Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Let's go over to
Speaker 1: Michael Weiss. He is the founder and president of Yield Street. Michael,
Speaker 1: thanks so much for joining us here. It's it's FED day.
Speaker 1: You know, here Bloomberg we make a big big deal
Speaker 1: about it because the markets really care. What are you
Speaker 1: thinking about? What do you expect to hear from this Fed?
Speaker 1: It's good to be back in good morning. I expect
Speaker 1: to see a little bit of the same when it
Speaker 1: comes to the FED. I think the market continues to
Speaker 1: think that we have it all figured out, and the
Speaker 1: FED enjoys showing us that we don't. I expect us
Speaker 1: to see another raid hike. I think the markets are
Speaker 1: going to see a choppy day today. I think we're
Speaker 1: going to see some more volatility. I don't think the
Speaker 1: FED is done yet. I think they have resilience that
Speaker 1: we have yet to experience. Well, they share better not
Speaker 1: be done because they have five and a quarter percent
Speaker 1: as the terminal rate on the dot plot. So if
Speaker 1: they finish at four, that's a big miss. I could
Speaker 1: imagine though, that they don't go much higher than five,
Speaker 1: because I think they're a little more hawkish on the
Speaker 1: dot plot than they expect to be in real life. Plus,
Speaker 1: to be fair, a lot has changed, right Michael. I mean,
Speaker 1: we've seen inflation come down pretty substantially. We are seeing
Speaker 1: inflation come down. We are seeing the American consumers pocket dinner.
Speaker 1: We're seeing people pulling out of we we saw Vanguard
Speaker 1: published a report that the people are having hardship withdrawals
Speaker 1: out of their personal retirement accounts at a level that
Speaker 1: we haven't seen before. And so the consumer is different.
Speaker 1: Their ability to spend has dramatically decreased, and they don't
Speaker 1: have the same deposits they used to the way how
Speaker 1: does that affect How does that affect your investments at
Speaker 1: Yield Street, because you have I think a very unique
Speaker 1: situation in that UM, if I understand it correctly, you're
Speaker 1: you allow UM kind of retail investors to get in
Speaker 1: on something that until now had been really the revere
Speaker 1: of institutional clients or the ultra wealthy. Right you you
Speaker 1: let people into private credit. Correct, the old Street has
Speaker 1: been making access to alternative investments available for retail investors
Speaker 1: and credit investors. And what we have been a big
Speaker 1: proponent of is helping people build a better and more
Speaker 1: modern portfolio that includes private assets, so private credit, private equity,
Speaker 1: real estate, and a host of other investments that were
Speaker 1: usually and historically reserved for the ultra wealthy and the
Speaker 1: institutional investor and had been incredibly popular. I mean, everybody
Speaker 1: Paul and I talked to in two was like, Man,
Speaker 1: these markets are are too crazy. We're going to run
Speaker 1: for the hills. The only thing we like is either credit.
Speaker 1: So how's that turning out? How does that look this year?
Speaker 1: It still continues to look really great. I'll talk to
Speaker 1: you a little bit about some of the challenges you
Speaker 1: could expect in private markets. But for the most part,
Speaker 1: the private markets are holding their own and people continue
Speaker 1: to invest in and continue to see net inflows month
Speaker 1: over month. People want more stability, They want to get
Speaker 1: away from the volatility in the public markets. They trust
Speaker 1: the public markets for life, and it has to deliver
Speaker 1: the returns for them that they want it or the stability,
Speaker 1: whereas in the private market, for example, in private credit
Speaker 1: or in real estate debt, you are often able to
Speaker 1: invest in a sofa based or in a floater I
Speaker 1: know that's a trigger word for you your last time,
Speaker 1: I think you pulled the Caddy shock reference. But um,
Speaker 1: if if you're invested in a floating rate product, then
Speaker 1: you're going to continue to earn more as the ft
Speaker 1: increases the rate. And so for the most part, the
Speaker 1: alternative investment lands it has held its own and people
Speaker 1: continue to invest more nuanced. Where you're seeing a shift
Speaker 1: over the last twelve months is historically people were really
Speaker 1: excited over the last number of years about private equity,
Speaker 1: about venture about being growth opportunities, so I think of
Speaker 1: longer duration and limited cash flow but a bigger return
Speaker 1: in the future. Over the last number of months, investors
Speaker 1: have shifted that appetite into shorter duration, cash flowing assets,
Speaker 1: more credit based, less long term equity, and they were
Speaker 1: able to distill access those investments through our platform. And
Speaker 1: so we've shifted some of the demand as to where
Speaker 1: we're investing more heavily to cater to what people really want. Hey, Matt,
Speaker 1: you know, to the extent we do get a recession
Speaker 1: in how concerning you about the private credit business as
Speaker 1: you think about credit quality, how does that change maybe
Speaker 1: how you think about that business. I'm very bullish on
Speaker 1: the private credit business as it relates to credit quality. Obviously,
Speaker 1: that's much more specific to the strategy. Within private credit.
Speaker 1: We've mostly been focused on teen year secured or on
Speaker 1: bridge lending UM that's imagining, but on a lower loan
Speaker 1: to value basis. So when you look at our portfolio
Speaker 1: or when you look at the partners that we do
Speaker 1: business with, we feel really good about it. I think
Speaker 1: where the recession starts to hit UM in a more
Speaker 1: impactful way. Some of the private investments, for example, take
Speaker 1: of real estate equity. So a lot of the investments
Speaker 1: they have senior debt that could be on a floating rate.
Speaker 1: And so for folks that don't have recaps, that becomes
Speaker 1: a real issue because their cost of debt just skyrocketed.
Speaker 1: Our portfolio has recaps, but they're gonna roll in twenty four,
Speaker 1: l twenty three or early twenty four. And so if
Speaker 1: you look at the forward curve today, you feel comfortable
Speaker 1: saying Hey, by that time, you're going to be in
Speaker 1: a better place and you'll be fine. People who are
Speaker 1: dealing with expiring recaps now are going to have a
Speaker 1: lot of trouble because the cost of that dead is
Speaker 1: going to be way too expensive. All right, Michael, great stuff.
Speaker 1: Always appreciate checking in with you. Michael Weiss's founder and
Speaker 1: president of Yield Street talking about the credit markets. Lots
Speaker 1: of eco data, lots of earnings, but also geopolitical issues
Speaker 1: out there for the markets to take into accouncil. Let's
Speaker 1: bring on Angela Stent, she's a senior fellow at the
Speaker 1: Brookings Institute in Angela. Before we get to kind of
Speaker 1: Russia Ukraine and what that means for just geopolitical tensions,
Speaker 1: you know. The kind of the story that's just kind
Speaker 1: of hitting the tape right now is the Justice Department
Speaker 1: at President Biden's home in Rohoboth Beach, Delaware looking for
Speaker 1: more documents. What's going on with these documents for a
Speaker 1: lot of these senior level folks, Well, I think it
Speaker 1: shows that we need a better system. When people leave
Speaker 1: office and I guess it's the last days and everyone's
Speaker 1: hwying around and packing things up, that clearly mistakes were
Speaker 1: made us. So I think as a result of all
Speaker 1: of this, and I guess, uh, they've now asked the
Speaker 1: Justice Department has asked the you know, all of the
Speaker 1: former presidents and vice presidents to make sure that they
Speaker 1: don't have classified documents, that they'll have to have a
Speaker 1: better way of dealing with it, because clearly the system
Speaker 1: hasn't worked. How is the system working now? I mean,
Speaker 1: the first documents were found November two, just before an election.
Speaker 1: Fortunately for the Democrats, they didn't tell anybody until after
Speaker 1: the mid terms. But it's been quite a while. They're
Speaker 1: just searching his beach house now. Why, well, I guess
Speaker 1: you know, it takes time for them, you know, their
Speaker 1: procedures to uh, you know, to to get to all
Speaker 1: the different places you know, where the presidents life is happening. Yeah,
Speaker 1: they were scheduled. Yeah, I mean, everything's you know, it
Speaker 1: takes time. But clearly, as I said, the system isn't
Speaker 1: working properly and we need a better system. It's been
Speaker 1: three months, by the way, three months. It's I think,
Speaker 1: I don't know what's going on there. I guess the
Speaker 1: government is busy, busy, busy, And let's switch gears and
Speaker 1: get to the big issue that we want to discuss
Speaker 1: with you, that's just kind of Ukraine and Russia. Can
Speaker 1: you give us your thoughts. I mean, we're a year
Speaker 1: into this, so much suffering by the folks of Ukraine.
Speaker 1: Can you tell us kind of where we are and
Speaker 1: how this might play out? So we're really, i would say,
Speaker 1: at the moment, in a stalemate. The Ukrainians had made
Speaker 1: some games in September and October, the Russians have pushedback.
Speaker 1: There's fierce fighting going on still in the town called
Speaker 1: bah Mood. If you look at pictures of it, it's
Speaker 1: completely destroyed Um and we expect a new Russian offensive
Speaker 1: sometime in the spring. We don't know when it's going
Speaker 1: to be um And therefore, you know, the Ukrainians have
Speaker 1: really been asking for more military assistance from the West.
Speaker 1: So now you have the Germans, after a long debate,
Speaker 1: saying that they will supply them with Leopard tanks, and
Speaker 1: other European countries that have these German tanks, which top
Speaker 1: of the line, will also supply by Ukraine. The Biden
Speaker 1: and Registration has said we will send Abram's thanks to Ukraine,
Speaker 1: but they may not get there. Till at least the
Speaker 1: end of this year, um so. And now, of course
Speaker 1: the Ukrainians are asking for more fighter jets, so there's
Speaker 1: a big debate going on. So I think at this
Speaker 1: point the Ukrainians need all the military assistance they can
Speaker 1: get to push back against this new Russian offenses coming
Speaker 1: along sometime in the next few months. But this could
Speaker 1: go on, you know, for a very long time. There
Speaker 1: is no uh sign at the moment that either side
Speaker 1: is ready to sit down and talk about a peace negotiation.
Speaker 1: I mean it could be if you look at what's
Speaker 1: happened in Afghanistan and Vietnam, this could be something they're
Speaker 1: engaged in for years, if not decades. Um is it
Speaker 1: risky with a leader like Putin? I mean, he seems
Speaker 1: like he has nothing to lose, either wins or he dies.
Speaker 1: So this what's the concern about esca lation. And of
Speaker 1: course the minute that the announcement was made about the
Speaker 1: tanks for Russians threatened counter moves. On the other hand,
Speaker 1: what they're trying to do is just intimidate everybody, the
Speaker 1: Ukrainians and on all of their supporters to doing nothing
Speaker 1: so that Russia can continue this war and essentially change
Speaker 1: the government in Key of which they still want to
Speaker 1: do and take over Ukraine. So I think we shouldn't
Speaker 1: allow ourselves to be too intimidated by Putin, but I
Speaker 1: think we have to recognize our risks there um, and
Speaker 1: we have to warn the Russians as we're doing, of
Speaker 1: the consequences of escalating this any further. Angela, do you
Speaker 1: have a sense of the level of support that Mr.
Speaker 1: Putin has within Russia itself of the people for this war. Sure? So.
Speaker 1: The public opinion data that we have from the only
Speaker 1: independent polling place is that about seventy of the people
Speaker 1: who are in Russia support this war. Let's keep decent
Speaker 1: of them, uh, support it more enthusiastically, the other maybe
Speaker 1: less so. So the supporter is still there. As many
Speaker 1: as a million Russians have left Russia, including a couple
Speaker 1: of hundred thousands of young men who didn't want to
Speaker 1: be mobilized. So those people don't support the war, but
Speaker 1: they're ones who remained they do, or they're indifferent to it.
Speaker 1: On the other hand, of the Russians also say that
Speaker 1: there should be negotiations, but Putin has managed to persuade people,
Speaker 1: particularly those people who only have access to state run
Speaker 1: media that this is you know, the United States is
Speaker 1: threatening Russia. This is a Russia a war of Russia
Speaker 1: against the West, and Russia is going to defeat them. Angela.
Speaker 1: You know, we see stories of Putin letting inmates out
Speaker 1: of prison and putting them on the front lines. I mean,
Speaker 1: it looks like they're just they have nothing left. How
Speaker 1: long can they continue to go here? Well, I mean
Speaker 1: the Russians can still continue to go on for some time.
Speaker 1: So the the Mercenary Group Wagner, which isn't the regular
Speaker 1: Ministry of Defense troops, they've been recruiting prisoners, murderers, rapists, etcetera,
Speaker 1: and sending them to the front and many of those
Speaker 1: people are getting killed, but they are you know, they
Speaker 1: still have quite a lot of people that they can mobilize. Um,
Speaker 1: they do have ammunition. They're getting stuff from the North Koreans,
Speaker 1: They're getting drones from the Iranians. So the Russians can
Speaker 1: continue going. They have a history of enduring uh these things.
Speaker 1: And I think Putent's calculation is that in the end
Speaker 1: the West will cave, that we will we won't have
Speaker 1: the enthusiasm anymore for supporting Ukraine and that Russia will
Speaker 1: be able to prevail Angela. I mean, I mean we're
Speaker 1: speaking with Angela's a Stent, a senior fellow at the
Speaker 1: Brooklyn Institute. Andrew you literally wrote the book on Mr.
Speaker 1: Putin entitled Putin's World, Russia against the West and with
Speaker 1: the Rest, and that want to Fletcher School of Law
Speaker 1: and Diplomacy Prize for the best book on US Russian relations.
Speaker 1: So how you know Mr Putin's well as anyone? How
Speaker 1: did he miscalculate so badly? So? I think he was
Speaker 1: only being given information that his intelligence services knew he
Speaker 1: wanted to hear. So he was misinformed about the situation
Speaker 1: in Ukraine. He thought the Ukrainians wouldn't fight back. He
Speaker 1: was misinformed about the state of the Russian armed forces,
Speaker 1: which of course have performed much worse than he thought
Speaker 1: they would. And he was misinformed about the West. He
Speaker 1: thought that the US wouldn't react. He looked at what
Speaker 1: happened at the withdrawal from Afghanistan um and I think
Speaker 1: he had two years of COVID isolation where he really
Speaker 1: didn't meet any foreign leaders. And you know, he just
Speaker 1: talked to a small group of people who reinforced all
Speaker 1: of his ideas, all of his beliefs in paranoia. So
Speaker 1: it's been a huge miscalculation. Um, and I think it's
Speaker 1: just that he really wasn't given the information that he needed.
Speaker 1: I mean, you're also a national intelligence officer for Russia
Speaker 1: and your Asia at the National Intelligence Council. You were
Speaker 1: a member of the senior advisory panel for James Traviti's
Speaker 1: Admiral Astrivities, the Supreme Allied Commander in Europe UM, as
Speaker 1: well as others. What's your take on the relationship between
Speaker 1: Russia and especially Germany. You know, I lived in Berlin
Speaker 1: for the last five years. You've written a book about
Speaker 1: the West German relationship with Russia with the Soviet Union
Speaker 1: before the fall um angela miracle, and the Germans decided
Speaker 1: to put all their eggs in Vladimir Putin's basket, even
Speaker 1: though the US administration asked them time and time again
Speaker 1: to reconsider their reliance on that natural guess why do
Speaker 1: you think they did that? And? Um, you know, what's
Speaker 1: what's the relationship going to look like now? So they
Speaker 1: had a strong belief for about fifty years that you know,
Speaker 1: if you traded, if you had better economic relations with
Speaker 1: first of all the Soviet Union and then post Soviet Russia.
Speaker 1: If you imported that gass, that would somehow translate into
Speaker 1: better political relationships too. And in fact, you know, fifty
Speaker 1: years ago the Germans used this kind of economic relationship
Speaker 1: incentives with the Soviet Union because you know, to try
Speaker 1: and improve the situation with the East Germans. So that
Speaker 1: was their belief. And then there's all of this historical
Speaker 1: baggage that comes with it, the feelings of responsibility and
Speaker 1: guilt for what happened in World War Two. Twenty seven
Speaker 1: million Soviet citizens died, but of course those are Ukrainians
Speaker 1: as well as Russians. Um. And there was a lot
Speaker 1: of pressure from the business community on Angela Merkel for instance,
Speaker 1: to continue these natural gas deals. Um. And they have
Speaker 1: finally woke up on every four last year and realized
Speaker 1: that all of these assumptions were wrong. And that's why
Speaker 1: you had the speech from Chancellor Soaultz just a couple
Speaker 1: of days after the invasion. UM. And I think German
Speaker 1: policy has changed, you can see that of the provision
Speaker 1: of the but there's still a lot of debate in
Speaker 1: Germany about this. There's still a lot of Germans, all
Speaker 1: the Germans who still think that Germany has this responsible
Speaker 1: ability towards Russia. All right, Angela, great stuff. We wish
Speaker 1: we had more time with you, but will certainly have
Speaker 1: you back as the news warrants. Angela Stent, senior Fellow
Speaker 1: of the Brookings Institute, giving us the latest on geopolitical issues. Matt,
Speaker 1: we're talking about the FED. It's FED Day. But you
Speaker 1: know what, you and I we don't know anything. So
Speaker 1: sometimes we try to talk to smart people like Vince
Speaker 1: Signarella because he talks to traders and things like that,
Speaker 1: and that is very, very helpful. Well, let's just go
Speaker 1: right to the Vince talk to traders about what they
Speaker 1: want the FED to do. Yes, a lot, but let's
Speaker 1: talk maybe more than what they think the FED is
Speaker 1: actually going to do. But let's talk to somebody who
Speaker 1: actually does it. Who actually is in the market. Georgia
Speaker 1: joining us here in Bloomberg Interactive Broker Studios. Kat Trombone Trombone,
Speaker 1: ka Bone, ketrim Bone. He's a CEO and head of
Speaker 1: America's Trading at DWS Group. So George, you're in the market,
Speaker 1: You're in the front lines. What do you here? What
Speaker 1: are your traders telling you. What are your clients telling
Speaker 1: you about what this FEDER reserve is going to do? Well?
Speaker 1: I think they need to speak hawkish today. Quite frankly,
Speaker 1: it needs to be some sort of a power of
Speaker 1: pushback because the broader market is not believing what the
Speaker 1: Fed is saying. Nuts, right, I mean, look at financial
Speaker 1: conditions easing, your own financial conditions index and there's a
Speaker 1: plug yourself, go on. The Bloomberg terminal is actually showing easing.
Speaker 1: I mean, look at dollar weakness, look at multiples extending
Speaker 1: towards eighteen and beyond, so that those easy conditions POW
Speaker 1: is going to need to push back against. I can't
Speaker 1: believe that the market is actually talking about our pricing
Speaker 1: and two rate cuts this year, and I think that
Speaker 1: that's that has to be a concern. He told you
Speaker 1: are the market. I mean, I look at you, and
Speaker 1: you are the market. You're out there, you're buying and
Speaker 1: selling all day on behalf of your your clients. What
Speaker 1: do you think that a trillion dollars and assets under
Speaker 1: management that ws that's a lot of that's a lot
Speaker 1: of money. That's a lot of money that that's more
Speaker 1: than like the lotto. That's a lot of money. What
Speaker 1: do you do? Like, so, what do you think the FED?
Speaker 1: What's disconnect between the Fed we're gonna be hawkish and
Speaker 1: the market that you trade in every day. That's saying
Speaker 1: maybe some rate cuts momentum is hard to fight, is
Speaker 1: what it tells you. And it's also painful, uh, staying
Speaker 1: in cash and watching the market begrudgingly participate. I mean,
Speaker 1: I think the early part of this year, especially in
Speaker 1: fixed income, there's not been the amount of new issuance
Speaker 1: that you've seen before. That's keeping or forcing spreads to
Speaker 1: sort of stay in there and get reinvested again. And
Speaker 1: I think that's gonna be a difficult balancing act for
Speaker 1: the for the FED and for PAL. This is not
Speaker 1: the time, you know, to support easy. You talk about
Speaker 1: this at Jackson Hole especially, and this is the moment
Speaker 1: he's going to have to building it in and have
Speaker 1: a backbone. You know, we haven't talked about for a
Speaker 1: while now. We're so focused on the terminal rate because
Speaker 1: the market is pricing less, far less than the feds
Speaker 1: um dot plot shows, and like you said, the markets
Speaker 1: pricing and cuts in three. We haven't talked about QT
Speaker 1: for a long time, and it feels like there's already
Speaker 1: a liquidity issue out there. Is QT working. I mean,
Speaker 1: we do see inflation coming down. It's working, but at
Speaker 1: a at a I think where you're coming from, what
Speaker 1: eight or nine trillions on the balance sheet itself, So
Speaker 1: it's working, it's working at a lag. They're not actively
Speaker 1: selling either, They're letting the balance sheet roll off. So
Speaker 1: until I see mortgages actually being sold, I think it
Speaker 1: continues to exist in the background, and maybe as financial
Speaker 1: conditions do get tighter, or at least we hope or
Speaker 1: this Powell hopes from here, how could they possibly get
Speaker 1: tighter there one year? I guess high is the right
Speaker 1: word to put it. You know, they haven't been this
Speaker 1: loose and over twelve months. Correct, They're gonna need to
Speaker 1: get higher otherwise we're going to have a problem. And
Speaker 1: I'm not sure that the market is actually ready for
Speaker 1: that CPI to either plateau and or creep up a
Speaker 1: little bit. And I think that's when you start to
Speaker 1: get back to the narrative a few months ago about
Speaker 1: a terminal rate existing you know, well into five, call
Speaker 1: it five and a half, or some economists even calling
Speaker 1: for six. And I think that that will be something
Speaker 1: to watch. By the way, we've already called out basically
Speaker 1: three Bloomberg functions, right worp w I, r P go
Speaker 1: and then fed space ball go, which shows you the
Speaker 1: balance sheet. It's really cool. What do you screen for?
Speaker 1: What do you look when you get to work in
Speaker 1: the morning at DWS and you log in your name,
Speaker 1: absolutely what you have to what do you what do
Speaker 1: you look at? What's your dashboard look like? Well, I
Speaker 1: can export my jump pad to you, I think my
Speaker 1: launch pad and you're welcome to take a look at it.
Speaker 1: But yeah, I mean it's those and it's it's a
Speaker 1: bunch of other functions around currency. I mean the dollar
Speaker 1: weakness that you've seen recently is meaningful and also adding
Speaker 1: to that, we need some financial conditions, and obviously we're
Speaker 1: a global asset manager, so certainly where European markets are,
Speaker 1: it's crazy to see the foot see not one not
Speaker 1: too far off of all time highs when you think
Speaker 1: about where we were just six months ago and potentially
Speaker 1: a cold winter and shortages and things alike, and that
Speaker 1: to see those equity markets off is surprising. So it's
Speaker 1: try to call them outperforming. I mean the CAC and
Speaker 1: the decks, are up nine percent, the IBEX in Madrid
Speaker 1: is up ten and a half percent. Those are NASDAC
Speaker 1: numbers correct, and one wonders if there's that much more
Speaker 1: room to go there, um from here, But you know,
Speaker 1: it's a long year, and I would definitely exercise patient.
Speaker 1: It does seem like everything that everyone forecast to happen
Speaker 1: in three has already happened. By FED first, I think
Speaker 1: we're already at your retargets. So what do you think
Speaker 1: I mean these this first month of the year. Is
Speaker 1: that a is this a technical snap back in some
Speaker 1: of these asset classes, or is this the beginning of
Speaker 1: a turnaround. I've been wondering the same thing about equities
Speaker 1: because we've seen um, you know tech, we've seen consumer discretionary,
Speaker 1: we've seen telecoms. They've been the best performers. Meanwhile, the
Speaker 1: defensive UH industries, utilities and real estate, UM, they've been
Speaker 1: the worst performers. So either this market has some real
Speaker 1: UH bullish conviction or there's a lot of short covering
Speaker 1: going on from all the tax haven selling that happened
Speaker 1: at the end of last year. And you know a
Speaker 1: lot about that, right um, And then get back in
Speaker 1: this year, UM, I think it's a combination of, like
Speaker 1: you said, tax law selling, r S I s being
Speaker 1: incredibly stretched and technical levels being oversold. You look at
Speaker 1: any indicator, bull bear indices, you could look lame half
Speaker 1: a dozen. Everything was just incredibly barish and negative. And
Speaker 1: you know, coming in this this year to start, um,
Speaker 1: you know you're seeing systematic ct A demand. For sure,
Speaker 1: you're seeing short covering, a declining VIX, lower than expecting
Speaker 1: new issue activity and credit and all, and and quite frankly,
Speaker 1: the move index or the rates index, there's another Bloomberg
Speaker 1: function for you, um, you know, easing quite a bit
Speaker 1: and also not helpful to the FED by the way.
Speaker 1: And you know within that that narrative, it is creating
Speaker 1: a good updraft here. And I believe very much on
Speaker 1: a technical basis, as you start where you're going to
Speaker 1: condext in equities eighteen x nineteen x. And this is
Speaker 1: in a year where you know, earning his estimates earning
Speaker 1: his growth are flat, quite frankly, from from here out,
Speaker 1: and that's not even you know, that's including energy take
Speaker 1: energy out. The picture gets much more oblique. So you're
Speaker 1: really paying a premium right now. So we have three
Speaker 1: more hours right until the Fed. Um, let's wrap it up.
Speaker 1: What are expect from Jerome Powell today? To walk a
Speaker 1: tight rope but still after lean hawkish? If you're the Fed,
Speaker 1: this is not what you want to see right now,
Speaker 1: um at all? And easing of financial conditions with more
Speaker 1: more room to go as far as disinflation, so they
Speaker 1: have more work to do. They cannot afford to give
Speaker 1: show any weakness right now. So what are your traders
Speaker 1: on your desk at DWS. You're down at fifty second Street,
Speaker 1: third Avenue. Come visit us? Yeah? Absolutely, well you can
Speaker 1: come visit us because you're so close. What do they
Speaker 1: do on a day like today? They? What did they
Speaker 1: just calm down until two o'clock? The positioning is light
Speaker 1: going into this, yeah, right, So you don't want to
Speaker 1: front run this too much because of expected surprises or
Speaker 1: or something that can come out of left fields. Get
Speaker 1: some more coffee, throwing a fat lip, and just chill
Speaker 1: until two. It's almost as if you have cameras on
Speaker 1: our desk. That's exactly. Hey, you guys are our global firm,
Speaker 1: as you mentioned thirty seconds, what do you mean what
Speaker 1: do you take away from China reopening? How does that
Speaker 1: play into what what you guys are looking at. Sure
Speaker 1: it's gonna be net positive to both em and global growth,
Speaker 1: and i'd expect pent up demand at least initially to
Speaker 1: really come to the four. So it is an opportunity.
Speaker 1: I think everyone's underweight this country. If you look back
Speaker 1: six months ago to what we're discussing earlier, everyone said
Speaker 1: get out right now you're seeing a kind of rush
Speaker 1: back in, and I would just sort of be careful.
Speaker 1: The property sector is still an issue there as well,
Speaker 1: so you you want to you want to certainly consider it,
Speaker 1: but not push all in. Yep, alright, good stuff. George
Speaker 1: countrom Bone, catrom Bone CEO. That did pretty well. Then
Speaker 1: catrom Bone, you just say it like it's spelled bone
Speaker 1: CEO and head of America's trading at DWS, which stands
Speaker 1: for Deutsche Very Papiers Bettylisten, all right, it's the asset
Speaker 1: management business of Deutsche Bank. They got like almost a
Speaker 1: trillion dollars assets under management. Georgia's it's a few blocks
Speaker 1: away from us here on Third Avenue in midtown Manhattan.
Speaker 1: Here's a really really interesting conversation. It's something it's a
Speaker 1: topic I think about a lot which is water. You
Speaker 1: think there's a lot of it around, but there really
Speaker 1: isn't and so I love thinking about it, talking about
Speaker 1: the the concept of water, the as an asset or
Speaker 1: resource and as a business opportunity. Alexander Leukopolis he has
Speaker 1: a partner a Science Water and Science Capital Management. He
Speaker 1: joins us here in a Bloomberg Interactive Brooker Studio. Alexander
Speaker 1: talked to us about water. How do you guys look
Speaker 1: at water? What is it? What? What are you? What
Speaker 1: are you doing? Sir, well, thank you for having me
Speaker 1: in a great question And I get asked that all
Speaker 1: the time because water, in my view is literally everywhere
Speaker 1: but nowhere. Right. You can talk about water from the drought,
Speaker 1: from too much water to little water, to blue water
Speaker 1: to greenwater to yellow water. So it's literally very confusing
Speaker 1: to make sense of it. Um. And on top of that,
Speaker 1: water fits into everything that we do, from the clothes
Speaker 1: we wear, to what we eat, to what we drink,
Speaker 1: to the fact that we're s water, we're surrounded by it.
Speaker 1: So um, the way we view water is uh to
Speaker 1: be focused on it and to frankly be focused on
Speaker 1: it and try to actually solve some of the problems
Speaker 1: because when something seen is to be so confusing, it's
Speaker 1: oftentimes very hard to actually solve it. And we currently
Speaker 1: no water is a big problem. Certainly no water is
Speaker 1: a big problem in the US. So the way we
Speaker 1: view it is, let's focus on trying to solve some
Speaker 1: of the big water issues in the US today, starting
Speaker 1: with the infrastructure. How can you do that as a
Speaker 1: you want to make money at the same time, Right,
Speaker 1: you're not a charity or an NGO uh in in
Speaker 1: the sense that you don't want to profit. How do
Speaker 1: you invest in a way that I mean, you want
Speaker 1: to do good for the world, but you want to
Speaker 1: make money for your clients absolutely, And I think that's
Speaker 1: what's interesting about what we do is that we are
Speaker 1: a private sector needs to play a more important role
Speaker 1: in infrastructure, needs to play a more important role in
Speaker 1: industries like water that are very confusing for UH most
Speaker 1: for many shareholders to solve on their own, And I
Speaker 1: think private equity in particularly what we do actually brings
Speaker 1: a lot of that together, a lot of those different
Speaker 1: constituents and actually is a very big problem solver. So
Speaker 1: we're able to make UH strong returns for our investors
Speaker 1: and at the same time have impact in a sector
Speaker 1: that is so desperately needed for that to happen. What
Speaker 1: are the big businesses in that sector? Are we talking
Speaker 1: about waste management? Um? Are we talking about sewage? Are
Speaker 1: we talking about purification? What's so in our case, we're
Speaker 1: talking a few of those. Number one is utilities. In
Speaker 1: the US, we have eighty five thousand plus utilities. Many
Speaker 1: of them are actually private and small, which many people
Speaker 1: don't understand, and it's a staggering statistics. In the UK,
Speaker 1: as an example, you have close to thirty and most
Speaker 1: of European countries, you have less than a hundred in
Speaker 1: each of those countries. In the US and I repeat,
Speaker 1: more than eighty five thousand, most of which are private.
Speaker 1: So one of our strategies is rolling up small consolidated
Speaker 1: water systems and giving these individuals better, cleaner water at
Speaker 1: the right price, um. And that is both profitable and
Speaker 1: impactful at the same time. So you're using scale to
Speaker 1: improve the businesses of this incredibly fragmented industry. Right. So,
Speaker 1: fragmentation and scale and operationally excellence across the board and
Speaker 1: impact alright. So as a so that's kind of like
Speaker 1: a business ownership framework. Market structure issue. Are there more fundamental?
Speaker 1: What what is kind of the fundamental water problem in
Speaker 1: the US? Don't have enough of it, don't have it
Speaker 1: in the right places? Great question, and that's not one
Speaker 1: you can answer because water is a very local issue.
Speaker 1: Right We we sit here in New York City. We
Speaker 1: have one of the oldest water treatment plants. It's municipally run,
Speaker 1: it's probably got one of the largest tax spaces in
Speaker 1: the world for a water system, and people in New
Speaker 1: York get could clean water. The problem in New York,
Speaker 1: as an example, is the is delicious. Is the aging infrastructure? Right?
Speaker 1: The pipes. There's a pipe that how many pipes have
Speaker 1: broken on les and fifty nine Street in the last year? Right?
Speaker 1: That causes destruction. The piping infrastructure is old and degraded.
Speaker 1: When you go and talk to our friends in l A,
Speaker 1: they have a very different issue. They don't have enough
Speaker 1: water because the water is not coming from like meat,
Speaker 1: and it's dropping every day. So the issues with water
Speaker 1: are very much local and made up of different markets,
Speaker 1: so is oftentimes very hard to generalize, which again leads
Speaker 1: me to the thing, which is it's very hard to
Speaker 1: actually focus on problem. All right. Let me ask a, really,
Speaker 1: as I've owned real estate in California for a long time,
Speaker 1: and you sit there and talk about the drought every day.
Speaker 1: In my twenty some odd years, there's only been a
Speaker 1: couple of years when it hasn't been an official drought. UM.
Speaker 1: And you stand there and I look out at the ocean,
Speaker 1: I'm like, can't we isn't there a solution there somewhere?
Speaker 1: Desalination is too hard and costly. Well, desalination in the US,
Speaker 1: and it's specifically in California, is very costly. People have
Speaker 1: done it, they've tried to do it, but it's not desalination.
Speaker 1: I mean the reality is recycled water. UM. In the
Speaker 1: US we recycle close to ten percent of our water UM.
Speaker 1: Many many parts that need it desperately. Singapore, as an example,
Speaker 1: is toilet to tap recycled water. They recycle Israel close
Speaker 1: to ninety plus horc. That is, that is an expression
Speaker 1: that in Singapore is sort of utilized. So recycling your
Speaker 1: water UM, maybe not for consumption sort of drinking, but
Speaker 1: for irrigation, for otherwise not I mean it sounds bad,
Speaker 1: but at the end of the day, you just need
Speaker 1: H two oh right, so you can pull that out
Speaker 1: of whatever you have and you clean it and you
Speaker 1: clean it better. And now with new technologies have been
Speaker 1: around for a while. This isn't a technology game. We
Speaker 1: don't need somebody to you know, it's not like sending
Speaker 1: somebody to Mars here. These are solutions that have existed technologically.
Speaker 1: It's really putting the puzzle together. Um. And this is
Speaker 1: a great example in California. Yes, you can look at
Speaker 1: the desalination didn't work. Too expensive. You know, you need
Speaker 1: something that's more uh meaningful. Recycled reuse is another one
Speaker 1: of those, which is why one of other platforms is
Speaker 1: focusing on recycled reuse, mostly on the West Coast, where
Speaker 1: the issue is the degrading infrastructure. It's the lack of water.
Speaker 1: But recycled reuse helped solve that. When when when you
Speaker 1: look at a city like I don't know, Phoenix for example,
Speaker 1: Vegas in the middle of a desert, does that frustrate
Speaker 1: you to see so much building infrastructure going into places
Speaker 1: where there is no water and it just makes the
Speaker 1: maybe the situation worse in general for the country. Frustrate you.
Speaker 1: That's an opportunity for you money. Maybe at this point
Speaker 1: everything excites me in water because there's so many there's
Speaker 1: so many pockets of inefficiency. You mentioned another one. So
Speaker 1: when you look at something like Phoenix, that's why you
Speaker 1: need to up great systems. You need more infrastructure, you
Speaker 1: need better infrastructure, you need more digital infrastructure, you need
Speaker 1: more recycled reuse infrastructure. So I think um situations like
Speaker 1: that present opportunities, and they present opportunities for people they
Speaker 1: can put the puzzle pieces together. And again, starting with
Speaker 1: your first conversation, why are we as a private capital
Speaker 1: firm investing this is because we see our value add
Speaker 1: in being able to pull that all together. It's not
Speaker 1: going to be one technology that solves all the water issues.
Speaker 1: It's not going to be one politician that waves a
Speaker 1: trillion dollars into it, which they don't have, nor would
Speaker 1: that even begin to solve it. Nor is it an
Speaker 1: academic engineer. It's going to be a combination of all
Speaker 1: of the above. And as a private participant, what's exciting
Speaker 1: is to be able to bring all that together, but
Speaker 1: do it actionably at a local level. So in the
Speaker 1: U S, So, how has your performance been. I mean
Speaker 1: you went to George and went to M I. T. H.
Speaker 1: Then took that to JP Morgan where you learned M
Speaker 1: and A the M and A business. Now you're putting
Speaker 1: it to use to make money. How have you done so? Yeah,
Speaker 1: it wasn't certainly not a straight line. UM. Put it's
Speaker 1: a good use. Because we started at Science Capital, we've
Speaker 1: been doing mid market investing for a long time UM,
Speaker 1: so we learned sort of how to work with middle
Speaker 1: market companies, which in the water space, as we know,
Speaker 1: it's mostly middle market companies UM, including the recent merger
Speaker 1: of the two of the largest players UM just last week.
Speaker 1: But it's made up of middle market players. So utilize
Speaker 1: that skill set plus the skill set of real asset investing,
Speaker 1: where we invest sort of in between infrastructure and private equity, utilities,
Speaker 1: recycled reuse plants. So utilize that framework to then apply
Speaker 1: it to one singular sector, which was water. And the
Speaker 1: interesting thing about water was it took us many years
Speaker 1: of research to begin to make actionable investments. And I
Speaker 1: think once you have a combination of all that UM,
Speaker 1: I think the opportunity set and the returns are there.
Speaker 1: Because the market is so inefficient and fragmented, and our
Speaker 1: value add becomes your local you're just a couple bucks away.
Speaker 1: That means we're getting this guy back, because I got
Speaker 1: him a million more questions here, both on just kind
Speaker 1: of the water issue, how to make money, who are
Speaker 1: investors are? All that kind of good stuff. Alexander Locopolis,
Speaker 1: he's a partner at Science Water and Science its capital management. Uh,
Speaker 1: talking about a topic that you know, we don't talk
Speaker 1: about a lot, but water issues in this country and
Speaker 1: in a global basis really really big issues going forward.
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
Speaker 1: subscribe and listen to interviews of Apple Podcasts or whatever
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 1: at Matt Miller three. On Fall Sweeney, I'm on Twitter
Speaker 1: at pt Sweeney. Before the podcast. You can always catch
Speaker 1: us worldwide at Bloomberg Radio