1 00:00:01,360 --> 00:00:05,680 Speaker 1: This is Bloomberg Business Wait inside from the reporters and 2 00:00:05,880 --> 00:00:09,440 Speaker 1: editors who bring you America's most trusted business magazine, plus 3 00:00:09,520 --> 00:00:13,680 Speaker 1: global business, finance and tech news. The Bloomberg Business Week 4 00:00:13,720 --> 00:00:18,640 Speaker 1: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio. 5 00:00:20,640 --> 00:00:22,960 Speaker 2: So we talk a lot about inflation, Jess, We know that, right. 6 00:00:23,000 --> 00:00:25,279 Speaker 2: It's kind of almost like a ping pong game, don't 7 00:00:25,280 --> 00:00:27,520 Speaker 2: you feel like, because there's people who have some really 8 00:00:27,560 --> 00:00:30,440 Speaker 2: strong thoughts about it and where it's going. 9 00:00:30,400 --> 00:00:32,479 Speaker 3: Right, whether it's not going to come dramatically down to 10 00:00:32,520 --> 00:00:34,920 Speaker 3: that two percent target for the Fed or the sticky 11 00:00:34,960 --> 00:00:37,600 Speaker 3: word everybody likes to keep mentioning for stagflation. 12 00:00:37,720 --> 00:00:39,560 Speaker 2: Darren say, all right, so let's get to it into 13 00:00:39,560 --> 00:00:41,880 Speaker 2: a most read story in the Bloomberg A team of 14 00:00:41,880 --> 00:00:44,600 Speaker 2: Bloomberg reporters covering how trillions of dollars are at stake 15 00:00:44,640 --> 00:00:48,120 Speaker 2: as Wall Street is super split over the path of inflation. 16 00:00:48,520 --> 00:00:51,559 Speaker 2: With us as Bloomberg News chief correspondent for Global Macro Markets, 17 00:00:51,600 --> 00:00:54,640 Speaker 2: A favorite here at Bloomberg, Liz McCormick, she's with us 18 00:00:54,720 --> 00:00:57,160 Speaker 2: via zoom in New York City. Hey Liz, so good 19 00:00:57,200 --> 00:00:59,640 Speaker 2: to have you here with Jess and myself love this story. 20 00:00:59,720 --> 00:01:03,720 Speaker 2: It is show a story of our times. It isn't unusual, though, 21 00:01:03,760 --> 00:01:07,240 Speaker 2: I feel like that there's disagreement between economists or market 22 00:01:07,240 --> 00:01:10,600 Speaker 2: strategists on Wall Street, and yet this is a pretty 23 00:01:10,600 --> 00:01:11,840 Speaker 2: big one. Walk us through it. 24 00:01:13,160 --> 00:01:16,520 Speaker 4: Yeah, true, we always kind of have a lot of disagreement. 25 00:01:16,560 --> 00:01:18,440 Speaker 4: But what I think Carol gets to why this is 26 00:01:18,480 --> 00:01:21,200 Speaker 4: even more important now? This like just says, is it sticky? 27 00:01:21,319 --> 00:01:24,319 Speaker 4: Is inflation going to keep coming down? Is we're, you know, 28 00:01:24,480 --> 00:01:27,360 Speaker 4: seemingly getting at a pivotal point with the Fed because 29 00:01:27,400 --> 00:01:30,320 Speaker 4: supposedly they're getting close to done. Let's say, we can't 30 00:01:30,400 --> 00:01:33,480 Speaker 4: call when, but maybe they hike next week, they might 31 00:01:33,560 --> 00:01:37,160 Speaker 4: hike in June, but nonetheless they're close. So after that 32 00:01:37,200 --> 00:01:40,240 Speaker 4: what happens And a lot of that depends on inflation, right, 33 00:01:40,360 --> 00:01:43,559 Speaker 4: So I think what the divide is and the views 34 00:01:43,560 --> 00:01:46,040 Speaker 4: on inflation is kind of even more important now because 35 00:01:46,040 --> 00:01:47,840 Speaker 4: we're close to the end, and that means does the 36 00:01:47,880 --> 00:01:50,080 Speaker 4: f stay there or do they ease? Like you know, 37 00:01:50,120 --> 00:01:52,640 Speaker 4: you guys have talked the market is pricing that, so 38 00:01:52,720 --> 00:01:54,760 Speaker 4: I think, you know, and like I said, there's lots 39 00:01:54,800 --> 00:01:56,960 Speaker 4: of big investors here in this story. Like I said, 40 00:01:56,960 --> 00:01:59,560 Speaker 4: there's a swath of US reporters, and they don't all agree, 41 00:01:59,880 --> 00:02:02,640 Speaker 4: but I think it's kind of compelling. There's that strong 42 00:02:02,760 --> 00:02:05,520 Speaker 4: views by several of them that say, you know, inflation's 43 00:02:05,560 --> 00:02:07,640 Speaker 4: come down pretty fast, but it's going to be slow 44 00:02:07,680 --> 00:02:08,640 Speaker 4: moving from here. 45 00:02:09,040 --> 00:02:10,600 Speaker 5: The FED is not going to be able. 46 00:02:10,360 --> 00:02:13,400 Speaker 4: To pivot to easing even if the economy falters a 47 00:02:13,480 --> 00:02:16,560 Speaker 4: little bit, because they're just there, you know, enemy number 48 00:02:16,560 --> 00:02:19,760 Speaker 4: one remains inflation, and there's the other side that just says, 49 00:02:19,800 --> 00:02:21,880 Speaker 4: you know, hey, it's going to go on and the 50 00:02:21,919 --> 00:02:23,000 Speaker 4: economy is going to creter. 51 00:02:23,160 --> 00:02:26,440 Speaker 5: FED has to ease. So there you go in a nutshell. 52 00:02:27,000 --> 00:02:29,120 Speaker 3: Hey, Liz, break it down as far as when it 53 00:02:29,160 --> 00:02:31,600 Speaker 3: comes to these specific firms, because you have double Line 54 00:02:31,639 --> 00:02:33,600 Speaker 3: thinking that inflation is still going to be sticky, but 55 00:02:33,639 --> 00:02:35,960 Speaker 3: then you have Alliance, you have TCW in a different 56 00:02:36,000 --> 00:02:38,120 Speaker 3: type of camp. Who's on which sort of team at 57 00:02:38,120 --> 00:02:39,080 Speaker 3: this point? 58 00:02:39,720 --> 00:02:42,520 Speaker 5: Yeah? Right, So like it's funny Like TCW. I spoke 59 00:02:42,560 --> 00:02:44,560 Speaker 5: to Steve Kane and he was saying, you know. 60 00:02:44,639 --> 00:02:47,520 Speaker 4: And it's funny because in Palells one of his pressers, 61 00:02:47,560 --> 00:02:49,720 Speaker 4: someone was saying, how many times it said he said 62 00:02:49,760 --> 00:02:51,040 Speaker 4: disinflation or whatever. 63 00:02:52,000 --> 00:02:57,960 Speaker 2: Steve, it's the new drinking game should be anyway. 64 00:02:58,240 --> 00:03:00,359 Speaker 4: Yeah, but Steve Gay was saying we're seeing a lot 65 00:03:00,360 --> 00:03:04,080 Speaker 4: of disinflationary forces already and that that's going to carry 66 00:03:04,120 --> 00:03:06,960 Speaker 4: momentum plus, like you know, bearing in mind that there 67 00:03:07,080 --> 00:03:09,760 Speaker 4: is this sting still to come of all the FED 68 00:03:09,919 --> 00:03:12,840 Speaker 4: tightening they've already done, which we know there's those long 69 00:03:12,840 --> 00:03:15,359 Speaker 4: and variable lags we've started to see, like people say 70 00:03:15,400 --> 00:03:17,360 Speaker 4: the FED started to break some things, like you were 71 00:03:17,360 --> 00:03:20,920 Speaker 4: talking about what the issues in the regional banks and 72 00:03:21,000 --> 00:03:23,639 Speaker 4: that they feel like this is just going to kind 73 00:03:23,639 --> 00:03:26,239 Speaker 4: of keep coming in force that you know, I don't 74 00:03:26,280 --> 00:03:28,320 Speaker 4: know if if you was just mentioning Carol that about 75 00:03:28,320 --> 00:03:30,919 Speaker 4: the consumer, like when the consumer like people have had 76 00:03:30,919 --> 00:03:32,799 Speaker 4: a job, so they're doing okay, But you see, I 77 00:03:32,919 --> 00:03:35,520 Speaker 4: saw a consumer confidence go on when the consumer really 78 00:03:35,520 --> 00:03:38,520 Speaker 4: says I'm not going to spend more and my prices 79 00:03:38,520 --> 00:03:41,760 Speaker 4: aren't down that much, you know that maybe then the 80 00:03:41,800 --> 00:03:44,840 Speaker 4: momentum on inflation keeps coming. And I think that's like 81 00:03:44,920 --> 00:03:46,840 Speaker 4: TCW is saying, it's going to build. 82 00:03:46,920 --> 00:03:47,160 Speaker 5: You know. 83 00:03:47,520 --> 00:03:49,880 Speaker 2: So I do think about as as a consumer, if 84 00:03:49,880 --> 00:03:52,320 Speaker 2: I look at prices still staying high, I'm going to 85 00:03:52,360 --> 00:03:54,280 Speaker 2: start making choices about where I'm going to have to 86 00:03:54,400 --> 00:03:56,400 Speaker 2: like in terms of where I spend my money my money. 87 00:03:56,480 --> 00:03:58,200 Speaker 2: I want to go back for a second when it 88 00:03:58,240 --> 00:04:02,160 Speaker 2: comes to FED policy, Liz, what is the lag? Officially? 89 00:04:02,280 --> 00:04:04,840 Speaker 2: Is it a year? Like when do we really feel 90 00:04:04,840 --> 00:04:08,640 Speaker 2: the punch from this past year of FED heightenings? You know, 91 00:04:08,680 --> 00:04:09,600 Speaker 2: in raising of rates? 92 00:04:10,440 --> 00:04:12,680 Speaker 4: Well, that's another one, and economists they all have their 93 00:04:12,720 --> 00:04:16,440 Speaker 4: different particular views, but let's say they're saying usually it's 94 00:04:16,560 --> 00:04:17,200 Speaker 4: twelve months. 95 00:04:17,279 --> 00:04:19,200 Speaker 5: I remember in the beginning of the tightening there were. 96 00:04:19,120 --> 00:04:21,920 Speaker 4: Some saying the lag would be less this time around, 97 00:04:22,440 --> 00:04:24,479 Speaker 4: but I don't think it was. So. I mean, the 98 00:04:24,480 --> 00:04:28,120 Speaker 4: FED started in March of twenty twenty two. That's last year, right, 99 00:04:28,200 --> 00:04:30,120 Speaker 4: it was that we're about a little over a year 100 00:04:30,120 --> 00:04:33,000 Speaker 4: from there, and they went faster than they've ever gone, 101 00:04:33,040 --> 00:04:35,599 Speaker 4: at least in my era of watching FED. 102 00:04:36,520 --> 00:04:39,320 Speaker 5: So I think you're going to start continuing. 103 00:04:38,880 --> 00:04:41,240 Speaker 4: To feel it more. I think we've talked about this before. 104 00:04:41,360 --> 00:04:43,480 Speaker 4: You know, you say, ah, dude, I want to fix 105 00:04:43,560 --> 00:04:46,320 Speaker 4: my deck. Maybe not because my heelock is it's seven 106 00:04:46,360 --> 00:04:48,359 Speaker 4: percent now, right, you know what I mean? So I 107 00:04:48,400 --> 00:04:50,799 Speaker 4: think on the margin, people are going to start saying 108 00:04:50,839 --> 00:04:52,960 Speaker 4: things like that more and more, Like you can choose. 109 00:04:53,520 --> 00:04:56,039 Speaker 4: I don't really need this new thing, even though I 110 00:04:56,160 --> 00:04:57,640 Speaker 4: want it, because it's more expensive. 111 00:04:57,680 --> 00:05:00,000 Speaker 5: There's no like free money anymore, unfortunately. 112 00:05:00,240 --> 00:05:02,880 Speaker 3: Right, Yeah, Liz, what is the bond market telling us? 113 00:05:02,920 --> 00:05:06,120 Speaker 3: Because we did see a record short position when it 114 00:05:06,160 --> 00:05:08,720 Speaker 3: came to hedge funds against the tenure treasury. So does 115 00:05:08,760 --> 00:05:11,960 Speaker 3: that mean the bond market isn't positioned correctly for potential 116 00:05:12,000 --> 00:05:12,640 Speaker 3: posites here. 117 00:05:13,720 --> 00:05:16,080 Speaker 4: Well, that's a great question, Jess, because you know, my 118 00:05:16,480 --> 00:05:19,080 Speaker 4: colleague Garfield Reynolds had written a story about that. And 119 00:05:19,400 --> 00:05:22,239 Speaker 4: what's interesting is you have this kind of hot hedge 120 00:05:22,320 --> 00:05:26,120 Speaker 4: fund money that's leaning very hard into being short. But 121 00:05:26,279 --> 00:05:28,400 Speaker 4: you know, so that's in some of the CFTC data 122 00:05:28,440 --> 00:05:30,840 Speaker 4: we can look at. They're like the leverage funds and 123 00:05:31,160 --> 00:05:33,320 Speaker 4: then I'm I'm kind of like a little surprised because 124 00:05:33,320 --> 00:05:35,400 Speaker 4: they got a big burned in March when the banking 125 00:05:35,440 --> 00:05:37,840 Speaker 4: crisis broke and yields tumbled. 126 00:05:38,200 --> 00:05:40,080 Speaker 5: But I think they have a strong conviction. 127 00:05:40,200 --> 00:05:41,599 Speaker 4: But on the other side, because you can look at 128 00:05:41,600 --> 00:05:43,599 Speaker 4: in the other parts of the data, there's some of 129 00:05:43,640 --> 00:05:46,839 Speaker 4: the kind of call it asset managers, kind of regular money, 130 00:05:47,400 --> 00:05:50,400 Speaker 4: they're still long. So there's a bit of a divide there. 131 00:05:50,480 --> 00:05:52,840 Speaker 4: There's also some kind of arb trading you can do. 132 00:05:52,920 --> 00:05:56,279 Speaker 4: But I do think the kind of the trend followers, 133 00:05:56,320 --> 00:05:59,040 Speaker 4: the quants are still leaning too short, and that means, 134 00:05:59,080 --> 00:05:59,520 Speaker 4: like you're. 135 00:05:59,440 --> 00:06:01,040 Speaker 5: Right, it depends what happens. 136 00:06:01,080 --> 00:06:03,040 Speaker 4: They kind of think inflation is going to stay around. 137 00:06:03,120 --> 00:06:05,360 Speaker 4: Fed's going to stay, you know, at least high, even 138 00:06:05,360 --> 00:06:08,280 Speaker 4: if they stop tightening. But if this stuff unravels, and 139 00:06:08,320 --> 00:06:10,680 Speaker 4: there's so many uncertainties. I hate to even bring up 140 00:06:10,680 --> 00:06:13,240 Speaker 4: the debt ceiling because it's the thing we all love 141 00:06:13,320 --> 00:06:13,839 Speaker 4: to hate. 142 00:06:13,680 --> 00:06:16,680 Speaker 5: To revisit every couple of years. But but it's fair, right, Yeah, 143 00:06:16,680 --> 00:06:19,840 Speaker 5: we have to right that risk is looming. You know, 144 00:06:20,040 --> 00:06:22,480 Speaker 5: Kevin McCarthy's supposed to have a vote tomorrow. 145 00:06:22,520 --> 00:06:25,080 Speaker 4: They don't know the votes, and you know, Biden says 146 00:06:25,120 --> 00:06:27,719 Speaker 4: I don't want anything with spending cuts. So we're a 147 00:06:27,760 --> 00:06:30,240 Speaker 4: long way from a deal on the debt ceiling. And 148 00:06:30,320 --> 00:06:32,320 Speaker 4: you know, treasury is are my thing. I'm not saying 149 00:06:32,320 --> 00:06:34,200 Speaker 4: there's going to be a default, but I'm just saying 150 00:06:34,240 --> 00:06:37,080 Speaker 4: it's going to slowly create more angst. And you have 151 00:06:37,160 --> 00:06:39,320 Speaker 4: other things like we're watching the banking sector. 152 00:06:39,480 --> 00:06:41,560 Speaker 5: Is it over? Is it the worst? So there's just 153 00:06:41,600 --> 00:06:42,840 Speaker 5: so much unknown. 154 00:06:42,560 --> 00:06:44,080 Speaker 2: Liz, I want to jump in. I'm thinking, you know, 155 00:06:44,279 --> 00:06:46,880 Speaker 2: I feel like those who are trading on Wall Street 156 00:06:46,960 --> 00:06:48,480 Speaker 2: or working at Wall Street for you know, in a 157 00:06:48,520 --> 00:06:50,520 Speaker 2: lot of our audience, like they get why we are 158 00:06:50,520 --> 00:06:52,560 Speaker 2: having this discussion. I think there's folks out there, like, 159 00:06:52,920 --> 00:06:54,520 Speaker 2: you know, their eyes glaze over when it's the deat 160 00:06:54,520 --> 00:06:57,040 Speaker 2: sailing conversations, or you know, whether or not we get 161 00:06:57,040 --> 00:06:59,280 Speaker 2: to two percent versus you know, maybe a three or 162 00:06:59,320 --> 00:07:02,960 Speaker 2: four percent you know target ultimately in terms of inflation 163 00:07:03,160 --> 00:07:07,400 Speaker 2: by the FED. What's the significance of you know, whether 164 00:07:07,440 --> 00:07:09,479 Speaker 2: we go back to normal and the FED gets it right, 165 00:07:09,520 --> 00:07:12,800 Speaker 2: whether we end up higher on a FED rate, you know, 166 00:07:13,000 --> 00:07:15,200 Speaker 2: and we don't go back to normal. What are the 167 00:07:15,280 --> 00:07:17,880 Speaker 2: implications because it feels like if we end up at 168 00:07:17,920 --> 00:07:21,320 Speaker 2: a higher rate environment right, we're talking about things costing more, 169 00:07:22,240 --> 00:07:26,720 Speaker 2: maybe higher wages at companies, you know, rethink on you know, 170 00:07:26,840 --> 00:07:29,920 Speaker 2: asset valuations. I mean there are implications right. 171 00:07:30,640 --> 00:07:31,400 Speaker 5: Right exactly. 172 00:07:31,440 --> 00:07:34,080 Speaker 4: I mean just think for like regular people who don't 173 00:07:34,080 --> 00:07:36,600 Speaker 4: live and breathe this stuff. Luckily for them like us 174 00:07:36,600 --> 00:07:39,880 Speaker 4: all day is that Number one is jobs. Like we've 175 00:07:39,920 --> 00:07:42,200 Speaker 4: talked about, let's not get into my family, but young 176 00:07:42,320 --> 00:07:46,360 Speaker 4: college students graduating there. You know, we've seen less job opening, 177 00:07:46,480 --> 00:07:48,400 Speaker 4: so that, you know, if the economy slows, that's not 178 00:07:48,800 --> 00:07:51,160 Speaker 4: good for any young person starting their career. If it's 179 00:07:51,200 --> 00:07:53,720 Speaker 4: harder to find a job, or anyone working who's kind 180 00:07:53,720 --> 00:07:54,239 Speaker 4: of saying. 181 00:07:54,080 --> 00:07:55,560 Speaker 5: I want to make a change. 182 00:07:55,600 --> 00:07:58,160 Speaker 4: If there's less job opportunities, that's never good for the 183 00:07:58,200 --> 00:08:01,360 Speaker 4: regular person. I always come back to everyone in their 184 00:08:01,400 --> 00:08:03,680 Speaker 4: retirement and their four to one k if they're being 185 00:08:03,720 --> 00:08:06,360 Speaker 4: good and not you know, market timing and moving around, 186 00:08:06,680 --> 00:08:09,520 Speaker 4: they do get worried and say, oh my goodness, if 187 00:08:09,560 --> 00:08:11,880 Speaker 4: the value of my funds are down. It it's like, 188 00:08:12,080 --> 00:08:15,200 Speaker 4: I guess it's I'm not consumer confidence, but personal confidence. 189 00:08:15,240 --> 00:08:17,320 Speaker 4: How do I feel that wealth effect that you don't 190 00:08:17,360 --> 00:08:19,440 Speaker 4: feel too good if the value of your stuff is down. 191 00:08:19,520 --> 00:08:21,520 Speaker 5: And if the FED keeps going on, it has to 192 00:08:21,560 --> 00:08:22,679 Speaker 5: go tighter and tighter. 193 00:08:23,280 --> 00:08:25,920 Speaker 4: That's going to hurt financial assets and that's going to 194 00:08:25,960 --> 00:08:31,000 Speaker 4: make people opening their quarterly retirement accounts saying oooh, what happened? 195 00:08:31,080 --> 00:08:31,320 Speaker 6: You know? 196 00:08:31,720 --> 00:08:34,080 Speaker 3: Yeah, and Liz, as you know, this is the blackout 197 00:08:34,080 --> 00:08:35,520 Speaker 3: week for the FED, so we won't have any FED 198 00:08:35,559 --> 00:08:37,839 Speaker 3: speakers on the calendar, but on Friday we do have 199 00:08:37,920 --> 00:08:40,240 Speaker 3: the PCE, the feds preferred gauge for inflation, as well 200 00:08:40,280 --> 00:08:42,400 Speaker 3: as the Employment Cost Index, which we all know Pale 201 00:08:42,480 --> 00:08:45,360 Speaker 3: watches very closely for wages. How much of an impact 202 00:08:45,360 --> 00:08:48,080 Speaker 3: does this inflation data actually have on the bond mark? 203 00:08:48,200 --> 00:08:50,800 Speaker 3: Is it less so at this point than last year 204 00:08:50,920 --> 00:08:52,400 Speaker 3: or do you expect there to be any sort of 205 00:08:52,440 --> 00:08:55,040 Speaker 3: meaningful move so when it comes out. 206 00:08:55,120 --> 00:08:57,760 Speaker 4: Yeah, well, I actually think it still really does matter 207 00:08:57,920 --> 00:09:01,600 Speaker 4: because again we're getting at like we said, we've gone 208 00:09:01,600 --> 00:09:04,240 Speaker 4: some decent ways of inflation falling, but are we're going 209 00:09:04,280 --> 00:09:06,600 Speaker 4: to plateau? You know, I think those numbers are like 210 00:09:07,160 --> 00:09:09,840 Speaker 4: four point one and four percent, whether it's you know, 211 00:09:09,920 --> 00:09:13,400 Speaker 4: the deflator or the core number, and you know, if 212 00:09:13,400 --> 00:09:16,120 Speaker 4: it's higher, then it's like then we might have some 213 00:09:16,200 --> 00:09:18,960 Speaker 4: answers to are we going to have a bit more 214 00:09:19,000 --> 00:09:21,559 Speaker 4: move from the Fed and a pause if it tumbles 215 00:09:21,600 --> 00:09:24,400 Speaker 4: below a freak fore handle which is not forecast. I'm 216 00:09:24,440 --> 00:09:27,320 Speaker 4: not predicting, but I think that will take notice. And 217 00:09:27,320 --> 00:09:30,720 Speaker 4: with the bond market, it's been like insane volatility all year. 218 00:09:30,760 --> 00:09:33,520 Speaker 4: We've had a bit of calm lately, but I would 219 00:09:33,559 --> 00:09:37,679 Speaker 4: never underestimate that the market can't react in size, especially 220 00:09:37,800 --> 00:09:40,240 Speaker 4: to the Fed's favorite inflation gauge. 221 00:09:40,280 --> 00:09:42,679 Speaker 2: Hey, twenty thirty seconds left here. I mean we need 222 00:09:42,720 --> 00:09:45,080 Speaker 2: to be fair to the Fed. That monetary policy not 223 00:09:45,160 --> 00:09:46,240 Speaker 2: an exact science. 224 00:09:46,480 --> 00:09:50,360 Speaker 4: Liz, absolutely, and you know they're doing the best they can. 225 00:09:51,240 --> 00:09:55,160 Speaker 4: Clearly they don't want to implode the economy. Pal is 226 00:09:55,280 --> 00:09:58,840 Speaker 4: always hopeful trying to have a soft landing if possible, 227 00:09:58,880 --> 00:10:01,560 Speaker 4: but he knows that if if there's no price stability, 228 00:10:01,600 --> 00:10:03,560 Speaker 4: as he always says, it's not good for anyone. So 229 00:10:03,600 --> 00:10:05,240 Speaker 4: they're clearly trying their best. 230 00:10:05,320 --> 00:10:07,079 Speaker 2: All right, So glad we could check in with you. 231 00:10:07,480 --> 00:10:09,080 Speaker 2: As we said, folks, this is one of the most 232 00:10:09,080 --> 00:10:12,640 Speaker 2: read stories on the Bloomberg And as Liz just detailed, 233 00:10:12,679 --> 00:10:15,480 Speaker 2: you understand why Liz McCormick, she's chief correspondent for Global 234 00:10:15,480 --> 00:10:19,760 Speaker 2: macro markets, really does have global macro market perspective here 235 00:10:19,760 --> 00:10:23,760 Speaker 2: at Bloomberg News. Joining us via zoom from New York City, you're. 236 00:10:23,559 --> 00:10:27,160 Speaker 1: Listening to the Bloomberg Business Week podcast. Catch us live 237 00:10:27,240 --> 00:10:30,840 Speaker 1: weekday afternoons from three to six Eastern Listen on Bloomberg 238 00:10:30,880 --> 00:10:34,360 Speaker 1: dot com, the iHeartRadio app, and the Bloomberg Business App, 239 00:10:34,640 --> 00:10:36,920 Speaker 1: or watch us live on YouTube. 240 00:10:37,600 --> 00:10:39,800 Speaker 2: All right, folks, So a few companies as you know, 241 00:10:39,880 --> 00:10:43,080 Speaker 2: as we've been reporting, Charlie included companies reporting in the 242 00:10:43,080 --> 00:10:45,520 Speaker 2: consumer space making the stuff we eat and buy or 243 00:10:45,679 --> 00:10:47,800 Speaker 2: moving it around. They are out with earnings, so we're 244 00:10:47,800 --> 00:10:52,000 Speaker 2: talking McDonald's, PepsiCo Ups also three am. So with our 245 00:10:52,080 --> 00:10:55,120 Speaker 2: consumerie earnings round up, let's get to Bloomberg News anchor 246 00:10:55,160 --> 00:10:59,520 Speaker 2: Markets correspondent Cretygupta and Bloomberg News reporter Simone Foxman, both 247 00:10:59,520 --> 00:11:02,280 Speaker 2: in our Blue Interactive Broker studio. So great to have 248 00:11:02,320 --> 00:11:04,040 Speaker 2: you guys here. We want to get into the pacifics, 249 00:11:04,080 --> 00:11:06,440 Speaker 2: but I want to start big picture first if I could. 250 00:11:07,360 --> 00:11:09,720 Speaker 2: Is there a theme or trend that we are seeing Cretty, 251 00:11:09,720 --> 00:11:11,600 Speaker 2: and I want to start with you when in this 252 00:11:11,760 --> 00:11:12,679 Speaker 2: kind of space, if you. 253 00:11:12,640 --> 00:11:14,600 Speaker 7: Will, Yeah, it's it's pretty clear. And I think all 254 00:11:14,640 --> 00:11:18,640 Speaker 7: four earnings stories are telling you the economic data slow down, 255 00:11:18,679 --> 00:11:21,760 Speaker 7: that we're seeing that recession that we feared it is coming, 256 00:11:21,960 --> 00:11:23,439 Speaker 7: So you are starting to see this show up in 257 00:11:23,480 --> 00:11:25,640 Speaker 7: corporate earnings. I think the difference here is that a 258 00:11:25,720 --> 00:11:27,240 Speaker 7: lot of these companies. 259 00:11:27,880 --> 00:11:30,000 Speaker 2: Have weathered it quite well, and. 260 00:11:30,000 --> 00:11:32,880 Speaker 7: I think that's a real testament to the management that's 261 00:11:32,880 --> 00:11:34,720 Speaker 7: in some of these companies. The idea that they are 262 00:11:35,040 --> 00:11:39,160 Speaker 7: tackling it through layoffs, through in some ways through cutting. 263 00:11:39,320 --> 00:11:42,199 Speaker 2: Amazing how layoffs has become the thing, like we're on it, 264 00:11:42,280 --> 00:11:42,800 Speaker 2: fos it. 265 00:11:42,720 --> 00:11:45,760 Speaker 7: Is, and you know, it's also interesting how they're received differently. 266 00:11:45,800 --> 00:11:47,240 Speaker 7: We can dive into the specifics of it, but the 267 00:11:47,240 --> 00:11:49,559 Speaker 7: big picture takeaway is that slow down that we thought 268 00:11:49,640 --> 00:11:52,000 Speaker 7: was coming, it's here. You're seeing it in the data. 269 00:11:52,440 --> 00:11:54,239 Speaker 2: It's just not showing up in these earning. 270 00:11:54,000 --> 00:11:58,040 Speaker 7: Speeds because companies are adapting, and they're adapting way faster. 271 00:11:58,040 --> 00:11:59,720 Speaker 2: Than they have in the past, and in some cases 272 00:11:59,720 --> 00:12:01,920 Speaker 2: past on those higher costs. Yeah, some of your thoughts 273 00:12:01,960 --> 00:12:02,880 Speaker 2: on the big picture. 274 00:12:02,640 --> 00:12:03,240 Speaker 5: Yeah, certainly. 275 00:12:03,440 --> 00:12:05,960 Speaker 8: Well, you know, I think there's a difference between today 276 00:12:06,440 --> 00:12:08,640 Speaker 8: and six months from now, and that's the same kind 277 00:12:08,720 --> 00:12:12,440 Speaker 8: of detail that we got in the consumer confidence numbers 278 00:12:12,440 --> 00:12:14,839 Speaker 8: from the Confidence Board today. You know, the half of 279 00:12:14,920 --> 00:12:18,080 Speaker 8: consumers said jobs were plentiful right now, and only twelve 280 00:12:18,120 --> 00:12:20,360 Speaker 8: point five percent expect more jobs than six months. 281 00:12:20,480 --> 00:12:21,600 Speaker 2: That's the worst than seven years. 282 00:12:21,640 --> 00:12:23,840 Speaker 8: But if we go back to twenty sixteen, twenty sixteen 283 00:12:24,240 --> 00:12:26,760 Speaker 8: wasn't that bad, And maybe that's what's showing up in 284 00:12:26,800 --> 00:12:30,000 Speaker 8: some of these earnings. You know, consumers not really changing 285 00:12:30,000 --> 00:12:33,439 Speaker 8: their behavior so much at the moment and just concerned 286 00:12:33,440 --> 00:12:35,960 Speaker 8: about what's to come. But I mean, and who can 287 00:12:36,000 --> 00:12:36,600 Speaker 8: tell the future. 288 00:12:36,640 --> 00:12:38,160 Speaker 2: You know, right now they still feel confident. 289 00:12:38,440 --> 00:12:40,560 Speaker 3: I wanted to get your thoughts on the margin picture 290 00:12:40,559 --> 00:12:42,440 Speaker 3: because that's been such a focus when it comes to 291 00:12:42,480 --> 00:12:45,040 Speaker 3: these consumer type names. What are you seeing in some 292 00:12:45,120 --> 00:12:47,559 Speaker 3: of these names and do you think that those indications 293 00:12:47,559 --> 00:12:49,360 Speaker 3: there of some glimmers of hope because it seems like 294 00:12:49,400 --> 00:12:50,920 Speaker 3: it's coming better than expected from guys. 295 00:12:51,240 --> 00:12:55,319 Speaker 2: Mean you hear that, I'm going to start counting. 296 00:12:55,920 --> 00:12:56,319 Speaker 6: I love it. 297 00:12:57,240 --> 00:12:59,000 Speaker 7: I feel the way I feel right at home. 298 00:13:00,600 --> 00:13:00,920 Speaker 9: Yeah. 299 00:13:00,960 --> 00:13:03,280 Speaker 7: But to answer your question about the margin story, look, 300 00:13:03,320 --> 00:13:05,480 Speaker 7: I think I mean, I'm going to go with PepsiCo 301 00:13:05,520 --> 00:13:08,000 Speaker 7: as my favorite example of this because and you can 302 00:13:08,040 --> 00:13:09,560 Speaker 7: see it in ups. You actually see it in all 303 00:13:09,559 --> 00:13:11,920 Speaker 7: four earning stories. I mean these Pepsco as an example 304 00:13:11,960 --> 00:13:14,920 Speaker 7: because look, food is expensive and it has been expensive. 305 00:13:14,920 --> 00:13:16,880 Speaker 7: Commodities have been expensive, and it's something that a lot 306 00:13:16,920 --> 00:13:19,600 Speaker 7: of these consumer companies have had to hedge. Coca Cola 307 00:13:19,640 --> 00:13:23,040 Speaker 7: talked about it yesterday, PepsiCo has talked about it today 308 00:13:23,080 --> 00:13:25,959 Speaker 7: on Bloomberg Television as well, And the way that they 309 00:13:26,400 --> 00:13:29,320 Speaker 7: dealt with that is simply by increasing their prices, and 310 00:13:29,400 --> 00:13:31,400 Speaker 7: they've done that for about a year now, and prices 311 00:13:31,440 --> 00:13:34,960 Speaker 7: increased I think something like sixteen percent on lot beverages 312 00:13:35,040 --> 00:13:37,960 Speaker 7: and chips, and nobody noticed. I mean, I certainly if 313 00:13:37,960 --> 00:13:41,080 Speaker 7: I will go and grab a can of PEPSI I'm 314 00:13:41,120 --> 00:13:43,959 Speaker 7: not checking the price to do that. And that has 315 00:13:44,000 --> 00:13:47,040 Speaker 7: really worked in their favor. But it has also just 316 00:13:47,160 --> 00:13:50,199 Speaker 7: kept those margins steady. It hasn't created this massive improvement, 317 00:13:50,240 --> 00:13:54,160 Speaker 7: but at a time where margins a steady, okay, right exactly, so, 318 00:13:54,200 --> 00:13:56,480 Speaker 7: at a time when margins are getting squeezed, steady is 319 00:13:56,480 --> 00:13:59,400 Speaker 7: actually an accomplishment to your point, and I think PepsiCo 320 00:13:59,520 --> 00:14:02,000 Speaker 7: is a great example of that because they were doing 321 00:14:02,000 --> 00:14:04,480 Speaker 7: that by price hikes. The CFO was on Bloomberg TV 322 00:14:04,559 --> 00:14:07,560 Speaker 7: earlier and also said productivity is also helping with the 323 00:14:07,600 --> 00:14:09,679 Speaker 7: margin story a little bit. But when it comes to 324 00:14:09,679 --> 00:14:11,839 Speaker 7: consumer goods, and we're going to hear this with I 325 00:14:11,880 --> 00:14:14,600 Speaker 7: think you brought this up earlier, Procter and Gamble and 326 00:14:14,679 --> 00:14:17,760 Speaker 7: Church and Dwight all reporting next week about them and 327 00:14:17,840 --> 00:14:19,240 Speaker 7: whether they're going to do price hikes. 328 00:14:19,440 --> 00:14:19,600 Speaker 6: Right. 329 00:14:19,680 --> 00:14:22,480 Speaker 8: The labor part of this equation is really interesting, and 330 00:14:22,520 --> 00:14:25,320 Speaker 8: we saw that come out in various threads today in 331 00:14:25,360 --> 00:14:29,440 Speaker 8: these earnings ups, mind you, has to renegotiate its contract 332 00:14:29,560 --> 00:14:33,320 Speaker 8: with its teamsters, some three hundred and thirty thousand unionized 333 00:14:33,360 --> 00:14:36,240 Speaker 8: workers by the end of July. They are pushing for 334 00:14:36,560 --> 00:14:39,480 Speaker 8: price hikes or sorry for wage hikes, and so that 335 00:14:39,600 --> 00:14:41,840 Speaker 8: may end up featuring into this story. I mean we 336 00:14:41,880 --> 00:14:44,560 Speaker 8: saw that to a degree. I mean maybe we didn't. 337 00:14:44,560 --> 00:14:46,800 Speaker 8: We didn't see it with the market reaction to three 338 00:14:46,960 --> 00:14:48,640 Speaker 8: m cutting six thousand jobs, you. 339 00:14:48,560 --> 00:14:51,400 Speaker 2: Know, but there's a bigger story. Yeah, it's a restructuring 340 00:14:51,400 --> 00:14:55,280 Speaker 2: where they keep brook Sutherland was out on TV earlier 341 00:14:55,320 --> 00:14:57,400 Speaker 2: and just this whole idea of they keep throwing stuff 342 00:14:57,440 --> 00:14:59,400 Speaker 2: out there, right, and it's supposed to be kind of 343 00:14:59,400 --> 00:15:02,600 Speaker 2: improving more, but it hasn't quite happened yet. So I 344 00:15:02,640 --> 00:15:05,400 Speaker 2: think the bet or the street is still kind of like, well, 345 00:15:05,440 --> 00:15:06,200 Speaker 2: we're waiting to see. 346 00:15:06,320 --> 00:15:08,440 Speaker 8: But I mean, if more and more companies have to 347 00:15:08,480 --> 00:15:12,880 Speaker 8: start dealing with these wage increases, because I think all 348 00:15:13,000 --> 00:15:16,200 Speaker 8: these executives were out there talking about how the labor 349 00:15:16,280 --> 00:15:20,280 Speaker 8: market remains pretty tight for them, and you know, heck, 350 00:15:20,360 --> 00:15:23,880 Speaker 8: we have some of the restaurant brands with Starbucks coming 351 00:15:23,920 --> 00:15:26,680 Speaker 8: out next week. I mean, how much do they see 352 00:15:26,720 --> 00:15:29,240 Speaker 8: these price increases. We heard about it from the airlines. 353 00:15:29,840 --> 00:15:31,680 Speaker 8: Does is this a theme we start hearing more of 354 00:15:31,720 --> 00:15:32,800 Speaker 8: as earning season. 355 00:15:32,600 --> 00:15:34,480 Speaker 2: And Chipotle after the close? Can we talk attle bit 356 00:15:34,480 --> 00:15:36,360 Speaker 2: more about UPS? It is down the most in more 357 00:15:36,360 --> 00:15:38,440 Speaker 2: than eight years. We're talking about a nine percent drop, 358 00:15:38,480 --> 00:15:40,640 Speaker 2: and I guess I just need some context. 359 00:15:40,720 --> 00:15:41,320 Speaker 9: Is this just a. 360 00:15:41,280 --> 00:15:45,680 Speaker 2: Case of still writing this ship from the pandemic? Or 361 00:15:45,720 --> 00:15:48,120 Speaker 2: is it a case of folks, things are slowing down. 362 00:15:48,520 --> 00:15:50,720 Speaker 7: This is a case of things are slowing down. And 363 00:15:50,760 --> 00:15:52,760 Speaker 7: the reason is because the story of the comp sales, 364 00:15:52,800 --> 00:15:54,480 Speaker 7: which is I think we're referring to the case of 365 00:15:54,480 --> 00:15:57,080 Speaker 7: the pandemic when everyone was at home, everyone was getting 366 00:15:57,080 --> 00:15:59,120 Speaker 7: these packages. That was the story of twenty twenty one, 367 00:15:59,200 --> 00:16:02,440 Speaker 7: arguably twenty twenty to and UPS and FedEx took two 368 00:16:02,520 --> 00:16:05,240 Speaker 7: very different approaches when it came to tackling those comps. 369 00:16:05,240 --> 00:16:07,600 Speaker 7: FedEx said, We're going to hire a bunch of people. 370 00:16:07,600 --> 00:16:09,600 Speaker 7: We're going to make sure our network and our delivery 371 00:16:09,640 --> 00:16:12,960 Speaker 7: systems are just airtight, and we're going to do and 372 00:16:13,040 --> 00:16:14,600 Speaker 7: that's how we're going to make sure that people we 373 00:16:14,640 --> 00:16:17,720 Speaker 7: don't lose our consumer base. UPS took a very different strategy. 374 00:16:17,760 --> 00:16:20,640 Speaker 7: They said, look, we know eventually the recession is going 375 00:16:20,680 --> 00:16:22,960 Speaker 7: to come around the corner. Whenever that may be, we're 376 00:16:22,960 --> 00:16:25,120 Speaker 7: going to take a different strategy. Instead of hiring a 377 00:16:25,160 --> 00:16:28,160 Speaker 7: bunch because inflation is high, wages are high. As Simone 378 00:16:28,200 --> 00:16:30,440 Speaker 7: just pointed out, we're going to target the small businesses. 379 00:16:30,640 --> 00:16:32,800 Speaker 7: Here's the problem if there's a recession around the corner. 380 00:16:32,840 --> 00:16:34,880 Speaker 7: Who were the first people who pull back on that 381 00:16:35,000 --> 00:16:39,200 Speaker 7: medix into small businesses. So that strategy has completely kind 382 00:16:39,240 --> 00:16:42,600 Speaker 7: of worked against them at a time when UPS actually 383 00:16:42,640 --> 00:16:45,560 Speaker 7: was outperforming the market because people were saying FedEx spent 384 00:16:45,600 --> 00:16:48,440 Speaker 7: so much on their employees, they're the ones taking the 385 00:16:48,480 --> 00:16:51,040 Speaker 7: bigger cost. And then FedEx laid off a bunch of people, 386 00:16:51,080 --> 00:16:54,160 Speaker 7: and the market is now changing their tune. So now 387 00:16:54,160 --> 00:16:57,080 Speaker 7: we're worried a little bit more about the actual package decline. 388 00:16:57,160 --> 00:16:59,560 Speaker 7: And that's where UPS is I think a really great 389 00:17:00,000 --> 00:17:03,600 Speaker 7: example for the broader economy, which is economic activity is 390 00:17:03,600 --> 00:17:04,240 Speaker 7: slowing down. 391 00:17:04,480 --> 00:17:06,560 Speaker 3: I just feel like this is a tale of these 392 00:17:06,600 --> 00:17:09,360 Speaker 3: companies because about six months ago is when FedEx had 393 00:17:09,440 --> 00:17:12,000 Speaker 3: warned about their outlook, but then last month we saw 394 00:17:12,040 --> 00:17:14,640 Speaker 3: them boost their outlook for this year. So you don't 395 00:17:14,640 --> 00:17:17,240 Speaker 3: see them necessarily going in the same direction at this but. 396 00:17:17,160 --> 00:17:19,960 Speaker 2: They're two different models. I remember that FedEx and FedEx 397 00:17:20,040 --> 00:17:23,560 Speaker 2: is moving increasingly towards the UPS model. But UPS everything 398 00:17:23,600 --> 00:17:26,520 Speaker 2: is in house. Everybody is a UPS driver. FedEx, that 399 00:17:26,600 --> 00:17:28,760 Speaker 2: hasn't been the way, although they're starting to shift that. 400 00:17:28,840 --> 00:17:31,240 Speaker 7: Yeah, FedEx has had that independent contractor. And I think 401 00:17:31,240 --> 00:17:33,320 Speaker 7: to your point about that profit outlook, the reason they 402 00:17:33,320 --> 00:17:35,520 Speaker 7: said that is they said they're again going to eliminate 403 00:17:35,520 --> 00:17:39,080 Speaker 7: all those independent contractors because of that restructuring. And I 404 00:17:39,160 --> 00:17:40,560 Speaker 7: want to get the most take on this in a second. 405 00:17:40,560 --> 00:17:42,359 Speaker 7: But like one of the other things you have to 406 00:17:42,440 --> 00:17:44,720 Speaker 7: keep in mind with a lot of these companies is 407 00:17:44,760 --> 00:17:47,800 Speaker 7: that when you talk about price hikes, which seems to 408 00:17:47,840 --> 00:17:50,879 Speaker 7: be the kind of method du jour of staying alive, 409 00:17:51,000 --> 00:17:54,040 Speaker 7: Basically in this environment, prices are sticky. So if you 410 00:17:54,040 --> 00:17:55,720 Speaker 7: have a price hike, you're not going to have a 411 00:17:55,760 --> 00:17:57,880 Speaker 7: price cut on a can of pepsi or a price 412 00:17:57,960 --> 00:18:00,920 Speaker 7: cut on a package. And that's from an economic perspective. 413 00:18:00,960 --> 00:18:03,240 Speaker 7: What's scary for kind of carol? You always say, what's 414 00:18:03,240 --> 00:18:05,199 Speaker 7: the so what? For our listeners? This is the so 415 00:18:05,320 --> 00:18:09,600 Speaker 7: what one? Corporate America hops on the price hike train. Yeah, 416 00:18:09,640 --> 00:18:11,560 Speaker 7: they don't come down and that's the problem. 417 00:18:11,600 --> 00:18:13,520 Speaker 2: And the thing is, what I would say is things 418 00:18:13,560 --> 00:18:16,200 Speaker 2: like a can of pepsi or some Friedo's, which I 419 00:18:16,240 --> 00:18:18,359 Speaker 2: would consider a staple and must have. No but I 420 00:18:18,400 --> 00:18:21,600 Speaker 2: mean there's small indulgences and you always hear, like economists 421 00:18:21,640 --> 00:18:23,119 Speaker 2: or market watch er say these are the things that 422 00:18:23,200 --> 00:18:24,520 Speaker 2: hold up smoke kamone. 423 00:18:24,600 --> 00:18:26,919 Speaker 8: Yeah, but I mean, I think when we start hearing, 424 00:18:27,280 --> 00:18:31,639 Speaker 8: you know, questions even asked about our consumers switching to 425 00:18:32,040 --> 00:18:34,919 Speaker 8: cheaper products, and we did hear that today, both with 426 00:18:35,000 --> 00:18:38,399 Speaker 8: McDonald's as well as with pepsi and you know pepsi. 427 00:18:38,440 --> 00:18:41,680 Speaker 8: The message from the CFO was, you know, it's never 428 00:18:41,920 --> 00:18:43,479 Speaker 8: that much of a hit to our business. 429 00:18:43,480 --> 00:18:44,960 Speaker 2: These numbers stay pretty low. 430 00:18:45,080 --> 00:18:48,400 Speaker 8: But I you know, McDonald's, it's not really it doesn't 431 00:18:48,440 --> 00:18:50,720 Speaker 8: seem to be really showing up yet. But perhaps that's 432 00:18:50,760 --> 00:18:54,360 Speaker 8: part of why we saw such a decent outlook from them, 433 00:18:54,359 --> 00:18:56,000 Speaker 8: and decent you know moving forward. 434 00:18:56,040 --> 00:18:58,520 Speaker 2: Although the stock was a little lower, right, yeah, but. 435 00:18:58,600 --> 00:18:59,960 Speaker 8: You know, the market's down a little bit. 436 00:19:00,280 --> 00:19:03,359 Speaker 3: But overall McDonald's stock is still around records. If you 437 00:19:03,359 --> 00:19:05,280 Speaker 3: look at the fifty two week high list in the 438 00:19:05,359 --> 00:19:08,600 Speaker 3: terminal underweb. I mean, these names you have McDonald's on there, 439 00:19:08,640 --> 00:19:10,639 Speaker 3: you have Pepsi Co on there, You have Kimberly Clark 440 00:19:10,680 --> 00:19:13,000 Speaker 3: that reported this morning on there as well. You have 441 00:19:13,280 --> 00:19:15,439 Speaker 3: Starbucks on there, you have Mandoli's on there. There's are 442 00:19:15,480 --> 00:19:18,119 Speaker 3: very consumer oriented type companies that are trading around these 443 00:19:18,119 --> 00:19:19,480 Speaker 3: fifty two week high and don't forget. 444 00:19:19,320 --> 00:19:22,199 Speaker 2: The dollar exposure on all of good points exactly do 445 00:19:22,280 --> 00:19:23,439 Speaker 2: they hedge still? 446 00:19:23,920 --> 00:19:26,159 Speaker 7: McDonald's I don't think they've hedged for a couple of 447 00:19:26,240 --> 00:19:29,960 Speaker 7: years now, but PepsiCo hedges. They talked about that today. 448 00:19:30,320 --> 00:19:32,400 Speaker 8: McDonald's, you know, still gets a lot of its business 449 00:19:32,480 --> 00:19:36,600 Speaker 8: internationally hot. Strong earnings there too. I mean, you know 450 00:19:36,640 --> 00:19:39,720 Speaker 8: whether that's consumer switching to a degree not everyone is 451 00:19:39,720 --> 00:19:42,720 Speaker 8: seeing so much strength in their their foreign business. Three 452 00:19:42,720 --> 00:19:43,439 Speaker 8: ams certainly not. 453 00:19:43,760 --> 00:19:46,199 Speaker 2: Okay, good point, right, It's not all the same story, 454 00:19:46,280 --> 00:19:48,480 Speaker 2: even if you're looking at companies in a certain category 455 00:19:48,600 --> 00:19:50,959 Speaker 2: creating up DA anchored markets. Course me at Bloomberg News, 456 00:19:50,960 --> 00:19:53,440 Speaker 2: Simone Foxman, reporter at Bloomberg News. Thank you so much. 457 00:19:54,320 --> 00:19:57,880 Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us 458 00:19:57,920 --> 00:20:01,920 Speaker 1: live weekday afternoons from three to Easter on Bloomberg Radio, 459 00:20:02,119 --> 00:20:05,399 Speaker 1: the Bloomberg Business App and YouTube. You can also listen 460 00:20:05,520 --> 00:20:08,600 Speaker 1: live on Amazon Alexa from our flagship New York station 461 00:20:09,040 --> 00:20:11,840 Speaker 1: Just Say Alexa playing Bloomberg eleven thirty. 462 00:20:13,480 --> 00:20:17,560 Speaker 2: Continuing to follow some of the earnings momentum. Having said that, 463 00:20:17,640 --> 00:20:20,080 Speaker 2: you do wonder how it all factors into what's going 464 00:20:20,119 --> 00:20:22,919 Speaker 2: on in terms of the venture capital world and where 465 00:20:23,359 --> 00:20:27,160 Speaker 2: venture capitalists want to invest their money. And it's interesting 466 00:20:27,160 --> 00:20:30,800 Speaker 2: on a day where we are definitely focusing on artificial intelligence, 467 00:20:30,840 --> 00:20:33,919 Speaker 2: whether it was in Microsoft's report, whether it's what Google 468 00:20:33,960 --> 00:20:36,000 Speaker 2: wants to do, and specifically we talked a little bit 469 00:20:36,040 --> 00:20:39,600 Speaker 2: earlier about Apple planning an AI powered health coaching service 470 00:20:39,680 --> 00:20:41,840 Speaker 2: and mood Tracker. So jess there's a lot going on. 471 00:20:42,080 --> 00:20:44,120 Speaker 2: As our next guest sees it, twenty twenty three will 472 00:20:44,160 --> 00:20:46,800 Speaker 2: be the year that AI truly breaks into the general 473 00:20:46,840 --> 00:20:51,200 Speaker 2: population's awareness. In particular, he's focusing on healthcare. So let's 474 00:20:51,200 --> 00:20:54,480 Speaker 2: get back to a guest that is joining us once again. 475 00:20:54,560 --> 00:20:58,080 Speaker 2: Lonnie Jaffe is Managing director at Insight Partners via zoom 476 00:20:58,119 --> 00:21:00,880 Speaker 2: from New York City. Lonnie, nice to have you back 477 00:21:00,880 --> 00:21:04,920 Speaker 2: with us. AI this year a big one. Explain why 478 00:21:05,000 --> 00:21:06,200 Speaker 2: you think that's the case. 479 00:21:07,800 --> 00:21:10,359 Speaker 9: So it has been a wild year in AI. 480 00:21:10,160 --> 00:21:13,120 Speaker 2: So far already. 481 00:21:11,880 --> 00:21:15,119 Speaker 9: Already, and from what we're seeing, things will continue to 482 00:21:15,200 --> 00:21:18,600 Speaker 9: accelerate for the rest of twenty twenty three, including in healthcare. 483 00:21:19,160 --> 00:21:20,920 Speaker 9: I think the best way to get a sense of 484 00:21:20,960 --> 00:21:23,440 Speaker 9: the pace of improvement of AI and healthcare is through 485 00:21:23,480 --> 00:21:26,920 Speaker 9: some real world examples of health tech companies that are 486 00:21:27,359 --> 00:21:30,960 Speaker 9: have AI products that are working so like one example 487 00:21:31,119 --> 00:21:34,560 Speaker 9: our portfolio company, Iterative Health. So colon cancer is the 488 00:21:34,600 --> 00:21:37,760 Speaker 9: second most common cancer cause of death in the United States, 489 00:21:38,080 --> 00:21:40,800 Speaker 9: and they have this ability to use computer vision AI 490 00:21:40,960 --> 00:21:44,560 Speaker 9: and their FDA cleared product called Scout, and it significantly 491 00:21:44,560 --> 00:21:48,359 Speaker 9: reduces the number of cancer's pollups that a gasnerentrologists would miss, 492 00:21:48,760 --> 00:21:51,880 Speaker 9: and this can decrease the risks of a bad outcome 493 00:21:51,920 --> 00:21:54,800 Speaker 9: in all sorts of different ways. But then their technology 494 00:21:55,000 --> 00:21:57,400 Speaker 9: can use some of the new generative tech that's come out, 495 00:21:57,800 --> 00:22:00,719 Speaker 9: similar to something like chat GPT to handle the medical 496 00:22:00,760 --> 00:22:02,720 Speaker 9: documentation work at the end of the day, sort of 497 00:22:02,720 --> 00:22:06,200 Speaker 9: like a copilot for medical documentation, making suggestions and saving 498 00:22:06,200 --> 00:22:09,000 Speaker 9: the doctor enormous amount of time and increasing the accuracy 499 00:22:09,040 --> 00:22:12,960 Speaker 9: of the documentation. And then they can also identify patients 500 00:22:12,960 --> 00:22:15,680 Speaker 9: who would be good candidates for clinical trials for promising 501 00:22:15,720 --> 00:22:17,479 Speaker 9: biologics for diseases like IBD. 502 00:22:18,359 --> 00:22:21,160 Speaker 3: So how specifically, because AI, as we've been talking about 503 00:22:21,200 --> 00:22:24,080 Speaker 3: such a hot topic, now, how exactly does this end 504 00:22:24,160 --> 00:22:27,320 Speaker 3: up reshaping healthcare in particular because you did mention some 505 00:22:27,359 --> 00:22:31,640 Speaker 3: of the companies that are in your portfolio book more specifically, 506 00:22:31,720 --> 00:22:33,639 Speaker 3: is this a way to really reshape all of that 507 00:22:33,680 --> 00:22:34,320 Speaker 3: in that sector. 508 00:22:35,440 --> 00:22:38,600 Speaker 9: Yeah. One healthcare AI area in which we've invested a lot, 509 00:22:38,640 --> 00:22:43,000 Speaker 9: least recently is this applied computer vision AI capability. So 510 00:22:43,040 --> 00:22:45,520 Speaker 9: this is a little different from the generative AI tech 511 00:22:45,560 --> 00:22:48,160 Speaker 9: that's been getting a lot of attention since the release 512 00:22:48,160 --> 00:22:51,280 Speaker 9: of CHATCHPT. But some of these computer vision systems may 513 00:22:51,359 --> 00:22:55,080 Speaker 9: soon match or even exceed human expert physician performance across 514 00:22:55,119 --> 00:22:58,560 Speaker 9: certain domains. And if an AI system starts to exceed 515 00:22:58,640 --> 00:23:01,560 Speaker 9: human expert performance in healthcare, domean it's not just a 516 00:23:01,600 --> 00:23:04,359 Speaker 9: minor efficiency improvement anymore. It can be more of a 517 00:23:04,400 --> 00:23:07,280 Speaker 9: phase change, like ice turning to water, and it allows 518 00:23:07,280 --> 00:23:10,639 Speaker 9: you to reimagine the way care is delivered. Vision is 519 00:23:10,680 --> 00:23:13,439 Speaker 9: absolutely instrumental in healthcare. So a huge portion of healthcare 520 00:23:13,480 --> 00:23:15,160 Speaker 9: data is made up of pictures and videos. 521 00:23:15,600 --> 00:23:17,000 Speaker 2: You know, Well, I have to say I've been thinking 522 00:23:17,000 --> 00:23:19,320 Speaker 2: about AI a lot lately and how it can help us. 523 00:23:19,359 --> 00:23:20,960 Speaker 2: And I know there's been this fear of, oh my god, 524 00:23:20,960 --> 00:23:22,840 Speaker 2: we're all going to be replaced. But I thought, even 525 00:23:22,880 --> 00:23:25,040 Speaker 2: as a journalist, wouldn't it be great if I don't 526 00:23:25,040 --> 00:23:26,879 Speaker 2: have to write introductions to my guests, as much as 527 00:23:26,920 --> 00:23:28,679 Speaker 2: I love to do it, but if somebody else does it, 528 00:23:28,680 --> 00:23:31,480 Speaker 2: I can spend more time just prepping and researching, you know, 529 00:23:31,520 --> 00:23:34,880 Speaker 2: for the actual conversation. So I do wonder in terms 530 00:23:34,920 --> 00:23:36,760 Speaker 2: of the smart way for all of us to be 531 00:23:36,840 --> 00:23:39,720 Speaker 2: thinking putting our fear aside to some extent till we 532 00:23:39,800 --> 00:23:43,840 Speaker 2: know more, but about how it can be AI particularly 533 00:23:43,920 --> 00:23:46,040 Speaker 2: be an assist like you were talking about in healthcare, 534 00:23:46,160 --> 00:23:49,000 Speaker 2: freeing doctors up to actually care for patients rather than 535 00:23:49,040 --> 00:23:51,800 Speaker 2: doing all of the jotting and noting down and so 536 00:23:51,880 --> 00:23:52,680 Speaker 2: on and so forth. 537 00:23:53,680 --> 00:23:56,800 Speaker 9: That's really well put. And in healthcare, prices have been 538 00:23:56,840 --> 00:24:00,600 Speaker 9: increasing much faster than inflation. I mean, all prices have 539 00:24:00,640 --> 00:24:04,680 Speaker 9: been increasing faster than our inflation target. But one way 540 00:24:04,840 --> 00:24:07,879 Speaker 9: we can help to address the problem of provider shortages 541 00:24:08,040 --> 00:24:10,879 Speaker 9: or in some geographic areas, patients with needs are not 542 00:24:10,920 --> 00:24:13,160 Speaker 9: close enough to the doctors who have the relevant skills 543 00:24:13,200 --> 00:24:16,159 Speaker 9: and agent population. So one way we can help to 544 00:24:16,160 --> 00:24:21,119 Speaker 9: address this price challenge is to dramatically improve healthcare productivity 545 00:24:21,119 --> 00:24:24,920 Speaker 9: and quality, to pull forward investments in AI and automation 546 00:24:25,000 --> 00:24:27,000 Speaker 9: that you would otherwise make many years into the future, 547 00:24:27,000 --> 00:24:28,280 Speaker 9: and to do it now, sort of like what we 548 00:24:28,359 --> 00:24:31,240 Speaker 9: did with collaboration technology during the pandemic. So it could 549 00:24:31,280 --> 00:24:33,679 Speaker 9: be that healthcare AI is a little bit of the 550 00:24:33,800 --> 00:24:37,159 Speaker 9: unsung hero of some of the recent inflation crisis that 551 00:24:37,160 --> 00:24:37,960 Speaker 9: we've been dealing with. 552 00:24:38,080 --> 00:24:40,200 Speaker 2: Do you think Apple is going to be someone who's 553 00:24:40,320 --> 00:24:42,760 Speaker 2: very innovative in this space when it comes to healthcare 554 00:24:42,800 --> 00:24:45,560 Speaker 2: and merging combining that with AI. 555 00:24:47,040 --> 00:24:49,560 Speaker 9: One thing we've seen with some of the newer AI 556 00:24:49,680 --> 00:24:55,679 Speaker 9: technologies is that there's been this big democratization effect of 557 00:24:55,760 --> 00:24:59,080 Speaker 9: how much easier they are to use than prior generations 558 00:24:59,080 --> 00:25:01,000 Speaker 9: of technology. It used to be that you needed to 559 00:25:01,040 --> 00:25:04,760 Speaker 9: hire one hundred mL engineers and build out enormous data 560 00:25:04,760 --> 00:25:08,560 Speaker 9: pipelines and systems like that, but now so much of 561 00:25:08,600 --> 00:25:13,080 Speaker 9: the capability is being provided via as a service over 562 00:25:13,119 --> 00:25:15,800 Speaker 9: the Internet via what are called APIs and can be 563 00:25:15,840 --> 00:25:19,080 Speaker 9: incorporated into other technology. And so I think the vendors 564 00:25:19,119 --> 00:25:23,600 Speaker 9: who have a real focus on privacy security, who understand 565 00:25:23,640 --> 00:25:26,639 Speaker 9: the difference between correlation and causality. Who are able to 566 00:25:26,960 --> 00:25:31,520 Speaker 9: make systems that are reliable and craft beautiful products will 567 00:25:31,560 --> 00:25:32,520 Speaker 9: have a huge advantage. 568 00:25:32,720 --> 00:25:34,800 Speaker 3: Hey, Lonnie, can you take a step back and explain 569 00:25:34,840 --> 00:25:38,240 Speaker 3: to us exactly how the technology works, Say, because when 570 00:25:38,240 --> 00:25:40,320 Speaker 3: it comes to some of these companies that you're working with, 571 00:25:40,400 --> 00:25:43,160 Speaker 3: when it comes to screening for mammograms or breast cancer 572 00:25:43,320 --> 00:25:46,960 Speaker 3: or detection in colonoscopies, how does that tech work? 573 00:25:48,200 --> 00:25:50,880 Speaker 9: Yeah, So, like one example, we have a portfolio company Overjet, 574 00:25:50,920 --> 00:25:54,320 Speaker 9: which is led by CEO Warda and our team, and 575 00:25:54,600 --> 00:25:57,199 Speaker 9: they can use AI to analyze dental X rays to 576 00:25:57,359 --> 00:26:00,600 Speaker 9: assist dentists and deciding whether two needs like a filling 577 00:26:00,720 --> 00:26:03,800 Speaker 9: or a crown. So this improves patient outcomes. But then 578 00:26:03,960 --> 00:26:07,080 Speaker 9: you can also use their AI platform as a dental 579 00:26:07,119 --> 00:26:11,120 Speaker 9: insurer to detect fraud or speed up the claims adjudication process. 580 00:26:11,480 --> 00:26:13,640 Speaker 9: And then by using the technology on both the dentist 581 00:26:13,720 --> 00:26:16,560 Speaker 9: and the insurer side, you can re imagine the whole 582 00:26:16,640 --> 00:26:19,320 Speaker 9: dental care process. For example, you can use the AI 583 00:26:19,520 --> 00:26:22,520 Speaker 9: for instant insurance pre approvals, so the dentist can do 584 00:26:22,600 --> 00:26:24,920 Speaker 9: an important procedure right away instead of having to send 585 00:26:24,920 --> 00:26:27,520 Speaker 9: a patient home and then wait until an insurance approval 586 00:26:27,560 --> 00:26:29,760 Speaker 9: comes in, like often happens today. 587 00:26:30,240 --> 00:26:33,240 Speaker 2: Hey, Lonnie, Oh go ahead, go ahead, please got about 588 00:26:33,240 --> 00:26:34,679 Speaker 2: thirty forty seconds left. 589 00:26:34,880 --> 00:26:37,720 Speaker 9: Yeah. One other example is we have this company Profluent 590 00:26:37,840 --> 00:26:42,040 Speaker 9: that has large language model like technology similar to chat chept, 591 00:26:42,280 --> 00:26:45,200 Speaker 9: and it can suggest novel protein sequences that will fold 592 00:26:45,320 --> 00:26:48,320 Speaker 9: into non structures. So it has a deep understanding of 593 00:26:48,400 --> 00:26:51,600 Speaker 9: patterns and amino acid sequences. It's a little bit like 594 00:26:51,640 --> 00:26:54,000 Speaker 9: words and a text generation AI, and so it opens 595 00:26:54,080 --> 00:26:56,480 Speaker 9: up all sorts of new opportunities in drug discovery and 596 00:26:56,520 --> 00:26:57,320 Speaker 9: protein engineering. 597 00:26:57,440 --> 00:27:00,479 Speaker 2: Lonnie, fifteen seconds. You guys invest in some for how 598 00:27:00,560 --> 00:27:03,280 Speaker 2: much of what you are doing is AI healthcare related? 599 00:27:03,320 --> 00:27:06,160 Speaker 2: What percentage of your investing at this point? 600 00:27:06,200 --> 00:27:09,520 Speaker 9: Just quickly, And we have dozens of investments that we've 601 00:27:09,520 --> 00:27:12,040 Speaker 9: made just over the last couple of years, and that 602 00:27:12,080 --> 00:27:15,040 Speaker 9: the piece of improvement has been increasing significantly. It's amazing 603 00:27:15,200 --> 00:27:17,199 Speaker 9: what the big change in the technology is that it 604 00:27:17,240 --> 00:27:17,880 Speaker 9: started to work. 605 00:27:17,920 --> 00:27:20,480 Speaker 2: But the majority of your investing in startups and so on, 606 00:27:20,640 --> 00:27:22,240 Speaker 2: is it healthcare ANDAI related? 607 00:27:22,359 --> 00:27:25,720 Speaker 9: Just quickly. It's not a majority, but it's a significant portion, 608 00:27:25,840 --> 00:27:27,120 Speaker 9: and it's been increasing over time. 609 00:27:27,160 --> 00:27:29,080 Speaker 2: All right, So good to check in with you, especially 610 00:27:29,080 --> 00:27:31,200 Speaker 2: on today when we continue to hear about AI from 611 00:27:31,240 --> 00:27:33,480 Speaker 2: the big tech Lonnie Jaffy at Inside Partners. 612 00:27:34,760 --> 00:27:39,080 Speaker 1: This is Bloomberg Business Wait Inside from the reporters and 613 00:27:39,280 --> 00:27:42,840 Speaker 1: editors who bring you America's most trusted business magazine, plus 614 00:27:42,920 --> 00:27:47,080 Speaker 1: global business, finance and tech news. The Bloomberg Business Week 615 00:27:47,119 --> 00:27:52,400 Speaker 1: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio. 616 00:27:53,600 --> 00:27:55,800 Speaker 2: All right, we're gonna switch gears a little bit. Bitcoin 617 00:27:55,880 --> 00:27:59,240 Speaker 2: continue to trade well above, well below, excuse me, thirty thousand, 618 00:27:59,240 --> 00:28:02,160 Speaker 2: which it recently wet above. So we continue to see, right, 619 00:28:02,280 --> 00:28:04,840 Speaker 2: you know, just a pushing up against that level definitely 620 00:28:05,080 --> 00:28:06,280 Speaker 2: and backing off of it. 621 00:28:06,280 --> 00:28:09,000 Speaker 3: It has and especially last month we were talking about 622 00:28:09,040 --> 00:28:11,639 Speaker 3: this with with what was happening with the banks under pressure, 623 00:28:11,680 --> 00:28:14,679 Speaker 3: but then you saw Bitcoin continuing to get closer and 624 00:28:14,680 --> 00:28:17,040 Speaker 3: closer to that threshold and eventually eclipsing it. 625 00:28:17,080 --> 00:28:20,880 Speaker 2: All right, so we're looking at the cryptocurrency world, and 626 00:28:21,000 --> 00:28:23,480 Speaker 2: you know, you've got to remember that there's a lot 627 00:28:23,520 --> 00:28:25,720 Speaker 2: when it comes to that world. It's not just about bitcoin. 628 00:28:26,440 --> 00:28:29,160 Speaker 2: And this next story that is in the upcoming issue 629 00:28:29,200 --> 00:28:31,040 Speaker 2: of Bloomberg Business Week, which is out later this week. 630 00:28:31,080 --> 00:28:34,000 Speaker 2: On newstands already on the Bloomberg terminal and online at 631 00:28:34,000 --> 00:28:37,720 Speaker 2: Bloomberg dot com. Slash BusinessWeek has to do with what's 632 00:28:37,760 --> 00:28:40,520 Speaker 2: going on with some of those other areas of the 633 00:28:40,560 --> 00:28:42,920 Speaker 2: crypto world. So let's get to it with Bloomberg News 634 00:28:42,920 --> 00:28:46,480 Speaker 2: bankruptcy reporter Stephen Church. He joins us on Zoom from 635 00:28:46,600 --> 00:28:50,280 Speaker 2: our Wilmington, Delaware bureau. Hey, Steve Stephen, it's great to 636 00:28:50,280 --> 00:28:52,720 Speaker 2: have you here with us. The headline on your story 637 00:28:52,960 --> 00:28:56,000 Speaker 2: is about crypto quest for freedom ends in bankruptcy bureaucracy. 638 00:28:56,200 --> 00:28:59,360 Speaker 2: There are a lot of bankruptcy cases going on right now. 639 00:28:59,560 --> 00:29:02,480 Speaker 2: Set this stage for us and tell us exactly what's 640 00:29:02,520 --> 00:29:02,880 Speaker 2: going on. 641 00:29:03,760 --> 00:29:06,800 Speaker 6: Well, we looked at some of the crypto investors, some 642 00:29:06,840 --> 00:29:09,240 Speaker 6: of the customers, and it turns out that they have 643 00:29:09,360 --> 00:29:13,080 Speaker 6: been way more active than your average creditor in a 644 00:29:13,080 --> 00:29:17,320 Speaker 6: bankruptcy case. They've raised a lot of specific issues, they 645 00:29:17,400 --> 00:29:19,960 Speaker 6: fought with the judges. One guy got thrown out of 646 00:29:21,440 --> 00:29:23,680 Speaker 6: a Zoom hearing because most of the hearings for these 647 00:29:23,720 --> 00:29:26,520 Speaker 6: bankruptcy cases are happening on Zoom nowadays. There's just been 648 00:29:26,560 --> 00:29:28,800 Speaker 6: a lot of emotion, a lot of anger and frustration 649 00:29:29,000 --> 00:29:33,360 Speaker 6: among the hundreds of thousands of creditors in these cases. 650 00:29:33,840 --> 00:29:36,120 Speaker 3: So which ones are at the heart of the issue 651 00:29:36,160 --> 00:29:39,280 Speaker 3: when we're talking about these digital asset makers. 652 00:29:40,480 --> 00:29:44,160 Speaker 6: Well, there are three that I'm mostly following. One is Voyager, 653 00:29:44,480 --> 00:29:46,480 Speaker 6: the other one is Celsius, and then the big one 654 00:29:46,520 --> 00:29:49,719 Speaker 6: which hasn't yet exploded, is FTX. We've heard a lot 655 00:29:49,760 --> 00:29:53,520 Speaker 6: about FTX before it went bankrupt, but there's been kind 656 00:29:53,520 --> 00:29:57,080 Speaker 6: of quiet the last few months. The first two cases 657 00:29:57,120 --> 00:30:00,800 Speaker 6: are the ones that are generating the most active in court. 658 00:30:01,400 --> 00:30:03,880 Speaker 2: Interesting Well, and you know what I think is interesting too, 659 00:30:03,920 --> 00:30:05,720 Speaker 2: And why don't you go into those cases that are 660 00:30:05,760 --> 00:30:08,640 Speaker 2: generating the most interest and maybe engagement. Tell us a 661 00:30:08,640 --> 00:30:10,480 Speaker 2: little bit of what's been going on. Especially I love 662 00:30:10,480 --> 00:30:12,120 Speaker 2: the idea that's happening in Zoom. 663 00:30:13,600 --> 00:30:16,400 Speaker 6: Yeah, well, that's that's a product of the pandemic. A 664 00:30:16,400 --> 00:30:19,120 Speaker 6: lot of lawyers and judges got used to using Zoom. 665 00:30:19,120 --> 00:30:21,880 Speaker 6: They've been doing it for the last few years. But 666 00:30:22,080 --> 00:30:25,520 Speaker 6: it's perfect for these crypto investors. They're very tech savvy. 667 00:30:25,560 --> 00:30:29,000 Speaker 6: They know how to cruise right on too zoom without 668 00:30:29,040 --> 00:30:35,200 Speaker 6: any problems. But that opens up a world of difficulty 669 00:30:35,240 --> 00:30:37,000 Speaker 6: for some of these judges and some of the lawyers. 670 00:30:37,040 --> 00:30:42,400 Speaker 6: They're used to moving through using the bankruptcy jargon, talking 671 00:30:42,480 --> 00:30:45,240 Speaker 6: in very shorthand with the legal lees, and then all 672 00:30:45,280 --> 00:30:48,040 Speaker 6: of a sudden, you have sometimes hundreds of people on 673 00:30:48,080 --> 00:30:52,920 Speaker 6: these cases asking very blunt, basic questions and being confused. 674 00:30:53,320 --> 00:30:55,600 Speaker 6: The biggest confusion is about what are they going to 675 00:30:55,600 --> 00:30:57,160 Speaker 6: get their back? What are they going to get back? 676 00:30:57,560 --> 00:31:00,240 Speaker 6: Why can't they just get their coins back? Why do 677 00:31:00,280 --> 00:31:02,600 Speaker 6: they have to wait? Why is this case going on 678 00:31:02,800 --> 00:31:05,280 Speaker 6: and on? And why are the lawyers making so much money? 679 00:31:05,880 --> 00:31:08,800 Speaker 2: What I find fascinating about your story is this whole 680 00:31:08,840 --> 00:31:13,680 Speaker 2: idea of wait. Crypto in some cases, as are in 681 00:31:13,720 --> 00:31:16,760 Speaker 2: some regards as these bankruptcy cases are showing that it's 682 00:31:16,800 --> 00:31:19,440 Speaker 2: not that much different than bank deposits, and then in 683 00:31:19,480 --> 00:31:23,360 Speaker 2: other regards, yeah, wait, it is really different than bank deposits. 684 00:31:23,360 --> 00:31:26,200 Speaker 2: So it's it feels like it's got to be very 685 00:31:26,240 --> 00:31:30,400 Speaker 2: frustrating for folks who bought some kind of cryptocurrencies on 686 00:31:30,440 --> 00:31:34,560 Speaker 2: whatever platform and it was supposed to be kind of powerful. 687 00:31:34,600 --> 00:31:37,280 Speaker 2: They owned it, there's no middlemen, this is mine, and 688 00:31:37,320 --> 00:31:40,120 Speaker 2: then to see it play out this way exactly. 689 00:31:40,160 --> 00:31:42,720 Speaker 6: There were two kinds of basic accounts that were that 690 00:31:42,760 --> 00:31:45,520 Speaker 6: are at issue. What does a custodial account that's like 691 00:31:45,560 --> 00:31:48,920 Speaker 6: a safety deposit box in a bank. You put your 692 00:31:48,920 --> 00:31:51,160 Speaker 6: coins in it, and when you want them, you go 693 00:31:51,200 --> 00:31:53,400 Speaker 6: in and you take them back out. There's less dispute 694 00:31:53,440 --> 00:31:56,920 Speaker 6: about that. Then there's the kind of deposit where you 695 00:31:57,000 --> 00:32:02,360 Speaker 6: gave your crypto to an institution Voyager or Celsius or FTX, 696 00:32:02,960 --> 00:32:06,200 Speaker 6: and then you allowed that company to then lend it out. 697 00:32:06,440 --> 00:32:09,000 Speaker 6: You made interest, great, you make a higher return than 698 00:32:09,040 --> 00:32:11,520 Speaker 6: you could get anywhere else. But it turns out that 699 00:32:11,560 --> 00:32:14,240 Speaker 6: in the fine print, you don't own that crypto anymore. 700 00:32:14,360 --> 00:32:17,280 Speaker 6: It's like a bank deposit. You don't own the money 701 00:32:17,280 --> 00:32:20,040 Speaker 6: that you give to the bank. You own the credit 702 00:32:20,200 --> 00:32:21,960 Speaker 6: for that money, You own the right to get that 703 00:32:22,040 --> 00:32:23,800 Speaker 6: money back whenever you ask for it. 704 00:32:23,880 --> 00:32:27,640 Speaker 3: But then also it's not fdic assured, like when say 705 00:32:27,640 --> 00:32:29,840 Speaker 3: you have money in a bank versus when it's crypto. 706 00:32:29,960 --> 00:32:31,680 Speaker 3: And how many people do you think ended up making 707 00:32:31,720 --> 00:32:32,280 Speaker 3: that mistake. 708 00:32:33,200 --> 00:32:36,960 Speaker 6: I think hundreds of thousands made that mistake. We're waiting 709 00:32:37,120 --> 00:32:40,400 Speaker 6: on the biggest problem to crop up, and that's nine 710 00:32:40,480 --> 00:32:46,120 Speaker 6: point six million customers of FTX. FTX hasn't decided whether 711 00:32:46,160 --> 00:32:49,840 Speaker 6: they're going to claim that all of those customers' deposits 712 00:32:50,080 --> 00:32:54,280 Speaker 6: are actually owned by FTX, and therefore you can't get 713 00:32:54,320 --> 00:32:57,480 Speaker 6: your specific coins back. You can only get a share 714 00:32:57,480 --> 00:33:01,600 Speaker 6: of them whatever happens to be available. Fight if it happens, 715 00:33:01,720 --> 00:33:04,960 Speaker 6: will make these other two cases look small and insignificant 716 00:33:04,960 --> 00:33:05,640 Speaker 6: by comparison. 717 00:33:05,760 --> 00:33:07,280 Speaker 2: Now, I know you know what you do as you 718 00:33:07,280 --> 00:33:09,760 Speaker 2: follow the bankruptcy situations, but I do understand and like 719 00:33:09,840 --> 00:33:11,880 Speaker 2: what comes out of this, the rulings and how it 720 00:33:11,920 --> 00:33:15,160 Speaker 2: plays out, how that might ultimately shape what we get 721 00:33:15,160 --> 00:33:18,200 Speaker 2: in terms of regulatory oversight, because there's just you know, 722 00:33:18,240 --> 00:33:20,160 Speaker 2: trying to figure out exactly what it is. As part 723 00:33:20,160 --> 00:33:21,240 Speaker 2: of the problem. 724 00:33:21,680 --> 00:33:23,880 Speaker 6: Well, I think part of what will happen is less 725 00:33:24,000 --> 00:33:26,880 Speaker 6: influence on the regulators. They're going to do something separate, 726 00:33:27,920 --> 00:33:32,520 Speaker 6: but it might influence investors, especially professional investors, because now 727 00:33:32,560 --> 00:33:34,640 Speaker 6: you're going to see what the courts will do in 728 00:33:34,720 --> 00:33:37,720 Speaker 6: the worst case scenario if you put your money on 729 00:33:37,720 --> 00:33:40,320 Speaker 6: one of these platforms. Now we know the judges will 730 00:33:40,360 --> 00:33:44,600 Speaker 6: say in some cases for specific types of investments, it's 731 00:33:44,640 --> 00:33:47,000 Speaker 6: like a bank. You don't own it, it's pooled with 732 00:33:47,080 --> 00:33:50,360 Speaker 6: everyone else's assets, and you have to wait in line, 733 00:33:50,600 --> 00:33:54,320 Speaker 6: just like any creditor, bond holder, supplier in any old 734 00:33:54,320 --> 00:33:55,440 Speaker 6: fashioned bankruptcy case. 735 00:33:55,520 --> 00:33:58,000 Speaker 2: Welcome to the new world of disruption. Not exactly. 736 00:33:58,240 --> 00:33:59,240 Speaker 6: It's kind of crazy. 737 00:33:59,600 --> 00:34:01,600 Speaker 2: What about all the marketing that went on And I 738 00:34:01,600 --> 00:34:04,080 Speaker 2: feel like that's something too where really looking into when 739 00:34:04,160 --> 00:34:05,680 Speaker 2: it comes to the crypto world. 740 00:34:06,880 --> 00:34:09,680 Speaker 6: Yeah, it was sold to appeal to certain kinds of 741 00:34:09,719 --> 00:34:12,120 Speaker 6: investors that investors were trying to get away from the 742 00:34:12,120 --> 00:34:17,479 Speaker 6: traditional banking system. They promised that crypto for all would 743 00:34:17,480 --> 00:34:21,799 Speaker 6: become a reality, or you can unbank yourself, was the 744 00:34:21,800 --> 00:34:24,759 Speaker 6: way one company put it. In other words, they appealed 745 00:34:24,800 --> 00:34:27,200 Speaker 6: to the idea that you wouldn't be part of the 746 00:34:27,200 --> 00:34:31,319 Speaker 6: traditional system, so you might have some benefits there. It 747 00:34:31,320 --> 00:34:33,320 Speaker 6: turns out when you're not part of the traditional system, 748 00:34:33,480 --> 00:34:36,239 Speaker 6: you're not protected the way the traditional system is. 749 00:34:36,680 --> 00:34:39,600 Speaker 3: Can you talk about the customer agreements that people were 750 00:34:39,600 --> 00:34:42,040 Speaker 3: signing where they maybe they signed it and they assumed 751 00:34:42,040 --> 00:34:44,279 Speaker 3: they could be able to have their money back leader 752 00:34:44,280 --> 00:34:46,560 Speaker 3: if they were going to lose it, but then that's 753 00:34:46,560 --> 00:34:48,000 Speaker 3: not exactly how things played out. 754 00:34:48,640 --> 00:34:51,000 Speaker 6: Oh well, how many of us read the customer agreements 755 00:34:51,040 --> 00:34:53,040 Speaker 6: where see when they pop up online, it's like. 756 00:34:52,960 --> 00:34:55,600 Speaker 3: The its thousands of pages. 757 00:34:57,080 --> 00:35:02,240 Speaker 6: Life and that fine print is a line that says 758 00:35:03,040 --> 00:35:06,120 Speaker 6: you are if you are making interest and this is 759 00:35:06,160 --> 00:35:08,120 Speaker 6: in one of the cases. If you're making interest on 760 00:35:08,160 --> 00:35:12,880 Speaker 6: this deposit, we technically own the deposit. Therefore, if things 761 00:35:12,920 --> 00:35:16,560 Speaker 6: go bust, you may not have access to it. 762 00:35:16,840 --> 00:35:21,440 Speaker 2: So Stephen, as you follow this process and the bankruptcy proceedings, 763 00:35:21,560 --> 00:35:23,319 Speaker 2: kind of what jumps out for you? I mean, not 764 00:35:23,400 --> 00:35:25,600 Speaker 2: everybody is in it like you are, but I do 765 00:35:25,680 --> 00:35:27,680 Speaker 2: think you know, we're all just looking back at the 766 00:35:27,760 --> 00:35:29,400 Speaker 2: last two year or so of crypto and trying to 767 00:35:29,480 --> 00:35:32,840 Speaker 2: understand the way forward. So as you watch this bankruptcy process, 768 00:35:33,080 --> 00:35:35,440 Speaker 2: what jumps out for you when you think about maybe 769 00:35:35,440 --> 00:35:37,680 Speaker 2: what happens next in the world of crypto? 770 00:35:38,320 --> 00:35:40,400 Speaker 6: I think the I think the people who are running 771 00:35:40,400 --> 00:35:42,880 Speaker 6: this system, because we're talking about two very different systems 772 00:35:42,880 --> 00:35:46,160 Speaker 6: and two very different philosophies. The people in the courthouse, 773 00:35:46,320 --> 00:35:49,160 Speaker 6: the judges and the traditional lawyers who are now in 774 00:35:49,280 --> 00:35:52,920 Speaker 6: charge of these companies, especially FTX. They're grappling with how 775 00:35:52,920 --> 00:35:56,160 Speaker 6: do you deal with millions of people who are not 776 00:35:56,239 --> 00:35:58,480 Speaker 6: going to get all their money back and they're going 777 00:35:58,560 --> 00:36:02,560 Speaker 6: to want to understand why and how do you explain 778 00:36:02,640 --> 00:36:05,080 Speaker 6: that to them? And you also have to make sort 779 00:36:05,080 --> 00:36:07,120 Speaker 6: of I don't mean make up rules but they have 780 00:36:07,200 --> 00:36:10,960 Speaker 6: to create a whole new system of dealing with these 781 00:36:11,040 --> 00:36:15,120 Speaker 6: crypto investments because it's very difficult. There's some perplexing questions. 782 00:36:15,160 --> 00:36:18,719 Speaker 6: How do you value crypto today? You were talking about 783 00:36:18,719 --> 00:36:22,600 Speaker 6: what the price of bitcoin is? Well, can you value 784 00:36:22,640 --> 00:36:26,399 Speaker 6: my coins based on what they were when I deposited them? 785 00:36:26,760 --> 00:36:30,760 Speaker 6: Or is it worth what it is today? Very different things. 786 00:36:30,920 --> 00:36:33,680 Speaker 6: Lots of complications that have come up that have not 787 00:36:33,760 --> 00:36:36,560 Speaker 6: been seen in the past. So the system is trying 788 00:36:36,600 --> 00:36:40,120 Speaker 6: to respond and so far it's done an adequate job. 789 00:36:40,480 --> 00:36:41,680 Speaker 6: But the real test is coming on. 790 00:36:41,880 --> 00:36:43,520 Speaker 2: Hey, because we're lucky that we have you, and you 791 00:36:43,520 --> 00:36:46,640 Speaker 2: had another story on the Bloomberg about Binance ending a 792 00:36:46,680 --> 00:36:49,839 Speaker 2: deal to buy bankrupt crypto firm Voyager, right, which is 793 00:36:49,920 --> 00:36:52,440 Speaker 2: in your story just real quickly forty seconds. What do 794 00:36:52,440 --> 00:36:53,279 Speaker 2: we need to know about that? 795 00:36:55,040 --> 00:36:57,000 Speaker 6: The Voyager customers are going to have to find a 796 00:36:57,000 --> 00:37:00,879 Speaker 6: way to get their money out without transitioning to new platform. 797 00:37:01,360 --> 00:37:04,120 Speaker 6: That means that Voyager is going to have to go 798 00:37:04,160 --> 00:37:06,400 Speaker 6: before to judge and figure out how to get this 799 00:37:06,480 --> 00:37:09,719 Speaker 6: money back in a more complicated way. Finance was an 800 00:37:09,719 --> 00:37:12,600 Speaker 6: easy way for them to deliver the money, deliver what 801 00:37:13,239 --> 00:37:15,640 Speaker 6: they could to customers. They've got to come up with 802 00:37:15,680 --> 00:37:16,160 Speaker 6: something new. 803 00:37:16,440 --> 00:37:18,560 Speaker 2: All right, Well, brilliant take on all of this and 804 00:37:18,600 --> 00:37:21,000 Speaker 2: a great perspective, Stephen, Thank you so much. Glad you 805 00:37:21,040 --> 00:37:24,000 Speaker 2: could take us there. Stephen Church. He's bankruptcy reporter at 806 00:37:24,000 --> 00:37:26,200 Speaker 2: Bloomberg News. The story in the upcoming new issue at 807 00:37:26,239 --> 00:37:29,919 Speaker 2: Bloomberg BusinessWeek, but already on the Bloomberg and online. You're 808 00:37:29,920 --> 00:37:31,800 Speaker 2: listening and watching Bloomberg. 809 00:37:33,200 --> 00:37:37,280 Speaker 4: Bromac a journal. 810 00:37:38,280 --> 00:37:39,279 Speaker 6: No, how about you let me drive? 811 00:37:39,800 --> 00:37:41,520 Speaker 5: No, no, no, no, who's going to drive? 812 00:37:42,640 --> 00:37:45,640 Speaker 10: Honey? Please, I'll do the gravels. 813 00:37:45,440 --> 00:37:49,960 Speaker 9: Let's I want to try it. It's a good question 814 00:37:50,440 --> 00:37:51,239 Speaker 9: that drives us. 815 00:37:53,760 --> 00:37:56,719 Speaker 1: This is the drive to the globe dot com for me. 816 00:37:56,880 --> 00:37:59,920 Speaker 1: Think well by it on Bloomberg rat. 817 00:38:00,600 --> 00:38:03,160 Speaker 2: All right, everybody, we've got just under eighteen minutes left 818 00:38:03,160 --> 00:38:06,640 Speaker 2: in today's trading session. It is time for our drive 819 00:38:06,719 --> 00:38:08,760 Speaker 2: to the close and back. With us is Alan Zaffron, 820 00:38:09,320 --> 00:38:12,239 Speaker 2: founding partner and co CEO at IQ Capital. He joins 821 00:38:12,320 --> 00:38:15,279 Speaker 2: us on zoom once again from Foster City, California. Allen, 822 00:38:15,360 --> 00:38:19,120 Speaker 2: nice to have you here with Jess and myself. There's 823 00:38:19,160 --> 00:38:22,640 Speaker 2: a lot going on. It's pretty dense. The environment earning 824 00:38:22,760 --> 00:38:25,280 Speaker 2: so far are telling you what story. 825 00:38:26,480 --> 00:38:29,200 Speaker 10: Jess and Carol, thanks for having me on your program again. 826 00:38:29,600 --> 00:38:32,640 Speaker 10: Earnings are telling me that the economy is indeed going 827 00:38:32,680 --> 00:38:35,760 Speaker 10: to slow over the course of the year. The economy 828 00:38:35,800 --> 00:38:38,279 Speaker 10: probably doesn't bottom until late this year or the first 829 00:38:38,400 --> 00:38:42,080 Speaker 10: quarter of next year, and inevitably all the rate hikes 830 00:38:42,400 --> 00:38:44,640 Speaker 10: put a little bit of concerned consumers who are two 831 00:38:44,640 --> 00:38:46,800 Speaker 10: thirds of the economy, and as result to get a 832 00:38:46,840 --> 00:38:49,680 Speaker 10: little more cautious. We saw that with consumer confidence dropping 833 00:38:49,800 --> 00:38:54,000 Speaker 10: again this month. Spending drops, revenues drop, earnings drop a bit, 834 00:38:54,120 --> 00:38:57,360 Speaker 10: and stocks drop a bit as a result of that environment. 835 00:38:57,760 --> 00:39:00,920 Speaker 10: It's not a doomsday scenario, but we are grinding into 836 00:39:01,000 --> 00:39:05,640 Speaker 10: a slow, modest recession. Stocks don't do so well to 837 00:39:05,760 --> 00:39:07,960 Speaker 10: the economy bottoms. That's what we're seeing and that's what 838 00:39:08,000 --> 00:39:09,080 Speaker 10: the earnings are telling us. 839 00:39:09,480 --> 00:39:13,920 Speaker 3: Alan So what exactly is missing from this turning into 840 00:39:14,160 --> 00:39:18,120 Speaker 3: a bull market? At this point, there. 841 00:39:18,040 --> 00:39:20,279 Speaker 10: Isn't a catalyst yet. So if you look over the 842 00:39:20,360 --> 00:39:25,120 Speaker 10: last twelve recessions, stocks tend to bottom about three or 843 00:39:25,120 --> 00:39:29,080 Speaker 10: four months before the actual bottom and economic activity. And 844 00:39:29,120 --> 00:39:32,759 Speaker 10: given that on average the full impact economically from a 845 00:39:32,840 --> 00:39:35,520 Speaker 10: rate hike takes about twelve months to work through the system. 846 00:39:35,920 --> 00:39:37,600 Speaker 10: If you work in the math, it tells you the 847 00:39:37,640 --> 00:39:40,000 Speaker 10: bottom of this economy is probably the first quarter the 848 00:39:40,040 --> 00:39:43,319 Speaker 10: next year. That tells you that investors aren't going to 849 00:39:43,360 --> 00:39:46,400 Speaker 10: be really looking forward to a change in FED policy 850 00:39:46,400 --> 00:39:49,080 Speaker 10: and stocks moving back up until you get until very 851 00:39:49,160 --> 00:39:51,640 Speaker 10: late this year, if not early next year. There's a 852 00:39:51,719 --> 00:39:53,880 Speaker 10: lack of a catalyst right now, and in the absence 853 00:39:53,920 --> 00:39:56,279 Speaker 10: of that, we're just going to be grinding here. Valuations 854 00:39:56,280 --> 00:39:59,919 Speaker 10: are modestly above long term averages or trading right now 855 00:40:00,080 --> 00:40:03,880 Speaker 10: at roughly eighteen and a half times consensus estimates for 856 00:40:03,960 --> 00:40:06,080 Speaker 10: this year. If you believe them, and if you think 857 00:40:06,120 --> 00:40:09,040 Speaker 10: earnings are a little too high, maybe stocks fall about 858 00:40:09,080 --> 00:40:11,359 Speaker 10: ten percent to reflect earnings being cut a little bit 859 00:40:11,400 --> 00:40:14,279 Speaker 10: and multiple stropping a little bit. But it's not catastrophic. 860 00:40:14,520 --> 00:40:17,240 Speaker 10: It's not like a deep recession with a thirty percent declimb. 861 00:40:17,239 --> 00:40:19,240 Speaker 10: We do not see that in the forecast. 862 00:40:19,560 --> 00:40:21,479 Speaker 2: Do you think earnings estimates are too high? 863 00:40:21,480 --> 00:40:21,800 Speaker 6: Still? 864 00:40:22,040 --> 00:40:25,239 Speaker 2: We had we shared with our TV colleagues in our 865 00:40:25,360 --> 00:40:31,080 Speaker 2: simulcaster cross platform Sarah Hunter, you know, and she at Alpines. 866 00:40:31,120 --> 00:40:34,080 Speaker 2: She talked about that the markets haven't yet really priced 867 00:40:34,080 --> 00:40:35,399 Speaker 2: in some of the earnings slow down. 868 00:40:36,160 --> 00:40:40,440 Speaker 10: I concur completely with that. Our guess here is estimates 869 00:40:40,480 --> 00:40:43,279 Speaker 10: still are somewhere between five to ten percent too high 870 00:40:43,320 --> 00:40:46,759 Speaker 10: for this calendar year and arguably about the same magnitude 871 00:40:46,800 --> 00:40:50,239 Speaker 10: for next year, which tells you that markets themselves are 872 00:40:50,280 --> 00:40:53,320 Speaker 10: probably about five to ten percent overvalid if you're using 873 00:40:53,360 --> 00:40:56,680 Speaker 10: long term historical averages as a gauge for where stocks 874 00:40:56,680 --> 00:40:59,680 Speaker 10: should trade. But we're also looking for something like twelve 875 00:40:59,760 --> 00:41:02,880 Speaker 10: percent and earnings growth in the subsequent year. So what 876 00:41:03,000 --> 00:41:04,920 Speaker 10: goes down is going to come back up, and it's 877 00:41:04,920 --> 00:41:07,320 Speaker 10: not enough to date. If you're a long term investor, 878 00:41:07,960 --> 00:41:10,960 Speaker 10: it isn't enough to make a meaningful shift in allocation. 879 00:41:11,120 --> 00:41:13,600 Speaker 10: We could be wrong. Timing markets is fraught with risk, 880 00:41:14,000 --> 00:41:16,680 Speaker 10: and the magnitude here isn't big enough to problem make 881 00:41:16,719 --> 00:41:20,080 Speaker 10: a lot of strategic changes. So we're just guiding people 882 00:41:20,120 --> 00:41:22,160 Speaker 10: if you want to enter the market goes slower than 883 00:41:22,200 --> 00:41:25,440 Speaker 10: average dollar cost average. If prices fall, it is the 884 00:41:25,440 --> 00:41:29,680 Speaker 10: proverbial buying opportunity. Be patient. The economic impact hasn't been 885 00:41:29,680 --> 00:41:31,560 Speaker 10: fully reflected in earnings estimates yet. 886 00:41:31,800 --> 00:41:33,200 Speaker 2: I just want to mention. I just want to mention 887 00:41:33,280 --> 00:41:37,000 Speaker 2: First Republic extending it's plunged to fifty percent in today's session. 888 00:41:37,400 --> 00:41:39,480 Speaker 2: We know the trouble Bank out with it's led as 889 00:41:39,520 --> 00:41:43,440 Speaker 2: results last night, but exploring maybe possibly selling some one 890 00:41:43,520 --> 00:41:45,479 Speaker 2: hundred billion dollars in asset sales. So I just wanted 891 00:41:45,520 --> 00:41:46,719 Speaker 2: to put that out for everybody. 892 00:41:47,040 --> 00:41:50,480 Speaker 3: So, Alan, how are you positioning at this point when 893 00:41:50,480 --> 00:41:52,759 Speaker 3: we were just talking about all these different backdrops with 894 00:41:52,800 --> 00:41:53,240 Speaker 3: the macro. 895 00:41:54,280 --> 00:41:59,280 Speaker 10: Well, from a starting standpoint, diversification is your greatest risk mitigant, 896 00:41:59,400 --> 00:42:02,760 Speaker 10: So stay well, diversify though. 897 00:42:02,960 --> 00:42:05,759 Speaker 2: We come on, I feel like everybody says that. 898 00:42:05,960 --> 00:42:09,239 Speaker 3: Right exactly, like what specifically how do we diversify? 899 00:42:09,719 --> 00:42:13,520 Speaker 10: Okay, So what that means is a broad set of equities. 900 00:42:13,560 --> 00:42:16,000 Speaker 10: Don't put your eggs in one basket if you're not 901 00:42:16,560 --> 00:42:18,360 Speaker 10: built to deal with the swings that go up and 902 00:42:18,360 --> 00:42:20,319 Speaker 10: down the markets. Make sure of ample amounts of high 903 00:42:20,400 --> 00:42:24,239 Speaker 10: quality bonds. And if specifically to your question right now, 904 00:42:24,239 --> 00:42:28,880 Speaker 10: we're sitting in high quality bonds. When markets decline, credit 905 00:42:28,920 --> 00:42:32,560 Speaker 10: spreads wideen, so corporate bond prices and especially high yield 906 00:42:32,600 --> 00:42:36,719 Speaker 10: public bonds fall in value as stocks fall. Historically, so 907 00:42:36,840 --> 00:42:41,720 Speaker 10: we are largely avoiding anything that looks like non investment 908 00:42:41,800 --> 00:42:45,040 Speaker 10: grade bonds. We're sticking with treasuries and very high quality 909 00:42:45,080 --> 00:42:49,200 Speaker 10: corporates to in the public markets, there are opportunities. Selectively, 910 00:42:49,320 --> 00:42:53,080 Speaker 10: in non publicly traded areas, we think there are compelling opportunities, 911 00:42:53,080 --> 00:42:56,239 Speaker 10: and things like high quality real estate. Apartments have such 912 00:42:56,239 --> 00:42:59,800 Speaker 10: a long term secular trend that ownershouldn't have in ownership 913 00:42:59,840 --> 00:43:03,560 Speaker 10: of income generating apartment units or warehouses. With e commerce's 914 00:43:03,600 --> 00:43:06,600 Speaker 10: growth is a sustainable trend, so there are ways to 915 00:43:06,640 --> 00:43:09,239 Speaker 10: play it if you're looking for income with a long 916 00:43:09,320 --> 00:43:10,239 Speaker 10: term perspective. 917 00:43:10,640 --> 00:43:12,520 Speaker 3: I'm glad you brought up real estate. That's what I 918 00:43:12,560 --> 00:43:14,399 Speaker 3: was going to ask you about. So you talked about 919 00:43:14,440 --> 00:43:16,520 Speaker 3: the apartment side of things and some other corners, but 920 00:43:16,560 --> 00:43:19,239 Speaker 3: what about when it comes to offices, and are there 921 00:43:19,320 --> 00:43:22,600 Speaker 3: particular corners in real estate you think are still too 922 00:43:22,680 --> 00:43:23,560 Speaker 3: risky at this point. 923 00:43:24,719 --> 00:43:28,880 Speaker 10: Yeah. We actually are not big fans of real estate 924 00:43:28,960 --> 00:43:33,759 Speaker 10: assets that are either in a cyclical risk that tends 925 00:43:33,760 --> 00:43:36,319 Speaker 10: to be things like hotels that when the economy slows through, 926 00:43:36,360 --> 00:43:39,480 Speaker 10: when people show up at hotels and vacancies escalate, which 927 00:43:39,520 --> 00:43:42,319 Speaker 10: is not good. And we like to avoid things that 928 00:43:42,360 --> 00:43:45,520 Speaker 10: are in secular decline. And example is retail in general 929 00:43:45,560 --> 00:43:48,960 Speaker 10: real estate, there's still far too many retail building buildings 930 00:43:49,040 --> 00:43:52,319 Speaker 10: relative down much space retailers need. We would argue that 931 00:43:52,520 --> 00:43:56,480 Speaker 10: many office buildings are in a secular decline, so on balance, 932 00:43:56,960 --> 00:44:00,800 Speaker 10: we are avoiding office building exposure as well. We prefer 933 00:44:01,320 --> 00:44:05,120 Speaker 10: areas that are more commonplace apartment buildings, single family homes 934 00:44:05,160 --> 00:44:09,600 Speaker 10: for rent, self storage units, industrial warehouses. Those are the 935 00:44:09,719 --> 00:44:13,080 Speaker 10: secular trends that are going to take you through this recession, 936 00:44:13,719 --> 00:44:16,600 Speaker 10: generate attractive income, and get you to the next cycle. 937 00:44:16,760 --> 00:44:18,640 Speaker 2: Do you think real estate is the next shoe to drop? 938 00:44:18,640 --> 00:44:18,799 Speaker 5: Though? 939 00:44:18,800 --> 00:44:20,759 Speaker 2: Maybe office? 940 00:44:21,120 --> 00:44:23,440 Speaker 10: Yes, but selected airs. I don't think it's too You 941 00:44:23,480 --> 00:44:25,759 Speaker 10: can't broad brush it. If you have a type A 942 00:44:25,880 --> 00:44:29,600 Speaker 10: office building, even in a centralized business district, a class 943 00:44:29,640 --> 00:44:33,040 Speaker 10: A office space, it's still in demand. You can't. Not 944 00:44:33,120 --> 00:44:35,759 Speaker 10: everybody's going to be remote in this economy. But sure, 945 00:44:35,760 --> 00:44:40,200 Speaker 10: if you're in a tertiary city with a old office building, 946 00:44:40,480 --> 00:44:42,440 Speaker 10: you're in your land order. You're in a lot of 947 00:44:42,480 --> 00:44:43,200 Speaker 10: pain right now. 948 00:44:43,719 --> 00:44:45,960 Speaker 3: We only have about thirty seconds left. But what do 949 00:44:45,960 --> 00:44:48,280 Speaker 3: you think credit spreads are telling us at this point? 950 00:44:49,560 --> 00:44:51,960 Speaker 10: Credit spreads are telling us a recession is coming, but 951 00:44:52,000 --> 00:44:54,200 Speaker 10: they haven't widened out enough yet. And that's why we're 952 00:44:54,239 --> 00:44:58,120 Speaker 10: avoiding publicly traded non investment grade bonds. They're not yet 953 00:44:58,320 --> 00:45:01,000 Speaker 10: wide enough. But the bond mark, the treasure market is 954 00:45:01,000 --> 00:45:03,799 Speaker 10: telling you a weakening is coming. That's why six months 955 00:45:03,800 --> 00:45:06,120 Speaker 10: he bills at five percent and at ten your treasure 956 00:45:06,160 --> 00:45:08,600 Speaker 10: right now is at three point four percent. It tells 957 00:45:08,560 --> 00:45:09,560 Speaker 10: you every recession's coming. 958 00:45:10,760 --> 00:45:12,960 Speaker 2: All right, Well, there you have it, but it sounds 959 00:45:12,960 --> 00:45:15,360 Speaker 2: like it's not going to be too difficult ultimately to 960 00:45:15,400 --> 00:45:18,000 Speaker 2: get through it. We really appreciate Allan always checking in 961 00:45:18,040 --> 00:45:20,200 Speaker 2: with you. Alan Zaffron, who's founding partner and co CEO 962 00:45:20,520 --> 00:45:24,320 Speaker 2: of at IQ Kapital, joining us via zoom from Foster City, California. 963 00:45:24,360 --> 00:45:25,960 Speaker 2: I feel like we hear that a lot, right that 964 00:45:26,200 --> 00:45:27,799 Speaker 2: it's kind of almost a touch and go with a 965 00:45:27,840 --> 00:45:29,239 Speaker 2: recession to some extent, and. 966 00:45:29,320 --> 00:45:32,640 Speaker 3: You have other people arguing that maybe the worst has 967 00:45:32,680 --> 00:45:34,920 Speaker 3: already parents does when we're looking at some other models. 968 00:45:35,000 --> 00:45:36,920 Speaker 2: So look at the chart you had up about right 969 00:45:37,040 --> 00:45:38,280 Speaker 2: earnings estimates, right. 970 00:45:38,200 --> 00:45:41,239 Speaker 3: Right, So basically that recession with earnings started in the 971 00:45:41,239 --> 00:45:43,200 Speaker 3: second quarter of last year when excluding energy. 972 00:45:44,400 --> 00:45:47,719 Speaker 1: This is the Bloomberg Business Week Podcast, a little bit 973 00:45:47,760 --> 00:45:51,200 Speaker 1: of Apple, Spotify and anywhere else you can get your podcast. 974 00:45:51,680 --> 00:45:55,239 Speaker 1: Listen live weekday afternoons from three to six Eastern on 975 00:45:55,360 --> 00:45:58,719 Speaker 1: Bloomberg dot com, the iHeartRadio app tune In, and the 976 00:45:58,719 --> 00:46:01,719 Speaker 1: Bloomberg Business app. You can also watch us live every 977 00:46:01,719 --> 00:46:05,160 Speaker 1: weekday on YouTube and always on the Bloomberg terminal