WEBVTT - Machines Are Replacing Wall Street's Bonus Culture 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl Podcast. I'm Paul swing you 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma Wicks. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:20.919 at Bloomberg dot com. Well, this next story really bothers 0:00:20.960 --> 0:00:23.200 me as a twenty year veteran of Wall Street, and 0:00:23.239 --> 0:00:26.720 that is analysts expect thousands of jobs on Wall Street 0:00:26.720 --> 0:00:31.800 will be replaced by technology. Uh lenan newon financi reporter 0:00:31.840 --> 0:00:33.760 for Bloomberg News, joins us on our Bloomberg in our 0:00:33.760 --> 0:00:36.320 Actor Broker studio and she has this story. So, Lennon, 0:00:36.800 --> 0:00:40.040 we've heard these big financial services come you talk about 0:00:40.040 --> 0:00:43.519 the huge investments they're making into technology. That's really changing 0:00:43.640 --> 0:00:47.200 the culture of the financial services industry, isn't That's right, Paul. 0:00:47.280 --> 0:00:50.159 It's a big wamp wamp on Wall streets this morning. 0:00:50.680 --> 0:00:54.520 Bonus culture is starting to disappear because the individual humans 0:00:54.560 --> 0:00:57.800 are not responsible for those kind of big blockbuster trades 0:00:57.840 --> 0:00:59.440 that used to see. Maybe we're when you were on 0:00:59.480 --> 0:01:02.720 the streets. So we're talking about al goes and automated 0:01:02.760 --> 0:01:05.040 trading strategies that are really making the money here, which 0:01:05.080 --> 0:01:07.600 means that the individual humans don't get as much. So 0:01:07.800 --> 0:01:09.920 does this just shift things to more of a salary 0:01:10.000 --> 0:01:12.560 type of model. And have we seen that kind of 0:01:13.120 --> 0:01:16.720 adaptation at this point, yes, so we've seen bonuses decline, 0:01:16.760 --> 0:01:19.520 first of all, and we've also seen more salary models 0:01:19.680 --> 0:01:21.319 at the same time as seeing the bonus kind of 0:01:21.360 --> 0:01:24.240 being considered as a group effort or team sport, as 0:01:24.240 --> 0:01:26.240 one of our sources says in the story boy Back, 0:01:26.240 --> 0:01:29.119 And I mean just it was, you know, my total 0:01:29.160 --> 0:01:32.440 compensation was the bonus and you started just kind of 0:01:32.520 --> 0:01:34.880 obsessing on it the day you come back from summer 0:01:35.080 --> 0:01:37.960 vacation in September, all the way through to year end, 0:01:38.000 --> 0:01:41.039 jocking for the number. But now it's I know it's 0:01:41.120 --> 0:01:45.240 changed now again, bigger percentage of total conversations in um 0:01:45.280 --> 0:01:47.920 in the salary. Are they finding that they're able to 0:01:47.960 --> 0:01:51.480 attract the same quality of people. This is an interesting 0:01:51.520 --> 0:01:54.560 question too, because the tech companies obviously want this kind 0:01:54.560 --> 0:01:57.920 of high quality quant talent as well, and so one 0:01:57.920 --> 0:01:59.240 of the things that used to be the same in 0:01:59.280 --> 0:02:02.120 Grace on Wall Street. Was the bonus, right, which is 0:02:02.160 --> 0:02:05.840 that the banking industry could attract high talent because of 0:02:05.880 --> 0:02:08.839 the higher pay. But it seems like that's declining now, 0:02:08.880 --> 0:02:11.080 So that's a that's another question is whether they'll be 0:02:11.080 --> 0:02:14.160 able to attract the talent if the bonuses don't come up. So, 0:02:14.760 --> 0:02:16.959 just can you give us a sense of how widespread 0:02:17.000 --> 0:02:20.600 this is, because typically the areas where the bonus has 0:02:20.600 --> 0:02:23.000 been one of the biggest components is in say the 0:02:23.000 --> 0:02:26.160 trading side of things or the banking side of things. 0:02:26.240 --> 0:02:30.320 We're actually getting deals done and trading short there can 0:02:30.360 --> 0:02:34.120 be some uh, some automation there, although not in every 0:02:34.120 --> 0:02:36.799 asset class, and on the banking side same, I mean, 0:02:36.800 --> 0:02:39.160 you still have to complete the deal. So where are 0:02:39.240 --> 0:02:43.240 we seeing the most disappearance of this culture. That's right, Lisa, 0:02:43.280 --> 0:02:46.200 And it's lumpy, it doesn't you know, it's not uniform. 0:02:46.240 --> 0:02:49.359 But I think in trading the markets that are most electronics. 0:02:49.360 --> 0:02:51.800 So we're talking about equities, we're talking about foreign exchange, 0:02:52.000 --> 0:02:54.160 maybe slower as a bond market to kind of get 0:02:54.240 --> 0:02:56.720 up to speed in this, but the bond market eventually 0:02:56.800 --> 0:02:58.480 is going to go electronic as well. And so we're 0:02:58.480 --> 0:03:03.120 seeing more of this happen in the highly electronic automated markets, 0:03:03.120 --> 0:03:05.040 and it's across the buy side and the cell side 0:03:05.040 --> 0:03:07.399 as well. It's just a good thing from a profitability 0:03:07.440 --> 0:03:10.119 perspective for the financial services firm if they can cut 0:03:10.120 --> 0:03:14.320 out some of these you know, high cost talent. Uh. Definitely. 0:03:14.400 --> 0:03:17.040 That's one of the major catalysts behind this move is 0:03:17.120 --> 0:03:20.720 the cutting of costs, right, the ability to reduce headcount, 0:03:20.760 --> 0:03:22.799 reduce the number of people on the desk, reduced the 0:03:22.840 --> 0:03:25.720 bonuses that you pay in order to cut costs. Although 0:03:25.720 --> 0:03:27.880 you have to think on the flip side, there's got 0:03:27.880 --> 0:03:31.000 to be some people saying that this could potentially hamper 0:03:31.080 --> 0:03:34.000 profitability and that it doesn't incentivize people to go out 0:03:34.000 --> 0:03:37.000 there uh and obsess when they come in after summer 0:03:37.080 --> 0:03:40.920 break and lose hair over the question of how much 0:03:40.960 --> 0:03:42.880 money they're gonna make for the company. That's right. If 0:03:42.920 --> 0:03:45.000 you eat what you kill, then you're pretty hungry, right, 0:03:45.040 --> 0:03:46.880 so you get out there and you try and found 0:03:46.880 --> 0:03:49.400 the pavement, whereas um in this model, maybe people are 0:03:49.440 --> 0:03:52.280 just collecting their salary. Have there ever been studies that 0:03:52.400 --> 0:03:57.320 show how much that hunger adds to profitability? Versus detract 0:03:57.440 --> 0:04:00.560 when it comes to risks that go awry. I'm not sure. No, 0:04:00.680 --> 0:04:02.920 I don't think so. I'm not aware of anything because 0:04:02.960 --> 0:04:05.480 I think after the financial crisis, one of the when 0:04:05.480 --> 0:04:07.320 you look back to the financial crisis, a lot of 0:04:07.400 --> 0:04:10.400 regulars said it was the bonus culture that contributed to 0:04:11.000 --> 0:04:13.160 some of the behavior that we saw from the financial 0:04:13.200 --> 0:04:17.120 services firm grinding out bad deals just to grind out 0:04:17.160 --> 0:04:19.280 deals to get paid. Yeah, but it was the bonus 0:04:19.320 --> 0:04:21.760 culture of who everybody in the firm, including the very 0:04:21.760 --> 0:04:23.960 top and the executive managers and the risk managers. I mean, 0:04:24.000 --> 0:04:26.440 at a certain point, if you have risk managers, they 0:04:26.440 --> 0:04:28.160 try to put a stop to that. But there has 0:04:28.200 --> 0:04:30.400 to be a yin and a yang, right, I mean, 0:04:30.400 --> 0:04:32.600 I guess that I'm trying to figure out, you know, 0:04:32.640 --> 0:04:34.600 where this balance is, and I'm trying to figure out 0:04:34.760 --> 0:04:38.040 how important that conversation is exactly. It's really important. How 0:04:38.040 --> 0:04:40.040 do you motivate people and how to keep them hungry 0:04:40.040 --> 0:04:42.160 and aggressive and wanting to win, while at the same 0:04:42.160 --> 0:04:44.440 time not allowing them to do things that are over 0:04:44.440 --> 0:04:47.240 the line. And it's really really important question. Lenan Newin, 0:04:47.320 --> 0:04:49.159 thank you so much for joining us. It's a really 0:04:49.200 --> 0:04:52.400 interesting read and I'm sure prompting a lot of angst 0:04:52.760 --> 0:04:55.760 across Wall Street, uh and beyond it. But this is something, Frankly, 0:04:55.800 --> 0:04:57.599 it's not just Wall Street, it's it's a lot of industry. 0:04:57.680 --> 0:05:00.719 Is the concept of how does automation play with humans? 0:05:00.720 --> 0:05:03.920 How do people use its third advantage? Yeah? Not surprisingly. 0:05:03.960 --> 0:05:05.360 I guess what the top red story is on the 0:05:05.400 --> 0:05:08.839 bloomber terminal right now, Lennan story. Yeah, all the algo 0:05:08.960 --> 0:05:11.240 is really eagerly reading about their bonuses. Lennui, and thank 0:05:11.279 --> 0:05:13.800 you so much for being with US finance reporter for 0:05:13.960 --> 0:05:32.240 Bloomberg News. Well, in the world of global trade, Wednesday 0:05:32.240 --> 0:05:33.880 will be a big day. That is the day when 0:05:33.880 --> 0:05:36.640 the US and China are set to sign the Phase 0:05:36.760 --> 0:05:39.280 one trade deal, and we'll get a sense of what 0:05:39.320 --> 0:05:42.760 that means for retailers coming up with Rick Heffelbin. He's 0:05:42.800 --> 0:05:46.279 a former chairman and president CEO of the American Apparel 0:05:46.279 --> 0:05:49.039 and Footwear Association. So Rick, thanks so much for joining 0:05:49.120 --> 0:05:52.080 us here in our Bloomberg Interactive Broker studio. So if 0:05:52.120 --> 0:05:54.360 we get this trade deal with again schedule to be 0:05:54.440 --> 0:05:58.600 signed U this Wednesday, what does it mean for apparel makers, 0:05:58.640 --> 0:06:03.640 footwear makers? This country. Well, clearly, Paul, we're you know, 0:06:03.680 --> 0:06:06.480 we're excited they're meeting. We're exciting. They're signing a piece 0:06:06.520 --> 0:06:09.880 of paper. Course it's eighty six pages and nobody's seen 0:06:09.880 --> 0:06:13.680 it yet, which is a little bit disturbing from everything 0:06:13.720 --> 0:06:18.479 that we've heard from you know, our insiders. Uh, we're 0:06:18.520 --> 0:06:21.440 not particularly bowled over by this deal. A matter of fact, 0:06:21.480 --> 0:06:23.640 we don't think it's going to help us at all, 0:06:23.800 --> 0:06:27.560 which is uh a big concern for a whole host 0:06:27.600 --> 0:06:32.080 of reasons are really simple to understand. Um, they eliminated 0:06:32.880 --> 0:06:36.960 the December fifteen tariff, which we never had, so eliminating 0:06:37.040 --> 0:06:39.720 something we never had is not of great value to us. 0:06:40.320 --> 0:06:43.640 The percent that we've had for a couple of months 0:06:43.680 --> 0:06:47.359 now on hats, handbags and gloves, that's sticks, that's still there, 0:06:47.960 --> 0:06:50.840 And the fifteen percent that they hit us with on 0:06:51.120 --> 0:06:55.160 September one gets cut to seven and a half percent, which, 0:06:55.240 --> 0:06:57.719 in our humble opinion, is seven and a half percent 0:06:57.839 --> 0:07:00.760 too much. So we don't see an new winds for 0:07:00.800 --> 0:07:05.640 our industry at this point in time. We are justifiably 0:07:05.680 --> 0:07:08.320 upset for a whole host of reasons, Like, you know, 0:07:08.520 --> 0:07:11.640 is there going to be a Phase two are you know, 0:07:11.720 --> 0:07:15.040 will talks go on. What's the roadmap for getting rid 0:07:15.040 --> 0:07:17.760 of this? Well, remember when you spoke with us over 0:07:17.920 --> 0:07:19.720 recent months when you said that it would be an 0:07:19.720 --> 0:07:23.240 absolute disaster, death knell if the tariffs are planned for 0:07:23.320 --> 0:07:25.840 December had gone into effect. So on on a certain level, 0:07:25.880 --> 0:07:28.960 that's good, right, they didn't go into effect. Well they did, 0:07:28.960 --> 0:07:32.640 and they didn't. Remember as an industry, we are war. 0:07:32.880 --> 0:07:36.520 Prior to the trade war, six percent of all imports 0:07:36.560 --> 0:07:39.560 coming into the United States, but we already paid fifty 0:07:39.600 --> 0:07:42.920 one percent of all duties collected. So we are a 0:07:43.040 --> 0:07:47.160 highly tariffed industry in America. The average terrorists before the 0:07:47.200 --> 0:07:50.440 trade war one point two percent. Our average terrorists were 0:07:50.440 --> 0:07:53.640 about twelve percent. Okay, Well, just what I'm trying to 0:07:53.720 --> 0:07:58.000 understand is going forward, at least we have certainty, right 0:07:58.040 --> 0:08:01.760 because Phase two isn't gonna necessarily involve all retail and tariffs. Again, 0:08:02.120 --> 0:08:05.080 let's say it doesn't. Is that good enough? No, it's not. 0:08:05.240 --> 0:08:10.680 It's gotten. It's not good enough because you're you're essentially 0:08:11.000 --> 0:08:15.920 taxing us out of our prime sources supply. And that's 0:08:16.120 --> 0:08:21.040 what hurts because a huge percent forty one of all 0:08:21.080 --> 0:08:24.600 apparel coming into the United States comes from China. Sixty 0:08:24.880 --> 0:08:28.920 percent of all footwear comes from China, percent of all accessories. 0:08:29.240 --> 0:08:32.480 So what signing that deal does. It signs a mandate 0:08:32.520 --> 0:08:35.040 for us to get out of China. Okay, so we'll 0:08:35.120 --> 0:08:37.719 listen to the administration, we'll listen to present, We'll get 0:08:37.720 --> 0:08:40.560 out of China. Where are we gonna go? Where we 0:08:40.600 --> 0:08:43.839 gonna go? So in this first round, with all the agitation, 0:08:43.960 --> 0:08:47.600 people decided to stay there. We got through the holiday 0:08:47.640 --> 0:08:50.840 season by renegotiating. But all bets are off going into 0:08:51.920 --> 0:08:54.840 so prices have to go up. When prices go up, 0:08:54.880 --> 0:08:58.839 sales go down, and retail will end up in a funk. 0:08:59.120 --> 0:09:02.680 You know, we lost seventies seven thousand jobs in retail 0:09:02.760 --> 0:09:07.199 list year, and retailers everybody knows is essentially two thirds 0:09:07.240 --> 0:09:10.160 of the economy. Ten percent or twelve percent of all 0:09:10.280 --> 0:09:14.320 jobs are in retail. So we look at this signing 0:09:14.880 --> 0:09:18.640 as a concrete step to tell us, okay, you better 0:09:18.720 --> 0:09:20.839 make other plans. And you know how long it takes 0:09:20.880 --> 0:09:23.840 to make other plans, three to five years. So we're 0:09:23.840 --> 0:09:27.520 in trouble. We're hurting. So, Rick, what did your members, 0:09:27.600 --> 0:09:31.959 the apparel and footwear retailers, what did they do. How 0:09:31.960 --> 0:09:33.559 did they deal with the higher tariffs to day try 0:09:33.600 --> 0:09:36.400 to pass along those price increases. Did it eat into 0:09:36.400 --> 0:09:39.520 their margin? What did you find so? Well? Remember I 0:09:39.640 --> 0:09:41.240 left a f A at the end of the year, 0:09:41.280 --> 0:09:43.480 so I can tell you what my former members did, 0:09:43.559 --> 0:09:47.160 and what they all did unilaterally was went over to 0:09:47.280 --> 0:09:50.320 China and said, look, we make our money in the 0:09:50.360 --> 0:09:53.040 fourth quarter of the year. Help us out. Work with 0:09:53.120 --> 0:09:55.840 us because we will have to absorb tariffs on inbound 0:09:55.880 --> 0:09:59.360 merchant that I have. So pretty much China worked with everybody, 0:09:59.400 --> 0:10:01.680 but they say, you know, one time deal, we'll get 0:10:01.679 --> 0:10:05.400 you through holiday. So you're on your own. I'm looking 0:10:05.440 --> 0:10:08.760 today five below, which is a retailer the prices most 0:10:08.760 --> 0:10:11.960 of its goods at five dollars or less. It felt 0:10:11.960 --> 0:10:14.000 the most since it went public in twelve. It had 0:10:14.080 --> 0:10:17.000 downgraded some of its forecasts. And it makes me think, 0:10:17.160 --> 0:10:21.640 particularly with respect to margins, these sort of lower income 0:10:21.720 --> 0:10:25.640 are the sort of uh discount goods stores potentially have 0:10:25.760 --> 0:10:28.880 the most to lose. Is that right? Yeah, the independent 0:10:29.000 --> 0:10:33.080 retailers and low price stores are the most at risk. 0:10:33.320 --> 0:10:35.880 There's more buying power the higher you go up the 0:10:35.920 --> 0:10:39.600 food chain, so you know, certain retailers will do okay, 0:10:39.640 --> 0:10:42.719 they'll get around it, and certain retailers will suffer. Can 0:10:42.760 --> 0:10:45.560 you give us a sense of the sort of scale here? 0:10:45.559 --> 0:10:47.800 I mean, in other words, how does that affect department 0:10:47.800 --> 0:10:50.199 stores the Macy's is of the world, or the it 0:10:50.960 --> 0:10:54.840 affects them because of the huge quantity of merchandise that 0:10:54.920 --> 0:10:58.400 they bring in. They were reliant on their suppliers, and 0:10:58.440 --> 0:11:01.640 their suppliers don't have an other place to go. So 0:11:02.040 --> 0:11:04.760 the big guys will get hurt. The question of what 0:11:04.960 --> 0:11:07.360 degree of how much hurt there will be in the 0:11:07.520 --> 0:11:09.520 in the plan, you will see it. You're gonna see 0:11:09.559 --> 0:11:12.520 earnings coming up. You know, everybody goes holiday was great. 0:11:12.640 --> 0:11:15.960 You know we did three point forward to four percent increase. 0:11:16.040 --> 0:11:19.760 Maybe we did about seven hundred thirty billion dollars during 0:11:19.760 --> 0:11:23.559 the holiday season. Awesome. What about earnings? You know everybody 0:11:23.559 --> 0:11:27.280 gets so excited about sales. What about earnings? Earnings reports 0:11:27.280 --> 0:11:30.000 are coming out the next three weeks. You're gonna see 0:11:30.120 --> 0:11:33.800 how we did. And yeah, well, the next time, my 0:11:33.920 --> 0:11:35.560 ten year old comes to me and says, I saw 0:11:35.600 --> 0:11:39.040 this watch and it was discounted by eight percent. We 0:11:39.040 --> 0:11:40.400 gotta buy it. I'm gonna look at him and I'm 0:11:40.400 --> 0:11:43.520 gonna say what about the earnings? See what about the earnings? 0:11:43.520 --> 0:11:45.560 And he'll he'll look at me and he'll say, oh 0:11:45.559 --> 0:11:47.240 my god, why are you my mother? Rick Halvin by, 0:11:47.280 --> 0:11:49.480 and thank you so much for being with us. Rick 0:11:49.520 --> 0:11:52.560 Calvin Bien, former chair at president and chief executive officer 0:11:52.640 --> 0:11:56.000 of the American Apparel and Footwear Association, joining us here 0:11:56.080 --> 0:11:59.199 in our interactive broker studio is a really timely discussion. 0:12:13.760 --> 0:12:18.120 Well en was the everything rally markets across the world 0:12:18.440 --> 0:12:23.080 performing quite well, asset classes performing very well, and not 0:12:23.200 --> 0:12:25.240 just US equities of questions, what do you do for 0:12:25.280 --> 0:12:30.160 an encore? Uh in. Christina Hooper, chief Global market strategist 0:12:30.160 --> 0:12:33.160 for Investco, joined us here in our Bloomberg in Actor 0:12:33.200 --> 0:12:35.959 Broker studio to share her thoughts. So, Christina, again, you've 0:12:36.000 --> 0:12:41.840 just taken a look at the SNPI about in bonds 0:12:41.920 --> 0:12:46.240 rallied as you go into how do you think about 0:12:46.280 --> 0:12:50.400 an encore? Well, I think we should expect modest returns 0:12:50.440 --> 0:12:53.160 for U S docks. They had a really strong run 0:12:53.280 --> 0:12:56.960 up in and I do believe there is certainly a 0:12:57.040 --> 0:13:00.400 bias to the upside, just given very a common midative 0:13:00.400 --> 0:13:04.520 monetary policy, especially from the Fed. But I think leadership 0:13:05.040 --> 0:13:08.520 will rotate. Uh, it will shift to the emerging market 0:13:08.600 --> 0:13:12.400 space for a few key reasons. First and foremost, we 0:13:12.480 --> 0:13:17.720 saw balance sheet normalization and back in September, and interestingly, 0:13:17.840 --> 0:13:20.679 that's when e M took off. E M outperformed the 0:13:20.800 --> 0:13:23.920 US in the fourth quarter, and in fact, China was 0:13:23.960 --> 0:13:26.439 a standout within the emerging market space. And I think 0:13:26.440 --> 0:13:27.760 a lot of that had to do with balance sheet 0:13:27.760 --> 0:13:31.680 normalization ending. Okay, balance sheet normalization is one thing. Balance 0:13:31.720 --> 0:13:34.800 sheet re expansion is another. And that's really what we saw, right. 0:13:34.800 --> 0:13:37.600 This isn't just normalization ending. This is uh, you know, 0:13:38.120 --> 0:13:39.560 I don't know if you want to call it qui 0:13:39.679 --> 0:13:43.640 again because I'll get absolutely pasted on Twitter. But some 0:13:43.720 --> 0:13:46.360 sort of easing through the expansion of the balance well, 0:13:46.400 --> 0:13:48.560 that certainly has helped as well. But I think we 0:13:48.679 --> 0:13:53.200 can overlook how much balance sheet normalization impacted emerging markets. 0:13:53.440 --> 0:13:56.680 It was creating a liquidity suck, so much so that 0:13:56.760 --> 0:14:00.640 the former Reserve Bank of India governor or Chip Patel 0:14:01.400 --> 0:14:03.400 had an op ed piece in the Financial Times in 0:14:03.520 --> 0:14:06.720 June of two eighteen, essentially an open letter of the 0:14:06.720 --> 0:14:11.560 FEDS saying, hey, please slow down bouncy normalization. You're creating 0:14:11.559 --> 0:14:16.240 a liquidity suck that is impacting negatively emerging markets. So, Christina, 0:14:16.280 --> 0:14:21.160 as we think about the US equity markets, mostly a 0:14:21.320 --> 0:14:25.600 story of multiple expansion, not much earnings growth. That really 0:14:25.600 --> 0:14:29.160 puts the pressure on this market to deliver earnings growth. 0:14:29.200 --> 0:14:31.800 What do you think the outlook should be for investors 0:14:31.800 --> 0:14:34.160 for earnings growth? Well, I think earnings growth will be 0:14:34.280 --> 0:14:38.720 rather modest. But I do believe because of how extraordinary 0:14:38.840 --> 0:14:43.200 the FEDS accommodative stances, because the bar is so high 0:14:43.320 --> 0:14:47.200 on any kind of rate hike after three insurance cuts, 0:14:47.840 --> 0:14:52.760 I do believe it's an environment where risk assets benefit, 0:14:53.000 --> 0:14:56.360 and so there is some upside potential even if you 0:14:56.360 --> 0:14:59.160 do have lackluster earnings. So let's talk about the main 0:14:59.200 --> 0:15:01.720 cause for a twenty It sounds like emerging markets will 0:15:01.720 --> 0:15:04.120 continue to get a lift from this dynamic. Is that right? Yes? 0:15:04.200 --> 0:15:06.560 But I would say we need to be selective within 0:15:06.600 --> 0:15:09.840 the emerging market space, so favor Asia e M in 0:15:09.880 --> 0:15:14.280 particular Chinese equities certainly benefiting from what all of em 0:15:14.360 --> 0:15:16.320 is benefiting from in terms of the end of balance 0:15:16.360 --> 0:15:20.880 sheet normalization, more liquidity UM, but in particular Chinese equity 0:15:20.960 --> 0:15:24.400 should benefit from a phase one US China trade deal. 0:15:24.480 --> 0:15:26.240 Why aren't we seeing more of a lift in the 0:15:26.320 --> 0:15:28.960 small and MidCap shares the Russell's two thousand, especially in 0:15:29.080 --> 0:15:31.840 light of the rally that we're seeing in junk bonds. Well, 0:15:31.880 --> 0:15:36.720 because growth remains quite modest, and so this is an 0:15:36.840 --> 0:15:42.120 environment where investors are drawn to larger cap names and 0:15:42.240 --> 0:15:45.960 are drawn to secular growth. Uh that that doesn't mean 0:15:46.040 --> 0:15:49.240 that secular growth is going to outperform for the full year. 0:15:49.280 --> 0:15:51.200 That doesn't mean that large caps are going to outperform 0:15:51.240 --> 0:15:54.400 for the full year. I think we'll get short periods 0:15:54.480 --> 0:15:59.000 of time, sort of bursts in which um smaller cap names, 0:15:59.040 --> 0:16:03.920 more cyclical name perform well in But I do think 0:16:03.960 --> 0:16:06.600 when we look back on the year in full that 0:16:06.800 --> 0:16:10.240 secular growth tends to outperform and larger cap tends to 0:16:10.240 --> 0:16:14.680 outperform because growth is rather modest. All right, let's say 0:16:14.680 --> 0:16:17.040 that I'm concerned about evaluation. One of the sectors that 0:16:17.160 --> 0:16:20.080 screams out as cheap as energy. Is there any reason 0:16:20.640 --> 0:16:23.920 to get my toe in the energy space. Well, you 0:16:24.040 --> 0:16:26.760 always want to be well diversified, and that includes some 0:16:26.880 --> 0:16:32.800 exposure to energy. And she just said, now it's like 0:16:33.320 --> 0:16:36.960 forget it, and if one word to assume that the 0:16:37.080 --> 0:16:41.480 US Iran conflict does not end today and in fact 0:16:41.760 --> 0:16:45.720 has some sort of legs. UM. That's another rationale for 0:16:45.800 --> 0:16:49.640 having exposure to to some energy stocks. UM. But I 0:16:49.720 --> 0:16:53.320 do believe in the grand scheme of things, UH, energy 0:16:53.560 --> 0:16:56.760 is not going to perform as well as other sectors 0:16:56.800 --> 0:16:59.640 like technology. I was reading an article this morning about 0:16:59.680 --> 0:17:01.840 how a dollar, which is kind of a key component 0:17:01.880 --> 0:17:05.160 when we talk about everything from commodities to emerging markets, UH, 0:17:05.359 --> 0:17:08.399 that the dollar has not served as the haven that 0:17:08.520 --> 0:17:11.440 it once has, and that during bouts of geopolitical turmoil 0:17:11.560 --> 0:17:13.760 or other issues like what you mentioned with Iran in 0:17:13.800 --> 0:17:16.359 the US, the dollar hasn't necessarily rallied to the degree 0:17:16.400 --> 0:17:19.359 that you would expect. Do you buy the argument? I mean, 0:17:19.359 --> 0:17:22.120 this sort of feeds into the whole dollar weakening UH 0:17:22.200 --> 0:17:24.840 kind of concept in the US losing its cloud and 0:17:24.920 --> 0:17:27.920 the international community, at least with respect of the currency 0:17:28.200 --> 0:17:30.679 is Do you buy that? I think there's some truth 0:17:30.760 --> 0:17:34.840 to that argument. We certainly have seen gold as a 0:17:34.880 --> 0:17:37.679 safe haven asset class of choice as well as the 0:17:37.760 --> 0:17:40.760 Japanese yen. So I think that is true, and I 0:17:40.760 --> 0:17:43.800 think there are a variety of reasons why. But certainly 0:17:43.880 --> 0:17:45.960 one of them is a desire on the part of 0:17:46.000 --> 0:17:49.800 some countries to move away from the US dollar as 0:17:49.840 --> 0:17:53.760 the reserve currency of choice. Wednesday is a fairly big 0:17:53.840 --> 0:17:55.919 day for those global trade folks. We're gonna get that 0:17:55.920 --> 0:17:58.879 Phase one deal signed. We don't know what the deal is. 0:17:58.920 --> 0:18:01.000 I guess we haven't seen any but is that all 0:18:01.040 --> 0:18:03.720 the market needs is just to see this thing kind 0:18:03.720 --> 0:18:07.160 of taken off the table. I think the market certainly 0:18:07.160 --> 0:18:10.760 will benefit from this issue being taken off the table. Now, 0:18:10.800 --> 0:18:14.280 we have to recognize that this does not end risks 0:18:14.440 --> 0:18:17.640 when it comes to trade, because if a Phase one 0:18:17.720 --> 0:18:21.520 deal is signed between the US and China, it could 0:18:21.560 --> 0:18:25.200 mean that the US then turns its sites on Europe 0:18:25.640 --> 0:18:30.520 and embarks on more in the way of trade wars 0:18:30.640 --> 0:18:36.800 with the EU, which could be quite problematic. Who suffers most, Germany? Yes, 0:18:36.880 --> 0:18:40.040 I think Europe suffers. Germany in particular suffers in an 0:18:40.119 --> 0:18:43.640 environment like that, especially if we were to see tariffs 0:18:43.680 --> 0:18:47.840 applied to European autos, which I think would be the 0:18:47.920 --> 0:18:51.199 eight hundred pound guerrilla in the room. That's that's what 0:18:51.240 --> 0:18:53.640 I was thinking. I mean, we hear about the wine tariffs, 0:18:53.640 --> 0:18:56.600 and I know a lot of people, uh, Tom Keane quitted, 0:18:57.119 --> 0:18:59.600 whine and cheese. It's it's very upsetting the idea that 0:18:59.600 --> 0:19:01.119 that the cost of wine might go up. And it 0:19:01.160 --> 0:19:03.439 really is all about cars, right, it is it is. 0:19:03.520 --> 0:19:06.680 That's that's the big danger and that's the giant hammer 0:19:07.080 --> 0:19:11.280 that the US wheels with the EU. Christina Hooper, thank 0:19:11.320 --> 0:19:13.240 you so much for being here. Thanks for having me. 0:19:13.320 --> 0:19:17.320 Christina Hooper as chief market strategist at Investco. Talking about 0:19:17.400 --> 0:19:33.639 the market outlook, the headlines surrounding hedge funds tend to 0:19:33.640 --> 0:19:36.560 be somewhat conflicted. On one hand, you have underperformance when 0:19:36.600 --> 0:19:39.680 it comes to total returns when compared versus the s 0:19:39.760 --> 0:19:42.719 MP five hundred. On the other, assets continue to climb 0:19:42.960 --> 0:19:46.639 to all time high records even though you have withdrawals. 0:19:46.640 --> 0:19:48.040 Reading us down to break it out down and get 0:19:48.080 --> 0:19:49.640 a sense of what to expect in the year, head 0:19:49.680 --> 0:19:53.320 is Don Steinberger. He's managing partner at Agecroft Partners based 0:19:53.359 --> 0:19:56.320 in Richmond, Virginia. Don, thank you so much for being 0:19:56.359 --> 0:19:58.320 with us. Can we just start there in terms of 0:19:58.359 --> 0:20:03.600 what you're expecting this year with flows for hedge funds. Yeah, 0:20:03.640 --> 0:20:07.359 so last year there were net redemptions of about three 0:20:07.359 --> 0:20:10.399 percent to the industry, but the average hedge fund was 0:20:10.480 --> 0:20:15.040 up about nine, so industry assets were up six. I think, 0:20:15.280 --> 0:20:17.480 you know, industry assets have gone up ten at the 0:20:17.560 --> 0:20:19.919 last eleven years. I think you're going to go up again, 0:20:20.680 --> 0:20:23.920 uh in two thousand and twenty. I think the amount 0:20:23.920 --> 0:20:26.199 of redemptions is going to be less this year than 0:20:26.320 --> 0:20:28.359 last year. A lot of that is due to the 0:20:28.400 --> 0:20:30.880 fact that interest rates are so low, and I think 0:20:30.880 --> 0:20:34.120 you're gonna see some major institutions take some money out 0:20:34.119 --> 0:20:39.120 of their fixed income allocation shifted into either uncorrelated hedge 0:20:39.119 --> 0:20:43.120 fund strategies or potentially start buying hedge funds within their 0:20:43.160 --> 0:20:48.520 fixed income portfolio, like direct lending, specialty finance, structure, credit 0:20:48.600 --> 0:20:51.879 to stress debt. So don it's interesting, you know, I 0:20:51.920 --> 0:20:54.040 look at the hedge fund business. My personal opinion is 0:20:54.119 --> 0:20:56.760 is the long short equity business kind of peaked in 0:20:56.800 --> 0:20:59.240 two thousand six, and if you look at performance, you 0:20:59.240 --> 0:21:01.840 know it's really been soppointing. How can the hedge fund industry, 0:21:01.840 --> 0:21:07.680 written large, continue to attract capital when it underperforms well, 0:21:08.160 --> 0:21:11.280 I agree with you that long shirt equity did peak 0:21:11.359 --> 0:21:13.720 a number of years ago. A lot of long shirt 0:21:13.720 --> 0:21:17.000 equity managers have had a difficult time. You've seen a 0:21:17.000 --> 0:21:19.199 lot of money come out of long shirt equity and 0:21:19.200 --> 0:21:21.919 go into other hedge fund strategies. But I think the 0:21:21.960 --> 0:21:25.399 reason that hedge fund asseture and all time high is 0:21:25.440 --> 0:21:27.600 because most of the money going into the hedge fund 0:21:27.640 --> 0:21:32.240 industry is into other strategies that help diversify a portfolio. 0:21:32.640 --> 0:21:36.080 You know, you have these very large pension endowments foundations 0:21:36.280 --> 0:21:38.600 that can't be a dent in equity, and they are 0:21:38.680 --> 0:21:43.040 loaded up in equity when you combine public equity, private equity, 0:21:43.160 --> 0:21:45.960 real estate equity, so they're you know that one of 0:21:46.000 --> 0:21:48.720 their main choices is invested in fixed income, and outside 0:21:48.720 --> 0:21:51.119 the US rates are close to zero. In the US, 0:21:51.200 --> 0:21:54.400 the aggregates about two point two percent. So they're looking 0:21:54.440 --> 0:21:58.480 at diversifying away from fixed income into hedge fund strategies, 0:21:58.760 --> 0:22:00.680 and they're not looking at out the form the SMP. 0:22:00.800 --> 0:22:03.680 They're looking at generating kind of a mid to high 0:22:03.840 --> 0:22:09.120 single digit uncorrelated return across a diversified list of strategies. 0:22:09.440 --> 0:22:11.920 It's interesting to me that direct lending is among those 0:22:11.960 --> 0:22:15.560