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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.

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Speaker 1: Along with my co host Lisa Brahmowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p m L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Paul,

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Speaker 1: A lot of people have been asking how realistic is

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Speaker 1: it for a recession in the United States this year,

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Speaker 1: and a growing number of investors are saying it just

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Speaker 1: doesn't look that likely, especially with earnings looking as good

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Speaker 1: as they are. It's you're right, and you know. What

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Speaker 1: we've been talking about, certainly over the last several weeks

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Speaker 1: is that the US economy seems to be you know,

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Speaker 1: a beacon, if you will, relative to China, relative to say,

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Speaker 1: some of the data we're seeing coming out of Europe um.

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Speaker 1: So the question is how long can that last? Yeah? Definitely.

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Speaker 1: So let's bring in Jim b Uncle, president and founder

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Speaker 1: of Bianco Research. He's also a contributor to Bloomberg Opinion

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Speaker 1: based in Chicago. Jim, thank you so much for joining us.

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Speaker 1: What's your read on the likelihood of her session this year.

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Speaker 1: I think it's a lot higher than people are discounting.

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Speaker 1: And I think the reason is is that most of

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Speaker 1: us are looking at the wrong metric. Ben Bernanke, when

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Speaker 1: he was on the DS with Janet Yellen and j Paul,

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Speaker 1: said that economies are murdered. So let's stop measuring the

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Speaker 1: economy's cholesterol level, blood pressure, or heart rate, or it's

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Speaker 1: GDP or retail sales or payrolls, and let's look at

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Speaker 1: who's walking around with a murder weapon that's going to

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Speaker 1: kill it. And high on that list is the Federal Reserve,

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Speaker 1: with their intention to raise rates and reduce the balance sheet.

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Speaker 1: They are the most frequent murderer of economies. Janet Yellen

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Speaker 1: said that on the DS January fourth. Jim and so

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Speaker 1: I'm afraid that they're going to do what they've done

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Speaker 1: so well in the past, kill this economy. But even George,

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Speaker 1: even even esther word has come out and beIN dovish

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Speaker 1: when it comes to raising rates. Every single Fed member

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Speaker 1: has come out and basically said we'll be patient, we'll

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Speaker 1: chill out. So I likely is it. I mean, their

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Speaker 1: murder weapon is looking a little bit more like a

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Speaker 1: spoon than a machete. That's true. And a month ago

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Speaker 1: they were intent on doing the equivalent of five rate hikes.

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Speaker 1: I think we need to go back and remember that

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Speaker 1: a month ago they said they were going to do

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Speaker 1: two rate hikes and they were gonna have the balance

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Speaker 1: sheet on automatic pilot to cut through the chase. With

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Speaker 1: the balance sheet, I think Wall Street thinks that's like

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Speaker 1: another two or three rate hikes. So they were looking

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Speaker 1: at the FED saying four to five rate hikes with

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Speaker 1: two of them on automatic pilot, and that's why the

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Speaker 1: market freaked out. Now they're backing off of it. If

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Speaker 1: the markets recover, I'm afraid that they're going to go

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Speaker 1: right back to reducing the balance sheet on autopilot two

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Speaker 1: more rate hikes. Markets are irrational. They had their little

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Speaker 1: hissy fit, and now we're right back to where we

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Speaker 1: were in December, and then the markets will struggle one

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Speaker 1: more time. So, yes, they're off that now. I'm just

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Speaker 1: not so they will be when we get to April,

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Speaker 1: May or June. So, Jim, what do you mentioned the

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Speaker 1: balance sheet? What do you think? And I know you

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Speaker 1: don't have a lot of confidence here and what they

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Speaker 1: and what they say but what do you think the

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Speaker 1: FED will do with its balance sheet in I think

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Speaker 1: that for now they're going to continue to reduce their

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Speaker 1: balance sheet. I think that the next level of turbulence

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Speaker 1: and markets, if we get one, let's say, if we

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Speaker 1: get one, they'll start to reconsider that. I think the

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Speaker 1: fundamental problem here is the FED things that to use

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Speaker 1: j policie. This is watching paint dry, this is technical.

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Speaker 1: Everybody's eyes roll and nobody cares about this. The market

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Speaker 1: thinks this is another form of tightening. And if the

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Speaker 1: markets start down again, stocks retest their December lows, I

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Speaker 1: think that then we might see them back off of

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Speaker 1: the balance sheet. I had to guess. I think that's

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Speaker 1: what's coming, that we will get a retest and they

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Speaker 1: will start to rethink the balance sheet. But they're not now.

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Speaker 1: They still plan on going fifty billion a month. Okay. Well,

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Speaker 1: the other aspect, the other murderer of financial cycles tends

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Speaker 1: to be financial and balances, as according to Jenny Yellen

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Speaker 1: and you. I lighted this recently in a note, and

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Speaker 1: I'm just wondering on that side of the equation, is

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Speaker 1: there an issue, Uh, there is an issue to the

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Speaker 1: extent that we have seen, you know, to use a

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Speaker 1: Wall Street parlance, a drop of liquidity, that markets can

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Speaker 1: be moved around with less and less money than they've

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Speaker 1: ever had, and that could create some kind of a

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Speaker 1: problem as far as financial and balances go. If you're

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Speaker 1: looking for him in the US. No, I don't think

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Speaker 1: that the US is outrageously undervalued or overvalued. I do

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Speaker 1: think though, if you look overseas, especially to China, their

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Speaker 1: market is very vulnerable. They could see US moon that's

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Speaker 1: the second largest economy. They have problems. Everybody's going to

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Speaker 1: feel it. And I still think that Europe is not

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Speaker 1: out of the wood yet. So if there's a financial

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Speaker 1: and balanced coming, I still think it might come out

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Speaker 1: of the rest of the world, not necessarily the US.

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Speaker 1: And within the US, I do think we have a

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Speaker 1: bit of a liquidity problem. It's not debilitating, but it's

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Speaker 1: definitely worth mentioning. So Jim, at the risk of going

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Speaker 1: someplace we maybe should not go, let me just ask you,

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Speaker 1: what are your thoughts on Chairman pal Do you view

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Speaker 1: it as just a lack of leadership or just not

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Speaker 1: having a principle to stick with you know, um, I

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Speaker 1: was really excited when he came in and I was

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Speaker 1: really having high hopes for him, and he's been a

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Speaker 1: bit disappointing. I think the mistake that Paul is I'm

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Speaker 1: going to go into my mind reading mode right now,

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Speaker 1: is that he is not and he is not a

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Speaker 1: PhD in economics. He's trying to act like one. And

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Speaker 1: I think the sooner he stops, the better off. With

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Speaker 1: every speech he gives, he flip flops from Davish to Barish.

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Speaker 1: He flip flops four or five times since October, and

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Speaker 1: he gives us no idea where he really stands on

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Speaker 1: any of this stuff. And we're reduced to looking at

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Speaker 1: the transcripts from five years ago that were released last

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Speaker 1: week to try and discern what Paul thinks today because

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Speaker 1: we can't figure out from what he's saying today. So

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Speaker 1: I I've been disappointed. I understand he's knew with the job.

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Speaker 1: I understand he's gonna have to grow into the job

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Speaker 1: at j b J. Quit trying to be doctor j

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Speaker 1: PhD in economics. You're not one, and that's why we

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Speaker 1: like you, and stop being that, and I think you'll

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Speaker 1: be a much better fed chairman. Well, if J. Powell

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Speaker 1: is listening, he will now go and look at a

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Speaker 1: mirror and say I'm good enough, I'm strong enough, and

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Speaker 1: gosh darn it, people like me, and perhaps he'll be

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Speaker 1: a little bit more consistent. Jim, I do want to

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Speaker 1: get your sense on the ten year treasury yields, because

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Speaker 1: we have seen a tick up, we've seen the curve

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Speaker 1: widen a little bit, a little bit of steepening, moving

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Speaker 1: away from sort of the mirror inversion spots. Do you

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Speaker 1: expect that stepening to continue to expect to see the

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Speaker 1: long end sell off? In other words, thirty year yields

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Speaker 1: rise mot Moore as well as ten year yields. Yeah,

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Speaker 1: I do expect them to go up at least over

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Speaker 1: the next you know, couple of weeks or months. Let's

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Speaker 1: draw this a little bit bigger. If you look at

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Speaker 1: a chart of the yield curve, or you look at

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Speaker 1: the chart of the tenure yield, or you look at

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Speaker 1: a chart of the S and P five, or you

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Speaker 1: look at a chart of crude oil, you're looking at

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Speaker 1: the same chart because they're all moving up and down

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Speaker 1: together right now. Because we're being driven by this macro

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Speaker 1: fear of recession, atical instability trade, all that mixed up

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Speaker 1: in the one so I think that we are probably

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Speaker 1: going to see more recovery in the market. Stock market

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Speaker 1: goes up, crude oil goes up, yields go up, the

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Speaker 1: yield curve whitens. All of that will happen. The question

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Speaker 1: is when will they start trading like their own individual

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Speaker 1: markets instead of just variations on the same theme. I

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Speaker 1: think that's still a few months away at the earliest,

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Speaker 1: because I still think there's there's this fear of what

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Speaker 1: could be coming next, So higher yields, higher stock prices.

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Speaker 1: Still think if you get into later this year, there's

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Speaker 1: a chance we might have a retest. I'm putting my

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Speaker 1: technical analysis had on. It's rare to see us sell

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Speaker 1: off that hard or yields fall that much without at

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Speaker 1: least attempting a retest of that. I still think that's

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Speaker 1: to come, But for the next several weeks to months,

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Speaker 1: I think it's gonna be higher yields and higher stock

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Speaker 1: prices and just ten seconds. Jim recession odds still low

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Speaker 1: in your sense, Yeah, I know, I'm gonna put him

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Speaker 1: at forty five, just a little ottle than a half

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Speaker 1: because I still don't trust the They've got the murder

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Speaker 1: weapon very good Jim. Thanks very much, Jim, We appreciate it.

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Speaker 1: That's Jim Bianco, president and founder Bianco Research. Uh not

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Speaker 1: shy to kind of lay well, put the blame where

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Speaker 1: you think it should lay. Yeah, Jim doesn't mince words

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Speaker 1: of love it boy. I am. I like to eat

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Speaker 1: out as much as the next person. UM. I don't

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Speaker 1: think my tastes are over the top. I think I'm

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Speaker 1: very mainstream. But it's interesting. Here in New York City

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Speaker 1: it's harder and harder to find a reasonably place price restaurant.

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Speaker 1: I suspect that might be true in other large markets. UM,

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Speaker 1: give us some color on this. We have Peter Elliott.

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Speaker 1: Peter's the editor of Bloomberg Reserve UM, and he has

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Speaker 1: written some really cool stuff about what's going on in

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Speaker 1: the fine dining segment of the is and sound. What Peter,

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Speaker 1: what have you found? Good morning? Um, there's no doubt

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Speaker 1: about it. Uh, what what you sew? What you reap?

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Speaker 1: Rents are high from Williamsburg to Chelsea, from Chelsea to

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Speaker 1: the Upper East Side to London to Paris to Rome,

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Speaker 1: and that effects what restaurants have to do in order

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Speaker 1: to make back anything like a return. And that is

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Speaker 1: turning out to be a very, very big problem for restaurants.

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Speaker 1: Um from eleven Madison Park to you know, to Shake Shack.

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Speaker 1: It's it's that wide a span. Basically everything in food

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Speaker 1: right now has to do with the bottom line of

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Speaker 1: what they pay in rent. And you're just gonna wind

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Speaker 1: up paying for that when you get your credit card statement.

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Speaker 1: So let's talk about prices. I mean, what type of

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Speaker 1: entree pricing are you talking about to make a restaurant

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Speaker 1: viable in an expensive city like New York. I am

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Speaker 1: so old. I remember sitting in the studio, you know,

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Speaker 1: in my twenties, I wish a young maren Um, you know,

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Speaker 1: and we would talk about the twenty dollar entree, and

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Speaker 1: then we talk about the twenty five dollar entree, and

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Speaker 1: then the thirty you know, you know, before Charles primary

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Speaker 1: of you're talking about forty eight dollars, you're talking about

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Speaker 1: sixty dollars. There's really no limit anymore. Um it really

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Speaker 1: it used to be like one of those New York

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Speaker 1: Times features stories and then a Bloomberg feature story. But

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Speaker 1: now you're paying just to sit down at some sushi restaurants.

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Speaker 1: You're not even talking about an entree cost you're talking

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Speaker 1: about the evening that starts at three fifty dollars or

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Speaker 1: you know, to go to Massive, But those are the

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Speaker 1: high end. Now it's the middle thing. I'm on a

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Speaker 1: I know you'll all support the difficulty of my life

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Speaker 1: when I tell you I am on a mission to

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Speaker 1: find sushi that doesn't cost a thousand dollars. Just when

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Speaker 1: I sit down. My heart's bleeding for you that you're

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Speaker 1: struggling to find suh. It's just amazing in a world

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Speaker 1: that where we're running out of fish. And that's one

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Speaker 1: of the things New York is a particularly bad trap

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Speaker 1: on the sushi front because you can get reasonably priced sushi.

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Speaker 1: Listeners out there, Please feel free to message me Peter

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Speaker 1: Elliott and Bloomberg dot net. Let me know where you

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Speaker 1: can find decent sushi that's not machine sushi that does

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Speaker 1: not cost three fifty dollars just to sit down, so

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Speaker 1: you can say, oh, um, it's become he is so spoiled, Paul,

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Speaker 1: take me down, all right. So just just you mentioned

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Speaker 1: eleven Madison Park and and and that's a restaurant. I

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Speaker 1: used to work in that building back in a prior life.

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Speaker 1: And when that restaurant opened, it was a good restaurant.

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Speaker 1: We could actually eat their junior investment bankers could go

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Speaker 1: to go down and actually eat there and up blow

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Speaker 1: our our our budget. What's happened to that restaurant? Well,

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Speaker 1: starting back where where you were, then you could probably

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Speaker 1: also walk in and say, Hi, I work upstairs. Could

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Speaker 1: I have a table? And they probably said yes. No,

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Speaker 1: they probably say credit sweez, get in line. No, it's not.

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Speaker 1: It's a very difficent a restaurant because it has become

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Speaker 1: a destination restaurant. So Love in Madison Park clever bunch

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Speaker 1: of guys in the sense that you know, some parts

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Speaker 1: of the food business are like fashion. So that's the

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Speaker 1: tour end of their business. Nomad is their their middle restaurant,

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Speaker 1: made nice as their lower end restaurant. They even do

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Speaker 1: food trucks in Los Angeles. They've done some pop ups

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Speaker 1: in the Hampton's. So they have a very good and

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Speaker 1: very broad business model. Love in Madison Park doesn't make

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Speaker 1: money for them, and and and I worry for them

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Speaker 1: in the sense that someday somebody's going to make them

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Speaker 1: pay market rent for for that spot. So a destination

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Speaker 1: restaurant doesn't really have time for a guy like you

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Speaker 1: coming down from you know, of down from upstairs restaurant. Yeah, well, Peter,

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Speaker 1: I'd love to get your feeling and how many restaurants

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Speaker 1: can survive as destination restaurants. In other words, is the

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Speaker 1: world shrinking dramatically as rents go up and there could

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Speaker 1: only be so many you know out there they can

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Speaker 1: afford to reject. It's January, you you you you heard

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Speaker 1: it here. I would go on the record and say that, like, uh,

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Speaker 1: the era of the Omakase restaurant, the era of the

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Speaker 1: French restaurant, the era of the you know, I do

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Speaker 1: think the era of the fixed menu Blanca eleven Madison

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Speaker 1: Park model is ending for the simple reason that there's

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Speaker 1: very few people who have that kind of money and

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Speaker 1: and who are willing to sit down for three and

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Speaker 1: a half hours to have fourteen courses. I think that

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Speaker 1: was a very big thing in the past, you know,

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Speaker 1: the past era, if you will, of our lives in

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Speaker 1: the food business. My life in the food business. Uh.

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Speaker 1: And certainly it's very hard for me to convince a

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Speaker 1: Bloomberg client to sit down for that amount of time.

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Speaker 1: So they want quicker, easier options, which is why shake Shack,

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Speaker 1: which has a familiar relationship with the love in medicine Park.

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Speaker 1: Believe it or not, UM is where the money is,

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Speaker 1: to the extent there's any money in the resta on

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Speaker 1: business at all. All right, So what are the rest

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Speaker 1: of us doing if we want to go out in

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Speaker 1: New York or London or other major markets that are

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Speaker 1: experiencing some of these real estate issues. Where do we go?

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Speaker 1: What do we do? Is there still a market for

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Speaker 1: us out there? There's absolutely a market for you out

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Speaker 1: there and many many others. And where where I am

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Speaker 1: seeing the trend move for twenty nineteen is that a

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Speaker 1: lot of these restaurants and eleven Medicine is part of that.

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Speaker 1: They're getting a lot of They're getting a lot of

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Speaker 1: pressure from us today. Is um restaurants like upland restaurants

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Speaker 1: like you know, um um, what's it called Hillstone on

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Speaker 1: lexing to have to that have branches which are really

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Speaker 1: a notch above you know, commercial what we call Musso's

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Speaker 1: in the trade, multi unit full service operators in our

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Speaker 1: days used to be Denny's, you know. And obviously we're

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Speaker 1: not going to get a guy like you to go

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Speaker 1: to Denny's. And I can't see taking Lisa there either

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Speaker 1: not that. Hey, you're talking to a guy who just

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Speaker 1: went to Chick fil A. I loved it. I thought

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Speaker 1: it was great. But remember what shake Shack did was

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Speaker 1: say here's a slightly better burger for slightly more. And

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Speaker 1: so restaurants are learning the hard way that a Hillstone

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Speaker 1: or an upland you can get much better food, um

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Speaker 1: for a little bit more, and you don't have to

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Speaker 1: do maybe, you know, maybe save the the big prefect's

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Speaker 1: menu experience for a once a year thing, an anniversary,

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Speaker 1: or a special occasion. So what about all the billionaires

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Speaker 1: because the number of those has risen dramatically. When Jeff

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Speaker 1: Gunlock took to Twitter complaining that his breakfast spot was

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Speaker 1: raising prices by Temper said this week, but I'm just

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Speaker 1: wondering where do these billionaires eatum? Billionaires eat restaurants that

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Speaker 1: have worked out how to how to shape this um.

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Speaker 1: You know, the the ulto morea group springs to mind.

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Speaker 1: The Marea on Central Park South probably see more billionaires

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Speaker 1: sitting at at those lovely corner tables than probably anywhere

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Speaker 1: else in New York. Um. They tend to want to

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Speaker 1: go to safe places where the food is done by

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Speaker 1: you know, it's that's really the thing. The era of

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Speaker 1: Danielle Cafe Bulu in the city is another great example

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Speaker 1: where you're pretty much consistently going to get the same

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Speaker 1: thing every time. But it's expensive. Memour is not a

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Speaker 1: cheap place to go. Um. Still, it has the kind

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Speaker 1: of cache that is good enough for billionaires. Well, Lisa

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Speaker 1: knows that. I'm all about the power of lunch. And

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Speaker 1: so that was the Four Seasons restaurant for years. They

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Speaker 1: forced to move or they moved from the longtime iconic

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Speaker 1: Seagram's building. Was that also a rent economic issue? No?

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Speaker 1: In that case that well, it was, uh, we might

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Speaker 1: have to we might have to open a bottle to

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Speaker 1: have this conversation. Let's you know, if if Paul's going

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Speaker 1: off for is three martini lunch, then we better get started. Um.

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Speaker 1: That was a very interesting real estate based story. So

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Speaker 1: the Secret building was bought by A b Rosen and

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Speaker 1: rk R Holdings, and that's their thing. They buy fifties

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Speaker 1: modernist buildings like lever House across the street, and that's it.

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Speaker 1: That's forced reasons lease was up. He wanted new operators.

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Speaker 1: The Four Seasons moved to a new space and is

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Speaker 1: you know, doing well or depending on how you like it.

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Speaker 1: Justin about forty seconds here, I'm wondering how much has

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Speaker 1: Wall Street pulled back on the power lunch and on

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Speaker 1: expenses and how is that affecting the restaurant industry hugely,

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Speaker 1: um Wall Street. As first of all, the power lunch

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Speaker 1: thing really is over. It's more like the power breakfast.

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Speaker 1: We have power soup here. There you go, power yoga,

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Speaker 1: power yoga, and and lunch is really a thing of

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Speaker 1: the past, which is why the sweet Greens of the

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Speaker 1: world do so well. Plenty of billionaire gets sweet Green. Yeah.

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Speaker 1: So so in other words, that that's affecting absolutely, And

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Speaker 1: and companies are really really cracking down on those lunches,

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Speaker 1: so you have to be or dinners and their expenses.

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Speaker 1: So it's it's restaurants can't even depend on those kind

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Speaker 1: of figures anymore, and more of them are actually investing

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Speaker 1: in restaurants themselves. But we'll talk about that next time. Absolutely,

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Speaker 1: Peter Elliott, perhaps over dinner if you want to partner. Absolutely,

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Speaker 1: I saw what you did there. Trying my heart is

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Speaker 1: Peter Elliott, who has the best job of Bloomberg reading

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Speaker 1: and dining at the best establishments out there. He is

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Speaker 1: searching for some good sushi that's under a thousand dollars.

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Speaker 1: If you have ideas, you can email him. So, so

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Speaker 1: let's dive a little bit deeper into Morgan Stanley and

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Speaker 1: some of the other banks and investment banks results we've

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Speaker 1: we've heard this week. Joining us on the phone is

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Speaker 1: Ken Leone, Global Director of Industry and Equity Research at

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Speaker 1: cf R. A. Ken, welcome, I wonder if you could, uh,

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Speaker 1: you know, we just had Morgan Stanley this morning streets

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Speaker 1: not liking the numbers. What did you see? So Morgan

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Speaker 1: Stanley disappointed relative to their peers and and also coming

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Speaker 1: off a strong third quarter. They're pretty much washed out

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Speaker 1: with probably the weakest quarter of the big six of

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Speaker 1: the large banks. So we had, you know, if you

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Speaker 1: look across the board, let's start with just the thick

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Speaker 1: business and and just the trading in general. We've seen

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Speaker 1: equities on the street this quarter generally pretty good, but

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Speaker 1: it was really the fixed income, currencies and commodities. So

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Speaker 1: talked to us about the trading desk Morgan Stanley and

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Speaker 1: how were they you know, you know, relative to your

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Speaker 1: expectations relative to their peers. It's a good place to start,

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Speaker 1: and when we look at trading, equity was flat UH

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Speaker 1: even though with all volatility, maybe investors were on the

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Speaker 1: sidelines in December, UH sick, particularly fixed income with UH

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Speaker 1: rate and credit products UM just didn't really work well. Essentially,

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Speaker 1: Morgan Stanley took client trades and it didn't help them.

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Speaker 1: That was down UM. In other words, they lost money

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Speaker 1: making incremental bets on whether the price was going to

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Speaker 1: go up or down on assets they took on for clients. Yes,

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Speaker 1: all right, I wasn't that their job? Though? Well, I mean,

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Speaker 1: actually this is this is a big debate right at

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Speaker 1: one point, what's the what's the cross overly between prop

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Speaker 1: trading and making markets? You know, banks trying to get

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Speaker 1: out of the market making business because it can be

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Speaker 1: a loss industry, as we're seeing out with some of

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Speaker 1: these results out of bond trading. But what I'm wondering,

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Speaker 1: ken from your perspective, the battle of the behemos. We've

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Speaker 1: got Morgan Stanley versus Goldman Sachs, and they've kind of

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Speaker 1: pitied themselves against each other when it comes to bond trading.

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Speaker 1: Goldman zach saying we're doubling down. A few years ago

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Speaker 1: Morgan Stanley say we're cutting back, and Morgan Stanley has

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Speaker 1: one quarter after quarter after quarter until now do we

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Speaker 1: take anything away from that at a time when Morgan

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Speaker 1: Stanley's market capitalization is now declining beneath Goldman Zachs for

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Speaker 1: the first time in many months. Absolutely, and the delta

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Speaker 1: changed for Morgan Stanley just wasn't anything else they could

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Speaker 1: do proactively for fourth quarter. Goldman Sachs totally different story.

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Speaker 1: For the last nine months, they've been moving into the

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Speaker 1: traditional corporate treasury where they had low market share versus

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Speaker 1: the investment segments such as UM hedge funds and prime brokerage, etcetera.

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Speaker 1: So the ability for Goldman Sachs now with new leadership

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Speaker 1: from investment banking, is bringing that into better integration with

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Speaker 1: the trading desk UH and that speaks to better performance

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Speaker 1: from Goldman Sacks yesterday versus Morgan Stanley today. So can

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Speaker 1: being a longtime wall streeter or myself. And when January

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Speaker 1: comes around every year, I think compensation, Um, how did

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Speaker 1: Morgan Stanley do in terms of their compensation or compensation ratio?

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Speaker 1: How are they doing on the cost side? So UM,

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Speaker 1: the capital markets, investment banking and perhaps some trading uh

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Speaker 1: they did well, but you know, significantly in their large

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Speaker 1: wealth management business there were compensation adjustments related to deferrals UM.

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Speaker 1: James Gorman spoke to the risk of having such a

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Speaker 1: high level in deferred UM compensation, so they took that

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Speaker 1: adjustment in this quarter. But I think wealth management also

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Speaker 1: was affected by lower market levels. They didn't say today,

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Speaker 1: Goldman said yesterday that in December, when you have lower

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Speaker 1: market levels, of effects seas typically one month later, which

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Speaker 1: would be January. So I want to talk a little

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Speaker 1: bit about Morgan Stanley's path forward because one thing that

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Speaker 1: James Gorman said on the earnings call is that they

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Speaker 1: are thinking about acquisitions now after being sort of added

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Speaker 1: that game for a while. Can you think of some

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Speaker 1: smaller investment firms or banking firms that they would be

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Speaker 1: looking to buy. I think it's more creative and disruptive

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Speaker 1: than that Earlier in two thousand and eighteen we saw

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Speaker 1: JP Morgan Embrace, Spirtshire, Hathaway and Amazon. It was interesting.

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Speaker 1: City kicked off this week Monday and Friday. Before that,

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Speaker 1: they had an announcement about Value Act with now having

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Speaker 1: formal discussions internally UM. On Friday and I think where

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Speaker 1: that's going looking at value act is large banks see

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Speaker 1: changes in terms of digital and also in terms of transactions.

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Speaker 1: So partnering with UH financial service companies or technology, I

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Speaker 1: think it's gonna be a big part of the two

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Speaker 1: thousand nineteen story. Okay, So which companies would be a

428
00:23:19,680 --> 00:23:24,400
Speaker 1: sort of game for Morgan Stanley, So you know, generally,

429
00:23:24,880 --> 00:23:28,800
Speaker 1: I think it's going to be strategic um not necessarily

430
00:23:28,840 --> 00:23:33,120
Speaker 1: where they make um large acquisitions. I think tactical would

431
00:23:33,119 --> 00:23:36,840
Speaker 1: be anything that helps them in terms of software development

432
00:23:37,320 --> 00:23:41,120
Speaker 1: for trading, but but then also for their growing business

433
00:23:41,160 --> 00:23:44,680
Speaker 1: and wealth management, which might also be moving more into

434
00:23:44,760 --> 00:23:50,280
Speaker 1: retail consumer banking, like more like Goldman Sachs. All right,

435
00:23:50,440 --> 00:23:51,840
Speaker 1: thank you so much for being with us. I'm just

436
00:23:51,840 --> 00:23:55,879
Speaker 1: trying to imagine, are we talking Aladdin? Are we talking PayPal?

437
00:23:56,480 --> 00:23:59,000
Speaker 1: But I guess we shall see. And it's a sort

438
00:23:59,000 --> 00:24:01,679
Speaker 1: of an interesting idea that financial technology is the place

439
00:24:01,920 --> 00:24:04,000
Speaker 1: where a lot of big banks are looking to add

440
00:24:04,160 --> 00:24:07,000
Speaker 1: and if it's not add in in wholesale form in

441
00:24:07,040 --> 00:24:09,600
Speaker 1: the traditional sense, it's at least partner on some kind

442
00:24:09,640 --> 00:24:12,359
Speaker 1: of concrete sense. Ken Leon, thank you so much for

443
00:24:12,400 --> 00:24:14,320
Speaker 1: being with us. He is Global director of Industry and

444
00:24:14,320 --> 00:24:18,919
Speaker 1: Equity Research at cf are A Research. Definitely, the battle

445
00:24:18,960 --> 00:24:21,199
Speaker 1: of the behemoths is fascinating to me because they took

446
00:24:21,240 --> 00:24:24,240
Speaker 1: such different tax Morgan Stanley and and and it's very

447
00:24:24,320 --> 00:24:27,200
Speaker 1: much in the hallways of both Morgan standing Goldman Sacks.

448
00:24:27,200 --> 00:24:29,440
Speaker 1: They're looking at each other every single day. And today

449
00:24:29,520 --> 00:24:32,560
Speaker 1: Goldman Sachs is wearing a smile. Morgan Stanley not so much.

450
00:24:46,440 --> 00:24:49,439
Speaker 1: Right now, I want to remember a legend of the

451
00:24:49,480 --> 00:24:52,760
Speaker 1: investing industry, Jack Bogel, who died yesterday of cancer at

452
00:24:52,760 --> 00:24:56,960
Speaker 1: age eighty nine, really transformed the way people paid for

453
00:24:57,119 --> 00:25:00,399
Speaker 1: their money management. Joining us now, Ben Steveerman, personal finance

454
00:25:00,480 --> 00:25:02,960
Speaker 1: editor for Bloomberg News here in our Bloomberg in Active

455
00:25:02,960 --> 00:25:05,399
Speaker 1: Program studios. So, Ben, can you give us a sense

456
00:25:05,680 --> 00:25:09,520
Speaker 1: of just how pivotal Jack was in the entire creation

457
00:25:09,840 --> 00:25:14,520
Speaker 1: of indexing and lowering fees for individuals. Yeah. When the

458
00:25:14,600 --> 00:25:18,040
Speaker 1: first index fund launched by Jack Bogel, it was he

459
00:25:18,080 --> 00:25:20,960
Speaker 1: really launched the first one that was accessible to everyday investors.

460
00:25:21,000 --> 00:25:23,479
Speaker 1: And when that launched, it was a flop. And he

461
00:25:23,560 --> 00:25:26,879
Speaker 1: really the eighties, right, It was the mid seventies, and

462
00:25:26,920 --> 00:25:29,760
Speaker 1: it wasn't until the late eighties that it really started

463
00:25:29,800 --> 00:25:32,600
Speaker 1: to perform well and attract a lot of assets. Um.

464
00:25:32,680 --> 00:25:37,040
Speaker 1: So he's stuck with it for basically ten years when

465
00:25:37,080 --> 00:25:39,159
Speaker 1: a lot of people were doubting this idea. It had

466
00:25:39,160 --> 00:25:41,879
Speaker 1: a lot of support among academic economists, but people were like,

467
00:25:41,920 --> 00:25:45,120
Speaker 1: this doesn't work in theory. Go go invest with Peter

468
00:25:45,200 --> 00:25:48,200
Speaker 1: Lynch of Fidelity, You're gonna do so much better. Um.

469
00:25:48,240 --> 00:25:50,840
Speaker 1: But then something started to change and um. The other

470
00:25:50,880 --> 00:25:54,280
Speaker 1: thing that he was basically he was doing was cutting

471
00:25:54,280 --> 00:25:58,720
Speaker 1: fees um. And whenever Vanguard would become more efficient, they

472
00:25:58,760 --> 00:26:01,480
Speaker 1: use a lot of technology, they would pass the savings

473
00:26:01,480 --> 00:26:04,560
Speaker 1: onto their investors. And as it got big and became

474
00:26:04,640 --> 00:26:07,359
Speaker 1: this big player, people forget. Now we're in this world

475
00:26:07,359 --> 00:26:10,600
Speaker 1: of few wars where everybody is competing to offer the

476
00:26:10,640 --> 00:26:14,000
Speaker 1: lowest cost product. That that's a pretty recent development, and

477
00:26:14,040 --> 00:26:16,359
Speaker 1: for a long time it was only Vanguard that was

478
00:26:16,520 --> 00:26:20,040
Speaker 1: really pushing that conversation. Yeah, it's been you know, one

479
00:26:20,080 --> 00:26:24,439
Speaker 1: of his lasting legacies will be the structural reduction in

480
00:26:24,600 --> 00:26:27,200
Speaker 1: fees in the mutual fund industry. So I can't imagine.

481
00:26:27,359 --> 00:26:29,840
Speaker 1: I just wonder how his over the years, how have

482
00:26:29,880 --> 00:26:33,479
Speaker 1: the mutual fund giants and his competitors viewed Jack and

483
00:26:33,560 --> 00:26:36,760
Speaker 1: viewed Van van guarders this. You know, it's obviously not

484
00:26:36,880 --> 00:26:39,760
Speaker 1: in their business interests. What what he was doing last night?

485
00:26:39,760 --> 00:26:43,320
Speaker 1: I was talking to Jeremy Grantham, the legendary investor, and

486
00:26:43,400 --> 00:26:47,119
Speaker 1: he was saying that, uh, Jack Bogel was a royal

487
00:26:47,119 --> 00:26:49,600
Speaker 1: pain in the bottom for for the people in the

488
00:26:49,600 --> 00:26:51,880
Speaker 1: investment industry. A lot of people didn't like him because

489
00:26:51,880 --> 00:26:54,560
Speaker 1: he basically took money out of their pockets. He was amazing.

490
00:26:54,600 --> 00:26:57,000
Speaker 1: He would go to investment conferences and he would tell

491
00:26:57,000 --> 00:26:59,639
Speaker 1: a room full of financial advisors that you're all overpaid

492
00:26:59,720 --> 00:27:02,000
Speaker 1: and taking way too much of your client's money. He

493
00:27:02,040 --> 00:27:04,120
Speaker 1: really had no fear about that. We had the honor

494
00:27:04,160 --> 00:27:07,120
Speaker 1: of speaking with Jack Bogle in December of take listen

495
00:27:07,119 --> 00:27:08,720
Speaker 1: to what he had to say about e t f s.

496
00:27:09,160 --> 00:27:11,000
Speaker 1: You know, we have day to hear that shows that

497
00:27:12,200 --> 00:27:15,240
Speaker 1: e t f have had in the last ten years

498
00:27:15,280 --> 00:27:18,840
Speaker 1: a four point seven percent annual return and the traditional

499
00:27:18,880 --> 00:27:21,840
Speaker 1: index fund about a seven point one percent annual return.

500
00:27:22,320 --> 00:27:24,000
Speaker 1: There was the e t f have not worked out

501
00:27:24,040 --> 00:27:26,600
Speaker 1: well for investors. I don't know why nobody knows this.

502
00:27:27,800 --> 00:27:31,560
Speaker 1: So in a decade, the traditional index funds up about

503
00:27:32,280 --> 00:27:36,360
Speaker 1: cumulatively and the e t have about. I mean, that's

504
00:27:36,400 --> 00:27:38,840
Speaker 1: not that's not a strong record. So even though he

505
00:27:38,920 --> 00:27:41,880
Speaker 1: basically laid the groundwork for the entire et F complex,

506
00:27:42,160 --> 00:27:45,640
Speaker 1: not very positive on the actual funds. He didn't understand

507
00:27:45,680 --> 00:27:48,480
Speaker 1: why anyone would want to trade, uh intra day, He

508
00:27:48,560 --> 00:27:51,200
Speaker 1: just didn't get the idea. He thought, you know, put

509
00:27:51,240 --> 00:27:54,719
Speaker 1: money in the market by hold wait patiently as your

510
00:27:54,720 --> 00:27:57,240
Speaker 1: market return comes in. Why are you getting fancy with

511
00:27:57,280 --> 00:28:00,879
Speaker 1: this and that? And that any temptations into trade would

512
00:28:00,880 --> 00:28:03,400
Speaker 1: be bad for clients. You know, it's interesting you look

513
00:28:03,400 --> 00:28:05,800
Speaker 1: at the amount of money that is going into Van Guard,

514
00:28:05,800 --> 00:28:08,120
Speaker 1: I mean their assets under management of four point nine

515
00:28:08,240 --> 00:28:13,480
Speaker 1: trillion in Malvern, Pennsylvania, outside of Philadelphia. You think about

516
00:28:13,600 --> 00:28:16,800
Speaker 1: that kind of assets in the management you his, but

517
00:28:17,080 --> 00:28:19,120
Speaker 1: that none of that or not much of that really

518
00:28:19,160 --> 00:28:20,959
Speaker 1: accrued to him. He wasn't one of those bigger than

519
00:28:20,960 --> 00:28:23,800
Speaker 1: life mutual fund managers like Peter Lynch or a hedge

520
00:28:23,800 --> 00:28:26,920
Speaker 1: fund manager like we see around over the last twenty years.

521
00:28:27,080 --> 00:28:29,479
Speaker 1: Kind of a modest guy. Yeah. Yeah, And I think

522
00:28:29,520 --> 00:28:32,960
Speaker 1: he gave a lot to charity as well. He really

523
00:28:33,200 --> 00:28:37,320
Speaker 1: um he seemed like he lived his principles, which was

524
00:28:38,160 --> 00:28:40,520
Speaker 1: this industry needs to put clients first needs to put

525
00:28:40,560 --> 00:28:45,600
Speaker 1: investors first. So just looking forward, his legacy will be

526
00:28:45,760 --> 00:28:49,440
Speaker 1: having basically killed off fees. Right. I'm just wondering, from

527
00:28:49,440 --> 00:28:52,880
Speaker 1: your perspective, how long lasting have we already seen that

528
00:28:52,920 --> 00:28:55,560
Speaker 1: progression take place or are we in the early inning still?

529
00:28:55,880 --> 00:28:58,880
Speaker 1: Oh no, what well? I think that he was he

530
00:28:58,920 --> 00:29:02,280
Speaker 1: won basically. I mean I think that we're now at

531
00:29:02,280 --> 00:29:05,480
Speaker 1: the point where we're wondering how big index funds can

532
00:29:05,480 --> 00:29:09,000
Speaker 1: get before the market before they're sort of like an overcorrection.

533
00:29:09,320 --> 00:29:12,360
Speaker 1: You know, how much how much index assets can we

534
00:29:12,440 --> 00:29:16,479
Speaker 1: take um Because you look at endowments, you look at

535
00:29:16,480 --> 00:29:19,520
Speaker 1: pension funds, you look at the under performance in the

536
00:29:19,520 --> 00:29:25,920
Speaker 1: hedge fund industry. Um, Jack Bogel, doesn't people just the

537
00:29:26,000 --> 00:29:29,240
Speaker 1: numbers themselves. Keep making Jack Bogel's argument for him even

538
00:29:29,240 --> 00:29:31,719
Speaker 1: when he's on around. Ben Stevehman, thank you so much

539
00:29:31,760 --> 00:29:34,000
Speaker 1: for being with us. Ben Steve froman personal finance editor

540
00:29:34,280 --> 00:29:38,640
Speaker 1: for Bloomberg News, remembering Jack Bogel, who arguably did more

541
00:29:38,800 --> 00:29:41,960
Speaker 1: to the industry of asset management than anybody else, I

542
00:29:41,960 --> 00:29:44,640
Speaker 1: would argue, and certainly for the individual investor, made it

543
00:29:44,960 --> 00:29:50,560
Speaker 1: affordable and provided fantastic performance over the years. Thanks for

544
00:29:50,640 --> 00:29:53,280
Speaker 1: listening to the Bloomberg P and L podcast. You can

545
00:29:53,320 --> 00:29:57,160
Speaker 1: subscribe and listen to interviews at Apple Podcasts, SoundCloud, or

546
00:29:57,200 --> 00:30:00,520
Speaker 1: whatever podcast platform you prefer. I'm pim F Box, I'm

547
00:30:00,560 --> 00:30:04,560
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.

548
00:30:04,680 --> 00:30:07,280
Speaker 1: It's one before the podcast. You can always catch us

549
00:30:07,320 --> 00:30:08,880
Speaker 1: worldwide on Bloomberg Radio