Speaker 1: This is Bloomberg Business Wait inside from the reporters and
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Speaker 1: global business finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2: We want to get back to what's really been dominant
Speaker 2: in the earning space this week, and that is the
Speaker 2: retail world.
Speaker 3: And we've got a.
Speaker 2: Great voice to walk us through the earnings we've gotten
Speaker 2: so far, the earning still to come this weekend next
Speaker 2: week with us is Dana Telsey. She's founder in the
Speaker 2: CEO of Telsey Advisory Group, a top rank to equity
Speaker 2: research Alice covering all things retail, and she has for
Speaker 2: a while and has such a great perspective. She's with
Speaker 2: us on zoom in New York City. Hey, Dana's so
Speaker 2: nice to have you here with Matt and myself. First
Speaker 2: of all, we have gotten some earnings. We got TJX
Speaker 2: out Target, we had Home Depot yesterday, Walmart to come tomorrow.
Speaker 4: So far?
Speaker 2: Is there broad theme? And I know not all retails
Speaker 2: the same, so maybe that's an unfair question, but how
Speaker 2: are you seeing the results so far?
Speaker 5: First of all, thank you so much for having me,
Speaker 5: absolutely thrilled to be here, and yes, in terms of retail,
Speaker 5: we've gotten some results so far. I'd say the puts
Speaker 5: and takes bottom line is discretionary spending is still soft,
Speaker 5: and it's soft almost across the board. I'd say that
Speaker 5: traffic in stores has picked up. That was good to
Speaker 5: hear about both from Target and from TJX. The focus
Speaker 5: on value is definitely key, and we're seeing the continued
Speaker 5: strength of essentials stronger than discretionary. I'd say what I
Speaker 5: worry about overall is that for some of the companies
Speaker 5: that have reported, it certainly seems as if they're taking
Speaker 5: that they beat the first quarter, they're adjusting the second
Speaker 5: quarter a little bit lower and expecting the back half
Speaker 5: of the year to be a big uptick. And that's
Speaker 5: the big question mark with the concerns about rising inflation,
Speaker 5: rising interest rates and frankly maybe it's moderating inflation, but
Speaker 5: are consumers spending more on experiences or services then they're
Speaker 5: spending on goods. I'd say, so far, it seems like
Speaker 5: TJX is one of the best results out there, given
Speaker 5: the fact that the traffic goes up, their inventories is
Speaker 5: definitely being managed well, and they saw parallel accessories do well.
Speaker 5: I thought that Tapestry's numbers are also had been very
Speaker 5: good too, given the strength that they've seen in the
Speaker 5: continued AUR increases and frankly the continued strength of Physical.
Speaker 5: So bottom line is that lower to middle income consumer
Speaker 5: is still cautious. I think there's greater spend on experiences
Speaker 5: than goods. The fact where there are goods spending, it
Speaker 5: definitely is on essentials. And the moderation of discretionary is
Speaker 5: coming at all income levels. And we're fortunate that the
Speaker 5: balance sheets of these companies happen to be pretty solid.
Speaker 2: You mentioned AUR, so we're talking about average unit retail
Speaker 2: just for those listening in case you were wondering.
Speaker 6: You know, I think exactly what you were saying about.
Speaker 6: You know, the pattern these companies are following is what
Speaker 6: is how I see Target. And I was telling Carol,
Speaker 6: you know before the show kicked off, this is something
Speaker 6: they might regret. You know, they're gonna have to cut
Speaker 6: their forecast down the road, because yes, they had a
Speaker 6: good Q one and now they're in the middle of
Speaker 6: a soft Q two, and I guess they're taking a
Speaker 6: gamble with holding their forecast steady, you know, and that
Speaker 6: could come home. It could come back and bite them
Speaker 6: in the end, right. I mean, I'm looking right now,
Speaker 6: Dana at US credit card debt and I've maxed out
Speaker 6: the chart.
Speaker 3: It's the highest that it's ever been.
Speaker 6: Meanwhile, the savings rate has dropped substantially, and I can't
Speaker 6: get the bank balances up on my terminal, but I'm
Speaker 6: suspecting that they come down.
Speaker 5: Yeah, that's the concern. I mean, the concern is, is
Speaker 5: a hockey stick of twenty twenty three gonna be realistic
Speaker 5: when the initial expectations for holiday twenty twenty three is
Speaker 5: not going to be as great as it was in
Speaker 5: holiday twenty two. The two offsets are the fact that
Speaker 5: we have reduced supply chain costs, lower ocean rates, using
Speaker 5: less air, So that's one element, and the second element
Speaker 5: is inventory's lighter. So inventory's lighter, there's more flexibility with
Speaker 5: retailers focused on chasing into demand when the demand arrives.
Speaker 5: And that's what we're all going to be watching very
Speaker 5: carefully as we head into the third quarter.
Speaker 2: You know, we haven't even talked about kind of department
Speaker 2: stores and stuff. Well, how do you think about them
Speaker 2: data it's.
Speaker 5: Going to be very interesting. Dillard's obviously reported last week
Speaker 5: and when one of the commentaries that Dillard said, which
Speaker 5: is meaningful for everyone, is the fact that consumer activity
Speaker 5: decelerated in the back half of the quarter. So that
Speaker 5: means that back half of the quarter basically at least
Speaker 5: the month of April. And we heard that March was weak,
Speaker 5: and so now to say April is week two, that's
Speaker 5: a concern. If you have to say the department stores,
Speaker 5: I worry about Cohle's, I worry about Nordstrom. It seems
Speaker 5: like Macy's, with the strategy that they have in place
Speaker 5: with Polarios, Polaris and basically modernizing the department store, they've
Speaker 5: really been at the forefront of enhancing change, and I
Speaker 5: feel like some of their results may be a little
Speaker 5: bit better than what we see in some of the others.
Speaker 6: All right, by the way, like on Q John Authurs
Speaker 6: just sent me a chart of US bank balances.
Speaker 7: Or did he?
Speaker 8: Really?
Speaker 6: They're still very strong, So to me, it's a puzzle.
Speaker 6: I mean, they've come down that has come out with me.
Speaker 6: They come down a little bit, but they're still very strong.
Speaker 6: And then I wonder why are consumers putting so much
Speaker 6: on plastic Dana, do you know why we're utilizing credit cards?
Speaker 6: You know, at the highest pace that we have in
Speaker 6: at least ten years.
Speaker 5: Well, in the near term, the savings rate has come
Speaker 5: down a little bit, and you are seeing people spending
Speaker 5: more on travel and experiences. Typically that spend goes on
Speaker 5: credit cards.
Speaker 3: Good point. Good point is a good point, all right.
Speaker 2: So when you look at the outlook here, if you
Speaker 2: had to say, and I'm thinking about the Bloomberg investor audience,
Speaker 2: who are the most vulnerable as we look at the
Speaker 2: kind of second half of the year into twenty twenty four,
Speaker 2: and who are the best position data?
Speaker 5: Well, keep in mind we still have the majority of
Speaker 5: retailers yet to report their earnings and hear what the
Speaker 5: update to their guidance is. When we know in terms
Speaker 5: of who's who's been having challenges to begin with, you're
Speaker 5: definitely watching some of those department stores like a Nordstrum
Speaker 5: and likea Coohles. I think you're definitely continuing to watch
Speaker 5: some of the specialty retailers, for example, and watching how
Speaker 5: Gap maneuvers through the changes that they're having. Given they're
Speaker 5: still searching for a new CEO.
Speaker 3: Walmart.
Speaker 2: We didn't even touch on Walmart. Truefore the bell yeap,
Speaker 2: what should we keep on our radar?
Speaker 5: I mean, given that we had Target with a better
Speaker 5: than expected first quarter, and we know that Walmart is
Speaker 5: so essential focused, it almost feels as if we should
Speaker 5: have some decent results out of Walmart while looking towards
Speaker 5: what they're expecting for the second quarter and the back
Speaker 5: half of the year. They do have more international exposure.
Speaker 5: Everything we've heard about international lately has been good. You
Speaker 5: take a look at what TJX reported both on Canada
Speaker 5: and on international, and it was.
Speaker 6: Strength if those you know, if we do go into
Speaker 6: a recession and it's deep enough to really feel it,
Speaker 6: which are the stores that benefit the most from, you know,
Speaker 6: consumers stepping down?
Speaker 3: I can no longer afford to.
Speaker 6: Go to I don't know the neighborhood Target, So do
Speaker 6: I drive out to Costco instead?
Speaker 9: It could be.
Speaker 5: Costco, it's the dollar stores, it's the off Pricers, and
Speaker 5: it's the discounters. So it could be your Walmart and Target,
Speaker 5: your Dollar General and Dollar Tree and five below. It
Speaker 5: is Costco, and it's also TJX Ross stores in Burlington.
Speaker 3: You know, auto sales were very strong in April.
Speaker 6: I was really surprised by how much Americans are willing
Speaker 6: to spend to buy new Is that the last hurrah
Speaker 6: for the automakers.
Speaker 5: May not be? I mean you're certainly continuing to see
Speaker 5: the new enhancements and the new deals. And we know
Speaker 5: what consumers are focused on and if they're going to
Speaker 5: be traveling, how are they going to get there? We
Speaker 5: know what with Memorial Day weekend comes what that means
Speaker 5: to travel?
Speaker 2: Hey, just got twenty five seconds left. I wanted to
Speaker 2: squeeze in. Matt. Initially on our morning call was talking
Speaker 2: about watches of Switzerland Group the top seller of Rolex
Speaker 2: time pieces. What is in twenty seconds stand of the
Speaker 2: thought about high end versus low end?
Speaker 5: High end's moderating. Also, we've seen a moderation in high end.
Speaker 5: We need some of the foreign travelers and tourists to
Speaker 5: come over here, so there's a moderation at the high
Speaker 5: end too.
Speaker 3: I also think Rolex is maybe a stone story. It's
Speaker 3: a very special story.
Speaker 2: It is a special story more. You know. Actually, Bloomberg
Speaker 2: Business Week Pursuits has covered a lot in terms of watching.
Speaker 3: And Andy Hoffman is our definitive voice on rolex.
Speaker 2: Al right, so maybe we'll do Mark. But Dana is
Speaker 2: a definitive on retail. Dana Telsey of Tels the advisory thing.
Speaker 1: You you're listening to the Bloomberg Business Week podcast. Catch
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Speaker 2: Last month, Bloomberg News putting out a story reporting that
Speaker 2: an international developer back by Tiger Woods and justin Timberlake,
Speaker 2: we're joining an effort to build a sprawling residential community
Speaker 2: with stores and a revamped golf course in Wellington. It's
Speaker 2: a South Florida equestrian town near Palm Beach. It's also
Speaker 2: Wellington has been, I guess, home to Microsoft co founder
Speaker 2: Bill Gates. I've heard of it, Tommy Lee Jones, Bruce Springsteen.
Speaker 3: Tommy Lee Jones, the actor, that's the actor.
Speaker 2: They've owned homes there, apparently. I don't know if they
Speaker 2: still do, but they have.
Speaker 6: That is interesting kind of she I guess, so I'm
Speaker 6: not really a South Florida guy.
Speaker 3: Did you like the keys?
Speaker 2: You know, Palm Beach kind of nice.
Speaker 3: Yeah, it's okay. I've been there. Okay, you know State
Speaker 3: of the Breakers did the whole golf thing kind of.
Speaker 2: A kind of a New york A kind of price.
Speaker 3: Yeah, it was pretty good. I mean, if I have
Speaker 3: vacation time, I'm going to go somewhere different.
Speaker 6: Okay, if I want to go to the beach, it's
Speaker 6: about living to a secluded beach. If I want to
Speaker 6: move somewhere like, you know, I would rather have the mountains.
Speaker 3: I'm more of a Montana person.
Speaker 2: I have seen you wear a cowboy hates actually around
Speaker 2: cowboy boots. Do you have cowboy boots?
Speaker 6: I have a two pairs of Cowboy every time I
Speaker 6: go to Dallas, you know, I tend to buy a pair.
Speaker 6: My goddaughter lives in Dallas, so I go there occasionally.
Speaker 6: I have to go watch the Giants play the Cowboys.
Speaker 2: We want to talk South Florida with someone who knows
Speaker 2: a lot about what's going on when it comes to
Speaker 2: South Florida real estate. Daniel de la Vega, president of
Speaker 2: One Southby's International Reality joins us on Zoom from Miami. Daniel,
Speaker 2: good to be talking with you, uh, and great to
Speaker 2: have you here with Matt myself. Hey, talk to us
Speaker 2: a little bit about South Florida and what's going on.
Speaker 2: What are we seeing in terms of prices and valuations.
Speaker 7: You know, South Florida is in an incredible place right now.
Speaker 7: First quarter was incredible. I want to talk about the numbers.
Speaker 7: I want to give you all the information that the
Speaker 7: viewers want. But first, Matt, what a segue into talking
Speaker 7: about South Florida.
Speaker 8: We got to get you down here. Maybe you have
Speaker 8: not experienced it with me yet, so.
Speaker 3: I think you know part of it.
Speaker 9: Daniel's going to have things that you love.
Speaker 6: I'm a little bit bitter because, to be honest, a
Speaker 6: lot of my friends from the Upper West Side, previously
Speaker 6: from the Upper West Side of New York City, are
Speaker 6: now living down in West Palm Beach, and it's like.
Speaker 3: One after the other after the other, and now it's
Speaker 3: like I don't know anyone else up here.
Speaker 7: Yeah, I mean, listen, We're representing Peer sixty six in
Speaker 7: Fort Lauderdale, which is Tabstock Development Group, which you previously
Speaker 7: mentioned in regards to the development in Wellington, and that
Speaker 7: is just the epitome of South Florida. Living with a
Speaker 7: marina with a hotel with residences. So they do a really,
Speaker 7: really great job. And I'm sure Wellington is going to
Speaker 7: be spectacular as well.
Speaker 8: But look, South Florida is doing incredibly well.
Speaker 2: Guys from another see he keep saying, yeah, give us
Speaker 2: some numbers because you keep saying incredible.
Speaker 7: We saw we saw a major increase in closed sales,
Speaker 7: average sales price, new pending sales, months of inventory, yes,
Speaker 7: is up.
Speaker 8: But in close sales in all of South Florida Q.
Speaker 7: Four twenty two over Q one, we saw fourteen point
Speaker 7: seven percent increase average sales price. We saw a six
Speaker 7: point six percent increase. New pending sales were up sixty
Speaker 7: six percent. I mean, that's an incredible statistic, right, And again,
Speaker 7: months of inventory in both single family homes and condominiums
Speaker 7: are up on average twenty percent.
Speaker 8: So that's good because as.
Speaker 7: We see people moving to South Florida, we want them
Speaker 7: to feel like it's an affordable place for them to live.
Speaker 7: So as I see the increase in inventory as a
Speaker 7: positive for our market.
Speaker 6: I mean, one of my best friends is a I
Speaker 6: won't say his name, but Morgan Stanley guy. He was
Speaker 6: up here now he's moved down there. His office is
Speaker 6: he says, just a couple of blocks away from his
Speaker 6: place in West Palm Beach. And he says, the restaurants
Speaker 6: and the bars that he and his you know, click
Speaker 6: No and love from up here all operate down there
Speaker 6: as well. So is it really just like a slice
Speaker 6: of Manhattan, you know in Florida?
Speaker 1: Yeah.
Speaker 7: I mean, look, we've always said Manhattan South, but I
Speaker 7: think we're becoming Manhattan more and more. I mean, we
Speaker 7: had one hundred and thirty new companies moved to Miami alone.
Speaker 7: We had we had twelve percent of the five point
Speaker 7: eight million new business application filed nationally happen in the
Speaker 7: state of Florida. A lot of that happening in South Florida.
Speaker 7: You just heard the numbers from Miami. So look, we've
Speaker 7: got twelve hundred and seventeen people moving here a day.
Speaker 7: I don't see those numbers slowing down. And to your point, right,
Speaker 7: it's not just the jobs that are moving, it's the
Speaker 7: families that are moving. And we've seen a new influx
Speaker 7: of the kind of person that moves here. I mean,
Speaker 7: and we saw we traditionally, we saw flight capital, we
Speaker 7: saw a lot of Latin America. We've seen fifty percent
Speaker 7: more domestic now over the last call it twenty four months.
Speaker 8: So it's people living here to live here.
Speaker 7: So they want those things that you're talking about, man,
Speaker 7: and we're delivering them. I mean, look, just think West
Speaker 7: Palmer had lunch at the Bar at Alicia, an incredible restaurant.
Speaker 8: It's a sister restaurant, the st Ambrose.
Speaker 7: So everybody's thinking creatively, how how they can bring new
Speaker 7: brands to our market.
Speaker 2: Daniel, how much of it is finance and financial types
Speaker 2: that are moving there?
Speaker 8: Eighty percent of our transactions.
Speaker 7: Are cash that was happening during the pandemic and we're
Speaker 7: still seeing that happen now.
Speaker 8: No, no, no, no.
Speaker 2: I mean how much of it is people from the
Speaker 2: financial sector, because we've done those stories a lot. How
Speaker 2: much that's okay, that's okay, Yeah.
Speaker 7: It's it's you know, I would say it's about fifty
Speaker 7: fifty percent of the people moving in South Florida from
Speaker 7: the sector.
Speaker 3: Yeah, it really is.
Speaker 6: Like Wall Street has moved down, not just New York, right,
Speaker 6: but Chicago is one of the big citadel Ken Griffith Offices,
Speaker 6: Ken Griffin's company moving down there? Is it is it
Speaker 6: just pushing property values up in the surrounding communities as well.
Speaker 6: I imagine you know, I'm from a small town in Ohio, Grandville,
Speaker 6: right outside of Columbus. Intel build a fabric a factory
Speaker 6: near us, and all of a sudden, everybody's property values
Speaker 6: have like doubled.
Speaker 3: Do you see that as well down there?
Speaker 7: Yeah, it's the same here, and it's the secondary and
Speaker 7: tertiary markets as well within Stock Florida, not just the
Speaker 7: waterfront ultra luxury markets.
Speaker 8: We have to deal with affordability. We are dealing with
Speaker 8: it with affordability.
Speaker 7: There's some new legislation that's come down which allows for
Speaker 7: more density.
Speaker 8: For certain I'm not an affordable guy, but you know,
Speaker 8: it's very.
Speaker 7: Positive for our markets because I think it's something that's
Speaker 7: needed so we can really service every sector.
Speaker 2: Daniel, I'm curious. I'm looking at your website. There are
Speaker 2: properties below a million dollars, and then there's properties that
Speaker 2: are for tens of millions of dollars or twenty five
Speaker 2: million dollars. So give me an idea in term of
Speaker 2: the type of activity you have, what types of properties
Speaker 2: are selling the most.
Speaker 7: The ultra luxury market is probably trading for the highest
Speaker 7: prices per square foot we're seeing the most activity in
Speaker 7: the one to.
Speaker 8: Five million dollar price point.
Speaker 7: That's where you're seeing a lot of the inventory increases
Speaker 7: as well, whether you look at the Florida numbers or
Speaker 7: just the South Florida numbers or the.
Speaker 8: Entire East Coast of Florida numbers where we operate.
Speaker 7: So I would say that that's been the the segment
Speaker 7: where you're seeing the most amount of transactions stepinitely, And.
Speaker 2: That's where you said how much what was the percentage
Speaker 2: that most of these are done in cash? Though most
Speaker 2: of this is done in cash.
Speaker 7: Yeah, eighty percent of our transactions are done in cash.
Speaker 7: And we're still seeing that Q one, you know, with
Speaker 7: interest rates going up the way they are, which has
Speaker 7: definitely affected the market.
Speaker 8: I think Q four saw it, you know.
Speaker 7: I mean, we companies across the country were down, you know,
Speaker 7: over forty percent.
Speaker 8: Think Guide you didn't.
Speaker 7: Have me on then.
Speaker 2: But if people are doing mostly right, they don't care
Speaker 2: about the interest rates.
Speaker 8: They don't care about the interest rates so much.
Speaker 7: In a lot of our new development products, whether it's
Speaker 7: Peer sixty six that I just mentioned, if we Lauderder
Speaker 7: or the Saint Regis residences here.
Speaker 8: In Miami, on brickles.
Speaker 7: These buyers have a longer sort of horizon as to
Speaker 7: when they're going to move in, right, So it's a
Speaker 7: three year, four year cycle, and they're okay because they
Speaker 7: know that interest rates are temporary.
Speaker 6: Little footnote here when the hurricanes come in, this is
Speaker 6: not where they go, right is Miami is West Palm Beach.
Speaker 6: Those people are safer than like Naples.
Speaker 3: Right.
Speaker 7: Well, I would say that we're all in harm's way
Speaker 7: when mother nature wants to have their.
Speaker 3: Way, but it's more up towards the gulf.
Speaker 7: By what's happening traditionally, Yeah, not traditionally. What's happened over
Speaker 7: the last five years is most of them have been
Speaker 7: going through the golf or missing us here in South
Speaker 7: Florida and up the eastern, up the East coast. So
Speaker 7: we've been very lucky, and I pray that we continue
Speaker 7: to be lucky.
Speaker 6: All right.
Speaker 2: Got to leave it on that note. Hey, Daniel, great
Speaker 2: to check in with. You appreciate it. Daniel de la Vega,
Speaker 2: president of once Southeby's Intes getting a call when I
Speaker 2: come down on zoom from Miami.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 1: Just say Alexa Play Bloomberg eleven thirty.
Speaker 2: We want to talk a bit about the M and
Speaker 2: A environment, because the US government's aggressive stance on antitrust
Speaker 2: definitely chilling murger activity among the country's biggest companies. We
Speaker 2: saw that yesterday with the FTC soon to block am
Speaker 2: Jen's almost thirty billion dollars deal to buy Horizon Therapeutics.
Speaker 2: So there's a lot going on. M and A deals.
Speaker 2: I don't know if you saw this in North America
Speaker 2: mat down about thirty three percent year every year.
Speaker 3: Yeah.
Speaker 6: No, I mean if I look at mag that's what
Speaker 6: I did, right, and I see the value of all deals. Globally,
Speaker 6: we're at one point three trillion, but as we heard
Speaker 6: from I think an M and A reporter the other
Speaker 6: day told us it was well over five trillion at
Speaker 6: the height. Now that was for the full year, but
Speaker 6: we're halfway through, so it's been pretty slow.
Speaker 3: We've had some big dollar deals go through the.
Speaker 6: Last few in terms of announcements ending right, But you're right,
Speaker 6: the FTC seems dead set against allowing anything.
Speaker 3: To go through that's over say thirty billion dollars.
Speaker 2: All right, So let's see what our guest has to
Speaker 2: say when it comes to M and A activity or
Speaker 2: lack thereof. Mark Cooper is CEO of the investment bank
Speaker 2: Solomon Partners, and Mark joins us on Zoom from New
Speaker 2: York City. So, Mark, we're painting a little bit of
Speaker 2: a dire picture because it does feel like it's a
Speaker 2: little rough out there. We also saw it through some
Speaker 2: of the I feel like the big banks in terms
Speaker 2: of the reporting. When it came to M and A,
Speaker 2: what are you seeing? How would you describe the deal
Speaker 2: environment for you guys, and remind us kind of what
Speaker 2: types of deals you typically work.
Speaker 10: Within, So a frectiator M and A business probably more,
Speaker 10: or middle market private equity oriented in our focus, but
Speaker 10: all within the industry focus or industry areas that.
Speaker 9: We focus on. So I think that number thirty three
Speaker 9: percent sounded a little light.
Speaker 10: I think it was down forty five percent year of
Speaker 10: a year, at least for the first quarter. What we've seen,
Speaker 10: at least what we saw in April is a pick up,
Speaker 10: mainly a pickup in what we refer to as pitches
Speaker 10: or the opportunity to talk to sellers about other pe
Speaker 10: firms or companies about about putting more putting transactions on
Speaker 10: the marketplace.
Speaker 9: That slowed down a bit.
Speaker 11: But the big issue, the big issue in the marketplace
Speaker 11: is is price.
Speaker 9: Is there is a These are the.
Speaker 11: Moments that you have when interest rates go up or
Speaker 11: the economy shifts, that there's just a price discrepancy.
Speaker 9: And we all know it through you know, the real
Speaker 9: estate market.
Speaker 11: When the real estate market is booming, everyone thinks their
Speaker 11: house is worth top tick, and when the markets go down,
Speaker 11: they still think it's worth top tick until such time
Speaker 11: as they realize and they capitulate and they recognize they
Speaker 11: have to trade. We haven't reached that point, and we
Speaker 11: haven't reached the point where buyer and seller have recognized
Speaker 11: that interest rates have risen by five hundred basis points
Speaker 11: and that the economy is a bit weaker, and that
Speaker 11: therefore valuations need to be lower.
Speaker 9: Once that happens, Once that moment happens, and maybe it's
Speaker 9: a little bit of a cork and a bottle kind
Speaker 9: of thing, m then I think you'll see activity in
Speaker 9: the M and A markets.
Speaker 11: It's not about it's not about the need to trade,
Speaker 11: the need to buy, the need to sell. It's about
Speaker 11: having buyers and sellers who agree to what relative values are.
Speaker 6: So are you telling this to your clients that are
Speaker 6: selling as well, because at some point you know that
Speaker 6: cork is going to come out of the bottle and
Speaker 6: they might as well get ahead of it.
Speaker 11: Well, you could take you could take my position, because
Speaker 11: it's exactly correct. And so there's a bit the reason
Speaker 11: why there were so many pitches, so many transactions gearing
Speaker 11: up in April or the beginning of the first quarter
Speaker 11: and gearing up now is in fact, get ahead of
Speaker 11: this curve. And so there's going to be a huge
Speaker 11: backlocks if you think about it.
Speaker 10: Third quarter, second third quarter of last year was tough.
Speaker 10: Fourth quarter it was pretty dead. First quarter was dead.
Speaker 10: So it's been a.
Speaker 9: While since there's been an uptaken value. And when you
Speaker 9: take the private.
Speaker 10: Equity community, they have to return capital to their limited partners.
Speaker 9: They're in the business of putting money to work and
Speaker 9: raising new capital.
Speaker 10: If they don't return capital the partners and they don't
Speaker 10: get the second pieces, they don't get the new money,
Speaker 10: so they have to transact, and the backlog is enormous,
Speaker 10: the backlog both in terms of companies that are ready
Speaker 10: for sale and where private equity wants to return that
Speaker 10: capital to their limiteds. And then the dry powder, as
Speaker 10: we always talk about, that proverbial pocket of money that's
Speaker 10: available for investment, is just sitting around.
Speaker 2: Well, that's why I want to ask you how much
Speaker 2: you know, quote unquote dry powder is out there.
Speaker 11: You hear conflicting reports, but you know it's in the trillions,
Speaker 11: like one point three trillion, and that's just looking at
Speaker 11: private equity. You've taken sovereign wealth funds, if you take
Speaker 11: in you know, you take in the reinvestment or the
Speaker 11: co investment funds from limited partners, it's enormous amount of
Speaker 11: money and it's not going down. In fact, it's going
Speaker 11: up now. I would say fundraising for new funds and
Speaker 11: fundraising has been very difficult, but that is a function
Speaker 11: of returning its capital to shareholders. You know, you would
Speaker 11: argue that this cycle, which is which is a cycle
Speaker 11: that is coming off of a high where you're buying
Speaker 11: theoretically at better values, is going to be a very
Speaker 11: good private equity class. So my guess is when the
Speaker 11: cork comes out of the bottle, when there's an agreement
Speaker 11: as to what the new value thresholds look like, I
Speaker 11: think there's going to be a.
Speaker 9: Fair amount of fundraising.
Speaker 11: I think there's gonna be a fair amount of money
Speaker 11: that's going to be put to work at good prices.
Speaker 2: Does it take a recession mark to get that? You know,
Speaker 2: realignment if you will between buyers and sellers, is that
Speaker 2: what will do it?
Speaker 8: So?
Speaker 9: So, no, a recession with delay things?
Speaker 10: Okay, So if we it's all the events that affect value,
Speaker 10: that are that are anticipated in the marketplace is what
Speaker 10: causes the disconnect Once there's transparency between buyer and seller
Speaker 10: as okay, interest rates aren't going any higher, the economy
Speaker 10: is not getting any worse. Then you could price an
Speaker 10: asset when you're looking forward and there's a disagreement, well,
Speaker 10: I don't think there's going to be a recession and
Speaker 10: I don't think interest rates are going up, And the
Speaker 10: other side says, well, I think it's the opposite. That's
Speaker 10: when people go to their corners and can't come to
Speaker 10: an agreement on price. So we need some stability both
Speaker 10: in interest rates, and an outlook on an economy, for
Speaker 10: those to say, yeah, I'm comfortable in investing these values,
Speaker 10: and for the sellers to say, yeah, I think it's
Speaker 10: appropriate for me to sell at those values.
Speaker 9: Now.
Speaker 10: I think the recession fears is not a big piece
Speaker 10: of what we're hearing. I think it's a lot about
Speaker 10: interest rates and their effect on valuations. And so we
Speaker 10: think when those interest rates for when it stops, we
Speaker 10: feel like they'll be a moment.
Speaker 2: All right, we got it, run Mark, look forward to
Speaker 2: talking again. Mark Cooper, you CEO at Solomon Partners, joining
Speaker 2: us on zoom from New York City. This is Bloomberg.
Speaker 3: Bromuk a journal.
Speaker 6: How about you let me drive?
Speaker 9: No, no, no no, who's.
Speaker 3: Going to drug honey? Please? How do the riding gravels?
Speaker 1: Let's wat?
Speaker 8: I want to try it. It's a good question.
Speaker 1: Good time this please good drive to the Globe.
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Speaker 1: Think well. Broun Don on Bloomberg Radio.
Speaker 2: All right, everybody, just under eighteen minutes left in today's
Speaker 2: trading session. We've got a rally underway. We've got each
Speaker 2: of the major equity averages, as you heard from Charlie,
Speaker 2: at more than one percent. Here so we're hovering just
Speaker 2: off our best levels of the session. Quick check on
Speaker 2: what we're doing in terms of the treasury curve. We've
Speaker 2: got that two year yield at four point fourteen, looking
Speaker 2: out out a little bit ten year at three point
Speaker 2: fifty seven. So let's get to it. Let's talk a
Speaker 2: little bit about what's going on in the markets further
Speaker 2: with Jake Jolly. He's head of investment analysis at B
Speaker 2: and Y mel And Investment Management, joining Matt and me
Speaker 2: in our Bloomberg Interactor Broker's studio. Jake, good to have
Speaker 2: you here. You look at this environment and how do
Speaker 2: you explain it to some of your clients.
Speaker 4: It's tough, is the short answer.
Speaker 7: You know.
Speaker 4: Look, it's there's still a lot of uncertainty out there.
Speaker 4: You know, the the data is definitely still pretty mixed.
Speaker 7: Right.
Speaker 4: Things look a little bit better on the services side,
Speaker 4: Manufacturing not so much obviously, throwing the mix the debt ceiling,
Speaker 4: that's obviously I think a bit of you know, dampening sentiment,
Speaker 4: not today apparently, but we think that, you know, they're
Speaker 4: the bigger story here is that there are a lot
Speaker 4: better investment opportunities this year than there were last year.
Speaker 4: So as much as you know, I.
Speaker 3: Think that the outlook is is still.
Speaker 4: You know, unclear and maybe a little bit worrying.
Speaker 2: But it was lousy for bonds and stock slaves.
Speaker 4: It was I hope it And that's you know, one
Speaker 4: of the silver lining of the fact that you know,
Speaker 4: it was such a bad year for bonds is that
Speaker 4: this year just looks much better.
Speaker 7: Right.
Speaker 4: We have yields that we haven't had in more than
Speaker 4: a decade. So in terms of the opportunity to get
Speaker 4: into you know, high quality fixed income, we think it's
Speaker 4: it's a really great, great time. And you know, to
Speaker 4: that point in terms of you know, one of the
Speaker 4: questions that I get from clients a lot is, you know,
Speaker 4: when is the time to extend duration because obviously there's
Speaker 4: there's a lot of people sitting in cash and cash
Speaker 4: like bonds. We think that time is now. So when
Speaker 4: we look through history, you know, when you are close
Speaker 4: to that peak in the Fed's hiking cycle, that's historically
Speaker 4: a very good entry point because there after you tend
Speaker 4: to see yields move lower. So we think that that's
Speaker 4: very likely going forward. And you know, in terms of
Speaker 4: getting in at a at a rate that is very
Speaker 4: attractive that you can lock in for a few years,
Speaker 4: and it certainly seems like a good time.
Speaker 6: So like twenty year treasury right now yielding almost four percent,
Speaker 6: Is that like an attractive yield that you're watching And
Speaker 6: do you think there's going to be any kind of
Speaker 6: capital appreciation there.
Speaker 4: Or Yeah, And that's one of the things that we
Speaker 4: always have to remind people. I think after you know,
Speaker 4: the twenty tens is kind of go back to bond math, right,
Speaker 4: we didn't have the kind of income return that we
Speaker 4: are going to get on investments in bond portfolios right now.
Speaker 4: I'm not sure you necessarily need to go out to
Speaker 4: twenty years, you know. I think you can probably stay
Speaker 4: in the intermediate space and find some good opportunities.
Speaker 6: But I'm just talking about gouveyes, right, because there you
Speaker 6: just don't get a decent yield or a comparable yield
Speaker 6: unless you go to twenties. The tens are at three
Speaker 6: and a half, so are the sevens and fives, right,
Speaker 6: So either you're in two months to two years or
Speaker 6: you're in twenty years to thirty years.
Speaker 3: But you're talking about IG.
Speaker 4: Debt, yeah, I am. I mean, we like sovereigns. We
Speaker 4: like high grade or high quality investment grade. And I
Speaker 4: think you know, one reason to not say go way
Speaker 4: out the curve is that you know, there's probably a
Speaker 4: pretty nice sweet spot in terms of your duration exposure
Speaker 4: in intermediate space. You know, you're you're mentioning that there
Speaker 4: there is a bit of a you know, upward slurping
Speaker 4: curve from sort of that intermediate out to twenty. It's
Speaker 4: not terribly steep, and if you can sort of stick
Speaker 4: in the intermediate space, you have a bit more optionality.
Speaker 4: So you know, obviously, you know, locking in for a
Speaker 4: couple of years is good. The real big story here
Speaker 4: to us is that we think that there's significant investment
Speaker 4: risk at the short end of the curve. So folks
Speaker 4: that are getting a bit too comfortable in sort of
Speaker 4: the three months, six months those kind of rates, we
Speaker 4: don't think that those are going to stick around, and
Speaker 4: we think that that's why, you know, good time to
Speaker 4: start shifting.
Speaker 3: Out the curve.
Speaker 2: Do you also, I mean, again we go back to
Speaker 2: something Matt and I talked about earlier. Do you think
Speaker 2: that the FED or you guys your thesis in terms
Speaker 2: of the investment outlook and FED outlook that the federal
Speaker 2: cut rates this year.
Speaker 3: So that's the thing you really don't need, really care.
Speaker 4: Yeah, it's sort of not you know, critical to the
Speaker 4: thesis of bonds performing well because number one, the income
Speaker 4: component is going to be very strong. Even when rates peak,
Speaker 4: you generally start to see yields move lower, right because
Speaker 4: the market is going to I mean, we're already seeing
Speaker 4: the market paid pricing in those cuts. We don't think
Speaker 4: they're likely to come this year. But again, in terms
Speaker 4: of you know, getting that total return from bonb portfolios.
Speaker 3: You don't need the cuts.
Speaker 4: And that's kind of getting back to what I was
Speaker 4: saying in the twenty tens, we have to relearn bond
Speaker 4: math a little bit because we're dealing with a yield
Speaker 4: environment that is just much different than the twenty tens.
Speaker 4: We're not sitting at the zero lower bound. We don't
Speaker 4: think we're going to be sitting at the zero lower
Speaker 4: bound anytime soon, which means that that income component is
Speaker 4: just much more attractive. So you have to compare that
Speaker 4: against you know, other investment opportunities, and you do.
Speaker 6: Like bonds better than equities right now, how do you
Speaker 6: tell investors to buy these?
Speaker 3: Do you like ETFs or funds.
Speaker 6: I mean, what's the best rapper or do you want
Speaker 6: to go and find an actual corporate bond?
Speaker 4: Yeah, Well, the the answer you're not going to like
Speaker 4: is it depends on the investor. You know, people with
Speaker 4: different circumstances. Different investors have different needs, different you know,
Speaker 4: preferences for for liquidity, you know, what they can get in.
Speaker 4: Different rappers might be slightly different too. So unfortunately, the
Speaker 4: answer is it really depends and maybe the short answers
Speaker 4: that's what financial advisors are for.
Speaker 2: Are you're looking over the next year or two, do
Speaker 2: you feel some confidence about where the environment goes? Where
Speaker 2: would you suggest folks place it?
Speaker 4: Well, like I said, you know, we we think that
Speaker 4: you know, sovereigns look attractive. We think that within high
Speaker 4: quality investment grade.
Speaker 2: Are there certain sectors within the investment grade space that
Speaker 2: you like?
Speaker 4: Uh, well, companies, you know, I think some that are
Speaker 4: likely to be more durable going through a period of slowdown.
Speaker 4: So you might look to aerospace, you might look to
Speaker 4: pipe lines, things that are likely to not be tested
Speaker 4: as significantly during during a recession, because we do think
Speaker 4: that odds are in favor of a recession. Well, I
Speaker 4: shouldn't say favor nobody wants a recession, but we think
Speaker 4: that you know, at the end of a tightening cycle
Speaker 4: this aggressive that it is more likely than not. That
Speaker 4: kind of going back to your first question of you know,
Speaker 4: why is this a difficult market to talk about, Well,
Speaker 4: it's because we've been kind of sitting in this very
Speaker 4: tight trading range. Uh, the market doesn't really have direction.
Speaker 4: I would kind of put it in the well, we're
Speaker 4: sitting in between kind of the upside and downside scenarios,
Speaker 4: but we're definitely not pricing in the downside. So that's why,
Speaker 4: you know, on the whole, we think, you know, favoring
Speaker 4: quality names not just with inequities, but within your bomb
Speaker 4: portfolios as well.
Speaker 6: The reason I asked about ECS is because I see
Speaker 6: quant all over your resume, right, I see systematic investing,
Speaker 6: you know, I see that that that you are focused
Speaker 6: on factor investing. So it seems to me that you
Speaker 6: would be interested in like buffer ETFs, But we don't enough.
Speaker 3: Time for that.
Speaker 2: Well, can you do something in twenty seconds? Sure?
Speaker 4: Say it?
Speaker 10: So.
Speaker 4: The key the key factor during recessions is quality. Now,
Speaker 4: quality as a factor is kind of a handwavy term,
Speaker 4: but at the the end of the day, it's profitability.
Speaker 4: So it's those names that are stronger ro o wee,
Speaker 4: less leverage, go.
Speaker 2: For the top tier.
Speaker 4: Exactly.
Speaker 3: All right, gotta short answer.
Speaker 8: Got it, Ran.
Speaker 2: You did it though, with a few seconds to scare
Speaker 2: check Jolly Ahead of Investment and Analysis at B and Y
Speaker 2: Mail and Investment Management here in studio. Thanks so much,
Speaker 2: appreciate it.
Speaker 8: All right.
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