WEBVTT - Citadel Trading Plan, U.S CPI, Delta Earnings 0:00:02.920 --> 0:00:07.240 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.960 --> 0:00:13.840 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:00:13.920 --> 0:00:17.239 weekdays at ten am Eastern on Affocarplaying and broyd Otto 0:00:17.360 --> 0:00:20.239 with the Bloomberg Business App. Listen on demand wherever you 0:00:20.320 --> 0:00:24.000 get your podcasts, or watch us live on YouTube. 0:00:25.000 --> 0:00:27.360 Alex Deeal Paul Swiney live here on the Bloomberg Interactive 0:00:27.360 --> 0:00:30.400 Broker's Studio streaming live on YouTube, as well as to 0:00:30.400 --> 0:00:32.800 head over to the YouTube dot com and search Bloomberg 0:00:33.000 --> 0:00:36.200 dot com. My first trade on Wall Street, Johnny Cogvin 0:00:36.280 --> 0:00:38.400 leans over to me, my head trader block desk of 0:00:38.440 --> 0:00:40.800 pain Webber, buy three hundred thousand shares of PanAm at 0:00:40.800 --> 0:00:43.760 thirty one and a half and do not lose money. 0:00:43.840 --> 0:00:45.159 I'll give you all day to do it. 0:00:45.840 --> 0:00:46.240 I did. 0:00:46.479 --> 0:00:49.480 I made about four thousand dollars. It took me almost 0:00:49.520 --> 0:00:51.760 the entire day to get this trade done. Six months later, 0:00:51.800 --> 0:00:54.720 I did it in ten minutes. But amazing. AnyWho, that's 0:00:54.760 --> 0:00:57.320 my heritage on the block trading desk trading equities, but 0:00:57.440 --> 0:00:59.960 now streaming on Orogen. He covers all of Wall Street forces. 0:01:00.000 --> 0:01:02.200 It's got a story that I don't like because it's 0:01:02.240 --> 0:01:05.759 got Citadel Securities. Craft's a plan to shake up banks 0:01:05.800 --> 0:01:09.080 trading desk. I like the trading desk. Are they being 0:01:09.560 --> 0:01:10.800 intermediated to some degree? 0:01:10.880 --> 0:01:12.600 A very good morning to you as well. 0:01:12.959 --> 0:01:15.320 He likes you just be clear. 0:01:16.360 --> 0:01:18.120 No, but that's actually that's a word we do not 0:01:18.200 --> 0:01:20.039 use in the story. But in some ways that's a 0:01:20.240 --> 0:01:24.320 good way to think about it. The difference between when 0:01:24.360 --> 0:01:28.000 you were at pain Webern now is the industry model 0:01:28.040 --> 0:01:32.800 has changed dramatically. A lot of trading products, especially ones 0:01:32.840 --> 0:01:36.039 where you've seen that embrace of electronification. It's just not 0:01:36.200 --> 0:01:38.760 easy to make a lot of money in that business. 0:01:38.800 --> 0:01:41.080 I go back to this famous Bearston trader who is 0:01:41.160 --> 0:01:43.399 known as two sticks Eady. He got that name only 0:01:43.400 --> 0:01:46.080 because he would buy something at ninety seven, sell it 0:01:46.120 --> 0:01:49.960 at ninety nine, always had that two point spread. That's 0:01:50.000 --> 0:01:53.800 not what's available now. It's the technology, the process, the execution, 0:01:53.960 --> 0:01:56.720 it's the plumbing of the system has changed. It's not 0:01:56.840 --> 0:02:00.400 so much driven by relationships, and that has allowed these players, 0:02:00.400 --> 0:02:04.200 these market makers on the edges of that trading ecosystem 0:02:04.280 --> 0:02:06.840 to come in and really take market share. That's where 0:02:06.880 --> 0:02:09.880 you've seen people like Citadel and Jane Street and Virtue 0:02:09.919 --> 0:02:13.000 actually starting to gain share. They're still not as big 0:02:13.040 --> 0:02:15.440 as the biggest players, but where they do have an 0:02:15.440 --> 0:02:18.920 advantage is because the trading landscape has changed, because so 0:02:18.960 --> 0:02:22.280 many of the products are becoming categories of one or two. 0:02:22.680 --> 0:02:24.639 Your one or two top players in that space, and 0:02:24.680 --> 0:02:28.639 outside of that competitive mode, everyone else is struggling. Everyone 0:02:28.680 --> 0:02:32.640 has to identify their niche and that is where someone 0:02:32.720 --> 0:02:35.280 like sit sec can come in and say, our niche 0:02:35.320 --> 0:02:40.240 is great technology, great analytics, great ability to execute and process. 0:02:40.320 --> 0:02:42.280 Why don't we go to some of these struggling banks, 0:02:42.680 --> 0:02:45.480 people who need to offer these services but can't really 0:02:45.520 --> 0:02:47.919 refer to offer these services. There's Tier two, the tier 0:02:48.000 --> 0:02:50.400 three banks, the brokerages, and tell them we will do 0:02:50.520 --> 0:02:52.680 it for you. We will be your engine. Just slap 0:02:52.720 --> 0:02:55.600 your name on it, tell the clients you're still doing it, 0:02:56.280 --> 0:03:00.120 but split your commission with us. Your costs go way down, 0:03:00.240 --> 0:03:02.600 and you will show a bitter return on equity, which, 0:03:02.639 --> 0:03:04.680 at the end of the day is the most important 0:03:04.680 --> 0:03:05.880 thing all of them are striving for. 0:03:06.160 --> 0:03:10.440 Okay, here's my super dumb down question. So if that happens, 0:03:11.280 --> 0:03:13.640 what would Paul's trade of pan am back in the 0:03:13.680 --> 0:03:16.600 day look like? How would that now be different. 0:03:17.639 --> 0:03:19.520 It's just that Paul wouldn't be doing it. He was 0:03:19.560 --> 0:03:21.520 sending it off into the pipes that someone else will be. 0:03:21.440 --> 0:03:22.000 Doing it for it. 0:03:22.360 --> 0:03:24.280 He just like puts in like an order and then 0:03:24.280 --> 0:03:27.040 it just like goes and happens, and he's nothing. He 0:03:27.080 --> 0:03:29.440 doesn't have to sit there all day and manage it 0:03:29.440 --> 0:03:31.080 because Citadel is working on the pipes. 0:03:31.200 --> 0:03:33.240 It's not like client ABC comes upon and says, hey, 0:03:33.280 --> 0:03:34.960 here's the deal. He takes it from him and then 0:03:35.040 --> 0:03:37.200 flips it around to X, y Z and and makes 0:03:37.200 --> 0:03:40.360 the spread. It's just become harder, especially in equities, even 0:03:40.400 --> 0:03:43.200 in other products that you would not have previously thought 0:03:43.200 --> 0:03:45.720 about as low touch, they are becoming low touch. Think 0:03:45.720 --> 0:03:48.760 about corners of the credit market that you would not 0:03:48.920 --> 0:03:51.720 have thought would be easy to electronify. But that's happening, 0:03:51.720 --> 0:03:54.200 and that's happening at PACE. But the bigger, I guess 0:03:54.320 --> 0:03:57.480 academic question here is if you're a client, And the 0:03:57.520 --> 0:04:01.559 simple way to think about it is, it's like if 0:04:01.680 --> 0:04:03.440 there were some banks, if there was some Tier two 0:04:03.480 --> 0:04:06.480 banks that were to embrace this model, and you're a 0:04:06.520 --> 0:04:10.120 client going to them, it's almost like a Starbucks selling 0:04:10.240 --> 0:04:13.760 Dunkin Donuts coffee. How long does a client keep going 0:04:13.760 --> 0:04:16.640 to Starbucks to buy that Dunkin coffee instead of going 0:04:16.640 --> 0:04:20.599 to Dunkin directly. And that's Citadel's opportunity because it is 0:04:20.680 --> 0:04:22.680 also doing that. It has also got a platform of 0:04:22.720 --> 0:04:25.240 clients comes straight to them. But it's not all going 0:04:25.320 --> 0:04:28.239 to happen at once. That intermediate term can last a while. 0:04:28.680 --> 0:04:31.279 So if this plan, which is still, let's be clear, 0:04:31.360 --> 0:04:33.320 a bit pie in the sky, but if they're able 0:04:33.360 --> 0:04:35.960 to roll this out and if they're able to get 0:04:35.960 --> 0:04:39.200 people to embrace this, that intermediate term can last a while, 0:04:39.640 --> 0:04:43.160 and that could enable Citadel Securities to make a bigger 0:04:43.279 --> 0:04:47.200 leap in the business quicker than otherwise. And that's important 0:04:47.200 --> 0:04:51.080 because this trading firm of Ken Griffin's has it's clear 0:04:51.120 --> 0:04:52.400 to us, it's clear to a lot of people in 0:04:52.400 --> 0:04:54.240 the market, and in the coming years it will ipo 0:04:55.360 --> 0:04:58.600 and it is going to have a pretty valuation because 0:04:58.640 --> 0:05:03.160 it is completely focus stone having high roe low capital 0:05:03.200 --> 0:05:07.000 intensive businesses because they're convinced that's what investors an analysts like, 0:05:07.160 --> 0:05:10.919 and their entire model is around taking that piece of 0:05:10.960 --> 0:05:12.600 it and scaling it. 0:05:13.279 --> 0:05:17.800 The Citadel's trading operation third party trading operation. Did they 0:05:17.880 --> 0:05:20.880 put up capital to facilitate trades or they just do 0:05:20.960 --> 0:05:24.719 it with flow, because I mean, part of the reason 0:05:24.760 --> 0:05:26.120 is that people would pick up the phone and call 0:05:26.240 --> 0:05:28.120 me back in the day, is that I would put 0:05:28.160 --> 0:05:30.920 up some capital to facilitate a trade, put capital at 0:05:30.960 --> 0:05:33.040 risk to facilitate a trade. Now that first day, I 0:05:33.120 --> 0:05:34.880 wasn't not to put up any capital because that would 0:05:34.880 --> 0:05:37.520 probably would have lost it. But that's kind of how 0:05:37.560 --> 0:05:39.360 it goes. Are they putting up capital? 0:05:39.480 --> 0:05:39.719 They do? 0:05:40.200 --> 0:05:42.039 I mean, and again we'll have to go through the numbers, 0:05:42.040 --> 0:05:44.360 but there are some disclosures. I believe the Citadel Citadel 0:05:44.400 --> 0:05:47.680 Securities capital is somewhere close to eight nine ten billion. 0:05:48.000 --> 0:05:50.960 Jane Street is perhaps double of that. The big banks 0:05:50.960 --> 0:05:52.640 are probably eight nine times that. 0:05:53.440 --> 0:05:54.279 So yes, you can't. 0:05:54.320 --> 0:05:57.200 You can't play this game without any capital. It's not 0:05:57.560 --> 0:06:00.200 as intensive as the bigger operations because they're not doing 0:06:00.279 --> 0:06:01.680 some of the harder stuff. They're not doing some of 0:06:01.680 --> 0:06:04.360 the prime brokerage stuff, which is the financing business where 0:06:04.440 --> 0:06:06.880 a lot of the capital intensity comes into play, and 0:06:07.200 --> 0:06:09.320 that is by design. They're saying, we don't want to 0:06:09.400 --> 0:06:11.880 chase that capital intensive stuff. We don't want the regulators 0:06:11.880 --> 0:06:14.000 to be breathing down our Next we will do the 0:06:14.040 --> 0:06:20.239 stuff which requires efficient use of operating expenses, up to date, 0:06:20.920 --> 0:06:23.680 new age tech stack, which is very different from a 0:06:23.680 --> 0:06:26.000 lot of these other older players who are struggling with 0:06:26.080 --> 0:06:34.080 creaking technology, burgeoning operating expenses, and not cutting edge analytics. 0:06:34.160 --> 0:06:36.880 Citel believes it has all of that and that is 0:06:36.920 --> 0:06:39.520 what gives it that agility and nimbleness. At least that's 0:06:39.560 --> 0:06:41.560 how they see it to go in there and offer 0:06:41.560 --> 0:06:43.840 a service like this and also outcompete some of their 0:06:43.839 --> 0:06:44.599 bigger rivals. 0:06:44.680 --> 0:06:46.320 So who would this be bad for? 0:06:48.920 --> 0:06:51.920 We know who it will be good for securities. Who 0:06:51.960 --> 0:06:54.000 will it be bad for the way they are making 0:06:54.040 --> 0:06:55.880 the pitch is they're going to all of these or 0:06:55.960 --> 0:06:58.479 or they will go to all of these tier two 0:06:58.560 --> 0:07:01.120 players in below and say it's not bad for you, 0:07:02.000 --> 0:07:05.680 it's mutually beneficial. If we weren't there, you would be 0:07:05.680 --> 0:07:09.159 having serious conversations with your board about what products do 0:07:09.200 --> 0:07:11.680 you need to exit because some products just don't make 0:07:11.720 --> 0:07:14.520 money and you can just carry along that dead weight forever. 0:07:14.560 --> 0:07:16.440 But in theory, those tier two companies that will be 0:07:16.520 --> 0:07:17.600 losing some of their. 0:07:17.680 --> 0:07:20.320 They will be losing some of theirs. They will be 0:07:20.360 --> 0:07:22.000 losing some of this way, they will be losing some 0:07:22.040 --> 0:07:24.960 of their commission. In exchange they get higher profitability, So 0:07:24.960 --> 0:07:27.200 they have to figure out if that trade off is 0:07:27.320 --> 0:07:27.680 worth it. 0:07:28.040 --> 0:07:29.600 I think one of the concerners I would have if 0:07:29.640 --> 0:07:32.240 I were a Deutsche Bank I was mentioned in your story. 0:07:32.600 --> 0:07:34.760 Do I want to give up a the commissions and 0:07:34.840 --> 0:07:38.560 be my relationships because I think the market's going to 0:07:38.600 --> 0:07:41.000 know that I'm not really in the game and allocating 0:07:41.000 --> 0:07:42.440 capital and all that kind of stuff, And what does 0:07:42.480 --> 0:07:44.920 that mean for my clients. If I'm not in there, 0:07:45.120 --> 0:07:48.160 I'm forming out a lot of this capital risk and 0:07:48.240 --> 0:07:51.840 so on to an execution cost to Citadel. 0:07:52.080 --> 0:07:53.880 Hence, why not just go right to dunkin Donuts and 0:07:53.920 --> 0:07:54.760 buy past Starbucks. 0:07:54.800 --> 0:07:56.640 Yeah, so I'm sure they have to think about that, 0:07:56.800 --> 0:07:57.920 but for a lot of again a lot of the 0:07:57.960 --> 0:08:00.560 second tier terms, it might make a lot of sense, right. 0:08:00.480 --> 0:08:03.280 And iven Deutsche Bank, which I would not necessarily consider 0:08:03.400 --> 0:08:06.120 inside the competitive motors, I mean they exited, I could 0:08:06.200 --> 0:08:08.760 spots of actory training who are not going to be 0:08:08.800 --> 0:08:10.720 a part of this process. They're not going to Goldman 0:08:10.760 --> 0:08:12.760 Sachs and JP Morgan, Monks, Stelli and say, we're going 0:08:12.800 --> 0:08:17.520 to supplant you, right, because those three are squarely inside 0:08:17.520 --> 0:08:20.160 that competitive mode. It's when you step outside of that 0:08:20.280 --> 0:08:22.360 area that it becomes extremely challenging. 0:08:22.640 --> 0:08:22.920 Street. 0:08:23.040 --> 0:08:27.040 Thanks good stuff, Srinan Rodgers, Senior Financial Report of Bloombergers. 0:08:27.080 --> 0:08:29.160 He's got a story I don't particularly care for, but 0:08:29.240 --> 0:08:31.880 I do understand it. It makes some sense. We'll see 0:08:31.880 --> 0:08:34.360 if we're good friends at sitadel, I can float that 0:08:34.480 --> 0:08:35.320 down the street. 0:08:35.320 --> 0:08:40.640 Here, you're listening to the Bloomberg Intelligence Podcast. Catch us 0:08:40.679 --> 0:08:43.839 live weekdays at ten am Eastern on Apple car Play 0:08:43.880 --> 0:08:46.679 and Android Auto with the Bloomberg Business Act. You can 0:08:46.720 --> 0:08:50.000 also listen live on Amazon Alexa from our flagship New 0:08:50.040 --> 0:08:53.679 York station. Just say Alexa playing Bloomberg eleven thirty. 0:08:55.040 --> 0:08:56.679 All right, let's get a broader take in the market here. 0:08:56.679 --> 0:08:59.360 Emily Rowland, one of my favorites, co chief investment strategists 0:08:59.360 --> 0:09:03.719 for John Hand Investment Management, joins us. Now, Emily, the 0:09:04.160 --> 0:09:07.240 reaction is clear, right, the S and P responding mortar earnings, 0:09:07.320 --> 0:09:09.440 and you know, the bond market and the currency market 0:09:09.480 --> 0:09:12.160 responding to that CPI data. What's your take over the 0:09:12.240 --> 0:09:13.040 last couple hours? 0:09:13.960 --> 0:09:17.160 Oh so much relief right now, especially seeing that shelter 0:09:17.280 --> 0:09:20.920 component coming in at two point two percent month over month, 0:09:20.960 --> 0:09:23.480 it just felt like it was groundhog Day. Every time 0:09:23.520 --> 0:09:26.480 we've gotten CPI reports this year, it's just been that 0:09:26.520 --> 0:09:29.200 sticky shelter component, and I think there's a lot of 0:09:29.240 --> 0:09:31.840 relief that that's coming down. I think the challenge that 0:09:31.880 --> 0:09:34.959 the market's contending with right now is when does kind 0:09:35.000 --> 0:09:38.440 of good news on disinflation maybe put pressure on growth 0:09:38.480 --> 0:09:40.559 and corporate earnings. So the way that we've been thinking 0:09:40.600 --> 0:09:44.400 about it is, yes, disinflation traction is great for consumers. 0:09:44.440 --> 0:09:46.640 It means the FED can start cutting, and I think 0:09:46.760 --> 0:09:50.720 we solidify to September cut after today's report. But it's 0:09:50.800 --> 0:09:54.160 not necessarily the best thing for corporate revenues. In fact, 0:09:54.160 --> 0:09:56.320 we're finding that a lot of companies are now having 0:09:56.360 --> 0:09:57.479 a harder time. 0:09:57.800 --> 0:10:00.000 Asking those prices along to the end consumer. 0:10:00.400 --> 0:10:03.280 If you look at the guts to the CPI report today, 0:10:03.520 --> 0:10:06.880 it's stuff people want, right like Alex clearly you want 0:10:06.880 --> 0:10:10.320 to go to Idaho. But there's things like airfares, It's 0:10:10.320 --> 0:10:13.680 things like cars, used cars, new cars. It's things like 0:10:14.480 --> 0:10:18.120 you know, other sort of discretionary items that are falling 0:10:18.160 --> 0:10:20.480 because companies have less pricing power. 0:10:20.640 --> 0:10:22.680 That means revenue growth might slow. 0:10:23.040 --> 0:10:25.320 At the same time, the cost of capital is still 0:10:25.400 --> 0:10:28.080 elevated for companies, so their margins are going to come 0:10:28.160 --> 0:10:30.800 under pressure here, and I think that's the reason you're 0:10:30.840 --> 0:10:34.800 not necessarily seeing that massive pivot party that we've seen 0:10:34.840 --> 0:10:37.960 with other CPI releases coming down because it's not the 0:10:38.000 --> 0:10:40.079 best thing for corporate earnings from here. 0:10:40.520 --> 0:10:42.760 Well, I'm a former equity analyst, but I know all 0:10:42.760 --> 0:10:45.960 along that the fixed income guy folks are much smarter. 0:10:46.400 --> 0:10:49.600 The bond market's definitely reacting to what's happening out there. 0:10:49.640 --> 0:10:51.840 We got the two year, as John Tucker LASA called 0:10:51.880 --> 0:10:55.320 the most interest rates sensitive and fed sensitive instrument out there, 0:10:55.360 --> 0:10:57.800 the to year treasury. It's off almost twelve basis points 0:10:57.800 --> 0:11:00.760 four point five percent, and we were at five point 0:11:00.920 --> 0:11:03.800 zero two percent on April thirty. So big moves in 0:11:03.840 --> 0:11:07.400 a bond market, is that? What's that telling this? Emily? 0:11:08.400 --> 0:11:11.800 Yeah, So we've been suggesting that investors lean into high 0:11:11.880 --> 0:11:14.640 quality bonds over the course of this year, even though 0:11:14.679 --> 0:11:16.680 the path has been bumpy. I mean, it's amazing. We 0:11:16.720 --> 0:11:19.600 started at three eighty eight on the ten year treasury 0:11:19.679 --> 0:11:22.160 yield this year we're still not even there yet back 0:11:22.240 --> 0:11:24.560 down to that level. So it's like the market, the 0:11:24.600 --> 0:11:29.720 bond market hasn't really like sniffed out this disinflation trend yet. 0:11:29.800 --> 0:11:32.800 So we were suggesting that investors take advantage of that 0:11:32.880 --> 0:11:35.880 big backup in yields that we've seen to lock in 0:11:35.920 --> 0:11:38.920 those higher interest rates when the Fed does start cutting, 0:11:38.920 --> 0:11:41.800 When rates start to move lower, it can happen really quickly. 0:11:42.360 --> 0:11:44.360 So many of the investors that I've been talking to 0:11:44.480 --> 0:11:46.000 this year like, well, we're just going to wait for 0:11:46.040 --> 0:11:48.400 the Fed to cut in order to leg into duration 0:11:48.520 --> 0:11:51.200 a little bit more. The challenges with that is that 0:11:51.240 --> 0:11:52.880 you're going to miss out on a lot of the 0:11:52.960 --> 0:11:55.680 total return potential in bonds if you wait for the 0:11:55.760 --> 0:11:58.280 Fed to cut. We know that the ten year treasury 0:11:58.320 --> 0:12:00.960 yield are really the entire yield is going. 0:12:00.920 --> 0:12:03.600 To sort of sest that out before the Fed actually 0:12:03.679 --> 0:12:04.480 starts cutting. 0:12:04.559 --> 0:12:07.200 So that's why we think it's important to get paid 0:12:07.240 --> 0:12:10.960 income here while we can at these elevated levels close 0:12:11.000 --> 0:12:13.880 to twenty year highs on bond yields pretty awesome. 0:12:14.400 --> 0:12:16.760 So then if we just go from the ten for second, 0:12:16.840 --> 0:12:20.000 so steep inner trade seems to being played today, but 0:12:20.000 --> 0:12:22.000 that's more because the front end and the stronger buying 0:12:22.000 --> 0:12:23.280 in the front end, how do you want to be 0:12:23.280 --> 0:12:23.680 playing that? 0:12:24.840 --> 0:12:27.800 Yeah, I mean we are suggesting essentially looking at the 0:12:27.840 --> 0:12:31.160 intermediate part of the curve right now for the best opportunities, 0:12:31.640 --> 0:12:36.080 you know, looking at seven to ten years of maturity. 0:12:35.520 --> 0:12:37.280 And again locking that in right now. 0:12:37.320 --> 0:12:39.600 The trends that we're seeing is that it's cash cash 0:12:39.679 --> 0:12:42.960 cash CDs. They're six trillion dollars out like sitting in 0:12:43.000 --> 0:12:44.360 money market funds right now. 0:12:44.400 --> 0:12:45.640 That is unbelievable. 0:12:46.120 --> 0:12:48.760 And so what we're seeing is investors are loving getting 0:12:48.800 --> 0:12:51.720 paid this close to five percent risk free rate. But 0:12:51.800 --> 0:12:54.560 our contention is, hey, by the way, that's fine, it's 0:12:54.600 --> 0:12:57.520 great that there's something else to do with short term cash, 0:12:57.600 --> 0:13:01.440 but it's really a terrible long term investment. So just 0:13:01.520 --> 0:13:04.560 going out the curb, embracing the intermediate part of the curb, 0:13:04.880 --> 0:13:08.240 locking in that five even six percent income for many, 0:13:08.280 --> 0:13:09.079 many years. 0:13:09.640 --> 0:13:12.160 We think we're going to look back and really. 0:13:12.120 --> 0:13:14.680 Identify the fact this was a great opportunity to take 0:13:14.720 --> 0:13:18.640 advantage of these higher yields before inflation comes down even 0:13:18.720 --> 0:13:19.959 further and the Fed starts to. 0:13:19.920 --> 0:13:23.400 Cut How much credit risk should I take here, Emily 0:13:23.520 --> 0:13:26.360 or should I just stick with my safe treasuries. 0:13:27.360 --> 0:13:29.880 I mean, I know it's boring, Paul, I know it's 0:13:29.880 --> 0:13:32.040 foreign to just love high quality bonds. 0:13:32.120 --> 0:13:33.240 But when we look at. 0:13:33.160 --> 0:13:36.120 High yield right now, the yields are elevated, of course, 0:13:36.200 --> 0:13:39.080 but you're not really getting rewarded. I mean, spreads are 0:13:39.120 --> 0:13:42.599 still sitting at around three hundred basis points above treasuries 0:13:42.600 --> 0:13:43.640 on high yield bonds. 0:13:43.720 --> 0:13:45.040 That is pretty unusual. 0:13:45.440 --> 0:13:48.719 We actually did some analysis suggesting that when spreads have 0:13:48.800 --> 0:13:52.160 been this tight, the forward looking twelve month returns on 0:13:52.240 --> 0:13:55.560 high yield bonds are right around zero to one percent 0:13:55.760 --> 0:13:58.840 historically looking over the past forty years, with a range 0:13:58.880 --> 0:14:02.040 of plus ten mind ten. So to us, you just 0:14:02.080 --> 0:14:04.880 don't need to go down the credit spectrum anymore to 0:14:05.000 --> 0:14:07.120 generate impressive yields and bonds. 0:14:07.760 --> 0:14:10.040 Where is the riskiest spot right now? 0:14:11.559 --> 0:14:16.320 Yeah, so it's really in lower quality sort of growth 0:14:16.320 --> 0:14:18.880 at any price on the equity side. 0:14:18.880 --> 0:14:20.600 So we talked about the risks in bonds. 0:14:20.600 --> 0:14:23.480 But on the equity side, you know, seeing small cabs 0:14:23.560 --> 0:14:26.600 rallying today, I'm actually a little bit surprised by that 0:14:27.080 --> 0:14:29.440 because what we saw for most of the last year 0:14:29.640 --> 0:14:32.880 was that small cabs were the biggest participant in the 0:14:33.080 --> 0:14:35.640 pivot party. Right, the idea that the FED can resume 0:14:35.720 --> 0:14:39.280 cutting the cost of capital can come down. That's awesome 0:14:39.280 --> 0:14:42.680 for companies that have the highest levels of indebtedness, right. 0:14:43.160 --> 0:14:45.840 But what we started seeing recently over the past month 0:14:45.960 --> 0:14:49.040 or so is small caps weren't getting as excited about 0:14:49.280 --> 0:14:51.920 rate cuts as they once had because again, it means 0:14:51.920 --> 0:14:55.880 it puts pressure on revenues, it hurts margins, and it 0:14:55.960 --> 0:14:58.920 hurts the lowest quality players. So we would be taking 0:14:58.960 --> 0:15:01.680 an opportunity right now now to kind of sell out 0:15:01.680 --> 0:15:04.920 of growth at any price meme stocks, if you will 0:15:05.640 --> 0:15:08.520 risky your small cap equities and kind of lean into 0:15:08.560 --> 0:15:11.640 higher quality stocks that have great balance sheets, tons of 0:15:11.680 --> 0:15:14.720 cash and a limited need to tap the capital markets 0:15:14.720 --> 0:15:17.280 in order to grow. We think those still do well 0:15:17.640 --> 0:15:19.680 in this decelerating growth environment. 0:15:20.400 --> 0:15:22.440 All Right, we've kind of i think in earnest beginning 0:15:22.440 --> 0:15:24.920 to kick off earnings today, and of course we'll really 0:15:24.960 --> 0:15:26.680 do it tomorrow with some of the big banks slip 0:15:26.720 --> 0:15:29.040 at JP Morgan Chase. Here, what do you need to see? 0:15:29.040 --> 0:15:31.640 What do you think the market needs to see from 0:15:31.680 --> 0:15:32.840 this earning season? 0:15:33.760 --> 0:15:36.640 Yeah, I mean the trickiest part now is that we like, 0:15:36.800 --> 0:15:39.960 finally have a high bar again. You know, not that 0:15:39.960 --> 0:15:42.520 that's a great thing, but eight point eight percent earnings 0:15:42.560 --> 0:15:46.400 growth is what analysts are penciling in for this quarter. 0:15:46.480 --> 0:15:48.960 It's the first time in a while that we've had 0:15:49.440 --> 0:15:52.240 an elevated bar. That would be the highest earnings growth 0:15:52.320 --> 0:15:54.240 since Q one of twenty twenty two. 0:15:55.360 --> 0:15:57.080 One thing we're looking for though, is. 0:15:57.040 --> 0:15:59.200 That eight out of eleven sectors in the S and 0:15:59.240 --> 0:16:02.280 P five hundred are expected to see positive earnings grow 0:16:02.280 --> 0:16:05.160 at this quarter. So if that does come through, that 0:16:05.200 --> 0:16:08.280 would help broaden market breadth, which I think is really 0:16:08.320 --> 0:16:12.400 important for markets given the level of concentration we've seen 0:16:12.480 --> 0:16:15.720 across megacap technau. So I think if earnings can deliver, 0:16:16.160 --> 0:16:18.960 you know, eight nine percent feels a little bit overly 0:16:19.000 --> 0:16:22.760 optimistic to me, then we can get that market bread 0:16:22.840 --> 0:16:24.120 that everybody's looking for. 0:16:24.880 --> 0:16:27.680 You know who says twelve percent, Gina Martin Adams A 0:16:27.760 --> 0:16:30.560 BI we're gonna talk to for next because that's even like, 0:16:30.640 --> 0:16:33.120 here's a bar and then we're going to rise above it. Emily, 0:16:33.200 --> 0:16:35.320 before we let you go though your thoughts on Ai, 0:16:35.400 --> 0:16:38.120 Goldman had a really interesting NOTEUBT that talked about maybe 0:16:38.120 --> 0:16:41.720 the hyperscalers won't be investing as much as maybe we thought. 0:16:41.880 --> 0:16:44.560 Does that change how does that wind up affecting AI trades? 0:16:44.600 --> 0:16:45.120 What do you think? 0:16:46.080 --> 0:16:46.320 Yeah? 0:16:46.360 --> 0:16:48.080 I think what we're going to be looking for this 0:16:48.240 --> 0:16:51.600 earning season across those big AI names is again back 0:16:51.600 --> 0:16:54.720 to the monetization of it. How is this being monetized, 0:16:55.120 --> 0:16:59.000 How is it producing productivity benefits? And to your point, like, 0:16:59.040 --> 0:17:02.640 where's the budget prioritization across these companies? So we'll be 0:17:02.680 --> 0:17:05.280 looking for kind of who the winners and losers are 0:17:05.320 --> 0:17:08.120 across that, especially as it comes to how does everybody 0:17:08.160 --> 0:17:11.040 monetize this incredibly powerful productivity driver? 0:17:11.160 --> 0:17:14.840 From here, great stuff, Emily, Thanks so much. We appreciate 0:17:14.880 --> 0:17:16.920 you at we roll in Co, Chief Investment Strategies for 0:17:17.040 --> 0:17:19.240 John Hancock Investment Management. 0:17:21.000 --> 0:17:24.840 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:17:24.960 --> 0:17:28.320 weekdays at ten am Eastern on afocarplay and Android Auto 0:17:28.359 --> 0:17:31.320 with the Bloomberg Business App. Listen on demand wherever you 0:17:31.359 --> 0:17:35.520 get your podcasts, or watch us live on YouTube. 0:17:36.000 --> 0:17:39.359 I'm Alex the alongside Paul Sweened. This is Bloomberg Intelligence Radio. 0:17:39.359 --> 0:17:41.960 We bring you all the top news and analysis with 0:17:42.040 --> 0:17:45.000 our great Bloomberg Intelligence Team. They cover two thousand companies 0:17:45.240 --> 0:17:47.520 and one hundred and thirty industries worldwide, and we also 0:17:47.560 --> 0:17:51.119 take you outside talk to the CEOs, economists, analysts, and 0:17:51.119 --> 0:17:54.040 also get their take on what's happening. And for this 0:17:54.119 --> 0:17:56.960 we go to real estate because housing stocks are getting 0:17:56.960 --> 0:17:59.160 a nice boost today, whether you're looking at reads, whether 0:17:59.200 --> 0:18:01.880 you're looking at homes, all thanks to those lower yields. 0:18:02.160 --> 0:18:05.240 So we're checking in now with Steve Jacobs, president of tenx. 0:18:05.280 --> 0:18:08.280 He's joining us from Irvine, California, and ten x is 0:18:08.320 --> 0:18:13.040 apparently the largest online commercial real estate auction platform, so 0:18:13.080 --> 0:18:15.480 it's a great window to give us a viewpoint on 0:18:15.720 --> 0:18:18.360 cre market. Thanks for joining u, Steve, and we really 0:18:18.400 --> 0:18:20.439 appreciate it. Can you just talk me through how the 0:18:20.520 --> 0:18:24.320 largest online commercial real estate auction platform works? 0:18:24.960 --> 0:18:28.919 Coork thing nice to talk to you. So we're in 0:18:28.960 --> 0:18:32.800 the business thirteen years and the difference between being online 0:18:32.840 --> 0:18:37.080 and offline is using our technology, our customers do their 0:18:37.160 --> 0:18:38.879 due diligence when they're looking to buy a piece of 0:18:38.880 --> 0:18:42.879 commercial real estate before they actually purchased it, versus offline. 0:18:43.040 --> 0:18:45.520 How due diligence is done after they sign a contract, 0:18:46.160 --> 0:18:49.720 and by doing that we shorten the time frame between 0:18:49.720 --> 0:18:52.399 marketing and and closing a deal to about one hundred 0:18:52.480 --> 0:18:56.359 days nine to one hundred days versus a six month process. 0:18:56.680 --> 0:19:00.280 We also eliminate the risk of retrades and all of 0:19:00.920 --> 0:19:04.199 how we have a ninety eight percent closing rate, and 0:19:04.240 --> 0:19:07.880 we've traded helped We've helped brokers trade over thirty two 0:19:07.880 --> 0:19:11.640 billion dollars of commercial real estate over the last several years. 0:19:11.720 --> 0:19:14.720 All right, So, Kennel from I mean, Steve, from your perspective, 0:19:14.760 --> 0:19:16.680