WEBVTT - CalSTRS CIO: Forget Fundamentals, Better Off Owning Whole Market 0:00:01.400 --> 0:00:04.120 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along 0:00:04.120 --> 0:00:06.240 with my co host of Bonnie Quinn. Every business day 0:00:06.240 --> 0:00:09.200 we bring you interviews from CEOs, A market pros, and 0:00:09.440 --> 0:00:12.799 Bloomberg experts, along with essential market moving news. Find the 0:00:12.800 --> 0:00:16.320 Bloomberg Markets Podcast on Apple Podcasts or wherever you listen 0:00:16.360 --> 0:00:20.360 to podcasts, and on Bloomberg dot com. You know, I'm 0:00:20.400 --> 0:00:22.800 just looking at a one year chart for the SMP 0:00:23.200 --> 0:00:25.759 five hundred and obviously, you know, back in March we 0:00:25.800 --> 0:00:30.360 saw that, you know, thirty four decline in the SMP 0:00:30.480 --> 0:00:33.960 as a pandemic, and economic impacts of the pandemic really 0:00:33.960 --> 0:00:38.040 became apparent to investors. But you know, we've retraced much 0:00:38.280 --> 0:00:40.680 of that decline here and we have to the SMP 0:00:40.720 --> 0:00:43.280 at thirty one seventy. Here off a little bit today, 0:00:43.720 --> 0:00:46.080 get a sense of kind of where we go from here. 0:00:46.200 --> 0:00:49.760 Chris Ailman, he's a chief investment officer for the California 0:00:49.800 --> 0:00:55.160 California State Teachers Retirement System. UM, Chris, what are you 0:00:55.200 --> 0:01:00.920 telling your participants in your plan about the mark market here? 0:01:01.360 --> 0:01:04.840 Given the tremendous volatility we've seen just over the past 0:01:04.920 --> 0:01:08.080 you know, three to four months, a good to talk 0:01:08.120 --> 0:01:10.800 to you, Paul, you know, and that's it. You back 0:01:10.880 --> 0:01:13.520 up and take the long term view. Look at the 0:01:13.560 --> 0:01:17.119 market over the last year. What's the prices most people 0:01:17.280 --> 0:01:20.240 is we're actually positive. You know, if we had thought 0:01:20.360 --> 0:01:23.240 last July that we'd have a global pandemic and that 0:01:23.400 --> 0:01:26.480 the economy would come to a complete stop, you wouldn't 0:01:26.480 --> 0:01:29.039 expect the market to be up, uh, you know, eight 0:01:29.080 --> 0:01:33.360 percent from where we were roughly. So this is the 0:01:33.480 --> 0:01:35.959 time to really back away from the daily news. I know, 0:01:36.440 --> 0:01:40.600 you know, the p p P paytech protection loans will 0:01:40.640 --> 0:01:43.479 dominate the headlines. But in a couple of weeks we're 0:01:43.480 --> 0:01:46.199 gonna have April again, all of a sudden in July, 0:01:46.360 --> 0:01:48.480 and it's a good time to back up and look 0:01:48.480 --> 0:01:52.880 at your investment, rebalance your ats AD allocation, and not 0:01:53.000 --> 0:01:55.800 get carried away with the volatility of this market. It 0:01:55.880 --> 0:02:00.000 has been crazy in the first six months, that's said, Chris. 0:02:00.120 --> 0:02:02.520 All it's really done is gone up. I mean after 0:02:02.560 --> 0:02:08.280 that massive punge in March. So what what's to say 0:02:08.320 --> 0:02:10.480 that that's going to keep going? I mean, really, we're 0:02:10.560 --> 0:02:13.000 very dependent on those five companies that make up more 0:02:13.000 --> 0:02:16.160 than a fifth of the market, arn'ty Oh, Vannie hit 0:02:16.240 --> 0:02:19.079 it on the head. Um has everybody's been saying, this 0:02:19.160 --> 0:02:21.760 is a market of stocks, And when you look at 0:02:21.760 --> 0:02:26.960 the SMP five hundreds, those five six stocks are dominating. Uh. 0:02:27.360 --> 0:02:31.120 The vast majority of the other four stocks are still 0:02:31.160 --> 0:02:35.720 below where they started the year or just barely trending above. UM. 0:02:35.840 --> 0:02:38.760 So it's a tough year. You know that. I'm a 0:02:38.760 --> 0:02:42.400 big fan of index funs. I say, own the market. Um, 0:02:42.440 --> 0:02:44.840 this is a time where normally, when you have this 0:02:44.919 --> 0:02:48.280 kind of volatility, a drop and a rally, where the 0:02:48.320 --> 0:02:52.320 active manager should make money. But the real economy bears 0:02:52.360 --> 0:02:55.760 no resemblance to the stock market. It is often its 0:02:55.800 --> 0:02:59.280 own world. So I have found the active managers are 0:02:59.320 --> 0:03:03.840 really getting hurt. You know, growth stocks, principally, the large 0:03:03.840 --> 0:03:08.040 growth stocks have been all the return and value stocks 0:03:08.040 --> 0:03:11.280 are actually negative on the year. So fundamentals still make 0:03:11.280 --> 0:03:13.399 any sense. I mean, just like warm Buffett has said, 0:03:13.800 --> 0:03:16.960 this market is is baffling in here and it just 0:03:17.000 --> 0:03:19.560 doesn't make a lot of sense. That said, I think 0:03:19.560 --> 0:03:22.640 investors are better off owning the entire market as a whole. 0:03:22.680 --> 0:03:25.560 So they get those growth stocks, but they also get 0:03:25.600 --> 0:03:28.919 some of those value stocks that are trying to tread 0:03:28.960 --> 0:03:33.000 water through the virus. So, Chris, you know, you hit 0:03:33.040 --> 0:03:35.000 on a common theme that we've heard from many that 0:03:35.040 --> 0:03:38.880 the market is not really reflective of the economy. What 0:03:39.080 --> 0:03:42.280 is your call here as we as it relates to 0:03:42.320 --> 0:03:48.000 the economy. Here we've thrown vs. W's l's use. Um, 0:03:48.040 --> 0:03:50.480 as it relates to the economy, we're seeing you know, 0:03:50.560 --> 0:03:54.200 a lot of states seeing becoming hotspots that were in 0:03:54.320 --> 0:03:56.080 terms of the virus. How are you thinking about the 0:03:56.080 --> 0:04:00.560 economy over the next several quarters? You know it, you 0:04:00.640 --> 0:04:04.040 don't fight the FED. So with that in mind, and 0:04:04.080 --> 0:04:08.600 that they're trying to stimulate the economy, the federal government 0:04:08.800 --> 0:04:12.560 on the fiscal side is running such a big deficit. 0:04:12.680 --> 0:04:16.040 I just don't think they can keep trying to stimulate. 0:04:16.160 --> 0:04:19.359 So I would say a sloppy W picture of the 0:04:19.360 --> 0:04:22.520 way a doctor typically signs a prescription note and a 0:04:22.520 --> 0:04:25.520 picture that W. It's gonna be sloppy. I don't think 0:04:25.520 --> 0:04:28.200 it's gonna go well in the economy. How does the 0:04:28.240 --> 0:04:31.920 stock market react, That's a completely different question and tough 0:04:32.040 --> 0:04:35.040 to figure out. Um, it should start to bear some 0:04:35.120 --> 0:04:39.279 resemblance to reality, But uh, this is not your normal market. 0:04:39.480 --> 0:04:42.760 You've got millions and millions of day traders sitting around 0:04:42.960 --> 0:04:47.000 watching Bloomberg looking at their screens. Uh, no sports to 0:04:47.040 --> 0:04:50.599 bed on, very few casinos to go to. So it's 0:04:50.600 --> 0:04:54.599 suddenly become a speculative market around the world. Um, I 0:04:54.640 --> 0:04:57.320 think it's really a time for an investor to be weary, 0:04:57.480 --> 0:05:00.200 not try to be a day trader. And I think 0:05:00.440 --> 0:05:02.880 that we're going to have a tough go. I mean, 0:05:02.880 --> 0:05:05.320 there's just a huge percentage of the economy that is 0:05:05.320 --> 0:05:09.640 still shut down. Think of the airlines, the cruise ships, 0:05:09.680 --> 0:05:12.720 not just the restaurants, but all those people you were 0:05:12.760 --> 0:05:16.599 talking about, the zoos um that got the p PP loans. 0:05:17.320 --> 0:05:20.600 We still have huge unemployment, even though the statistics don't 0:05:20.680 --> 0:05:25.360 show giant numbers. People are surviving on that six week 0:05:25.839 --> 0:05:29.279 federal stimulus and that just can't go on forever. Chris, 0:05:29.320 --> 0:05:31.880 you're you know, a big component of of explaining the 0:05:31.920 --> 0:05:34.120 counsters as like a tanker when you try to to 0:05:34.200 --> 0:05:36.880 move it to take some time. Are you already looking 0:05:36.880 --> 0:05:39.640 at the possibility that the president will not be the 0:05:39.680 --> 0:05:42.400 president post this election, and that maybe it will be 0:05:42.800 --> 0:05:45.200 a Joe Biden presidency and what would you do with 0:05:45.320 --> 0:05:49.320 portfolios in that instance, Well, Vannie, I've learned not to 0:05:49.360 --> 0:05:52.520 try to predict politics. It's crazy, that's a whole another game. 0:05:52.839 --> 0:05:55.039 But I have to tell you it's too early, I think, 0:05:55.080 --> 0:05:58.000 in my view to try and position your portfolio in 0:05:58.080 --> 0:06:02.000 anticipation about. What I am concerned about is a very 0:06:02.080 --> 0:06:07.360 sloppy election, a contested election where we'll see it drawn 0:06:07.360 --> 0:06:10.320 out in court. A lot of us forget the Gore 0:06:10.520 --> 0:06:13.360 Bush election many many years ago, and while the market 0:06:13.960 --> 0:06:16.599 managed that through that crisis because it was only the 0:06:16.640 --> 0:06:19.520 state of Florida, I'm worried that all the key states 0:06:19.520 --> 0:06:22.039 could end up in lawsuits, and that this could be 0:06:22.160 --> 0:06:25.719 a really contested election, which should be bad for the market. 0:06:25.720 --> 0:06:29.640 That level of uncertainty whether one party or the other wins, 0:06:29.720 --> 0:06:33.560 it takes control. The market will fet that out in 0:06:33.560 --> 0:06:38.080 in January and in February. Um I think it's still 0:06:38.120 --> 0:06:40.440 going to be Uh, it's going to be a problem 0:06:40.520 --> 0:06:43.640 for the market once we start hitting August in September, 0:06:44.200 --> 0:06:47.320 then then the election becomes very clear right in their face, 0:06:47.800 --> 0:06:52.599 and that uncertainty about who's in control will cause volatility 0:06:52.640 --> 0:06:55.240 in the markets as a gyrate back and forth, particularly 0:06:55.279 --> 0:07:01.040 in industries like the drug makers. UM. Uh, what happens 0:07:01.040 --> 0:07:05.040 in terms of the federal bailoutsh it does risk tax 0:07:05.040 --> 0:07:08.679 flaw and so many issues when we have an election. Chris, 0:07:09.000 --> 0:07:11.760 real quick, maybe thirty seconds. How concerned are you about 0:07:11.760 --> 0:07:17.440 the deteriorating relationship between the US and China? Paul? That 0:07:17.600 --> 0:07:20.520 is absolutely something to watch. Our board in one is 0:07:20.560 --> 0:07:23.200 going to do a deep dive into China and really 0:07:23.280 --> 0:07:26.120 understand it. It is one of the few economies growing 0:07:26.200 --> 0:07:29.880 at you know, close to eight percent when it rebounds, 0:07:29.920 --> 0:07:33.440 but the E s G issues are enormous, and and 0:07:33.600 --> 0:07:36.200 just the fact that it's the communist system. Are we 0:07:36.320 --> 0:07:39.800 comfortable investing in that kind of a market? So that's 0:07:39.840 --> 0:07:42.920 our number one trading partner, not number one in terms 0:07:42.960 --> 0:07:44.920 of size, but I mean it's the number two economy 0:07:44.920 --> 0:07:49.200 in the world. That relationship matters a time, Chris, It 0:07:49.360 --> 0:07:52.920 is always a pleasure to speak with you. Chris Ellman 0:07:53.200 --> 0:07:56.640 is the IO of Cansters more than two hundred and 0:07:56.680 --> 0:07:59.760 thirty five billion dollars in assets under management, and he's 0:07:59.760 --> 0:08:03.320 talked about a sloppy w type recovery, which doesn't sound 0:08:03.320 --> 0:08:06.880 all that ampasizing sound very pleasant, does it? No? It doesn't. 0:08:06.960 --> 0:08:12.520 Russie's ahead. According to Chris the those housing market has 0:08:12.560 --> 0:08:15.800 been surprising economists that rallied in the middle of the pandemic. 0:08:15.960 --> 0:08:18.440 But it's not the end of the story. Coronavirus may 0:08:18.560 --> 0:08:21.600 drag down home values after all, this according to core Logic. 0:08:21.960 --> 0:08:24.040 Let's bring in now our reporter who worked on the 0:08:24.040 --> 0:08:27.680 story with Pruscian Gopal, John Gettleson. Welcome to the program. John. 0:08:28.000 --> 0:08:30.720 In your story, you have looked at the core Logic 0:08:30.800 --> 0:08:33.760 data and you say that through May one, prices will 0:08:33.760 --> 0:08:37.120 fall about six point six percent. It doesn't sound like 0:08:37.160 --> 0:08:40.199 a massive drop, given that people are out of work 0:08:40.400 --> 0:08:43.680 and haven't even been able to look at houses. Why 0:08:44.000 --> 0:08:48.120 six points ex percent? Well, it's a combination of factors. 0:08:48.160 --> 0:08:51.560 I mean, there's still a lot of demand out there. 0:08:51.679 --> 0:08:54.679 There's a lot of millennials who are moving into the 0:08:54.760 --> 0:08:59.920 housing market. Interest rates are low, so affordability is bill 0:09:00.080 --> 0:09:06.600 there um. Even though unemployment is high. Uh, the majority 0:09:06.640 --> 0:09:09.200 of people are still employed, and there's a lot of 0:09:09.200 --> 0:09:14.320 people who, uh, you know, want bigger space too. So 0:09:14.600 --> 0:09:20.320 many factors that may have been brought into play by 0:09:20.480 --> 0:09:27.040 the coronavirus are supporting housing prizes despite the huge impact 0:09:27.120 --> 0:09:29.880 on the economy, John, are there you know what we've 0:09:29.880 --> 0:09:34.800 seen in housing in the passing, including the financial crisis nine, 0:09:34.800 --> 0:09:38.200 it was a you know, a big difference regionally in 0:09:38.320 --> 0:09:40.640 the strength of the housing market. Are we seeing that 0:09:40.840 --> 0:09:45.680 today as well? Oh yeah, definitely. I mean this report 0:09:45.880 --> 0:09:48.600 broke out some major metro areas and they said, for example, 0:09:48.920 --> 0:09:54.040 Las Vegas losing in value UM and Las Vegas is 0:09:54.280 --> 0:09:57.360 it's a big tourism mecca obviously, and tourism is one 0:09:57.360 --> 0:10:00.480 of the areas that's being hit hardists UM and Las 0:10:00.559 --> 0:10:04.760 Vegas was also, according to Core Logic overvalued even before 0:10:04.800 --> 0:10:07.839 the crisis. UM. There's other areas like San Diego to 0:10:07.920 --> 0:10:12.520 State is only falling one point three p m. New 0:10:12.600 --> 0:10:16.560 York area and this is the metro area, not specifically 0:10:16.920 --> 0:10:20.160 you know, Manhattan, but they're forecasting over the next twelve 0:10:20.160 --> 0:10:25.679 months or about a five point nine price decline. So 0:10:26.120 --> 0:10:28.920 I guess this is the best case scenario. As you say, 0:10:29.080 --> 0:10:31.760 some areas are going to experience huge declines, like Las 0:10:31.880 --> 0:10:34.280 Vegas for example. Does it depend on where the jobs 0:10:34.440 --> 0:10:37.240 are or where the jobs end up not being if 0:10:37.240 --> 0:10:41.280 there is some structural unemployment after all, this that's definitely 0:10:41.360 --> 0:10:45.720 a big part of the problem. Uh. And there's also 0:10:45.800 --> 0:10:50.440 going to be sort of unforeseen impact that's playing itself 0:10:50.520 --> 0:10:53.520 out every day. Do people want to live in suburbs, 0:10:53.559 --> 0:10:58.160 can they work from home? Can they uh you know, 0:10:58.960 --> 0:11:01.120 do they want to have a bigger house? And so 0:11:01.520 --> 0:11:04.400 all of those types of things are going to affect 0:11:05.080 --> 0:11:08.560 where people move, where they buy, and where they sell. 0:11:09.080 --> 0:11:13.599 There's also the big demographic issue that even uh pandemic 0:11:13.640 --> 0:11:17.200 can't stop, which is you've got aging baby boomers and 0:11:17.240 --> 0:11:22.800 you've got millennials moving into houses. So those big shifts 0:11:22.840 --> 0:11:26.120 in population are going to be a bigger factor even 0:11:26.160 --> 0:11:28.800 in the pandemic as people, you know, they're not stopping 0:11:28.840 --> 0:11:32.880 having babies, they're not stopping getting old and retiring. So, John, 0:11:32.920 --> 0:11:35.480 one of the themes that I've heard about a lot 0:11:35.520 --> 0:11:38.080 over the last several years, and as it relates to housing, 0:11:38.160 --> 0:11:41.800 is there's just not enough housing, entry level housing. The 0:11:41.800 --> 0:11:45.600 housing that's being built today is perhaps you know, more 0:11:45.640 --> 0:11:47.440 on the higher end of the market, and there's just 0:11:47.480 --> 0:11:52.240 not enough entry level housing being built and boomers maybe 0:11:52.240 --> 0:11:55.640 aren't moving out as quickly as they used to, thereby 0:11:55.720 --> 0:11:58.840 creating a supplied demand and balance on the lower end. 0:11:58.880 --> 0:12:01.760 Is that still the case, Yeah, that's definitely the case. 0:12:01.800 --> 0:12:04.440 Affordability is a huge issue. I mean, that's why we 0:12:04.520 --> 0:12:07.040 have a lot of homeless people to begin with. That's 0:12:07.040 --> 0:12:09.839 why a lot of people are living in an apartments, 0:12:10.000 --> 0:12:14.600 people are renting single family homes. Um. But a big 0:12:14.640 --> 0:12:18.400 contrast with now and the you know, two thousand eight 0:12:18.400 --> 0:12:21.360 financial crisis, there was a housing bubble going on. There 0:12:21.400 --> 0:12:24.680 was overproduction of housing men and uh, there was a 0:12:24.760 --> 0:12:29.200 huge surplus that when people stop paying their mortgages, people 0:12:29.200 --> 0:12:31.880 were underwater. They walked away from their homes. You don't 0:12:31.880 --> 0:12:34.760 have people walking away from their homes now because people 0:12:35.120 --> 0:12:38.920 have equity in their homes and because home prices have 0:12:39.080 --> 0:12:42.160 gone up, but production has not kept pace with demand. 0:12:42.840 --> 0:12:44.840 Does this all depend on a stock market that keeps 0:12:44.880 --> 0:12:48.520 going higher? John, if we saw a big correction, would we, 0:12:49.160 --> 0:12:53.920 you know, with that necessarily entail a very different housing market? Well, 0:12:53.960 --> 0:12:58.320 I think there's you know, correlation, but not necessarily caused. Um. 0:12:58.360 --> 0:13:02.400 The wealth effect fully makes people feel like, oh I 0:13:02.440 --> 0:13:04.960 can afford to buy a home. I you know, I 0:13:05.000 --> 0:13:10.439 feel like risking more. Uh. Home sales did not stop, 0:13:10.600 --> 0:13:14.840 you know in April and May when the stock market 0:13:14.880 --> 0:13:18.920 was tanking, so uh, you know, there were a lot 0:13:18.960 --> 0:13:21.240 of people who said, I can afford to do this 0:13:21.320 --> 0:13:26.360 now I got my job, and um, mortgage rates are 0:13:26.440 --> 0:13:30.800 so low because the FED intervention that actually something that 0:13:30.840 --> 0:13:34.160 you know, uh, cost more than I would have been 0:13:34.200 --> 0:13:36.640 able to afford a couple of years ago, is now 0:13:36.679 --> 0:13:39.079 actually affordable because I can get such a low interest 0:13:39.160 --> 0:13:41.640 rate on it. A three percent mortgage is a lot 0:13:41.720 --> 0:13:45.160 cheaper than a four percent mortgage. John, just real quickly, 0:13:45.280 --> 0:13:47.000 how are how are the more How is the mortgage 0:13:47.000 --> 0:13:51.680 market are people? Are? We seen a lot of delinquencies. Um, 0:13:51.760 --> 0:13:56.000 they are definitely going up. There were like nine of 0:13:56.760 --> 0:14:01.640 single family home loans were in forbearance. Um. Not all 0:14:01.679 --> 0:14:07.679 of those are officially delinquent, so they are rolling into delinquencies. Um, 0:14:07.720 --> 0:14:11.000 there's so much below the level that they were at 0:14:11.000 --> 0:14:15.000 the peak of the post financial crisis, but they're heading 0:14:15.040 --> 0:14:18.760 in that direction. Interesting. John Gettoson, thank you so much 0:14:18.800 --> 0:14:21.880 for that. Just getting a real solid, across the board 0:14:21.960 --> 0:14:25.080 update on the housing market in the United States. Uh. 0:14:25.280 --> 0:14:32.160 John Gettlson, a real estate and investment reporter for Bloomberg News. Well, 0:14:32.240 --> 0:14:34.720 yesterday marked a little bit of a return to what 0:14:34.760 --> 0:14:36.880 we used to refer to as merger Monday. When you 0:14:36.920 --> 0:14:39.360 get a lot of deals announced typically a Monday after 0:14:39.800 --> 0:14:43.680 weekend's worth of deal talks. We had UH Warren Buffett 0:14:44.000 --> 0:14:47.000 making a ten billion dollar bet on some energy assets 0:14:47.160 --> 0:14:51.120 Uber UH increasing it's UH, I guess it's footprint in 0:14:51.200 --> 0:14:53.920 the food delivery business a couple of those deals yesterday. 0:14:53.960 --> 0:14:56.400 To get a sense of kind of what the pandemic 0:14:56.520 --> 0:14:59.920 is doing to the M and A environment, we turn 0:15:00.120 --> 0:15:02.320 to Rob Brown. He's a managing director and CEO of 0:15:02.360 --> 0:15:06.240 North America for Lincoln International based in Chicago. So Rob, 0:15:06.400 --> 0:15:09.920 give us a sense, if you will, kind of what 0:15:10.120 --> 0:15:12.400 the M and A environment has been over the last 0:15:12.440 --> 0:15:16.920 several months as corporate CEOs and investment bankers to try 0:15:17.000 --> 0:15:20.840 to gauge kind of what the pandemic means for the 0:15:20.880 --> 0:15:27.120 business climate. Sure, thanks, Paul. Um. So if you dial 0:15:27.200 --> 0:15:29.600 back to the beginning of this year, we entered this 0:15:29.680 --> 0:15:32.040 year really in one of the best M and A 0:15:32.160 --> 0:15:35.560 markets um of the last probably fifty years, maybe ever, 0:15:36.240 --> 0:15:39.040 and so it was expected that the M and A 0:15:39.040 --> 0:15:43.920 activity would continue at that pace through this year. UH. 0:15:43.960 --> 0:15:46.880 And then the government reactions to COVID and really the 0:15:47.000 --> 0:15:50.800 stopping of the global economy, as you can appreciate UM 0:15:51.040 --> 0:15:53.800 had a material effect on that. In fact, from March 0:15:53.920 --> 0:15:59.240 through May in global M and A volume was down 0:15:59.280 --> 0:16:03.480 over at UM and so I think there was just 0:16:03.640 --> 0:16:06.360 a pause. Let's take away and see there were some 0:16:06.400 --> 0:16:09.480 deals that went forward, UM for sure, UH. And I 0:16:09.520 --> 0:16:13.920 think what we're seeing now are buyers and sellers lifting 0:16:13.960 --> 0:16:17.200 their heads up and saying, Okay, there are going to 0:16:17.280 --> 0:16:19.400 be deals that get done. And the two you mentioned 0:16:19.400 --> 0:16:22.240 that we're nounce yesterday, we're obviously very large deals. But 0:16:22.320 --> 0:16:25.880 really across the spectrum, what we're starting to see in 0:16:25.920 --> 0:16:30.520 the three plus deals we have in backlog is that 0:16:30.520 --> 0:16:32.960 that the M and A market is returning, and I 0:16:33.000 --> 0:16:35.480 think the expectation is the back half of this year 0:16:36.240 --> 0:16:39.040 is going to be materially more active than the last 0:16:39.120 --> 0:16:42.120 three or four months. How have those deals in the 0:16:42.160 --> 0:16:47.960 works got repriced in the previous weeks, You know many 0:16:48.000 --> 0:16:51.680 of them, haven't they They've taken, if any reduction in price. 0:16:51.800 --> 0:16:54.600 I think they've been small reductions. Because I think what's 0:16:54.640 --> 0:16:59.160 happened is, UH, if you can show, hey, my business 0:16:59.160 --> 0:17:02.560 performed well during the downturn, my sector as a sector 0:17:02.680 --> 0:17:05.560 that may be more attractive or at least equally attractive 0:17:05.600 --> 0:17:08.720 as it was pre COVID. UH, there's not a lot 0:17:08.760 --> 0:17:12.560 of value deterioration there because what you what you still 0:17:12.600 --> 0:17:16.760 have what's really driving this. There's there's as some estimates 0:17:16.800 --> 0:17:21.160 are close to a billion five of private equity capital available, 0:17:21.200 --> 0:17:23.800 what they call dry powder, and you layer on top 0:17:23.840 --> 0:17:26.760 of that the cash sitting on corporate balance sheets and 0:17:26.800 --> 0:17:29.600 a stock market that is still expecting these companies to 0:17:29.640 --> 0:17:32.000 grow when you look at the way the stock market 0:17:32.000 --> 0:17:34.720 and multiples are holding up. So I think the deals 0:17:34.720 --> 0:17:37.200 that are getting done right now, for the most part, 0:17:37.320 --> 0:17:41.399 are high quality companies that are saying, listen, I performed well, 0:17:41.520 --> 0:17:43.800 I've shown I truly am essential. I've got a good 0:17:43.800 --> 0:17:47.280 business model that can withstand something like COVID. So we 0:17:47.359 --> 0:17:51.720 haven't seen a lot of value deterioration on those businesses. 0:17:51.720 --> 0:17:54.680 There are some deals we're starting to see come to market, Bonnie, 0:17:54.720 --> 0:17:58.280 that are lender driven deals. Maybe a company that wasn't 0:17:58.280 --> 0:18:01.480 performing well pre COVID and then COVID hit, and now 0:18:01.520 --> 0:18:04.560 they're really not performing well and they're overlevered, and the 0:18:04.640 --> 0:18:06.320 lenders are starting to say, hey, we we got to 0:18:06.320 --> 0:18:07.960 get paid. Let's sully. So we're starting to see a 0:18:08.000 --> 0:18:10.000 little bit of what we call distressed m and A, 0:18:10.000 --> 0:18:13.199 although interestingly less of that than we may have thought, 0:18:13.359 --> 0:18:16.240 you know, given the real shock to the economy. So Rob, 0:18:16.280 --> 0:18:18.679 when I think about trends in M and A, to me, 0:18:18.760 --> 0:18:22.600 it's oftentimes a reflection of confidence, confidence from a CEO 0:18:22.680 --> 0:18:26.600 and a board about their business, maybe their sector, the 0:18:26.720 --> 0:18:30.920 overall economy. I can't imagine CEOs are that confident right now. 0:18:31.000 --> 0:18:34.600 So how are they thinking about M and A. Yeah, 0:18:34.640 --> 0:18:37.160 it's a it's a great question. And I think what 0:18:37.240 --> 0:18:41.320 you're seeing the strategic acquires, the large corporate acquires. I 0:18:41.320 --> 0:18:44.000 think the way they're thinking about M and A is, 0:18:45.040 --> 0:18:47.720 you know, over the last four or five, six, seven years, 0:18:48.040 --> 0:18:50.440 they were under pressure to grow. They'd have organic growth, 0:18:50.440 --> 0:18:53.560 they'd supplement that with M and A. Their confidence in 0:18:53.600 --> 0:18:55.879 their business and their outlook was putting them in a 0:18:55.880 --> 0:18:58.639 position to maybe do acquisitions that are outside of their 0:18:58.640 --> 0:19:02.560 core businesses, adding another to the stool, expanding things. What 0:19:02.600 --> 0:19:07.479 we're seeing is is that ceo still feel that they 0:19:07.520 --> 0:19:10.240 need to grow. There's pressure to grow, and they can't 0:19:10.400 --> 0:19:13.120 hit their growth targets solely through organic, so they still 0:19:13.200 --> 0:19:15.000 want them and to be part of that strategy. But 0:19:15.040 --> 0:19:18.040 what we're seeing is that lens shrinking where the strategics 0:19:18.040 --> 0:19:20.800 and the CEOs are saying, I'm going to buy businesses 0:19:20.800 --> 0:19:23.160 that are in businesses I'm already in where I know them, 0:19:23.240 --> 0:19:27.320 where there's really really identifiable synergies that I can price. Uh, 0:19:27.359 --> 0:19:29.320 and I'm confident enough to do that. I think your 0:19:29.359 --> 0:19:32.119 point is the lack of his ability and maybe a 0:19:32.160 --> 0:19:34.639 lack of confidence in where this economy is going. I 0:19:34.680 --> 0:19:36.879 think that's going to limit some of those Let's get 0:19:36.920 --> 0:19:41.040 into new businesses, let's get into complementary areas for strategic 0:19:41.040 --> 0:19:46.400 acchoirs and CEOs. Briefly, rob any vertical or horizontal concerns 0:19:46.400 --> 0:19:49.640 regular regulation wise or will there be deals done before 0:19:49.720 --> 0:19:53.879 November just because we may see a different administration? Uh? 0:19:54.119 --> 0:19:57.920 Maybe I think the bigger driver for deals is we're 0:19:57.920 --> 0:20:02.920 in a relatively low tax environment, and you know, if if, if, 0:20:03.520 --> 0:20:05.760 if the Democrats win, there may be a view that 0:20:05.840 --> 0:20:08.760 taxes are going to go up in capital gains taxes. Uh, 0:20:08.880 --> 0:20:12.919 that may not take effect until So I think a 0:20:12.960 --> 0:20:16.160 little less about the regulatory environment. We are hearing some 0:20:16.200 --> 0:20:18.840 people say, listen, I'd rather take the gain in a 0:20:18.880 --> 0:20:22.280 period of time where I know capital gains rates are 0:20:22.280 --> 0:20:25.720 relatively low. So I think that could affected. You know, 0:20:25.760 --> 0:20:29.119 you talk about regulatory um. You know what we're really 0:20:29.119 --> 0:20:32.720 seeing now in this administration. You know, the regulatory hurdle 0:20:32.840 --> 0:20:36.560 is really foreign investment um, and and particularly from Asia 0:20:36.680 --> 0:20:40.760 where this administration doesn't like that so um. But but 0:20:40.920 --> 0:20:43.320 I think from a regulatory standpoint, you know, it's not 0:20:43.440 --> 0:20:47.480 clear how things would change if the administration changes. All right, well, 0:20:47.560 --> 0:20:49.359 we have plenty time to talk about that. That's for 0:20:49.480 --> 0:20:52.000 Joyal Brown is m D and CEO of North America 0:20:52.040 --> 0:20:55.760 at Lincoln International and Middle Market pe firm. Thanks for joining. 0:20:57.600 --> 0:21:00.919 So we got the BPP data yesterday, and loan recipients 0:21:00.920 --> 0:21:03.359 included a law firm run by one of President Trum's 0:21:03.440 --> 0:21:06.080 key defenders in the Russia probe. That's more cassowits. We 0:21:06.200 --> 0:21:08.720 also had a Kushner family real estate project in there, 0:21:08.720 --> 0:21:12.159 the publisher of the National Enquirer American media of course, 0:21:12.800 --> 0:21:16.280 and lots lots more interesting data to mind. Eight eight 0:21:16.320 --> 0:21:19.240 thousand loans went to religious organizations. Let's bring into people 0:21:19.280 --> 0:21:21.639 who have mind the database now, and I know a 0:21:21.640 --> 0:21:24.160 lot about what they're talking about. Tim O'Brien is Bloomberg 0:21:24.160 --> 0:21:27.680 opinion columnist, and Mark Niquette joins us as well. Tim, 0:21:27.760 --> 0:21:29.280 let's begin with you, because there are a lot of 0:21:29.359 --> 0:21:34.679 headlines about how Trump affiliated companies or those affiliated with 0:21:34.720 --> 0:21:39.320 at least you know, Trump's trademarks got loans. Was there 0:21:39.359 --> 0:21:44.800 anything necessarily shady or unusual about this? Well, I think 0:21:44.880 --> 0:21:46.920 that the broader thing to think about to begin with 0:21:47.040 --> 0:21:50.120 is what was this program properly conceived from the beginning 0:21:51.040 --> 0:21:54.080 and has there been enough oversight to make sure that 0:21:54.240 --> 0:21:57.080 the most needy businesses got the money they needed to 0:21:57.080 --> 0:22:01.080 stay afloat? And we don't have enough evidence yet to 0:22:01.119 --> 0:22:03.720 know whether that broader goal has been reached. And the 0:22:03.800 --> 0:22:07.960 problem with all of these stories about insiders getting first 0:22:07.960 --> 0:22:11.560 in line to get the loans raises you know, one 0:22:11.680 --> 0:22:14.600 facet of one set of problems around this, which is 0:22:15.320 --> 0:22:18.280 um there weren't clear guidelines about who was the most 0:22:18.320 --> 0:22:23.440 deserving and whether those are businesses affiliated um with Democrats 0:22:23.600 --> 0:22:27.359 or Republicans. I think there's a real problem with anybody 0:22:27.400 --> 0:22:30.720 from any party getting getting to the front of the 0:22:30.760 --> 0:22:34.480 line first because they have connections in Washington, or connections 0:22:34.520 --> 0:22:37.119 to the s s p A, or connections to the 0:22:37.160 --> 0:22:41.159 White House. And certainly UM there was concerns about this 0:22:41.200 --> 0:22:45.240 with Trump from the very beginning Chuck Schumer early on 0:22:45.400 --> 0:22:48.560 when the people, when when the Care's Act was being drafted, 0:22:49.560 --> 0:22:51.440 said there would be language in there to make sure 0:22:52.119 --> 0:22:57.919 that Trump related entities didn't get any funding. And and 0:22:57.960 --> 0:23:01.080 then it ended up being at the p P P funding, 0:23:01.119 --> 0:23:03.160 which is one of the biggest arms of the bail out, 0:23:03.600 --> 0:23:06.159 was exempt from some of that, and you have to 0:23:06.200 --> 0:23:09.959 wonder why that occurred. Some Markie wrote just a fantastic 0:23:10.040 --> 0:23:12.919 article kind of detailing what happened here, what's going on, 0:23:12.960 --> 0:23:14.359 where the money is going. What are some of the 0:23:14.440 --> 0:23:15.960 key takeaways you had, like who were some of the 0:23:16.480 --> 0:23:22.520 big recipients that may be surprised you that received money, Well, 0:23:22.520 --> 0:23:24.840