1 00:00:00,320 --> 00:00:04,160 Speaker 1: Who you put your trust in matters. Investors have put 2 00:00:04,200 --> 00:00:07,640 Speaker 1: their trust in independent registered investment advisors to the tune 3 00:00:07,640 --> 00:00:12,240 Speaker 1: of four trillion dollars. Why learn more and find your 4 00:00:12,240 --> 00:00:28,040 Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:28,440 --> 00:00:32,159 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:32,200 --> 00:00:37,240 Speaker 1: insight from the best in economics, finance, investment, and international relations. 7 00:00:37,640 --> 00:00:42,239 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and 8 00:00:42,320 --> 00:00:49,199 Speaker 1: of course on the Bloomberg So a good amount of 9 00:00:49,240 --> 00:00:52,360 Speaker 1: time this morning with Adam Posen of the Peterson Institute. 10 00:00:52,960 --> 00:00:55,760 Speaker 1: He has taken over from Fred Burgston brought in all 11 00:00:55,760 --> 00:01:00,160 Speaker 1: sorts of top like talent, including Olivia Blanchard of I 12 00:01:00,160 --> 00:01:04,000 Speaker 1: am f in the Massachusetts Institute of Technology. Dr Posen, 13 00:01:04,040 --> 00:01:06,800 Speaker 1: Good morning, eighteen things to speak to you about. Let 14 00:01:06,800 --> 00:01:09,000 Speaker 1: me start with Europe because I know David wants to 15 00:01:09,040 --> 00:01:15,440 Speaker 1: get to American economics as well. You are a congenital optimist. 16 00:01:15,640 --> 00:01:20,800 Speaker 1: Can you be optimistic on Italy clearing its social and 17 00:01:20,920 --> 00:01:26,200 Speaker 1: political psyche and markets? Of a genital optimist? Mr Keane 18 00:01:26,240 --> 00:01:30,920 Speaker 1: with low expectation, so I'm always satisfied. Um, I think 19 00:01:30,959 --> 00:01:35,200 Speaker 1: Italy can clear this mess in the banking system. I 20 00:01:35,240 --> 00:01:41,000 Speaker 1: think Italy can continue to be aggressive about its fiscal situation, 21 00:01:41,040 --> 00:01:43,600 Speaker 1: as it has been running a primary surplus for quite 22 00:01:43,640 --> 00:01:49,240 Speaker 1: some time. I think getting Italy beyond that into a growing, vital, 23 00:01:49,400 --> 00:01:52,600 Speaker 1: lively economy is a much harder task. I mean, David, 24 00:01:52,640 --> 00:01:55,880 Speaker 1: this is a critical issue. Just Stiglets among others taking 25 00:01:55,880 --> 00:01:59,640 Speaker 1: a basic Frankly blench had like equation and in the 26 00:01:59,680 --> 00:02:03,880 Speaker 1: denial dominator David Gurry is this strange little g and 27 00:02:03,960 --> 00:02:07,160 Speaker 1: if the little G doesn't go, the rest of the 28 00:02:07,200 --> 00:02:11,000 Speaker 1: equation doesn't matter. That's all there is to it. Let 29 00:02:11,000 --> 00:02:13,280 Speaker 1: me bring it to to the US is as Tom promised, 30 00:02:13,320 --> 00:02:16,040 Speaker 1: and and Dr Posen. I wonder if we are any 31 00:02:16,040 --> 00:02:18,960 Speaker 1: closer to having a definition of what trump ponomics is. 32 00:02:20,160 --> 00:02:23,360 Speaker 1: I think we are. Um, we can always hope it changes, 33 00:02:24,040 --> 00:02:26,120 Speaker 1: both in the sense that what it is isn't very 34 00:02:26,160 --> 00:02:29,480 Speaker 1: good and in the sense that every president shouldn't be 35 00:02:29,560 --> 00:02:32,760 Speaker 1: stuck with accusations of hypocrisy when we want them to 36 00:02:32,840 --> 00:02:36,400 Speaker 1: learn and adapt. But trump ponomics right now seems to 37 00:02:36,440 --> 00:02:41,560 Speaker 1: have several components, and the key guiding philosophy is that 38 00:02:41,720 --> 00:02:46,799 Speaker 1: it's actually a very arbitrary interventionist for economics, it's far 39 00:02:46,840 --> 00:02:50,320 Speaker 1: from conservative, far from market. Whether it's in trade deals 40 00:02:50,360 --> 00:02:53,920 Speaker 1: they're trying to target particular deals about particular countries on 41 00:02:53,960 --> 00:02:59,320 Speaker 1: a bilateral basis, in particular industries, whether it's deregulating specific 42 00:02:59,400 --> 00:03:02,480 Speaker 1: industry in specific ways, like they plan to do with energy, 43 00:03:02,520 --> 00:03:06,040 Speaker 1: including coal, Whether it's a tax code that's designed to 44 00:03:06,120 --> 00:03:10,919 Speaker 1: favor specific groups of people, like people with large inheritances. 45 00:03:11,240 --> 00:03:15,080 Speaker 1: I mean it is it is a economics that either 46 00:03:15,480 --> 00:03:20,960 Speaker 1: genuinely believes or rationalizes such behavior as better outcomes than 47 00:03:21,040 --> 00:03:24,440 Speaker 1: letting either the market work or having general economic principles, 48 00:03:24,480 --> 00:03:28,520 Speaker 1: and most economists don't buy it. Is it something wholly 49 00:03:28,600 --> 00:03:30,600 Speaker 1: new or can you trace its evolution to to other 50 00:03:30,639 --> 00:03:36,320 Speaker 1: schools of economics? Um you, I'm about to say something 51 00:03:36,400 --> 00:03:39,080 Speaker 1: that that is going to sound more political than I 52 00:03:39,120 --> 00:03:42,840 Speaker 1: mean it to be. It is not dissimilar from what 53 00:03:43,440 --> 00:03:47,520 Speaker 1: Peron did in Argentina, or Mussolini did in Italy, or 54 00:03:47,680 --> 00:03:51,560 Speaker 1: various more recent Latin American populist movements did in the 55 00:03:51,640 --> 00:03:55,160 Speaker 1: seventies and eighties nineties. My colleague at Peterson Institute, thanks 56 00:03:55,160 --> 00:03:58,320 Speaker 1: Tom for the shout out. Monica Dbolah just wrote a 57 00:03:58,480 --> 00:04:01,200 Speaker 1: very prerogative essay for us that's gotten a lot of play. 58 00:04:01,720 --> 00:04:04,280 Speaker 1: Taking lessons from the crack up in Brazil over the 59 00:04:04,320 --> 00:04:07,680 Speaker 1: last few years, where they used the bnd S National 60 00:04:08,560 --> 00:04:13,040 Speaker 1: Bank as a piggy bank for particular projects and chrony capitalism, 61 00:04:13,640 --> 00:04:17,160 Speaker 1: We've seen something similar occasionally in Asia Indonesia before the 62 00:04:17,160 --> 00:04:21,400 Speaker 1: the economic crisis. I mean, again, I'm not trying to 63 00:04:21,480 --> 00:04:23,440 Speaker 1: just put labels on things, but when you have a 64 00:04:23,520 --> 00:04:32,200 Speaker 1: government that is committed to targeting specific industries, deals, businesses 65 00:04:32,880 --> 00:04:38,040 Speaker 1: through individual deal making by the people in power, even 66 00:04:38,080 --> 00:04:41,480 Speaker 1: if you don't accuse them of corruption, you are distorting 67 00:04:41,480 --> 00:04:46,480 Speaker 1: the economic system. When you look at this infrastructure package, Uh, 68 00:04:46,720 --> 00:04:49,080 Speaker 1: it's been floated, hasn't been proposed, but it's been floated. 69 00:04:49,640 --> 00:04:51,039 Speaker 1: Do you do you think that it's too light to 70 00:04:51,040 --> 00:04:53,040 Speaker 1: have a debate over its its merits and efficacy or 71 00:04:53,080 --> 00:04:56,080 Speaker 1: we will pass that. No. No, I think it's absolutely 72 00:04:56,120 --> 00:04:57,800 Speaker 1: the right time to have a debate about it. It 73 00:04:57,880 --> 00:05:01,359 Speaker 1: hasn't gone to Congress yet, and hope that Speaker Ryan 74 00:05:01,560 --> 00:05:04,080 Speaker 1: and the leadership on both sides of the Aisle gives 75 00:05:04,160 --> 00:05:07,679 Speaker 1: us a constructive debate. I mean, broadly speaking, the idea 76 00:05:07,760 --> 00:05:10,200 Speaker 1: that there is a huge load of infrastructure to be 77 00:05:10,320 --> 00:05:13,040 Speaker 1: done in the US, that we haven't kept up with 78 00:05:13,120 --> 00:05:15,200 Speaker 1: needs and that there could be job benefits from doing 79 00:05:15,240 --> 00:05:18,240 Speaker 1: so in an environmental low interest rates is something I 80 00:05:18,320 --> 00:05:21,720 Speaker 1: think almost everybody can agree on. The question is how 81 00:05:21,800 --> 00:05:24,240 Speaker 1: much of the money is spent on things that are 82 00:05:24,279 --> 00:05:27,680 Speaker 1: targeted that our finite and involved maintenance and rebuilding, as 83 00:05:27,760 --> 00:05:30,200 Speaker 1: my colleague of a blood Chart has said, versus how 84 00:05:30,200 --> 00:05:33,880 Speaker 1: many things are handouts to private sector people who were 85 00:05:33,880 --> 00:05:36,240 Speaker 1: going to do projects anyways, and you just subsidize the 86 00:05:36,279 --> 00:05:39,039 Speaker 1: projects they're doing. It's also a question of how much 87 00:05:39,040 --> 00:05:42,320 Speaker 1: productivity gain you get out the other end, and you 88 00:05:42,360 --> 00:05:44,919 Speaker 1: know some you're never going to get a winner on 89 00:05:45,000 --> 00:05:47,120 Speaker 1: every project, but you want to have a portfolio of 90 00:05:47,160 --> 00:05:50,760 Speaker 1: projects that's broadly conducing to productivity gains. That remains to 91 00:05:50,800 --> 00:06:04,560 Speaker 1: be debated and specificy rat felt choice that he's the 92 00:06:04,560 --> 00:06:06,760 Speaker 1: CEO of NASDAC head of an event this morning the 93 00:06:06,800 --> 00:06:08,640 Speaker 1: Council inform E Legends will be speaking with our editor 94 00:06:08,640 --> 00:06:11,919 Speaker 1: in chief John mcilcoy about the the effective the U 95 00:06:12,000 --> 00:06:15,000 Speaker 1: S presidential election, the Bregs referendum and and all of 96 00:06:15,040 --> 00:06:17,360 Speaker 1: that on market. So let's start there, and with all 97 00:06:17,400 --> 00:06:21,440 Speaker 1: the volatility we've seen. Is this the new normal? The 98 00:06:21,480 --> 00:06:23,839 Speaker 1: volatle markets? We've been saying, well, I think we've been 99 00:06:23,839 --> 00:06:26,680 Speaker 1: through a period of time of depressed volatility, so I 100 00:06:26,720 --> 00:06:28,880 Speaker 1: think the new normal would be back to what I 101 00:06:28,920 --> 00:06:32,080 Speaker 1: would call normal. So we expect volatility to be higher 102 00:06:32,080 --> 00:06:33,960 Speaker 1: than it has been the last three to four years. 103 00:06:34,560 --> 00:06:36,680 Speaker 1: What you know, You you look at the Brekes reference, 104 00:06:36,720 --> 00:06:38,240 Speaker 1: you look at what we we've seen here after the 105 00:06:38,320 --> 00:06:42,719 Speaker 1: US presidential election telegraph for us. What you think investors 106 00:06:42,720 --> 00:06:45,680 Speaker 1: are thinking of what they were thinking on election night? Well, 107 00:06:45,720 --> 00:06:47,960 Speaker 1: I think what was impressive to me is the market 108 00:06:48,040 --> 00:06:51,159 Speaker 1: quickly realized that they had elected a pro business president. 109 00:06:51,240 --> 00:06:54,320 Speaker 1: So you had the emotion associated with other issues that 110 00:06:54,480 --> 00:06:57,120 Speaker 1: quickly went to the background said okay, we have now 111 00:06:57,000 --> 00:06:59,120 Speaker 1: a president who wants to be pro business, and the 112 00:06:59,160 --> 00:07:03,640 Speaker 1: market responded accordingly. I also think the market responded intelligently 113 00:07:03,720 --> 00:07:06,680 Speaker 1: in that certain stocks to particularly well, uh, you know, 114 00:07:06,760 --> 00:07:10,080 Speaker 1: better than the market recognizing where the pro business policies 115 00:07:10,160 --> 00:07:12,560 Speaker 1: might lead us. It wasn't long after the election that 116 00:07:12,600 --> 00:07:15,240 Speaker 1: you saw on the transition team's website their first priority. 117 00:07:15,280 --> 00:07:18,080 Speaker 1: The first thing they posted was about their desire to 118 00:07:18,240 --> 00:07:21,720 Speaker 1: do away with with Dodd Frank. What is the regulatory landscape. 119 00:07:21,760 --> 00:07:24,760 Speaker 1: What does that terrain look like once Donald Trump becomes president. Well, 120 00:07:24,800 --> 00:07:27,520 Speaker 1: I believe when Donald Trump becomes president, you'll see a 121 00:07:27,520 --> 00:07:30,840 Speaker 1: period of refinement as opposed to replacement. So clearly Dodd 122 00:07:30,880 --> 00:07:34,200 Speaker 1: Frank has many areas that need improvement, and hopefully the 123 00:07:34,240 --> 00:07:37,480 Speaker 1: focus is on that. But like anything else, there's parts 124 00:07:37,480 --> 00:07:40,040 Speaker 1: of there are fine, parts of it are okay or good, 125 00:07:40,400 --> 00:07:42,480 Speaker 1: and hopefully that stays. Take through a few of those 126 00:07:42,520 --> 00:07:44,680 Speaker 1: if you would, you you've watched this unfold, You've watched 127 00:07:44,680 --> 00:07:47,120 Speaker 1: the implementation of that law through the rule writing and 128 00:07:47,160 --> 00:07:50,320 Speaker 1: the votes and the more rule writing. What should stay 129 00:07:50,480 --> 00:07:52,280 Speaker 1: in your mind? What's worked well and what are the 130 00:07:52,320 --> 00:07:54,760 Speaker 1: deficits as you see in Well, I would say anything 131 00:07:55,000 --> 00:07:58,880 Speaker 1: that brings transparency to markets is good. Right as NAZAC, 132 00:07:59,000 --> 00:08:01,920 Speaker 1: we believe in trans parent markets. So we saw increased 133 00:08:01,920 --> 00:08:06,040 Speaker 1: transparency in the market. Anything that restricts liquidity coming into 134 00:08:06,080 --> 00:08:07,880 Speaker 1: the markets we put in the bad categories. So you 135 00:08:07,960 --> 00:08:11,320 Speaker 1: have different rules Vulker and others that really hamper the 136 00:08:11,360 --> 00:08:14,760 Speaker 1: bank's ability to support and really make the markets more 137 00:08:14,840 --> 00:08:17,760 Speaker 1: deep and liquid. What's your relationship been like thus far 138 00:08:17,840 --> 00:08:19,800 Speaker 1: with the with the President elect, with the transition team, 139 00:08:19,840 --> 00:08:22,480 Speaker 1: I imagine they are curious about what you and others 140 00:08:22,480 --> 00:08:25,480 Speaker 1: think should happen. Have come January? Well, I think they're 141 00:08:25,560 --> 00:08:27,760 Speaker 1: very busy and not so much focused on where the 142 00:08:27,800 --> 00:08:30,080 Speaker 1: exchanges are right now, but I think that will be 143 00:08:30,480 --> 00:08:32,560 Speaker 1: uh An increased topic is some of the you know 144 00:08:32,600 --> 00:08:36,199 Speaker 1: what i'll call the headline and appointments and our issues 145 00:08:36,240 --> 00:08:38,880 Speaker 1: have put to bed? Is that is the relationship between 146 00:08:39,040 --> 00:08:42,240 Speaker 1: New York other financial capitals in Washington better than it 147 00:08:42,280 --> 00:08:45,040 Speaker 1: had been? Or do is that that geographic divide still 148 00:08:45,120 --> 00:08:47,679 Speaker 1: something that needs to be overcome. I think it's somewhat 149 00:08:47,720 --> 00:08:50,240 Speaker 1: needs to be overcome. I mean, we definitely had a period, 150 00:08:50,559 --> 00:08:52,440 Speaker 1: We've been through a period of time where everything has 151 00:08:52,480 --> 00:08:56,320 Speaker 1: been centered around Washington and US in the financial center 152 00:08:56,360 --> 00:08:59,520 Speaker 1: in New York has seen as somewhat the big evil. Uh. 153 00:08:59,559 --> 00:09:02,000 Speaker 1: So hopefully we'll enter a time where you have a 154 00:09:02,000 --> 00:09:06,520 Speaker 1: more productive working relationship with the policymakers down in Washington. Bob, 155 00:09:06,520 --> 00:09:10,679 Speaker 1: I see Hunter Maritime acquisition, which I guess was an 156 00:09:10,679 --> 00:09:12,840 Speaker 1: I p O that the NAS deck did a week 157 00:09:12,960 --> 00:09:14,400 Speaker 1: or so ago, And I don't want to nail you 158 00:09:14,400 --> 00:09:16,600 Speaker 1: on it because it's all the detail here. I don't 159 00:09:16,600 --> 00:09:19,600 Speaker 1: really don't understand it's a ball dry shipping thing, and 160 00:09:19,640 --> 00:09:24,400 Speaker 1: that the exchanges in the markets are driven it seems 161 00:09:24,400 --> 00:09:28,400 Speaker 1: by ETFs and by closed end funds and all that. 162 00:09:28,559 --> 00:09:30,959 Speaker 1: Are they your friend or enemy at the NAS deck 163 00:09:31,080 --> 00:09:36,319 Speaker 1: to financial engineered instruments get in the way of a 164 00:09:36,360 --> 00:09:40,920 Speaker 1: better market in a better marketplace, I I don't believe so. 165 00:09:40,920 --> 00:09:43,760 Speaker 1: So certainly you see the rise of passive investing, and 166 00:09:43,800 --> 00:09:47,040 Speaker 1: I think that trend line will continue. I think you'll 167 00:09:47,080 --> 00:09:50,080 Speaker 1: see a greater acceleration of what we call smart beta, 168 00:09:50,160 --> 00:09:54,040 Speaker 1: that is passive, passively managed with some degree of intelligence 169 00:09:54,040 --> 00:09:57,200 Speaker 1: to that. So I think that's represented a innovation in 170 00:09:57,240 --> 00:10:01,200 Speaker 1: the marketplace I think has served investors very well. But 171 00:10:01,360 --> 00:10:04,720 Speaker 1: the lifeblood of the market still is operating companies that 172 00:10:04,760 --> 00:10:06,839 Speaker 1: come to market I pos that come to market, and 173 00:10:06,880 --> 00:10:10,600 Speaker 1: obviously our established companies as they continue to grow. There 174 00:10:10,679 --> 00:10:12,160 Speaker 1: was a period of time when I was talking with 175 00:10:12,160 --> 00:10:14,320 Speaker 1: our ip O reporter here, Alex Brinka, and she was 176 00:10:14,360 --> 00:10:16,920 Speaker 1: desperately hoping there would be some I p O action. 177 00:10:17,040 --> 00:10:19,680 Speaker 1: We have a bit of a lull there for a while. 178 00:10:19,720 --> 00:10:22,360 Speaker 1: What's what's the outlook for companies going public? Well, I 179 00:10:22,360 --> 00:10:25,160 Speaker 1: would say two thousand sixteen is a year of quality. 180 00:10:25,320 --> 00:10:26,480 Speaker 1: So If you look at the i p o s 181 00:10:26,520 --> 00:10:29,839 Speaker 1: have come public this year, certainly they're down. We've had 182 00:10:29,880 --> 00:10:32,319 Speaker 1: eighty five, so it's not non existent. We've made eighty 183 00:10:32,320 --> 00:10:34,960 Speaker 1: five I p o s this year, but they're up. 184 00:10:35,080 --> 00:10:37,439 Speaker 1: What do you something per cent since the I p 185 00:10:37,559 --> 00:10:40,520 Speaker 1: O date and that's different shares you gave us were great? 186 00:10:41,080 --> 00:10:45,080 Speaker 1: You know you know anything? Twins? Do you know that 187 00:10:45,160 --> 00:10:48,559 Speaker 1: your twins? Your twins are all blind trusted with bob Byfield. 188 00:10:48,600 --> 00:10:51,400 Speaker 1: There we go, We're we aimed to please Tom, so 189 00:10:51,480 --> 00:10:54,400 Speaker 1: we're we're pleasing. So we've we've seen quality and I 190 00:10:54,440 --> 00:10:56,440 Speaker 1: believe that the quality of the i p os in 191 00:10:56,440 --> 00:10:59,080 Speaker 1: a given year is a predictor of the quantity of 192 00:10:59,120 --> 00:11:01,120 Speaker 1: the I p o s in the following year. So 193 00:11:01,160 --> 00:11:03,559 Speaker 1: I think two thousand seventeen, based on the quality of 194 00:11:03,600 --> 00:11:05,640 Speaker 1: this year, will be a strong year fry p os. 195 00:11:05,640 --> 00:11:08,240 Speaker 1: And we do see the calendar picking up, the backlog 196 00:11:08,360 --> 00:11:11,360 Speaker 1: picking up. Obviously, external events can change that. If you 197 00:11:11,360 --> 00:11:14,719 Speaker 1: look at it today, we're saying some building momentum. As 198 00:11:14,720 --> 00:11:17,320 Speaker 1: you talked to two executives that companies considering going public, 199 00:11:17,360 --> 00:11:20,600 Speaker 1: what's the biggest hurdle still is an uncertainty. What are 200 00:11:20,600 --> 00:11:22,120 Speaker 1: they what are they saying to you, is they as 201 00:11:22,160 --> 00:11:24,880 Speaker 1: they weigh that decision to go public. Well, one is 202 00:11:24,960 --> 00:11:28,079 Speaker 1: you have to have structural reasons why you should go public, 203 00:11:28,520 --> 00:11:31,199 Speaker 1: and uh you should not be focused on the particular 204 00:11:31,280 --> 00:11:33,720 Speaker 1: openings of the windows or not. Right. We tend to 205 00:11:33,720 --> 00:11:36,120 Speaker 1: focus then on the week or two before. But you know, 206 00:11:36,160 --> 00:11:39,240 Speaker 1: do you need currency to make acquisitions, you need to 207 00:11:39,240 --> 00:11:43,240 Speaker 1: provide liquidity for employees, you need liquidity to grow Those 208 00:11:43,280 --> 00:11:46,640 Speaker 1: are the real reasons why you should come uh come public. 209 00:11:46,920 --> 00:11:48,600 Speaker 1: One of the reasons you stop by today was to 210 00:11:48,600 --> 00:11:51,400 Speaker 1: talk about technology and the idea of where does let's 211 00:11:51,440 --> 00:11:55,720 Speaker 1: bring it to the nasdack. What's the next next for 212 00:11:55,800 --> 00:12:00,000 Speaker 1: the exchanges in technology, particularly wrapped around dovetailing equity, more 213 00:12:00,000 --> 00:12:02,760 Speaker 1: markets into derivative markets. Yeah, I would say this when 214 00:12:02,840 --> 00:12:05,200 Speaker 1: we think about ourselves, we think of ourselves as a 215 00:12:05,240 --> 00:12:08,520 Speaker 1: technology company, and we're spending a lot of time, effort, 216 00:12:08,559 --> 00:12:13,840 Speaker 1: and money with respect to machine learning, big data. Uh, 217 00:12:13,920 --> 00:12:16,600 Speaker 1: not so much artificial intelligence, but close to it. So 218 00:12:16,679 --> 00:12:20,520 Speaker 1: you're seeing the ability of machine learning to really change 219 00:12:20,559 --> 00:12:24,320 Speaker 1: the nature of how work is produced in financial services. 220 00:12:24,320 --> 00:12:27,840 Speaker 1: So we're like that was the record jargon to learn 221 00:12:27,920 --> 00:12:31,199 Speaker 1: for November. But there what translate that for us. I'm 222 00:12:31,200 --> 00:12:33,520 Speaker 1: gonna try, Tom, I'm gonna try as far as I can. 223 00:12:33,640 --> 00:12:37,319 Speaker 1: So the low hanging fruit we have is a surveillance. 224 00:12:37,480 --> 00:12:39,800 Speaker 1: So right now, there's so much activity going on in 225 00:12:39,840 --> 00:12:43,679 Speaker 1: the marketplace, and we have tools today that recognize patterns 226 00:12:44,040 --> 00:12:47,440 Speaker 1: and say, okay, this pattern looks like something suspicious might 227 00:12:47,480 --> 00:12:51,320 Speaker 1: be happening. There are so many false positives in those patterns. 228 00:12:51,679 --> 00:12:54,280 Speaker 1: So now we want to put machine intelligence to that's 229 00:12:54,360 --> 00:12:58,360 Speaker 1: okay based upon what I've learned in a dynamic fashion. 230 00:12:58,679 --> 00:13:00,960 Speaker 1: This is not a positive of this is a negative, 231 00:13:01,040 --> 00:13:03,480 Speaker 1: and then isolate down to things that should be focused on. 232 00:13:03,520 --> 00:13:07,520 Speaker 1: The machine intelligence means a Bloomberg terminal, definitely, okay to 233 00:13:07,600 --> 00:13:11,800 Speaker 1: the top of every pyramid table. You have been incredibly 234 00:13:11,800 --> 00:13:15,720 Speaker 1: acquisitive over these last few years, acquiring exchanges and other companies. Yeah. 235 00:13:15,840 --> 00:13:17,760 Speaker 1: Do you expect more of that to continue here as 236 00:13:17,800 --> 00:13:20,200 Speaker 1: you look to become more focused on technology. We do. 237 00:13:20,360 --> 00:13:22,520 Speaker 1: We have two types of acquisitions. The one that we 238 00:13:22,720 --> 00:13:25,720 Speaker 1: focus on those that really add to our core business. 239 00:13:25,800 --> 00:13:28,720 Speaker 1: So if you we've done four acquisitions so far this year, 240 00:13:29,080 --> 00:13:31,480 Speaker 1: and there are businesses that we're in, and then we 241 00:13:31,520 --> 00:13:34,800 Speaker 1: have obviously expense synergies associated with it, and its strengthens 242 00:13:34,840 --> 00:13:38,600 Speaker 1: our strengthens our market positions in markets we've chosen to 243 00:13:38,640 --> 00:13:42,200 Speaker 1: be leading competitors, and so yes, we'll expect that to continue. 244 00:13:42,360 --> 00:13:44,920 Speaker 1: Robert Rai felt with nasty. Of course, thank you so much. 245 00:13:44,960 --> 00:13:53,160 Speaker 1: Appreciate your great greatly greatly appreciate it as well. Who 246 00:13:53,240 --> 00:13:56,920 Speaker 1: you put your trust in matters. Investors have put their 247 00:13:56,960 --> 00:14:00,320 Speaker 1: trust in independent registered investment advisors to the tune of 248 00:14:00,440 --> 00:14:05,240 Speaker 1: four trillion dollars. Why they see their role is to serve, 249 00:14:05,720 --> 00:14:08,960 Speaker 1: not sell. That's why Charles Schwab is committed to the 250 00:14:09,000 --> 00:14:13,679 Speaker 1: success of over seven thousand independent financial advisors who passionately 251 00:14:13,760 --> 00:14:18,120 Speaker 1: dedicate themselves to helping people achieve their financial goals. Learn 252 00:14:18,160 --> 00:14:28,880 Speaker 1: more and find your independent advisor dot com. George Bori 253 00:14:29,000 --> 00:14:32,000 Speaker 1: is in charge of medication at Willis Figo. Kind of 254 00:14:32,040 --> 00:14:35,600 Speaker 1: credit strategy. How bad he is it, George? How much 255 00:14:35,640 --> 00:14:38,240 Speaker 1: blood is on the street or is it really a 256 00:14:38,280 --> 00:14:41,200 Speaker 1: non event? What we've seen the last uh, I'll call 257 00:14:41,240 --> 00:14:45,080 Speaker 1: it twenty days. Good morning everyone, h Well, there's been 258 00:14:45,160 --> 00:14:47,280 Speaker 1: quite a bit of blood. Um. If you look at 259 00:14:47,320 --> 00:14:51,040 Speaker 1: total returns across fixed income, they're down. They're down markedly. 260 00:14:51,120 --> 00:14:54,560 Speaker 1: If you own a diversified treasury. You're down almost four 261 00:14:55,200 --> 00:14:58,440 Speaker 1: on the quarter. Uh, And that's a pretty healthy loss 262 00:14:58,480 --> 00:15:01,480 Speaker 1: for folks that are really not expecting a lot of losses. 263 00:15:01,800 --> 00:15:03,880 Speaker 1: And the same can be said for you know, high 264 00:15:04,000 --> 00:15:07,600 Speaker 1: quality bonds, the ones that are most closely attached or 265 00:15:07,680 --> 00:15:11,800 Speaker 1: most closely linked to that sort of government like risk. 266 00:15:12,320 --> 00:15:15,480 Speaker 1: But as you go further down the spectrum, as you 267 00:15:15,520 --> 00:15:20,360 Speaker 1: go towards more risks in areas like high yield. The 268 00:15:20,440 --> 00:15:23,520 Speaker 1: high yield bond markets down a quarter of a percent. 269 00:15:23,680 --> 00:15:27,080 Speaker 1: It's still negative, and people don't want negative returns, but 270 00:15:27,160 --> 00:15:29,720 Speaker 1: a quarter of a percent is not that bad in 271 00:15:29,760 --> 00:15:32,760 Speaker 1: the world of bonds, when the highest quality bond is 272 00:15:32,800 --> 00:15:36,520 Speaker 1: down almost four percent, and that kind of gives people 273 00:15:36,520 --> 00:15:39,520 Speaker 1: some solace. David, good morning to Jack Vogel Vanguard. I 274 00:15:39,560 --> 00:15:42,080 Speaker 1: just used folks as a proxy. The Vanguard Total Bond 275 00:15:42,080 --> 00:15:48,120 Speaker 1: Market Fund down three point seven percent, David, down annualized 276 00:15:48,600 --> 00:15:51,760 Speaker 1: from that third week of August where used my vacation. 277 00:15:54,760 --> 00:15:57,920 Speaker 1: You mentioned Mr Vogel too, But I wonder, George, so 278 00:15:58,120 --> 00:16:00,480 Speaker 1: how the institutional investor is playing us looking at what 279 00:16:00,520 --> 00:16:04,240 Speaker 1: we're seeing in the spreads. So institutional investors they like 280 00:16:04,440 --> 00:16:07,000 Speaker 1: higher yields. So you know, if you're a pension fund 281 00:16:07,040 --> 00:16:10,200 Speaker 1: or if you're an insurance company, you're actually thankful that 282 00:16:10,200 --> 00:16:12,920 Speaker 1: that yields are moving higher. You've probably harbored a lot 283 00:16:12,920 --> 00:16:15,680 Speaker 1: of cash and you've been waiting for this moment. And 284 00:16:15,720 --> 00:16:19,360 Speaker 1: so we've seen institutional investors actually start to buy the market. 285 00:16:19,760 --> 00:16:22,520 Speaker 1: It's really the retail investor. The folks, the folks that 286 00:16:22,600 --> 00:16:25,320 Speaker 1: maybe had money in a cash account or money market 287 00:16:25,360 --> 00:16:28,120 Speaker 1: account and have been slowly creeping out what we'd call 288 00:16:28,160 --> 00:16:31,720 Speaker 1: the risk spectrum, were now looking at some negative returns 289 00:16:31,720 --> 00:16:35,120 Speaker 1: in their portfolio, and they've actually started a whole money 290 00:16:35,160 --> 00:16:38,320 Speaker 1: out of out of mutual funds and even out of 291 00:16:38,360 --> 00:16:40,400 Speaker 1: some of the e t f So there's there's a 292 00:16:40,440 --> 00:16:42,360 Speaker 1: little bit of a battle, if you will, going on 293 00:16:42,480 --> 00:16:46,440 Speaker 1: between the institutional investor and the retailers. Well well explained, 294 00:16:46,520 --> 00:16:49,320 Speaker 1: but help me here. The institutional pros got cash for 295 00:16:49,480 --> 00:16:52,360 Speaker 1: seven percent whatever they start putting it to work. I 296 00:16:52,440 --> 00:16:57,960 Speaker 1: get that. But aren't they marking to at sixteen loss 297 00:16:58,680 --> 00:17:03,240 Speaker 1: or decline in their port Uh? Not yet? Not yet. 298 00:17:04,760 --> 00:17:08,680 Speaker 1: Full year returns are still are still strongly positive both 299 00:17:08,800 --> 00:17:11,960 Speaker 1: in the in the world of corporate bonds, at least, 300 00:17:12,680 --> 00:17:16,240 Speaker 1: Treasury is a little bit less so um and and 301 00:17:16,240 --> 00:17:18,479 Speaker 1: and the addition to the other, the other sort of 302 00:17:18,680 --> 00:17:21,879 Speaker 1: thing to consider. An institutional investor does tend to have 303 00:17:22,000 --> 00:17:24,920 Speaker 1: a slightly long we're all short term investors at the 304 00:17:25,000 --> 00:17:27,080 Speaker 1: end of the day, but they do tend to have 305 00:17:27,160 --> 00:17:32,480 Speaker 1: a longer term horizon our profile. So a life insurance company, 306 00:17:32,760 --> 00:17:37,760 Speaker 1: you know, is matching liabilities against long dated um UH investments, 307 00:17:37,840 --> 00:17:42,560 Speaker 1: so they can take a slightly longer term UH time horizon. 308 00:17:42,960 --> 00:17:45,800 Speaker 1: Not everyone can do it, but some can. What's your 309 00:17:45,840 --> 00:17:48,680 Speaker 1: your outlook here, George, for for volatility and credit spread, 310 00:17:48,720 --> 00:17:51,400 Speaker 1: what do you think they're gonna start to tighten? Well, 311 00:17:51,520 --> 00:17:55,000 Speaker 1: credit spreads themselves have actually started to tighten um and 312 00:17:55,480 --> 00:17:58,320 Speaker 1: again in at the higher end of the rating spectrum, 313 00:17:58,320 --> 00:18:01,520 Speaker 1: where you're very closely linked to trade injuries, they've tightened 314 00:18:01,560 --> 00:18:04,080 Speaker 1: a bit, you know, call it five to ten basis 315 00:18:04,119 --> 00:18:07,760 Speaker 1: points um and and that's kind of to be expected. 316 00:18:07,800 --> 00:18:11,600 Speaker 1: As as as negative returns kind of forced people out 317 00:18:11,600 --> 00:18:14,960 Speaker 1: of the asset class, spreads will only tighten a little bit. 318 00:18:14,960 --> 00:18:17,679 Speaker 1: So what we would say they're they're grinding tighter. But 319 00:18:17,760 --> 00:18:21,080 Speaker 1: in the world of high yield, where your spreads can 320 00:18:21,119 --> 00:18:24,080 Speaker 1: be anywhere from four to five to six hundred basis 321 00:18:24,080 --> 00:18:29,160 Speaker 1: points above a typical treasury, those spreads can move much further. Uh, 322 00:18:29,200 --> 00:18:32,040 Speaker 1: and they also tend to be kind of shorter in duration, 323 00:18:32,160 --> 00:18:36,440 Speaker 1: so further further down the maturity spectrum. And we've actually 324 00:18:36,440 --> 00:18:40,520 Speaker 1: seen high yield spreads, you know, come in thirty basis points, 325 00:18:40,880 --> 00:18:43,040 Speaker 1: and I think there's plenty of potential for that to 326 00:18:43,080 --> 00:18:47,000 Speaker 1: continue into next year. And the point about kind of 327 00:18:47,000 --> 00:18:50,960 Speaker 1: institutional versus retail I think is critically important. The institutional 328 00:18:51,000 --> 00:18:54,480 Speaker 1: investor base is bigger than the retail institutional base, but 329 00:18:54,520 --> 00:18:57,679 Speaker 1: they just move more slowly. They're more disciplined in the 330 00:18:57,720 --> 00:19:01,280 Speaker 1: sense that they have very specific investment requirement. So we're 331 00:19:01,359 --> 00:19:05,440 Speaker 1: optimistic that credit spreads should do well. Um, they're going 332 00:19:05,480 --> 00:19:07,760 Speaker 1: to be volatile when you have negative returns in the 333 00:19:07,760 --> 00:19:10,280 Speaker 1: asset class, there's a lot of movement of money, but 334 00:19:10,520 --> 00:19:14,840 Speaker 1: over time credit spreads should should tighten as yields going. 335 00:19:15,320 --> 00:19:19,200 Speaker 1: Do you have a ten year yield equivalent to where 336 00:19:19,280 --> 00:19:22,760 Speaker 1: retail says I can't take any more price decline? If 337 00:19:22,800 --> 00:19:25,480 Speaker 1: we had two point four zero or two point five 338 00:19:25,600 --> 00:19:28,919 Speaker 1: zero or two point seven zero, do you begin to 339 00:19:28,920 --> 00:19:32,080 Speaker 1: see a lot of selling. So that's a great question 340 00:19:32,640 --> 00:19:36,480 Speaker 1: historically about a negative a negative return of about three 341 00:19:36,600 --> 00:19:40,399 Speaker 1: percent over a three month period, so it's's very easy 342 00:19:40,400 --> 00:19:43,879 Speaker 1: to remember. Negative three over three months tends to start 343 00:19:44,040 --> 00:19:46,520 Speaker 1: the flow of money out of the asset class. And 344 00:19:46,600 --> 00:19:49,680 Speaker 1: that's exactly what's happened this time around. Are we seeing 345 00:19:49,680 --> 00:19:53,679 Speaker 1: it yet? Yep, we've seen about right now you're running, 346 00:19:54,000 --> 00:19:56,879 Speaker 1: uh roughly, let's call it. About a billion dollars a 347 00:19:56,920 --> 00:19:59,520 Speaker 1: week is coming out of coredit. Okay, George, boy where 348 00:19:59,560 --> 00:20:02,600 Speaker 1: us was all farger? That's exceptionally important, folks. I can't 349 00:20:02,640 --> 00:20:05,399 Speaker 1: say enough, folks, how the street and the median and 350 00:20:05,560 --> 00:20:10,520 Speaker 1: certainly Bloomberg surveillance quotes yield quotes, yield quotes, yield and 351 00:20:10,520 --> 00:20:13,320 Speaker 1: there's a point where yields go up and all of 352 00:20:13,400 --> 00:20:15,920 Speaker 1: a sudden, everybody, David Girls looking at their ship, going 353 00:20:16,000 --> 00:20:19,200 Speaker 1: what's the price of that? David Gray here with Tom 354 00:20:19,280 --> 00:20:21,560 Speaker 1: Keane on Bloomberg Surveillance. We're talking with George Barry had 355 00:20:21,560 --> 00:20:24,520 Speaker 1: of credit strategy at Wells Farging. We have yet to 356 00:20:24,560 --> 00:20:27,040 Speaker 1: talk about the presidential transition and the effect that may 357 00:20:27,080 --> 00:20:30,159 Speaker 1: have here on the credit space. Give us give us 358 00:20:30,160 --> 00:20:32,919 Speaker 1: your sense of what that looks like, George. So, I 359 00:20:32,960 --> 00:20:36,480 Speaker 1: think the new administration has the potential to really I 360 00:20:36,480 --> 00:20:40,120 Speaker 1: think help credit conditions. Um, if there's a big if 361 00:20:40,200 --> 00:20:42,879 Speaker 1: that hangs all hangs over this. But if you know, 362 00:20:42,880 --> 00:20:45,119 Speaker 1: if you're if you're going to see an increase in 363 00:20:45,480 --> 00:20:51,520 Speaker 1: government spending and a loosening in regulatory constraints on certain industries, 364 00:20:51,520 --> 00:20:55,240 Speaker 1: particularly in places like maybe healthcare as well as energy. 365 00:20:55,720 --> 00:20:57,880 Speaker 1: Uh and in addition to that, you get you get 366 00:20:57,920 --> 00:21:00,439 Speaker 1: tax cuts. You know, that has the potent chilled to 367 00:21:00,480 --> 00:21:04,399 Speaker 1: be very stimulative for for the U. S economy. I 368 00:21:04,400 --> 00:21:08,080 Speaker 1: think that trickle down effect to corporates could be very powerful. 369 00:21:08,240 --> 00:21:10,520 Speaker 1: And uh, the trends we've seen over the past couple 370 00:21:10,520 --> 00:21:13,240 Speaker 1: of years as companies have been really levering up their 371 00:21:13,240 --> 00:21:15,240 Speaker 1: balance sheet, they're borrowing a lot of money to buy 372 00:21:15,280 --> 00:21:19,440 Speaker 1: back stock to offset a very slow and sluggish growth backdrop. 373 00:21:19,840 --> 00:21:21,400 Speaker 1: If we were to see a little bit of an 374 00:21:21,480 --> 00:21:25,560 Speaker 1: uptick in growth in top line growth, in earnings, sorry, 375 00:21:25,600 --> 00:21:28,919 Speaker 1: in sales, UM, that could be a very powerful um 376 00:21:29,119 --> 00:21:33,360 Speaker 1: positive for for companies and companies credit worthiness. So we're 377 00:21:33,440 --> 00:21:36,760 Speaker 1: encouraged going into next year, um, you know for for 378 00:21:36,840 --> 00:21:39,159 Speaker 1: the corporate sector. And what does that mean for for 379 00:21:39,240 --> 00:21:42,119 Speaker 1: mergers and acquisitions? If if we see Trump and omics. 380 00:21:42,160 --> 00:21:44,600 Speaker 1: As we're thinking we're going to see again whether we're 381 00:21:44,600 --> 00:21:46,800 Speaker 1: short on details here, what does that mean for M 382 00:21:46,800 --> 00:21:48,960 Speaker 1: and A activity? So M and A has been been 383 00:21:49,040 --> 00:21:51,439 Speaker 1: very robust over the past couple of years. The lower 384 00:21:51,480 --> 00:21:54,480 Speaker 1: for longer or the low rate structure has encouraged companies 385 00:21:54,520 --> 00:21:58,600 Speaker 1: to consolidate. UH and and industries to consolidate used a 386 00:21:58,600 --> 00:22:02,439 Speaker 1: lot of relatively cheaply borrowed money to to fuel that 387 00:22:02,600 --> 00:22:04,440 Speaker 1: M and A. You know, you've had well over a 388 00:22:04,480 --> 00:22:07,920 Speaker 1: trillion dollars of closed M and A each year, last 389 00:22:08,000 --> 00:22:11,480 Speaker 1: year and this year. UM. The prospect of more growth, 390 00:22:11,600 --> 00:22:15,320 Speaker 1: I think actually accelerates that trend. UM. You know, you 391 00:22:15,320 --> 00:22:19,320 Speaker 1: have industries like like the community, the broader communications industries, 392 00:22:19,320 --> 00:22:25,440 Speaker 1: the consumer staples industries, energy, healthcare. They're relatively fragmented. And 393 00:22:25,640 --> 00:22:29,560 Speaker 1: if there's an emphasis on domestic growth, which is what 394 00:22:29,680 --> 00:22:33,800 Speaker 1: the Republican agenda seems to to want to emphasize, then 395 00:22:33,920 --> 00:22:37,520 Speaker 1: within our country there's there's there's plenty of potential for 396 00:22:37,520 --> 00:22:40,760 Speaker 1: for some of these industries to to see in market consolidation. 397 00:22:41,200 --> 00:22:43,320 Speaker 1: We think you could get back to sort of an 398 00:22:43,359 --> 00:22:46,400 Speaker 1: all time high in in M and A um as 399 00:22:46,480 --> 00:22:49,159 Speaker 1: as we go into next year. Again George boy with us. 400 00:22:49,160 --> 00:22:52,240 Speaker 1: As we look at yield up, price um down? What 401 00:22:52,280 --> 00:22:55,440 Speaker 1: do you do with duration? Now? Somebody walks into Wells 402 00:22:55,480 --> 00:22:58,640 Speaker 1: Fargo they got their pot of money. Do you ladder 403 00:22:58,840 --> 00:23:01,720 Speaker 1: into a portfall? Yo? Do you? I love this? John 404 00:23:01,760 --> 00:23:07,680 Speaker 1: Tuco help me? Do you barbell strategy? Do you pile 405 00:23:07,760 --> 00:23:09,960 Speaker 1: it all in the eighty year Austrian paper? What do 406 00:23:10,040 --> 00:23:13,320 Speaker 1: you do? Well? I think you I think as as 407 00:23:13,320 --> 00:23:15,720 Speaker 1: you point, if you're an individual coming in, I think 408 00:23:15,760 --> 00:23:18,200 Speaker 1: I think the laddering strategy makes a lot of sense. 409 00:23:18,240 --> 00:23:21,919 Speaker 1: I think the emphasis should be on shorter durations, so 410 00:23:22,160 --> 00:23:26,680 Speaker 1: shorter maturity profiles. Rates have gone up materially, so there 411 00:23:26,720 --> 00:23:30,119 Speaker 1: are more attractive yields as you go out along the 412 00:23:30,200 --> 00:23:34,040 Speaker 1: yield curve, but our expectations those yields should continue to 413 00:23:34,119 --> 00:23:37,080 Speaker 1: go up. And as we just mentioned, there's a big 414 00:23:37,160 --> 00:23:40,920 Speaker 1: if hanging over you know, a lot of decisions right now. 415 00:23:40,920 --> 00:23:44,080 Speaker 1: But if the government is going to be much more 416 00:23:44,119 --> 00:23:48,159 Speaker 1: aggressive in its borrowing and spending strategies, that tends to 417 00:23:48,240 --> 00:23:50,800 Speaker 1: push yields up over time. So we would be a 418 00:23:50,840 --> 00:23:53,440 Speaker 1: little bit more conservative out at the longer end of 419 00:23:53,480 --> 00:23:57,280 Speaker 1: the curve. But shorter duration profiles, especially in the world 420 00:23:57,280 --> 00:24:00,359 Speaker 1: of corporate bonds like like high yield um make a 421 00:24:00,359 --> 00:24:02,520 Speaker 1: lot of sense. The the average yield on on a 422 00:24:02,600 --> 00:24:05,119 Speaker 1: high yield fund is roughly about six and a half 423 00:24:05,200 --> 00:24:07,800 Speaker 1: maybe as high at seven percent, depending on the fund 424 00:24:08,320 --> 00:24:12,320 Speaker 1: and those durations. The maturity profile tends to be between 425 00:24:12,400 --> 00:24:15,560 Speaker 1: say two and five years, so you will you will 426 00:24:15,600 --> 00:24:18,840 Speaker 1: earn a lot of income that can offset both the 427 00:24:18,880 --> 00:24:23,280 Speaker 1: price volatility as well as some potential decline in in 428 00:24:23,440 --> 00:24:26,560 Speaker 1: some of the prices. So over time you'll still you'll 429 00:24:26,560 --> 00:24:31,120 Speaker 1: still generate a meaningfully positive return despite the fact that 430 00:24:31,119 --> 00:24:34,480 Speaker 1: that yields more broadly or going up. So I think 431 00:24:34,520 --> 00:24:37,080 Speaker 1: that's actually not not a bad place to to put 432 00:24:37,119 --> 00:24:39,720 Speaker 1: your money. Right now, you're sticking with investment grade right now? 433 00:24:39,720 --> 00:24:42,080 Speaker 1: Are you looking at high yield? What about that difference? 434 00:24:42,720 --> 00:24:45,560 Speaker 1: We like high yield over investment grade for that exact reason. 435 00:24:45,640 --> 00:24:48,480 Speaker 1: High yield number one, as it states, has got a 436 00:24:48,560 --> 00:24:50,600 Speaker 1: much higher yield that you know, call it six and 437 00:24:50,640 --> 00:24:55,280 Speaker 1: a half percent, It's got a shorter maturity profile. And importantly, 438 00:24:55,440 --> 00:24:57,720 Speaker 1: the companies that make up the world of high yield 439 00:24:57,800 --> 00:25:02,040 Speaker 1: are very domestically focused, and we think that's an important distinction. 440 00:25:02,480 --> 00:25:05,320 Speaker 1: The investment grade world tends to be much more global 441 00:25:05,359 --> 00:25:09,440 Speaker 1: and international in scope. It also has a much longer duration, 442 00:25:09,560 --> 00:25:12,479 Speaker 1: so more like a ten year maturity, and the average 443 00:25:12,520 --> 00:25:16,000 Speaker 1: yield on an investment grade fund is roughly about three 444 00:25:16,119 --> 00:25:20,240 Speaker 1: point four per cent, So there's some very big differences. 445 00:25:20,320 --> 00:25:22,399 Speaker 1: And if you're an individual, I think you want the 446 00:25:23,080 --> 00:25:26,680 Speaker 1: higher yield, the shorter duration, and the US emphasis. George, 447 00:25:26,720 --> 00:25:28,959 Speaker 1: thank you so much. Jorge will thank you. Guys. The 448 00:25:29,000 --> 00:25:45,600 Speaker 1: reality of christ lower yields higher is old to speak 449 00:25:45,640 --> 00:25:48,720 Speaker 1: to our global audience and those of you worldwide. You 450 00:25:48,800 --> 00:25:51,480 Speaker 1: have to see it to believe it. I was on 451 00:25:51,720 --> 00:25:54,480 Speaker 1: I think fifties sixth Street over in Madison, trying to 452 00:25:54,480 --> 00:25:56,800 Speaker 1: get to the suit store, the good people at Oxford 453 00:25:57,240 --> 00:26:00,000 Speaker 1: Clothes who make my suits, and I couldn't get there. 454 00:26:00,640 --> 00:26:03,000 Speaker 1: I was blocked, you know, as police officer said, where 455 00:26:03,000 --> 00:26:05,920 Speaker 1: are you going? This is behind the Trump Tower. I said, 456 00:26:05,960 --> 00:26:07,800 Speaker 1: I want to go to Oxford close and they let 457 00:26:07,800 --> 00:26:09,879 Speaker 1: me through. But that's how much it took me to 458 00:26:09,920 --> 00:26:13,400 Speaker 1: get through the door. Mortimer Singer knows a lot about traffic. 459 00:26:14,000 --> 00:26:18,040 Speaker 1: He's with Trout, of course, iconic in New York retailing, 460 00:26:18,520 --> 00:26:22,399 Speaker 1: but with just a terrific experience of the grind of 461 00:26:22,480 --> 00:26:25,680 Speaker 1: retail mart Singer thrilled day. Have you on have you 462 00:26:25,840 --> 00:26:32,880 Speaker 1: ever seen anything like what Midtown retails going through right now? Uh? Well, 463 00:26:33,000 --> 00:26:36,399 Speaker 1: Fussel's good to be with you, guys, Hi, Tom Um, 464 00:26:36,440 --> 00:26:41,719 Speaker 1: I have not, and I'm particularly conscious of Tiffany, of 465 00:26:41,760 --> 00:26:45,800 Speaker 1: Gucci and of Apercrombie and Fitch that are immediately adjacent 466 00:26:45,840 --> 00:26:49,639 Speaker 1: to and in Gucci's case, inside Trump Tower. H and 467 00:26:49,680 --> 00:26:52,600 Speaker 1: I think in fact is closed and during the holiday season, 468 00:26:52,600 --> 00:26:55,040 Speaker 1: so you can imagine what that's doing for for those 469 00:26:55,080 --> 00:26:57,119 Speaker 1: three companies. I mean to give an idea of folks. 470 00:26:57,160 --> 00:27:01,119 Speaker 1: Morts Singer's vice chairman of the French instant to Aliance Franca, 471 00:27:01,320 --> 00:27:05,600 Speaker 1: which is like three streets above all these madness. Tiffany's 472 00:27:05,640 --> 00:27:09,120 Speaker 1: out with their rings today says there has been an effect. 473 00:27:09,520 --> 00:27:12,000 Speaker 1: Do you think it will be folded into other companies 474 00:27:12,119 --> 00:27:18,040 Speaker 1: retail reports? Oh, I think in particular Abercrombie that's a 475 00:27:18,040 --> 00:27:21,240 Speaker 1: big store for them, um, and that Gucci store is 476 00:27:21,280 --> 00:27:24,879 Speaker 1: not in significant either. But then if the blast radius 477 00:27:24,880 --> 00:27:26,960 Speaker 1: of this goes down Fifth Avenue and up as well, 478 00:27:27,040 --> 00:27:30,480 Speaker 1: so um, it will be interesting to see what they say. 479 00:27:30,640 --> 00:27:33,280 Speaker 1: Astonishing for me more' seeing to walk down Fifth Avenue 480 00:27:33,320 --> 00:27:35,520 Speaker 1: look at these stores, look at these flagship stories and 481 00:27:35,520 --> 00:27:37,639 Speaker 1: see the amount of money that's been poured into making 482 00:27:37,680 --> 00:27:40,040 Speaker 1: them what they are today. What are these companies to 483 00:27:40,119 --> 00:27:43,360 Speaker 1: do in light of what they're saying with regard to security. Well, 484 00:27:43,400 --> 00:27:46,360 Speaker 1: I was hoping. I was talking about it just yesterday 485 00:27:46,359 --> 00:27:50,960 Speaker 1: actually regarding business interruption insurance and whether it's qualified. These 486 00:27:51,000 --> 00:27:54,480 Speaker 1: companies are spending you know, upputs of a thousand dollars 487 00:27:54,520 --> 00:27:57,600 Speaker 1: of foot to build out these locations. Not only that 488 00:27:57,960 --> 00:28:00,840 Speaker 1: they have to they have to pay rent that you know, 489 00:28:00,880 --> 00:28:03,080 Speaker 1: on the ground floor it can reach two thousand dollars 490 00:28:03,080 --> 00:28:06,359 Speaker 1: a foot. So, uh, they're really marketing engines. And if 491 00:28:06,400 --> 00:28:09,600 Speaker 1: you don't get the eyeballs to within the vicinity to 492 00:28:09,720 --> 00:28:12,320 Speaker 1: see those billboards, this is not just about retail sales 493 00:28:12,359 --> 00:28:14,520 Speaker 1: about it's about being a billboard to send people to 494 00:28:14,560 --> 00:28:18,040 Speaker 1: your website. Um, it's a it's a it's a tough proposition. 495 00:28:18,160 --> 00:28:21,240 Speaker 1: So we'll have to see how the security concerns actually 496 00:28:21,280 --> 00:28:23,679 Speaker 1: affect up the Fifth Avenue because it's a it's a 497 00:28:23,720 --> 00:28:27,240 Speaker 1: real mecca for commerce in this city. It's about getting 498 00:28:27,240 --> 00:28:29,040 Speaker 1: people to the website, you say, And I think this 499 00:28:29,160 --> 00:28:32,320 Speaker 1: bears explanation. We hear so much talk in other parts 500 00:28:32,359 --> 00:28:35,160 Speaker 1: of the retail sector about how there's a movement from 501 00:28:35,640 --> 00:28:37,840 Speaker 1: brick and mortar stories to the online space when you're 502 00:28:37,840 --> 00:28:40,320 Speaker 1: looking at high end retail. Is that simply not happening 503 00:28:40,320 --> 00:28:41,920 Speaker 1: and is it not going to happen? Are these stories 504 00:28:41,960 --> 00:28:44,000 Speaker 1: are going to continue to be as important as they 505 00:28:44,000 --> 00:28:48,000 Speaker 1: have been? Oh? I think you will see absolutely a 506 00:28:48,040 --> 00:28:52,320 Speaker 1: big migration. In fact, the online luxury online UM sales 507 00:28:52,320 --> 00:28:56,760 Speaker 1: are set to double by There are many marketplaces like 508 00:28:56,880 --> 00:29:00,960 Speaker 1: Orchard Mile and far Fetch and Lift who are activating 509 00:29:01,680 --> 00:29:05,240 Speaker 1: e commerce for luxury brands UM, and that's going to continue. 510 00:29:05,320 --> 00:29:07,800 Speaker 1: I think that also UM. You know, they've been a 511 00:29:07,840 --> 00:29:10,920 Speaker 1: little slow, frankly, the luxury brands in getting up to 512 00:29:10,960 --> 00:29:13,320 Speaker 1: speed with the rest of the industry on this because 513 00:29:13,360 --> 00:29:18,080 Speaker 1: they felt that e commerce by definition was somewhat too 514 00:29:18,160 --> 00:29:21,840 Speaker 1: broad a distribution. Now they're seeing that e commerce is 515 00:29:21,880 --> 00:29:24,240 Speaker 1: about service, so they're all deciding that they need to 516 00:29:24,280 --> 00:29:26,440 Speaker 1: get on the bandwagon. So it's going to be increasingly 517 00:29:26,480 --> 00:29:28,760 Speaker 1: important and you're seeing it happen a lot. What are 518 00:29:28,800 --> 00:29:31,720 Speaker 1: you watching for this retail season? What is the distinctive 519 00:29:31,800 --> 00:29:36,400 Speaker 1: feature as we dive into December? Well, mobile, you know, 520 00:29:36,880 --> 00:29:42,280 Speaker 1: mobile traffic has now for the first time. UM been 521 00:29:42,560 --> 00:29:46,240 Speaker 1: the major door for digital used to be obviously desktop. 522 00:29:46,360 --> 00:29:49,400 Speaker 1: It's now no longer the case. Uh. In fact, even 523 00:29:49,520 --> 00:29:52,480 Speaker 1: at the Thanksgiving table, I mean people thirty percent of 524 00:29:52,520 --> 00:29:58,480 Speaker 1: consumers said they were shopping at Thanksgiving table. I'm so 525 00:29:58,640 --> 00:30:01,800 Speaker 1: that's what my kids were doing. Es what they were 526 00:30:01,840 --> 00:30:03,840 Speaker 1: doing when you said I want another bow tie it, Tom, 527 00:30:03,880 --> 00:30:05,959 Speaker 1: they said they would get it under the table and then, 528 00:30:06,080 --> 00:30:13,760 Speaker 1: you know, anything to avoid talk mart Singer. There there's 529 00:30:13,840 --> 00:30:17,479 Speaker 1: Mr Tucker has the correct analysis as well. In the 530 00:30:17,520 --> 00:30:20,000 Speaker 1: midst of the retail season. Always good to speak with 531 00:30:20,040 --> 00:30:23,560 Speaker 1: Mortimer Singer, chief executive officer of TROUB. We've been talking 532 00:30:23,600 --> 00:30:27,120 Speaker 1: about Trump fifth avenue of the President elect. Now we 533 00:30:27,240 --> 00:30:31,959 Speaker 1: turn to the real war that's going on. Uh. In 534 00:30:32,000 --> 00:30:35,960 Speaker 1: case you didn't know this, David DVF has the DVF 535 00:30:36,160 --> 00:30:41,840 Speaker 1: Vierra Lace dress four dollars. You can't get it at Bloomingdale's. 536 00:30:41,840 --> 00:30:43,560 Speaker 1: You can't. You have to go to the meat packing 537 00:30:43,640 --> 00:30:45,760 Speaker 1: because we gotta go to the DVF store, which we've 538 00:30:45,800 --> 00:30:49,520 Speaker 1: done to the light of the lightning of our wallet. More. 539 00:30:49,720 --> 00:30:53,560 Speaker 1: This is serious stuff. Course, Michael Cores, coach DVF, have 540 00:30:53,760 --> 00:30:57,080 Speaker 1: just said enough to the department stores. Are they going 541 00:30:57,120 --> 00:31:00,920 Speaker 1: to have any dresses to sell in five years? Well, look, 542 00:31:01,120 --> 00:31:02,360 Speaker 1: at the end of the day, this is the double 543 00:31:02,480 --> 00:31:05,760 Speaker 1: edged sword. I mean, everyone's got to balance brand equity 544 00:31:05,840 --> 00:31:09,840 Speaker 1: against chasing a P and L. And those things are 545 00:31:10,120 --> 00:31:15,160 Speaker 1: obviously sometimes at odds. Brand equity meaning preserving one's one's 546 00:31:15,200 --> 00:31:18,880 Speaker 1: image and brand and therefore discounting maybe being at odds 547 00:31:18,920 --> 00:31:21,600 Speaker 1: with that. But obviously the department store channel is a 548 00:31:21,760 --> 00:31:24,000 Speaker 1: huge driver of business and I would say, in most 549 00:31:24,040 --> 00:31:28,000 Speaker 1: cases still the largest single channel for anybody. Um. And therefore, 550 00:31:28,440 --> 00:31:31,920 Speaker 1: you know, being somewhat emotional about what discounting means to 551 00:31:31,960 --> 00:31:35,680 Speaker 1: the consumer, which is effectively, um, you know, something that 552 00:31:35,720 --> 00:31:38,960 Speaker 1: they expect, something that they look for, um, you know, 553 00:31:39,000 --> 00:31:42,360 Speaker 1: the consumer will will jump around. And so the brands 554 00:31:42,400 --> 00:31:46,360 Speaker 1: are trying to obviously reconcile their pricing. That's absolutely normal. 555 00:31:46,560 --> 00:31:48,560 Speaker 1: They have their own channels, the distribution, they have their 556 00:31:48,600 --> 00:31:51,720 Speaker 1: own retail stores. Obviously now too, it's not just the 557 00:31:51,760 --> 00:31:54,280 Speaker 1: department stores that they depend on. So they're trying to 558 00:31:54,640 --> 00:31:59,160 Speaker 1: exert some control. And that's understandable given that will we 559 00:31:59,240 --> 00:32:03,120 Speaker 1: have departments to is in two, five, ten years, absolutely 560 00:32:03,120 --> 00:32:06,640 Speaker 1: we will have department stores. These these entities have the 561 00:32:06,800 --> 00:32:10,120 Speaker 1: most powerful and important real estate, and the major cities 562 00:32:10,160 --> 00:32:13,400 Speaker 1: in this country and around the world, the model might 563 00:32:13,480 --> 00:32:16,960 Speaker 1: shift somewhat from what's called an owned board model, which 564 00:32:17,040 --> 00:32:19,600 Speaker 1: is the when you buy at wholesale and sell at retail, 565 00:32:19,840 --> 00:32:22,280 Speaker 1: to maybe more of a blend of concession, which is 566 00:32:22,440 --> 00:32:25,880 Speaker 1: effectively shopping shops or leasing shops within department stores, which 567 00:32:25,960 --> 00:32:30,360 Speaker 1: is effectively what happens in Europe and in Asia. The 568 00:32:30,360 --> 00:32:33,920 Speaker 1: American model has predominantly been owned bought, so UM, I 569 00:32:33,960 --> 00:32:37,960 Speaker 1: think that the department stores are shifting the way they work. 570 00:32:38,080 --> 00:32:41,880 Speaker 1: Their obviously going to leverage that real estate because you know, 571 00:32:41,920 --> 00:32:45,800 Speaker 1: many of these department stores hold that real estate either 572 00:32:45,920 --> 00:32:49,479 Speaker 1: least or owned, at about three percent of revenue. If 573 00:32:49,480 --> 00:32:51,480 Speaker 1: you want to open a store on a street, your 574 00:32:51,720 --> 00:32:54,960 Speaker 1: occupancy cast will be about fifteen percent. So there's a 575 00:32:54,960 --> 00:32:58,240 Speaker 1: wonderful arbitrage there on occupancy costs, and they just have 576 00:32:58,360 --> 00:33:01,720 Speaker 1: to leverage the brand uh and get them into the store. 577 00:33:01,960 --> 00:33:04,800 Speaker 1: That was brilliantly explained about the difference in real estate 578 00:33:04,800 --> 00:33:08,240 Speaker 1: cars between the own shop and being in a department store. 579 00:33:08,600 --> 00:33:10,760 Speaker 1: If I look at this, then do you just assume 580 00:33:10,920 --> 00:33:14,960 Speaker 1: fewer stores are given sacks are given Bloomingdale's, I mean Burgdorf. 581 00:33:15,000 --> 00:33:17,040 Speaker 1: I guess there is one store, But is it just 582 00:33:17,080 --> 00:33:19,560 Speaker 1: going to be fewer stores? Is Bergdorf Goodman way out 583 00:33:19,600 --> 00:33:22,480 Speaker 1: front and where we're gone, Well we'll think about it. 584 00:33:22,520 --> 00:33:25,160 Speaker 1: In Burgdorf is owned by Neiman Marcus, and even Marcus 585 00:33:25,200 --> 00:33:27,880 Speaker 1: is going to open their first New York City store, 586 00:33:28,080 --> 00:33:31,360 Speaker 1: so the same group, same city at Hudson Yards in 587 00:33:31,680 --> 00:33:34,480 Speaker 1: two years. If you had told me five years ago 588 00:33:34,520 --> 00:33:37,280 Speaker 1: that before new department stores opened in New York City 589 00:33:37,280 --> 00:33:43,680 Speaker 1: by Sacks Norths from Barney's and the Nemon Marcus, I 590 00:33:43,720 --> 00:33:46,440 Speaker 1: would have probably told you you were wrong, and I 591 00:33:46,440 --> 00:33:49,720 Speaker 1: would have been wrong. And it's because cities are the 592 00:33:49,760 --> 00:33:52,280 Speaker 1: most important thing today. I mean the power of anchor 593 00:33:52,360 --> 00:33:56,959 Speaker 1: gateway cities like New York, London, Paris, Shanghai. People are 594 00:33:57,000 --> 00:33:59,560 Speaker 1: doubling down in those cities as other department stores and 595 00:33:59,560 --> 00:34:02,000 Speaker 1: out of the brand, which is why you know the 596 00:34:02,040 --> 00:34:06,080 Speaker 1: Fifth Avenue rents, notwithstanding the issues on up a Fifth, 597 00:34:06,880 --> 00:34:08,640 Speaker 1: are where they are. I mean they're at all time high, 598 00:34:08,760 --> 00:34:12,080 Speaker 1: softening a little bit, but nonetheless it's incredibly high. Help 599 00:34:12,120 --> 00:34:17,080 Speaker 1: me understand the aspirational reach of high end retail. I 600 00:34:17,120 --> 00:34:19,560 Speaker 1: think of what you've been saying about department stories, about 601 00:34:19,560 --> 00:34:22,640 Speaker 1: the migration to the online space. I would think I'd 602 00:34:22,680 --> 00:34:24,799 Speaker 1: be more likely to go into a department store and 603 00:34:24,840 --> 00:34:27,400 Speaker 1: buy a pair of Gucci loafers. I know Tom is 604 00:34:27,440 --> 00:34:29,360 Speaker 1: more comfortable going to the store itself, but it seems 605 00:34:29,400 --> 00:34:31,360 Speaker 1: like I would be willing to do that. I'd be 606 00:34:31,360 --> 00:34:32,920 Speaker 1: willing to do it online more so than to go 607 00:34:32,960 --> 00:34:35,200 Speaker 1: into a boutique where I'm going to have to deal 608 00:34:35,280 --> 00:34:38,640 Speaker 1: with or interact with, you know, four or five sales 609 00:34:38,680 --> 00:34:42,000 Speaker 1: personnel in the store. Do high end retailers like the 610 00:34:42,040 --> 00:34:44,960 Speaker 1: fact that they have some aspirational reach to people who 611 00:34:45,000 --> 00:34:47,759 Speaker 1: may not be at high end retailers all the time. Well, 612 00:34:47,840 --> 00:34:52,040 Speaker 1: I think you just articulate that incredibly eloquently, because if 613 00:34:52,040 --> 00:34:55,200 Speaker 1: you think about what you just said, there are horses 614 00:34:55,239 --> 00:34:58,640 Speaker 1: for courses, and some people are prefer the more approachable 615 00:34:59,160 --> 00:35:02,080 Speaker 1: environment of a depot art and store. They get special 616 00:35:02,120 --> 00:35:05,080 Speaker 1: points for their loyalty, they can use those points for 617 00:35:05,120 --> 00:35:08,719 Speaker 1: experiences or discounts, and it's there's in some cases there 618 00:35:08,719 --> 00:35:13,840 Speaker 1: are more approachable sales and stuff in a boutique. I 619 00:35:13,880 --> 00:35:17,040 Speaker 1: would say that it's somewhat different. It's more intimidating, it's 620 00:35:17,040 --> 00:35:21,440 Speaker 1: a little bit more um sort of an environment that 621 00:35:21,560 --> 00:35:24,279 Speaker 1: is somewhat more daunting because of the build out, and 622 00:35:24,320 --> 00:35:28,920 Speaker 1: therefore it imposes luxury and quality and therefore price. The 623 00:35:28,920 --> 00:35:32,160 Speaker 1: assumption is this looks very expensive. That's why I'd rather 624 00:35:32,160 --> 00:35:35,719 Speaker 1: go somewhere else. And I think that the channels live 625 00:35:35,920 --> 00:35:38,680 Speaker 1: together and should flourish together, because at the end of 626 00:35:38,680 --> 00:35:41,680 Speaker 1: the day, everyone talks about omni channel, but it's really 627 00:35:41,800 --> 00:35:45,200 Speaker 1: uni channel. It's it's one pipe of commerce, and some 628 00:35:45,280 --> 00:35:48,480 Speaker 1: customers prefer it in one place and some in another. 629 00:35:49,280 --> 00:35:52,680 Speaker 1: What will Amazon do next year? From where you sit 630 00:35:52,760 --> 00:35:56,239 Speaker 1: with trub and consulting all of retail, what would you 631 00:35:56,280 --> 00:36:00,440 Speaker 1: suggest as Amazon's retail fashion ploy if you will for 632 00:36:00,520 --> 00:36:06,719 Speaker 1: next year. Amazon is making strides into this space. It's 633 00:36:06,760 --> 00:36:10,640 Speaker 1: something that's saluted them. I doubt that they will be 634 00:36:10,719 --> 00:36:14,200 Speaker 1: able to do it um with their own name, but 635 00:36:14,280 --> 00:36:17,600 Speaker 1: that said, they're plumbing. Their infrastructure is second to none 636 00:36:17,640 --> 00:36:21,000 Speaker 1: in this country when it comes to e commerce, digital marketing, 637 00:36:21,160 --> 00:36:25,240 Speaker 1: the reach of their prime customer that's an affluent customer 638 00:36:25,440 --> 00:36:28,799 Speaker 1: as well UM and I believe that they will be 639 00:36:28,880 --> 00:36:32,520 Speaker 1: able to and I expect them to over time bolton 640 00:36:32,600 --> 00:36:37,520 Speaker 1: acquisitions that will be have the the face or the 641 00:36:37,600 --> 00:36:41,920 Speaker 1: skin of of a different brand, but be powered by 642 00:36:41,960 --> 00:36:44,520 Speaker 1: by Amazon, and I would not be surprised if that 643 00:36:44,520 --> 00:36:46,560 Speaker 1: would have happened. What Singer, thank you so much was 644 00:36:46,600 --> 00:36:49,200 Speaker 1: the mone retail here as we dive into the season, 645 00:36:49,280 --> 00:36:51,200 Speaker 1: David Gura, I mean, I just has your name on it. 646 00:36:51,280 --> 00:36:56,240 Speaker 1: The d V of Heaven wrap Ground Heaven name Heaven 647 00:36:56,320 --> 00:36:59,720 Speaker 1: is spelled h e a v y n, which means 648 00:37:00,320 --> 00:37:05,040 Speaker 1: your wallet will be like the DVF Heaven h e 649 00:37:05,120 --> 00:37:09,120 Speaker 1: a v y n. You know, I was at the 650 00:37:09,160 --> 00:37:12,520 Speaker 1: Allen Company conference in sun Valley, Diane person Burgley. There 651 00:37:12,520 --> 00:37:14,120 Speaker 1: she opened a pop up store and I could not 652 00:37:14,200 --> 00:37:17,680 Speaker 1: bring myself to go in, despite the lure of the 653 00:37:17,680 --> 00:37:20,439 Speaker 1: head of the brand herself and the free champagne pop 654 00:37:20,520 --> 00:37:24,319 Speaker 1: up store store at the conference, and it was it 655 00:37:24,400 --> 00:37:27,360 Speaker 1: was well attended. She brought in a ton of clothes 656 00:37:27,400 --> 00:37:29,560 Speaker 1: and a ton of people to to wear them and 657 00:37:29,600 --> 00:37:31,920 Speaker 1: sell them. We like to do it. Thank you to more, Singer. 658 00:37:39,239 --> 00:37:43,640 Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and 659 00:37:43,680 --> 00:37:48,759 Speaker 1: listen to interviews on iTunes, SoundCloud, or whichever podcast platform 660 00:37:48,880 --> 00:37:52,440 Speaker 1: you prefer. I'm out on Twitter at Tom Keene. David 661 00:37:52,480 --> 00:37:56,160 Speaker 1: Gura is at David Gura before the podcast. You can 662 00:37:56,280 --> 00:38:11,239 Speaker 1: always catch us worldwide. I'm Bloomberg Radio m H. Who 663 00:38:11,360 --> 00:38:15,080 Speaker 1: you put your trust in matters. Investors have put their 664 00:38:15,080 --> 00:38:18,440 Speaker 1: trust in independent registered investment advisors to the tune of 665 00:38:18,520 --> 00:38:23,480 Speaker 1: four trillion dollars. Why Learn more and find your independent 666 00:38:23,520 --> 00:38:26,960 Speaker 1: advisor dot com.