Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. If you want to
Speaker 1: talk Wall Street, why not? That's one of my favorite topics.
Speaker 1: We can roundtable this seing at this A lot going
Speaker 1: on the street as always, and we want to bring
Speaker 1: together some of the smartest minds we have on all
Speaker 1: things Wall Street. We do that with Shanalie Bassett Bloomberg
Speaker 1: News and Alison William She's a senior banks analyst at
Speaker 1: Bloomberg Intelligence. Shanali joins us here in our Bloomberg Interactive
Speaker 1: Broker studio, and Alison joins us on the phone. SHINALI
Speaker 1: a lot of news coming out of the street over
Speaker 1: the last few days. I want to focus just on headcount.
Speaker 1: What are the banks doing these days? I mean, deal
Speaker 1: flow in twenty twenty two very tough to come by.
Speaker 1: Trading better, but deal flow tough to come by. Same
Speaker 1: kind of year to date. I'm kind of surprised I
Speaker 1: haven't seen bigger layoffs. What are you hearing from your
Speaker 1: context on the street? Listen, A lot of these bankers
Speaker 1: say that there's pent up demand. Big corporations want to
Speaker 1: do strategic things, but they're strapped on money, number one,
Speaker 1: and they're also strapped on the ability to make these
Speaker 1: really big strategic decisions in the middle of so much uncertainty,
Speaker 1: particularly with a pace of interest rate increases in the
Speaker 1: United States. So with that uncertainty, they don't want to
Speaker 1: lay people off because things would come back, but they
Speaker 1: have not. They don't look like they're going to come
Speaker 1: back in full force anytime soon. So they're finding other
Speaker 1: things to do because they expect that things like activism
Speaker 1: will force spinoffs. Remember places like Elliott Paul Singer has
Speaker 1: raised record amounts of money, so there's a chance that
Speaker 1: they can do other things. You know. I don't even
Speaker 1: know where to begin on the Wall Street beat, just
Speaker 1: because I feel like this week has been literally drinking
Speaker 1: out of a fire hose or attempting to at least
Speaker 1: with the Wall Street story. But one of the most
Speaker 1: read on the Bloomberg terminal stories today is JP Morgan
Speaker 1: and blaming Just Staley for their tides with Epstein, demanding
Speaker 1: eight years of pay. Walk us through the story. Of course,
Speaker 1: it's of interest a lot, not just for Wall Street audience,
Speaker 1: but everyone that's been following the story. Yeah, and this
Speaker 1: has been going on for a while, but really it's
Speaker 1: hit a new climax, if you will, where you have
Speaker 1: JP Morgan suing Jeff Staley, who is a former Jamie
Speaker 1: Diamond protege, a star banker, former CEO of Barclays. JP
Speaker 1: Morgan itself was sued a couple of times over the
Speaker 1: Epstein debacle because Epstein, Jeffrey Epstein, was a client of
Speaker 1: the bank. And now what you have Jamie Diamond and
Speaker 1: JP Morgan really doing now is really separating themselves from
Speaker 1: Jeff Staley's own actions within the bank. And I would
Speaker 1: say that Just Staley himself has really denied a lot
Speaker 1: of the allegations against him. The suit spot forward against
Speaker 1: JP Morgan were from the US Virgin Islands, which has
Speaker 1: been leading a lot of this litigation when it comes
Speaker 1: to Just Dally and Jeffrey Epstein, as well as a
Speaker 1: woman identified by Jane Doe who says she was a
Speaker 1: victim of Jeffrey Epstein so very closely watched Saga and
Speaker 1: Tokuti's point, a lot of money at stake. Yeah, absolutely.
Speaker 1: As Alison Williams Bloomberg Intelligence, what are your thoughts, Allison,
Speaker 1: as you talk to all these big banks that you've
Speaker 1: covered for for decades, what did they think about twenty
Speaker 1: twenty three. Is there going to be any meaningful rebound
Speaker 1: in activity there? I know the trading business has been
Speaker 1: pretty solid, but the advisory business and some of the
Speaker 1: capital raising business has not. Yeah, that's been I think
Speaker 1: the disappointment to start the year. And to Hinali's point,
Speaker 1: I think that most of the banks were sort of
Speaker 1: bank or hoarding. I guess, as we say, not willing
Speaker 1: to let go of all the bankers after they had
Speaker 1: to quickly do all these hires in twenty twenty one,
Speaker 1: and so they're a little bit reticent to start doing cutbacks.
Speaker 1: There was a lot of hope, and I think the
Speaker 1: disappointing thing is that even though the markets were sort
Speaker 1: of have had a strong rally or had a strong
Speaker 1: rally going, you know, starting at the end of last
Speaker 1: year into January, the IPO issuance has still been really dismal.
Speaker 1: M and A is really dismal, and so I think
Speaker 1: that's why you're starting to see some things bubble up.
Speaker 1: This is normally the strongest seasonal quarter, and I think,
Speaker 1: you know, what we really need is clarity on the
Speaker 1: macro environment. So even though the stocks have rallied, some
Speaker 1: of the expectations for those who want to come to
Speaker 1: market are still a little bit too high, and they've
Speaker 1: been and they've been hazard into sort of execute. So
Speaker 1: the pipelines are still there, but equity M and A disappointing.
Speaker 1: The one bright spot, if you will, has been in
Speaker 1: the debt capital markets business. We heard from City Group
Speaker 1: yesterday they're expect you know, the industry while it's down
Speaker 1: about forty percent in the first quarter. So that's that's
Speaker 1: better than the down fifty percent that we've been seeing,
Speaker 1: but only modestly and has to do with comparisons. But
Speaker 1: the one bright spot is the debt issuance. We have
Speaker 1: seen some companies coming to market, especially on the investment rate.
Speaker 1: I want to piggyback off of what Alison is saying
Speaker 1: because there's one deal that's being talked about today that
Speaker 1: is kind of hot, and that is the Uber leverage loan. Remember,
Speaker 1: Morgan Stanley is really leading that. Uber's a long time
Speaker 1: client and Morgan Stanley it's trading at thirty four dollars
Speaker 1: to share, remember when public closer to forty. So really
Speaker 1: this has been a tough trade. But Morgan Stanley, you know,
Speaker 1: as a lead underwriter and now is helping bring a
Speaker 1: leverage loan offering back to the table. They had a
Speaker 1: leverage loan offering last month that had seemingly high demand.
Speaker 1: You can see it, Paul, investors are still searching for yield.
Speaker 1: I am dying to know how this plays out. But
Speaker 1: remember Morgan Stanley is also hung with a lot of
Speaker 1: that Twitter debt, so it's meaningful to watch them come
Speaker 1: out in the market again with a company like Uber.
Speaker 1: Can we just take a moment to appreciate Uber and
Speaker 1: the Uber news today because in this story, Ridehilling Company
Speaker 1: looking to raise seven hundred and sixty million dollars from
Speaker 1: that sale, and that's separate from them considering to spend
Speaker 1: off their freight logistics division. So interesting stuff going on
Speaker 1: over at Uber. Well, let's bring it back to the
Speaker 1: banks if we can. Allison tell us a little bit
Speaker 1: about the trade here, because it feels fairly intuitive that
Speaker 1: if you were looking at higher rates for the economy,
Speaker 1: six percent, I believe is now the base keys for
Speaker 1: a lot of economists out there, not the consensus yet,
Speaker 1: but we're getting there. Does the automatic translation for the
Speaker 1: bank sector simply mean more interest profit? So that's what
Speaker 1: it's meant so far. So rising rates has been really
Speaker 1: a boon to the net interest income. But I think
Speaker 1: the damper that we're going to see in twenty twenty
Speaker 1: three is that the cost side of the equation now
Speaker 1: is starting to go up. So in the early days
Speaker 1: rising from zero interest rates, that we got the lift
Speaker 1: on the yield side of the equation, and that's really
Speaker 1: been strong, and bangs really haven't had to sort of
Speaker 1: lift their deposits rates because we were coming off of
Speaker 1: such a low base. But now we are seeing that.
Speaker 1: We started to see that sort of late last year,
Speaker 1: and we think we're going to continue to see that
Speaker 1: this year. I think that's sort of well understood at
Speaker 1: this point in terms of the expectations for a net
Speaker 1: interest income. But it's really you know, the credit losses
Speaker 1: side of the equation, the long growth side of the
Speaker 1: equation that investors are focusing on and then you know,
Speaker 1: looking at interest rates, I think that you know, what
Speaker 1: we've heard from managements is we really do need the
Speaker 1: FED to stop hiking, to get sort of more economic,
Speaker 1: to get a little bit more certainty on where the
Speaker 1: economy is going. You know, Alison, if I were starting
Speaker 1: my career overget on Wall Street as a young person,
Speaker 1: I'd go right the private equity That's just where I
Speaker 1: think some amazing returns can still be had. What's your outlook,
Speaker 1: you know, give us a kind of for the private
Speaker 1: equity business, and then over the next twelve to eighteen months. Yeah,
Speaker 1: so private equity, you know they have I mean, the
Speaker 1: amount of money they have raised has been incredible, Even
Speaker 1: those managements have become you know, a little bit more hesitant.
Speaker 1: But it's really I mean within private markets, it's really
Speaker 1: the private credit side where we've seen some of the
Speaker 1: biggest boom in turns of fundraising, and we expect that
Speaker 1: to continue this year. To your point, a little bit
Speaker 1: more activity going on on that side of things versus
Speaker 1: versus the trading desks, where we're expecting to see lower
Speaker 1: revenue again compared to last year. All right, good stuff,
Speaker 1: A little Wall Street round table. There. We do that
Speaker 1: with Shinali Basset of Bloomberg News and Alison Williams and
Speaker 1: Bloomberg Intelligence. She covers the banks. She's been doing that
Speaker 1: for decades here Bloomberg and then before that at Morgan
Speaker 1: Stanley Investment Management where they were big shareholders a lot
Speaker 1: of the big financial institutions. So we'd love to get
Speaker 1: her perspective here. Well, we're just talking to Alison Williams
Speaker 1: and Bloomberg Intelligence since she was talking about deal flow
Speaker 1: really being slow, and I guess that happens when interest
Speaker 1: rates rise, it gets a little bit more expensive to
Speaker 1: get deals done. Let's talk to somebody who's actually right
Speaker 1: in it, Hip Deep Randy Swimmer. He's co head of
Speaker 1: senior Lending and senior managing director Churchill Asset Management, and Randy,
Speaker 1: we like to talk to you about kind of what's
Speaker 1: going on in the deal flow world. You know, mid
Speaker 1: market deals, not necessarily the ones the big blockbusters, but
Speaker 1: a lot of the bid market deals that really rely
Speaker 1: on senior lending, leverage, lending, all that kind of stuff
Speaker 1: that you guys do. There's a bunch of private credit
Speaker 1: folks out there that are putting money into the space,
Speaker 1: it's kind of tough to get deals done, I guess
Speaker 1: when interest rates aren't zero. So talk to us about
Speaker 1: what you're seeing in the marketplace. So, yeah, January was
Speaker 1: actually a busy month. We actually led ten deals. That
Speaker 1: was the most of any direct lender in January. Now
Speaker 1: it was one month February busy as well, having gotten
Speaker 1: the final numbers. Yet, what we're seeing is that general
Speaker 1: flow to your point in M and A is off
Speaker 1: from last year at this time, part because of what's
Speaker 1: going on with interest rates, in part because of the
Speaker 1: lack of a straight line at the FED. I. You know,
Speaker 1: we all got thinking, hey, seventy five, fifty twenty five,
Speaker 1: they're going to do twenty five again and then maybe
Speaker 1: hold off all of a sudden years floating fifty basis points.
Speaker 1: That's a little bit of a surprise. Maybe he's just
Speaker 1: trying to be job on the market down. But generally speaking,
Speaker 1: in private credit and private equity, the capital is long term,
Speaker 1: and these private equity sponsors that we work with, and
Speaker 1: in general indirect lending have raised capital over a long
Speaker 1: period of time with strategies that are not short term.
Speaker 1: So they have in their pipeline deals that they've been
Speaker 1: working on for months and months and months, and they're
Speaker 1: coming to us increasing numbers now as they get the
Speaker 1: sense that the economy is strong. Because one of the
Speaker 1: things that people are missing is how strong businesses are
Speaker 1: that are in defensive sector. So healthcare, technology, software. Our portfolio,
Speaker 1: which is mostly defensive, is up revenue wise the entire
Speaker 1: portfolio thirty percent over last year, cash flows a little
Speaker 1: less twenty nine percent. What's driving that is these businesses
Speaker 1: that are more to be are in a very different
Speaker 1: slip stream than consumer focused high cap acts in some
Speaker 1: areas with high commodity costs or high wage costs. Those
Speaker 1: businesses are really driving the economy right now. They're driving
Speaker 1: job growth as we've seen with wage pressures. And I
Speaker 1: think in general that part of the business defensive sectors
Speaker 1: the private equity sponsors are focused on is going to
Speaker 1: be very active this year. Now. M and A flow
Speaker 1: will be short of what it was last year because
Speaker 1: last year, a year ago, we had zero interest rates.
Speaker 1: Amazingly right we kid hadn't started raising yet. But I
Speaker 1: think the other thing that's going on is the sellers
Speaker 1: of these companies are looking just like if you're going
Speaker 1: to sell your apartment and you're looking at the right price.
Speaker 1: They're saying, you know what, get all the papers ready,
Speaker 1: get my mortgage papers ready to get it all ready
Speaker 1: to go, and then if I've seen opening, I'm going
Speaker 1: to go for it. So I think the second half
Speaker 1: of the year is poised for a huge rebound. Well,
Speaker 1: how does that kind of square with say M and
Speaker 1: A activity, for example, it feels like a lot of
Speaker 1: the price deals lately have been driven by acquisitions. Yes,
Speaker 1: and I think that is a tried and true technique
Speaker 1: that private ape sponsors have to build these businesses up.
Speaker 1: The M and A flow, as I mentioned, is slower,
Speaker 1: but I think what's going on is there's a sense
Speaker 1: of what can we need, what we need to do
Speaker 1: if we have to finance these businesses. Paul, to your
Speaker 1: question about interest rates, So let's say they raise another
Speaker 1: fifty basis points. That gets you to five and a
Speaker 1: quarter from four to seventy five. You know, the average
Speaker 1: FED funds rate of the last sixty years was five
Speaker 1: and a half, so even we're not even at the
Speaker 1: at the average yet June of two thousand and seven
Speaker 1: it reached five and a half percent, so we're not
Speaker 1: quite at that point, I don't think. And by the way,
Speaker 1: the economy is in much better shape today than it
Speaker 1: was back then, and the banks are in much better shape.
Speaker 1: So that's the other thing that's going on. The private sector.
Speaker 1: Direct lenders are taking huge share from the banks right now.
Speaker 1: We just did the numbers, sixty one by ratio of
Speaker 1: sixty one to four, direct enders are doing more deals
Speaker 1: than the banks are doing year to date. That's a
Speaker 1: fifteen to one margin, okay. So what it means is
Speaker 1: for the deals that are getting done, even though the
Speaker 1: volume is half, folks like Churchill are doing them. So actually,
Speaker 1: our investors and by the way, I've done the tour
Speaker 1: in the last month since I saw you last of
Speaker 1: these sort of capitals of the world, so as in
Speaker 1: Tokyo's in Munich and last week this past week, I
Speaker 1: was in Baltimore, Okay. And our clients are seeing two things.
Speaker 1: One how's the portfolio holding up with the higher interest rates?
Speaker 1: And two what's going to happen with deal flow? Are
Speaker 1: you going to give me continue to invest my money?
Speaker 1: On the deal flows side, we're saying yeah, we're actually
Speaker 1: seeing based on January and early returns on February we're
Speaker 1: seeing plenty of flow on the portfolios side. What's interesting
Speaker 1: is because these defensive sectors or businesses that are actually
Speaker 1: doing well, we're actually seeing more upgrades in our portfolio
Speaker 1: than downgrades, and the performance of these businesses continues to
Speaker 1: be strong. Now, we did a proform of study of
Speaker 1: the portfolio if the FED goes to six percent, and
Speaker 1: we found that if you perform at that, interest coverage
Speaker 1: still remains solid around two times. I asked my portfolio
Speaker 1: menasor okay, and this was a question investor had, all Right,
Speaker 1: how many of your companies will be below one time
Speaker 1: interest coverage? And the answer was, on a perform at
Speaker 1: basis only one percent. That's pretty strong, Okay. That means
Speaker 1: that a very small number of those companies will not
Speaker 1: make their interests. Now. Of course they're going to be
Speaker 1: growing the meantime, so we're not worried. But this is
Speaker 1: I think there's there's a glass half full approach here
Speaker 1: that we're taking that we're seeing, which we're getting the
Speaker 1: message out to our investors that we've actually think this
Speaker 1: is a good time to be in private credit. All right,
Speaker 1: So if I you know, back when interest rates for zero,
Speaker 1: i'd come to Churchill Asset Management, I give you my
Speaker 1: money because you guys would get me yield. Now I
Speaker 1: can park my money into your treasury and get five percent.
Speaker 1: What does that do to your capital raising? Yeah, you
Speaker 1: can do that. You know, we don't view private credit
Speaker 1: as a timing issue because we've been getting seven percent
Speaker 1: year in, year out as a as an unlevered return
Speaker 1: for investors for seventeen years. It's up now, no question
Speaker 1: about it. And what we're telling investors and they're asking
Speaker 1: this like, you know, well if we come in now,
Speaker 1: you know, are we missing out on to your point,
Speaker 1: corporate investment? Great bonds? The challenge with bonds right now
Speaker 1: is that what happens if interest rates continue to go up?
Speaker 1: What if the Fed pushes rates up higher and new
Speaker 1: buy bonds. Now, the other thing that I'm hearing is
Speaker 1: that the risk premium is not there in a lot
Speaker 1: of the corporate bond market because it's if you get
Speaker 1: five percent on treasuries, you're only getting six percent on corporates.
Speaker 1: Is that enough? So if you play this private credit
Speaker 1: game with senior loans, it's twelve percent. You know, that's
Speaker 1: first of all, it's floating rates. So if rates keep
Speaker 1: going up, you're going to do better. Second of all,
Speaker 1: it's not correlated to the rest of the market. If
Speaker 1: we have supervolatility in the second third quarter. I'd like
Speaker 1: to think of private credit as kind of the noise
Speaker 1: cancelation headphones for the capital markets. Whatever is going on
Speaker 1: the markets, you're not going to feel that because these
Speaker 1: are again long term capital no ratings, the marks are
Speaker 1: private and so that stability is the kind of thing
Speaker 1: that these investors from based on my tour of those capitals,
Speaker 1: are really asking for. All right, good stuff. Randy really
Speaker 1: appreciate chatting with you get a good sense of what's
Speaker 1: going on out there in a private credit business. And
Speaker 1: we talk about private equity, but as Matt and I
Speaker 1: have been saying, as we've been talking to Randy for
Speaker 1: a while here, the private credit space is just so
Speaker 1: active and it's just amazing to me how quickly that
Speaker 1: business has grown. And Randy had some good stats there.
Speaker 1: Randy Swimmer, he's co head of senior lending and he's
Speaker 1: the senior managing director at Churchill Asset Management. Private credit
Speaker 1: lending to private equity firms a lot of times who
Speaker 1: are getting deals done in the mid market space a
Speaker 1: lot of opportunity that I think for a lot of
Speaker 1: people maybe flies under the radar a little bit, but
Speaker 1: they've been getting great returns for a long time and
Speaker 1: it's just an interesting part of the market. So we
Speaker 1: like to check in with Randy every once in a a
Speaker 1: while and he comes into our Bloomberg Interactive Broker studio. Well,
Speaker 1: there's a long way to go until the next presidential election,
Speaker 1: but many political organizations are already ramping up efforts. In particular,
Speaker 1: some are focusing on the Latino vote and working out
Speaker 1: the best approach to electoral issues that matter most to
Speaker 1: this growing population. Let's get more on that effort now
Speaker 1: and a special report from Bloomberg's Lisa Mateo. The political
Speaker 1: divide among Latino voters is seeing a subtle shift to
Speaker 1: the Grand Old Party. Exit polls from twenty twenty two
Speaker 1: showed Democrats one about sixty percent of Latino's overall down
Speaker 1: from sixty five percent in twenty twenty, and with Latinos
Speaker 1: making up more than thirty million of the country's registered voters,
Speaker 1: the push to capture their support continues to grow. There
Speaker 1: is now a microscope on our community that has not
Speaker 1: existed before. Yvonne Gautierrez is managing director for Latino Victory,
Speaker 1: an organization dedicated to building political power in the Latino community.
Speaker 1: Because in twenty twenty, we did see some small county
Speaker 1: and regions, you know, that did have a hired Republican
Speaker 1: turnout vote, but that was not emblematic really across the board.
Speaker 1: Democratic Congressman Henry Kuaiyar, who recently won Texas' twenty eighth district,
Speaker 1: says Republicans have been making a genuine play for the
Speaker 1: Latino vote. I have not seen this in the younger
Speaker 1: George Boursh and then Trump and then of course the
Speaker 1: National Republicans certainly did that this last election. While there
Speaker 1: wasn't a red wave in the twenty twenty two midterms,
Speaker 1: Republican Governor ron DeSantis turned heads when he won Florida's
Speaker 1: heavily Latino counties of Miami, Dade, and Osciola. Ronnie Lucetto
Speaker 1: National Chairman for the Republican National Hispanic Assembly says DeSantis's
Speaker 1: stance on COVID lockdowns helped they temporarily lockdown and then
Speaker 1: opened up immediately and kind of let everybody kind of
Speaker 1: live their life and make their own decisions into the
Speaker 1: Hispanic community. Being able to make your own decisions and
Speaker 1: freedom is one of the most important values that you
Speaker 1: can have as an American. Teresa Kumar, co founder and
Speaker 1: president of Voto Latino, says the swift reopening appealed to
Speaker 1: many Latino business owners. That was for many Latino business
Speaker 1: owners a lifeline because they don't have any plan B
Speaker 1: to fall upon. She adds that the age of Hispanic
Speaker 1: voters in the Sunshine State also played a part. Lord
Speaker 1: is the only state where young Latino voters will never
Speaker 1: eclips older Latino voters and they have a tendency of
Speaker 1: being far more progressive policies. In California, Governor Gavin Newsom
Speaker 1: was reelected with the support of sixty two percent of
Speaker 1: Latino voters, but still two points lower than his first
Speaker 1: election in twenty eighteen, according to the Los Angeles Times.
Speaker 1: In Pennsylvania, Kumar says Latino support was strong for Democrat
Speaker 1: John Fetterman in Fetterman's race, and this is according to
Speaker 1: exip points that came out of March for Our Lives.
Speaker 1: Seventy nine percent of Latino youth voted for a Democrat
Speaker 1: in this past election and findings from research firm Equis
Speaker 1: shows solid support for Democrats from Latino voters in places
Speaker 1: like Nevada and Arizona in twenty twenty two. Yet still
Speaker 1: representative Quaar feels the party needs to step up their game.
Speaker 1: Some of us, for many years have said to the
Speaker 1: nationals ADCROPO C you know, DNC, and the state parties.
Speaker 1: We've said, hey, guys, we cannot take Hispanics for granted.
Speaker 1: You know, Usually the effort was, let's start after Labor Day,
Speaker 1: you know, sixty days or so before the election, and
Speaker 1: then let's start pushing that Latino victories. Gautierrez says, politicians
Speaker 1: need to remember that Latinos are not a monolist. Latinos
Speaker 1: in Texas and California and Florida are all very different
Speaker 1: and have very different lived experiences in background, and therefore
Speaker 1: their votes are going to be different at times. Lucetto
Speaker 1: points to the topic of abortion and how the support
Speaker 1: for pro life policies can vary culturally from state to state.
Speaker 1: You have a large Mexican population in Texas and a
Speaker 1: illegal voting population of Mexicans in Texas and in Mexico,
Speaker 1: abortion was really for the most part illegal all the
Speaker 1: way up until the end of twenty twenty twenty one.
Speaker 1: So that's a losing battle if you're pushing a pro
Speaker 1: life policy for a Mexican population. But that didn't work
Speaker 1: so well when you look at New Mexico, because New
Speaker 1: Mexico is more of a Spanish Hispanic type of voting block.
Speaker 1: When it comes to immigration, Latinos are torn between providing
Speaker 1: a path to citizenship and illegal immigration. A New York
Speaker 1: Times Siena College pole shows about fifty five percent of
Speaker 1: Latinos support Democrats on legal immigration and roughly a third
Speaker 1: support a border wall. The same poll shows that while
Speaker 1: Democrats maintain a majority of Latino voters, younger male Hispanics,
Speaker 1: especially in the South, appear to be drifting away from
Speaker 1: the party due to economic concerns. So could a shift
Speaker 1: in the Latino vote be significant enough to change the
Speaker 1: political landscape of swing states with large Latino populations. Absolutely,
Speaker 1: because you're looking at purple states right now, you know,
Speaker 1: bluish purple states for the most part, and you flip Arizona,
Speaker 1: you flipped Nevada, and you start flipping a couple of
Speaker 1: little districts here and there inside of California, you start
Speaker 1: making a difference, small steps that could move bigger changes
Speaker 1: in New York. Lisa Mateo Bloomberg Radio. Good stuff, Lisa
Speaker 1: Matteo from She's right here on Bloomberg in Actor Broker studio.
Speaker 1: So we can ask some questions of Lisa. Lisa Mateo,
Speaker 1: business correspondent from Bloomberg Radio. But those in the New
Speaker 1: York market, No, Lisa, from her years at Picks eleven
Speaker 1: Channel eleven anchor reporter for eighteen years, also did some
Speaker 1: radio gigs at CBS and iHeartMedia, so she knows what
Speaker 1: she's doing out here. Lisa, thanks so much for this report.
Speaker 1: Is fascinating. Oh. I have to point out too from
Speaker 1: yourhythme the most important part A proud graduate of Rutgers Universe. Yes,
Speaker 1: the state University of New Jersey. Lisa, you did this
Speaker 1: report on Latino votes. It's important today, It's can be
Speaker 1: really important in twenty twenty four. What I found fascinating
Speaker 1: is it's not a monolith, as you say, explain to
Speaker 1: us kind of the differences across the country among the
Speaker 1: Hispanic vote. Yeah, it's also what countries you're from, but
Speaker 1: it also has to do with age, it has to
Speaker 1: do with gender as well. If you think about it, age,
Speaker 1: I mean, that's something that politicians are really going to
Speaker 1: be focused on come the next election in twenty twenty four,
Speaker 1: because you think about it, the ten year difference, Latinos
Speaker 1: are ten years younger than the country overall. If you
Speaker 1: think about age wise, four and a half million Latinos
Speaker 1: are going to be coming into voting age by the
Speaker 1: next elections. So you see where their focus is. And
Speaker 1: it's just such an important thing because a lot of
Speaker 1: the younger Latinos have more progressive issues and thoughts. But
Speaker 1: the problem is that it also switches by gender. So
Speaker 1: when you think about young male Latinos, some of those
Speaker 1: are switching more toward Republican because they're thinking more economy,
Speaker 1: especially in the South, but females are more progressive. So
Speaker 1: I think age is definitely going to be something that
Speaker 1: they're going to be focused on. They're going to be
Speaker 1: investing more, investing earlier, starting earlier. They're already knocking on
Speaker 1: doors getting more Latinos registered to vote now, so yeah,
Speaker 1: what about the twenty twenty four election here, obviously this
Speaker 1: is going to be a major factor. Do we get
Speaker 1: any insight about the next presidential election? They are on
Speaker 1: something that was interesting too. We're talking about the next
Speaker 1: president elential because you have Title forty two. You know
Speaker 1: that's going to be coming to expiring in a few months.
Speaker 1: So immigration was a huge issue, but also something that
Speaker 1: you're seeing starting to shift. So it's interesting to see
Speaker 1: the different ways people are thinking about immigration for Latinos.
Speaker 1: You know that New York Times pole just stuck out
Speaker 1: to me so much. Fifty five percent support the immigration,
Speaker 1: but you have still have that third that is supporting
Speaker 1: that border wall. So see you're starting to see that
Speaker 1: divide there. Yet, what are the big important issues for Latinos?
Speaker 1: Can we boil it down to a couple I think
Speaker 1: there was actually a study by vote to Latino. They
Speaker 1: did a study right before the midterms, and they said
Speaker 1: what issues are important to you? Number one, of course
Speaker 1: was economy. Number two though, was abortion, so you see
Speaker 1: how that younger generation is starting to come in there.
Speaker 1: And number three was gun reform. So those were the
Speaker 1: top three right before the midterms. And it's interesting right
Speaker 1: before the midterms, But I want to talk about participation
Speaker 1: from the Latino votes specifically, because these issues can matter,
Speaker 1: but if you're not actually shown up at the polls,
Speaker 1: then those issues don't matter. It talks about you. Yeah,
Speaker 1: there's thirty million registered Latino voters, so you think about it,
Speaker 1: but you have to turn out to the polls. And
Speaker 1: just like you're saying, so, that's why they're starting those initiatives,
Speaker 1: are going door to door. They're starting to get people
Speaker 1: out there to recognize their importance of their voice. And
Speaker 1: that's really what they're focus on. How do you reach them?
Speaker 1: Is it Univision, Telemundo, is it digital media? How did
Speaker 1: these politicians try to reach this community? Well, it's funny.
Speaker 1: I was talking to a lot of them about that
Speaker 1: and they said, what they're doing now, it's rather than
Speaker 1: putting a lot of the big money behind let's say
Speaker 1: advertising or things like that, they're going into these smaller organizations.
Speaker 1: They're going to for example, auto shows, they're going to
Speaker 1: you know, certain dances, like different things where they can
Speaker 1: really get in and talk to people, shake hands, go
Speaker 1: one on one, you know, rather than just a big
Speaker 1: advertisement place somewhere. You know, across media, they're going into
Speaker 1: the communities and talking with people one on one. Fascinating.
Speaker 1: It's going to be you know, I follow this story
Speaker 1: for a lot of time I spent a lot of
Speaker 1: time with Univision and some of the Spanish language media companies,
Speaker 1: and it's a big growing part of the population and
Speaker 1: an influential one economically and politically. So it's great to
Speaker 1: get this reporting. Lisa Matteo, she's a business correspondent for
Speaker 1: Bloomberg Radio, joining us here live on our Bloomberg Interactive
Speaker 1: a broker studio with an important story. As we start
Speaker 1: barreling towards that twenty twenty four presidential election, we're gonna
Speaker 1: have a lot more stories like that. A lot of
Speaker 1: news out there on the cryptospace, and not a lot
Speaker 1: of it's very good. The ripple effect from FTX implosion
Speaker 1: is kind of finding its way to the banks, you know,
Speaker 1: talk about Silvergate Financial, Silicon Valley Bank. Lots of issues
Speaker 1: out there, not many of them good. Let's check in
Speaker 1: with Mike mcloone's senior macro strategist for Bloomberg Intelligence here. So, Mike, again,
Speaker 1: it seems like the ripple effect from FTX is kind
Speaker 1: of hitting some of the financial institutions here. How do
Speaker 1: you and others in the cryptospace read what we're seeing
Speaker 1: from the banking side of the equation. Hey, Paul Well.
Speaker 1: I think it's a classic worn buff at the tide's
Speaker 1: going out and find out who's wearing clothes. The key
Speaker 1: point is I don't think we're done yet with finding
Speaker 1: out who wasn't wearing clothes. So Silvergate, on the back
Speaker 1: of FTX, on the back of Celsius, the things, we
Speaker 1: can just keep going down the line. And it all
Speaker 1: predicated in the fact that markets went down, not just cryptos.
Speaker 1: So I think the greater risk here is there is
Speaker 1: going to be more contains from this. Prices are more
Speaker 1: likely to go lower. But it's not just cryptos, it's everything.
Speaker 1: Remember the FED is still tightening, and but I think
Speaker 1: the good thingle commodomis will get some good, hopefully astute regulation.
Speaker 1: Bitcoin is still known as being the outsider. It's not
Speaker 1: as secure, it's clear the commandity. But I'll end with this.
Speaker 1: The key point is next Thursday is the one year
Speaker 1: anniversary of the first rate hike, and that takes the
Speaker 1: big macro here is the FET is still tightening rates.
Speaker 1: It's only been a year less than the year that
Speaker 1: rates are still zero, so we're seeing that trickle down
Speaker 1: and cryptos are the fastest horse in the race going
Speaker 1: down the most, Mike, it feels like as we hear
Speaker 1: about the news coming out of Gemini, coming out of
Speaker 1: silver Gate, it feels like it wasn't just FTX that
Speaker 1: kind of created this ripple effect. It goes back further
Speaker 1: to the three arrows capital saga as well. How many
Speaker 1: more shoes are there left to drop from clearing out? Well,
Speaker 1: that's Critio's exact appropriate question, and my fear and just
Speaker 1: being realistic, is there's probably going to be more because
Speaker 1: I do expect in the macro we might not have
Speaker 1: put in the bottom in most risk assets. And that's
Speaker 1: just by being simple and find what the fet is
Speaker 1: telling us. They are still tightening. We've had this bounce
Speaker 1: in bitcoin from fifteen to twenty five. I did point
Speaker 1: out twenty five significant resistance. If you're tactical, you should
Speaker 1: boy be selling it. And if that happens, we're going
Speaker 1: to see more of the questions what's next. But what
Speaker 1: we're seeing lately is most major institutions are going out
Speaker 1: and claiming, you know, saying we don't not have exposure
Speaker 1: to the bad actors. But I'm afraid there's still more.
Speaker 1: I mean, I just don't know how to quantify that
Speaker 1: it's more difficult as people who really dig in to
Speaker 1: me that being the macro strategist, I point out that
Speaker 1: I see rolling over in most diss assets. I see
Speaker 1: something I've never seen before, that we have the bloomer
Speaker 1: commandity next down twenty percent and the FED still tightening.
Speaker 1: So cryptos are more likely to suffer the fastest horse
Speaker 1: in the race. But one thing I'll point out too
Speaker 1: is the key. My key seem at the beginning of
Speaker 1: years watching Ethereum a little bit in the number two cryptos.
Speaker 1: The key levels that watch are A thousand to two thousand,
Speaker 1: and it's still stuck in the middle of that range,
Speaker 1: just making it difficult for all of us. So my
Speaker 1: gear in the self proclaimed crypto capital, at least in
Speaker 1: the United States, done that down in Miami. What's the
Speaker 1: feeling in the in the community there about crypto just
Speaker 1: broadly defined and maybe just some some things think things
Speaker 1: you're hearing. It's impressive the long term building I'm seen
Speaker 1: from mostly the rational, mature people who are in it
Speaker 1: for a reason and are not the young speculative type
Speaker 1: who just haven't experience for the facts of fiduciary duty before.
Speaker 1: So I sense from most people here that okay, this
Speaker 1: is rough, but it's just part of any nascent crypto asset.
Speaker 1: And if you just look at the last low and bitcoin,
Speaker 1: it was around eighteen nineteen, around four to five thousand,
Speaker 1: and here we are twenty one thousand, So where is
Speaker 1: it going forward? And then it's just all the building
Speaker 1: in the space and one thing that's unstoppable. It's been
Speaker 1: happening lately with this Gray Gray Scale Bitcoin Trust GBTC
Speaker 1: and it's lawsuit. With this litigation with the SEC, they
Speaker 1: are much more likely to win that case now, which
Speaker 1: should be the trickle down that Okay, these incumbents are here.
Speaker 1: This is just the example of rap lead advancing technology
Speaker 1: taking over and just kind of have to adopt it
Speaker 1: or risk falling behind in the meantime though it's a
Speaker 1: bear market. Well, we actually had the Gray Scale CEO,
Speaker 1: Michael Shnheim the one PM yesterday, a very exciting interview
Speaker 1: and one of the questions we asked him was are
Speaker 1: you worried about kind of a flow of redemptions when
Speaker 1: it comes to just kind of the fun flow in GBTC.
Speaker 1: He didn't really give a straight answer, but Mike, are
Speaker 1: you worried about that. No, what I see in GBTC
Speaker 1: is most people are seen is somewhat is distressed debt
Speaker 1: with a high probability of going back to par So
Speaker 1: the discount got into the extreme of around fifty percent.
Speaker 1: Right now it's thirty four percent. And if our when
Speaker 1: I think it's going to be an evilent, they're going
Speaker 1: to become an ETF. I think they almost have to
Speaker 1: because it's happening in every a lot of other countries.
Speaker 1: That's going to go back to zero. This question is
Speaker 1: why do you why you know so? I think it's
Speaker 1: more likely GBTC is put in a low than Bitcoin
Speaker 1: has because that extreme discount and the probability that they
Speaker 1: will become an ETF and win this case. But that's
Speaker 1: gonna be a while. Mike. In addition to all the
Speaker 1: crypto work you do, your day job is commodities an
Speaker 1: i'll strategists here with the FED seemingly continuing to raise
Speaker 1: the interest race, what's the what are you talking to
Speaker 1: your commodity clients about. The most of these days sell rallies.
Speaker 1: I'm enjoying and that's been you know, I was too
Speaker 1: early on that last year, but it's just a key
Speaker 1: fact of commodities, particularly crude oil Paul. They are the
Speaker 1: world's most significantly autocore correlating assets, and when they go
Speaker 1: up a lot, they basically their own enemies. And that's
Speaker 1: proving proving true now. So we look at wt A,
Speaker 1: crud oils down thirty percent, down in the air, natural
Speaker 1: gas is dropped to the same price that traded in
Speaker 1: nineteen ninety, and the FED is still tightening, and there's
Speaker 1: the consensus that China the Man will bring commodies up.
Speaker 1: My ruling commodities is fade to consensus because it's already
Speaker 1: in the market. Expect a severe normal commodity correction, Expect
Speaker 1: prices to go much lower. And a key fact I
Speaker 1: point out earlier it is just the fact that the
Speaker 1: Bloomer Commodity index is still down twenty percent on a
Speaker 1: one year basis, and the FED is still tightening I've
Speaker 1: never seen. This means you should look to sell any
Speaker 1: kind of rallies in commodities, and one of the one
Speaker 1: that's closest to the SF five hundred copper copper if
Speaker 1: you if you it's basically the same price SMP five hundred,
Speaker 1: if you multidivide the SP five hundred by a thousand,
Speaker 1: it's right about four, and I fully expect it's more
Speaker 1: likely to go to three than five. We'll put this
Speaker 1: into perspective orse with a copper story, because it felt
Speaker 1: like with this China reopening, it was a no brainer
Speaker 1: that copper had this massive bowl case where did it
Speaker 1: go thirty seconds exactly in creating exactly no brainers. We
Speaker 1: know what that means to do the opposite, So copper
Speaker 1: got a little cheap last year. It's the world's most
Speaker 1: significant industrial metal, and it's heading lower. In my view,
Speaker 1: it's found ten percent on a one year basis. I
Speaker 1: think it's more likely to head towards three and it's
Speaker 1: very unlikely to go back above five. It's got to
Speaker 1: get through this recession, which is inevitable if you look
Speaker 1: at the yield curve in the US. Mike mclogan clear
Speaker 1: concise calls as always Mike McLoone, senior macro strategist for
Speaker 1: Bloomberg Intelligence in Miami, Florida, which is the self proclaimed
Speaker 1: in my mind, capital of all things crypt Though all
Speaker 1: this may be the conversation of the day, particularly feen
Speaker 1: tech geeks out there, we're in a round table to
Speaker 1: seeing talk all things tech, focus on Apple, computer on
Speaker 1: Aragrana Senior Tech Annalso Bloomberg Intelligence joins us as well
Speaker 1: as Mark German, reporter with Bloomberg News, and then we'll
Speaker 1: talk a little tech here. And Mark, I want to
Speaker 1: start with you talk to us about Apple and their
Speaker 1: view of India as an opportunity here. Whenever I think
Speaker 1: of Apple in India, I think, boy, don't they have
Speaker 1: to bring in a lower priced model. How do you
Speaker 1: think they're viewing it? India, in Apple's view, could be
Speaker 1: the company's next China. Right If you remember, China was
Speaker 1: a very small market for Apple only about fifteen years ago, right,
Speaker 1: But when Apple went to a larger sized iPhone with
Speaker 1: the iPhone six plus back in twenty fourteen, things really escalated.
Speaker 1: And Apple sees India in the same way. Right now,
Speaker 1: China brings in about seventy five billion a here in
Speaker 1: revenue for Apple. That's nearly a fourth of overall annual revenues.
Speaker 1: They want India to eventually be the same might take
Speaker 1: ten twenty thirty years, but that's what they're t push towards.
Speaker 1: And so in order to do that, they're making India
Speaker 1: it's own dedicated sales region within the company its own
Speaker 1: operational region, separating it out of Europe right in Africa
Speaker 1: and the Middle Eastditerranean where it was bundled before. And
Speaker 1: they think this is really going to help push growth
Speaker 1: and more resources there. Hop into this conversation put some
Speaker 1: numbers on it for us, this supply chain shift. Essentially,
Speaker 1: you're the shift that Mark is really outlining. What kind
Speaker 1: of impact does that have on the fundamentals at a
Speaker 1: time when I feel like Tim Cook's real legacy was
Speaker 1: securing the supply chain. Oh yeah, from a supply chain
Speaker 1: point of view, India, you know, will become a big
Speaker 1: part of it, but that may take some time. But
Speaker 1: I cannot agree more with what Mark is talking here.
Speaker 1: India from a numbers point of view, should and could
Speaker 1: be a very big market for Apple down the road,
Speaker 1: and largely because the population size is there. And the
Speaker 1: only question you have to really think about is, you know,
Speaker 1: at what paces the middle class becoming more and more richer,
Speaker 1: because frankly, I don't think Apple is going to go
Speaker 1: down the value chain and come up with the lower
Speaker 1: price model. I think the population in India has to
Speaker 1: get richer in order to afford that, and Mark, I mean,
Speaker 1: I guess is that something that you think Apple is
Speaker 1: ready to I'm not sure wait for or is that
Speaker 1: something they anticipate having that India market evolved like Anoraga suggesting, Yeah,
Speaker 1: I agree with the honor Rug. Apple's not going to
Speaker 1: go down market. They're not going to come out with
Speaker 1: lower price devices for a specific market. What they are
Speaker 1: going to do is they're going to keep coming out
Speaker 1: with the new types of Spellman plans, new trade in programs,
Speaker 1: other new promotions that don't change the cost to the
Speaker 1: phone right per se, but makes it a lot more
Speaker 1: attainable for people in markets like India. So you're going
Speaker 1: to see that, well, Mark, talk to us a little
Speaker 1: bit again. You talked about the products as well. But
Speaker 1: it's interesting that Apple is shifting to India up yet.
Speaker 1: I don't think it's they're They're not the main dominant
Speaker 1: kind of product maker in that market. It's still Samsung,
Speaker 1: right Yeah. Apple definitely is not the dominant player in
Speaker 1: India and that gives them a big growth opportunity long term. Right.
Speaker 1: The dominant players there are Samsung phones from shao Me,
Speaker 1: Huawei and other players. These are the Chinese brands a
Speaker 1: lot of times these phones can sell for sub four
Speaker 1: hundred dollars, and I think that makes that much more
Speaker 1: attainable combined with installment programs in a place like India,
Speaker 1: which is obviously an emerging market. But I do think
Speaker 1: Apple is going to do whatever it can marketing wise,
Speaker 1: promotional wise in order to make the iPhone a bit
Speaker 1: of a better purchase in India, right, maybe bundle it
Speaker 1: with other products and services and such. So I do
Speaker 1: think they will eventually get it done. You know, five
Speaker 1: G is just still so nascent in India, and it's
Speaker 1: still you know, nascent for Apple itself. They only went
Speaker 1: into the five G market two years ago. So I
Speaker 1: do think they have a long term growth path there.
Speaker 1: And of course, you know, we do believe that Apple's
Speaker 1: not going to go down market, but if they decided
Speaker 1: to sort of hit that lever can go down market.
Speaker 1: Release you know, a new version of the iPhone SE
Speaker 1: just for India, or a new version of the iPhone
Speaker 1: SE which right now is four hundred and fifty dollars
Speaker 1: that has you know, better attributes, bigger screen, five G, etc.
Speaker 1: I think that could be successful there with the right
Speaker 1: marketing program behind it. Hey, and Rod talk to us
Speaker 1: about the air pod business for Apple. I have my
Speaker 1: AirPods and the problem is they don't stay in my ear.
Speaker 1: So I know the product design is perfect at Apple,
Speaker 1: so the problem must be my ear. But tell me
Speaker 1: about the iPod business from a financial perspective. Yeah, I
Speaker 1: was really intrigued with it a few days ago when
Speaker 1: I when I you know, am mine ended up in
Speaker 1: the washing machine, and you know, I ended up spending
Speaker 1: two hundred forty nine dollars for it, plus the plan
Speaker 1: of twenty nine bucks. And I said, started looking at
Speaker 1: the numbers. Before the pandemic, the attached right foot iPhone
Speaker 1: was about twenty percent off of the you know, currently
Speaker 1: it's somewhere around thirty eight forty percent. And then in
Speaker 1: the most recent survey that we did for and the users,
Speaker 1: we saw sixty two percent attach rate. And you know,
Speaker 1: we are modeling that over the next seven eight years,
Speaker 1: the whole world moves into that rollm off close to
Speaker 1: a sixty percent attach rate. Wait that's the case. What
Speaker 1: does that mean? I mean every iPhone users? You're an
Speaker 1: iPhone user, do you have a do you have an
Speaker 1: air part or not? Believe me, I landed in Chicago
Speaker 1: last Monday, and I looked around the plane. There wasn't
Speaker 1: one human being in that plane that didn't have an
Speaker 1: air part along with it. So sixty person is probably
Speaker 1: conservative in my wife. But if that happens, you know,
Speaker 1: airpart become the third biggest category, you know, for for
Speaker 1: Apple down the road, and frank you speaking, you're gonna
Speaker 1: lose them. They're gonna fall in water. Your replacement cycle
Speaker 1: is going to be far faster than an iPhone. And
Speaker 1: you know, it's just it's just a beautiful product. Frankly
Speaker 1: doesn't stay in my ear, So what does it say
Speaker 1: about my ears? I guess that's the question. Hey, Mark,
Speaker 1: I'd love to get the latest reporting from you. I'm
Speaker 1: kind of what's the feeling in Cupertino about China, both
Speaker 1: as a supplier and as an end of market. What's
Speaker 1: the latest thinking. I think Apple is pretty confident in
Speaker 1: its supply chain in China. I think they have seen
Speaker 1: the Chinese supply chain be pretty strong and pretty resilient
Speaker 1: other than the last four years. So it's taken some
Speaker 1: time for them to really wrap their heads around this
Speaker 1: idea that this whole supply chain they spent twenty five
Speaker 1: years building, you know, really has faced criticism recently, has
Speaker 1: faced issues. And really you can chop it up really
Speaker 1: to the tariffs issue in twenty eight, twenty nineteen, right,
Speaker 1: and then you can connect it to COVID as well,
Speaker 1: and those two factors really with a string of bad
Speaker 1: luck and COVID zero policies in China, you know, really,
Speaker 1: you know, weaken that supply chain a little bit in
Speaker 1: the eyes of investors and some And so I don't
Speaker 1: think Apple is going to shift away from China as
Speaker 1: people think. I think that the Chinese supply chain is
Speaker 1: here to stay. But I have a big caveat whereas
Speaker 1: I think Apple is going to double up and really
Speaker 1: build additional supply chains, different manufacturing final assembly facilities in India, Vietnam, Thailand, Malaysia, Cork,
Speaker 1: Ireland and really expand there. So if there are further
Speaker 1: issues in the Chinese supply chain, they have backups in place. Mark,
Speaker 1: let's go to a different part of the business here,
Speaker 1: Apple TV are what's the growth case for Apple TV
Speaker 1: at a time when a lot of streaming companies, a
Speaker 1: lot of media giants really struggling. Yeah, the growth case
Speaker 1: is really the price at seven dollars a month. Apple
Speaker 1: is still well under the price points you're seeing of
Speaker 1: Netflix and HBO Max and those bundles there. I think
Speaker 1: if Apple further pushes Apple TV Plus in terms of
Speaker 1: bundles their Apple or One bundles they included in the
Speaker 1: price point of some of their other products, I think
Speaker 1: it could be Okay. One new thing they're trying is
Speaker 1: they're sort of building this temper very back catalog of content.
Speaker 1: So they have their originals, which is what you're paying for,
Speaker 1: but you also you get about six of these random
Speaker 1: iTunes movies, usually the same ones that are streaming on Netflix,
Speaker 1: included with TV plus. So if they continue to expand that,
Speaker 1: it makes TV plus quite a bit of a better offering.
Speaker 1: They have not marketed that. They don't advertise it. It's
Speaker 1: not advertised as part of the price point every month,
Speaker 1: but I think that's something they're testing right now. And
Speaker 1: if they continue pulling that lever and make it a
Speaker 1: bigger part of the package, I think TV plus could
Speaker 1: be quite successful. Hey fit finished up with you here?
Speaker 1: What's the bear case for the stock? Apple? Thirty seven
Speaker 1: buys eight holds and only two cells. Is there a
Speaker 1: bearcase for Apple? The big case is really you know,
Speaker 1: China is the biggest bearcase frankly, and then that's really
Speaker 1: what you know, I get scared about. I think that's
Speaker 1: one idea. But the second part also is, for the
Speaker 1: long period of time, Apple's been growing sales at a
Speaker 1: clip of about ten percent per year, let's say for
Speaker 1: the last several years. We don't think that's going to
Speaker 1: happen anymore. It's going to be high single digit growth
Speaker 1: fade stock. And as you know, I mean, you know,
Speaker 1: what multiple are you going to pay for a stock
Speaker 1: at that time? I think there is a lot of
Speaker 1: discussion about valuation. We have done a lot of work
Speaker 1: on that area. I think those are the two areas
Speaker 1: that I hear the most criticism about. All Right, good stuff,
Speaker 1: Really appreciate getting you too, smart folks together on a
Speaker 1: rock ran A, senior tech analysts with Bloomberg Intelligence and
Speaker 1: Mark German, reporter for Bloomberg News covering all things technology.
Speaker 1: Twenty twenty two was a year to forget for risk
Speaker 1: on investors at sixty forty stock portfolio nowhere to hide
Speaker 1: This year kind of an up and down, really strong
Speaker 1: januarying for some bond investors. Some of the best January,
Speaker 1: they've they've ever seen and then kind of given it
Speaker 1: back in February. So where do we go from here?
Speaker 1: Let's check out with Mike Smith. He's a senior portfolio
Speaker 1: manager Offspring Discovery smid cap Growth Fund and for those
Speaker 1: of you not in the know out there, Smith is
Speaker 1: kind of a combination between small cap and MidCap. You
Speaker 1: put it together and it's a smid cap. So how
Speaker 1: about that? Thanks for joining us here. Let's look forward here.
Speaker 1: How are you guys approaching this market? Are you do
Speaker 1: you feel like you're held hostage by the Federal Reserve
Speaker 1: or do you still feel like there's ways to make
Speaker 1: money here and maybe add some value. Hey, Paul, good afternoon.
Speaker 1: Thanks for having me on. I think there's definitely reasons
Speaker 1: to be hopeful and optimistic. You know, starting with what
Speaker 1: you just said, there was a lot of damage done
Speaker 1: last year, and we entered this year with the post
Speaker 1: year that last year's paying is this year's opportunity, and
Speaker 1: that's starting to play out a little bit. I think
Speaker 1: it's reasonable to expect a choppy year and some ups
Speaker 1: and downs as we move forward. But you know, what
Speaker 1: we see is there's a divergence and fundamentals that that
Speaker 1: is starting to reappear. When you look at the universe
Speaker 1: of growth companies that we focus on and you compare
Speaker 1: that to the broader market, fundamentals are superior on three fronts.
Speaker 1: The growth differential is actually as wide as it's been
Speaker 1: in quite some time, about two times the ten year average.
Speaker 1: There's superior margins and returns, and there's also increasing evidence
Speaker 1: of superior resilience. The rate at which estimates are being
Speaker 1: cut and revide lower for growth companies, you know, is
Speaker 1: less than what we're seeing for the rest of the universe.
Speaker 1: And you know, typically you pay a premium for better fundamentals.
Speaker 1: You pay a higher price for better growth, better margin,
Speaker 1: and more resilience. But last year that premium went away.
Speaker 1: And so what we think re emerges is a reward
Speaker 1: for patient and optimistic investors who are willing to take
Speaker 1: some risk and try to navigate the chop you want
Speaker 1: sat waters that we're all sailing through. So where where
Speaker 1: are we are? Where are you guys in terms of
Speaker 1: your view of valuation if you want to get you know,
Speaker 1: until your portfolio more towards growth companies. Where is the
Speaker 1: kind of the valuation play we think valuation overall is
Speaker 1: about average for growth stocks, so you know, it got
Speaker 1: quite extended. That's part of what contributed to the pain
Speaker 1: in the first half of last year. We're not at
Speaker 1: all time lows, but we're at a fair value where
Speaker 1: you can be rewarded for investing in those superior fundamentals.
Speaker 1: And I think in terms of where you find opportunity,
Speaker 1: it's broad based. I think one of the most interesting
Speaker 1: things that's going on is technology cycles through different industries
Speaker 1: and is adopted by all different types of businesses. It's
Speaker 1: creating winners and losers and companies with superior growth and
Speaker 1: lots of different places. So give us a sense, are
Speaker 1: there some sectors you like at the moment. Yeah, the
Speaker 1: most interesting opportunities that we see are in technology, consumer,
Speaker 1: and healthcare. Those are the three sectors where fundamental differentials
Speaker 1: get rewarded. It's very hard in places like energy and
Speaker 1: interstensitive financials to make money based on fundamentals. You get
Speaker 1: paid for getting the oil price right or the yield
Speaker 1: curve right. We avoid those sectors and dive into opportunities
Speaker 1: where the differences in the quality of the business matter.
Speaker 1: You've got a name here that you guys like Mercado Libre.
Speaker 1: I've heard that name before. It's a really interesting story.
Speaker 1: Tell us about it. Yeah, Mercado Libre is essentially both
Speaker 1: the Amazon and PayPal of Latin America. And you know,
Speaker 1: it's early days in the markets where they do business
Speaker 1: in terms of the adoption of e commerce and digital payments,
Speaker 1: and the value proposition to the end user, the consumer
Speaker 1: is meaningfully better, you know. I regardless of the economic regime,
Speaker 1: people pay for better, They pay for more convenience, they
Speaker 1: pay for less friction, more safe transactions. And so the
Speaker 1: growth dynamics that they're seeing, which are quite explosive, are
Speaker 1: primarily driven by that value proposition and the under penetration
Speaker 1: of e commerce and digital payments. So you mentioned healthcare before.
Speaker 1: How do you guys play healthcare? Do you go into
Speaker 1: the services side, the pharmacide, the biotech side. How do
Speaker 1: you guys like to get exposure to healthcare? You know, again,
Speaker 1: I think it starts with the value proposition and what
Speaker 1: does each individual business enable. As we sit here today
Speaker 1: in the United States, We've never spent more on healthcare,
Speaker 1: and the system has never been more complicated and more broken.
Speaker 1: And so any business that brings a solution to the
Speaker 1: table that saves lives or saved dollars, we think as
Speaker 1: a long runway for growth. And so when you look
Speaker 1: at you know, companies like Inspire Medical Systems as an example,
Speaker 1: you know, what they enable is an alternative that's better
Speaker 1: for the patient who wants to wear a map getting
Speaker 1: night to deal with their sleep apnean if you don't
Speaker 1: have to, and if you get better results with less
Speaker 1: inconvenience or at a lower cost, you know, there's wide
Speaker 1: adoption and so um, you know there are multiple examples
Speaker 1: of that throughout our portfolio. But again, it all comes
Speaker 1: back to enabling something better. That's the common denominator. So, Dan,
Speaker 1: on the macro side, how concerned are you that that
Speaker 1: we are in a higher rate for longer potentially an
Speaker 1: environment And how do you guys feel about that? At Allspring?
Speaker 1: You know it's your crystal ball is as good as
Speaker 1: mine when it comes to where rates settle and what
Speaker 1: the FED does from here, I think it's clear there's
Speaker 1: a commitment to kill inflation, and the BED couldn't be
Speaker 1: more clear about where they stand on that. So we
Speaker 1: have to be humble in processing what that means. But um,
Speaker 1: you know at the end of the day, we have
Speaker 1: an amount of debt in our country. We have a
Speaker 1: lot of bad demographics in the developed economies, including the
Speaker 1: United States. Those are both two big overhangs on growth.
Speaker 1: You know, it's hard to see a scenario where it
Speaker 1: takes a long time to kill inflation. It takes a
Speaker 1: long time to restrain growth growth, because they're structural horses
Speaker 1: that are going to cause those restraints or constraints to
Speaker 1: happen anyways. So you know, I think time will tell
Speaker 1: as we moved through the year. I'm not looking for
Speaker 1: a big upside surprise that rates have come way down,
Speaker 1: but I think it's quite possible. We've seen the highs
Speaker 1: and we just need to bide our time now to
Speaker 1: get to the other side of the cycle. All right, Mike,
Speaker 1: I always appreciate get a couple of minutes of your time,
Speaker 1: Mike Smith. He's a senior portfolio manager at all Spring Discovery.
Speaker 1: It's a smidcap growth fund, small MidCap growth and all
Speaker 1: Spring is a former Strong Capital which was an absolute
Speaker 1: must stop when you want it to go to the
Speaker 1: Midwest and see institutional investors strong out there that the
Speaker 1: burbs of Milwaukee, Wisconsin, which pound for pound, I think Milwaukee,
Speaker 1: Wisconsin might have some of the best money managers out there.
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
Speaker 1: subscribe and listen to interviews of Apple Podcasts or whatever
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 1: at Matt Miller nineteen seventy three, and I'm Fall Sweeney.
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
Speaker 1: can always catch us worldwide at Bloomberg Radio.