Speaker 1: Who you put your trust in matters. Investors have put
Speaker 1: their trust in independent registered investment advisors to the tune
Speaker 1: of four trillion dollars. Why learn more and find your
Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best in economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and
Speaker 1: of course on the Bloomberg So a good amount of
Speaker 1: time this morning with Adam Posen of the Peterson Institute.
Speaker 1: He has taken over from Fred Burgston brought in all
Speaker 1: sorts of top like talent, including Olivia Blanchard of I
Speaker 1: am f in the Massachusetts Institute of Technology. Dr Posen,
Speaker 1: Good morning, eighteen things to speak to you about. Let
Speaker 1: me start with Europe because I know David wants to
Speaker 1: get to American economics as well. You are a congenital optimist.
Speaker 1: Can you be optimistic on Italy clearing its social and
Speaker 1: political psyche and markets? Of a genital optimist? Mr Keane
Speaker 1: with low expectation, so I'm always satisfied. Um, I think
Speaker 1: Italy can clear this mess in the banking system. I
Speaker 1: think Italy can continue to be aggressive about its fiscal situation,
Speaker 1: as it has been running a primary surplus for quite
Speaker 1: some time. I think getting Italy beyond that into a growing, vital,
Speaker 1: lively economy is a much harder task. I mean, David,
Speaker 1: this is a critical issue. Just Stiglets among others taking
Speaker 1: a basic Frankly blench had like equation and in the
Speaker 1: denial dominator David Gurry is this strange little g and
Speaker 1: if the little G doesn't go, the rest of the
Speaker 1: equation doesn't matter. That's all there is to it. Let
Speaker 1: me bring it to to the US is as Tom promised,
Speaker 1: and and Dr Posen. I wonder if we are any
Speaker 1: closer to having a definition of what trump ponomics is.
Speaker 1: I think we are. Um, we can always hope it changes,
Speaker 1: both in the sense that what it is isn't very
Speaker 1: good and in the sense that every president shouldn't be
Speaker 1: stuck with accusations of hypocrisy when we want them to
Speaker 1: learn and adapt. But trump ponomics right now seems to
Speaker 1: have several components, and the key guiding philosophy is that
Speaker 1: it's actually a very arbitrary interventionist for economics, it's far
Speaker 1: from conservative, far from market. Whether it's in trade deals
Speaker 1: they're trying to target particular deals about particular countries on
Speaker 1: a bilateral basis, in particular industries, whether it's deregulating specific
Speaker 1: industry in specific ways, like they plan to do with energy,
Speaker 1: including coal, Whether it's a tax code that's designed to
Speaker 1: favor specific groups of people, like people with large inheritances.
Speaker 1: I mean it is it is a economics that either
Speaker 1: genuinely believes or rationalizes such behavior as better outcomes than
Speaker 1: letting either the market work or having general economic principles,
Speaker 1: and most economists don't buy it. Is it something wholly
Speaker 1: new or can you trace its evolution to to other
Speaker 1: schools of economics? Um you, I'm about to say something
Speaker 1: that that is going to sound more political than I
Speaker 1: mean it to be. It is not dissimilar from what
Speaker 1: Peron did in Argentina, or Mussolini did in Italy, or
Speaker 1: various more recent Latin American populist movements did in the
Speaker 1: seventies and eighties nineties. My colleague at Peterson Institute, thanks
Speaker 1: Tom for the shout out. Monica Dbolah just wrote a
Speaker 1: very prerogative essay for us that's gotten a lot of play.
Speaker 1: Taking lessons from the crack up in Brazil over the
Speaker 1: last few years, where they used the bnd S National
Speaker 1: Bank as a piggy bank for particular projects and chrony capitalism,
Speaker 1: We've seen something similar occasionally in Asia Indonesia before the
Speaker 1: the economic crisis. I mean, again, I'm not trying to
Speaker 1: just put labels on things, but when you have a
Speaker 1: government that is committed to targeting specific industries, deals, businesses
Speaker 1: through individual deal making by the people in power, even
Speaker 1: if you don't accuse them of corruption, you are distorting
Speaker 1: the economic system. When you look at this infrastructure package, Uh,
Speaker 1: it's been floated, hasn't been proposed, but it's been floated.
Speaker 1: Do you do you think that it's too light to
Speaker 1: have a debate over its its merits and efficacy or
Speaker 1: we will pass that. No. No, I think it's absolutely
Speaker 1: the right time to have a debate about it. It
Speaker 1: hasn't gone to Congress yet, and hope that Speaker Ryan
Speaker 1: and the leadership on both sides of the Aisle gives
Speaker 1: us a constructive debate. I mean, broadly speaking, the idea
Speaker 1: that there is a huge load of infrastructure to be
Speaker 1: done in the US, that we haven't kept up with
Speaker 1: needs and that there could be job benefits from doing
Speaker 1: so in an environmental low interest rates is something I
Speaker 1: think almost everybody can agree on. The question is how
Speaker 1: much of the money is spent on things that are
Speaker 1: targeted that our finite and involved maintenance and rebuilding, as
Speaker 1: my colleague of a blood Chart has said, versus how
Speaker 1: many things are handouts to private sector people who were
Speaker 1: going to do projects anyways, and you just subsidize the
Speaker 1: projects they're doing. It's also a question of how much
Speaker 1: productivity gain you get out the other end, and you
Speaker 1: know some you're never going to get a winner on
Speaker 1: every project, but you want to have a portfolio of
Speaker 1: projects that's broadly conducing to productivity gains. That remains to
Speaker 1: be debated and specificy rat felt choice that he's the
Speaker 1: CEO of NASDAC head of an event this morning the
Speaker 1: Council inform E Legends will be speaking with our editor
Speaker 1: in chief John mcilcoy about the the effective the U
Speaker 1: S presidential election, the Bregs referendum and and all of
Speaker 1: that on market. So let's start there, and with all
Speaker 1: the volatility we've seen. Is this the new normal? The
Speaker 1: volatle markets? We've been saying, well, I think we've been
Speaker 1: through a period of time of depressed volatility, so I
Speaker 1: think the new normal would be back to what I
Speaker 1: would call normal. So we expect volatility to be higher
Speaker 1: than it has been the last three to four years.
Speaker 1: What you know, You you look at the Brekes reference,
Speaker 1: you look at what we we've seen here after the
Speaker 1: US presidential election telegraph for us. What you think investors
Speaker 1: are thinking of what they were thinking on election night? Well,
Speaker 1: I think what was impressive to me is the market
Speaker 1: quickly realized that they had elected a pro business president.
Speaker 1: So you had the emotion associated with other issues that
Speaker 1: quickly went to the background said okay, we have now
Speaker 1: a president who wants to be pro business, and the
Speaker 1: market responded accordingly. I also think the market responded intelligently
Speaker 1: in that certain stocks to particularly well, uh, you know,
Speaker 1: better than the market recognizing where the pro business policies
Speaker 1: might lead us. It wasn't long after the election that
Speaker 1: you saw on the transition team's website their first priority.
Speaker 1: The first thing they posted was about their desire to
Speaker 1: do away with with Dodd Frank. What is the regulatory landscape.
Speaker 1: What does that terrain look like once Donald Trump becomes president. Well,
Speaker 1: I believe when Donald Trump becomes president, you'll see a
Speaker 1: period of refinement as opposed to replacement. So clearly Dodd
Speaker 1: Frank has many areas that need improvement, and hopefully the
Speaker 1: focus is on that. But like anything else, there's parts
Speaker 1: of there are fine, parts of it are okay or good,
Speaker 1: and hopefully that stays. Take through a few of those
Speaker 1: if you would, you you've watched this unfold, You've watched
Speaker 1: the implementation of that law through the rule writing and
Speaker 1: the votes and the more rule writing. What should stay
Speaker 1: in your mind? What's worked well and what are the
Speaker 1: deficits as you see in Well, I would say anything
Speaker 1: that brings transparency to markets is good. Right as NAZAC,
Speaker 1: we believe in trans parent markets. So we saw increased
Speaker 1: transparency in the market. Anything that restricts liquidity coming into
Speaker 1: the markets we put in the bad categories. So you
Speaker 1: have different rules Vulker and others that really hamper the
Speaker 1: bank's ability to support and really make the markets more
Speaker 1: deep and liquid. What's your relationship been like thus far
Speaker 1: with the with the President elect, with the transition team,
Speaker 1: I imagine they are curious about what you and others
Speaker 1: think should happen. Have come January? Well, I think they're
Speaker 1: very busy and not so much focused on where the
Speaker 1: exchanges are right now, but I think that will be
Speaker 1: uh An increased topic is some of the you know
Speaker 1: what i'll call the headline and appointments and our issues
Speaker 1: have put to bed? Is that is the relationship between
Speaker 1: New York other financial capitals in Washington better than it
Speaker 1: had been? Or do is that that geographic divide still
Speaker 1: something that needs to be overcome. I think it's somewhat
Speaker 1: needs to be overcome. I mean, we definitely had a period,
Speaker 1: We've been through a period of time where everything has
Speaker 1: been centered around Washington and US in the financial center
Speaker 1: in New York has seen as somewhat the big evil. Uh.
Speaker 1: So hopefully we'll enter a time where you have a
Speaker 1: more productive working relationship with the policymakers down in Washington. Bob,
Speaker 1: I see Hunter Maritime acquisition, which I guess was an
Speaker 1: I p O that the NAS deck did a week
Speaker 1: or so ago, And I don't want to nail you
Speaker 1: on it because it's all the detail here. I don't
Speaker 1: really don't understand it's a ball dry shipping thing, and
Speaker 1: that the exchanges in the markets are driven it seems
Speaker 1: by ETFs and by closed end funds and all that.
Speaker 1: Are they your friend or enemy at the NAS deck
Speaker 1: to financial engineered instruments get in the way of a
Speaker 1: better market in a better marketplace, I I don't believe so.
Speaker 1: So certainly you see the rise of passive investing, and
Speaker 1: I think that trend line will continue. I think you'll
Speaker 1: see a greater acceleration of what we call smart beta,
Speaker 1: that is passive, passively managed with some degree of intelligence
Speaker 1: to that. So I think that's represented a innovation in
Speaker 1: the marketplace I think has served investors very well. But
Speaker 1: the lifeblood of the market still is operating companies that
Speaker 1: come to market I pos that come to market, and
Speaker 1: obviously our established companies as they continue to grow. There
Speaker 1: was a period of time when I was talking with
Speaker 1: our ip O reporter here, Alex Brinka, and she was
Speaker 1: desperately hoping there would be some I p O action.
Speaker 1: We have a bit of a lull there for a while.
Speaker 1: What's what's the outlook for companies going public? Well, I
Speaker 1: would say two thousand sixteen is a year of quality.
Speaker 1: So If you look at the i p o s
Speaker 1: have come public this year, certainly they're down. We've had
Speaker 1: eighty five, so it's not non existent. We've made eighty
Speaker 1: five I p o s this year, but they're up.
Speaker 1: What do you something per cent since the I p
Speaker 1: O date and that's different shares you gave us were great?
Speaker 1: You know you know anything? Twins? Do you know that
Speaker 1: your twins? Your twins are all blind trusted with bob Byfield.
Speaker 1: There we go, We're we aimed to please Tom, so
Speaker 1: we're we're pleasing. So we've we've seen quality and I
Speaker 1: believe that the quality of the i p os in
Speaker 1: a given year is a predictor of the quantity of
Speaker 1: the I p o s in the following year. So
Speaker 1: I think two thousand seventeen, based on the quality of
Speaker 1: this year, will be a strong year fry p os.
Speaker 1: And we do see the calendar picking up, the backlog
Speaker 1: picking up. Obviously, external events can change that. If you
Speaker 1: look at it today, we're saying some building momentum. As
Speaker 1: you talked to two executives that companies considering going public,
Speaker 1: what's the biggest hurdle still is an uncertainty. What are
Speaker 1: they what are they saying to you, is they as
Speaker 1: they weigh that decision to go public. Well, one is
Speaker 1: you have to have structural reasons why you should go public,
Speaker 1: and uh you should not be focused on the particular
Speaker 1: openings of the windows or not. Right. We tend to
Speaker 1: focus then on the week or two before. But you know,
Speaker 1: do you need currency to make acquisitions, you need to
Speaker 1: provide liquidity for employees, you need liquidity to grow Those
Speaker 1: are the real reasons why you should come uh come public.
Speaker 1: One of the reasons you stop by today was to
Speaker 1: talk about technology and the idea of where does let's
Speaker 1: bring it to the nasdack. What's the next next for
Speaker 1: the exchanges in technology, particularly wrapped around dovetailing equity, more
Speaker 1: markets into derivative markets. Yeah, I would say this when
Speaker 1: we think about ourselves, we think of ourselves as a
Speaker 1: technology company, and we're spending a lot of time, effort,
Speaker 1: and money with respect to machine learning, big data. Uh,
Speaker 1: not so much artificial intelligence, but close to it. So
Speaker 1: you're seeing the ability of machine learning to really change
Speaker 1: the nature of how work is produced in financial services.
Speaker 1: So we're like that was the record jargon to learn
Speaker 1: for November. But there what translate that for us. I'm
Speaker 1: gonna try, Tom, I'm gonna try as far as I can.
Speaker 1: So the low hanging fruit we have is a surveillance.
Speaker 1: So right now, there's so much activity going on in
Speaker 1: the marketplace, and we have tools today that recognize patterns
Speaker 1: and say, okay, this pattern looks like something suspicious might
Speaker 1: be happening. There are so many false positives in those patterns.
Speaker 1: So now we want to put machine intelligence to that's
Speaker 1: okay based upon what I've learned in a dynamic fashion.
Speaker 1: This is not a positive of this is a negative,
Speaker 1: and then isolate down to things that should be focused on.
Speaker 1: The machine intelligence means a Bloomberg terminal, definitely, okay to
Speaker 1: the top of every pyramid table. You have been incredibly
Speaker 1: acquisitive over these last few years, acquiring exchanges and other companies. Yeah.
Speaker 1: Do you expect more of that to continue here as
Speaker 1: you look to become more focused on technology. We do.
Speaker 1: We have two types of acquisitions. The one that we
Speaker 1: focus on those that really add to our core business.
Speaker 1: So if you we've done four acquisitions so far this year,
Speaker 1: and there are businesses that we're in, and then we
Speaker 1: have obviously expense synergies associated with it, and its strengthens
Speaker 1: our strengthens our market positions in markets we've chosen to
Speaker 1: be leading competitors, and so yes, we'll expect that to continue.
Speaker 1: Robert Rai felt with nasty. Of course, thank you so much.
Speaker 1: Appreciate your great greatly greatly appreciate it as well. Who
Speaker 1: you put your trust in matters. Investors have put their
Speaker 1: trust in independent registered investment advisors to the tune of
Speaker 1: four trillion dollars. Why they see their role is to serve,
Speaker 1: not sell. That's why Charles Schwab is committed to the
Speaker 1: success of over seven thousand independent financial advisors who passionately
Speaker 1: dedicate themselves to helping people achieve their financial goals. Learn
Speaker 1: more and find your independent advisor dot com. George Bori
Speaker 1: is in charge of medication at Willis Figo. Kind of
Speaker 1: credit strategy. How bad he is it, George? How much
Speaker 1: blood is on the street or is it really a
Speaker 1: non event? What we've seen the last uh, I'll call
Speaker 1: it twenty days. Good morning everyone, h Well, there's been
Speaker 1: quite a bit of blood. Um. If you look at
Speaker 1: total returns across fixed income, they're down. They're down markedly.
Speaker 1: If you own a diversified treasury. You're down almost four
Speaker 1: on the quarter. Uh, And that's a pretty healthy loss
Speaker 1: for folks that are really not expecting a lot of losses.
Speaker 1: And the same can be said for you know, high
Speaker 1: quality bonds, the ones that are most closely attached or
Speaker 1: most closely linked to that sort of government like risk.
Speaker 1: But as you go further down the spectrum, as you
Speaker 1: go towards more risks in areas like high yield. The
Speaker 1: high yield bond markets down a quarter of a percent.
Speaker 1: It's still negative, and people don't want negative returns, but
Speaker 1: a quarter of a percent is not that bad in
Speaker 1: the world of bonds, when the highest quality bond is
Speaker 1: down almost four percent, and that kind of gives people
Speaker 1: some solace. David, good morning to Jack Vogel Vanguard. I
Speaker 1: just used folks as a proxy. The Vanguard Total Bond
Speaker 1: Market Fund down three point seven percent, David, down annualized
Speaker 1: from that third week of August where used my vacation.
Speaker 1: You mentioned Mr Vogel too, But I wonder, George, so
Speaker 1: how the institutional investor is playing us looking at what
Speaker 1: we're seeing in the spreads. So institutional investors they like
Speaker 1: higher yields. So you know, if you're a pension fund
Speaker 1: or if you're an insurance company, you're actually thankful that
Speaker 1: that yields are moving higher. You've probably harbored a lot
Speaker 1: of cash and you've been waiting for this moment. And
Speaker 1: so we've seen institutional investors actually start to buy the market.
Speaker 1: It's really the retail investor. The folks, the folks that
Speaker 1: maybe had money in a cash account or money market
Speaker 1: account and have been slowly creeping out what we'd call
Speaker 1: the risk spectrum, were now looking at some negative returns
Speaker 1: in their portfolio, and they've actually started a whole money
Speaker 1: out of out of mutual funds and even out of
Speaker 1: some of the e t f So there's there's a
Speaker 1: little bit of a battle, if you will, going on
Speaker 1: between the institutional investor and the retailers. Well well explained,
Speaker 1: but help me here. The institutional pros got cash for
Speaker 1: seven percent whatever they start putting it to work. I
Speaker 1: get that. But aren't they marking to at sixteen loss
Speaker 1: or decline in their port Uh? Not yet? Not yet.
Speaker 1: Full year returns are still are still strongly positive both
Speaker 1: in the in the world of corporate bonds, at least,
Speaker 1: Treasury is a little bit less so um and and
Speaker 1: and the addition to the other, the other sort of
Speaker 1: thing to consider. An institutional investor does tend to have
Speaker 1: a slightly long we're all short term investors at the
Speaker 1: end of the day, but they do tend to have
Speaker 1: a longer term horizon our profile. So a life insurance company,
Speaker 1: you know, is matching liabilities against long dated um UH investments,
Speaker 1: so they can take a slightly longer term UH time horizon.
Speaker 1: Not everyone can do it, but some can. What's your
Speaker 1: your outlook here, George, for for volatility and credit spread,
Speaker 1: what do you think they're gonna start to tighten? Well,
Speaker 1: credit spreads themselves have actually started to tighten um and
Speaker 1: again in at the higher end of the rating spectrum,
Speaker 1: where you're very closely linked to trade injuries, they've tightened
Speaker 1: a bit, you know, call it five to ten basis
Speaker 1: points um and and that's kind of to be expected.
Speaker 1: As as as negative returns kind of forced people out
Speaker 1: of the asset class, spreads will only tighten a little bit.
Speaker 1: So what we would say they're they're grinding tighter. But
Speaker 1: in the world of high yield, where your spreads can
Speaker 1: be anywhere from four to five to six hundred basis
Speaker 1: points above a typical treasury, those spreads can move much further. Uh,
Speaker 1: and they also tend to be kind of shorter in duration,
Speaker 1: so further further down the maturity spectrum. And we've actually
Speaker 1: seen high yield spreads, you know, come in thirty basis points,
Speaker 1: and I think there's plenty of potential for that to
Speaker 1: continue into next year. And the point about kind of
Speaker 1: institutional versus retail I think is critically important. The institutional
Speaker 1: investor base is bigger than the retail institutional base, but
Speaker 1: they just move more slowly. They're more disciplined in the
Speaker 1: sense that they have very specific investment requirement. So we're
Speaker 1: optimistic that credit spreads should do well. Um, they're going
Speaker 1: to be volatile when you have negative returns in the
Speaker 1: asset class, there's a lot of movement of money, but
Speaker 1: over time credit spreads should should tighten as yields going.
Speaker 1: Do you have a ten year yield equivalent to where
Speaker 1: retail says I can't take any more price decline? If
Speaker 1: we had two point four zero or two point five
Speaker 1: zero or two point seven zero, do you begin to
Speaker 1: see a lot of selling. So that's a great question
Speaker 1: historically about a negative a negative return of about three
Speaker 1: percent over a three month period, so it's's very easy
Speaker 1: to remember. Negative three over three months tends to start
Speaker 1: the flow of money out of the asset class. And
Speaker 1: that's exactly what's happened this time around. Are we seeing
Speaker 1: it yet? Yep, we've seen about right now you're running,
Speaker 1: uh roughly, let's call it. About a billion dollars a
Speaker 1: week is coming out of coredit. Okay, George, boy where
Speaker 1: us was all farger? That's exceptionally important, folks. I can't
Speaker 1: say enough, folks, how the street and the median and
Speaker 1: certainly Bloomberg surveillance quotes yield quotes, yield quotes, yield and
Speaker 1: there's a point where yields go up and all of
Speaker 1: a sudden, everybody, David Girls looking at their ship, going
Speaker 1: what's the price of that? David Gray here with Tom
Speaker 1: Keane on Bloomberg Surveillance. We're talking with George Barry had
Speaker 1: of credit strategy at Wells Farging. We have yet to
Speaker 1: talk about the presidential transition and the effect that may
Speaker 1: have here on the credit space. Give us give us
Speaker 1: your sense of what that looks like, George. So, I
Speaker 1: think the new administration has the potential to really I
Speaker 1: think help credit conditions. Um, if there's a big if
Speaker 1: that hangs all hangs over this. But if you know,
Speaker 1: if you're if you're going to see an increase in
Speaker 1: government spending and a loosening in regulatory constraints on certain industries,
Speaker 1: particularly in places like maybe healthcare as well as energy.
Speaker 1: Uh and in addition to that, you get you get
Speaker 1: tax cuts. You know, that has the potent chilled to
Speaker 1: be very stimulative for for the U. S economy. I
Speaker 1: think that trickle down effect to corporates could be very powerful.
Speaker 1: And uh, the trends we've seen over the past couple
Speaker 1: of years as companies have been really levering up their
Speaker 1: balance sheet, they're borrowing a lot of money to buy
Speaker 1: back stock to offset a very slow and sluggish growth backdrop.
Speaker 1: If we were to see a little bit of an
Speaker 1: uptick in growth in top line growth, in earnings, sorry,
Speaker 1: in sales, UM, that could be a very powerful um
Speaker 1: positive for for companies and companies credit worthiness. So we're
Speaker 1: encouraged going into next year, um, you know for for
Speaker 1: the corporate sector. And what does that mean for for
Speaker 1: mergers and acquisitions? If if we see Trump and omics.
Speaker 1: As we're thinking we're going to see again whether we're
Speaker 1: short on details here, what does that mean for M
Speaker 1: and A activity? So M and A has been been
Speaker 1: very robust over the past couple of years. The lower
Speaker 1: for longer or the low rate structure has encouraged companies
Speaker 1: to consolidate. UH and and industries to consolidate used a
Speaker 1: lot of relatively cheaply borrowed money to to fuel that
Speaker 1: M and A. You know, you've had well over a
Speaker 1: trillion dollars of closed M and A each year, last
Speaker 1: year and this year. UM. The prospect of more growth,
Speaker 1: I think actually accelerates that trend. UM. You know, you
Speaker 1: have industries like like the community, the broader communications industries,
Speaker 1: the consumer staples industries, energy, healthcare. They're relatively fragmented. And
Speaker 1: if there's an emphasis on domestic growth, which is what
Speaker 1: the Republican agenda seems to to want to emphasize, then
Speaker 1: within our country there's there's there's plenty of potential for
Speaker 1: for some of these industries to to see in market consolidation.
Speaker 1: We think you could get back to sort of an
Speaker 1: all time high in in M and A um as
Speaker 1: as we go into next year. Again George boy with us.
Speaker 1: As we look at yield up, price um down? What
Speaker 1: do you do with duration? Now? Somebody walks into Wells
Speaker 1: Fargo they got their pot of money. Do you ladder
Speaker 1: into a portfall? Yo? Do you? I love this? John
Speaker 1: Tuco help me? Do you barbell strategy? Do you pile
Speaker 1: it all in the eighty year Austrian paper? What do
Speaker 1: you do? Well? I think you I think as as
Speaker 1: you point, if you're an individual coming in, I think
Speaker 1: I think the laddering strategy makes a lot of sense.
Speaker 1: I think the emphasis should be on shorter durations, so
Speaker 1: shorter maturity profiles. Rates have gone up materially, so there
Speaker 1: are more attractive yields as you go out along the
Speaker 1: yield curve, but our expectations those yields should continue to
Speaker 1: go up. And as we just mentioned, there's a big
Speaker 1: if hanging over you know, a lot of decisions right now.
Speaker 1: But if the government is going to be much more
Speaker 1: aggressive in its borrowing and spending strategies, that tends to
Speaker 1: push yields up over time. So we would be a
Speaker 1: little bit more conservative out at the longer end of
Speaker 1: the curve. But shorter duration profiles, especially in the world
Speaker 1: of corporate bonds like like high yield um make a
Speaker 1: lot of sense. The the average yield on on a
Speaker 1: high yield fund is roughly about six and a half
Speaker 1: maybe as high at seven percent, depending on the fund
Speaker 1: and those durations. The maturity profile tends to be between
Speaker 1: say two and five years, so you will you will
Speaker 1: earn a lot of income that can offset both the
Speaker 1: price volatility as well as some potential decline in in
Speaker 1: some of the prices. So over time you'll still you'll
Speaker 1: still generate a meaningfully positive return despite the fact that
Speaker 1: that yields more broadly or going up. So I think
Speaker 1: that's actually not not a bad place to to put
Speaker 1: your money. Right now, you're sticking with investment grade right now?
Speaker 1: Are you looking at high yield? What about that difference?
Speaker 1: We like high yield over investment grade for that exact reason.
Speaker 1: High yield number one, as it states, has got a
Speaker 1: much higher yield that you know, call it six and
Speaker 1: a half percent, It's got a shorter maturity profile. And importantly,
Speaker 1: the companies that make up the world of high yield
Speaker 1: are very domestically focused, and we think that's an important distinction.
Speaker 1: The investment grade world tends to be much more global
Speaker 1: and international in scope. It also has a much longer duration,
Speaker 1: so more like a ten year maturity, and the average
Speaker 1: yield on an investment grade fund is roughly about three
Speaker 1: point four per cent, So there's some very big differences.
Speaker 1: And if you're an individual, I think you want the
Speaker 1: higher yield, the shorter duration, and the US emphasis. George,
Speaker 1: thank you so much. Jorge will thank you. Guys. The
Speaker 1: reality of christ lower yields higher is old to speak
Speaker 1: to our global audience and those of you worldwide. You
Speaker 1: have to see it to believe it. I was on
Speaker 1: I think fifties sixth Street over in Madison, trying to
Speaker 1: get to the suit store, the good people at Oxford
Speaker 1: Clothes who make my suits, and I couldn't get there.
Speaker 1: I was blocked, you know, as police officer said, where
Speaker 1: are you going? This is behind the Trump Tower. I said,
Speaker 1: I want to go to Oxford close and they let
Speaker 1: me through. But that's how much it took me to
Speaker 1: get through the door. Mortimer Singer knows a lot about traffic.
Speaker 1: He's with Trout, of course, iconic in New York retailing,
Speaker 1: but with just a terrific experience of the grind of
Speaker 1: retail mart Singer thrilled day. Have you on have you
Speaker 1: ever seen anything like what Midtown retails going through right now? Uh? Well,
Speaker 1: Fussel's good to be with you, guys, Hi, Tom Um,
Speaker 1: I have not, and I'm particularly conscious of Tiffany, of
Speaker 1: Gucci and of Apercrombie and Fitch that are immediately adjacent
Speaker 1: to and in Gucci's case, inside Trump Tower. H and
Speaker 1: I think in fact is closed and during the holiday season,
Speaker 1: so you can imagine what that's doing for for those
Speaker 1: three companies. I mean to give an idea of folks.
Speaker 1: Morts Singer's vice chairman of the French instant to Aliance Franca,
Speaker 1: which is like three streets above all these madness. Tiffany's
Speaker 1: out with their rings today says there has been an effect.
Speaker 1: Do you think it will be folded into other companies
Speaker 1: retail reports? Oh, I think in particular Abercrombie that's a
Speaker 1: big store for them, um, and that Gucci store is
Speaker 1: not in significant either. But then if the blast radius
Speaker 1: of this goes down Fifth Avenue and up as well,
Speaker 1: so um, it will be interesting to see what they say.
Speaker 1: Astonishing for me more' seeing to walk down Fifth Avenue
Speaker 1: look at these stores, look at these flagship stories and
Speaker 1: see the amount of money that's been poured into making
Speaker 1: them what they are today. What are these companies to
Speaker 1: do in light of what they're saying with regard to security. Well,
Speaker 1: I was hoping. I was talking about it just yesterday
Speaker 1: actually regarding business interruption insurance and whether it's qualified. These
Speaker 1: companies are spending you know, upputs of a thousand dollars
Speaker 1: of foot to build out these locations. Not only that
Speaker 1: they have to they have to pay rent that you know,
Speaker 1: on the ground floor it can reach two thousand dollars
Speaker 1: a foot. So, uh, they're really marketing engines. And if
Speaker 1: you don't get the eyeballs to within the vicinity to
Speaker 1: see those billboards, this is not just about retail sales
Speaker 1: about it's about being a billboard to send people to
Speaker 1: your website. Um, it's a it's a it's a tough proposition.
Speaker 1: So we'll have to see how the security concerns actually
Speaker 1: affect up the Fifth Avenue because it's a it's a
Speaker 1: real mecca for commerce in this city. It's about getting
Speaker 1: people to the website, you say, And I think this
Speaker 1: bears explanation. We hear so much talk in other parts
Speaker 1: of the retail sector about how there's a movement from
Speaker 1: brick and mortar stories to the online space when you're
Speaker 1: looking at high end retail. Is that simply not happening
Speaker 1: and is it not going to happen? Are these stories
Speaker 1: are going to continue to be as important as they
Speaker 1: have been? Oh? I think you will see absolutely a
Speaker 1: big migration. In fact, the online luxury online UM sales
Speaker 1: are set to double by There are many marketplaces like
Speaker 1: Orchard Mile and far Fetch and Lift who are activating
Speaker 1: e commerce for luxury brands UM, and that's going to continue.
Speaker 1: I think that also UM. You know, they've been a
Speaker 1: little slow, frankly, the luxury brands in getting up to
Speaker 1: speed with the rest of the industry on this because
Speaker 1: they felt that e commerce by definition was somewhat too
Speaker 1: broad a distribution. Now they're seeing that e commerce is
Speaker 1: about service, so they're all deciding that they need to
Speaker 1: get on the bandwagon. So it's going to be increasingly
Speaker 1: important and you're seeing it happen a lot. What are
Speaker 1: you watching for this retail season? What is the distinctive
Speaker 1: feature as we dive into December? Well, mobile, you know,
Speaker 1: mobile traffic has now for the first time. UM been
Speaker 1: the major door for digital used to be obviously desktop.
Speaker 1: It's now no longer the case. Uh. In fact, even
Speaker 1: at the Thanksgiving table, I mean people thirty percent of
Speaker 1: consumers said they were shopping at Thanksgiving table. I'm so
Speaker 1: that's what my kids were doing. Es what they were
Speaker 1: doing when you said I want another bow tie it, Tom,
Speaker 1: they said they would get it under the table and then,
Speaker 1: you know, anything to avoid talk mart Singer. There there's
Speaker 1: Mr Tucker has the correct analysis as well. In the
Speaker 1: midst of the retail season. Always good to speak with
Speaker 1: Mortimer Singer, chief executive officer of TROUB. We've been talking
Speaker 1: about Trump fifth avenue of the President elect. Now we
Speaker 1: turn to the real war that's going on. Uh. In
Speaker 1: case you didn't know this, David DVF has the DVF
Speaker 1: Vierra Lace dress four dollars. You can't get it at Bloomingdale's.
Speaker 1: You can't. You have to go to the meat packing
Speaker 1: because we gotta go to the DVF store, which we've
Speaker 1: done to the light of the lightning of our wallet. More.
Speaker 1: This is serious stuff. Course, Michael Cores, coach DVF, have
Speaker 1: just said enough to the department stores. Are they going
Speaker 1: to have any dresses to sell in five years? Well, look,
Speaker 1: at the end of the day, this is the double
Speaker 1: edged sword. I mean, everyone's got to balance brand equity
Speaker 1: against chasing a P and L. And those things are
Speaker 1: obviously sometimes at odds. Brand equity meaning preserving one's one's
Speaker 1: image and brand and therefore discounting maybe being at odds
Speaker 1: with that. But obviously the department store channel is a
Speaker 1: huge driver of business and I would say, in most
Speaker 1: cases still the largest single channel for anybody. Um. And therefore,
Speaker 1: you know, being somewhat emotional about what discounting means to
Speaker 1: the consumer, which is effectively, um, you know, something that
Speaker 1: they expect, something that they look for, um, you know,
Speaker 1: the consumer will will jump around. And so the brands
Speaker 1: are trying to obviously reconcile their pricing. That's absolutely normal.
Speaker 1: They have their own channels, the distribution, they have their
Speaker 1: own retail stores. Obviously now too, it's not just the
Speaker 1: department stores that they depend on. So they're trying to
Speaker 1: exert some control. And that's understandable given that will we
Speaker 1: have departments to is in two, five, ten years, absolutely
Speaker 1: we will have department stores. These these entities have the
Speaker 1: most powerful and important real estate, and the major cities
Speaker 1: in this country and around the world, the model might
Speaker 1: shift somewhat from what's called an owned board model, which
Speaker 1: is the when you buy at wholesale and sell at retail,
Speaker 1: to maybe more of a blend of concession, which is
Speaker 1: effectively shopping shops or leasing shops within department stores, which
Speaker 1: is effectively what happens in Europe and in Asia. The
Speaker 1: American model has predominantly been owned bought, so UM, I
Speaker 1: think that the department stores are shifting the way they work.
Speaker 1: Their obviously going to leverage that real estate because you know,
Speaker 1: many of these department stores hold that real estate either
Speaker 1: least or owned, at about three percent of revenue. If
Speaker 1: you want to open a store on a street, your
Speaker 1: occupancy cast will be about fifteen percent. So there's a
Speaker 1: wonderful arbitrage there on occupancy costs, and they just have
Speaker 1: to leverage the brand uh and get them into the store.
Speaker 1: That was brilliantly explained about the difference in real estate
Speaker 1: cars between the own shop and being in a department store.
Speaker 1: If I look at this, then do you just assume
Speaker 1: fewer stores are given sacks are given Bloomingdale's, I mean Burgdorf.
Speaker 1: I guess there is one store, But is it just
Speaker 1: going to be fewer stores? Is Bergdorf Goodman way out
Speaker 1: front and where we're gone, Well we'll think about it.
Speaker 1: In Burgdorf is owned by Neiman Marcus, and even Marcus
Speaker 1: is going to open their first New York City store,
Speaker 1: so the same group, same city at Hudson Yards in
Speaker 1: two years. If you had told me five years ago
Speaker 1: that before new department stores opened in New York City
Speaker 1: by Sacks Norths from Barney's and the Nemon Marcus, I
Speaker 1: would have probably told you you were wrong, and I
Speaker 1: would have been wrong. And it's because cities are the
Speaker 1: most important thing today. I mean the power of anchor
Speaker 1: gateway cities like New York, London, Paris, Shanghai. People are
Speaker 1: doubling down in those cities as other department stores and
Speaker 1: out of the brand, which is why you know the
Speaker 1: Fifth Avenue rents, notwithstanding the issues on up a Fifth,
Speaker 1: are where they are. I mean they're at all time high,
Speaker 1: softening a little bit, but nonetheless it's incredibly high. Help
Speaker 1: me understand the aspirational reach of high end retail. I
Speaker 1: think of what you've been saying about department stories, about
Speaker 1: the migration to the online space. I would think I'd
Speaker 1: be more likely to go into a department store and
Speaker 1: buy a pair of Gucci loafers. I know Tom is
Speaker 1: more comfortable going to the store itself, but it seems
Speaker 1: like I would be willing to do that. I'd be
Speaker 1: willing to do it online more so than to go
Speaker 1: into a boutique where I'm going to have to deal
Speaker 1: with or interact with, you know, four or five sales
Speaker 1: personnel in the store. Do high end retailers like the
Speaker 1: fact that they have some aspirational reach to people who
Speaker 1: may not be at high end retailers all the time. Well,
Speaker 1: I think you just articulate that incredibly eloquently, because if
Speaker 1: you think about what you just said, there are horses
Speaker 1: for courses, and some people are prefer the more approachable
Speaker 1: environment of a depot art and store. They get special
Speaker 1: points for their loyalty, they can use those points for
Speaker 1: experiences or discounts, and it's there's in some cases there
Speaker 1: are more approachable sales and stuff in a boutique. I
Speaker 1: would say that it's somewhat different. It's more intimidating, it's
Speaker 1: a little bit more um sort of an environment that
Speaker 1: is somewhat more daunting because of the build out, and
Speaker 1: therefore it imposes luxury and quality and therefore price. The
Speaker 1: assumption is this looks very expensive. That's why I'd rather
Speaker 1: go somewhere else. And I think that the channels live
Speaker 1: together and should flourish together, because at the end of
Speaker 1: the day, everyone talks about omni channel, but it's really
Speaker 1: uni channel. It's it's one pipe of commerce, and some
Speaker 1: customers prefer it in one place and some in another.
Speaker 1: What will Amazon do next year? From where you sit
Speaker 1: with trub and consulting all of retail, what would you
Speaker 1: suggest as Amazon's retail fashion ploy if you will for
Speaker 1: next year. Amazon is making strides into this space. It's
Speaker 1: something that's saluted them. I doubt that they will be
Speaker 1: able to do it um with their own name, but
Speaker 1: that said, they're plumbing. Their infrastructure is second to none
Speaker 1: in this country when it comes to e commerce, digital marketing,
Speaker 1: the reach of their prime customer that's an affluent customer
Speaker 1: as well UM and I believe that they will be
Speaker 1: able to and I expect them to over time bolton
Speaker 1: acquisitions that will be have the the face or the
Speaker 1: skin of of a different brand, but be powered by
Speaker 1: by Amazon, and I would not be surprised if that
Speaker 1: would have happened. What Singer, thank you so much was
Speaker 1: the mone retail here as we dive into the season,
Speaker 1: David Gura, I mean, I just has your name on it.
Speaker 1: The d V of Heaven wrap Ground Heaven name Heaven
Speaker 1: is spelled h e a v y n, which means
Speaker 1: your wallet will be like the DVF Heaven h e
Speaker 1: a v y n. You know, I was at the
Speaker 1: Allen Company conference in sun Valley, Diane person Burgley. There
Speaker 1: she opened a pop up store and I could not
Speaker 1: bring myself to go in, despite the lure of the
Speaker 1: head of the brand herself and the free champagne pop
Speaker 1: up store store at the conference, and it was it
Speaker 1: was well attended. She brought in a ton of clothes
Speaker 1: and a ton of people to to wear them and
Speaker 1: sell them. We like to do it. Thank you to more, Singer.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on iTunes, SoundCloud, or whichever podcast platform
Speaker 1: you prefer. I'm out on Twitter at Tom Keene. David
Speaker 1: Gura is at David Gura before the podcast. You can
Speaker 1: always catch us worldwide. I'm Bloomberg Radio m H. Who
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