Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business
Speaker 1: Wait inside from the reporters and editors who bring you
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Speaker 1: tech news. The Bloomberg Business Week Podcast with Carol Messer
Speaker 1: and Tim Stenebeck from Bloomberg Radio.
Speaker 2: All right, let's get back to today's economic news. We've
Speaker 2: been waiting for it all week long. A measure of
Speaker 2: underlying US inflation cooling in the month of April for
Speaker 2: the first time in six months. A small step in
Speaker 2: the right direction for Fed officials who are looking to
Speaker 2: start cutting interest rates this year, at least some of them, maybe.
Speaker 2: So called Core consumer Price Index ex Food and energy
Speaker 2: cost climbing three ten percent in the month of March,
Speaker 2: snapping a streak of three above forecast readings. That's a
Speaker 2: trend line, by the way, which spurred concern that inflation
Speaker 2: was becoming entrenched. The year over year measured tim cooling
Speaker 2: to the slowest pace in three years.
Speaker 3: Okay, not adjust THECPI data, but we also got the
Speaker 3: retail sales data stagnating in April after it downwardly revised
Speaker 3: gains in the prior two months. Indicating high borrowing costs
Speaker 3: and mounting debt are encouraging greater prudence among shoppers. All
Speaker 3: of it is seeing that, you know, equities higher, bond
Speaker 3: yields lower on the day today. So let's get to
Speaker 3: Molly Smith. Now, she's the Bloomberg News economics editor. She's
Speaker 3: here in the studio. So Molly Carol said, a trend
Speaker 3: is what we were seeing when it came to previous months reports.
Speaker 3: Does one Fed friendly report make a new trend, because
Speaker 3: it certainly seems like that's how the market's reacting.
Speaker 4: Yeah, and I think a lot of people tell you
Speaker 4: the market is overreacting in that perspective, and that one
Speaker 4: print absolutely does not make a trend, and that very
Speaker 4: much remains to be seen if inflation is sustainably retreating
Speaker 4: or resuming again that downward trend. And by the way,
Speaker 4: three tenths of a percent. Sure it's better than three
Speaker 4: straight months of zero four, but zero three on an
Speaker 4: annualized basis still well above the two percent goal. That's
Speaker 4: not what the Fed is looking for. Maybe you start
Speaker 4: to get a string of increasing.
Speaker 2: At three point four percent year over year, right headline.
Speaker 4: Yes, and the core at three point six that's the
Speaker 4: one that was the lowest in three years. So of course, yeah,
Speaker 4: you like to see that this direction is starting to
Speaker 4: happen again. But one month certainly doesn't indicate that it's
Speaker 4: going to happen again.
Speaker 2: The devil's in the details. We've been hearing everybody talk about,
Speaker 2: you know, high shelter costs and so on and so forth.
Speaker 2: We look at different things like energy, you know, the
Speaker 2: details within the report, anything significant there that maybe says, oh,
Speaker 2: maybe something different is happening.
Speaker 5: Well with it?
Speaker 4: Not? Yeah, I mean within shelter some promising signs there,
Speaker 4: and our upcoming guest, perhaps we'll have some things to
Speaker 4: say about.
Speaker 5: That, bringing him in maybe other thing? Can I do that?
Speaker 2: Joining us now?
Speaker 4: Joining us now is two fall Bloomberg Economics economists with
Speaker 4: us here in the Bloomberg Interactive Broker Studio ASTU.
Speaker 5: Do you want to talk about housing inflation?
Speaker 6: Sure, so we did see that.
Speaker 7: We did see rent step down a little bit too,
Speaker 7: that zero point three five percent month on month. Oh,
Speaker 7: are the owner's equivalent of RIND is still a bit stubborn,
Speaker 7: staying above zero point four percent on the month, Carol.
Speaker 7: If we're looking at some of the other items under
Speaker 7: the hood. I think that it's the lack of change
Speaker 7: that we actually see on the month that's the most interesting.
Speaker 7: Excluding autos, core goods prices are still rising. That's pretty atypical.
Speaker 2: Good shop and you feel it, You.
Speaker 7: Definitely feel it. And if you look at autos, you
Speaker 7: might have been surprised to see auto prices declining on
Speaker 7: a seasonally adjusted basis one point four percent. That's because
Speaker 7: of about two thirds of that decline is really the
Speaker 7: seasonal adjustment factor. It's not what you're seeing when you
Speaker 7: walk on the lot to buy a car. And then
Speaker 7: if you're looking at the prices of some discretionary services categories,
Speaker 7: things like recreational services, prices are still increasing, still increasing
Speaker 7: too fast.
Speaker 4: For the fed and also the non recreational services. I
Speaker 4: think the ones that you really can't avoid, like car
Speaker 4: insurance huge that's still rising at like the fastest annual
Speaker 4: rates since the seventies.
Speaker 2: That's not just that if you have a teenager in
Speaker 2: the house that it's expensive.
Speaker 4: It's expensive, right, Yeah, for the rest of us too,
Speaker 4: So car insurance a big one, medical care big one.
Speaker 4: I mean, these are things that you just can't avoid.
Speaker 4: But yeah, the recreation ones for sure, if you want
Speaker 4: to go out.
Speaker 8: And have some fun.
Speaker 3: The two of you are painting a picture for us
Speaker 3: that doesn't necessarily go in line with what we're seeing
Speaker 3: in the equity and the bond market today. And I'm wondering, Stuart,
Speaker 3: if you absolutely think that at least the equity market
Speaker 3: is overreacting.
Speaker 7: Perhaps a little bit. Perhaps it's the markets are looking
Speaker 7: at retail sales number that were pretty dismal. Just across
Speaker 7: the board, retail sales surprise to the downside, So that
Speaker 7: would warrant some expectation for perhaps a second FED rate
Speaker 7: cut this year. There was just one full cut price
Speaker 7: before this morning. Now we're seeing two full cut priced
Speaker 7: But yeah, across the board, retail sales are pretty dismal.
Speaker 7: If we were just to exclude gasoline prices, we would
Speaker 7: have had a negative headline print headline just held flat
Speaker 7: on a nominal basis. On a real basis, we're seeing
Speaker 7: declining retail sales.
Speaker 2: That's a bummer. We've talked about how important consumers are
Speaker 2: to the economy.
Speaker 7: Correct, Yeah, absolutely, And if we're kicking off Q two data,
Speaker 7: we are getting our first print, our first hint at
Speaker 7: what consumers spending is going to be for the second quarter.
Speaker 7: It's going to be a material slow down in real
Speaker 7: terms from the two and a half percent annual basis
Speaker 7: that we've printed in Q one.
Speaker 2: All Right, So got to bring an Ira Jersey because
Speaker 2: we are now talking about the markets and we want
Speaker 2: to get to the bond market and the rates curve.
Speaker 2: Ira Jersey, Chief US Interest Rates Strategies at Bloomberg Intelligence
Speaker 2: at BI headquarters out there in Princeton, New Jersey. I mean,
Speaker 2: I'm looking at a ten year at four thirty four,
Speaker 2: a two year note at four seventy three. I mean,
Speaker 2: we've seen a dramatic move down here. Ira, walk us
Speaker 2: through it and what it says to you and the
Speaker 2: significance of the moves.
Speaker 8: Yeah.
Speaker 9: So I think that the market had to reprice the
Speaker 9: idea that the Fed might not be cutting as aggressively
Speaker 9: as they thought earlier in the year, and the market,
Speaker 9: you know, the bond market tends to overshoot a little bit, right.
Speaker 9: You get a lot of positions positioning where cleeople are
Speaker 9: long they get out of those positions, there's not a
Speaker 9: lot of liquidity. Then people are fearing that you know, hey,
Speaker 9: maybe the FED might even hike this year, so they
Speaker 9: wind up maybe even getting.
Speaker 1: A little short.
Speaker 9: So I think we're trying to find an equilibrium here.
Speaker 9: Four to thirty five was a pretty important technical level.
Speaker 9: If we close the below that, then that could set
Speaker 9: us up for a little bit more of a little
Speaker 9: bit more of a rally here in the long end
Speaker 9: of the yield curve. But you know, I think probably
Speaker 9: low four, you know, call it four twenty five to
Speaker 9: four fifty might ultimately be a range that we stay
Speaker 9: in until we get more convincing data one way or
Speaker 9: the other that either the Fed's going to be on
Speaker 9: hold for the entire year and into twenty twenty five,
Speaker 9: or maybe they actually factually will cut And if we
Speaker 9: start to price that higher probability of those more cuts in,
Speaker 9: then obviously the market will rally a little bit more.
Speaker 3: Well, it's interesting, Eric, because we're seeing quite a reaction,
Speaker 3: as Carol has talked about, as you've just talked about it,
Speaker 3: and I'm wondering if this to you says that wait
Speaker 3: a second, the worst in terms of where we think
Speaker 3: that rates are going to go is actually behind us
Speaker 3: this year? Is that what the bond market's telling us.
Speaker 6: Well, I think there's two pieces too.
Speaker 9: I think one is that there were people who are
Speaker 9: fearful that the data would that the inflation data in
Speaker 9: particular would come out a little bit hotter than expected,
Speaker 9: so they came in short and shorts had built over
Speaker 9: a while, so I think part of this suggests positioning
Speaker 9: and like I said, a relief rally. And the retail
Speaker 9: sales numbers, as Stewart and you guys just mentioned, were
Speaker 9: not particularly good, although you know, if there's some oddities
Speaker 9: sometimes and when you have a good print like we
Speaker 9: had in March April can be a little bit weaker.
Speaker 9: So if you look at longer term averages that those
Speaker 9: that haven't changed a whole heck of a lot. But
Speaker 9: the market, I think was relieved that you didn't have
Speaker 9: stronger data, and because of that, there were people who
Speaker 9: are comfortable just getting long at four point four four
Speaker 9: and a half percent, depending on where in the curve
Speaker 9: you're talking about, and just holding that and thinking, okay, look,
Speaker 9: my risk reward seems to be decent.
Speaker 10: Now.
Speaker 9: Being short is hard now, too, right, Because if you're
Speaker 9: short the market, your carry, so the amount that you
Speaker 9: have to pay to be short continues to go up
Speaker 9: a little bit and because of that, it's just hard
Speaker 9: to stay short.
Speaker 8: For a long period of time.
Speaker 9: So one reason why you know, people just get out
Speaker 9: of these things is is because tail risks are going away.
Speaker 8: Right.
Speaker 2: Interesting though, if I look at retail sales, I mean,
Speaker 2: we did see revisions for the prior month, for the
Speaker 2: month of March. But you do make a good point, Ira,
Speaker 2: and let me bring in you guys, Molly and Stewart,
Speaker 2: in terms of we did have a strong month the
Speaker 2: month before, and so we saw it's a very different
Speaker 2: story this month. Is there something you know to what
Speaker 2: IRA's saying that when you have a strong month, you
Speaker 2: see some weakness the following month.
Speaker 7: There typically is some of a there's a little bit
Speaker 7: of a gift back. IRA's right there. The thing that
Speaker 7: I like to think about under the hood, though, especially
Speaker 7: when we're looking at retail sales, all the figures are nominal.
Speaker 7: So even in the pockets of strength that we did
Speaker 7: see in this report, something like clothing, which which spending
Speaker 7: on clothing rose about one and a half percent, prices
Speaker 7: were also rising in clothing right about one point two
Speaker 7: percent on the month. So IRA's right, when you do
Speaker 7: look at trends, it's not as bad as a single
Speaker 7: month may make. It seem there's a little bit of
Speaker 7: give back this month, but under the hood, it's just
Speaker 7: not a very good report. And when we are kicking
Speaker 7: off the second quarter, I think it's important to mark
Speaker 7: the change that the change in momentum, or at least
Speaker 7: the waning momenta.
Speaker 2: Well, it does feel right it just like you look
Speaker 2: at the numbers. The contrast Molley is pretty pretty strong.
Speaker 5: Yeah, I mean that point on clothing that just made
Speaker 5: us a good one.
Speaker 4: Like the whole point of like when we're saying that
Speaker 4: these sales are nominal versus inflation adjusted, is that you
Speaker 4: can't tell that a percent increase in a category like
Speaker 4: apparel is due to higher prices or due to actual
Speaker 4: more spending activity.
Speaker 5: So that's what makes this difficult to interpret.
Speaker 4: But when there is a period like this where clothing
Speaker 4: prices did rise in the month, of course makes you
Speaker 4: think that, like maybe it is more price driven than
Speaker 4: spending driven. So that's the thing about retail sales that
Speaker 4: it's difficult to parse through this report and make like
Speaker 4: strong conclusions about what's actually happening. But we do know
Speaker 4: that household debt reached a record high in the first
Speaker 4: quarter of this year. We do know that consumer credit
Speaker 4: has generally been weakening, that delinquencies are still pretty low
Speaker 4: but are rising, so maybe says a little bit more
Speaker 4: discretion among consumers in that sense.
Speaker 3: I was gonna say, Carol, you and I were having
Speaker 3: a chat a little earlier as we were preparing for
Speaker 3: the program about CPI versus PCE and the idea that Okay,
Speaker 3: come on, guys, I thought this cares.
Speaker 5: I thought, I don't care, car.
Speaker 3: No, he cares CPI I thought. I thought PCE was
Speaker 3: the preferred method of the preferred measure of inflation for
Speaker 3: the FED.
Speaker 5: It is, but it doesn't come out for another two weeks.
Speaker 6: It doesn't.
Speaker 3: But we put so much stock in this until until
Speaker 3: that comes.
Speaker 4: Out because it is the single biggest market moving event
Speaker 4: of the month, and I think that's I mean, that's
Speaker 4: going to probably remain that way for some time.
Speaker 5: I mean, remember this, before you.
Speaker 4: Know, inflation really got to where it was. In twenty
Speaker 4: twenty two, the biggest market moving event of the month
Speaker 4: was the job's report, and that is very much shifted
Speaker 4: to the CPI.
Speaker 2: Well, it makes me think about IRA. Come on back
Speaker 2: in here, and we always talk about you about the
Speaker 2: kind of focal points for the market and certainly for
Speaker 2: treasury traders and watching what goes on with rates. I mean,
Speaker 2: you've got what a job's market, a job's report in
Speaker 2: a couple of weeks or so. I'm thinking about the
Speaker 2: next FED meeting June twelfth, not so far off, about
Speaker 2: a month a little bit less than a month away,
Speaker 2: and I believe we get do we get a CPI
Speaker 2: print also on that.
Speaker 5: FED days get updated projections.
Speaker 2: And updated So so as you watch the rates curve,
Speaker 2: is it just pretty quiet until we just kind of
Speaker 2: trade around those key metrics again?
Speaker 9: Oh no, I think that we'll have more volatility at
Speaker 9: just about every data print that comes up, particularly the
Speaker 9: inflation one. So actually for the rates market, Uh, the
Speaker 9: the payrolls report is still the granddaddy of all economic
Speaker 9: data where.
Speaker 8: You see rates move.
Speaker 9: Today's move wasn't because of CPI, right, Like it's pretty
Speaker 9: clear because the miss on CPI was minute, So it
Speaker 9: was actually something else that moved the market today. But
Speaker 9: CPI is obviously really important. So will the GDP report
Speaker 9: in a couple of weeks, and so will you know
Speaker 9: the revision to that as well? As obviously the April UH,
Speaker 9: the April income and spending and therefore the inflation report.
Speaker 9: All of those things are going to matter the the trends,
Speaker 9: and if there is a shift in trend, you'll wind
Speaker 9: up seeing that in things like the personal the personal
Speaker 9: spending report, because that's a broader report than the retail
Speaker 9: sales report. Right, and you know Stewart can talk more
Speaker 9: about this, but but from a long term trend perspective,
Speaker 9: like the market tends to focus on these very high
Speaker 9: frequency data, but when you look at the longer term
Speaker 9: trends and look for turns, you have to take the whole,
Speaker 9: you know, the entire story, and the build a whole
Speaker 9: mosaic around all of the incoming information that that's coming
Speaker 9: in and see if things.
Speaker 8: Are going to shift.
Speaker 9: And the bond market tends to do that exceptionally quickly
Speaker 9: and a lot of times incorrectly.
Speaker 11: Right.
Speaker 9: It focuses on one thing that ultimately turns out to.
Speaker 8: Be a false indicator.
Speaker 9: And we used to move a lot on ISM reports,
Speaker 9: and ISM has been wrong basically for the last six months.
Speaker 9: So the market's now ignoring a lot of the survey
Speaker 9: data and using the hard data like the retail sales
Speaker 9: like CPI, like the growth GDP report. Those are the
Speaker 9: things that the market's focused on now, not ism, not
Speaker 9: consumer confidence, and none of that stuff.
Speaker 3: Hey start come on in. I would certainly name checked
Speaker 3: you there, and I want to know what goes into
Speaker 3: building your mosaic when you're thinking about the data that
Speaker 3: we're getting in the coming winks.
Speaker 7: So just broadly, if we just look at a broad
Speaker 7: spot of data and we look at some of the
Speaker 7: surprises that we've seen, prices have been surprised to the upside,
Speaker 7: excluding what we saw in headline CPI today again out
Speaker 7: of the hood, though still a lot of persistent inflation
Speaker 7: going on. Indicators of growth is a bit more mixed,
Speaker 7: But generally speaking, it's just too strong of an economic
Speaker 7: environment to encourage retailers to encourage folks to start cutting
Speaker 7: prices to get the deflation the disinflation that we would
Speaker 7: need for the FED to then get to its point
Speaker 7: that it would be comfortable pivoting with policy rates. And
Speaker 7: if that's the case, again, one downside surprise in the
Speaker 7: headline CPI is not going to do it. The headline.
Speaker 7: So to IRA's point, a lot of these high frequency
Speaker 7: data will matter for markets, but and it will matter
Speaker 7: for even getting the timing of the first FED rate cut, right.
Speaker 7: Is it possible that we get something in July. Maybe,
Speaker 7: But in terms of determining the economic landscape and the
Speaker 7: trajectory over the next year, it's not going to matter
Speaker 7: much of its July or September, or even if they
Speaker 7: just get one off in December, which I think, frankly
Speaker 7: is an increasingly likely case.
Speaker 2: Real quickly. Ira twenty second. So in terms of a
Speaker 2: ten year I mean, do we will take five percent
Speaker 2: off the table at this point or five and a quarter?
Speaker 2: I mean, it's just amazing the swings that we've seen
Speaker 2: this year.
Speaker 9: Yeah, I think that we've seen the cycle high in
Speaker 9: terms of the ten year yield. That doesn't mean we
Speaker 9: can't go back to four seventy four seventy five if we,
Speaker 9: you know, do price out like like Stuart just said,
Speaker 9: another cut this year or maybe another cut next year,
Speaker 9: but the market's still going to think they're going to
Speaker 9: cut at some point.
Speaker 8: So therefore, you know, rates don't have to go out
Speaker 8: much higher.
Speaker 2: Not not if just when we're still data dependent. Molly
Speaker 2: really quick all day, all.
Speaker 5: Day, and I just want to say one thing.
Speaker 4: I just wanted to point out downside surprise on the
Speaker 4: headline CPI. Everything else came in as expected, so so
Speaker 4: IRA's point of this being a relief rally, the things
Speaker 4: were just in line and not worse.
Speaker 2: Molly Smith, Stuart, Paul, Ira, Jersey. That's our Bloomberg team,
Speaker 2: the amazing trifectop.
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Speaker 2: Jack Morgan out the list of alt investments to keep
Speaker 2: an eye on the firm, high highlighting private equity, private credit,
Speaker 2: real estate, infrastructure, also secondaries. Sounds like certainly a lot
Speaker 2: of the topics that we talked about at Milk and
Speaker 2: that's for sure.
Speaker 6: Yeah.
Speaker 3: Well, our next guest is the head of Alt Investment
Speaker 3: over at Mercer Alternatives. Joining us is Raylan Lambert, Global
Speaker 3: Alternatives Leader at Mercer Alternatives. It's the all investment arm
Speaker 3: of the consulting firm Mercer. It's got one hundred and
Speaker 3: sixty billion dollars in assets under management overall and twenty
Speaker 3: five billion dollars when it comes to the alternatives space.
Speaker 3: She joins us from Rancho Cordova, California. Realan good to
Speaker 3: have you on the program this afternoon. So I'm curious
Speaker 3: about what you're seeing in terms of demand right now, because,
Speaker 3: as Carol mentioned, I mean last week at Milk and
Speaker 3: pretty much all about alternatives and AI. I guess we
Speaker 3: could throw in there at this.
Speaker 2: Point out of private credit.
Speaker 3: But what are you seeing in terms of demand right
Speaker 3: now and in terms of what what investors want to
Speaker 3: see as an overall portion of their portfolio dedicated to alternatives.
Speaker 10: Well, sure, thank you. You know, given that we have
Speaker 10: the tools in our toolkit to help clients implement their
Speaker 10: total portfolios. As you indicated, alternatives is certainly a growing
Speaker 10: component of that. When you think about where portfolios are
Speaker 10: today versus the sixty forty allocation just a few years ago.
Speaker 10: The reality is, I think investors are realizing if you're
Speaker 10: not investing in private markets, you are missing a huge
Speaker 10: component of the investable universe. And so you mentioned private
Speaker 10: credit that has continued to be a high growth area
Speaker 10: for US, particularly amongst our European investors and others that
Speaker 10: are looking for you know, current income and yield Infrastructure
Speaker 10: group and long standing investors in infrastructure, and so certainly
Speaker 10: as the energy transition continues, energy security, those themes certainly
Speaker 10: carry through. And of course private equity is certainly a
Speaker 10: hallmark of what clients seek our help from both an
Speaker 10: advice and implementation standpoint, and so that is an area
Speaker 10: that we continue to focus and certainly happy to touch on.
Speaker 8: AI.
Speaker 2: Yeah, well, and I do want to touch on it,
Speaker 2: But first I want to ask you Raylan, private equity
Speaker 2: different from private credit, different from real estate, different from infrastructure, right,
Speaker 2: So I do. I'm curious. You know, we're the fundamentals
Speaker 2: and the environment's best idea, if you will, in the
Speaker 2: alt space, alt investing space.
Speaker 10: Well, we really, I mean, one of the things we
Speaker 10: really try to do is connect the dots for investors.
Speaker 10: Rather than digging deep into say a specific strategy, we
Speaker 10: look at thematically. What is the possibility of inflation going
Speaker 10: to have on portfolios? Clients want to know how should
Speaker 10: they position that relative to concerns around geopolitics, aguilation, and
Speaker 10: certainly market volatility. Interestingly enough, you know the concern there's
Speaker 10: been some concern from some investors about private equity and
Speaker 10: a higher inflation environment. We've recently put out you know,
Speaker 10: we every year we try to prognosticate if we can,
Speaker 10: on what's going to be happening. And one of the
Speaker 10: things we found with respect to inflation and private equity is,
Speaker 10: in fact, there's not really a correlation between a high
Speaker 10: inflationary environment and the returns that investors can attain in
Speaker 10: private markets.
Speaker 2: In fact, if you look in the.
Speaker 10: Early two thousands, interest rates were pretty at pair parody
Speaker 10: with where they are today, and that happened to be
Speaker 10: quite a strong returning environment.
Speaker 2: And so it's really you.
Speaker 10: Know, approaching those themes and how they might impact allocation.
Speaker 2: Well maybe not rate you know, or interest rates in
Speaker 2: terms of private equity. I think one of the big
Speaker 2: discussions we certainly have had here at Bloomberg is just,
Speaker 2: you know, private equity investors who've invested in these PE
Speaker 2: funds are looking for exits, right to get some of
Speaker 2: their returns back. And it's not been a great market,
Speaker 2: as I don't need to tell you IPO M and A. Yes,
Speaker 2: we've seen some big deals, but it's been way down,
Speaker 2: certainly from the five trillion we saw a few years ago,
Speaker 2: kind of the peak of M and A. So it's like,
Speaker 2: you know, what's going on in terms of the exit space,
Speaker 2: what are you seeing on that front? And then private
Speaker 2: equity kind of compete competing to put that money to work,
Speaker 2: and I do think about how that drives up valuation.
Speaker 2: So what kind of insight can you give us on
Speaker 2: those fronts?
Speaker 10: Yeah, sure, you know, you hit the nail on the head.
Speaker 10: I mean, certainly, distributions are lower, and you mentioned, yeah,
Speaker 10: twenty twenty three was a very low activity in terms
Speaker 10: of M and A. But you you know, one of
Speaker 10: the things that's great about this ASSI class is it's
Speaker 10: very innovative, and so we're seeing a lot of deal
Speaker 10: flow in other areas, right, We're seeing it in terms
Speaker 10: of secondaries, a lot of GP led deals. You know,
Speaker 10: they're looking to hold on to those crown jewel ass
Speaker 10: sets continue to add value, so those opportunities offer exit.
Speaker 10: There's also opportunities to enter into sort of a mid life,
Speaker 10: so some opportunity to provide some liquidity by way of
Speaker 10: having new investors add value. So even though distributions are down,
Speaker 10: we are seeing interesting ways for liquidity to occur. That
Speaker 10: also includes certainly the whole growth of liquidity solutions for
Speaker 10: both LPs and GPS, whether that's an outright sale or
Speaker 10: some sort of lending facility to facilitate liquidity.
Speaker 3: Hey, Rylan, I'm curious about the fee structure when it
Speaker 3: comes to alternatives in a portfolio over at Mercer. How
Speaker 3: does the feed structure compare to equities and fixed income
Speaker 3: when it comes to a person's portfolio.
Speaker 10: Yeah, I mean generally these are you know, long term
Speaker 10: hold investments, right, and so it takes a lot to
Speaker 10: source those deals, to add the value and ultimately to
Speaker 10: exit them.
Speaker 2: But we have seen over the years.
Speaker 10: Fees have been coming down, and certainly when you've got
Speaker 10: the scale that somebody like Mercer does, there's a lot
Speaker 10: of opportunity as we have partners around the world, the
Speaker 10: GPS that we invest with on behalf of our clients
Speaker 10: to find ways to you know, bring those fees down
Speaker 10: but in a way that continues the alignment between GPS
Speaker 10: and LPs. So I'd say that fees have come down
Speaker 10: quite measurably, at least from the two and twenty back
Speaker 10: in the nineties that was but you know, certainly higher
Speaker 10: than the more traditional, more liquid asset class.
Speaker 3: What would they be like, I don't know, twice as
Speaker 3: high as you'd find in the equities portfolio or three
Speaker 3: times as high. You just give us some numbers here.
Speaker 8: I you know, it.
Speaker 10: Really depends on the portfolio and the assets, and I'd
Speaker 10: say I'd probably want to punt that one to one
Speaker 10: of our CIOs. This is probably more well positioned to
Speaker 10: do the comparison. But we look at it from total
Speaker 10: portfolio context, and oftentimes that the investor is interested in
Speaker 10: ultimately the net return that they're generating, you know, the
Speaker 10: absolute fee becomes less of a primary concern.
Speaker 2: I do want to dig a little bit deeper too
Speaker 2: into real estate. What specifically are you guys looking at?
Speaker 2: Obviously interest rate sensitivity there, there's also lots of questions
Speaker 2: still about the office space. I was looking at some
Speaker 2: numbers in terms of rates and logistics and kind of
Speaker 2: industrial routs. They are down on the year, So I'm
Speaker 2: curious where you are finding opportunities and the kind of
Speaker 2: returns you can't anticipate on that front, maybe this year
Speaker 2: or looking out over the next couple of years.
Speaker 10: Sure well. Actually, amongst our North American client base, real
Speaker 10: estate was a very strong area of investment, and given
Speaker 10: where we've seen sort of the markets headed. We think
Speaker 10: that a lot of sort of the price you know,
Speaker 10: the price discovery has kind of happened, that there's probably
Speaker 10: a trial now that pricing has kind of reached equilibrium,
Speaker 10: and a lot of investors that might have been turning
Speaker 10: more towards the opportunistic credit, certainly around the pandemic post
Speaker 10: pandemic or excuse me, opportunistic real estate are looking more now,
Speaker 10: maybe at good values in core and core plus real
Speaker 10: estate and certainly commercial real estate. It's a part of
Speaker 10: our portfolio, but not a very large part by any means.
Speaker 10: And so there's other areas. When you look at the
Speaker 10: growth of digitization, When you look at the amount of
Speaker 10: streaming that you and I and many around the globe
Speaker 10: are doing, you're seeing other kinds of assets. Data centers,
Speaker 10: you're seeing even film studios. You're seeing other kinds of
Speaker 10: real estate opportunities that present themselves and are certainly prevalent
Speaker 10: in our portfolios.
Speaker 3: Okay, really, and speaking of digitization, we promised we'd talk
Speaker 3: about AI. It was a huge theme for Carol last
Speaker 3: week out at the Milk and Institute of Global conference.
Speaker 3: What are the opportunities when it comes to AI in
Speaker 3: your world? Is it data centers? Is it energy? Is
Speaker 3: it utilities?
Speaker 8: What are they?
Speaker 2: It's all of that and more.
Speaker 10: You know, when you think about you've mentioned the distributions
Speaker 10: are coming down. If you were to sell an asset
Speaker 10: today at the same value, but a year later, you're
Speaker 10: already going to get three hundred basis points less in
Speaker 10: terms of your overall investment rate of return.
Speaker 2: What does that mean?
Speaker 10: That means a laser focus on ebada, That means pricing
Speaker 10: power on the top line. But AI what we're seeing is,
Speaker 10: in fact, we've reached out to the managers in our
Speaker 10: portfolio and said, how are you expressing AI and what
Speaker 10: you do on a day to day basis? Over ninety
Speaker 10: percent ninety percent said that they are either currently have
Speaker 10: integrated AI into their sourcing, research and portfolio implementation activities
Speaker 10: or are have, you know, discrete plans.
Speaker 2: To do so.
Speaker 10: So I think when the equation really shifts to an ebada,
Speaker 10: how are you going to create greaterfficiencies? How are you
Speaker 10: going to look at cost rationalization? That plays a huge
Speaker 10: part across all industries. But we're also seeing managers think
Speaker 10: about new product development or even augmenting capabilities or product
Speaker 10: lines that good companies already have. So I'd say it's
Speaker 10: quite pervasive across sectors, across different kinds of investments, and
Speaker 10: it's certainly an exciting time.
Speaker 2: All right, Gon to leave it there, Hey listen, Rayland,
Speaker 2: so nice to get some time with you. Really appreciate it.
Speaker 2: Raeland Lambert, he's global alternatives leader at Mercer Alternatives, joining
Speaker 2: us on this Wednesday.
Speaker 1: You're listening to the Bloomberg Business Week Podcast. Listen live
Speaker 1: each weekday starting at two pm Eastern ont Applecar Play
Speaker 1: and Android Auto with the Bloomberg Business App. You can
Speaker 1: also listen live on Amazon Alexa from our flagship New
Speaker 1: York station, Just say Alexa Play. Bloomberg eleven thirty AI has.
Speaker 2: Once again ignited a technology ramp up and capex spend
Speaker 2: across every industry, fueling a major investment play. As we
Speaker 2: were reminded once again by longtime market watcher and equity
Speaker 2: ble Edyard Denny, appearing this morning on Bloomberg Surveillance.
Speaker 1: Everything's technology. So my pet theory here is that when
Speaker 1: you look at the stock market, you have to think
Speaker 1: of every stock as a technology company. They're either making
Speaker 1: it or using it. If they're not using it, they're
Speaker 1: going to lose it, all right.
Speaker 2: That was Edyard Denny earlier. Basically, everybody's a technology company.
Speaker 2: You're either using it or you're making it for others
Speaker 2: to use, all right. The great AI utilization and investment
Speaker 2: race it is on. And yet Silicon Valley, the heart
Speaker 2: of innovation and the startup community, is searching for its
Speaker 2: piece of the action. And that's what the remarks of
Speaker 2: this week's new issue of Bloomberg Business Week is all about.
Speaker 2: Written by Bloomberg's Bradstone and Rachel Metz.
Speaker 3: That new issue out tomorrow. It's already online at Bloomberg
Speaker 3: dot com slash of BusinessWeek. It's great to be talking
Speaker 3: once again with the editor of Bloomberg BusinessWeek, Bradstone. He's
Speaker 3: author two of many books, including two on Amazon, the
Speaker 3: latest being Amazon Unbound Jeff Bezos in the Invention of
Speaker 3: a Global Empire. Brad usually on the West Coast, out
Speaker 3: in California, Ucky for us though here in our New
Speaker 3: York headquarters. So Brad, a busy week on the AI front.
Speaker 3: We got to catch up with you at the Bloomberg
Speaker 3: Tech Conference on Thursday, and a question that I asked
Speaker 3: you there was you know, you've been studying technology for years,
Speaker 3: you've been participant in it for years as an observer,
Speaker 3: as a writer, as a journalist, And I wondered about
Speaker 3: corollaries between what we see with AI versus what we
Speaker 3: saw with the nineties, with the rise of the Internet,
Speaker 3: what we saw at the two thousands and social media,
Speaker 3: and how this time is different, and you kind of
Speaker 3: dive into that a little bit when it comes to
Speaker 3: the remark section.
Speaker 6: Thanks Tim.
Speaker 12: I mean that juxtaposition is almost what led me to
Speaker 12: this essay because I felt like with the Internet and
Speaker 12: the nineties, sure we didn't know, you know, if it
Speaker 12: would if the line would be linear or not, but
Speaker 12: you could predict with a fair amount of certainty that
Speaker 12: this thing was going to be impactful.
Speaker 6: Same with social networking.
Speaker 12: We didn't know how long it would take, but that
Speaker 12: most of the people in the world would be networked
Speaker 12: together in some way. I feel like the questions in
Speaker 12: AI are much more fundamental. I think that, you know,
Speaker 12: we're a community in tech and Silicon Valley that likes
Speaker 12: to have answers, and don't I think that, you know,
Speaker 12: I wanted to acknowledge a certain amount of what I'm
Speaker 12: calling AI ambiguity exists, for example, the extraordinary increase in
Speaker 12: the capabilities of services like chat GBT, which have been
Speaker 12: exponentially getting better.
Speaker 6: Will that continue or will it flatline?
Speaker 12: Open AI give a demonstration of a new multimodal chap
Speaker 12: bot earlier this week, and people thought it was a
Speaker 12: marginal improvement. I think the consensus was less than impressed.
Speaker 12: Google at Google Io announced a number of new things,
Speaker 12: the biggest one being a redesign of the search page
Speaker 12: to feature more AI content.
Speaker 6: So will it keep getting better?
Speaker 12: Will the big tech companies completely dominate and own the
Speaker 12: AI opportunity?
Speaker 6: Or is their room for startups?
Speaker 12: So many questions, not a lot of answers. That's why
Speaker 12: I called it the Age of AI ambiguity.
Speaker 2: Well, and meantime, I feel like every conversation we have
Speaker 2: on the in the investment space BRAAD is all about, Okay,
Speaker 2: this is how you make money in AI. Having said that,
Speaker 2: I do wonder is it ultimately going to be the
Speaker 2: big players Because the cost of either data centers or
Speaker 2: the computations like getting these things, it's expensive. So I
Speaker 2: do wonder ultimately is it going to be led by
Speaker 2: the deep pockets of a Microsoft or an alphabet and others.
Speaker 12: Yeah, that's a great another great uncertainty. At the tech
Speaker 12: conference that you mentioned, the co founder and CEO of Anthropic,
Speaker 12: Dario Amode said it could cost one hundred billion dollars
Speaker 12: to train like a future model. I mean, look, it's
Speaker 12: going to require ever more amounts of computing power and
Speaker 12: resources to train these models and get them to be
Speaker 12: exponentially better.
Speaker 6: So who can afford that?
Speaker 12: At the same time, Mark Zuckerberg and Meta spent one
Speaker 12: hundred million dollars training Lama three, acquiring the processors from Nvidia,
Speaker 12: very specialized and hard to get processors, and then they
Speaker 12: have open sourced it.
Speaker 6: So is it They're.
Speaker 12: Harder and harder to do and the economics are being eradicated,
Speaker 12: and so what does you know? Profit making for the
Speaker 12: fundational models look like it's another of these great ambiguities.
Speaker 3: In the piece, you and Rachel talk about a small
Speaker 3: company that's called at Moo and the ideas they are
Speaker 3: able to forecast weather using data better than traditional forecasting.
Speaker 3: Can you take us through sort of the story here
Speaker 3: as to why it's sort of exemplary of the challenges
Speaker 3: that startups face competing not just against the big folks,
Speaker 3: but against the proxies of the big folks.
Speaker 12: I mean, it's interesting because weather forecasting, after like calculating
Speaker 12: ballistic missile trajectories, was the first application of the EMIAC supercomputer. Wow,
Speaker 12: and so weather forecasting has always been the province of
Speaker 12: powerful computers. The promise of at MO, this you know,
Speaker 12: two dozen persons startup in San Francisco, is to apply
Speaker 12: AI so systems that not only can crunch the numbers
Speaker 12: taken the censored data, but learn from their mistakes. You know,
Speaker 12: just look at all the mentions of these complex mathematical
Speaker 12: atmospheric equations. And what was interesting is as I was
Speaker 12: talking to this company and I was getting sort of
Speaker 12: interested in what they're doing, Google published a paper in
Speaker 12: an academic journal announcing its own weather model.
Speaker 6: And so it's a.
Speaker 12: Perfect encapsulation, ya right, Like, well does this impact this
Speaker 12: company at all? I mean, they put on a brave
Speaker 12: face and say it's a paper, it's not a product.
Speaker 12: In Nvidia is also talked about weather technology. Nobody other
Speaker 12: than at MO is selling it. They've got some good customers,
Speaker 12: like the US Air Force, but we don't know. And
Speaker 12: so I guess the case for startups in their backers,
Speaker 12: is it's like classic Silicon Valley if you specialize in it,
Speaker 12: if it's what you do, if you are emphasizing reliability,
Speaker 12: particularly when it's mission critical to the US Air Force
Speaker 12: or the government of the Philippines or whoever else. There
Speaker 12: are other customers, are you know, can you get that
Speaker 12: level of service from a Google or an Nvidia.
Speaker 6: They've got other fish to fry. But this is what
Speaker 6: ATMO does.
Speaker 12: So that's the argument that startups are making where there
Speaker 12: might be a lane here, even though the resources, the
Speaker 12: demands for talent and PhDs do seem to favor the
Speaker 12: big tech companies.
Speaker 2: All right, so what does the venture capital world say?
Speaker 2: You guys had been oed Coslow also at the Bloomberg
Speaker 2: Tech Summit. But I'm just curious, So what are they saying,
Speaker 2: because I feel like we've talked to you know, seed investors,
Speaker 2: some venture capitalists and they're like, AI the opportunities. But
Speaker 2: I'm just curious what they are seeing. Are there deals
Speaker 2: to fund or are they seeing a.
Speaker 6: Slow I mean, they're making an extraordinary bet.
Speaker 12: So we quote the New Stanford AI Index, venture capitalists
Speaker 12: funded eighteen hundred and twelve new AI companies last year
Speaker 12: a forty percent increase from twenty twenty two. And so
Speaker 12: they're placing the bet. You know, like all a venture capital,
Speaker 12: they're trying a lot of things, not all will work.
Speaker 6: I talk in the story.
Speaker 2: Great HR too, that's I guess showing some of the
Speaker 2: I guess investments that have been made or the foundation.
Speaker 12: Yeah, these are the models, and this actually shows how
Speaker 12: the largest models are then of the big tech companies.
Speaker 12: But you know, I've got this parable in the story
Speaker 12: of dimes and steamrollers, which is, you know, you can
Speaker 12: go pick up dimes in front of a slow moving steamroller.
Speaker 6: That's the tech platform.
Speaker 12: It might be dangerous, but if you're nimble and if
Speaker 12: you know when to get out of the way, you
Speaker 12: know it might it might end up working out. And
Speaker 12: I think that's the strategy here that you know, these companies,
Speaker 12: these the big tech platforms, are going to try a
Speaker 12: lot of things, but their attentionions a little diffuse, and
Speaker 12: there's still a lot of opportunity for companies that are
Speaker 12: nimble and that's specialized.
Speaker 3: Hey, Brad, thirty seconds give us a big takeaway that
Speaker 3: you left Thursday with. I mean, you put on this
Speaker 3: incredible text on it out in San Francisco, some huge
Speaker 3: guests out there. What's what's something that you learned and
Speaker 3: took away from the way that AI is sort of
Speaker 3: going to impact us moving forward.
Speaker 12: I mean, I think the first thing my first takeaway
Speaker 12: is that San Francisco.
Speaker 6: Is back baby.
Speaker 11: Yeah.
Speaker 6: It felt like that.
Speaker 12: Yeah, just the community and the speakers and the energy
Speaker 12: in the room from the beginning when Amoday siblings came
Speaker 12: and talked about anthropic Adam Newman, if we work to
Speaker 12: the end, Devin Spiegel of Snap and you know, sometimes
Speaker 12: these conferences can feel a little bit like air coming
Speaker 12: from the balloon, and it just felt, you.
Speaker 6: Know, a lot of energy all day.
Speaker 12: I think, you know, part of what inspired me to
Speaker 12: write the story is if I'm talking, if we're thinking,
Speaker 12: if we're talking about AI takeaways that there's still some
Speaker 12: questions and answers, you know, and that's why we called
Speaker 12: it the Age of AI Ambiguity.
Speaker 2: We are early on Broadstone. Thank you so much.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from two to five pm Eastern Listen
Speaker 1: on Apple car Play and then brought Auto with a
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Speaker 3: Hey, here's something that may surprise you. It certainly surprised
Speaker 3: me when I read the most recent story by our
Speaker 3: next guest. The US never really quit force labor. So yes,
Speaker 3: we have the thirteenth Amendment in the Constitution. It was
Speaker 3: ratified back in eighteen sixty five in the aftermath for
Speaker 3: the Civil War. It prohibited slavery and involuntary servitude. But Carol,
Speaker 3: there's a caveat in there quote accept as a punishment
Speaker 3: for a crime. And that's where a recent big take
Speaker 3: brings us the notion that corporate America never really stopped
Speaker 3: relying on forced labor, specifically forced labor done by inmates, who,
Speaker 3: it turns out, do billions of dollars of work for
Speaker 3: companies and governments each year. Josh Iidelson is Bloomberg News
Speaker 3: labor reporter. He joins us from our San Francisco bureau.
Speaker 3: Josh's story is going to be featured in the forthcoming
Speaker 3: issue of BusinessWeek magazine. You can read it now on
Speaker 3: the Bloomberg terminal and at Bloomberg dot com. Slash a
Speaker 3: BusinessWeek Josh. Before we get to the lawsuit that's sort
Speaker 3: of at the center of your story here, just give
Speaker 3: us an overview for people like myself who weren't actually
Speaker 3: familiar with the idea that in many states there are
Speaker 3: prisoners who do work for companies that many Americans use
Speaker 3: each and every day. What are some of those companies
Speaker 3: and who are these prisoners.
Speaker 8: That's right.
Speaker 13: Inmates do every thing from producing Russell Stover chocolates to
Speaker 13: upholstering high school auditorium furniture, to data entry to making
Speaker 13: swimming trunks. Prisoners are working in fast food restaurants, in manufacturing,
Speaker 13: fighting fires, digging mass graves during the COVID pandemic, and
Speaker 13: as you said, this is billions of dollars a year
Speaker 13: of work for governments and companies. Some do work producing
Speaker 13: goods that are sold elsewhere, some are working in the
Speaker 13: workplaces of private companies, and some are doing work for
Speaker 13: the prison system that is incarcerating them.
Speaker 3: So talk a little bit about the compensation here, because
Speaker 3: the companies are paying for this work in many cases,
Speaker 3: but the folks who are actually doing the work aren't
Speaker 3: necessarily the ones who are receiving the compensation.
Speaker 8: That's right.
Speaker 13: Even when a company, a private company, provides a wage
Speaker 13: for the work of someone who's incarcerated, the state can
Speaker 13: take a substantial cut of that, and in Alabama, as
Speaker 13: we report, two fifths goes to the apartment, the Department
Speaker 13: of Corrections, ostensibly to defray the costs of that person's incarceration.
Speaker 13: That's on top of other fees that are deducted. And
Speaker 13: so in Alabama you have a number of inmates bringing
Speaker 13: a lawsuit saying in some cases that their work either
Speaker 13: is unpaid or makes them only a few dollars an hour.
Speaker 6: There are so.
Speaker 2: Many aspects of this story to get into. About the injustices,
Speaker 2: to say the least one of the big ones though,
Speaker 2: and it's kind of in the sub headline if you will,
Speaker 2: have the story about many being kept in prison because
Speaker 2: the business is just too good. Get into that, and
Speaker 2: how all of this has ultimately led to a lawsuit.
Speaker 13: So this human trafficking and racketeering lawsuit alleges that the
Speaker 13: Alabama state officials, including the governor and the attorney general
Speaker 13: and the head of Corrections, have conspired to keep black
Speaker 13: people incarcerated as cheap labor, and that companies have colluded
Speaker 13: to profit off of that cheap labor of inmates. The
Speaker 13: defendants in the lawsuit have mostly motioned to have it dismissed.
Speaker 13: They have made various legal arguments and in some cases
Speaker 13: suggested that the inmates are treated well or that people
Speaker 13: who are incarcerated deserve to be made to do this work.
Speaker 2: What are some of the stories that you found out
Speaker 2: about in reporting out this story of some of the
Speaker 2: inmates and what they had to deal with or what
Speaker 2: their stories were.
Speaker 13: One plaintiff in the lawsuit, Lakira Walker, that she was
Speaker 13: sick in bed with the flu, and rather than being
Speaker 13: concerned about her health, a supervisor in the prison told
Speaker 13: her to get up and make us our forty percent,
Speaker 13: referencing the state's cut from her labor working in a
Speaker 13: thirty some degree assembly line situation handling frozen food, turning
Speaker 13: her fingers deep red. Another plaintiff, Arthur Potomy, says that
Speaker 13: when he told a fast food franchise co owner that
Speaker 13: he was no longer going to do free work as
Speaker 13: a second job for the same family for their catering business,
Speaker 13: he was fired from the franchise and as a result,
Speaker 13: received a disciplinary infraction that was held against him at
Speaker 13: a parole hearing.
Speaker 2: One thing I was one, oh sorry forgive me no
Speaker 2: please go.
Speaker 13: Another plaintiff, Alomurio English, says that he had to clean
Speaker 13: filthy shower with human bodily fluids and was not usually
Speaker 13: provided gloves, and when he raised the need for safety equipment,
Speaker 13: was told he needed to learn to be submissive or
Speaker 13: they would make him be submissive.
Speaker 2: You guys, are you know? You note in your story?
Speaker 2: And I want to kind of tie two things together.
Speaker 2: Earlier this year, as you report out, Josh and Associated
Speaker 2: Press investigation found prison labor in the supply chains of
Speaker 2: dozens of prominent companies, including Cargill, Coca Cola, Kroger, Target,
Speaker 2: and Walmart. These are obviously very known, well known companies,
Speaker 2: certainly to the Bloomberg audience. So I'm curious about one.
Speaker 2: Obviously the companies know or do they know about the
Speaker 2: use of prison labor. And then I want to ask
Speaker 2: you about the federal Prison Industries program the US governments.
Speaker 2: I mean, what do they know about what's going on
Speaker 2: with these workers that are in prisons and working for
Speaker 2: companies and about the conditions that are alleged.
Speaker 13: Many companies did not provide comment for this story, but
Speaker 13: several companies have said that they are working to address
Speaker 13: any instances of forced labor in their supply chains. In
Speaker 13: some cases, companies say that it's their suppliers who are
Speaker 13: the issue and not them the name brand themselves. The
Speaker 13: federal Prison Industry's program has a brochure we note in
Speaker 13: the story where they advertise prison labor as an alternative
Speaker 13: to what they call unstable labor and say you still
Speaker 13: get the made in the USA marketing advantage from getting
Speaker 13: your dorm furniture or swim trunks or data entry from
Speaker 13: this prison labor. We also note in the story that
Speaker 13: there have been allegations of safety issues. There an Inspector
Speaker 13: General report that was critical of how that agency handled safety,
Speaker 13: though the Inspector General later said that by the time
Speaker 13: the report came out, things were operating safety safely with
Speaker 13: limited exceptions.
Speaker 3: Hey, Josh, there's a racial element here that's really important
Speaker 3: in your story when it comes to the granting of
Speaker 3: parole and how folks who are incarcerated can get out
Speaker 3: and to what extent they do get out. Talk to
Speaker 3: us about what you found in your reporting here.
Speaker 13: So the lawsuit uses public records to conclude that there
Speaker 13: is a two to one disparity, with white people being
Speaker 13: twice as likely when considered to receive parole as black
Speaker 13: people in prison. They argue, there are a series of
Speaker 13: decisions that the governor made that both made overall parole
Speaker 13: rates plummet in the Alabama system and also created room
Speaker 13: for a significant racial disparity to emerge, and that is
Speaker 13: part of the grounds on which the Plane TIFFs are
Speaker 13: seeking an injunction to reverse changes to the parole system.
Speaker 2: Well, and just got about thirty seconds here to wrap up, Josh,
Speaker 2: I mean, I don't know what is next or what
Speaker 2: are you watching in terms of what happens to this story,
Speaker 2: these inmates and these legal actions.
Speaker 13: We'll be watching what happens with this case. It is
Speaker 13: in a fairly conservative federal appeals court. We have now
Speaker 13: a much more further right US Supreme Court than we
Speaker 13: used to in this country. So there are some challenges
Speaker 13: ahead for this lawsuit, but we'll be watching what happens
Speaker 13: with it in our case that experts say makes a
Speaker 13: compelling case. And more broadly, there are efforts, for example,
Speaker 13: on the ballot to end the exception allowing forced labor
Speaker 13: or slavery in prisons in several state constitutions, and those
Speaker 13: will continue to shape conversation. More broadly, well.
Speaker 2: It's an incredible story reality, to be quite honest, and
Speaker 2: so we highly recommend folks check it.
Speaker 8: Check it out.
Speaker 2: It's going to be the new issue of Bloomberg Business Week.
Speaker 2: It's online and of course already on the Bloomberg Josh
Speaker 2: Idols and labor reporter at Bloomberg News, joining us from
Speaker 2: our San Francisco bureau. Josh, thank you, m broommak.
Speaker 8: A journal.
Speaker 2: How about you let me drive?
Speaker 4: No no, no no please, jug honey please, how do the
Speaker 4: riding gravels?
Speaker 1: Let's mate, I want to try it.
Speaker 3: It's a good question time.
Speaker 1: This is the Drive to the Clothes dot com Think
Speaker 1: well by young it Don on Bloomberg Radio.
Speaker 2: All right, everybody just got about eighteen minutes left in
Speaker 2: today's trading session. Of course, Charlie breaking down the trade here,
Speaker 2: fifty three oh four on the S and P five hundred.
Speaker 2: So you've got stocks at all time highs. You've seen
Speaker 2: bond yields back off a bit after an inflation slow
Speaker 2: down we got earlier this morning. Also some weaker retail
Speaker 2: sales numbers, reinforcing those bets that fed. Maybe we'll cut
Speaker 2: interest rates this early September. So let's get to it
Speaker 2: because our next guest says valuations for several asset classes
Speaker 2: now look more appealing and that economic conditions are also
Speaker 2: turning more favorable. So we want to dig a little
Speaker 2: bit into that as well.
Speaker 6: Back with us.
Speaker 3: As Luca Pelini, chief market strategist at pick Day Asset Management,
Speaker 3: here in our Bloomberg Interactive Broker's studio, I think it's
Speaker 3: been a couple of years.
Speaker 8: Since a couple of Yes, it's great to be here.
Speaker 3: It's good to see you.
Speaker 2: Welcome back London home base.
Speaker 6: Right, yeah, so all all is well?
Speaker 11: Yeah, all is good, All is good. Somebody is coming,
Speaker 11: not yet, but.
Speaker 6: There, we're getting there.
Speaker 3: Hey, I wanted to talk a little bit about what
Speaker 3: asset classes you find more appealing, because, as Carol set
Speaker 3: up for us, we're at an S and P five
Speaker 3: hundred and NaSTA composit right now that are at records.
Speaker 3: So if you're sitting there with a pile of cash
Speaker 3: ready to deploy it, things are looking a little rich.
Speaker 11: Well, you know, I think what is interesting in the
Speaker 11: accounting situation is that a lot of valuation indicators that
Speaker 11: we do tend to be pretty much in line with
Speaker 11: story coll average or trend. There are some outliers, maybe
Speaker 11: US equities, maybe Japanese bonds, but overall most US a
Speaker 11: classic trade more or less where they should be. So
Speaker 11: I think the value is difficult to see great value,
Speaker 11: and if you see value, probably is a value trap.
Speaker 11: Think about Chinese equities. We see value now, for example
Speaker 11: in bonds because you.
Speaker 8: Have a peak in US growth.
Speaker 11: Inflation Yeah, sticky, but probably trending down. The FED is
Speaker 11: cutting rights, so we see value bones. And if you
Speaker 11: look at equities, to be honest, the value is more
Speaker 11: in Europe and Japan.
Speaker 8: You know sk coal markets.
Speaker 11: You see some improvement in the economy as well, especially
Speaker 11: in Europe, and these are markets that I'll perform in
Speaker 11: the US, believe it or not this year. So I
Speaker 11: think we should probably give some credit to Europe in
Speaker 11: the short term. In the long term, the US is
Speaker 11: see the.
Speaker 8: Place to be.
Speaker 2: Look, guys, I think so many people are talking about
Speaker 2: Japan right finally you know a change in certainly their outlook.
Speaker 2: If you certainly for market potential, how do you play it?
Speaker 2: Do you buy a basket? What do you do in
Speaker 2: terms of the equity exposure, specifically for Japan.
Speaker 8: Well, let me say that.
Speaker 11: First all, we also expect the end to recover. So
Speaker 11: if you are let's say a foreign investors, you probably
Speaker 11: get the bus also from the currency side. Otherwise, look,
Speaker 11: we tend to focus more on the domestic domestic companies
Speaker 11: in Japan. Japan is really a stock pickers market. It's
Speaker 11: not you cannot just buy yeah, but we focus more
Speaker 11: on domestic secrets because we think that the end we
Speaker 11: get stronger. I think the demand, domestic demand will improve.
Speaker 11: So we really believe that Japan has stand the corner.
Speaker 11: And I think when you look evaluations then we look rich,
Speaker 11: but rich compared to the past ten years when Japan
Speaker 11: was not in the same position as it is now.
Speaker 6: He said.
Speaker 3: In the long term, the US is still the place
Speaker 3: to be.
Speaker 8: I think so.
Speaker 11: I think so for a very simple reason. If you
Speaker 11: look at the main trend that we are going to
Speaker 11: see over the next few the next few years, the
Speaker 11: artificial intelligence is one, but this is the US where
Speaker 11: US is leading. You have companies that are generating a
Speaker 11: huge amount of profit. Profit margins are very solid. The
Speaker 11: risk for the US I think it's going to be
Speaker 11: moved from the dollar. I have to say, and if
Speaker 11: you look over the medium term though, we think the
Speaker 11: value I said is in Europe and Japan.
Speaker 8: There will be some catch up to do.
Speaker 11: But in the long term it's difficult to be very
Speaker 11: ebolished in Europe, but it's very limped the growth, no
Speaker 11: political leadership is very difficult. So the US in a
Speaker 11: way is the safest place to be.
Speaker 14: So wait, so you're not exposure to Europe or you
Speaker 14: want to in the short term, yes, because I think look,
Speaker 14: if you look at the past six months or the
Speaker 14: next six months, you have probably a rape card they CIB.
Speaker 11: That counts before the fair correct, good evaluation. There is
Speaker 11: good momentum in Europe. Impression is fully more than in
Speaker 11: the US, and there is also momentum.
Speaker 3: So I see well to Carol's point, how do you
Speaker 3: know if you you know in terms of your thesis,
Speaker 3: when to move out of Europe and Japan into the US.
Speaker 3: If Europe and Japan are the place to be in
Speaker 3: the short term, but the long term the US is.
Speaker 11: I think if you start to see the US or
Speaker 11: sort of the globally call me to week significantly, I
Speaker 11: think you have to play safe and go back to
Speaker 11: the into the US. At that point you probably can
Speaker 11: even consider China because Chines is a completely different business side.
Speaker 2: I want to consider China and.
Speaker 11: Not now, not now, But if I expect, if we
Speaker 11: expect the global economy to go into a recession or
Speaker 11: into a long phase of tagnician, you probably want to
Speaker 11: look at Martiveware. The cycle is different Chinese and a
Speaker 11: completely different cycle. Inflation is negative.
Speaker 2: Well, it's a cycle that's often ruled by the Chinese
Speaker 2: government in terms of what they do in terms of policy,
Speaker 2: So like how comfortable do you feel about that?
Speaker 11: Or this will be only a tactical call. We don't
Speaker 11: think that China in the medium to long term offer
Speaker 11: the same value that maybe could have offered two decades ago.
Speaker 11: Now is a very different environment, so that's why we
Speaker 11: stick with the US. But tactically we think there is
Speaker 11: value set in Europe.
Speaker 2: But how much exposure, Like if you say tactically, when
Speaker 2: you talk about Europe or China for that matter, tactically,
Speaker 2: how small of an exposure.
Speaker 8: Are you China? We don't have any exposure right now.
Speaker 11: What I was saying that if you expect a significant
Speaker 11: desseration global growth is something we may consider purely tactically
Speaker 11: in the Europe. In Europe really depends on which funds
Speaker 11: we are talking about. I think, you know, for a
Speaker 11: European investor, Evan, let's say a quite significant portion in
Speaker 11: European stocks, I think you think it makes sense if
Speaker 11: you have fifty percent in equities, probably twenty percent in
Speaker 11: Europe makes a lot of sense.
Speaker 3: On the US side, I'm wondering if November's election and
Speaker 3: the outcome there changes your thesis at all.
Speaker 8: Not yet.
Speaker 11: First of all, a lot of things can change between
Speaker 11: now and November. I don't think there would be a
Speaker 11: massive change in the direction of the country if there
Speaker 11: is a change, So I honestly think that it's too
Speaker 11: early to think about it. I personally think though, that
Speaker 11: if Trump wins the presidency, I think what is probably
Speaker 11: negative for bondes? Why for equities? I think it's much
Speaker 11: more difficult to assess. It's much more a relative game.
Speaker 11: I think it's going to be bad for bonds. But
Speaker 11: otherwise we think it's too early to play the election
Speaker 11: the election game here.
Speaker 2: Look, I just get about a minute. Are so left here?
Speaker 2: I mean, what's interesting about this market global market cycle
Speaker 2: right now? I mean here we are, what now four
Speaker 2: years out of the pandemic, a lot of money that
Speaker 2: was thrown at investors and individuals globally as the economy
Speaker 2: shut down. But we're still kind of finding our way forward.
Speaker 2: But it's different. We've got a couple of wars. We've
Speaker 2: got geopolitics that constantly kind of creeps its way into
Speaker 2: almost every story and every I feel like investing conversation.
Speaker 2: So I don't know what's interesting about the cycle. And
Speaker 2: forgive me now, you're only forty second.
Speaker 8: What is interesting?
Speaker 11: We don't know, tam high and we have an incredible
Speaker 11: number of shocks, you know, call in inflation, interest rates, wars.
Speaker 11: But everything feels pretty good, and maybe it is good.
Speaker 11: And I think the surprising I think the surprising element is,
Speaker 11: for example, we have seen no recession when everybody was
Speaker 11: expecting one, and I think we have seen the economy
Speaker 11: and credibras into very much higher interest rates.
Speaker 8: Why.
Speaker 11: I think because we had a fantastic increasing wealth over
Speaker 11: the past two decades. People feel out here and some
Speaker 11: people taking an average on average, that means that I
Speaker 11: think they're much less vulnerable to our as an inflation
Speaker 11: or interest rate. And I think we have we have
Speaker 11: to look into this indicators. So I think wealth is
Speaker 11: wealth creation. The past two decades has been massive, and
Speaker 11: there is still a lot of money around, and I
Speaker 11: think that's obviously reflecting this fantastic performance of markets.
Speaker 2: Well, could have you here in studio, Safe travels Home,
Speaker 2: Thank you, Look at Paolini his chief market strategies A
Speaker 2: Picta Asset Management.
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