speaker 5: I'm upbeat as it relates to private equity on two things.
Speaker 5: One is, I do think to the extent that you
Speaker 5: have opportunities right now in public markets to be able
Speaker 5: to take companies private. I think that's an attractive opportunity
Speaker 5: for private equity companies. Second, I do think that there's
Speaker 5: a lot of opportunities for private equity companies in the
Speaker 5: private markets, so they don't necessarily have to only think
Speaker 5: about taking a company public or M and A as
Speaker 5: their only alternative to liquidity. So a lot of secondary
Speaker 5: private exits, a lot of continuation funds. The other thing
Speaker 5: I would note, although, is if you look at growth
Speaker 5: valuations and in private equity, what you have seen is
Speaker 5: you have seen a normalization of valuations between public and
Speaker 5: private markets. And the reason is because you've had really
Speaker 5: strong performance with these portfolio companies and it's allowed these
Speaker 5: companies to grow into the target exit valuations that these
Speaker 5: gps were looking for. So I do think once you
Speaker 5: have a little bit more stabilization in the markets, you're
Speaker 5: going to see more deal activity, both as relates to
Speaker 5: IPO as well as M and A.
Speaker 1: Okay, so let's talk about potential stabilization in the markets.
Speaker 1: Just in the last couple of weeks, we've certainly seen
Speaker 1: things change quite a bit. As Carol mentioned, at one
Speaker 1: point today the S and P five hundred had given
Speaker 1: up all its gains since that November fifth election. Tariff concerns,
Speaker 1: concerns about the economy.
Speaker 3: What's your outlook?
Speaker 5: So I would just say the thing that I'm really
Speaker 5: thinking about is the sequencing of policies. And so if
Speaker 5: you look at the Trump administration, it is a pro
Speaker 5: business administration. But what we're seeing right now is some
Speaker 5: of the negative hits to growth come first, whether that's
Speaker 5: immigration or whether that's tariffs. Before in the second half
Speaker 5: of the year we're probably going to see some sort
Speaker 5: of tax reform as well as deregulation, and so I
Speaker 5: think what we've got to be mindful of is a
Speaker 5: little bit of that curve. Generally, the number one driver
Speaker 5: of US equity returns is a growing economy. Even with
Speaker 5: the tariff rates that we're talking about right now, we
Speaker 5: still do anticipate that we're going to have positive GDP
Speaker 5: in the US, and so from here we still do
Speaker 5: see equity market upside in the US.
Speaker 4: So Meanie, you guys don't think about recession because it
Speaker 4: does feel like all of a sudden, the narratives change
Speaker 4: a little bit. We've seen weaker consumer spending numbers, consumer
Speaker 4: sentiment numbers, manufacturing data, so no concern GDP now data
Speaker 4: which we know from the land EFFED can be very volatile,
Speaker 4: but recession off the table completely.
Speaker 5: For this, It's definitely, it's definitely not off the table,
Speaker 5: and we absolutely are looking at the data, whether that's
Speaker 5: consumer spending.
Speaker 4: The jobs report this Friday is going to.
Speaker 5: Be important, but you're also looking at a growth of
Speaker 5: over two percent, you know, two and a half percent,
Speaker 5: and so we have the odds of a recession even
Speaker 5: with these tariffs relatively low, call it fifteen to twenty percent.
Speaker 5: I do think it's important to take a step back
Speaker 5: and just look at we've got an SMP that's down
Speaker 5: roughly one percent year to date. Right, We've had a
Speaker 5: lot of volatility, but we've got an sp that's down
Speaker 5: one percent year to date. Okay. Where you've really seen
Speaker 5: that underperformance is in the consumer to the macro points
Speaker 5: that you were talking about, as well as in technology,
Speaker 5: just because you've had some of the growth decrease in
Speaker 5: earnings outperformance versus called the rest of the four ninety
Speaker 5: three r but outside of consumer technology, all of the
Speaker 5: other sectors are positive. And so what I'm really focused
Speaker 5: on is the earnings path for the other four ninety three.
Speaker 5: I think the max seven is going to be fine,
Speaker 5: but what we're going to see versus twenty four is
Speaker 5: likely a lot more earnings growth. So call it three
Speaker 5: percent and twenty four roughly eight nine percent this year.
Speaker 5: And so, and just your point as it relates to tariffs,
Speaker 5: we anticipate that every one percent increase in the effective
Speaker 5: tear rate decreases growth by roughly ten bases points and
Speaker 5: increases inflation by ten bases points.
Speaker 4: So it is manageable.
Speaker 5: I mean, it's going to depend on what happens, how
Speaker 5: long those tariffs are in place, if they're rolling or not.
Speaker 5: I think if they're rolling, tariffs is going to be
Speaker 5: much more hard from an inflation perspective.
Speaker 4: Do you think that's up in the air based on
Speaker 4: just kind of the mood the mode that we've gotten
Speaker 4: from the White House in the last twenty four to
Speaker 4: forty eight hours, do you think that these are going
Speaker 4: to be lasting tariffs that stick around for a long time.
Speaker 4: Will there be more possibly or do you think that
Speaker 4: things could change in a week and a month.
Speaker 5: I think things could absolutely change overnight and a week
Speaker 5: and a month. And I do think that there's going
Speaker 5: to be incrementally more tariffs that we see on things
Speaker 5: like autos, and I do think that there's the opportunity
Speaker 5: to also make a deal with you know, Mexica Canada
Speaker 5: in the near term and actually, you know, have those
Speaker 5: tariffs reduced. And so I think the ultimate is we
Speaker 5: don't know what's going to happen, and we just the
Speaker 5: main thing we're focused on is that economic data.
Speaker 1: Do you think the tariffs on Mexico and Canada are
Speaker 1: more damaging than tariffs on China, because it does seem
Speaker 1: like the Mexico and Canada tear there is this off
Speaker 1: ramp when it comes to you know, what the President
Speaker 1: and his team have called essentially the border crisis and
Speaker 1: the drug war. Yeah, I mean, I think we don't
Speaker 1: necessarily see that off ramp.
Speaker 5: Yeah, when you look at twenty five percent tariffs that
Speaker 5: you're talking about with Canada and Mexico, it's much more
Speaker 5: substantial than the tariffs that you've actually seen on China.
Speaker 5: And so when you think about that effective tariff tariff
Speaker 5: rate right now, it's roughly about eight percent. If things
Speaker 5: stay as they have been announced, an eight percent tariff
Speaker 5: rate would actually hit growth by roughly call it, you know,
Speaker 5: eighty basis points, and would increase inflation by roughly eighty
Speaker 5: basis points. That being said, we already had inflation coming
Speaker 5: down from where it is right now, and so we
Speaker 5: probably get to roughly a three percent level if that's
Speaker 5: the case. Again, it's not our estimate or our perspective
Speaker 5: that tariffs stay at these levels, but if that's the case,
Speaker 5: you still have an opportunity for the FED to be
Speaker 5: able to react if you have inflation even at that
Speaker 5: three percent level. And so what we saw in twenty
Speaker 5: nineteen is the FED cut as an insurance cut. And
Speaker 5: could we see that again today or you know, call
Speaker 5: it May, June, December. Absolutely, and I think the market's
Speaker 5: pricing more of that today. That's exactly what traders are
Speaker 5: pricing in three rate cuts. What kind of blows my
Speaker 5: mind is though, as you say, things could change quickly overnight,
Speaker 5: in a week, in a day, and that's kind of
Speaker 5: the environment that we've seen and we've seen it play
Speaker 5: out in terms of the rate environment. One thing I
Speaker 5: want to ask you, because I think there's been an
Speaker 5: assumption when it comes to President Trump his tolerance of,
Speaker 5: you know, market volatility, that he was watching the equity markets.
Speaker 4: It was kind of interesting to see. I feel like
Speaker 4: over the last few days where the markets had certainly
Speaker 4: the equity markets had some problems, and we just had
Speaker 4: this assumption that President Trump would do something, say something.
Speaker 4: I'm curious, how like, what's the conversation you guys all
Speaker 4: have around that.
Speaker 5: I mean, definitely there, I'll put whatever you want to Yeah,
Speaker 5: I mean there's definitely their perspective that there was going
Speaker 5: to be a deal done, which is why you know,
Speaker 5: the markets are reacting like they are. And you do
Speaker 5: have a president that has really focused on pro business policies.
Speaker 5: But at the end of the day, he's very focused
Speaker 5: on bringing manufacturing and jobs back to the US. And
Speaker 5: the question is can we withstand that volatility? Can the
Speaker 5: consumer withstand that volatility? Can CEOs withstand that volatility and
Speaker 5: continue to invest in their businesses.
Speaker 4: One thing I want to ask you, John Williams is
Speaker 4: coming up. He's going to talk with our Michael McKee.
Speaker 4: If you're sitting down with him, I mean or what
Speaker 4: do you hope that Mike asks him? Because I'm curious.
Speaker 4: I think Mike probably a week ago had different set
Speaker 4: of questions, and he probably does today. But what would
Speaker 4: you want to hear from John Williams or what would
Speaker 4: you want to hear him talk about.
Speaker 5: I guess I would want to know as it relates
Speaker 5: to on the tenure, what's his thoughts as it relates
Speaker 5: to the tenure. We have a Treasury Secretary who's suggested
Speaker 5: that he's watching that right, and so what is the
Speaker 5: absolute level of the tenure, Why is it moving, how
Speaker 5: fast is it moving? And how does that play into
Speaker 5: their overall picture of kind of risk tolerance? And how
Speaker 5: does that then affect if they cut rates? They don't
Speaker 5: cut rates? And do they do that? Can they do
Speaker 5: that even with inflation? Call it three if inflation does
Speaker 5: tick up to call it three percent or so.
Speaker 1: We're going to be hearing from John Williams in just
Speaker 1: a minute, so we'll see what Mike asks him before
Speaker 1: we let you go. Mina crypto is it part of
Speaker 1: the alternatives in a portfolio for your ultra high networth clients?
Speaker 5: It's not part of our client's portfolios. And the main
Speaker 5: reason that is is because we don't see it as
Speaker 5: a store of value. It's very hard to actually value.
Speaker 1: Oh please for the crypto folks in the back. Yeah,
Speaker 1: so you don't see it as a store of value,
Speaker 1: is what you said.
Speaker 5: We don't see the store of value and Tiley volatile
Speaker 5: asset and it's hard under what valuation metrics do you
Speaker 5: actually value it? So no, we don't have it as
Speaker 5: a part of our core asset allocation.
Speaker 1: All right, don't throw anything at Miana crypto people when
Speaker 1: you see her around, because she said what a lot
Speaker 1: of people think.
Speaker 3: I think it's fair to say.
Speaker 4: Absolutely, thank you so much, so appreciate it of course.
Speaker 4: Mina Flin, co head of Global Private Wealth Management at GOLDMNSAX.
Speaker 4: Here at Bloomberg invest.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 4: Safe to say, every day we are seeing tons of
Speaker 4: headlines on AI, so we just kind of want to
Speaker 4: jump in in top of our next guy.
Speaker 1: Yeah, we got with us Dell Technologies, Global CTO and
Speaker 1: chief AI officer John Rose here with us at Bloomberg
Speaker 1: invest He participated in a panel already on strategies for
Speaker 1: enhancing a company value. John, Look, before we get going,
Speaker 1: I just want to get an update from you on
Speaker 1: IT spending through the pandemic if anything today and like
Speaker 1: today's volatility that we saw in the markets, although it's
Speaker 1: kind of coming back in the equity markets, are you
Speaker 1: watching that at all in the context of IT spend, well, well.
Speaker 6: There's two answers in terms of AI spend. Clearly that's
Speaker 6: a gigantic growth theory. I think we've seen the TAM
Speaker 6: double in the last year. There's no doubt that you know,
Speaker 6: we're on a track right now, and definitely in the
Speaker 6: global enterprise market that probably the majority of IT spend
Speaker 6: in the long term is to build and implement the
Speaker 6: systems necessary to power the AI transformation of businesses. So
Speaker 6: pretty bullish on there the consequences. In order to do that,
Speaker 6: we have to make the older systems more efficient. So
Speaker 6: there's actually a spend profile there of trying to densify
Speaker 6: environments and aggregate legacy systems. So the whole space is
Speaker 6: pretty active and looks to be a pretty positive environment
Speaker 6: because without it, without that infrastructure, there is no AI
Speaker 6: future too.
Speaker 4: We're like, what over two years in at least that
Speaker 4: the market, the world, you know, as you always remind us,
Speaker 4: AI nothing new. We do the same thing, but certainly
Speaker 4: the narrative and the discussion changed more than two years ago.
Speaker 4: How has it evolved here in twenty twenty five? What's
Speaker 4: top of mind?
Speaker 3: Yeah, I mean, so we're in year three.
Speaker 6: Year one was experimentation with some tools that people couldn't
Speaker 6: really use for enterprise. Year two was the do it
Speaker 6: yourself here that if you wanted to do it, it was
Speaker 6: a big technical effort. Year three we've now seen lots
Speaker 6: of ISVs, lots of turn key on offering. The most
Speaker 6: importantly companies like de sivvs, independent software vendors people which
Speaker 6: sell you stuff so instead of do it yourself, you
Speaker 6: can actually buy stuff to do AI, which is incredibly important.
Speaker 6: The two things that we need for enterprise adoption are
Speaker 6: one the ability to consume it as a technology as
Speaker 6: opposed to a do it yourself project, which that's actually
Speaker 6: happening now, and the other is a feeling that you're
Speaker 6: not the first mover and because some of us big
Speaker 6: companies have moved first and have gotten to the other
Speaker 6: side of productivity. Now there's archetypes to follow, So so
Speaker 6: I'm pretty bullish about this is a good year in
Speaker 6: terms of expanded enterprise adoption.
Speaker 1: We haven't gone to talk to you since the deep
Speaker 1: Seek news on January twenty seventh that really wiped hundreds
Speaker 1: of billions of dollars from in Vidia's market tap. We're
Speaker 1: down in Vidia about a little over twenty percent since
Speaker 1: the January highs for that company. Are you seeing any
Speaker 1: pullback in this space right now?
Speaker 6: No, in a word, yeah, And the reason for it is, Look,
Speaker 6: you know, deepsek was just another of you know, forty
Speaker 6: years of disruptions that have progressively moved AI forward. You know,
Speaker 6: I was a theory forty years ago, and then we
Speaker 6: invented things and created new technologies and bent the curve
Speaker 6: multiple times to ultimately get to where we are today today.
Speaker 6: There's only two levers that make AI better. One is
Speaker 6: the mips per want of the compute environment. Okay, every
Speaker 6: time in Vidia delivers a new GPU that gets better,
Speaker 6: and the other is algorithmic improvements, which are things like
Speaker 6: deep Seek, and they just they just allow us to
Speaker 6: do things more efficiently.
Speaker 1: So you buy what we know about Deep Seek, Like,
Speaker 1: are you skeptical that they were able to do what
Speaker 1: they did with the resources they had?
Speaker 3: Look, I wasn't.
Speaker 6: I didn't have a front row seat to exactly what
Speaker 6: they did. I look at it as interesting engineering. It
Speaker 6: does look like some novel approaches using some existing technologies. Great,
Speaker 6: we need that and what we've learned from it because
Speaker 6: as an open model is Yeah, there's some interesting techniques
Speaker 6: that other people are going to adopt and guess what
Speaker 6: it's going to make the whole AI industry more efficient.
Speaker 6: If there wasn't kind of insatiable demand in front of us,
Speaker 6: I'd be nervous, But there is. We have barely touched
Speaker 6: the processes of the enterprises in the world, and we
Speaker 6: have millions of them to go after.
Speaker 4: But I do wonder to Tim's point, that does Deep
Speaker 4: Seek make us ref the models or the narrative about
Speaker 4: how the buildout has to happen, the energy needs, this cost,
Speaker 4: whatever it is.
Speaker 6: Yes, just like every other iteration, we're in a world
Speaker 6: Welcome to the AI club. The AI club is a
Speaker 6: pre is an environment where there's constant disruption happening, moving
Speaker 6: the industry forward, and so the novel approaches in Deepseak
Speaker 6: allow us to rethink, Hey, maybe I can do training
Speaker 6: a little more efficiently, Maybe I can do inferencing a
Speaker 6: little more costly. Maybe I can develop a different way
Speaker 6: of thinking about a model. Great, let's adopt that, let's
Speaker 6: build on it, and the next one might be bigger disruption,
Speaker 6: but it'll still move the industry forward.
Speaker 4: Got to ask you about Elon Musk and the government,
Speaker 4: and the goal is to make it more efficient. And
Speaker 4: there's of course a lot of news and a lot
Speaker 4: of headlines around what's going on in terms of what
Speaker 4: we've seen so far. What are your expectations that it
Speaker 4: becomes a more technologically advanced run government.
Speaker 3: Well, well, I think you know.
Speaker 4: I mean we should point out that Dell supplying servers
Speaker 4: to Elon's XAI.
Speaker 6: The government and everybody else in the world. We're very present.
Speaker 2: Yeah, you know.
Speaker 6: Here here's the punchline, elons and technologists. He clearly understands
Speaker 6: the technology stack. The way you improve things, the way
Speaker 6: you get productivity, you do things better, is both the
Speaker 6: improvement of your processes and the application of technology to
Speaker 6: make those processes work more efficiently. Both of those are
Speaker 6: going to happen. I can't tell you exactly what's going
Speaker 6: to happen in the government. I can't tell you what
Speaker 6: play they're going to make. But what I can guarantee
Speaker 6: you as the end state, there will be more technology
Speaker 6: powering our government and our public sector, and it will
Speaker 6: probably make them more efficient and more effective. How it
Speaker 6: works out above that but by pay grade, but it
Speaker 6: is inevitable. The one thing I can guarantee you, there
Speaker 6: won't be less technology in the government when we move
Speaker 6: into the next year or the next two years.
Speaker 1: Listen, I'm asking you this as a technologists somebody who's
Speaker 1: a front row seat on the technology side. Critics have
Speaker 1: said their concerns about security and privacy when it comes
Speaker 1: to what Doje and what Elon Musk are doing.
Speaker 3: Should they be concerned?
Speaker 6: I don't know that's their opinion about Maybe you should
Speaker 6: always be concerned. You should always look at the risk
Speaker 6: give technology. Here's a good example. We're maybe outspoken that
Speaker 6: for the real critical AI activities you should do them
Speaker 6: in a private environment. Some people disagree with us. The
Speaker 6: reason we say that is because that's the lowest risk path.
Speaker 6: It also happens to be the lowest cost path. Every
Speaker 6: technology decision you make is a technology in a vacuum
Speaker 6: until you apply it to a real world scenario, and
Speaker 6: that's where the risk.
Speaker 1: So essentially, what you're saying is if the Department of
Speaker 1: Government efficiency employees are or using AI tools to help
Speaker 1: with their jobs, they should be doing that in an
Speaker 1: environment that is secure, you bet.
Speaker 6: And what that means to them they should figure out.
Speaker 6: But what you shouldn't do is go into an environment
Speaker 6: when you're using technology without contemplating the risk of it.
Speaker 6: I have full confidence that any good technologist, including the
Speaker 6: folks doing that work in the government, are absolutely thinking
Speaker 6: about not just the technology in a vacuum, but the
Speaker 6: fact that when it gets into the real world there
Speaker 6: are security considerations, There are other activities that need to
Speaker 6: be controlled, and you always build a security model into
Speaker 6: your technology architecture. Even lms have security models, agents have
Speaker 6: security models because that's necessary to make them work in
Speaker 6: something like an enterprise.
Speaker 4: How should we be talking about here we are in
Speaker 4: year three, as you said, in terms of this stage
Speaker 4: of AI. Is it a general purpose technology or is
Speaker 4: it going to replace everything? And I don't I'm trying
Speaker 4: to be like lammatory or anything.
Speaker 3: But should we think neither.
Speaker 6: It is general purpose in the sense that we're going
Speaker 6: to see pervasive AI. It's gonna be very hard five
Speaker 6: years from now to find any element of society that
Speaker 6: does not have AI as a partner, a coworker, an enabler.
Speaker 3: That is inevitable. But is it going to replace everything?
Speaker 3: Absolutely not.
Speaker 6: We've already seen this when there's this new technology called
Speaker 6: agents that people are hearing about, right, and what is this? Well,
Speaker 6: the chip between a chat bot, the first generation stuff,
Speaker 6: and an agent is that the chat bot, the human
Speaker 6: was in the loop.
Speaker 3: You were part of the process. In an agent, you're
Speaker 3: still there.
Speaker 6: But you're on the loop, meaning you tell it what
Speaker 6: to do, you decide if it did the right thing.
Speaker 6: You're the boss. There's still a role for a human.
Speaker 6: It's a very important role, and the agents can't work
Speaker 6: without it. But our role in relation to these technologies
Speaker 6: is just naturally going to evolve because the technologies can
Speaker 6: do more of the underlying work.
Speaker 4: John, you know what we want to know? Do we
Speaker 4: have a job going forward? That's what we really want
Speaker 4: to do, John Roth, thank you so much. I'm so
Speaker 4: glad we could catch up with you Global Chief Technology
Speaker 4: Officer Chief AI Officer at Dell Technologies.
Speaker 2: This is the Bloomberg Business Week Podcast. Listen live each
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Speaker 2: Just Say Alexa played Bloomberg eleven thirty.
Speaker 1: Many industris and analysts were made cautious, expecting further market
Speaker 1: volatility and potential corrections, with some predicting a deep correction
Speaker 1: this year.
Speaker 4: Yeah, we'll see what our next guest has to say.
Speaker 4: We have a perfect voice to talk to to really
Speaker 4: understand this environment. Ryan Tolkien is the CEO and CIO
Speaker 4: of the multi strategy hedge fund firm, Huge fun firm.
Speaker 4: Is that what you're meant to say, huge hedge fund.
Speaker 4: It's been one of those kind of days. It's they've
Speaker 4: got what billion dollars in assets under management? Stonefeld Strategic
Speaker 4: Advisors is the firm. It's a little wacky, as you know,
Speaker 4: the news flow. Nice to have you here with us.
Speaker 4: Let's talk the market environment. Interesting to see that stocks
Speaker 4: have bounced back. So how do you make sense of
Speaker 4: a day like this right.
Speaker 3: I've been away from the screens for the last hour. Shots.
Speaker 3: Admittedly this is breaking news to me that stocks have
Speaker 3: fully bounced back, But I think let's take a step
Speaker 3: back for a second. You know, we are forty days
Speaker 3: into a new administration in Washington, and you know, as
Speaker 3: many have discussed, I think this new administration has clearly
Speaker 3: brought uncertainty across a variety of different issues, and whether
Speaker 3: we're talking about several different wars that are happening, you know,
Speaker 3: certainly most notably what's going on in Russia and Ukraine,
Speaker 3: or the tire of situation where we've seemed to be
Speaker 3: creating a bunch of economic warfare with with with partners
Speaker 3: in Canada and Mexico and certainly you know, China. Combine
Speaker 3: that with some of the further uncertainty around, you know,
Speaker 3: around around the economy and interest rates, and it's setting
Speaker 3: up for an environment where certainly the base level of
Speaker 3: volatility is higher, and with the base level of volatility higher,
Speaker 3: ultimately we're going to see more frequent periods where we
Speaker 3: get large sell offs, whether that those be sell offs
Speaker 3: overnight or sell offs in the early morning, and where
Speaker 3: intra day volatility increases. This is now the second consecutive
Speaker 3: day where if you would look at the high point
Speaker 3: of futures relative to the low point of futures, you're
Speaker 3: seeing some very very meaningful moves, and so I expect
Speaker 3: that to continue. I expect that to continue.
Speaker 4: Suggest moves or is it something more fundamentally like, are
Speaker 4: we getting certainty?
Speaker 3: I think it's uncertainty. And when uncertainty exists, ultimately, consumers
Speaker 3: are telling you we're not spending as much. We saw
Speaker 3: that in the retail sales data, we saw that the
Speaker 3: University of Michigan confidence data, and also corporates are telling
Speaker 3: you the uncertainty exists. Some of the big tech companies
Speaker 3: are starting to talk back how much they may do
Speaker 3: in cap x spend. And when you start to see
Speaker 3: those things, the market starts to jitter a bit. And
Speaker 3: when the market starts to jitter a bit and you
Speaker 3: start with an elevated level of gross exposure and an
Speaker 3: elevated level of net exposure, I think you're going to
Speaker 3: start to see more and more of these days where
Speaker 3: we trade in two or two and a half percent
Speaker 3: equity ranges as compared to what we saw for the
Speaker 3: majority of twenty twenty four.
Speaker 1: You said the market's starting to have some jitters. Are
Speaker 1: you starting to have some jitters?
Speaker 3: So as a firm, these kind of markets actually start
Speaker 3: to set up really well for us, and that's because
Speaker 3: we deploy a multi strategy approach where we have certain
Speaker 3: strategies across our business that benefit from the range expansion
Speaker 3: of stocks, that benefit from an elevated level of volatility,
Speaker 3: that ultimately can take advantage of some of the dislocations
Speaker 3: that we're starting to see form. And whether that be
Speaker 3: our macro fixed income business which tends to trade from
Speaker 3: a positively convex long viol standpoint, or our quantitative trading
Speaker 3: business that tends to do better when we start to
Speaker 3: see an increased range in stocks, or even you know,
Speaker 3: parts of our short term trading business businesses that we've
Speaker 3: been running for thirty five years, where are both our
Speaker 3: discretionary and systematic iterations of those strategies tend to benefit
Speaker 3: when we start to see the increases in volatility. And
Speaker 3: so what we're trying to do is we're trying to
Speaker 3: lean more into the strategies that ultimately benefit from higher
Speaker 3: baseline level of volatility and where we need to square
Speaker 3: our portfolio in some of the areas that benefited a
Speaker 3: lot from the environment that we lived in. You know,
Speaker 3: between let's call it January of twenty twenty four through
Speaker 3: Inauguration day of twenty twenty five, you know, we're working
Speaker 3: to reposition those portfolios, and I think we're going to
Speaker 3: have to continue to work to reposition those portfolios because
Speaker 3: I don't think what we're starting to see happen over
Speaker 3: the last forty days is an accident. It's not a surprise,
Speaker 3: and it's probably something that's going to persist for some
Speaker 3: period of time.
Speaker 4: So the opportunity for you, Ryan, is just in the
Speaker 4: actual movement and the volatility, or is it a certain
Speaker 4: asset class that is I don't know, going to actually
Speaker 4: do well opportunitistic in this volatility?
Speaker 3: What is it? Well? Our strategies focused on identifying relative
Speaker 3: value opportunities, and so for us, what we're going to
Speaker 3: look for across asset classes is ultimately where the risk
Speaker 3: premia is most dislocated, and then where that risk premium
Speaker 3: is most dislocated we are going to lean into in
Speaker 3: terms of our risk deployment. And so, you know, the
Speaker 3: benefit of trading across lots of different asset classes and
Speaker 3: having lots of different strategies. Is in certain time periods
Speaker 3: that could be in fixed income, that could be in
Speaker 3: interest rates, that could be in currencies at other times,
Speaker 3: that could be in credit at other times, that could
Speaker 3: be in equities. And so we're starting to see some
Speaker 3: of those cracks form in the equities market. And so
Speaker 3: you know, that's where I would say our focus has been,
Speaker 3: you know, in the very near term, you know, but
Speaker 3: that can shift really quickly, and if FX volatility picks up,
Speaker 3: or we start to see credit spreads widen, you know,
Speaker 3: we will move risk to ultimately where that risk premium
Speaker 3: becomes most dislocated.
Speaker 4: Is it hard to make bets?
Speaker 6: Though?
Speaker 4: In terms of an administration that some that we've had
Speaker 4: on today say, well, you know what, we're going to
Speaker 4: wait on these tariffs because who knows in twenty four
Speaker 4: hours or in a week.
Speaker 3: I think that's the uncertainty that's leading to to the
Speaker 3: jitters that we talked about, because you know, I think,
Speaker 3: you know, one day you'll hear one thing, the next
Speaker 3: day you might hear the opposite. Are these negotiation tactics
Speaker 3: or is he being real? You know? I think these
Speaker 3: are the things that all investors are considering, and I
Speaker 3: think the market's telling you, I don't like that uncertainty.
Speaker 1: Well, but I think we learned today that he's being
Speaker 1: real given what we saw with implemented with Canada and
Speaker 1: Canada and Mexico, so that certainly that jury is not
Speaker 1: out there. Is there an environment that's better or worse
Speaker 1: for your firm, like given that you're multi strat and
Speaker 1: you can kind of thrive in any environment, Like, what's
Speaker 1: a bad environment for you?
Speaker 3: Massive correlation is a bad environment for us. We benefit
Speaker 3: from dispersion. And so when a larger part of the
Speaker 3: moves and individual asset classes can be explained by the
Speaker 3: idiosyncratic components of what makes a stock a stock rather
Speaker 3: than what makes the market the market, those are the
Speaker 3: environments we benefit from. And so ultimately, when all stocks
Speaker 3: are moving because interest rates are moving higher or the
Speaker 3: dollar is moving lower, those are the more challenging and
Speaker 3: more difficult environments. Now, through the years, we've tried to
Speaker 3: layer on certain strategies that actually benefit from those environments
Speaker 3: to try to make our portfolio more you know, all
Speaker 3: weather proof and more battle tested. And so through time,
Speaker 3: I think we've gotten better at being able to navigate
Speaker 3: those environments. But certainly, when I take a step back
Speaker 3: and look at our portfolio, we want environments where dispersion
Speaker 3: is high.
Speaker 4: Data is so important to try and figuring out kind
Speaker 4: of what the environment is where it goes. And I'm
Speaker 4: curious about the kind of data metrics or data sets
Speaker 4: that you guys find are really interesting right now.
Speaker 3: Well, I think the benefit of our organizations. We've been
Speaker 3: around for thirty six years, and so the most few cycles, yeah,
Speaker 3: we've seen a few cycles, and the most valuable data
Speaker 3: sets are ultimately the internal data sets that we've created
Speaker 3: through thirty six years of trading in the markets. And
Speaker 3: they're valuable for two reasons. One they're full of information. Two,
Speaker 3: they're the one type of data set that ultimately cannot
Speaker 3: be replicated or sold to any of our peers or
Speaker 3: competitors who are trying, you know, to to make or
Speaker 3: to compete for alpha in similar spaces as us, and
Speaker 3: so we try to leverage that. But but we ultimately
Speaker 3: need to acquire other data sets and build and build
Speaker 3: other data sets that ultimately are going to be components
Speaker 3: to our strategies, and so we invest a lot of money, time, effort,
Speaker 3: and resource in our data platform uh in terms of
Speaker 3: both our data ingestion efforts, our data cleaning efforts, and
Speaker 3: then ultimately what do we do with that data? How
Speaker 3: do we how do we how do we better put
Speaker 3: the data in the hands of our portfolio managers that
Speaker 3: can actually then make better behavioral decisions because they're being
Speaker 3: informed with reliable data. Is AI part of that equation?
Speaker 1: I interviewed Ben w Rehn of sig Tech earlier today,
Speaker 1: the startup that was spun out of Brevin Howard a
Speaker 1: few years ago, and he creates a product that's that's
Speaker 1: meant to really help quants do their jobs very quickly.
Speaker 3: So I'll say I'll say two things on sort of
Speaker 3: where we're leveraging AI. Number One, we've been running quantitative
Speaker 3: trading strategies for multiple decks. Kids We've been implementing different
Speaker 3: techniques as it relates to machine learning for many many years.
Speaker 3: Right now, the models are consistently getting better, and so
Speaker 3: we are leveraging AI to ultimately make our models better,
Speaker 3: which is ultimately going to make our quant trading strategies better.
Speaker 3: Now everybody is doing that or a lot of people
Speaker 3: are doing that, and so we got to do that
Speaker 3: better than other people. And so that's where ultimately having
Speaker 3: the right talent I think is the name of the game.
Speaker 3: And so yes, AI is changing the way that we
Speaker 3: do things, but it will not be a replacement for
Speaker 3: having really talented quants and really talented people. The second
Speaker 3: thing that I would say is, you know, we are
Speaker 3: leveraging AI ultimately to make sure that we are maximizing
Speaker 3: the amount of time that the valuable people that we
Speaker 3: have are focused on the last mile or the most
Speaker 3: IP sensitive components, toward our trading strategies and toward our
Speaker 3: investment strategies. And so if we can take all the
Speaker 3: parts of the investment process that can be commoditized and
Speaker 3: we can do those things more quickly and more easily
Speaker 3: for our talent, then ultimately we could put ourselves in
Speaker 3: a position where we're spending the maximum amount of time
Speaker 3: in the most IP sensitive areas.
Speaker 4: All right, so what new asset classes or new markets
Speaker 4: look interesting?
Speaker 3: Yeah, So I would say the three core focuses for
Speaker 3: us are expanding our volatility strategies, which we've been trying
Speaker 3: to do over over over the last couple of years,
Speaker 3: where we've been able to acquire some some good talent. Recently,
Speaker 3: I would say number two is expanding and developing our
Speaker 3: Delta one business. This is a business that's existed for many,
Speaker 3: many years inside seal side institutions. Some of that talent
Speaker 3: has started to migrate towards the buyside. We think we
Speaker 3: are a first mover in acquiring some of that talent
Speaker 3: building out businesses as it relates to those strategies. The
Speaker 3: benefit there is it's a great opportunity to see where
Speaker 3: risk premia is most dislocated across a variety of different
Speaker 3: asset classes. And we've built a great team globally to
Speaker 3: be able to do that across you know, probably twenty
Speaker 3: or thirty different markets at this point. And so that's
Speaker 3: a second area of expansion for us. And then lastly,
Speaker 3: it's it's quant trading. And why quant trading is so
Speaker 3: important to us is ultimately the barriers to entry are
Speaker 3: the highest because of the cost of running quant trading businesses,
Speaker 3: because of the amount of capex that needs to continuously
Speaker 3: be poured into quantrating businesses. You know, it is not
Speaker 3: an easy thing to replicate, and so for us, we
Speaker 3: have a first mover advantage. We've been investing in it
Speaker 3: over multiple decades, and so we want to continue to
Speaker 3: lean into our strengths.
Speaker 1: I want to get back to the macro and more
Speaker 1: of what we've heard from Washington. We do expect the
Speaker 1: President tonight in his joints, in his address to Congress
Speaker 1: to probably talk about the economy a lot. I'm guessing
Speaker 1: we don't know what he's going to say at this point.
Speaker 1: We know he likes part of the uncertainty. That's sort
Speaker 1: that is part of the uncertainty and molatility to But
Speaker 1: if you think about the you know, what many would
Speaker 1: describe as pro growth policies coming from this president at
Speaker 1: least his agenda, would you say that those, if they
Speaker 1: are enacted outweigh the uncertainty of tariffs.
Speaker 3: It's a good question, and I think that's what the
Speaker 3: market's trying to debate. And the reason we're probably not
Speaker 3: down more as it relates to the broader market indices
Speaker 3: is because I think people are having that debate, you know,
Speaker 3: in their investment committees and in their boardrooms. And I
Speaker 3: think there's a lot of value behind some of the
Speaker 3: deregulation policies that are ultimately coming out of Washington. We
Speaker 3: have a president where he wakes up in the morning
Speaker 3: and the first thing he does is he looks at
Speaker 3: equity futures, and I think a big part of his
Speaker 3: mood is ultimately informed by what are equity future is doing.
Speaker 3: And so to some extent, I think it's fair to
Speaker 3: say that we have a put that is sitting below
Speaker 3: the market, given how much the president utilizes the market
Speaker 3: as a gauge of how the country is doing, and
Speaker 3: so given that, I think when you start to see
Speaker 3: the equity market respond in the way in which it has,
Speaker 3: I do think that through time, you will start to
Speaker 3: see the narrative shift from the president toward more pro
Speaker 3: growth policies, toward policies he thinks will ultimately promote the
Speaker 3: long term sustainability of the US economy. But he balances
Speaker 3: those things and he doesn't like to find himself, you know,
Speaker 3: too far left or too far right, you know, as
Speaker 3: it relates to that. And so I think we're going
Speaker 3: to continue to see a lot of noise, and I
Speaker 3: think that noise is going to create Also, I mentioned
Speaker 3: a floor or maybe a put that exists, but I
Speaker 3: also think that probably creates a cap on where equity
Speaker 3: prices can move in the near term.
Speaker 4: So do you think the first half of the year
Speaker 4: is going to be very different from the second half
Speaker 4: of the year because of everything that's coming out washed.
Speaker 3: The first half of the year is going to be
Speaker 3: really bumpy. I think what the market is already telling
Speaker 3: us is we're tired. We're tired of executive action, we're
Speaker 3: tired of executive orders, we're tired of hearing about tiraffs
Speaker 3: in all of these different countries. And I think with that,
Speaker 3: you know, I think we're going to see a market
Speaker 3: where we're seeing more volatility. And then I think it's
Speaker 3: going to be how does the economy ultimately expand we
Speaker 3: have to balance some of the challenges of stagflation with
Speaker 3: some of the challenges of how do we continue to
Speaker 3: make sure that we're maintaining growth throughout the first half
Speaker 3: of the year, And so the market in the second
Speaker 3: half of the year is going to be highly highly
Speaker 3: dependent on how well ad job we do at balancing
Speaker 3: those two factors.
Speaker 1: Hey, just a little bit of time left and wanted
Speaker 1: to touch on crypto. Speaking of volatility, how do you
Speaker 1: do crypto at the sure.
Speaker 3: So we are in the digital currency space, we do
Speaker 3: trade crypto. We don't have a directional view on where
Speaker 3: crypto is going, but there are certain types of opportunities
Speaker 3: that have come about by the creation of new crypto products,
Speaker 3: whether that be some of the new ETFs, the ability
Speaker 3: to trade futures, the expanding ability to trade futures across
Speaker 3: a larger amount of digital currencies creates opportunities for us,
Speaker 3: and so we have started to deploy capital and some
Speaker 3: of the basis trades that I think have been written
Speaker 3: about a fair bit. We have worked closely and partnered
Speaker 3: with the banks as it relates to how we can
Speaker 3: deploy our balance sheet around some of those strategies. We
Speaker 3: are thinking through how we can expand our digital currency
Speaker 3: trading strategies more broadly. Today it's still a relatively small
Speaker 3: percent of our risk capital, but it's something that if
Speaker 3: you ask me over the next two or three years,
Speaker 3: based off of a combination of what I think we'll
Speaker 3: see from a regulatory policy perspective with a combination of
Speaker 3: what I think we'll see from a market structure of
Speaker 3: market participant perspective, will likely become a greater percent of
Speaker 3: the risk of the portfolio than it is today, but
Speaker 3: it will still be one of many strategies we deploy
Speaker 3: a chunfold pair.
Speaker 4: Amount of volatility there too.
Speaker 3: Certainly, but again I think that's part of what creates
Speaker 3: the opportunity. Brian, thank you so much.
Speaker 4: Ryan Tolkien of shone Felt CEO and CIO.
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