Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 3: There's some things that are happening.
Speaker 4: A UBS, for example, is down almost five percent. So
Speaker 4: we want to get you some analysis here with Alison Williams,
Speaker 4: Boomberg Intelligence, Senior Analyst, Global Banks and Asset Managers. So basically,
Speaker 4: the there was a fourth quarter earnings miss. It did
Speaker 4: announce a buy back of up to one billion dollars
Speaker 4: and shares this year, So you can make an argument, Allison,
Speaker 4: there's something for the bulls or something for the bears.
Speaker 3: What was there for you?
Speaker 5: So I think you know, investor has got as much
Speaker 5: as they could today. You know, the issue is this
Speaker 5: is a long It's going to be a long time
Speaker 5: frame for this deal to execute, which I think investors
Speaker 5: should have been prepared for.
Speaker 6: They may have wanted a bit more.
Speaker 5: The one negative thing for the outlook is that twenty
Speaker 5: twenty four estimates are likely going to come down a
Speaker 5: little bit because you know the returns are going to
Speaker 5: be lower. But that's because I think UBS is trying
Speaker 5: to be aggressive in you.
Speaker 6: Know, pulling forward those costs.
Speaker 5: So they did upsize the costs on a growth basis,
Speaker 5: but they're going to invest those so not falling to
Speaker 5: the bottom line, so perhaps some disappointment there. They did
Speaker 5: reiterate their sort of three year target. They gave a
Speaker 5: longer term target that was in line with the high
Speaker 5: end before Credit sweet so I think those were all positive.
Speaker 5: The buybacks also a little bit better than expected. The
Speaker 5: big positive news was twenty seven percent increase in dividend
Speaker 5: though also, as you said, fourth quarter, you know, not
Speaker 5: so much great things going on there, so that the
Speaker 5: miss was on costs. Their adjusted costs fell, their integration
Speaker 5: costs or the restructing costs were much bigger than expected,
Speaker 5: the wealth flows moderated a little bit, and the investment
Speaker 5: band lost money.
Speaker 7: Allison, what is the new UBS here post Credit Swiss
Speaker 7: and full disclosure, I'm a client of UBS used to
Speaker 7: work at Credit Swiss, so I'm all over the Swiss
Speaker 7: stuff here. But what's where does UBS want to be
Speaker 7: now that they've acquired Credits Swiss? What are their ambitions
Speaker 7: VISAVI a global financial institution?
Speaker 5: So I don't think that the big picture strategy has
Speaker 5: changed much for them, right, So they their focuses on wealth.
Speaker 6: You know, they're the premier global wealth manager.
Speaker 5: They added some assets, they added some relationships with Credit
Speaker 5: Suite in the investment bank.
Speaker 6: Again, they're still focused on equities.
Speaker 5: So even though profit disappointed, revenue came in about in line.
Speaker 5: So that's that's a positive thing. On the equities trading
Speaker 5: side of things. They did add you know, some incremental ads.
Speaker 5: There were some numbers around the traders. The Bloomberg News reported.
Speaker 5: We obviously look at the top line revenue, you know,
Speaker 5: there they kept the M and A and the research
Speaker 5: areas were the areas that they added to and those
Speaker 5: areas did pretty well.
Speaker 6: On the quarter.
Speaker 4: So what else do you need to hear to get
Speaker 4: more confidence in all of this. Wean just like a
Speaker 4: kind of hold and wait for two more years.
Speaker 8: Basically, I think it is like a show me right,
Speaker 8: So I think it's going to be a step by
Speaker 8: step So Armandi, as you know, said this morning that
Speaker 8: you know, they might sacrifice a little bit of revenue
Speaker 8: because they are focused on profitability.
Speaker 6: They're focused on doing things right.
Speaker 5: So again, like those are the types of things that
Speaker 5: you have to have confidence.
Speaker 6: He has done a big turnaround at the UBS before.
Speaker 5: But I think that it is the kind of thing
Speaker 5: where it's like quartered by quarter, investors have to start
Speaker 5: to see, you know, some of the.
Speaker 6: You know, some support for these estimates.
Speaker 5: Another target they put out there this morning was one
Speaker 5: hundred billion per year for the next two years a
Speaker 5: net new wealth asset. So I think that's a pretty
Speaker 5: good target. But again we saw some slowing in the
Speaker 5: fourth quarter. Some of that was mandates leaving with credit
Speaker 5: sue relationship managers still pretty stable, but I think investors
Speaker 5: will want to see, you know more so you know,
Speaker 5: over the next few quarters, UBS delivering on its plans.
Speaker 7: So Elison, just, I mean you cover everything all the
Speaker 7: global big investment banks, commercial banks. Here is the global
Speaker 7: bank is that just left to the Morgan, Stanley's, the Goldman,
Speaker 7: sachs Is or whatever. It doesn't seem like anybody in Asia,
Speaker 7: anybody in Europe can compete against the JP Morgans of
Speaker 7: the world.
Speaker 5: So Paul, it's I mean, it's really been over the
Speaker 5: last decade, you know, ever since you left the business,
Speaker 5: but it was it was.
Speaker 6: Last decade, you know.
Speaker 5: The US Bank just fought, you know, really making those
Speaker 5: market share games. You know, Credit Suite was is sort
Speaker 5: of the latest to who you know, provide some provide
Speaker 5: some gains to those US players if you will keep
Speaker 5: in mind that, uh you know, that sale from UBS
Speaker 5: follows them exiting prime brokerage. Before Current Suite, we had
Speaker 5: Deutsche Bank who also exited Prime berg Bridge.
Speaker 6: You know, they shed parts of their fixed income business.
Speaker 5: If we went back to several years prior, there was
Speaker 5: a lot of the European players getting out of fix
Speaker 5: and you know, keep in mind, it.
Speaker 6: Is a scale business.
Speaker 5: And I think where banks like JP Morgan have been
Speaker 5: winning and in fact Goldman Sachs has gained the most
Speaker 5: market share over the last several years, or that they
Speaker 5: are investing in technology that helps them get better revenue,
Speaker 5: that helps them have more money to invest. And so
Speaker 5: it's really that virtuous cycle that some of those big
Speaker 5: US banks have been enjoying.
Speaker 4: And before we let you go, let's talk about you
Speaker 4: cover everything. A KKR doing particularly well. Also, what's driving
Speaker 4: some of these private equity guys to outperform at this point?
Speaker 5: I think, you know, if you look at the asset
Speaker 5: management industry, right like the two areas of growth are
Speaker 5: private markets and passive.
Speaker 6: The big difference is that private markets has very significant fees,
Speaker 6: and since you've seen these big companies go public, I mean,
Speaker 6: the fundraising is just impressive.
Speaker 3: Great stuff. Alison is the best.
Speaker 7: She is absolutely wonder who hired her, Alison Williams.
Speaker 1: To do it yourself.
Speaker 7: Exactly, patting myself on the back there, No, but she's
Speaker 7: the best. Allison Williams, Senior Analyst, Global Banks, Bloomberg Intelligence.
Speaker 7: Before she came to Bloomberg Intelligence to cover bank she
Speaker 7: was at Morgan Stanley Investment Management on the buy side
Speaker 7: as a senior analyst covering banks there for all their
Speaker 7: big funds.
Speaker 4: I just don't like all these banks have different business models,
Speaker 4: and I do not understand you keep them all straight,
Speaker 4: like at least oil companies, like they dig for stuff
Speaker 4: and they get it out of the ground, Like they
Speaker 4: may dig in different places, but it's it's pretty straightforward.
Speaker 7: I mean, you know, back in college, I wrote a
Speaker 7: paper on who are the five biggest investment banks in
Speaker 7: twenty five years?
Speaker 9: Who they're going to be?
Speaker 7: One of them was Deutsche Bank, And for a while
Speaker 7: I was looking really good there until not so.
Speaker 4: Much although I mean, we thought they weren't going to
Speaker 4: survive twenty sixteen. So we thought we were all like
Speaker 4: beating the drum to total bankruptcy or someone buying it.
Speaker 3: Like you know, UBS or UniCredit, and that shouldn't happen.
Speaker 7: So and you just look at the European banks and
Speaker 7: they just haven't evolved with the times. The governments haven't
Speaker 7: allowed cross border consolidation, and so the net result is
Speaker 7: in this global world they're nowhere, I mean nowhere, Deutsche Bank,
Speaker 7: you BS, they're regional banks now. And it's a shame
Speaker 7: because you know, there was a time when you really
Speaker 7: thought that they could become a global financial institutions. So
Speaker 7: I have to see now it's up to the JP
Speaker 7: Morgans and Goldwin's and the Morgan standards of the world.
Speaker 9: So good stuff.
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Speaker 4: The FAA Administrator Mike Whittaker is on Capitol Hill today
Speaker 4: and he'll be talking about the latest Boeing news and
Speaker 4: how the FA is going to have a little bit
Speaker 4: more oversight. And just to add some color to this spirit,
Speaker 4: Aerospace is on their earnings call right now. They weren't
Speaker 4: able to give guidance because of what's going on with Boeing,
Speaker 4: and they say that their goal, yay, is to have
Speaker 4: zero production deficits. That's good goal, thank you. They say
Speaker 4: they're fully aligned with with Boeing. They plan to have
Speaker 4: more automation of some manual tasks. They've added inspectors, assessed
Speaker 4: plug sequence with Boeing. Like they're doing all the right stuff.
Speaker 4: And they have made progress, they say, in stabilizing the
Speaker 4: seven thirty seven production in the fourth quarter.
Speaker 3: So what does this all mean, Like, do we want.
Speaker 4: FAA regulators like getting involved more more boring planes?
Speaker 3: That is it better? Is it worse? They were already involved.
Speaker 3: It's confusing.
Speaker 9: I don't know. I don't know. But George Ferguson he knows,
Speaker 9: he might know.
Speaker 7: He covers all this aerospace and airline stuff for Bloomberg Intelligence.
Speaker 9: George, what's the latest here?
Speaker 7: What changes do you think may come to the FAA,
Speaker 7: may come to Boeing?
Speaker 10: So you know, what we heard from Whitaker in some
Speaker 10: of his initial comments was that rather than auditing Boeing safety,
Speaker 10: they're going to have a you know, physical presence on
Speaker 10: the line, and that they would push some of that
Speaker 10: presence down into Spirit Aero systems. I suppose that means
Speaker 10: they'd push it also into other suppliers. I mean, I
Speaker 10: frankly think it's a good thing, right I think that
Speaker 10: clearly right now, the way the system is is set up,
Speaker 10: it's not working well. You know, we've talked about it.
Speaker 2: I think it's you.
Speaker 10: Know, largely due to turnover, you know, as we went
Speaker 10: through the pandemic. I think we've lost a lot of
Speaker 10: talent at these companies. But so clearly we're having a
Speaker 10: breakdown in the manufacturing process. And I think, you know,
Speaker 10: the FAA is here to regulate, and you know, I
Speaker 10: think this something that puts the long term health of
Speaker 10: the US aerospace business at risk, and they're here to
Speaker 10: help protect that right and so putting them down on
Speaker 10: the line I think is a positive. It may slow
Speaker 10: things down, but I think for a good reason, so
Speaker 10: that you get quality through there and folks can trust
Speaker 10: the products coming out of Boeing and other US aerospace suppliers.
Speaker 4: Why weren't FAA regulars already there and have a physical presence.
Speaker 10: Well, so, I mean, I think they were largely handling
Speaker 10: things from an audit standpoint, right, reviewing processes and certification.
Speaker 10: I think that they're you know, they've been stressed thin
Speaker 10: through the pandemic as well. They haven't had enough you know,
Speaker 10: workers as well a lot of turnover.
Speaker 11: And I think also, I.
Speaker 10: Think this business was a simpler business if you go
Speaker 10: back twenty or thirty years ago. I know that's a
Speaker 10: long way to go, especially I'm talking to people off
Speaker 10: it's financial markets.
Speaker 11: Yeah, but if you go back.
Speaker 10: Twenty thirty years ago, this just this apply chains didn't
Speaker 10: stretch as far. They were a lot more domestically focused,
Speaker 10: a lot more vertically integrated. And that's been changed dramatically
Speaker 10: over the last number of years. And I think Boeing
Speaker 10: got on the cutting edge of that when they built
Speaker 10: the seven eight seven, And I think that's created you know,
Speaker 10: some challenges here and now I think, you know, the
Speaker 10: regulator as well as the manufacturer has to figure out
Speaker 10: how they can manage such a far flung supply chain
Speaker 10: and make sure equality comes to on the line.
Speaker 11: So I think the world's a little bit different and.
Speaker 10: That's one of the reasons why it's changing.
Speaker 9: What's that mean for, you know, the economics of Boeing.
Speaker 7: I mean there's a school thought out there that you know,
Speaker 7: maybe ten twenty years ago they kind of maybe made
Speaker 7: the choice to focus a little bit more on shareholders
Speaker 7: than maybe on the engineering of the company engineering pedigree,
Speaker 7: and that's arguably worked out well for shareholders. Is there
Speaker 7: a sense that they maybe went too far and might
Speaker 7: have to kind of retrench a little bit.
Speaker 10: I think there is a sense that they went too far, right,
Speaker 10: if you know, member going to meetings with the old
Speaker 10: CEO McNerney and even Muhlenberg, a couple of CEOs ago,
Speaker 10: and you know, they've get into the you know, the
Speaker 10: meeting with the analysts and talk about how they had
Speaker 10: a cash generating machine, and I think that's really great,
Speaker 10: you know, but at the end of the day, these
Speaker 10: are engineering businesses and manufacturing businesses, and I think they've
Speaker 10: got to, you know, look again at investing in the
Speaker 10: people that build these aircraft. It's not it's not like
Speaker 10: an auto plant where you have a lot of capital
Speaker 10: equipment in there. You know, you've got robotics, you've got
Speaker 10: jigs and everything like that that will really help support
Speaker 10: workers that maybe aren't as you know, trained as an
Speaker 10: aerospace worker. Aerospace has a lot less of that. The
Speaker 10: volumes are lower, the work is a lot a lot more.
Speaker 10: You know, it could be it could be complex, it
Speaker 10: could be very specific, so much so that you can't
Speaker 10: get a capital tool on or a machine on it.
Speaker 10: And so you really need a seasoned workforce there, well
Speaker 10: trained workforce, And I think that's where they need to be, right,
Speaker 10: they need to get reinvested back in that workforce.
Speaker 4: And in that process, I have a really dumb question,
Speaker 4: So excuse the dumb question.
Speaker 3: Why is it so hard?
Speaker 4: Like I understand that building big things that carry people
Speaker 4: is difficult, but doing it well shouldn't be hard.
Speaker 3: For a Boeing and an Airbus the only.
Speaker 4: Two guys who do it, so like, where have they
Speaker 4: gone so wrong? They have to sort of drill down
Speaker 4: this much?
Speaker 10: Well, I guess I would say it's so hard because
Speaker 10: the tolerances are so tight, right, meaning you can't make
Speaker 10: a mistake in this business. Right you and I go
Speaker 10: to work, I can make a problem in a spreadsheet,
Speaker 10: it's okay, I'll probably figure it out in a couple
Speaker 10: hours or something like that. You can make a bad
Speaker 10: car and when it breaks down, you pull to the
Speaker 10: side of the road and you get the tow truck.
Speaker 10: It's not the end of the day. This is a
Speaker 10: zero tolerance for defects business, and that means every little
Speaker 10: miss is noticed. And that's why I think it's so hard.
Speaker 9: Fair Enough, is Boeing taking new orders?
Speaker 12: Now?
Speaker 9: How was it day to day for them? Are they
Speaker 9: still their backlogs still here?
Speaker 13: So stuff?
Speaker 10: Yeah, I mean they're absolutely open for business taking orders.
Speaker 10: I haven't seen many orders flow through lately. I have
Speaker 10: heard some customers like Ryanair that are always looking for
Speaker 10: a good deal say that if anybody doesn't want their airplanes,
Speaker 10: they're willing to take them. But I mean on the
Speaker 10: sales side, absolutely, I think they're open for business. And
Speaker 10: on the manufacturing side, that's the challenge here too, is
Speaker 10: they're not going to shut it down. They're building at
Speaker 10: a thirty eight rate. They've got to do that as
Speaker 10: well as possible while improving it. And then you know,
Speaker 10: we're gonna wait and see what the FAA, what changes
Speaker 10: the FAA may want as they get involved here, but
Speaker 10: they're still running the business while they try to make
Speaker 10: these improvements.
Speaker 4: Because I mean for an airliner, for example, like you
Speaker 4: put in orders and it's like years in advance, right,
Speaker 4: so like they kind of have to stay in the queue.
Speaker 4: But if the deliveries are pushed out, what airlines have
Speaker 4: enough of like old play that they.
Speaker 3: Can still do the stuff?
Speaker 10: You know, So the global airflying fleet, like I could
Speaker 10: take the next couple hours to talk you through it,
Speaker 10: but you got like ninety Yeah, I mean there's a
Speaker 10: there's a lot of them that have older fleet that
Speaker 10: can that can rely on it. Right now, there's been
Speaker 10: no change to Boeing's build strategy. They're building it the
Speaker 10: thirty eight that they broke to at the end of
Speaker 10: last year.
Speaker 11: And if this FAA you know.
Speaker 10: Analysis takes longer than six months, maybe we get into
Speaker 10: a situation where Boeing can't go to the next build
Speaker 10: rate that they had they had projected as they you know,
Speaker 10: told customers they could have airplanes. I could tell you
Speaker 10: that there's a lot of folks, a lot of airlines
Speaker 10: in the world that expected airplanes, even from air Bus
Speaker 10: at certain dates that are having to push some of
Speaker 10: those out and and make, you know, make provisions with
Speaker 10: either less sores or using older fleet so that they
Speaker 10: can cover the schedule they want to fly. So this
Speaker 10: is not just a Boeing issue with sort of managing
Speaker 10: not having airplanes ready.
Speaker 9: All right, George, thanks so much for joining us again.
Speaker 7: George Ferguson, Senior Aerospace, Defense and Airlines Annols Bloomberg Intelligence
Speaker 7: on the Zoom Camp from a Bloomberg's headquarters down to Princeton,
Speaker 7: New Jersey.
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Speaker 7: A bad day for President Trump and his legal team.
Speaker 7: Can you put this in context for us?
Speaker 13: Sure? Yes, it's a speed bump in his legal journey.
Speaker 13: I guess you could call it.
Speaker 14: He the a three judge panel of the d C
Speaker 14: Circuit Court of Appeals, which is actually the US Circuit
Speaker 14: Court of Appeals based in DC, has ruled the Trump's
Speaker 14: argument that he is immune from criminal prosecution because he
Speaker 14: was president when he was allegedly committing these crimes related
Speaker 14: to the insurrection at the Capitol on January six, that
Speaker 14: his argument is wrong, that he has no immunity and
Speaker 14: he can indeed be prosecuted. Trump has just said that
Speaker 14: he was going to appeal that decision, and that would
Speaker 14: go to the full US Circuit Court of Appeals for
Speaker 14: the District of Columbia and then presumably onto the Supreme
Speaker 14: Court if he doesn't like the answer from the nine judges.
Speaker 4: Wendy, do you think that it will get to the
Speaker 4: Supreme Court? We were debating whether or not they would
Speaker 4: take it.
Speaker 13: Up if it got there. It's always hard to tell
Speaker 13: what the Supreme Court will do. I have no doubt that.
Speaker 14: If the nine judge panel agrees with the three judge panel,
Speaker 14: that Trump will appeal it all the way to the
Speaker 14: Supreme Court. And it's one of those basic fundamental constitutional
Speaker 14: questions that frankly, the Supreme Court would probably be interested
Speaker 14: in taking up because it will determine once and for
Speaker 14: all whether a president has immunity now a president, we've
Speaker 14: never faced this before, first of all, but also Trump
Speaker 14: is arguing based on a nineteen eighty two Supreme Court
Speaker 14: decision that in civil cases. A president is immune from
Speaker 14: civil lawsuits. For ax, he took his president, but a
Speaker 14: civil lawsuit and a criminal indictment are two very different things.
Speaker 9: So lots of questions here. One of them is just timing, Wendy.
Speaker 7: Do we have any framework for how the one, possibly
Speaker 7: two appeals would take.
Speaker 13: We don't. He has a former president.
Speaker 14: Trump has until Monday to file an appeal, or to
Speaker 14: say he's going to appeal.
Speaker 13: I think so he has till Monday to do that.
Speaker 14: Then we don't know how long it would take the
Speaker 14: full court to decide, and then the Supreme Court may
Speaker 14: or may not take its time, depending on how complicated
Speaker 14: the issue is. I like to think that these courts
Speaker 14: would not act based on politics, and there's no reason
Speaker 14: to think they would. So they may just see the
Speaker 14: case as easy and decide quickly, or they may decide
Speaker 14: to take more time. But either way, the clock is
Speaker 14: ticking toward the November election.
Speaker 3: Wendy. Let's just play it out for a second.
Speaker 4: So let's just say that this sticks in whatever way
Speaker 4: and he's not granted criminal immunity.
Speaker 3: With them, what like, does what does that do to
Speaker 3: the November election?
Speaker 14: Well, what it does do is allow Jack Smith, the
Speaker 14: Justice Department Special prosecutor, to move forward with his case
Speaker 14: charging Trump with responsibility for the January sixth attack on
Speaker 14: the US Capitol in twenty twenty one. And Jack Smith
Speaker 14: says he's ready to go and would like to do
Speaker 14: this case quickly. So presumably if the courts act in
Speaker 14: time and the question of immunity is settled so that
Speaker 14: a trial can go forward, then we could be looking
Speaker 14: at a trial on that case before the election.
Speaker 7: So is there any consensus in Washington about how this
Speaker 7: will play out here because it doesn't seem very good
Speaker 7: for the former president just from my read, which is
Speaker 7: totally uninformed.
Speaker 13: Well, it's not. It doesn't look like it's going to
Speaker 13: be good for the president.
Speaker 14: The laws are pretty clear, and the argument that Trump
Speaker 14: is basing his appeal on that he's immune from civil
Speaker 14: lawsuits has no application to the criminal statutes. So, you know,
Speaker 14: it doesn't look like it's going to get any better
Speaker 14: the higher up he goes in the judicial system.
Speaker 13: But we never knows. Different judges see different things.
Speaker 4: Wendy, how does this playin with voters? Because clearly his
Speaker 4: base is going to assume that he's being unfairly prosecuted anyway,
Speaker 4: So that in some ways helps the base. We see
Speaker 4: every time there's a new indictment, he gets a load
Speaker 4: of fundraising money.
Speaker 3: So who does this actually sway in terms of voters?
Speaker 14: This doesn't sway well, it doesn't sway voters either way.
Speaker 14: People who don't like Donald Trump think he should be prosecuted,
Speaker 14: people who who a lot of Trump's supporters do believe
Speaker 14: that this is politically motivated. They buy his line and
Speaker 14: campaign rallies that this is a quote unquote witch hunt,
Speaker 14: and so this is just another step in that road
Speaker 14: toward that. However, our recent Bloomberg News Morning Console poll
Speaker 14: published last week said that fifty three percent of voters
Speaker 14: in the important swing states would not vote for Trump
Speaker 14: if he were convicted of a crime. And that includes
Speaker 14: one in four Republican voters in swing states. So if
Speaker 14: he is convicted, that really could damage his reelection prospects.
Speaker 4: All right, Wendy, thanks so much. We really appreciate it.
Speaker 4: Thank you for jumping on with us, Wendy. Benjamison, a
Speaker 4: Bloomberg Washington senior editor, on that story, I don't know,
Speaker 4: I think anything's going to get so political. It's going
Speaker 4: to be so hard to see the forest in the trees.
Speaker 7: Yeah, I just don't know how the timing's going to work,
Speaker 7: and just a lot of hurdles there. But moving forward,
Speaker 7: I guess is kind of the story.
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Speaker 7: David Bonson joined a series the Chief Investment Option for
Speaker 7: the Bonson Group. David again, John Tucker was looking for
Speaker 7: some theme to talk about here in this market.
Speaker 9: I don't see a lot here.
Speaker 7: We got a ton of earnings going on out there,
Speaker 7: but it seems to be everybody's kind of waiting on
Speaker 7: the fed. You know, I don't know what do you guys,
Speaker 7: What are you guys looking for in terms of direction
Speaker 7: in this marketplace?
Speaker 15: I always am looking for company earnings and actual activities
Speaker 15: from the businesses we invest in. In other words, a
Speaker 15: day today is the way it's supposed to be. You know,
Speaker 15: the market's trading around the size of the briefcase. J
Speaker 15: Powell carries to a press conference. It strikes me as
Speaker 15: very unhealthy markets trading around sign and property having a
Speaker 15: blockbuster earnings result last night. Now that makes a lot
Speaker 15: of sense. So you see the largest mall operator in
Speaker 15: the country up four and a half percent today. It
Speaker 15: was a name I talked about with you guys last
Speaker 15: time I was here, that you know, we're bottom up people,
Speaker 15: We're markets, are businesses doing things kind of people. I'd
Speaker 15: like to see less of the obsession with Jpal quite frankly.
Speaker 3: Okay, So then what do you like, like what's working
Speaker 3: bottom up?
Speaker 15: I think bottom up you have to look at the
Speaker 15: spaces that are not overvalued. Even though some of those
Speaker 15: overvalued names have done well, it's not been the quarter
Speaker 15: everyone seems to think it has for mag seven, but
Speaker 15: Tesla's gotten crushed, and Microsoft had, you know, good results,
Speaker 15: but not a great stock result. Facebook had a huge
Speaker 15: up swing on a dividen announcement.
Speaker 11: It's been very mixed.
Speaker 15: We're looking at things like consumer staples that we think
Speaker 15: are showing their pricing power, growing dividends, and if it
Speaker 15: is going to be a boring year, that will be
Speaker 15: a good thing for such.
Speaker 3: Does that mean that you sell tech or you did
Speaker 3: don't want to buy them here, Well.
Speaker 16: For us, we don't have to worry about selling it
Speaker 16: because we didn't buy it to begin with.
Speaker 3: And so so you don't own any of the big
Speaker 3: mag seven or six, not a single one.
Speaker 9: And so that's why are evaluation called.
Speaker 11: It's totally evaluation called.
Speaker 15: These are seven of the best run companies in history
Speaker 15: that have done extremely well, and they have a blended
Speaker 15: negative return over the last two years. And I don't
Speaker 15: think people realize that because twenty twenty three was so good,
Speaker 15: but it was mostly just offsetting what was so bad
Speaker 15: in twenty two, and we think that's what it's going
Speaker 15: to do.
Speaker 16: That's what companies that trade at thirty thirty five, forty times.
Speaker 11: You know, Facebook right now.
Speaker 15: Has a higher forward multiple than it does backward after
Speaker 15: last week.
Speaker 11: That's just crazy.
Speaker 15: So what do you how do you screen for stocks?
Speaker 15: What's important to you, guys at the Bondson dividend growth.
Speaker 15: So it starts with companies that have a dividend higher
Speaker 15: than the SMP. Generally we want one hundred basis points
Speaker 15: or so higher in the SMP, but then a track
Speaker 15: record of growing the dividend from there.
Speaker 16: That's the screen, as you asked. Then we start doing
Speaker 16: our work. Then we have to research. We want management
Speaker 16: that's committed to the dividend, committed.
Speaker 11: To growing it year over year.
Speaker 15: They can only do so if they have a company
Speaker 15: that has recurring free cash flow. So if the free
Speaker 15: cash flow or the business model itself lends itself to
Speaker 15: lumpy earnings, it may not be a good diviting payer
Speaker 15: has to have a strong balance sheet. It's a little
Speaker 15: bit more boring. You get a lot in healthcare. You
Speaker 15: know why we did so well last year.
Speaker 11: Was financials asset managers.
Speaker 15: Blackstone was up over eighty percent, Apollo and blew out
Speaker 15: what up fifty percent. Even though consumer staples and healthcare
Speaker 15: were laggards last year, but again on a two year basis,
Speaker 15: they're beating everything else because twenty twenty two mattered. So
Speaker 15: that's our approach, and we don't try to time in
Speaker 15: and out of it. I don't know if Nvideo's going
Speaker 15: up another fifty percent or not. I do know if
Speaker 15: it does, it's multiple expansion, and we do not invest
Speaker 15: on multiple expansion.
Speaker 16: We invest on free cash flow growth.
Speaker 3: Do you like big oil?
Speaker 16: Well, I love oil, small, little, medium, and big, but all.
Speaker 9: You kind of front here.
Speaker 11: Yeah, I think that.
Speaker 16: I think that that's where you get the great dividend growths.
Speaker 3: I was asking, and I think that the.
Speaker 15: Biden administry policies are very favorable to big oil and
Speaker 15: very unfavorable to small oil. They're not allowing a lot
Speaker 15: of new projects, which makes the projects that Exon and
Speaker 15: Chevron already have in the ground much more valuable. Make
Speaker 15: enables them to go buy Hess and Pioneer respectively, and
Speaker 15: their permium market share is just exploding. So both Chevron
Speaker 15: and Exon we think are great plays, but they're not
Speaker 15: our biggest energy exposure. It's midstream. So we on ETF.
Speaker 15: The ticker is UMI. It's actively managed, has about eighteen
Speaker 15: different pipeline names, export LNG terminals, but it's actively managed
Speaker 15: around that midstream energy infrastructure story.
Speaker 16: Last year, energy was.
Speaker 15: Down a couple percent, Exon was down a little, Chevron
Speaker 15: was down nine midstream was up sixteen percent. The MLPs
Speaker 15: were up twenty five percent for the third year in
Speaker 15: a row. So we do like the midstream energy story.
Speaker 7: What gets you to sell a name is it they
Speaker 7: cut the dividend or they just say they start doing
Speaker 7: stuff that might put the dividend cash flowers.
Speaker 15: Yeah, those are all good answers. It could be opportunity costs.
Speaker 15: There was a company, Cardinal Health, we bought for about
Speaker 15: fifty bucks. It's in a fantastic dividend grower. It got
Speaker 15: to one hundred and ten. They continued going the divd
Speaker 15: then they're executing, but at that point we got five
Speaker 15: years of return in one year, and we just exited
Speaker 15: simply to be able to pursue better opportunities. We're selling
Speaker 15: MetLife today as a matter of fact, and that's the
Speaker 15: name we've owned for a few years. But it's a
Speaker 15: company that is not growing its dividend in cash, but
Speaker 15: it is growing at dividends per share. So we're getting
Speaker 15: more dividends per share, but they're just paying the same
Speaker 15: amount because they're buying.
Speaker 11: Back so much stock.
Speaker 15: When they're buying back three times as much stock as
Speaker 15: they are paying dividend, we don't like that. But your
Speaker 15: question about if they cut the dividend, do we sell it.
Speaker 15: It's our job to not let that happen. We need
Speaker 15: to be in front of companies that will cut the dividend,
Speaker 15: and some of the sort of career making moments for me,
Speaker 15: were deciding against the grain to sell companies we believed
Speaker 15: were at risk of cutting the dividend ended up being right.
Speaker 9: How do you identify those companies? You just see their
Speaker 9: free cash flows?
Speaker 15: Maybe or yeah, my favorite story while time is two
Speaker 15: thousand and seven City Group. When they continue to pay
Speaker 15: the dividend and then we're borrowing twelve billion dollars from
Speaker 15: Saudi Arabia. This doesn't look right to me, and I think, yeah,
Speaker 15: when free cash flow goes negative and the dividend keeps going,
Speaker 15: then they're basically taking advance on the credit card to
Speaker 15: pay the dividend.
Speaker 4: So do you get heat from investors though, in terms
Speaker 4: of not buying, not being in big tech, and being
Speaker 4: in big oil, because that's like the reverse of what
Speaker 4: the cool trendy thing ESG thing is.
Speaker 15: That's a really good question, but we actually don't take
Speaker 15: heat for it. But a lot of that has to
Speaker 15: do with self selection of the client base. The types
Speaker 15: of people that like working with us might be more
Speaker 15: predisposed to that.
Speaker 11: But also we're.
Speaker 15: Incredibly communicative, we explain why isn't there's a certain ideological
Speaker 15: bend in this.
Speaker 11: Obviously there is in the ESG side for us.
Speaker 15: We really believe we have a fiduciary duty to find
Speaker 15: the right investment opportunities for clients. I'm out against big
Speaker 15: tech ideologically. I'm against big tech not returning cash to shareholders.
Speaker 15: I think that it is absolutely inexcusable that Apple is
Speaker 15: paying tip money out to investors when when they're making
Speaker 15: more cash in a year than most of the S
Speaker 15: and P makes in a lifetime. It's just to me,
Speaker 15: it's an unfair treatment of shareholders. But I understand the argument.
Speaker 15: You know, there's always people ask about it. But look,
Speaker 15: Netflix was up one thousand percent last decade, and it
Speaker 15: gave back all of that return in about six months
Speaker 15: in twenty twenty two. So I'm a child of the
Speaker 15: nineties that grew up beginning investing money professionally in the nineties.
Speaker 11: I saw what happened with.
Speaker 16: Cisco today is sitting on fifty dollars.
Speaker 15: It was eighty dollars in nineteen ninety nine and it's
Speaker 15: one and it's grown earnings and profits and revenues every year.
Speaker 11: It's executed perfectly.
Speaker 15: It was just plain overpriced, and when you buy something
Speaker 15: that overpriced, you risk decades of lost return.
Speaker 16: We're just unwilling to take it that risk.
Speaker 7: So what's what do you think is a what's a
Speaker 7: dividend yield that screens well for you? Do you is
Speaker 7: it by industry, by company or do you say I
Speaker 7: need at least a two and adre percent yield or
Speaker 7: something like that.
Speaker 15: Yeah, I mean universally we tend to want about two
Speaker 15: and a half just to start, but there's some sectors
Speaker 15: with that wouldn't be nearly enough.
Speaker 11: The portfolio blends.
Speaker 15: To about a four handle yield, and that's more than
Speaker 15: double the S and P. And so you're going to
Speaker 15: end up with some higher yielding names. Simon Property, Lamar, Advertising,
Speaker 15: the public. It's a wonderful, wonderful company. Wonderful company, you
Speaker 15: talk about shareholder alignment. Family owns so much of it.
Speaker 15: They're going the dividend every year. Our midstream energy stuff
Speaker 15: is over five percent yield. So you get some higher
Speaker 15: yielding names. You're going to have lower yielding names on
Speaker 15: some of these ones that.
Speaker 11: It's just priced in.
Speaker 15: You know McDonald's I think we talked about last time.
Speaker 15: That's a lower yield now only because we're up six
Speaker 15: hundred percent since we bought the stock. Same for Walmart
Speaker 15: Walmart went public.
Speaker 16: The same year I was born.
Speaker 15: They've grown the dividend every single year, so you end
Speaker 15: up with a lower yield right now. But our yield
Speaker 15: on Walmart McDonald's is like forty percent on purchase, We're
Speaker 15: getting forty percent year over year from what we bought
Speaker 15: the stock at.
Speaker 11: That's what the whole point of dividend growth is.
Speaker 4: I just have like, there's up thirty seconds, right. Are
Speaker 4: you competing with money mark at funds in terms of
Speaker 4: getting money in clients?
Speaker 15: No, you're always competing with the risk free rate in
Speaker 15: the fact that people have to bench it against something,
Speaker 15: But they're not people saying I'm considering either money market
Speaker 15: or a divid in portfolio.
Speaker 11: It's a totally different risk profile.
Speaker 15: It's true in a macroeconomic sense, but it's never true
Speaker 15: in a micro economic sense.
Speaker 9: How's the weather out in here we go?
Speaker 11: Here's the thing. I'm sitting here in Manhattan. The sun's out,
Speaker 11: it's beautiful.
Speaker 16: It's a little chilly.
Speaker 15: California having the worst rainstorm that they've seen, which, of
Speaker 15: course there people wouldn't even you know, around the country
Speaker 15: wouldn't consider it a storm. But in Newport they'll probably
Speaker 15: end up canceling school for a month.
Speaker 9: I saw some of the video coming.
Speaker 11: Looks really fatty. It's pretty bad. They've gotten a lot
Speaker 11: of rain.
Speaker 15: It's a little worse inland, but yeah they you know,
Speaker 15: we get this like once every hundred years.
Speaker 9: Yeah, all right, it's hopefully good. Snow up and tell
Speaker 9: hoo for the skiers.
Speaker 7: David Bonson, thanks so much for joining us at David Bonson,
Speaker 7: Chief Investment Officer, Boson Group.
Speaker 9: Dividend yields. That's one of the many regions we like
Speaker 9: to talk to day because it's a strategy we don't
Speaker 9: hear enough.
Speaker 3: It's true.
Speaker 4: And also just hallar risk profile is factored and when
Speaker 4: you take a look at the S and P divid
Speaker 4: and NEI old and sort of how to manage that.
Speaker 3: Yep, I think that's interesting.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 4: Thirty Bloomberg Intelligence, where we're going to tap all our
Speaker 4: analysts that cover about two thousand companies and one hundred
Speaker 4: and thirty industries that we cover worldwide. But we're going
Speaker 4: to tap someone else right now in the ETF world
Speaker 4: for her take on the market, and that's Sylvia Dablonski,
Speaker 4: chief executive officer and chief investment officer at Defiance ETFs.
Speaker 4: A great perspective on sort of what the trends are
Speaker 4: in the market and what people are doing with their money. Sylvia,
Speaker 4: thanks for joining us.
Speaker 3: We appreciate it.
Speaker 4: What are you seeing most right now as we're sort
Speaker 4: of in the second month of the year after a
Speaker 4: very bizarre four.
Speaker 12: Weeks, Hi, Alex's great to see you. Yeah, I mean,
Speaker 12: has been a very bizarre four weeks. What's really interesting,
Speaker 12: and I think what's what's pretty good is that some
Speaker 12: of the positive momentum that we had towards the end
Speaker 12: of the year has continued into this year, and that
Speaker 12: blip on the radar that we saw those first couple
Speaker 12: of days and you know, have kind of just faded
Speaker 12: to the wayside. So what we're seeing on our side
Speaker 12: is just this continued, you know, exuberance and excitement about
Speaker 12: the AI trade. Most of the flows that we've seen
Speaker 12: have come into that space, So quantum computing types of stocks,
Speaker 12: AI stocks, machine.
Speaker 17: Learning kind of an expansion of that ecosystem.
Speaker 12: So before it was just NA video and a MD
Speaker 12: and now people are sort of looking at companies like
Speaker 12: Polenteer who you just mentioned, had uh, you know, a
Speaker 12: great earnings report, and Taiwan Sid my conductor, you know,
Speaker 12: I on q IBM, some of these other players in
Speaker 12: the AI space, and it's just been, you know, off
Speaker 12: to the races.
Speaker 9: There, all right.
Speaker 7: One of my favorite ETFs out there is a Defiance
Speaker 7: ETF c r u Z. I'm fascinated with the cruise business,
Speaker 7: the economics of the cruise business.
Speaker 9: I actually even may go on a cruise coming up.
Speaker 3: Versus it's Pete cruise. Now I feel like being.
Speaker 9: Pitched yeah cr when I go on. So what do
Speaker 9: you see in that industry these days? What are the drivers?
Speaker 17: Yeah?
Speaker 12: So I think it's been really interesting to watch the
Speaker 12: cruise business and what happened during COVID is everybody you
Speaker 12: know vividly remembers the cruise business just came to an
Speaker 12: absolute halt and just took on so much debt and
Speaker 12: it was just a complete disaster. Right, And I think
Speaker 12: we're at the point now just listening to these last
Speaker 12: earnings calls where you know, you had the CEO.
Speaker 17: Of Carnival, of Royal Caribbean, you know, even the outlooks
Speaker 17: from Norwegian.
Speaker 12: You know, the spending is back, and what they're saying
Speaker 12: is that they have more cruises booked for twenty twenty
Speaker 12: four than they did pre pandemic. Finally, the average consumers
Speaker 12: spending a lot more, you know, sort of finally, and
Speaker 12: they're able to kind of like reduce their debt and
Speaker 12: have stronger profit margins and.
Speaker 17: And things like this.
Speaker 12: So I think the reason that that's holding up the
Speaker 12: whole travel trade in general is holding up because the
Speaker 12: economy is holding up, right, The consumer remains strong, that
Speaker 12: wage go to you know, four percent on or it
Speaker 12: goes good jobs numbers. Inflation is coming down, the FED
Speaker 12: is eventually going to stop piking, and I think that
Speaker 12: you know, people feel like they can still spend a
Speaker 12: little bit, right, and that transition from goods to services
Speaker 12: and travel and experiences, I mean, it's it's continued to
Speaker 12: forge ahead.
Speaker 4: So have we seen at the same time, pivoting off
Speaker 4: of that theme, the money kind of coming out of
Speaker 4: money market funds and into stocks in that like, yeah,
Speaker 4: things are getting better, rates will go down. I'll be
Speaker 4: at the last couple of days, we've seen a nice
Speaker 4: move up higher and yields, but I'm going to go
Speaker 4: put money to work and economically sensitive stocks. They are
Speaker 4: actually going to benefit because things are going to get better,
Speaker 4: Rates will come down. Are we seeing this flow happen yet?
Speaker 17: No?
Speaker 12: And you make you make a really great point there, right,
Speaker 12: You'd think with the performance that we saw in the
Speaker 12: S and P five hundred and in Nasdaq last year
Speaker 12: in particular, that that money would be just really piling
Speaker 12: off of the sidelines. And I think it's going to
Speaker 12: be a slow trickle. And you know, you still have
Speaker 12: you still have a lot of clients out there and
Speaker 12: investors that probably have, you know, things like CDs or
Speaker 12: instruments that sure at certain times and they'll kind of
Speaker 12: scale back into the market when that happens.
Speaker 17: But I also think that you know, once you see
Speaker 17: a year like.
Speaker 12: Twenty twenty two and like probably every investor or many
Speaker 12: of the investors that went to cash held all the time,
Speaker 12: you know, all the tech stocks and just got hammered
Speaker 12: down thirty forty percent. They didn't catch it. This year
Speaker 12: it's just kind of you know, behavioral finance a little
Speaker 12: bit there. But I do think that that money will
Speaker 12: eventually come off the sidelines. I mean, look, at the
Speaker 12: end of the day, you're never going to get rich
Speaker 12: in treasuries, right, I mean, unless sure, we're multipillions of dollars,
Speaker 12: I guess. But I think for the average investor that
Speaker 12: has a longer term time horizon, that ten percent analys
Speaker 12: return on the S and P five hundred plus these
Speaker 12: kind of like gravy years where you hold a little
Speaker 12: bit of semiconductors tech and get some outperformance.
Speaker 17: I mean, that's that's wealth building, right.
Speaker 12: So I do think it'll eventually kind of pile back
Speaker 12: in and then it'll matter for markets.
Speaker 17: Then you'll start to see a little bit of a
Speaker 17: tailwind there too.
Speaker 3: I asked this, Paul, because like I'm totally talking my
Speaker 3: own book.
Speaker 4: Like, sure, four months ago put some money in three
Speaker 4: month tea bills, that was an easy call.
Speaker 3: Those three months are up.
Speaker 4: I don't know, now what do we do, right, But
Speaker 4: like I'm the kind of person that wants to like
Speaker 4: put gold bars and soup cans under my bed, right,
Speaker 4: So so it's a I asked to talk my book.
Speaker 4: But also I really am curious as to like people
Speaker 4: like me, of which I'm sure there are many who
Speaker 4: how they make those decisions fall.
Speaker 9: I don't know.
Speaker 7: I mean, I would hire a professional or go buy
Speaker 7: s and pif.
Speaker 3: Let's just be let's let's just be honest for a while.
Speaker 7: So, so one of the names on your list that
Speaker 7: you recently were adding was I b M. Old School Tech.
Speaker 7: What's the thought there?
Speaker 12: Yeah, So, interestingly enough, the old school tech company that
Speaker 12: everybody kind of forgets about is one of the you know,
Speaker 12: the best kind of leaders with.
Speaker 17: The most experienced in AI.
Speaker 12: You know, Watson X has been around before, probably before
Speaker 12: AI was a word, right, so they were kind of
Speaker 12: the first ones doing it.
Speaker 17: They spent tons of money in R and D.
Speaker 12: They it's just they've been hiding under a rock and
Speaker 12: they don't kind of get the fanfare of the other companies.
Speaker 12: But they have one of the most powerful hybrid AI
Speaker 12: models out there. They partner with on the video with
Speaker 12: a lot of stuff. So if you just kind of like,
Speaker 12: you know, look at their website and see what they're doing.
Speaker 12: For example, now they're working with Korea Quantum to use
Speaker 12: supercomputing and AI to better target potential attacks.
Speaker 17: For defense purposes.
Speaker 12: Now, think about what's going on in the world right
Speaker 12: just just every day, what we have going on in
Speaker 12: the Middle East, Russia and Ukraine, you know, the Iran
Speaker 12: strikes the other day. I mean, this information is so
Speaker 12: highly valuable that you can't imagine that there won't be
Speaker 12: a lot of government spending going into this.
Speaker 17: And then not to mention you know, smart cities.
Speaker 12: Electric cars, healthcare, all the just tech in general, right,
Speaker 12: all the stuff we usually talk about, but there's a
Speaker 12: huge need for this and IBM is really a leader.
Speaker 3: There, Sylvia. What what is 'boten? What do you not like?
Speaker 17: What do I not like?
Speaker 2: So?
Speaker 12: I you know, I think that I think that, like
Speaker 12: it'll take a while for the small caps to really
Speaker 12: start to rally. It's not like it's not that I
Speaker 12: don't like them, it's just it I think I'm allocating
Speaker 12: more towards the names that are moving, which which right
Speaker 12: now we're going to be, you know, kind of tech, semiconductor,
Speaker 12: like some of the consumer stuff I like, healthcare, you know,
Speaker 12: all these weight lossgs and things like that. I mean,
Speaker 12: you'll get lillly earnings this morning. They're taking off so
Speaker 12: you know, I'm just not going to allocate too much
Speaker 12: to utilities, and I'll probably wait a little bit to
Speaker 12: get into small caps. And you know, again, I don't
Speaker 12: think they're bad investments, because I do think breath.
Speaker 17: Will expand, but I just think there's a little bit
Speaker 17: more of ROI and and you know kind of the
Speaker 17: tech sector for now in semi conductors.
Speaker 7: So in your ETF business, Sylvie, where you seeing the
Speaker 7: flows these days?
Speaker 17: So we have seen you know, two places really.
Speaker 12: One is again that quantum AI trade right we for
Speaker 12: one of our ETFs or is at the highest level
Speaker 12: it's ever been quantum, just because people are interested in
Speaker 12: that theme.
Speaker 17: And then there has been so much flow for for
Speaker 17: defiance and for.
Speaker 12: Our competitors in income ETF products, So ETF products that
Speaker 12: use different types of options shadowgies to generate income for investors.
Speaker 12: So we have like put right strategies where you know,
Speaker 12: we have S and P exposure and we sell puts
Speaker 12: to generate income. Other companies are doing it on single
Speaker 12: name stocks and things like that. So there have just
Speaker 12: been billions of dollars pouring into that enhanced income space.
Speaker 12: And the idea there is like you get a little
Speaker 12: bit of upset. It's almost you know, alex to like
Speaker 12: what do you do?
Speaker 1: Right?
Speaker 12: So you get a little bit of that index exposure,
Speaker 12: but you're still just getting your You're still just getting income,
Speaker 12: so you kind of have this like guaranteed income and
Speaker 12: then you know some portion of equity returns, so you
Speaker 12: have a smoother ride than if you just invested in
Speaker 12: the index, for example. So it's kind of like tapping
Speaker 12: back in from from treasuries trade.
Speaker 3: So not what Paul said, don't do the next fund,
Speaker 3: but you can yeah, well you know what what Paul said.
Speaker 12: Plus and maybe a little less downside if there's a
Speaker 12: black swan event, but you know, it's it can go
Speaker 12: either way, right if the market's just completely rally, I
Speaker 12: mean S and P and NASDAC, they don't usually serve
Speaker 12: you wrong.
Speaker 9: So good stuff. Hey Sylvia, thanks so much for joining
Speaker 9: us there.
Speaker 7: So we had Jablonski, chief executive Officer, Chief investment officer
Speaker 7: does it all for defind TTFS joining us at via
Speaker 7: zoom from New York City.
Speaker 13: Here.
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