Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanibek. We're here every day bringing
Speaker 1: you the latest news from the worlds of business and finance,
Speaker 1: plus technology, politics, economics, all purtnising the power of Business
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Speaker 1: download Bloomberg Business Week and iTunes, SoundCloud, or Bloomberg dot com.
Speaker 1: You can also listen to our radio show at two
Speaker 1: pm Eastern Time on Bloomberg Radio, or watch us on
Speaker 1: YouTube search Bloomberg Global News. Well, Inflation front and center.
Speaker 1: You know that we've got another read that CPI print
Speaker 1: for June. It's also one of the two mandates managed
Speaker 1: by the Fed. The other, of course, is jobs, and
Speaker 1: we heard Tim something about that and specifically the labor
Speaker 1: market and hiring from the parent of Google. We're talking
Speaker 1: about alphabet. Yeah. Mark Bergen is all over at Marcus
Speaker 1: Technology reporter for Bloomberg News. He joins us on the
Speaker 1: phone from San Francisco. Mark, you and the team got
Speaker 1: your hands on an email. Uh that alphabet CEO Sunder
Speaker 1: Pachai to his employees. It's entitled high Googlers. What's the
Speaker 1: takeaway here about about hiring? What do we need to know? Yeah,
Speaker 1: this is sort of a it's a bit of a
Speaker 1: call to arms. Uh. The takeaway is that they're going
Speaker 1: to slow down. And this is pretty Uh it's fairly
Speaker 1: rare for Google, which is historically added like thousands and
Speaker 1: not tens of thousands of employees every quarter. U is
Speaker 1: that they're gonna split on the hiring for the rest
Speaker 1: of the year, for two and three for they focusing
Speaker 1: on technical and engineering hiring. Um. You know, I could
Speaker 1: say certainly certitude that they don't they don't share these
Speaker 1: kind of disclosures, but exactly who they've been hiring was
Speaker 1: they've been I've got a lot for their cloud business,
Speaker 1: which is in third place for Amazon and behind Amazon
Speaker 1: and Microsoft, and a lot of the sales file on that.
Speaker 1: So I think that that's something the investors are probably
Speaker 1: keep it close tabs on. Is this is going to
Speaker 1: affect and dent um the growth of their cloud business.
Speaker 1: How do we as investors? And I'm looking at the
Speaker 1: stock is down about two percent, so it's a bigger
Speaker 1: hit than the overall broader market. I'm just like that
Speaker 1: the indusseries. How are we as investors supposed to read this?
Speaker 1: Is this a manager saying, Okay, things are a little
Speaker 1: bit different, and this is what we do. We make changes, right,
Speaker 1: we adapt to the environment. Or is there something bigger,
Speaker 1: a bigger message, whether it's about more broadly about the
Speaker 1: economy or more broadly about what's going on at Alphabet.
Speaker 1: I assume this is more about the economy. I mean
Speaker 1: it's you know, they're not they're not sharing numbers. As
Speaker 1: far as we know, Google hasn't done any layoffs. You know,
Speaker 1: Microsoft has trimmed up some jobs, a small number of jobs.
Speaker 1: I said, Facebook and Meta UM seems to be moving
Speaker 1: in a pretty dramatic um becoming a smaller company. Google
Speaker 1: Alphabet isn't doing that. UM. I think this is historically
Speaker 1: than a company that has probably hiring more people than necessary. Right. UM.
Speaker 1: They're sort of famous for throwing uh people and staff
Speaker 1: and resources at projects that are unprofitable and will be
Speaker 1: for years. Uh. And the memo is is pretty consistent
Speaker 1: with with within ore, which I said in the past,
Speaker 1: like a strategy is kind of double down on AI.
Speaker 1: And so we're a long term that's uh. And we've
Speaker 1: seen in the past several years that Google has stop
Speaker 1: spending as lavishly on on some of their maybe biotech
Speaker 1: and healthcare projects. I thought you were going to say
Speaker 1: no more free massages on your birthday at the office
Speaker 1: or balls for interns. That's very well. Maybe you know
Speaker 1: Facebook has has cut back on that. I think Google,
Speaker 1: I'm you know, they have committed and doubled down on
Speaker 1: real estate and on this hybrid WORKFORCET model. I think
Speaker 1: there's a real sense that they want employees in the office,
Speaker 1: and so I actually don't think they're going to cut
Speaker 1: back on those perks, in part because they want people
Speaker 1: coming in um and that could change depending on on
Speaker 1: the direction of the economy, but my sense is that
Speaker 1: they find it. I think they just believe that their
Speaker 1: staff is so much either the staff is so much
Speaker 1: more productive in the office or their real estates which
Speaker 1: more valuable when they have people coming in well in perspective,
Speaker 1: and you said this mark in the set quarter loan
Speaker 1: uh cinder pitch I puts out in this memo that
Speaker 1: they added approximately ten thousand Googlers and have a strong
Speaker 1: number of commitment commitments for the third quarter start dates,
Speaker 1: which reflects in part this seasonal college recruiting calendar. Again,
Speaker 1: I'm quoting from this letter. How often does um soonder
Speaker 1: pitch I put out a note to employees and say hi, Googlers.
Speaker 1: How often, like I'm trying to I'm trying to engage.
Speaker 1: How unusual? Yeah, I mean they filed this note today
Speaker 1: in their eight K. So it's certainly unusual because it's
Speaker 1: like four um uh information for investors, So that's pretty unusual. Right,
Speaker 1: you don't typically see that. I mean, I think you
Speaker 1: know Sara will will send a note on on big
Speaker 1: events like this. I don't. It's certainly not as far
Speaker 1: as I know, it's not a daily occurrence. Um, And
Speaker 1: it's I think. I mean, I don't. I don't have
Speaker 1: the storical data. But you know there was Google pause
Speaker 1: it's hiring, right, that's at the financial crisis and uh
Speaker 1: kind of tighten the belt a little bit. That certainly
Speaker 1: wasn't hit as as as a financial sector and um,
Speaker 1: but even during the Google story right before the dot
Speaker 1: com bust, and since it's very beginning, it's just had
Speaker 1: this phenomenal searchise business that powering it for over two decades.
Speaker 1: So it is rare to see them move with such caution.
Speaker 1: What it's It's one another one of those stories, you know.
Speaker 1: I mean, we see the data each month of job
Speaker 1: hiring going down, but it's still we're still adding jobs
Speaker 1: in this economy. It's just the anecdotal data that we're
Speaker 1: getting from Silicon Valley. I think about what Yeah Goldman
Speaker 1: has pointed out that you keep hearing from companies about
Speaker 1: slowing and hiring or letting workers go. Mark Bergen Great Stuff,
Speaker 1: Technology reporter at Bloomberg News. You're listening to Bloomberg Business
Speaker 1: Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic
Speaker 1: on Bloomberg Radio. It's been called the most important hedge
Speaker 1: fund in crypto. It's undoing, the biggest domino to fall
Speaker 1: in the crypto carnage. It's a story in the upcoming
Speaker 1: new issue of Bloomberg Business Week out tomorrow news stands
Speaker 1: already online ap Bloomberg dot Com, slash business Week on
Speaker 1: the Bloomberg and it happens to be the Bloomberg Big
Speaker 1: Take Today. The story written by a great team including
Speaker 1: Justina Lee, Muya Shann and Bennett Bartonstein. Justina Lee's market
Speaker 1: s reporter for Bloomberg New She joins us on the
Speaker 1: phone from London the collapse of Three Arrows Capital, how
Speaker 1: it became a crypto contagion. Justina, great, great to have
Speaker 1: you with us. First of all, what is Three Arrows Capital? Yes,
Speaker 1: Three Arrows Capital is this hedge fund based in Singapore
Speaker 1: that was started by two high school friends, Suju and
Speaker 1: Kyle Davies. And it's not really clear how much money
Speaker 1: they managed. They say it's about three billion dollars, which
Speaker 1: might sound, you know, not particularly significant to our Wall
Speaker 1: Street listeners. And in crypto it was sort of like
Speaker 1: this o g hedge fund. It was always one of
Speaker 1: the biggest. It was like an investor in a lot
Speaker 1: of the biggest d by project, so kind of like
Speaker 1: all know, it was like, as a lot of people
Speaker 1: called it, like the Archigo Capital of crypto. It just
Speaker 1: had a lot of cloud and when it collapsed, every
Speaker 1: one was really shocked. Well, Justina laying out exactly who
Speaker 1: these guys are, and I gotta say, you look at
Speaker 1: the website and you're like, how did they ever get
Speaker 1: to amass so much? Jill Weber's with the editor of
Speaker 1: Business Week, So what was it about this one that
Speaker 1: you wanted to know about. Hell, you know, the crypto
Speaker 1: um contagion has been just a source of ongoing interest
Speaker 1: as we try and figure out what's happening, where it
Speaker 1: might go. In the moment that Justina uh and company
Speaker 1: kind of came to us with this one, we were like, well,
Speaker 1: tell us everything you know, and then we get this story.
Speaker 1: I was like, well, that's everything, I guess. I think
Speaker 1: one of the things that's been really interesting here Justina, though,
Speaker 1: is sort of the echoes to you know, crypto being
Speaker 1: sort of a parallel universe, but in many ways having
Speaker 1: these echoes of you know, what happens in you know,
Speaker 1: normal markets, regular markets, regulated markets. Uh. So walk us
Speaker 1: through some of those similarities, because that's that's the thing
Speaker 1: that everyone that you talked to and quoted in the
Speaker 1: story has also sort of echo yeah exactly. I mean
Speaker 1: I've reread it, brought it like the Archiegos analogy, and
Speaker 1: how that's relevant here is that in that story, you know,
Speaker 1: everyone on Wall Street was lending to this hedge fund,
Speaker 1: and when it collapsed, everyone was surprised that was the case,
Speaker 1: and so they all started unwinding their positions and those
Speaker 1: stoffs kind of fell further and you have this vicious
Speaker 1: cycle and that was this is sort of what happened here.
Speaker 1: So it turns out because um, what we call three
Speaker 1: h C was such a big fund, a lot of
Speaker 1: the biggest crypt brokers had given it leverage, and so
Speaker 1: when it started losing money, because all of crypt was
Speaker 1: losing money at that time, a lot of these lenders
Speaker 1: had to you know, liquidate their collateral and then three
Speaker 1: so you couldn't pay them back. And so you know,
Speaker 1: one broker broker has already like declared bankruptcy, and so
Speaker 1: you kind of see this like contagious effect that's very
Speaker 1: familiar in traditional finance and and it's kind of like
Speaker 1: playing out in the cryptal world. Right now. You have
Speaker 1: Voyager Digital the one that has declared bankruptcy. At this point,
Speaker 1: I'm wondering about companies like block Fire and blockchain dot com.
Speaker 1: What were they or what did they get out of
Speaker 1: lending to three a C that they then turned around
Speaker 1: and provided to their clients, Like explain how this actually
Speaker 1: works in it from an ecosystem perspective. Yeah, for a
Speaker 1: long time, a lot of crypto lenders were offering these
Speaker 1: savings accounts with you know, ten to twenty percent yields,
Speaker 1: which sounds absolutely crazy, you know at a time when
Speaker 1: you know, putting money in your regular bank account was
Speaker 1: building basically zero percent. And the way they were generating
Speaker 1: these fields where they were lending UM these deposits in
Speaker 1: a way to a lot of crypto speculators who could
Speaker 1: afford to pay higher interest rates because they were making
Speaker 1: a lot of money, you know, going long crypto or
Speaker 1: maybe you know, staking their coins and so you know,
Speaker 1: three a C Was a very attractive borrower in that
Speaker 1: sense because they were huge and they really needed leverage,
Speaker 1: and you know, they had this great reputation and so
Speaker 1: you can see why, you know, a lot of people
Speaker 1: wanted to lend to them. But as it turns out,
Speaker 1: they were far less solid and everybody expected. So the
Speaker 1: other thing, you know, all of this happens online. Everyone's
Speaker 1: very vocal and has been very bullish, and the the
Speaker 1: fact the co founders UM you know, have have basically
Speaker 1: stuck to their guns and then they kind of went
Speaker 1: quiet for a really long time. Uh where where where
Speaker 1: do things stand now on that front? Because they happen
Speaker 1: to just resurface, didn't the Yeah, I mean, it's kind
Speaker 1: of like all gone down really quickly. I mean basically
Speaker 1: admit June they started missing margin calls and then like
Speaker 1: by I think July first they had to clared bankruptcy
Speaker 1: and now they're going through this you know, very long
Speaker 1: liquidation process um and recently their liquidators have accused them
Speaker 1: of not cooperating with the process and kind of being
Speaker 1: you know, nobody knows where they are. And after that
Speaker 1: violing you know, sud you tweet it. You know, they
Speaker 1: actually has incorporating, but it's the liquidators who are baiting them,
Speaker 1: and so no one really knows where they are at
Speaker 1: the moment. And and you know, the liquidation process um
Speaker 1: in the courts, it's gonna it's gonna take a while.
Speaker 1: I love the line in your story in retrospect. Three
Speaker 1: a C has always been a mystery. The fund itself
Speaker 1: is in the British Virgin Islands and the company's license
Speaker 1: in Singapore to manage other people's money, and then these
Speaker 1: two individuals behind it have always maintained that the pot
Speaker 1: all three billion is entirely there. It's like, yeah, I'm
Speaker 1: all in on that, Like who are these dudes? I mean,
Speaker 1: in a way, they had a very typical Wall Street background.
Speaker 1: I mean they went to Phillips Academy, they went to
Speaker 1: Columbia together, and then they both worked at Credit Swist.
Speaker 1: They were trading derivatives, and when they start started their
Speaker 1: hedge funds, they were only around twenty five years old,
Speaker 1: and they started just trading them, you know, emerging market
Speaker 1: effex derivatives, and they kind of quickly realized that that
Speaker 1: was you know, a very small pie, and then they
Speaker 1: got into crypto, which was how they became you know, huge,
Speaker 1: and so in a way, I think this is almost
Speaker 1: kind of surprising because they had this traditional finance background,
Speaker 1: but as one interview we told me they turned out
Speaker 1: to be de gents, you know, which is like the
Speaker 1: crypto term for being a degenerous gambler. You know, no comment, um, okay. So,
Speaker 1: you know, as somebody who watches this really closely and
Speaker 1: especially you know, just the kind of continued fallout in crypto,
Speaker 1: what are sort of the unanswered questions that that sort
Speaker 1: of remained to you in the three A C. SAKA.
Speaker 1: I mean, in a way, it's kind of interesting and
Speaker 1: frustrating as a reporter to to kind of ultimately realize
Speaker 1: that A very fundamental question of whether you know they
Speaker 1: even had external money is a bit of a mystery.
Speaker 1: I mean there's been a lot of debate over that
Speaker 1: and kind of how exactly you know, are they structured
Speaker 1: and and kind of I think another question, um that's
Speaker 1: been kind of interesting is a lot of people have
Speaker 1: come out of this and kind of said that it
Speaker 1: actually is a vindication of crypto because the problem with
Speaker 1: crypto is that it started to look too much like
Speaker 1: the financial industry, and so what we really should have
Speaker 1: is all transactions on the blockchains, everything is transparent, and
Speaker 1: everyone is you know, liquidated based on code rather than
Speaker 1: you know, relationships, and that would have fixed everything. Um,
Speaker 1: I'm not so sure about that, but I think there
Speaker 1: there is a bit of a point there. But we're
Speaker 1: definitely still very far from that world. Right. It wasn't
Speaker 1: just to provide like this incredible transparency, Right, you can
Speaker 1: kind of track things to some extent and well, you know,
Speaker 1: it's all there on the block chain if you know
Speaker 1: where to look. Except you know, there's still some questions, right,
Speaker 1: Just a few, just a few regulators are working on that. Justina,
Speaker 1: this is a great story and it really does play
Speaker 1: into the carnage we've seen this year. Justina Lee, she's
Speaker 1: Markets reporter at Bloomberg News on the phone from London.
Speaker 1: This story in the upcoming new issue of Bloomberg Business Week,
Speaker 1: out tomorrow on newsstands, but you can already find it
Speaker 1: on the Bloomberg and also at Bloomberg dot Com. It's
Speaker 1: also the Bloomberg Big Take and our thanks to Joel Webber,
Speaker 1: the editor at Bloomberg Business Week magazine. This is Bloomberg
Speaker 1: Business Week with Carol Masser and Bloomberg Quick Takes to
Speaker 1: m Stovich on Bloomberg Radio. So Sax Fifth Avenue spun
Speaker 1: off its digital business, that e commerce business now known
Speaker 1: as Sacks and is headed up by our next guest,
Speaker 1: Mark Metrick, is CEO of Sacks. Mark joins us from
Speaker 1: on zoom from New York City. Mark, good to have
Speaker 1: you with us. How are you. I'm great? How are
Speaker 1: you guys? We're doing well. Hey. You know, we're thinking
Speaker 1: a lot about inflation, about the macro economic environment right now.
Speaker 1: I think you ever think about so really eager to
Speaker 1: get your thoughts on on the state of the American
Speaker 1: consumer right now. We got this hotter than expected inflation number,
Speaker 1: the highest and more than forty years. How is your
Speaker 1: how is your consumer doing it? Sacks? Yeah, I think
Speaker 1: I want to just focus on the luxury consumer. And
Speaker 1: as you guys mentioned, we were out in the field
Speaker 1: with research and uh two things you know we're seeing
Speaker 1: in the response of our business. Uh. You know, we
Speaker 1: feel very good about the core luxury consumer, just both
Speaker 1: from how they're showing up and how they're shopping, and
Speaker 1: and also they've indicated, you know, seventy of responded to
Speaker 1: the survey that I would categorize in the in that
Speaker 1: core luxury consumer, uh said that they were they would
Speaker 1: spend the same if not more over the next three
Speaker 1: months in the prior three You're talking about people just
Speaker 1: so we can have these definitions for our audience. These
Speaker 1: are people who have an income of two dollars per
Speaker 1: year plus yes okay, so not so like a household
Speaker 1: income or an individual household. And are they younger? Older?
Speaker 1: What are they? I love knowing the demos when it
Speaker 1: comes to retail. Well, it's about stage, not age. These
Speaker 1: are people that are luxury consumers that are they love fashion,
Speaker 1: They're aspirational their core Uh so you know, they're they're
Speaker 1: a bit all over but if you, if you really
Speaker 1: want to dig down and look at it, you're actually
Speaker 1: seeing a little bit on the response side, more positivity.
Speaker 1: And it's probably from a recency bias because the younger
Speaker 1: consumer hasn't seen one of these moments before. They're feeling
Speaker 1: a little bit more bullish than the boomers or the
Speaker 1: silence uh so um int sting. But again, the overall
Speaker 1: response has been positive on on on what they're thinking
Speaker 1: from a luxury stamps. So from a luxury standpoint, are
Speaker 1: they buying luxury clothes, luxury stuff for the house, luxury
Speaker 1: you know, cosmetically what specifically luxury can cover a lot? Yeah,
Speaker 1: So for US, it's really it's about it's about accessories
Speaker 1: and apparel. Okay, that's where we center now. They're they're
Speaker 1: they're still looking at home and other UM and other
Speaker 1: types of luxury products inside of their lifestyle. But the
Speaker 1: core business for us UM is around that apparel and
Speaker 1: and accessories and leather goods. What kind of luxury apparel
Speaker 1: like is it? Have people moved away from all of
Speaker 1: the comfy where you know and listen, I love a
Speaker 1: great para yoga pants. They're not inexpensive, so I consider
Speaker 1: that kind of luxury as well. But are people trading up,
Speaker 1: They're going out, they're going to places, and so you
Speaker 1: can see that it reflected in what they're buying. Absolutely,
Speaker 1: And that's and you know what we're seeing in a
Speaker 1: indicator of that is sneakers became It's like you almost
Speaker 1: only wore sneakers for a while, and now we're seeing
Speaker 1: shoes make a big comeback. Uh and and that's been good.
Speaker 1: Guys are getting dressed up again. Um, she you know
Speaker 1: she's getting dressed up. It's a dressy sandal. It's not
Speaker 1: just a sandal, it's a shoe. It's not a sneaker.
Speaker 1: There's a lot of hell coming back. Um. Platform heels
Speaker 1: are going to be one of our biggest trends as
Speaker 1: we come into the next couple of months. So it
Speaker 1: is about getting dressed, it is about going out, it's
Speaker 1: about traveling, and it's good for business. Can I let's say,
Speaker 1: I love me some platforms, but him, I'm just gonna
Speaker 1: put that out there, Okay, I got I got nothing
Speaker 1: to follow up on that, Carol. I do want to know, Mark,
Speaker 1: I want to know about how spending has shifted, because
Speaker 1: if I think about what we're you know what we've
Speaker 1: been talking about for the past two plus years, the
Speaker 1: idea that people filled their homes with stuff and then
Speaker 1: it got stuck on ships so they couldn't do that.
Speaker 1: Then they started buying things as they got back to
Speaker 1: the office. But but now it seems like demand for
Speaker 1: vacations and experiences is back, this idea of stuff we
Speaker 1: were talking about back in twenty nineteen, especially when it
Speaker 1: comes to millennials spending their money on on not on stuff,
Speaker 1: but on doing things. How did that factor into your research? Yeah,
Speaker 1: so the research came back and look, you know, when asked, uh,
Speaker 1: respondence number one on their list is traveling leisure. And
Speaker 1: that's fine because with luxury and again being a goat,
Speaker 1: so being that go out and travel, I'm glad for
Speaker 1: you to take a vacation, um, because you're gonna buy
Speaker 1: a lot of stuff to wear on that vacation. I'm
Speaker 1: glad that you're going back to the theater. I'm glad
Speaker 1: that you're meeting friends and going to weddings. Uh. This
Speaker 1: is all good for sax and for luxury. So that's okay.
Speaker 1: But right on the heels of that response again was
Speaker 1: leather goods and accessories were right there behind that UM
Speaker 1: for this you know, high end luxury consumer on where
Speaker 1: they and how they want to be spending. Mark help
Speaker 1: me out here because you know, when we talk retail
Speaker 1: and the consumer world, we constantly talk about and we
Speaker 1: often have heads of companies talk to us about this seamless,
Speaker 1: eternal experience. So you guys are focusing on e commerce,
Speaker 1: how do how do you guys do it? How do
Speaker 1: you make sure you're covering how the consumer wants to shop? Yeah,
Speaker 1: you know, and we do focus on e commerce, but
Speaker 1: we focus on the consumer and that's really you know,
Speaker 1: what we've been what we've done with this split is
Speaker 1: just enabled UM my company to focus on the digital experience,
Speaker 1: but it's focusing on the brand experience, you know, first
Speaker 1: and foremost. Uh and you know we haven't stopped with
Speaker 1: the omni channel connected experience for our consumer. Our exclusive
Speaker 1: partnership with the s f A stores enables us to
Speaker 1: execute uh, this all channel experience seamlessly. You can you know,
Speaker 1: the returns that came in UM from SAXS dot com
Speaker 1: went into the stores just this past quarter. Uh. So
Speaker 1: you're still you can buy online, you it can ship
Speaker 1: from a store you can do almost anything you can
Speaker 1: buy online have it altered in the store. We haven't
Speaker 1: stopped that. So what we've done is really just given
Speaker 1: ourselves the ability to build two strategies. But those two
Speaker 1: strategies connect through the consumer, which makes omniche antal. I'm
Speaker 1: still a big and important part of the sax ecosystem. Mark,
Speaker 1: just last thirty seconds we have with you, give us
Speaker 1: an update on the supply chain and give us an
Speaker 1: idea of if you're able to stock shelves, if you're
Speaker 1: able to actually get consumers what they want. Yeah, the
Speaker 1: luxury supply chain, you know, probably on a relative basis,
Speaker 1: hasn't been interrupted. I'm sure it's a little bit slower
Speaker 1: than people wanted to be back comparatively to what we'll
Speaker 1: be hearing, we haven't had any issue with that. What's
Speaker 1: the last thing you bought in a retail environment? You're
Speaker 1: asking me? Yeah, I just bought a suit. How's that all? Right?
Speaker 1: Back to work? You go? That sounds yeah? That isn't
Speaker 1: like athleaser work at way? Is that? Is that? Is
Speaker 1: that for mark? For for hanging out or for working?
Speaker 1: To be fair, it's a suit, but it's got drows
Speaker 1: string pants. That's right. So guys just remember fashion has
Speaker 1: you know, it doesn't matter. It's all about comfort. It's
Speaker 1: all about looking too. I'm all into come put a
Speaker 1: little stretch in everything. Mark Metrick, thank you so much,
Speaker 1: CEO at Sachs. Joining us via zoom in New York City.
Speaker 1: You're listening to Bloomberg Business Week on Bloomberg Radio. You're
Speaker 1: listening to Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes. Tim Stinovic on Bloomberg Radio. I don't actually
Speaker 1: saw Tim. Some comments from JP Morgan, Chase's CEO Jamie
Speaker 1: diamond saying the FEDS forecast for four percent inflation this
Speaker 1: year is quote too optimistic. I thought you were gonna
Speaker 1: give me a weather report. I did not see. It
Speaker 1: was an interview published in the Wednesday edition of a
Speaker 1: French newspaper. So we're going to hear more from safe
Speaker 1: to say, what is the most closely watched Big US
Speaker 1: Banks CEO when JP Morgan reports tomorrow morning. All right,
Speaker 1: for a little preview of what to expect, not just
Speaker 1: from JP Morgan but from other financial institutions, Let's go
Speaker 1: down to Ryl Paid, senior portfolio manager at Angel Oak
Speaker 1: Capital Cheryl joining us this afternoon on the phone from Atlanta. Sheryl,
Speaker 1: if there's one question that you would ask Jamie Diamond,
Speaker 1: what would it be? I think really the key question
Speaker 1: on everyone's mind is how do we manage through the
Speaker 1: uncertainty over the next couple of quarters. Clearly with the
Speaker 1: inflation print this morning raises additional questions on you know,
Speaker 1: do we do we fold into a recession here? Um?
Speaker 1: And what does the outlook particularly for the consumer against
Speaker 1: this backdrop? Well, okay, so what do you think ultimately? Okay,
Speaker 1: so let's get through big bank earnings in terms of
Speaker 1: what you're expecting to see. We've already had a story
Speaker 1: out on the Bloomberg that talked about trading um because
Speaker 1: of all the volatility should be a plus for the
Speaker 1: big banks when they report. I do agree with that.
Speaker 1: I think we are going to see strong trading results UM.
Speaker 1: I do think the big money center banks are going
Speaker 1: to be challenged by software, investment banking UM as well
Speaker 1: as potential marks on widening credit spread, higher expenses UM
Speaker 1: as well. So I think, you know, the more diversified
Speaker 1: business models are going to have a tougher time this
Speaker 1: earning season given, Uh, you know, some of the factors
Speaker 1: impacting investment banking, asset management businesses, mortgage banking and the like.
Speaker 1: What about though, when it comes to other parts of
Speaker 1: the company's business trading revenue that you know, as we
Speaker 1: talked about yesterday on the program, volatilities good thing. Volatility
Speaker 1: absolutely is a great thing. Um. And we do have
Speaker 1: a positive outlook not only for for the equity capital markets,
Speaker 1: but even more so for fixing capital markets. UM. And
Speaker 1: that is where we expect a bright spot in capital
Speaker 1: markets tomorrow, kicking off with JP Morgan. UM. So we
Speaker 1: should see some um positive trajectory there. Um. Again, I
Speaker 1: think that is going to be offset by the by
Speaker 1: the investment banking advisory type feed which you know are
Speaker 1: probably down close to Yeah, we're not talking about a
Speaker 1: lot of I p O s these days for M
Speaker 1: and A, not at all. Absolutely not. Hey, how often
Speaker 1: do you are how much do you expect um them
Speaker 1: and the CEOs and the c suite on those earnings
Speaker 1: calls Cheryl to talk about recession. I mean, you said,
Speaker 1: how do we manage to the uncertainty of the next
Speaker 1: few months? How far do you think they go? And
Speaker 1: saying listen, we're going for a we're going to see
Speaker 1: a downturn. Do you anticipate that we're going to hear that.
Speaker 1: I do think we are going to hear heightened caution
Speaker 1: UM from management teams. Clearly, from what we can see
Speaker 1: UM in terms of credit metrics that come out on
Speaker 1: a monthly basis, that remains relatively benign. You're not expecting
Speaker 1: to see any meaningful reserve build this quarter. UM. But clearly,
Speaker 1: you know, what we're seeing today is sort of six
Speaker 1: months forward. We're looking sort of a year uh two
Speaker 1: years forward in terms of valuing stocks UM, and so
Speaker 1: I think that's going to become more critical. Where are
Speaker 1: we starting to see potentially any signs of stress UM?
Speaker 1: I do you know think that's going to be one
Speaker 1: of the key topics of conversation, particularly on the consumer side,
Speaker 1: the unsecured consumer, the critic word. Let's do businesses. Let's
Speaker 1: get to some of the names you like, because you
Speaker 1: actually like some more of the regional players, and one
Speaker 1: that really pops up on my radar the tickers s
Speaker 1: I v B. You're talking about SVB Financial Group caught
Speaker 1: up with Greg Becker on a panel over at Milkin.
Speaker 1: I mean they do it a little bit differently. Yeah,
Speaker 1: that's right. I think you know, generally, the way we
Speaker 1: think about the banking universe, UM. You know our are
Speaker 1: overweight is to the spread based lenders. UM. I think
Speaker 1: quality is king here. Deposit franchises matter, UM, Loan growth matters,
Speaker 1: and that's where we really see the value in the
Speaker 1: regional banks over the universal banks in this type of environment. UM,
Speaker 1: and someone like an SI v B clearly has a
Speaker 1: demonstrated track record of growing that UM not only the
Speaker 1: loan side, but also the deposit side, which I think
Speaker 1: is going to be increasingly critical UM and really a
Speaker 1: focus of investors going forward as to where deposit datas
Speaker 1: go from here. Quickly, just in the last thirty seconds
Speaker 1: we have with you, let's talk about Signature bank. Why
Speaker 1: are you bullish on that one? Again? I think it
Speaker 1: comes down to someone that has done a great job
Speaker 1: on gathering deposits over the last couple of years outside
Speaker 1: growth relative to peer group sticky deposits. Again, when we're
Speaker 1: looking to hire rates from here. The NYM expansion, I
Speaker 1: think it's hitting sort of the peak over the next
Speaker 1: second quarter third quarter time frame, and that's really I
Speaker 1: think what's going to drive outside performance um from someone
Speaker 1: like a Signature bank, and both of them have really
Speaker 1: been beaten at big time by investors. Signature is down
Speaker 1: about so far this year. An SVB Financial Silicon Valley Bank,
Speaker 1: that's the holding company for that bank. Uh, it is
Speaker 1: down about so far this year. Cheryl, thank you so much.
Speaker 1: Great set up for those bank results as they start
Speaker 1: to roll out. Cheryl Paye, she's senior portfolio manager at
Speaker 1: angel O Capital, on the phone from Atlanta Journal. Yeah,
Speaker 1: but you let me drive. Oh no, no, no, no please,
Speaker 1: I want to dry good question, This is good. Drive
Speaker 1: to the clothes Bloomberg Radio. All right, ten and a
Speaker 1: half minutes left in today's trading session, getting ready to
Speaker 1: wrap up the Wednesday trade. We're definitely off our loads
Speaker 1: of this session, so not as negative as it was
Speaker 1: earlier in the day right after that inflation print. But
Speaker 1: still we had a lot of data to get through. Yeah,
Speaker 1: and also it seems like investors are really trying to
Speaker 1: make sense of what to do with this data. Really
Speaker 1: eager to hear from Eddie Perkin, chief equity investment officer
Speaker 1: for equity at Eaton Vans. Eddie joining us this afternoon
Speaker 1: on the phone from Boston, Eddie, how are you? I'm well,
Speaker 1: how are you guys? We're doing pretty well. Trying to
Speaker 1: really dig into these get into the day's trade and understand.
Speaker 1: You know what these CPI numbers mean for what the
Speaker 1: Fed's gonna do. So give us your take care. Uh,
Speaker 1: we continue to have high inflation. I think there are
Speaker 1: multiple sources of that inflation. Part of it is all
Speaker 1: the money and the kiwi and the low interest rates
Speaker 1: that we've had for the past several years. Um, that's
Speaker 1: the part that the Fed can address with higher interest rates.
Speaker 1: But there are a lot of other things going on
Speaker 1: causing high prices. Of course, everything happening in the energy
Speaker 1: complex globally. And uh. And I think this is a
Speaker 1: part that gets under reported, is output or productivity is
Speaker 1: just not very good right now. You see that, So
Speaker 1: it's a supply problem in part. You see it across
Speaker 1: the economy. I mean, look at all the ten thousand
Speaker 1: flights being canceled by British Airways that he throw airport. Uh.
Speaker 1: Any of us who go into restaurants, there's certain items
Speaker 1: on the menu that are not available. The hold times
Speaker 1: when you call a call center are are lengthy. Sometimes
Speaker 1: up to two hours. All the supply chain issues we've
Speaker 1: been discussing, those problems are not solved with higher interest rates.
Speaker 1: In fact, they might even be hampered with higher costs
Speaker 1: of capitals. So I think part of the solution to
Speaker 1: inflation has to come from just working out these bottlenecks
Speaker 1: in the economy and getting productivity back up. All right,
Speaker 1: Just want to mention a headline crossing he was nominated
Speaker 1: back in April by President Biden. We now have the U. S.
Speaker 1: Senate confirming Michael Barr as the FEDS Chief Banking Supervisor.
Speaker 1: So again this is um actually is it? Yeah? I
Speaker 1: think the vice chair of super Vision. So again that's
Speaker 1: just crossing the Bloomberg terminal um. Alright, So, Eddie, when
Speaker 1: you look at this market, uh and the equity universe,
Speaker 1: I mean a lot of names have really been beaten
Speaker 1: down here. But do you think based on the uncertainty
Speaker 1: with the economic outlook, that beating makes sense? Some of
Speaker 1: it does. And the big debate is, you know, if
Speaker 1: a recession is coming, how much of that is priced in.
Speaker 1: I don't think a deep procession is priced in, but
Speaker 1: I think some moderate downturn in the economy or recession
Speaker 1: is now reflected in certain security prices. The areas that
Speaker 1: I'm most interested in a eat advance for our value
Speaker 1: portfolios are how's related stocks, certain parts of the energy
Speaker 1: complex that still look interesting, certain financial stocks that look interesting.
Speaker 1: So um, there are you know, kind of more cyclical
Speaker 1: housing exposed, consumer exposed parts of the economy that that
Speaker 1: are really beaten up. And and we're not super expensive
Speaker 1: on the front end. So there, they haven't gone from
Speaker 1: expensive to fair price. They've gone from fair price to
Speaker 1: underpriced in my opinion. Okay, so remind me you said
Speaker 1: housing stocks and what were the two other I think
Speaker 1: anything related to housing? I think, uh, energy, particularly talking
Speaker 1: to my energy you think, I get well, you've seen
Speaker 1: a pull back now, right, you have to rally at
Speaker 1: the beginning of the year. But the services stocks because
Speaker 1: you're gonna need multi year investment to get so again
Speaker 1: back to the supply question. To get supply globally back
Speaker 1: into the into the world economy, you're gonna need You're
Speaker 1: gonna need the capital spending and services stocks. So that's
Speaker 1: where we're seeing some value after this pullback we've seen
Speaker 1: in the commodities and then certain financial stocks, and I
Speaker 1: would A fourth category would be, uh, some of the
Speaker 1: industrial stocks fests where you at some better quality businesses
Speaker 1: that are more cyclical, and uh yeah again, it'd advance
Speaker 1: in our value portfolios. That's where we're finding value. Bank
Speaker 1: of American economists are forecasting a mild recession this year
Speaker 1: in the United States, and they say services spending slowing,
Speaker 1: hot inflation, bringing consumers to pull back a bit. Mild recession.
Speaker 1: Would that bother you in terms of maybe some of
Speaker 1: your equity choices. Not really. I think that's what the
Speaker 1: market is priced for at this point. I think you've
Speaker 1: got a stress test around that. That's sort of the
Speaker 1: probably the central forecast of most investors at this point.
Speaker 1: So you know, what if it turns out better than that,
Speaker 1: what if it turns out worst? How much of a
Speaker 1: range around those scenarios is there in terms of where
Speaker 1: stocks are priced? Okay, kind of a play on that.
Speaker 1: I ask everybody, this is the worst behind us? Not
Speaker 1: the worst, but a pretty bad scenario. I think is well, okay,
Speaker 1: is the worst is the worst of the pullback behind us?
Speaker 1: For most scenarios? I think yes, Um, that doesn't mean
Speaker 1: there's not further downside. I do take note of the
Speaker 1: fact that sentiment continues to be negative. And it's not
Speaker 1: just fear, it's people. I think some of the hedgephonds
Speaker 1: pressing their shorts, being quite confident in their underweights, and
Speaker 1: it's a lot of it is around earnings and the
Speaker 1: expectations that earnings estimates need to be cut. And who
Speaker 1: doesn't know that at this point we all know that
Speaker 1: earnings estimates across across the market are too high, and
Speaker 1: that beginning tomorrow with Jamie Diamond a JP Morgan and
Speaker 1: their earnings report, we're gonna hear from the banks, and
Speaker 1: then we're gonna hear from other companies and other sectors,
Speaker 1: and in general we're gonna hear that earnings need to
Speaker 1: come down. But that's a lot of that is in
Speaker 1: the price. So what I'm interested in is those companies
Speaker 1: that when they give guidance, can reset the bar to
Speaker 1: a level that the market believes, and in those cases
Speaker 1: you might see guidance, earnings, guidance cuts, and stocks rallying
Speaker 1: on the back of it. I think it's important to
Speaker 1: remember that stock prices generally bottom for earnings do and
Speaker 1: so you've got to be anticipatory and forward looking Eddie,
Speaker 1: what kind of flows are coming in at this point
Speaker 1: new money to invest part? That is the first part
Speaker 1: of your question. What kind of money is coming in
Speaker 1: for from investors, new money to put to work or
Speaker 1: is there more money going out right now and being
Speaker 1: parked in cash? Yeah, I I don't think retail investors
Speaker 1: have given up on the market. So you do still
Speaker 1: see flows in pockets of the equity market. Um. I
Speaker 1: think there are those who are very committed to the
Speaker 1: you know, the long term secular growth of technology stocks,
Speaker 1: and then you have those who are uh interested in
Speaker 1: the rotation that we've seen this year, in the first
Speaker 1: six months of this year, from growth to value stocks.
Speaker 1: And so there are definitely investors who are nibble continuing
Speaker 1: to nibble at value and see, uh see value as
Speaker 1: a multi year trend. You know, we've had a multi
Speaker 1: year period of growth stocks out performing value. Could we
Speaker 1: now be at the very forefront of the value market
Speaker 1: the last for several years? Well, I've heard that before,
Speaker 1: and then I also heard this weekend maybe growth is
Speaker 1: kind of interesting. That's where you want to go if
Speaker 1: you had to pick value over growth right now? Is
Speaker 1: value your play? Just quickly? I'm a value investor at
Speaker 1: heart Sol. I'm bias, but yes, absolutely all right. We're
Speaker 1: gonna leave it there. Hey, Eddie, thank you so much.
Speaker 1: Eddie Perkin, he's chief equity Investment Officer for Equity over
Speaker 1: at Eaton Advance, joining us on this Wednesday on the
Speaker 1: phone from Boston. Thanks for listening to Bloomberg Business Week.
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