1 00:00:02,520 --> 00:00:13,760 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 2 00:00:13,840 --> 00:00:17,920 Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern 3 00:00:18,200 --> 00:00:21,240 Speaker 1: on Apple car Play or Android Auto with the Bloomberg 4 00:00:21,320 --> 00:00:24,880 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:25,280 --> 00:00:27,040 Speaker 1: or watch us live on YouTube. 6 00:00:27,440 --> 00:00:30,320 Speaker 2: David Sherman, chief investment Officer, Crossing Bridge Advices, joins us 7 00:00:30,320 --> 00:00:32,040 Speaker 2: here in Studio Wine Studio. 8 00:00:32,080 --> 00:00:32,920 Speaker 3: I have no idea. 9 00:00:33,159 --> 00:00:36,720 Speaker 2: Maybe he's returning some gifts here, David Boy And you 10 00:00:36,720 --> 00:00:39,720 Speaker 2: look at the equity markets in twenty twenty five, fifteen 11 00:00:39,760 --> 00:00:41,720 Speaker 2: percent gains in ES and p five hundred and twenty 12 00:00:41,840 --> 00:00:45,360 Speaker 2: percent gains in Nasdaq fixed income pretty much high single 13 00:00:45,560 --> 00:00:48,080 Speaker 2: digit returns across fixing them across the board in twenty 14 00:00:48,080 --> 00:00:50,279 Speaker 2: twenty five, What are we doing twenty six. 15 00:00:51,000 --> 00:00:58,040 Speaker 4: Ray No look. Valuations are high, spreads are tight, multiples 16 00:00:58,040 --> 00:01:03,720 Speaker 4: are high, commodities are high. Geopolitical risk tensions are high. 17 00:01:03,920 --> 00:01:06,679 Speaker 4: Uncertainty is high. I think that people are not praising 18 00:01:06,720 --> 00:01:11,640 Speaker 4: in enough liquidity or premium to tail risk. That being said, 19 00:01:11,959 --> 00:01:13,920 Speaker 4: the economy of the US, at least and in the world, 20 00:01:13,959 --> 00:01:16,280 Speaker 4: has done a lot better than people expected, especially after 21 00:01:16,920 --> 00:01:23,000 Speaker 4: being liberated. So therefore, you know it's sort of an 22 00:01:23,040 --> 00:01:27,360 Speaker 4: interesting act between two very different outcomes that could occur. 23 00:01:27,840 --> 00:01:30,240 Speaker 4: You've seen that, by the way, in portfolio managers, right, 24 00:01:30,240 --> 00:01:32,399 Speaker 4: You've had some equity perform managers have had standing years 25 00:01:32,400 --> 00:01:35,119 Speaker 4: and some they've had just mediocre years where they've actually 26 00:01:35,160 --> 00:01:37,760 Speaker 4: underperformed fixed income. And I think that just sort of 27 00:01:37,800 --> 00:01:41,600 Speaker 4: goes to show the joke about the recession the economy 28 00:01:41,600 --> 00:01:45,000 Speaker 4: being a K economy. I think our financial professionals are 29 00:01:45,000 --> 00:01:45,520 Speaker 4: a bit of a K. 30 00:01:46,280 --> 00:01:48,360 Speaker 5: Yeah, that's a good way to describe it. But I 31 00:01:48,440 --> 00:01:50,400 Speaker 5: think if I had one word for twenty twenty five, 32 00:01:50,440 --> 00:01:54,160 Speaker 5: it might be resilience, Right, I mean from the consumer 33 00:01:54,760 --> 00:01:57,840 Speaker 5: to corporations, because you see it in their earnings. Whatever 34 00:01:57,880 --> 00:01:59,560 Speaker 5: you threw with us, right, I mean, we just kept 35 00:01:59,560 --> 00:02:02,960 Speaker 5: coming back. Can talk about Liberation Day even despite the terroorffs. 36 00:02:03,000 --> 00:02:05,200 Speaker 5: I mean, this is an economy that continues to grow 37 00:02:05,280 --> 00:02:07,600 Speaker 5: at a pretty good clip. We'll see what happens in 38 00:02:07,680 --> 00:02:11,200 Speaker 5: Q one. But what about opportunities outside the US? 39 00:02:11,639 --> 00:02:15,240 Speaker 4: So we're primarily credit oriented fixed income and what's great 40 00:02:15,320 --> 00:02:17,760 Speaker 4: is we've actually found a lot of opportunities outside the US, 41 00:02:17,919 --> 00:02:20,600 Speaker 4: which is one of the few times in my I 42 00:02:20,680 --> 00:02:23,640 Speaker 4: hate to say a forty year career now. But one 43 00:02:23,680 --> 00:02:25,200 Speaker 4: of the things that happened was, for my first time 44 00:02:25,200 --> 00:02:28,440 Speaker 4: in my entire career, we invested in a debtorin possession 45 00:02:28,480 --> 00:02:32,040 Speaker 4: syndicated financing bond by Deutsche Bank. So this is something 46 00:02:32,080 --> 00:02:35,800 Speaker 4: anyone can buy that's a professional. Debtor in possession is 47 00:02:35,800 --> 00:02:38,160 Speaker 4: the death they lend to companies when they're in bankruptcy. 48 00:02:38,520 --> 00:02:42,560 Speaker 4: I was an autoparts company. Auto OEM manufacturer called it Morelli, 49 00:02:43,080 --> 00:02:45,480 Speaker 4: but you're getting sofur plus eight hundred. It's coming out 50 00:02:45,520 --> 00:02:48,640 Speaker 4: sometime in twenty six a one h two takeout price, 51 00:02:48,800 --> 00:02:52,760 Speaker 4: cash required. And what's interesting is as Japan's insurance are 52 00:02:52,760 --> 00:02:55,000 Speaker 4: going up, we're going to see more of this because 53 00:02:55,040 --> 00:02:59,120 Speaker 4: the government of Japan has been encouraging companies to no 54 00:02:59,240 --> 00:03:03,280 Speaker 4: longer hoard and to be more focused on improving outcomes 55 00:03:03,320 --> 00:03:06,799 Speaker 4: for shareholders, and there's been activism. So this was an 56 00:03:06,880 --> 00:03:12,120 Speaker 4: LVO again autoparts. It's on my first step. And in Japan, 57 00:03:12,600 --> 00:03:17,360 Speaker 4: the reason it happened is Japanese institution's view bankruptcy is failure, 58 00:03:17,960 --> 00:03:21,679 Speaker 4: so they're not willing to participate to create this and 59 00:03:21,720 --> 00:03:24,040 Speaker 4: this is what creates the opportunity and then so that's 60 00:03:24,040 --> 00:03:26,120 Speaker 4: a great opportunity. We think the Nordic high yield market 61 00:03:26,160 --> 00:03:28,880 Speaker 4: still represents the most interesting high yield market in the 62 00:03:28,919 --> 00:03:32,360 Speaker 4: world today, So we think those two things are very interesting. 63 00:03:32,360 --> 00:03:34,680 Speaker 4: And then obviously with the commodity places, that's changing the 64 00:03:34,680 --> 00:03:37,800 Speaker 4: whole dynamics of how people think about places like Latin 65 00:03:37,800 --> 00:03:39,200 Speaker 4: America and Africa. 66 00:03:39,320 --> 00:03:43,360 Speaker 2: Where do you see fixed income opportunities in your part 67 00:03:43,480 --> 00:03:46,080 Speaker 2: of the curve? These you know, you did a debtor 68 00:03:46,400 --> 00:03:48,000 Speaker 2: in possession of financing and that's high. 69 00:03:47,960 --> 00:03:51,320 Speaker 4: Risk, actually very low risk, low risk to you. Okay, Now, 70 00:03:51,400 --> 00:03:53,280 Speaker 4: I think it's actually very low risk. So for instance, 71 00:03:53,280 --> 00:03:56,520 Speaker 4: when Pacific Gas and Electric went into bankruptcy, they usued 72 00:03:56,520 --> 00:03:59,480 Speaker 4: debtor in possession financing. It was actually rated triple B, 73 00:04:00,080 --> 00:04:02,120 Speaker 4: so it was rated in investment grade. And the reason 74 00:04:02,160 --> 00:04:05,920 Speaker 4: I think it's less risk is, yes, the company's in bankruptcy, 75 00:04:05,960 --> 00:04:08,760 Speaker 4: but you're the first person to get paid other including 76 00:04:08,800 --> 00:04:12,000 Speaker 4: the tax authorities, and you're usually secured. So unless the 77 00:04:12,040 --> 00:04:17,159 Speaker 4: company is administratively insolvent or is ill liquid and just 78 00:04:18,000 --> 00:04:21,440 Speaker 4: vaporizes like First Brands, you're perfectly fine. Now, obviously in 79 00:04:21,480 --> 00:04:23,919 Speaker 4: First Brands case, they're the debtor in possession financing was 80 00:04:24,440 --> 00:04:25,719 Speaker 4: looks like fools money. 81 00:04:26,000 --> 00:04:28,680 Speaker 3: Yep, So why are you getting paid eight hundred basis 82 00:04:28,760 --> 00:04:29,360 Speaker 3: points of spread? 83 00:04:29,360 --> 00:04:35,040 Speaker 4: Then if you're you know, it's interesting. One it's automotive, 84 00:04:35,160 --> 00:04:38,120 Speaker 4: so it's OEM. Two it's Japan's first step. Three they 85 00:04:38,120 --> 00:04:42,520 Speaker 4: had to syndicate a Japanese company into the Europe and 86 00:04:42,640 --> 00:04:47,560 Speaker 4: US market. Three dips pay a big spread because it's 87 00:04:47,880 --> 00:04:51,040 Speaker 4: a lot of work and very few people can participate, 88 00:04:51,920 --> 00:04:53,159 Speaker 4: similar to other assets. 89 00:04:53,240 --> 00:04:53,320 Speaker 6: Ye. 90 00:04:54,080 --> 00:04:57,479 Speaker 5: So if Japan views bankruptcy as failure, what is the 91 00:04:57,560 --> 00:05:01,320 Speaker 5: US view bankruptcy? I'm just curious, mind, Yeah. 92 00:05:01,240 --> 00:05:03,040 Speaker 4: That's a good question. I don't know. In fact, I 93 00:05:03,080 --> 00:05:05,479 Speaker 4: don't think the bankruptcy process is working very well in 94 00:05:05,480 --> 00:05:08,359 Speaker 4: the United States. So back in the seventies there was 95 00:05:08,400 --> 00:05:11,640 Speaker 4: no restructuring process. Then they've created the bankruptcy laws, and 96 00:05:11,680 --> 00:05:16,440 Speaker 4: now with all the securitized products like CLO's assetbacks, you 97 00:05:16,520 --> 00:05:19,240 Speaker 4: have different groups with very very different agendas, which is 98 00:05:19,240 --> 00:05:22,560 Speaker 4: why we have the creditor on credit or warfare. I 99 00:05:22,600 --> 00:05:25,040 Speaker 4: think it's very difficult, and you know, bankruptcy shouldn't cost 100 00:05:25,040 --> 00:05:27,720 Speaker 4: twenty thirty million dollars as a starting point to get 101 00:05:27,760 --> 00:05:29,240 Speaker 4: out of bankruptcy. 102 00:05:29,480 --> 00:05:32,000 Speaker 2: Twenty twenty six, where do you guys from a credit perspective, 103 00:05:32,080 --> 00:05:34,320 Speaker 2: see opportunities going forward. 104 00:05:34,600 --> 00:05:37,919 Speaker 4: I guess it's again a k theme. We're going to 105 00:05:37,960 --> 00:05:40,600 Speaker 4: be on really high quality, relatively liquid stuff and part 106 00:05:40,600 --> 00:05:43,240 Speaker 4: of the portfolio, and then we hope to be opportunistic 107 00:05:43,320 --> 00:05:46,120 Speaker 4: on the bottom half. And where we see the opportunistic 108 00:05:46,160 --> 00:05:48,919 Speaker 4: part is really outside of the United States. There'll be 109 00:05:49,040 --> 00:05:52,279 Speaker 4: opportunities the United States, but between the structural issues with 110 00:05:52,320 --> 00:05:55,120 Speaker 4: again the credits on creditor and the clos unless you're 111 00:05:55,160 --> 00:05:57,040 Speaker 4: in the club or in the room where happens from 112 00:05:57,080 --> 00:06:01,159 Speaker 4: online from Hamilton, it's a big problem. So where we 113 00:06:01,200 --> 00:06:03,680 Speaker 4: find the more interesting opportunities is overseas, and we think 114 00:06:03,680 --> 00:06:05,839 Speaker 4: the Nordic market, which is I've talked about on the 115 00:06:05,839 --> 00:06:09,240 Speaker 4: show before, has more yield. Be are quality securities, but 116 00:06:09,240 --> 00:06:11,160 Speaker 4: they also went through a big boom. When you go 117 00:06:11,160 --> 00:06:15,120 Speaker 4: through big boom, bad underwriting happens and they'll be underwriting problems. 118 00:06:15,160 --> 00:06:18,000 Speaker 4: And we think that fundamentally those companies are good companies 119 00:06:18,200 --> 00:06:20,760 Speaker 4: with bad balance sheets, which is not necessarily the case, 120 00:06:20,800 --> 00:06:22,640 Speaker 4: and that i'd say tomorrow, a lot of the US 121 00:06:22,760 --> 00:06:24,880 Speaker 4: companies that are bankrupts are just kicking the can down 122 00:06:24,880 --> 00:06:27,680 Speaker 4: the road, and we think that that'll be a very 123 00:06:27,720 --> 00:06:30,360 Speaker 4: good opportunity. We're involved in one. Now we're super excited. 124 00:06:30,800 --> 00:06:32,680 Speaker 5: Oh good for you. Nice way to head into the 125 00:06:32,680 --> 00:06:34,960 Speaker 5: new year. But real quick, before we let you go, 126 00:06:35,279 --> 00:06:37,920 Speaker 5: the FED, what your expectations for rate cuts next year? 127 00:06:38,360 --> 00:06:42,920 Speaker 4: So I am a bottom up practitioner with value bent, 128 00:06:43,520 --> 00:06:46,240 Speaker 4: so people should discount a lot. But it's pretty clear 129 00:06:46,240 --> 00:06:49,800 Speaker 4: to me that the administration wants rates lower. They're going 130 00:06:49,880 --> 00:06:52,000 Speaker 4: to get short term rates lower, whether people like it 131 00:06:52,120 --> 00:06:54,400 Speaker 4: or not. The real question will be we have a 132 00:06:54,400 --> 00:06:57,839 Speaker 4: housing problem, meaning people don't find it affordable, and the 133 00:06:57,920 --> 00:07:00,479 Speaker 4: question is what can the government do about making that 134 00:07:00,520 --> 00:07:03,760 Speaker 4: more affordable. And one of the outliers I have is 135 00:07:03,760 --> 00:07:05,960 Speaker 4: that somehow the treasuring in the FED couarda and buying 136 00:07:06,000 --> 00:07:09,560 Speaker 4: mortgages or create policy to protect the rates. 137 00:07:10,200 --> 00:07:12,600 Speaker 2: Dave, thanks so much for joining us. Appreciate it. David Sherman, 138 00:07:12,640 --> 00:07:16,400 Speaker 2: he's a chief investment officer Crossing Bridge Advisors. Talk to 139 00:07:16,480 --> 00:07:18,320 Speaker 2: us a little bit about the credit side and where 140 00:07:18,320 --> 00:07:20,440 Speaker 2: there might be some opportunities in twenty twenty six. 141 00:07:22,560 --> 00:07:23,160 Speaker 6: Stay with us. 142 00:07:23,240 --> 00:07:25,680 Speaker 3: More from Bloomberg Surveillance coming up after this. 143 00:07:31,920 --> 00:07:35,520 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live 144 00:07:35,560 --> 00:07:38,720 Speaker 1: weekday afternoons from seven to ten am Eastern Listen on 145 00:07:38,840 --> 00:07:42,239 Speaker 1: Apple Karplay and Android Atto with the Bloomberg Business app, 146 00:07:42,400 --> 00:07:44,320 Speaker 1: or watch us live on YouTube. 147 00:07:44,840 --> 00:07:47,240 Speaker 5: We know that consumers have been in it to win, 148 00:07:47,280 --> 00:07:50,760 Speaker 5: it powering the strongest US economic growth in two years 149 00:07:50,800 --> 00:07:53,280 Speaker 5: in the third quarter, when GDP grew at an annual 150 00:07:53,360 --> 00:07:55,800 Speaker 5: rate of four point three percent. Can it continue? What's 151 00:07:55,800 --> 00:07:57,560 Speaker 5: the fourth quarter going to show? What's next year going 152 00:07:57,640 --> 00:08:01,080 Speaker 5: to show? Bill Adams, chief economist of America Bank, joins 153 00:08:01,120 --> 00:08:04,360 Speaker 5: us to give us some insights. So Bill, a bit 154 00:08:04,400 --> 00:08:07,800 Speaker 5: of a hard act to follow after that the number 155 00:08:07,840 --> 00:08:10,600 Speaker 5: we got for Q three, But what's your expectation for 156 00:08:10,680 --> 00:08:13,480 Speaker 5: what Q four might look like? But more importantly, looking ahead, 157 00:08:13,960 --> 00:08:14,720 Speaker 5: what about Q one? 158 00:08:16,160 --> 00:08:18,480 Speaker 7: Q four, I think you have to remember was the 159 00:08:18,560 --> 00:08:21,000 Speaker 7: quarter of the government shutdown, and so that was a 160 00:08:21,040 --> 00:08:24,880 Speaker 7: substantial headwind, and we're likely to see a much softer 161 00:08:25,040 --> 00:08:28,560 Speaker 7: number for Q four GDP. I have annualized real GDP 162 00:08:28,800 --> 00:08:30,679 Speaker 7: in Q four of under one percent. 163 00:08:31,200 --> 00:08:34,079 Speaker 6: With that said, I think twenty twenty six is likely. 164 00:08:33,920 --> 00:08:37,600 Speaker 7: To be a year of solid economic growth and broadening 165 00:08:37,679 --> 00:08:41,160 Speaker 7: economic growth, where lower interest rates from the Fed and 166 00:08:41,200 --> 00:08:43,720 Speaker 7: we're expecting raycus to likely continue in the new year 167 00:08:44,160 --> 00:08:47,480 Speaker 7: are going to support some recovery of existing home sales 168 00:08:47,520 --> 00:08:52,080 Speaker 7: and industries related to the housing market as well. 169 00:08:52,240 --> 00:08:53,160 Speaker 6: Bill talk to us. 170 00:08:53,120 --> 00:08:55,960 Speaker 2: About you know this Fed of reserves, look at that inflation, 171 00:08:56,200 --> 00:08:58,080 Speaker 2: looking at the labor market. 172 00:08:58,720 --> 00:09:01,040 Speaker 3: Let's start with the labor market here. What's your view 173 00:09:01,080 --> 00:09:02,200 Speaker 3: of the US labor market. 174 00:09:02,240 --> 00:09:03,920 Speaker 2: I mean, if you just look at the headline inflation 175 00:09:04,000 --> 00:09:06,480 Speaker 2: rate or okay, everything's okay, don't worry. 176 00:09:08,000 --> 00:09:11,040 Speaker 7: There's been a big disconnect in the past year between 177 00:09:11,520 --> 00:09:14,199 Speaker 7: pretty good real GDP growth on the one hand, and 178 00:09:14,400 --> 00:09:17,160 Speaker 7: a softening labor market on the other. I have been 179 00:09:17,160 --> 00:09:20,520 Speaker 7: following very closely measures of the labor market that tend 180 00:09:20,520 --> 00:09:24,400 Speaker 7: to be more cyclical during economic slowdowns. If you look 181 00:09:24,400 --> 00:09:27,439 Speaker 7: at the unemployment rate for black or African American workers, 182 00:09:27,480 --> 00:09:29,840 Speaker 7: that's up to eight point four percent in the November 183 00:09:29,920 --> 00:09:32,360 Speaker 7: jobs report. It's up more than two and a quarter 184 00:09:32,440 --> 00:09:35,120 Speaker 7: percentage points since the middle of this year. That's a 185 00:09:35,280 --> 00:09:40,080 Speaker 7: very large increase, and so that points to a substantial 186 00:09:40,120 --> 00:09:43,600 Speaker 7: softening of labor demand in the last three to six months. 187 00:09:44,559 --> 00:09:49,720 Speaker 7: We have seen the payrolls numbers holding up being positive 188 00:09:49,760 --> 00:09:50,800 Speaker 7: for most of this year. 189 00:09:51,160 --> 00:09:52,480 Speaker 6: We'll see whether those get. 190 00:09:52,320 --> 00:09:56,240 Speaker 7: Revised in early twenty twenty six, There is a lot 191 00:09:56,280 --> 00:10:00,800 Speaker 7: of guesswork. I guess you could say the d has 192 00:10:01,120 --> 00:10:04,920 Speaker 7: an estimate of jobs added at newly forming companies and 193 00:10:05,000 --> 00:10:07,440 Speaker 7: jobs lost at companies that are going out of business, 194 00:10:07,840 --> 00:10:09,680 Speaker 7: and that model creates a. 195 00:10:09,679 --> 00:10:12,360 Speaker 6: Lot of uncertainty in the payrolls numbers months to month. 196 00:10:12,679 --> 00:10:15,280 Speaker 7: My sense is that that's likely to be revised down, 197 00:10:15,360 --> 00:10:17,920 Speaker 7: given that the unemployment rate has been moving higher and 198 00:10:17,960 --> 00:10:20,560 Speaker 7: that we've been seeing these measures like the Black unemployment 199 00:10:20,640 --> 00:10:24,520 Speaker 7: rate softening. Even more so, I think the Fed they 200 00:10:24,520 --> 00:10:26,520 Speaker 7: have a mandate for maximum employment. 201 00:10:26,520 --> 00:10:28,679 Speaker 6: They don't have a mandate for maximum GDP growth. It's 202 00:10:28,720 --> 00:10:31,120 Speaker 6: maximum employment and stable prices. 203 00:10:31,040 --> 00:10:34,520 Speaker 7: And the unemployment rate taking higher as well as these 204 00:10:34,880 --> 00:10:38,600 Speaker 7: forward looking measures of labor demand also softening, I think 205 00:10:38,920 --> 00:10:41,719 Speaker 7: points to a need for more support for the economy 206 00:10:41,720 --> 00:10:42,520 Speaker 7: into the new year. 207 00:10:43,400 --> 00:10:46,400 Speaker 5: Well, Bill, you certainly don't have to search far to 208 00:10:46,520 --> 00:10:50,000 Speaker 5: find wild cards possible wild cards in next year, everything 209 00:10:50,000 --> 00:10:52,320 Speaker 5: from AI to we've got the transition happening at the 210 00:10:52,320 --> 00:10:54,640 Speaker 5: Federal Reserve. But I'm going to throw this out there 211 00:10:54,640 --> 00:10:57,439 Speaker 5: and say, I think the biggest wildcard next year might 212 00:10:57,520 --> 00:11:00,520 Speaker 5: just be the consumer. And a lot of of course 213 00:11:00,640 --> 00:11:02,840 Speaker 5: is contingent upon what happens in the job market. What's 214 00:11:02,880 --> 00:11:04,920 Speaker 5: the biggest wildcard to your mind. 215 00:11:06,960 --> 00:11:09,200 Speaker 7: I think the end of Chuir Powell's term in May 216 00:11:09,400 --> 00:11:13,120 Speaker 7: is going to be a potential source of volatility for 217 00:11:13,280 --> 00:11:14,199 Speaker 7: the economy and. 218 00:11:14,160 --> 00:11:15,400 Speaker 6: For financial markets. 219 00:11:15,720 --> 00:11:18,120 Speaker 7: We'll have to see who the new appointee at the 220 00:11:18,160 --> 00:11:19,120 Speaker 7: FED is going to be. 221 00:11:19,160 --> 00:11:22,200 Speaker 6: But I think the President. 222 00:11:21,800 --> 00:11:24,800 Speaker 7: Has been open throated and calling for someone who will 223 00:11:24,800 --> 00:11:29,000 Speaker 7: support the economy with lower interest rates, and I think 224 00:11:29,080 --> 00:11:36,440 Speaker 7: that has financial markets nervous about politicization of US monetary policy. Now, 225 00:11:36,640 --> 00:11:40,040 Speaker 7: I will say, over the last couple of months, the case, 226 00:11:40,280 --> 00:11:43,000 Speaker 7: to my mind, of for lower interest rates has become 227 00:11:43,480 --> 00:11:46,360 Speaker 7: a little more plausible. 228 00:11:45,880 --> 00:11:47,160 Speaker 6: Based on economic data. 229 00:11:47,360 --> 00:11:51,440 Speaker 7: We already talked about the softening of the labor data if. 230 00:11:51,360 --> 00:11:52,720 Speaker 6: You look at the inflation data. 231 00:11:53,240 --> 00:11:55,440 Speaker 7: Now, I don't know how much credence to put into 232 00:11:55,679 --> 00:11:59,080 Speaker 7: the November CPI report given the data gaps that we've 233 00:11:59,160 --> 00:12:03,360 Speaker 7: had recently. But oil prices are down, the housing market 234 00:12:03,360 --> 00:12:04,320 Speaker 7: continues to soften. 235 00:12:04,400 --> 00:12:06,640 Speaker 6: That's going to reduce shelter price inflation. 236 00:12:06,800 --> 00:12:12,600 Speaker 7: Rents are also rising slower nationally, with the largest decrease 237 00:12:12,640 --> 00:12:15,920 Speaker 7: in rent inflation in the parts of the economy. The 238 00:12:15,960 --> 00:12:17,840 Speaker 7: parts of the nation where we've added the most housing 239 00:12:17,880 --> 00:12:21,960 Speaker 7: supply recently the sun Bell so that is going to 240 00:12:22,040 --> 00:12:25,880 Speaker 7: keep inflation moving on a lower trajectory into twenty twenty six, 241 00:12:27,200 --> 00:12:29,640 Speaker 7: with the exception of terror price increases. 242 00:12:29,679 --> 00:12:31,560 Speaker 6: I think the US is set up. 243 00:12:31,480 --> 00:12:37,200 Speaker 7: For a cooler labor market, cooler inflation backdrop, and services 244 00:12:37,520 --> 00:12:40,880 Speaker 7: which to my mind supports lower interest rates. Might make 245 00:12:40,960 --> 00:12:44,800 Speaker 7: this FED leadership transition less fraut over time. 246 00:12:44,840 --> 00:12:48,320 Speaker 6: But I think as that announcement of the next FED. 247 00:12:48,240 --> 00:12:52,840 Speaker 7: Chair is being made, and as markets are trying to 248 00:12:52,880 --> 00:12:56,200 Speaker 7: anticipate what that change in leadership could mean, I see 249 00:12:56,240 --> 00:12:58,040 Speaker 7: that as a potential source of volatility. 250 00:12:58,640 --> 00:13:02,240 Speaker 2: Bill we all know about the K shaped economy out there, 251 00:13:02,240 --> 00:13:04,800 Speaker 2: and with that just kind of as a backdrop, how 252 00:13:04,840 --> 00:13:08,000 Speaker 2: do you view the US consumer here? Because boy, it 253 00:13:08,160 --> 00:13:11,960 Speaker 2: just it feels like you never count out the US consumer. 254 00:13:13,440 --> 00:13:15,840 Speaker 7: I will say I was concerned about the consumer going 255 00:13:15,880 --> 00:13:19,320 Speaker 7: into the holidays shopping season. The initial data that we've 256 00:13:19,360 --> 00:13:23,600 Speaker 7: seen for Black Friday spending going into early December, it 257 00:13:23,600 --> 00:13:27,320 Speaker 7: looks pretty good. I think the consumer has again held 258 00:13:27,400 --> 00:13:31,360 Speaker 7: up the economy this holiday season. Probably helped that the 259 00:13:31,440 --> 00:13:37,040 Speaker 7: government shutdown ended and then there was a reasonable gap 260 00:13:37,120 --> 00:13:39,520 Speaker 7: between the end of the government shutdown and people getting 261 00:13:39,559 --> 00:13:43,440 Speaker 7: their salaries again, and then the holiday shopping season really 262 00:13:43,520 --> 00:13:47,360 Speaker 7: kicking off in late November. I think the consumer we 263 00:13:47,440 --> 00:13:50,839 Speaker 7: still continue to have this as you say, k shaped economy. 264 00:13:51,200 --> 00:13:53,880 Speaker 7: Low and moderate income consumers are definitely under pressure from 265 00:13:53,880 --> 00:13:57,440 Speaker 7: the cost of living, but I think the overall consumer 266 00:13:57,480 --> 00:14:01,760 Speaker 7: is supported by the acid price increases, especially the robust 267 00:14:01,800 --> 00:14:04,280 Speaker 7: increase in the stock market in the last year, and 268 00:14:04,360 --> 00:14:07,120 Speaker 7: a lot of American consumers. An increasing number of American 269 00:14:07,160 --> 00:14:11,560 Speaker 7: consumers are retirees, and so for retiree households, it's the 270 00:14:11,640 --> 00:14:15,600 Speaker 7: cost of living and then also asset price returns and 271 00:14:16,480 --> 00:14:20,200 Speaker 7: their income from pensions and from social security that are 272 00:14:20,280 --> 00:14:25,680 Speaker 7: driving consumer spending. And retiree households have been under pressure 273 00:14:26,160 --> 00:14:30,640 Speaker 7: from inflation, yes, but also benefiting from the stock market 274 00:14:30,680 --> 00:14:32,960 Speaker 7: and from other asset price returns. So I think that 275 00:14:33,560 --> 00:14:37,200 Speaker 7: part of the consumer market is really holding up the 276 00:14:37,240 --> 00:14:42,640 Speaker 7: economy and is insulated from concerns about the job market 277 00:14:42,800 --> 00:14:45,080 Speaker 7: and job availability. 278 00:14:44,320 --> 00:14:45,920 Speaker 6: In twenty twenty six, which you see. 279 00:14:45,760 --> 00:14:49,440 Speaker 7: Weighing on a lot of conventional measures of consumer confidence 280 00:14:49,560 --> 00:14:52,760 Speaker 7: like the Conference Sports Consumer Confidence. 281 00:14:52,280 --> 00:14:57,360 Speaker 2: Index bill are seen your bio that you're fluent in Mandarin, Chinese, 282 00:14:57,400 --> 00:14:58,480 Speaker 2: what is that about? 283 00:14:58,560 --> 00:14:59,640 Speaker 3: Where do you pick that up? 284 00:14:59,720 --> 00:15:00,000 Speaker 1: Dude? 285 00:15:00,800 --> 00:15:03,040 Speaker 7: I bombed the Spanish placement test on my first week 286 00:15:03,080 --> 00:15:06,200 Speaker 7: of college and I needed to pass a foreign language. 287 00:15:06,960 --> 00:15:12,240 Speaker 7: So long story short, I found myself learning Chinese, and 288 00:15:12,880 --> 00:15:15,640 Speaker 7: I actually kicked off my career as an economist as 289 00:15:15,720 --> 00:15:19,240 Speaker 7: the Conference Board's China Economists from two thousand and nine 290 00:15:19,280 --> 00:15:20,280 Speaker 7: to twenty eleven. 291 00:15:20,560 --> 00:15:22,880 Speaker 3: All right, all right, see when you read people's bios, 292 00:15:22,960 --> 00:15:24,640 Speaker 3: I love it. I love that kind of stuff. 293 00:15:24,680 --> 00:15:27,080 Speaker 2: My son, twenty one year old son, he's all into 294 00:15:27,160 --> 00:15:30,560 Speaker 2: Japanese and I'm like, dude, just take French Spanish like 295 00:15:30,960 --> 00:15:34,040 Speaker 2: regular people. No, he's doing Japanese and he's doing a 296 00:15:34,120 --> 00:15:37,720 Speaker 2: semester in Japan and he's got lined up a summer 297 00:15:37,720 --> 00:15:38,720 Speaker 2: internship in Tokyo. 298 00:15:38,840 --> 00:15:39,480 Speaker 3: So I don't know. 299 00:15:39,480 --> 00:15:40,200 Speaker 4: We'll see how that goes. 300 00:15:40,200 --> 00:15:42,960 Speaker 3: Fine, So when i'm mee see people like Bill fluent 301 00:15:43,040 --> 00:15:44,560 Speaker 3: and Chinese? Who does that? 302 00:15:44,760 --> 00:15:46,800 Speaker 2: All right, Bill, thanks so much for journey. Appreciate it. 303 00:15:47,240 --> 00:15:49,320 Speaker 2: Bill Adams, he's a chief economist of co America Bank. 304 00:15:49,360 --> 00:15:51,160 Speaker 2: You appreciate getting a few minutes of his time. 305 00:15:53,480 --> 00:15:56,640 Speaker 3: Stay with us. More from Bloomberg Surveillance coming up after this. 306 00:16:02,840 --> 00:16:06,440 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 307 00:16:06,480 --> 00:16:09,680 Speaker 1: weekday afternoons from seven to ten am Eastern Listen on 308 00:16:09,720 --> 00:16:13,120 Speaker 1: applecar Play and Android Otto with the Bloomberg Business app, 309 00:16:13,320 --> 00:16:15,160 Speaker 1: or watch us live on YouTube. 310 00:16:15,400 --> 00:16:18,360 Speaker 2: Holiday shopping I think it was I don't know. It 311 00:16:19,000 --> 00:16:20,800 Speaker 2: seemed pretty busy out there to me out there in 312 00:16:20,800 --> 00:16:23,120 Speaker 2: the marketplace. I know people were clicking away on the 313 00:16:23,120 --> 00:16:23,800 Speaker 2: e commerce side. 314 00:16:23,800 --> 00:16:24,880 Speaker 3: I know I was clicking away. 315 00:16:25,320 --> 00:16:25,560 Speaker 6: Yep. 316 00:16:25,600 --> 00:16:27,280 Speaker 5: So a lot of that might have been happening behind 317 00:16:27,280 --> 00:16:28,280 Speaker 5: closed doors, as they. 318 00:16:28,160 --> 00:16:29,800 Speaker 6: Say, and as you do the returns. 319 00:16:29,840 --> 00:16:32,800 Speaker 3: You know, some companies are charging you for returns for 320 00:16:32,920 --> 00:16:34,720 Speaker 3: the what is it re talking fee? 321 00:16:34,800 --> 00:16:38,560 Speaker 5: I guess that's back it's a thing again, yep, all right, Yeah, 322 00:16:38,560 --> 00:16:38,920 Speaker 5: I don't know. 323 00:16:39,080 --> 00:16:40,560 Speaker 2: There are a lot of gifts under the tree, That's 324 00:16:40,600 --> 00:16:40,920 Speaker 2: all I know. 325 00:16:40,960 --> 00:16:42,200 Speaker 3: And that I was like, I don't want anything. 326 00:16:42,240 --> 00:16:42,920 Speaker 4: I don't want anything. 327 00:16:43,080 --> 00:16:50,800 Speaker 2: Julia Wilson, Principal Advisory Strategies KPMG, based in Atlanta, Georgia. Juliet, 328 00:16:51,040 --> 00:16:53,200 Speaker 2: from your perspective, what are your clients telling you about 329 00:16:53,320 --> 00:16:57,840 Speaker 2: kind of the holiday season, the retail space out there? 330 00:16:57,840 --> 00:16:58,920 Speaker 3: Are people spending money? 331 00:17:00,320 --> 00:17:02,400 Speaker 8: I think they were, But I think over all your 332 00:17:02,520 --> 00:17:06,240 Speaker 8: kind of view of a holiday might have been the 333 00:17:06,520 --> 00:17:10,240 Speaker 8: word of the day. So so holiday was stronger than expected. 334 00:17:10,280 --> 00:17:14,280 Speaker 8: We saw consumer spend the results coming out higher than 335 00:17:14,440 --> 00:17:17,400 Speaker 8: analysts had predicted. But I would say it was kind 336 00:17:17,400 --> 00:17:19,800 Speaker 8: of a you know, at least in my house, what 337 00:17:19,840 --> 00:17:21,760 Speaker 8: we called it was the year of the sweater So 338 00:17:21,800 --> 00:17:26,640 Speaker 8: it was a very practical holiday spending, you know, withheld 339 00:17:26,760 --> 00:17:30,280 Speaker 8: all of the headwinds, but it didn't give anybody a. 340 00:17:30,240 --> 00:17:31,080 Speaker 6: Ton of surprises. 341 00:17:31,720 --> 00:17:34,760 Speaker 8: You know, things were very practical that the smart consumer 342 00:17:34,880 --> 00:17:36,359 Speaker 8: kind of played out well. 343 00:17:36,760 --> 00:17:38,440 Speaker 3: Ours was socks socks. 344 00:17:38,520 --> 00:17:42,160 Speaker 5: Yeah, well, you know what, the SNL had a great skit. 345 00:17:42,200 --> 00:17:43,920 Speaker 5: They always do it. It was it's an old skit, 346 00:17:44,000 --> 00:17:46,280 Speaker 5: but they did it where the mom gets a robe 347 00:17:46,600 --> 00:17:49,000 Speaker 5: every year, but everybody else in the family gets like 348 00:17:49,040 --> 00:17:51,600 Speaker 5: really cool gifts and she's like, okay, I have another robe. 349 00:17:51,760 --> 00:17:54,120 Speaker 5: So I feel you on the sweater robe sock thing. 350 00:17:54,160 --> 00:17:56,159 Speaker 5: But what about gift cards? You remember when they were 351 00:17:56,200 --> 00:17:57,840 Speaker 5: sort of all the rage, people were going out and 352 00:17:57,840 --> 00:18:00,560 Speaker 5: buying gift cards because they didn't know what else to do. 353 00:18:00,000 --> 00:18:03,120 Speaker 6: Do you think that was as it crept up on them? 354 00:18:03,240 --> 00:18:05,640 Speaker 8: Yeah, absolutely so, I think gift cards and we'll really 355 00:18:05,720 --> 00:18:08,199 Speaker 8: see where the consumer plays out in terms of the 356 00:18:08,280 --> 00:18:11,679 Speaker 8: categories because of the gift card trend, I think a 357 00:18:11,680 --> 00:18:15,000 Speaker 8: lot of people the sentiment, you know, And actually we 358 00:18:15,080 --> 00:18:19,400 Speaker 8: had fewer days between Black Friday and Christmas Day this year, 359 00:18:19,400 --> 00:18:21,640 Speaker 8: so a lot of people it caught them by surprise. 360 00:18:21,680 --> 00:18:25,000 Speaker 8: And so gift card as the gift of choice is 361 00:18:25,000 --> 00:18:28,480 Speaker 8: definitely something that we predicted with our consumer Pulse survey. 362 00:18:28,560 --> 00:18:29,960 Speaker 6: And then I'll actually played out. 363 00:18:30,000 --> 00:18:32,480 Speaker 8: So I think you'll see a lot of spend over 364 00:18:32,560 --> 00:18:35,440 Speaker 8: this weekend to see if you know, if electronics kind 365 00:18:35,440 --> 00:18:38,280 Speaker 8: of nudge ahead, or if people are still using the 366 00:18:38,320 --> 00:18:40,359 Speaker 8: gift card to get the things that they kind of 367 00:18:40,400 --> 00:18:43,359 Speaker 8: were holding out on just as they were, you know, 368 00:18:43,359 --> 00:18:46,760 Speaker 8: a bit spind thrift over the period. 369 00:18:47,400 --> 00:18:50,160 Speaker 2: Alexis, you know that Julia is a big time consoling 370 00:18:50,200 --> 00:18:53,560 Speaker 2: because right behind her is a white board, and whenever 371 00:18:53,880 --> 00:18:55,760 Speaker 2: a white board is brought out in a meeting, I'm in, 372 00:18:55,880 --> 00:18:57,720 Speaker 2: I get up and I leave, thank you very much. 373 00:18:57,920 --> 00:18:58,720 Speaker 3: I'm transition. 374 00:18:58,800 --> 00:19:02,040 Speaker 8: It's actually a painting, but yeah, I can get the whiteboards. 375 00:19:02,040 --> 00:19:03,960 Speaker 8: On the other side of the room, there is a 376 00:19:04,119 --> 00:19:06,480 Speaker 8: whiteboard and lots of business books. 377 00:19:06,840 --> 00:19:07,560 Speaker 3: That's how they do it. 378 00:19:07,560 --> 00:19:09,480 Speaker 2: That's how the consultants think they're big time out of 379 00:19:09,480 --> 00:19:14,520 Speaker 2: the box, Juia. How do retailers reach their consumers these days? 380 00:19:14,560 --> 00:19:17,000 Speaker 2: I mean, I mean, you know, how do you reach 381 00:19:17,040 --> 00:19:19,680 Speaker 2: a John Tucker who's not at the beck and Call 382 00:19:19,720 --> 00:19:21,800 Speaker 2: of influencers on social media? 383 00:19:23,520 --> 00:19:27,560 Speaker 8: So, you know, the new retail strategy is definitely being 384 00:19:27,600 --> 00:19:30,840 Speaker 8: where the consumer is, so omnichannel demand is kind of 385 00:19:30,880 --> 00:19:34,320 Speaker 8: the thing and finding them whether you're you do like 386 00:19:34,400 --> 00:19:36,879 Speaker 8: to see it in your feed. So the traditional social 387 00:19:36,880 --> 00:19:42,040 Speaker 8: media outlets of Facebook, Instagram, et cetera are not gone, Chat, GPT, 388 00:19:42,320 --> 00:19:45,920 Speaker 8: Jim and I everything. Making sure that you're searchable there 389 00:19:45,960 --> 00:19:48,720 Speaker 8: and that it's easy to click through is kind of 390 00:19:48,720 --> 00:19:50,640 Speaker 8: the second area. I would say this is the first 391 00:19:50,680 --> 00:19:54,879 Speaker 8: year that we really saw AI take off from a 392 00:19:54,920 --> 00:19:58,840 Speaker 8: consumer perspective. And then the traditional ad it's not gone. 393 00:19:58,920 --> 00:20:00,639 Speaker 8: You know, there's some of us that are still in. 394 00:20:01,160 --> 00:20:04,919 Speaker 8: You know, we watch TV, we watch it, you know, 395 00:20:05,000 --> 00:20:07,800 Speaker 8: we do things on YouTube, et cetera, and so finding 396 00:20:07,840 --> 00:20:10,800 Speaker 8: that that perfect mix is complex, but we have a 397 00:20:10,840 --> 00:20:13,120 Speaker 8: lot more tools today to get in front of the consumer. 398 00:20:13,400 --> 00:20:16,280 Speaker 5: All Right, who here is doing dry January? Try January 399 00:20:16,359 --> 00:20:18,720 Speaker 5: being that you don't drink for the month of January. 400 00:20:21,800 --> 00:20:25,960 Speaker 8: I've heard, you know, sprinkle January is another thing. Our 401 00:20:25,960 --> 00:20:29,800 Speaker 8: consumer survey said about one in three Americans are participating 402 00:20:29,840 --> 00:20:33,080 Speaker 8: in Dry January. It's for health reasons, is the number 403 00:20:33,119 --> 00:20:35,879 Speaker 8: one reason, but the second reason is to spend less money. 404 00:20:35,880 --> 00:20:38,240 Speaker 8: So I think we if we aren't knocked over the 405 00:20:38,240 --> 00:20:41,040 Speaker 8: head with the thing of the frugal consumer, we're continuing 406 00:20:41,040 --> 00:20:43,520 Speaker 8: to see that even as we head into Dry January. 407 00:20:44,080 --> 00:20:47,000 Speaker 8: But it is our strained consumer thinking about help and 408 00:20:47,040 --> 00:20:48,280 Speaker 8: wellness for sure. 409 00:20:48,920 --> 00:20:52,240 Speaker 2: You know, AI has kind of seeped into all aspects 410 00:20:52,320 --> 00:20:56,600 Speaker 2: of our lives, all aspects of the economy. How are retailers, 411 00:20:56,600 --> 00:20:59,840 Speaker 2: how are consumers using AI in their purchasing. 412 00:21:01,400 --> 00:21:03,400 Speaker 8: I have to tell you, as a last minute shopper, 413 00:21:03,440 --> 00:21:05,679 Speaker 8: AI does not bring the package to your door. So 414 00:21:05,720 --> 00:21:08,159 Speaker 8: that's one thing that we could maybe look for in 415 00:21:08,200 --> 00:21:10,679 Speaker 8: the future. If you're buying in the last ten hours 416 00:21:10,720 --> 00:21:13,439 Speaker 8: of the holiday a shopping spree, then you do need 417 00:21:13,480 --> 00:21:15,640 Speaker 8: to go in a store and physically pick it up. 418 00:21:16,320 --> 00:21:18,959 Speaker 8: But I think AI is helpful. You know, we just 419 00:21:19,000 --> 00:21:21,600 Speaker 8: mentioned that the returns that are about to happen, so 420 00:21:21,680 --> 00:21:24,080 Speaker 8: figuring out where to go, how to print a label, 421 00:21:24,119 --> 00:21:26,119 Speaker 8: some of those really tactical things that you'd have to 422 00:21:26,160 --> 00:21:29,080 Speaker 8: sift through and try to figure out AI is helping 423 00:21:29,119 --> 00:21:33,360 Speaker 8: the consumer on that side. But from the retailers perspective, 424 00:21:33,440 --> 00:21:36,520 Speaker 8: you know, we can't forget just how important it is 425 00:21:36,600 --> 00:21:40,200 Speaker 8: for them to use it to drive productivity and enhance personalization. 426 00:21:40,359 --> 00:21:43,280 Speaker 8: So KPMG, we talked about the front, middle and back office. 427 00:21:43,320 --> 00:21:46,439 Speaker 8: AI is really helping us do some of those things 428 00:21:46,480 --> 00:21:50,640 Speaker 8: of you know, the chats to when a consumer has 429 00:21:50,680 --> 00:21:53,160 Speaker 8: a question about how to put together a toy or 430 00:21:53,320 --> 00:21:56,520 Speaker 8: where to return. Chatbots are one of the first places 431 00:21:56,880 --> 00:21:57,880 Speaker 8: to leverage AI. 432 00:21:58,400 --> 00:22:00,399 Speaker 3: Juey, thank you so much for joining us. Really appreciate it. 433 00:22:00,480 --> 00:22:06,560 Speaker 2: Julian Wilson, she's a principal Advisory Strategy group at KPMG. 434 00:22:05,440 --> 00:22:07,840 Speaker 3: Talking about retail and retail sales. 435 00:22:07,840 --> 00:22:10,560 Speaker 6: Here stay with us. 436 00:22:10,680 --> 00:22:13,159 Speaker 3: More from Bloomberg Surveillance coming up after this. 437 00:22:19,359 --> 00:22:22,960 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live 438 00:22:23,040 --> 00:22:26,199 Speaker 1: weekday afternoons from seven to ten am Eastern Listen on 439 00:22:26,280 --> 00:22:29,960 Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or 440 00:22:30,080 --> 00:22:31,600 Speaker 1: watch us live on YouTube. 441 00:22:31,920 --> 00:22:35,840 Speaker 2: Scott Sperling Joints us here chief executive officer THHL Partners. 442 00:22:36,040 --> 00:22:37,479 Speaker 2: For those of us that have been in the business 443 00:22:37,720 --> 00:22:40,560 Speaker 2: a couple of eons. That would be Thomas H. 444 00:22:40,640 --> 00:22:41,320 Speaker 6: Lee Partners. 445 00:22:41,800 --> 00:22:43,480 Speaker 3: Did a lot of biz with them back in the day. 446 00:22:44,080 --> 00:22:46,840 Speaker 2: Scott news Away, thanks so much for joining us here. 447 00:22:47,600 --> 00:22:49,040 Speaker 2: Talk to us about kind of the m and a 448 00:22:49,200 --> 00:22:52,000 Speaker 2: environment out there. Scott, what do you expect for twenty 449 00:22:52,040 --> 00:22:54,240 Speaker 2: twenty six. It seems like we've got a pretty decent 450 00:22:54,920 --> 00:22:57,520 Speaker 2: We got the FED cutting rates, the economy is pretty good, 451 00:22:57,560 --> 00:22:58,520 Speaker 2: earnings are pretty good. 452 00:22:58,520 --> 00:22:59,800 Speaker 3: It would seem like you. 453 00:22:59,760 --> 00:23:02,520 Speaker 2: Guys, as we'd be writing some tickets here, what's your expectation? 454 00:23:04,840 --> 00:23:07,840 Speaker 9: And certainly on the larger end, if you look at 455 00:23:09,320 --> 00:23:12,639 Speaker 9: the return to normalcy in terms of our anti trust regime, 456 00:23:13,119 --> 00:23:16,480 Speaker 9: that certainly opened up a number of opportunities to do 457 00:23:16,600 --> 00:23:20,440 Speaker 9: things that make sense in terms of bringing companies together 458 00:23:21,160 --> 00:23:25,600 Speaker 9: that could streamline their costs, provide better service more cost 459 00:23:25,600 --> 00:23:27,320 Speaker 9: effectively for consumers. 460 00:23:27,320 --> 00:23:30,400 Speaker 6: So I think those opportunities exist. 461 00:23:30,640 --> 00:23:34,840 Speaker 9: I think on the private equity side, the cost of 462 00:23:34,920 --> 00:23:38,760 Speaker 9: capital hasn't been a huge problem. That's not really what's 463 00:23:39,200 --> 00:23:42,680 Speaker 9: driven some of the slow down that we've seen over 464 00:23:42,720 --> 00:23:44,879 Speaker 9: the course of the last twenty four months. 465 00:23:45,160 --> 00:23:46,440 Speaker 6: I think that's more. 466 00:23:46,760 --> 00:23:51,359 Speaker 9: Specific to the fact that in the twenty one into 467 00:23:51,520 --> 00:23:54,160 Speaker 9: early twenty two period, a lot of things were required 468 00:23:55,200 --> 00:23:59,960 Speaker 9: at multiples that may have made less sense than it's 469 00:24:00,240 --> 00:24:02,720 Speaker 9: to people at the time, and it's taking a while 470 00:24:02,760 --> 00:24:06,040 Speaker 9: for those companies to grow into their valuations, and that 471 00:24:06,119 --> 00:24:10,280 Speaker 9: has really slowed down both the number of things that 472 00:24:10,320 --> 00:24:13,560 Speaker 9: have come to market as well as the ability to 473 00:24:13,600 --> 00:24:18,320 Speaker 9: get deals done at prices that in today's world would 474 00:24:18,400 --> 00:24:23,720 Speaker 9: make sense from a risk adjusted return perspective. So the 475 00:24:23,760 --> 00:24:26,000 Speaker 9: industry has been slow for the last couple of years. 476 00:24:26,000 --> 00:24:29,760 Speaker 9: In private equity, we do anticipate that picking up. I 477 00:24:29,760 --> 00:24:34,639 Speaker 9: think time has been helpful. Their companies have continued to 478 00:24:34,680 --> 00:24:39,439 Speaker 9: perform by and large and therefore growing into valuations that 479 00:24:39,600 --> 00:24:43,879 Speaker 9: might have been too high from a multiple perspective a 480 00:24:43,960 --> 00:24:47,440 Speaker 9: few years ago. So I think we'll see more activity. 481 00:24:47,600 --> 00:24:49,680 Speaker 9: I hope to see more activity as we go into 482 00:24:49,960 --> 00:24:52,880 Speaker 9: twenty twenty six in private equity. And as I said, 483 00:24:53,000 --> 00:24:56,520 Speaker 9: for overall M and A, you are seeing this handful 484 00:24:56,560 --> 00:25:00,639 Speaker 9: of rather large deals occur that that you would not 485 00:25:00,760 --> 00:25:03,720 Speaker 9: have seen three years ago. 486 00:25:04,240 --> 00:25:06,760 Speaker 5: Yeah, Scott, because when I was looking, I was looking 487 00:25:06,800 --> 00:25:09,360 Speaker 5: at some of the numbers, roughly four point eight trillion 488 00:25:09,400 --> 00:25:13,280 Speaker 5: dollars in deal value this year, but the amount of 489 00:25:13,359 --> 00:25:16,560 Speaker 5: deals were pretty modest, right, So what does that tell 490 00:25:16,600 --> 00:25:19,800 Speaker 5: you about the deals that are happening and how that's 491 00:25:19,800 --> 00:25:21,480 Speaker 5: setting us up for twenty twenty six. 492 00:25:22,440 --> 00:25:27,920 Speaker 9: Sure, you know, again we're seeing some very large strategic consolidations. 493 00:25:28,359 --> 00:25:35,200 Speaker 9: Those are things that under the prior antitrust authorities would 494 00:25:35,480 --> 00:25:40,800 Speaker 9: not even be considered. Those Both the DOJ and the 495 00:25:40,840 --> 00:25:46,359 Speaker 9: FTC leadership had theories that did not correspond to either 496 00:25:47,040 --> 00:25:51,400 Speaker 9: the laws most people saw or to a long tradition 497 00:25:51,680 --> 00:25:56,080 Speaker 9: about how to evaluate antitrust, and so that put a real, 498 00:25:56,280 --> 00:26:00,159 Speaker 9: real chill, as we know, on any kind of activity 499 00:26:00,200 --> 00:26:05,640 Speaker 9: of this kind. But the opportunity now to actually do 500 00:26:05,720 --> 00:26:10,240 Speaker 9: things that make sense for consumers in particular, or customers 501 00:26:10,280 --> 00:26:13,760 Speaker 9: if it's a business business type situation. I think that's 502 00:26:14,400 --> 00:26:17,879 Speaker 9: allowing these very large acquisitions to occur. 503 00:26:18,280 --> 00:26:19,760 Speaker 6: That's making up the bulk of. 504 00:26:19,640 --> 00:26:24,080 Speaker 9: That of that number that you spoke of. 505 00:26:25,160 --> 00:26:26,760 Speaker 2: Scott, I love to get your thoughts on kind of 506 00:26:26,920 --> 00:26:29,760 Speaker 2: kind of where the market is in terms of monetizing 507 00:26:29,840 --> 00:26:33,560 Speaker 2: or exiting investments. It's my understanding that three to five 508 00:26:33,600 --> 00:26:36,240 Speaker 2: years is a nice folding period for the average private 509 00:26:36,240 --> 00:26:39,200 Speaker 2: equity fund, but many funds over the last decade or 510 00:26:39,240 --> 00:26:42,040 Speaker 2: so have been five years, seven years, maybe even longer, 511 00:26:42,400 --> 00:26:46,600 Speaker 2: which is impact the returns for your LPs. What's the 512 00:26:46,680 --> 00:26:49,119 Speaker 2: environment like now for monetizing some of the investments you 513 00:26:49,160 --> 00:26:50,440 Speaker 2: guys as an industry. 514 00:26:50,080 --> 00:26:52,800 Speaker 9: Have made, so you know, again, I think that it's 515 00:26:52,840 --> 00:26:55,800 Speaker 9: getting better. I think that the ability to see more 516 00:26:57,000 --> 00:27:01,600 Speaker 9: more offerings of companies from private equity players so that 517 00:27:01,840 --> 00:27:07,359 Speaker 9: there could be more opportunity to see acquisitions occur at 518 00:27:07,520 --> 00:27:12,200 Speaker 9: multiples that would make sense that also provide a reasonable 519 00:27:12,280 --> 00:27:15,199 Speaker 9: return for those companies that were acquired. Again, in this 520 00:27:15,800 --> 00:27:19,160 Speaker 9: particularly let's call it the twenty one to twenty two period, 521 00:27:20,040 --> 00:27:23,480 Speaker 9: it's been more difficult, as I mentioned earlier, for those 522 00:27:24,440 --> 00:27:30,080 Speaker 9: deals to happen, and as a result, the time frame 523 00:27:30,160 --> 00:27:35,320 Speaker 9: the average hold has extended to I think for many 524 00:27:35,359 --> 00:27:39,560 Speaker 9: funds that were formed in that period and slightly before 525 00:27:39,680 --> 00:27:42,360 Speaker 9: to over that five year number. I think five point 526 00:27:42,440 --> 00:27:46,119 Speaker 9: eight years is the last number that I saw as average, 527 00:27:46,359 --> 00:27:49,320 Speaker 9: so that would be longer than we have generally seen 528 00:27:49,480 --> 00:27:52,760 Speaker 9: for most sets of vintages over the course of the 529 00:27:53,119 --> 00:27:55,200 Speaker 9: almost forty five years I've been doing this. 530 00:27:56,760 --> 00:28:01,520 Speaker 5: We've got some big companies on deck to go public 531 00:28:01,560 --> 00:28:04,879 Speaker 5: next year, including SpaceX and open AI. I'm just wondering, 532 00:28:04,880 --> 00:28:07,199 Speaker 5: what are you what sort of excites you that if 533 00:28:07,200 --> 00:28:10,119 Speaker 5: you can't talk specifics there and then what about industries? 534 00:28:10,200 --> 00:28:12,280 Speaker 5: But I have to think consolidation is going to continue 535 00:28:12,800 --> 00:28:14,880 Speaker 5: in things like AI and healthcare. 536 00:28:16,040 --> 00:28:18,960 Speaker 9: Hard for me to talk about the valuations of entities 537 00:28:19,040 --> 00:28:25,920 Speaker 9: like that. You know, obviously they're building, you know, potentially 538 00:28:25,960 --> 00:28:31,560 Speaker 9: great companies. Uh, whether or not the valuations that they 539 00:28:31,600 --> 00:28:34,840 Speaker 9: come to market at will make sense over the long term, 540 00:28:34,920 --> 00:28:39,080 Speaker 9: you know, who knows. I think there's a lot of talk, 541 00:28:39,200 --> 00:28:41,360 Speaker 9: and you know, we'll see what the reality is. 542 00:28:42,240 --> 00:28:43,480 Speaker 6: You know, certainly. 543 00:28:44,640 --> 00:28:47,920 Speaker 9: The market tends to gather momentum when you have I 544 00:28:48,040 --> 00:28:51,800 Speaker 9: pos that do well. We've been in a period the 545 00:28:51,880 --> 00:28:54,800 Speaker 9: last couple of years where even if there's been a 546 00:28:54,800 --> 00:28:59,600 Speaker 9: good initial pop, the companies that have gone public have 547 00:28:59,720 --> 00:29:03,320 Speaker 9: tended to float back down towards their original offering in 548 00:29:03,400 --> 00:29:06,160 Speaker 9: many of them below. So I think it's really crucial 549 00:29:06,720 --> 00:29:09,160 Speaker 9: that when companies like that come out, that they come 550 00:29:09,200 --> 00:29:13,040 Speaker 9: out at valuations that are sustainable and that can provide 551 00:29:13,200 --> 00:29:16,680 Speaker 9: a reasonable return. I think in terms of areas of growth, 552 00:29:17,040 --> 00:29:20,920 Speaker 9: you know, we look at areas like pharmacy services where 553 00:29:21,040 --> 00:29:25,080 Speaker 9: you know, there's an enormous confluence going on right now 554 00:29:25,120 --> 00:29:32,240 Speaker 9: between technology, generative AI technologies that are enablers of drug 555 00:29:32,280 --> 00:29:37,959 Speaker 9: development and the ability to take those drugs through their 556 00:29:38,000 --> 00:29:44,280 Speaker 9: clinical trial processes, and the need and ability to provide 557 00:29:44,320 --> 00:29:48,320 Speaker 9: therapeutics for a whole range of diseases. So we think 558 00:29:48,480 --> 00:29:53,320 Speaker 9: that's a really interesting area as we look at it. Obviously, 559 00:29:53,400 --> 00:29:57,240 Speaker 9: the application of AI across a broad range of automation 560 00:29:58,080 --> 00:30:03,560 Speaker 9: is going to really drive i've continued productivity, we hope 561 00:30:03,880 --> 00:30:07,479 Speaker 9: in the economy that will offset some other flaws that 562 00:30:07,520 --> 00:30:10,240 Speaker 9: we have when you look below the surface in our 563 00:30:10,520 --> 00:30:15,320 Speaker 9: current economy. And so companies that are continuing to actually 564 00:30:15,400 --> 00:30:21,000 Speaker 9: solve more automation specific problems for a broad, broad range 565 00:30:21,000 --> 00:30:25,000 Speaker 9: of functions something that you know, we continue to look 566 00:30:25,040 --> 00:30:28,560 Speaker 9: at UH and then other areas wealth management, you know, 567 00:30:28,680 --> 00:30:32,960 Speaker 9: continue to be areas of great interest to us. So 568 00:30:33,000 --> 00:30:36,160 Speaker 9: we think there'll be a range of things that are 569 00:30:36,200 --> 00:30:40,000 Speaker 9: going to be interesting opportunities. You know, you have to 570 00:30:40,040 --> 00:30:42,760 Speaker 9: work really hard in private equity, I would say these days, 571 00:30:44,680 --> 00:30:50,440 Speaker 9: even at the prices that that are currently allowing deals 572 00:30:50,480 --> 00:30:53,760 Speaker 9: to occur, to be able to add value operationally to 573 00:30:53,840 --> 00:30:56,840 Speaker 9: these companies, we need to have a very specific thesis 574 00:30:56,840 --> 00:30:58,560 Speaker 9: about how you're going to take a company. 575 00:30:58,920 --> 00:31:01,040 Speaker 2: We're to leave it here Scott just spends the time, 576 00:31:01,080 --> 00:31:02,600 Speaker 2: but thank you so much for joining us. We really 577 00:31:02,600 --> 00:31:04,640 Speaker 2: appreciate getting a few minutes of your time. Scott Spurling, 578 00:31:04,720 --> 00:31:07,080 Speaker 2: Chief executive Officer, THL Partners. 579 00:31:07,120 --> 00:31:07,840 Speaker 6: This is Bloomberg. 580 00:31:08,160 --> 00:31:13,000 Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, 581 00:31:13,120 --> 00:31:17,400 Speaker 1: and anywhere else you get your podcasts. Listen live each weekday, 582 00:31:17,520 --> 00:31:21,000 Speaker 1: seven to ten am Eastern on Bloomberg dot com, the 583 00:31:21,080 --> 00:31:25,120 Speaker 1: iHeartRadio app tune In, and the Bloomberg Business app. You 584 00:31:25,160 --> 00:31:28,520 Speaker 1: can also watch us live every weekday on YouTube and 585 00:31:28,720 --> 00:31:30,440 Speaker 1: always on the Bloomberg terminal