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Speaker 2: At the other headline of the day, we love it.
Speaker 2: It's Jamie Diamond, CEO of JP Morgan and his annual letter.
Speaker 2: Lots of things to get through on this one. You know,
Speaker 2: he says that AI could augument virtually every job, so
Speaker 2: that was sort of the one thing he did talk about. Obviously,
Speaker 2: he doesn't like lots of regulation in Boswell three, so
Speaker 2: let's dig into it. Allison Williams, Bloomberg Intelligence, Senior Analyst,
Speaker 2: Global Banks and Asset Managers, joins us. Now, all right, Alison,
Speaker 2: what are some of the takeaways here?
Speaker 3: So I think, you know, it's always interesting to hear
Speaker 3: what's on Jamie's mind. I think some things are consistent.
Speaker 3: He gives his views on on regulation, which he feels
Speaker 3: like there definitely needs to be some changes as well
Speaker 3: as the policy.
Speaker 4: And the political front.
Speaker 3: You know, one of the interesting things this year was
Speaker 3: the twenty year look back it's the anniversary of the
Speaker 3: JP Morgan Bank One deal. As you may remember, Bank
Speaker 3: One was actually the buyer of JP Morgan, and I
Speaker 3: was lucky enough to be at the dinner that night
Speaker 3: with the CEOs of both Bank One and JP Morgan,
Speaker 3: and certainly did not anticipate what would be where we'd be,
Speaker 3: you know, twenty years later, But did anticipate that. Jamie Diamond,
Speaker 3: even I think at that time, showed himself to be
Speaker 3: a patient CEO. He waited to take the job, he
Speaker 3: was selective, he took the job with Bank One, he
Speaker 3: was selective about the JP Morgan deal. He stored up
Speaker 3: his capital and was in a good position at the crisis.
Speaker 3: And so you know, today when we're seeing a lot
Speaker 3: of headlines around some of his concerns, and again certainly
Speaker 3: he does outline a lot of these in the annual report,
Speaker 3: it just really just puts into mind that the risk.
Speaker 4: Manager that he is.
Speaker 3: And so while there's a lot of headlines about his
Speaker 3: talk about inflation, he's been very vocal about the world
Speaker 3: needing to be prepared for higher rates. I think it's
Speaker 3: just a way that he does his job and manages
Speaker 3: his company thinking about the downsides, thinking about the risks
Speaker 3: out there and sort of always being prepared to be
Speaker 3: in the best position he can.
Speaker 5: All right, Allison, So those are you know, we always
Speaker 5: look to that letter for some long term trend issues
Speaker 5: and he calls out AI in particular this time, how
Speaker 5: about the short term stuff. We're gonna hear about the
Speaker 5: short term stuff this Friday with the earning starting.
Speaker 6: What are you what are you looking for.
Speaker 5: From JPM and maybe from some of the other big
Speaker 5: banks that we care about.
Speaker 3: Sure, and you know, there are a lot of call
Speaker 3: outs about the great job that they've been doing, the
Speaker 3: great year that they had last year, and we really
Speaker 3: think that this quarter they're going to continue to you know,
Speaker 3: execute on all cylinders. I think that the net interest
Speaker 3: income story is you know, that's sort of the big
Speaker 3: thing that everyone's watching. We've had a big shift in
Speaker 3: the market view on rates since the last time these
Speaker 3: banks have reported, but we think that JP Morgan will
Speaker 3: continue to show resilience in that net interest income and
Speaker 3: surprise investors positively on that front. Part of that is
Speaker 3: the credit card business, where it just continues to show
Speaker 3: very strong growth, and part of it is the deposit pricing,
Speaker 3: which has come in a little bit better than expected.
Speaker 4: So we think that's that's going to help JP.
Speaker 3: Morgan, it's going to help Bank of America the card side,
Speaker 3: helping JP Morgan and City Group a little bit more.
Speaker 3: But also we're we may see provisions tick up, but
Speaker 3: that's not because of the weaker environment. It's more because
Speaker 3: the card loan growth continues to be strong. It's normalizing,
Speaker 3: and this tends to be the seasonally.
Speaker 4: Higher quarter for card losses.
Speaker 3: So I think that we could get more resilient and
Speaker 3: interesting income up, also higher provisions.
Speaker 2: Yeah, let's talk about that, because last week Marcus Golden
Speaker 2: Sax's Marcus lowered the rate on its savings account high
Speaker 2: yield savings account. It was just ten basis points, but
Speaker 2: and I obviously use it, and I was like, dude,
Speaker 2: we haven't even had a rate cut. What are we doing?
Speaker 2: But that's clearly going to be good for these guys,
Speaker 2: but bad for me.
Speaker 4: Yeah.
Speaker 3: So, I mean on the deposit front, you know, really
Speaker 3: a year ago, I think it became a big news
Speaker 3: with all the bank turmoil that deposit prices were going up,
Speaker 3: and consumers I think that saw those headlines if they
Speaker 3: hadn't already been getting the yield, they were going after it,
Speaker 3: and so the yields have gone up.
Speaker 4: We saw the yields on loans go up, and then
Speaker 4: we saw the yields.
Speaker 3: On deposits go up and now are out of place
Speaker 3: where you know, the question is will that will those
Speaker 3: deposit prices continue to go up and sort of eat
Speaker 3: away at the yield. The reason why banks are or
Speaker 3: one benefit of banks of if the rate cuts come
Speaker 3: is that those prices will come down, as you said,
Speaker 3: But then you know, there for all of these banks,
Speaker 3: there is a question of you know, the deposits and
Speaker 3: what they can do with those deposits, excuse me, And
Speaker 3: there is a competitive aspect to it, and so there
Speaker 3: are times when banks are more aggressively pricing, and there
Speaker 3: are times when you know, as you said, for Goldman Sachs,
Speaker 3: maybe they're less aggressively pricing. Maybe they see, you know,
Speaker 3: less of a need of what they can do with
Speaker 3: that money, or balance sheet management because as we know,
Speaker 3: there is a cost to capital to fund that balance sheet,
Speaker 3: that there are higher capital requirements, there are other things
Speaker 3: you can do with your capital, and so I think these.
Speaker 4: All kind of go into the mix of what banks
Speaker 4: are thinking.
Speaker 5: Hey, Allison, going to hear anything this quarter from the
Speaker 5: banks about commercial real estate and the problems that may
Speaker 5: pose for the US I guess economy and maybe the
Speaker 5: banking system. Or is that just a regional bank thing.
Speaker 4: I think, you know, it will continue to tick up.
Speaker 4: I think it's it is a.
Speaker 3: Broad I guess bank thing, But the commercial the regional
Speaker 3: banks is just more important to their earnings.
Speaker 4: So I was speaking.
Speaker 3: Before about card If you look at card that the
Speaker 3: banks that I cover, you know, especially JP Morgan, City, Wells,
Speaker 3: and Bank of America are tend to be over indexed to.
Speaker 4: Card less so to commercial real estate.
Speaker 3: Of those four banks, Wells Fargo is really the one
Speaker 3: that that sort of has a commercial real estate exposure
Speaker 3: similar to the regional piers. They have the largest US
Speaker 3: office exposure across the banks I cover, But they also
Speaker 3: have an eight percent reserve already against those loans, so
Speaker 3: they've been very conservative.
Speaker 4: On that book. I think the newer worry, if you will,
Speaker 4: is the excuse me multifamily lending business.
Speaker 3: New York Community really sort of brought that to Like
Speaker 3: JP Morgan has the closest business to that, but they've
Speaker 3: talked about some underwriting protections they have there just in
Speaker 3: terms of how they look at rents and the way
Speaker 3: they underwrite being much more conservative. And so they've had
Speaker 3: you know, very good performance in that book over a
Speaker 3: long period of time. Still, you know people are going
Speaker 3: to look at it, but it's just it's more of
Speaker 3: sort of a very long term story for the.
Speaker 2: Banks and having a hard time getting excited about JP
Speaker 2: Morgan kicking off earnings on Friday. What's going to be
Speaker 2: for me? Sort of and for you the biggest surprise,
Speaker 2: like what are you most jazzed about watching when it
Speaker 2: comes to all the big banks, all the asset managers,
Speaker 2: all the private all the guys.
Speaker 3: I mean, I think the biggest surprise will be that
Speaker 3: interest income resilience and just the fact that it does
Speaker 3: come in better than expected. You know, it was interesting
Speaker 3: last quarter all the banks generally beat on net interest
Speaker 3: income but guided down and so the stocks were acted,
Speaker 3: you know, very negatively towards that.
Speaker 4: This quarter, I think there.
Speaker 3: Will be the resilience in the net interest income that
Speaker 3: could surprise to the upside. They will adjust the outlooks
Speaker 3: the ladder is expected. I think the other thing that
Speaker 3: that I'll be focusing on investors are going to be
Speaker 3: focusing on is those investment banking fees. So there's been
Speaker 3: a lot of talk about bullishness for those fees. You know,
Speaker 3: we also think that we could see a big jump
Speaker 3: in the fees, but we're still you know, nowhere near
Speaker 3: compared to where we were at the twenty twenty one, So,
Speaker 3: you know, you could see a big jump in fees,
Speaker 3: but the questions are going to be you know, how
Speaker 3: are things trending. I pos the volumes have been good,
Speaker 3: but you know, there's still a lot of questions from
Speaker 3: investors around some of the performance. We've had some good performers,
Speaker 3: there have been some not so good performer We still
Speaker 3: have some valuations that you know, investors are waiting to
Speaker 3: get better. They don't want to go public and have
Speaker 3: to mark down those investments. So I think the pipelines
Speaker 3: and the investment banking fees are going to be right.
Speaker 3: I guess one of the more exciting things this quarter, Alex,
Speaker 3: you know, maybe not as exciting as we had hoped
Speaker 3: for earlier in the year.
Speaker 6: Yeah, we'll see, all right. Alison Williams, thanks so much
Speaker 6: for joining us.
Speaker 5: Alson Williams. She's a senior animal. She covers all the
Speaker 5: big banks on a global basis. She does that for
Speaker 5: Bloomberg Intelligence. Before that, she alluded to she was at
Speaker 5: Morgan Stanley Investment Management on the buy side and where
Speaker 5: she covered the banks. And of course, when a couple
Speaker 5: of big banks get together, they need to court their
Speaker 5: large shareholders, and Morgan Stanley Investment Management is certainly one
Speaker 5: of those. So that's why Allison was on the front lines.
Speaker 5: And when those two JP Morgan Chase with the predecessor
Speaker 5: and the bank from Ohio.
Speaker 6: I can't think of the name one one.
Speaker 2: I bet she's not watching the eclipse because it's hard
Speaker 2: at work. So I mean, I'm just saying, but I'm
Speaker 2: also looking at multiple countdown clocks now are counting down
Speaker 2: to the eclipse special orre we counting down to the
Speaker 2: actual eclipse. See, I'm just saying, this is a lot happening.
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Speaker 2: This is Bloomberg Intelligence Radio. We bring you all the
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Speaker 2: So Bloomberg Intelligence has an amazing arm of analysts cover
Speaker 2: companies and themes. We also have something here at Bloomberg
Speaker 2: called Bloomberg New Energy Finance, and the idea behind it
Speaker 2: is to provide data on commodities, power, transport, industry, buildings,
Speaker 2: and agriculture as well as new technology as we kind
Speaker 2: of build a more sustainable world. Right we know we're transitioning,
Speaker 2: and we know we have to get there, and how
Speaker 2: you finance it is the huge question, and there's a
Speaker 2: big gap between like the VC things and then the
Speaker 2: scalable stuff, and helping to finance that gap is very tricky.
Speaker 2: So we thought every Monday we would bring you an
Speaker 2: amazing analyst from BNF and sort of talk through some
Speaker 2: of these issues that we're confronting. So this time we're
Speaker 2: going to talk about ev charging. So Ryan Fisher is
Speaker 2: Bloomberg BNF EV charging team leader and he joins us
Speaker 2: now from London. So I guess, just to start off,
Speaker 2: who are the big players in EV charging?
Speaker 7: Yeah, so some of them maybe not quite household Thames yet,
Speaker 7: but you've got charge Point in the US certainly people
Speaker 7: may have heard of, and the sentiment was pretty positive
Speaker 7: a few years ago. Stock prices up and then everything
Speaker 7: is kind of crashed down, sentiment not so great. Some
Speaker 7: of these companies have not met the targets that they
Speaker 7: might have done. But what we're starting to see the
Speaker 7: few companies that you definitely won't have heard of actually
Speaker 7: have started to post some positive profit margins. So there's
Speaker 7: like fast charging manufacturers in Europe call Ken Power making
Speaker 7: that the kind of units that concern big power to
Speaker 7: evs and charge it fast. And then you've got some
Speaker 7: of the ones who do the slower power units as well.
Speaker 7: And then also you've got a couple of these companies
Speaker 7: that you may have heard of, like ABB, producing chargers
Speaker 7: as part of a portfolio. So they're selling transformers and
Speaker 7: they're sort of using that as somewhat of a way
Speaker 7: to get into companies and sell some of their other
Speaker 7: products that they've got and added on as an additional
Speaker 7: so lots going on on the hardware side, and then
Speaker 7: you've got operators. So these are like the companies who
Speaker 7: basically will sell the electricity to charge a vehicle. You
Speaker 7: kind of think of it like filling up with petrol.
Speaker 7: And none of those so far are profitable, but we
Speaker 7: have seen some good signs, so some of those being
Speaker 7: EBITDAR positive now fast ned posted that which is a
Speaker 7: Dutch one the other day in the US. Unprofitable so far,
Speaker 7: but there's a company called EVgo you may have heard of,
Speaker 7: who has these fast charges and they actually basically delivered
Speaker 7: one hundred and ninety one percent more energy in twenty
Speaker 7: twenty three than they had in twenty twenty two, so
Speaker 7: good progress there.
Speaker 5: So Ryan, where are we kind of, I guess on
Speaker 5: a timeline of kind of getting enough charging capabilities into
Speaker 5: the system that can really support, you know, a wide
Speaker 5: adoption of evs. It feels like what we're hit We've
Speaker 5: hit a speed bump here. What's the timeline do you think?
Speaker 5: When you talk to folks in the industry.
Speaker 7: Yeah, it's an interesting one because we cover the global markets.
Speaker 7: So you look at China and they installed about a
Speaker 7: million of these public charges last year, and the US
Speaker 7: did sort of low tens of thousands. So there's a
Speaker 7: big difference depending on where you are in the world.
Speaker 7: I think the US and Europe are more similar in
Speaker 7: how they'll play out, and Europe is maybe just five
Speaker 7: years ahead. So Europe has got actually loads of competition
Speaker 7: at the moment, and the story a little bit when
Speaker 7: we look at this is some of the companies looking
Speaker 7: like competition is starting to weigh on the demand that
Speaker 7: they're delivering because it's a bit monopolistic. So I want
Speaker 7: the best land as a company, and I want the
Speaker 7: best grid connection, and I want that to be somewhere
Speaker 7: that people are going and somewhere where people can buy things.
Speaker 7: And they're realizing that, well, the demand isn't quite there yet.
Speaker 7: But if we believe in the long term trajectory of evs,
Speaker 7: let's get in this business. Let's get those spots. So
Speaker 7: we've seen that in Europe, and I think the US
Speaker 7: is just starting to tick over. The US has been
Speaker 7: hugely dominated by Tesla. So if you look at Tesla
Speaker 7: on the vehicle side, kind of eighty percent of these
Speaker 7: pure battery electric vehicles five years ago, kind of Tesla's
Speaker 7: and then they also provide the supercharging, and that's kind
Speaker 7: of pushed all the competition out. But what we saw
Speaker 7: last year was some of these other auto makers really
Speaker 7: producing the evs and therefore providing a market for other
Speaker 7: people to come into, but the US slightly behind basically
Speaker 7: the global maybe just because Tesla has this dominance in
Speaker 7: the market.
Speaker 2: This is a super dumb question. Where does a charging
Speaker 2: operator get the power to then enable me to put
Speaker 2: a Tesla into that network?
Speaker 7: Yeah, it's an interesting one. So there has been a
Speaker 7: lot of these companies that are going out and they're saying,
Speaker 7: you know what, instead of putting two charges in at
Speaker 7: my petrol station where the power exists, I actually now
Speaker 7: need kind of twelve chargers. And in some cases, when
Speaker 7: you look at, for example, the Tesla stations, they've got
Speaker 7: like one hundred chargers in one spot. Now that becomes
Speaker 7: a big grid connection. The next thing is charging the trucks.
Speaker 7: So this could be like the same amount of power
Speaker 7: as a town, and a lot of the utilities are
Speaker 7: taking too long to do it. So it's like that
Speaker 7: how long does it take to get a permit? How
Speaker 7: long does it take to actually get energized, can you
Speaker 7: make the agreements with the land, Lisa, All of this
Speaker 7: has kind of slowed it down, but clearly industries trying
Speaker 7: to work together, and this has become a big topic
Speaker 7: for the automakers and the utilities as well, some of
Speaker 7: them trying to sign contracts on site. So if you
Speaker 7: imagine these companies small fry, like several small meters across
Speaker 7: multiple places, the utility is maybe not so interested in that,
Speaker 7: but now they're actually delivering a lot of demand. So
Speaker 7: as I say, looking to other markets in the US
Speaker 7: and China being a good example, the public chargers in
Speaker 7: China now deliver more energy than the whole of Ireland,
Speaker 7: so a lot of energy. And therefore that becomes interesting
Speaker 7: because if you're an energy developer and you're doing like
Speaker 7: solar on site next to it with a battery, and
Speaker 7: we've seen what TV, which is one of these truck
Speaker 7: charging companies, basically build a station that's not connected to
Speaker 7: the grid at all. It's just got straight to the
Speaker 7: solar and a battery. So cool innovations going on there.
Speaker 5: Hey, Ryan, Here in the US, EV sales have slowed
Speaker 5: materially and a lot of people are trying to think
Speaker 5: there's a combination of reasons, price being a big big one,
Speaker 5: but one of those drivers is just the lack of
Speaker 5: a fully ubiquitous charging in structure. When you talk to
Speaker 5: your EV companies, how did they think about it? Are
Speaker 5: they concerned about the long term demand of EV's in general,
Speaker 5: and if so, do they feel like they could be
Speaker 5: part of the solution there?
Speaker 7: Yeah, and there's definitely kind of differences in opinions. The
Speaker 7: US hionde CEO saying something along the lines of today,
Speaker 7: why buy an EV from an automaker who's lobbying against EV's,
Speaker 7: And obviously he's talking about the US there. But you
Speaker 7: do see a difference in those that are kind of
Speaker 7: in on it and those that aren't. And I think
Speaker 7: some who aren't have previously been so they've they've committed billions,
Speaker 7: they've talked about targets, and then they're starting to row
Speaker 7: it back. And some of that is maybe because the
Speaker 7: technology is behind they can't do it as cheap as
Speaker 7: everyone else. So there's different reasons. And I think when
Speaker 7: you look at liabilities, I don't think that's talked about enough. Actually,
Speaker 7: some of these companies have put cars out there and
Speaker 7: then the batteries had a problem and they've got to
Speaker 7: recall it, and that could be multi billions. So I
Speaker 7: think there's some caution as well in saying, why don't
Speaker 7: we put a few less casts out because then we
Speaker 7: can learn from them and we can do it later.
Speaker 7: Some of the narrative has been they're not putting the
Speaker 7: cars out because quite physibly, like the battery operations are
Speaker 7: up and running. But I think there was other reasons.
Speaker 2: Ryan, Hey, look, this was great. We really appreciated Ryan Fisher,
Speaker 2: Bloomberg BNF EV charging head, and we'll be doing this
Speaker 2: every Monday, talking about different areas within the energy transition.
Speaker 2: This is why Paul stuck with me, because somehow I'm
Speaker 2: going to make him talk about all this stuff. But
Speaker 2: interesting you might have, like what little power centers around
Speaker 2: EV charging networks.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: And Barry, founder and managing partner at the Red Needle,
Speaker 2: is joining us. Equity is doing nothing A body yelds
Speaker 2: up a little bit. But before we get to all
Speaker 2: that fun stuff, an, are you watching the eclipse?
Speaker 8: Absolutely would have missed it. I remember the last one
Speaker 8: seven years ago, Alex and just standing out in Central
Speaker 8: Park with armies full of people. So I'm hoping to
Speaker 8: repeat the experience again. Today's look of fun.
Speaker 2: All right, So she's not a clip stow, fine, are
Speaker 2: you bon yield out at this point? That's my way
Speaker 2: of asking, like, hey, how much higher can yield go
Speaker 2: at this point?
Speaker 9: Yeah?
Speaker 8: I got to tell you, Alex, I for a while
Speaker 8: now stopped looking at bon yields as an indicator of
Speaker 8: where I should be putting capital to work. Just these
Speaker 8: usual indicators haven't been as consistent over the last couple
Speaker 8: of years, and so I've just really gone back to
Speaker 8: good old fashioned fundamentals, esoteric signs, looking specifically at what
Speaker 8: might be a catalyst for the stocks individually, to try
Speaker 8: and see you out of play right now?
Speaker 5: All right, So where you guys, as you think about
Speaker 5: just kind of M and A in general, what's kind
Speaker 5: of your outlook here for the remainder of twenty twenty
Speaker 5: four Because we've got, you know, equity markets higher, but
Speaker 5: rates are still higher as well.
Speaker 8: They are, but I do think that the actual backdrop
Speaker 8: for M and A this year has gotten a lot
Speaker 8: more interesting. If you think back over the last two
Speaker 8: years and you put yourself in the position of the
Speaker 8: boards of public companies, and I've been there, it's been
Speaker 8: a really difficult place to say yay or nay to
Speaker 8: getting deals done. We've seen a bit of an exception
Speaker 8: in the oil and gas based alex that I know
Speaker 8: is your forte And the reason for that lack of
Speaker 8: activity has been. Yes, partly, financing has obviously been a
Speaker 8: lot more expensive, whether it's been in cash deals or
Speaker 8: stock deals, but also because you just didn't want to
Speaker 8: be the board member who looked like a bit of
Speaker 8: a schmuck if you've got the care wrong. Because the
Speaker 8: macro is just so volatile and a lot of the
Speaker 8: key factors you want, you know, you didn't want to
Speaker 8: be selling too cheap, you're buying too expensively. I think
Speaker 8: things all settled down a little bit now, which gives
Speaker 8: people more confidence to go out and buy. And I
Speaker 8: do think that we're going to see some names forced
Speaker 8: to do some M and A activity, and specifically they're
Speaker 8: all like all these fallen angels from that twenty twenty
Speaker 8: twenty twenty one pandemic irradarling period where I think some
Speaker 8: of these names are going to have to diversify or die,
Speaker 8: and it's going to force them to go and do
Speaker 8: some M and A.
Speaker 2: So how do you play all of that? So, Okay,
Speaker 2: if you're buying yielded out, so you're looking less at that,
Speaker 2: you're looking at the fundamentals, you do think M and
Speaker 2: A could be it sounds like a catalyst. Yeah, talk
Speaker 2: to me about the sectors first and that that you
Speaker 2: want to play.
Speaker 8: Well, let's take a look at consumer, for example, alex
Speaker 8: and you know that's one where you've got a history
Speaker 8: if you go back in time where deals tended to be.
Speaker 8: First of all, they were a lot bigger, so you
Speaker 8: saw lots of mass consolidation and sort of murders of equals.
Speaker 8: And then you have the shift towards consumer brands and
Speaker 8: food and beauty and apparel trying to buy these high
Speaker 8: growth challenger brands with really fast top plane growth but
Speaker 8: lesser a focus and profitability. We look at what happened
Speaker 8: last year. We still Campbell's go and buy sobos brands.
Speaker 8: That's a two point eight billion dollar deal. And I
Speaker 8: think that's because in food, for example, you're going to
Speaker 8: see the fact that inflation's not gone completely the consumers,
Speaker 8: they are not going to keep putting up a price
Speaker 8: increases in the cost space of seeing a step function up.
Speaker 8: Organic growth on the margin level and on the top
Speaker 8: light level has slowed down. So I think that's going
Speaker 8: to force more m and A the lights of which
Speaker 8: we started to see last year again with Campbell one
Speaker 8: specific company. I'm going to go out on a limb
Speaker 8: here and sort of testing the thesis. I look at
Speaker 8: something alex like Olipleaux. Do you remember when that went public?
Speaker 8: You know, when we're all sitting at home, the valuation
Speaker 8: on that hair company and shampoo company was absolutely astronomical.
Speaker 8: It's now trading at a fraction single digit fraction of
Speaker 8: where it was. But it's a good cash flow business.
Speaker 8: It's got a smart backer advent, a private equity firm
Speaker 8: that knows what it's doing. That business, in my opinion,
Speaker 8: is going to have to go and buy other brands
Speaker 8: to regain the trust of the public market again, so
Speaker 8: I would look at that as a potential acquire It's
Speaker 8: got the means to do it, And that's the kind
Speaker 8: of thesis I find a little bit contrarian and interesting.
Speaker 5: Right now, and talk to us about the private equity
Speaker 5: and the private credit business.
Speaker 6: How ready are those two folks willing to commit to
Speaker 6: M and A. Here, it would.
Speaker 5: Seem like the private equity folks, they've been holding on
Speaker 5: to a lot of assets a lot longer they probably
Speaker 5: would like to, so they have some incentive to get
Speaker 5: deals done.
Speaker 6: Are they going to be a player?
Speaker 8: Yeah, that's a great point. That's a terrific point. They've
Speaker 8: got an incentive to get deals done because a lot
Speaker 8: of deals were done six or seven years ago, so
Speaker 8: traditional private equity is now a little bit past the
Speaker 8: horizon to get out of those investments. The other piece
Speaker 8: of this is too, if you think about when a
Speaker 8: deal is done and inception, a lot of leverages often
Speaker 8: put on these private companies, and a lot of those
Speaker 8: debt maturities are coming up. Private equity firms don't necessarily
Speaker 8: want to recapitalize them with much more expensive debt, and
Speaker 8: we start holding them for longer, I think they'd rather
Speaker 8: sell than deal with that maturity wall. So I think
Speaker 8: you're going to have a lot of willing sellers, And
Speaker 8: I do think this again is going to be an
Speaker 8: opportunity where buyers, now that the macro has died down,
Speaker 8: will start sharpening their pencils, look at the cash balances
Speaker 8: they've accumulated, and I think we'll start seeing strategics perhaps
Speaker 8: being a lot more active in buying private equity assets
Speaker 8: than they were before.
Speaker 2: Okay, so I get all of this, But at what point, though,
Speaker 2: do you need to start looking at yields again? Like
Speaker 2: if we get a stronger CPI your thesis is sound,
Speaker 2: what if raids hit five percent?
Speaker 8: Yeah? I think that rates have been expected to be
Speaker 8: higher for longer, and I think the street's actually been
Speaker 8: reunderwriting that thesis are its for quite a long time,
Speaker 8: and I think they've sort of got the past the
Speaker 8: point of the sticker shock. I think the other piece
Speaker 8: that I would say when it comes to bond yields
Speaker 8: and looking at treasuries as the PEG is one of
Speaker 8: my thesis coming into this year is the importance of
Speaker 8: fiscal policy form really dictating what appetite was going to
Speaker 8: be around a lot of these debt plays. And one
Speaker 8: thing that's been interesting to me in watching the election,
Speaker 8: which if anything is going to be one of the
Speaker 8: big influences in terms of shocks to that thesis. None
Speaker 8: of the key presidential candidates are coming out right now
Speaker 8: with March daylight between them when the fiscal policy front
Speaker 8: at least nothing concrete, although no shots or surprises. So
Speaker 8: I'm just still continuing to think that BONN yields. Yes,
Speaker 8: they're important, Yes that cost of financing is critical, but
Speaker 8: in terms of catalysts to move markets, I just don't
Speaker 8: see them at this particular moment.
Speaker 5: So, and just as it relates to financing deals here,
Speaker 5: you know, these rates, they're still by historical standards, these
Speaker 5: rates are not terribly high, but for the average CEO,
Speaker 5: CFO and board member they feel really high relative in
Speaker 5: the past decade or here. So how much of a
Speaker 5: hindrance is that to just getting deals done.
Speaker 8: I think it has been a hindrance, but I don't
Speaker 8: think that it's going to continue to be a hindrance
Speaker 8: because one thing that has changed in this narrative is
Speaker 8: a level of confidence that at some point, yes, inflation
Speaker 8: will come down and yes interest rates will come down. Now,
Speaker 8: what obviously has changed is the pace at which that
Speaker 8: is going to take place. You remember the six rate
Speaker 8: cuts that some of the most aggressive analysts had on
Speaker 8: the docket for this year. It's now gone to maybe two, right,
Speaker 8: So the pace of decline is coming down. But if
Speaker 8: we look forward not to twenty twenty five, but we
Speaker 8: look to twenty twenty six, you know, you can see
Speaker 8: a deal being negotiated at some point towards the second
Speaker 8: half of this year. It probably won't close until twenty
Speaker 8: twenty five, by which time we hope the rate action
Speaker 8: will have taken place, and you can see corporates being
Speaker 8: a little bit more confident that there'll be a slightly
Speaker 8: lower interest rate environment when it comes to actually executing
Speaker 8: against a plan to deliver deliver synergies against. So again
Speaker 8: you're absolutely right, higher than recent history, but manageable.
Speaker 2: So you mentioned consumers can consumer stocks in terms of
Speaker 2: m and a other areas that we've seen, right, We've
Speaker 2: seen a ton in the biotech space, which we tend
Speaker 2: to see normally. Right, we see energy. We also hear
Speaker 2: a lot about potential software deals because there's just so
Speaker 2: many software players and regional banks. Where do you think
Speaker 2: is the most likely.
Speaker 8: In terms of like activity. I think we'll continue to
Speaker 8: see contolidate consolidation alex in you the permia and in
Speaker 8: the boiling gas space where scale really is critical and
Speaker 8: where you've got these absolutely act intensive companies, you need
Speaker 8: to get those benefits of scale. So that's one space
Speaker 8: I think will continue to spend activity. I don't spend
Speaker 8: a ton of time that I have in the past,
Speaker 8: but I do think we'll see activity there. When it
Speaker 8: comes to software, I think that this is an interesting space.
Speaker 8: It's still very expensive. But one area that I do
Speaker 8: think the strategics will start to go shopping a little
Speaker 8: bit more aggressively is buying some of these private companies
Speaker 8: backed by venture capital, backed by growth stage equity, where
Speaker 8: valuations are now a bit more sensible and there are
Speaker 8: some real buyers of choice out there where you know,
Speaker 8: when I talk to the private side community in tech,
Speaker 8: salesforce is where people want to sell their businesses too.
Speaker 8: How auto networks, if you're in cyber very healthy balance sheet,
Speaker 8: it's lots of free cash flow. And if you look
Speaker 8: back in history, and McKinsey had a very interesting piece
Speaker 8: out on the so in recent weeks, Programmatic m and A,
Speaker 8: which has lots of acquisitions behind a thesis rather than
Speaker 8: a really one really big mega merger has tended to
Speaker 8: actually generate quite good incremental shareholder returns above the average
Speaker 8: by about two hundred basis points. And so I do
Speaker 8: think looking at some of those historical m ANDA machines
Speaker 8: who know what they're doing on integration will be interesting.
Speaker 2: Interesting and thanks a lot, really great stuff. Really enjoyed,
Speaker 2: have fun at the eclipse today and very founder and
Speaker 2: managing partner at thread Needle, Paul and John and jam
Speaker 2: again John Tucker.
Speaker 6: I'll join you there with his with his welding helmet.
Speaker 2: Yeah, he's a welding helmet, apparently not glasses. You're a good,
Speaker 2: good work out, but I kept the helmet because you
Speaker 2: never know, you never know, you never know what you're
Speaker 2: going to need that welding health. I want to see
Speaker 2: what your garage looks like. I actually don't fation the garage.
Speaker 4: I have a shed, large shed, and with the basement.
Speaker 2: You can't even move in there. Somebody with old welding gear.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
Speaker 1: Auto with a Bloomberg Business app. You can also listen
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Speaker 1: Just say Alexa playing Bloomberg eleven thirty.
Speaker 2: All right, well, let's go to someone who's probably not
Speaker 2: eclipsed out yet, and that is Julie Fine. She's Bloomberg
Speaker 2: Texas Bureau chief and she's standing by. I mean, it's
Speaker 2: not that I don't think it's cool. It just it's
Speaker 2: a lot. It's a lot. Are you eclipsed out?
Speaker 10: I'm getting eclipse stot Yesterday I was in Target and
Speaker 10: I was like in the line for self checkout for
Speaker 10: like twenty minutes. It's just so crowded here. I think
Speaker 10: you think about a Super Bowl when you know a
Speaker 10: stadium holds roughly one hundred thousand people, so you probably
Speaker 10: have two hundred thousand people in town right now in
Speaker 10: the Dallas area. The mayor estimates four hundred thousand.
Speaker 5: So people are coming there because Dallas is in the
Speaker 5: totality area.
Speaker 6: Is that is that the story?
Speaker 2: Dallas is totality.
Speaker 10: We get totality for three minutes and fifty one seconds,
Speaker 10: to be exact, So Dallas is in totality. So we
Speaker 10: have a lot of people in town, and you can
Speaker 10: certainly feel it.
Speaker 2: I mean, okay, to be fair, I mean I made joke,
Speaker 2: but this is there's a definite economic reasons here, Like
Speaker 2: how much could Texas make on this thing?
Speaker 10: A leading economists estimate estimates over four hundred million dollars
Speaker 10: for the entire state. Because there's areas that are in
Speaker 10: almost totality, like Austin and Houston. You got the Hill Country.
Speaker 10: I mean, hotels are jammed. My family said to me
Speaker 10: on Friday, we should try to come in for the eclipse.
Speaker 10: And you're looking at you know, to even get here
Speaker 10: was twelve hundred dollars on Sunday.
Speaker 2: Oh my god.
Speaker 10: Well and this is a little late to think about
Speaker 10: that exactly.
Speaker 6: Well, Governor Hoche, the Governor Hoche.
Speaker 5: For the state of New York is telling people like
Speaker 5: because another one is up in Buffalo and Niagara Falls.
Speaker 10: Well, fun fact, that's where I'm from.
Speaker 4: Oh, I'm all eclipse.
Speaker 10: Today, and in Buffalo it's supposed to be better forecast
Speaker 10: actually than here in Dallas. We're a little overcast here.
Speaker 10: But Buffalo apparently is jammed with people as well.
Speaker 2: It is actually quite interesting if you look at like
Speaker 2: an Airbnb map. This came out on on X like
Speaker 2: a few weeks ago. I guess, and you just saw
Speaker 2: exactly where the line was where the eclipse was going
Speaker 2: to go sold out airbnbs, So to your point, all right, Julie, well,
Speaker 2: what what else are you going to be watching? Kind
Speaker 2: of what are some of the highlights here?
Speaker 10: Well, I think there was some questions about the power
Speaker 10: grid because solar will be affected for a short period
Speaker 10: of time, but the power grid in Texas seems very
Speaker 10: prepared to handle that. So we'll be watching that.
Speaker 9: You know.
Speaker 10: We our office is smack in the middle of downtown,
Speaker 10: so they're actually blocking entrances and exits for an hour
Speaker 10: or so. What's really interesting is we're supposed to have
Speaker 10: severe weather this evening, so obviously everybody will be paying
Speaker 10: attention to that. It'll be really interesting and actually, you know,
Speaker 10: hopefully people are smart about when they choose.
Speaker 2: To travel and come in and out of town.
Speaker 10: If there's a horrible rainstorm and everybody's kind of trying
Speaker 10: to get out of Dallas.
Speaker 6: Big dings, big in Texas.
Speaker 2: That sounds fun.
Speaker 10: Everything's bigger here and better.
Speaker 2: Yeah, I do think that the solar thing is also
Speaker 2: kind of interesting, but again, if you're prep for it,
Speaker 2: maybe it's not that big.
Speaker 4: Of a deal.
Speaker 2: All right, Julie, thank you so much. Have fun, Be safe,
Speaker 2: Julie Fine Blueberg, Texas Beera chief joining us.
Speaker 4: There.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple car Play and
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Speaker 1: station Just Say Alexa playing Bloomberg eleven.
Speaker 5: Again, we think about where we are, where we were
Speaker 5: back in October, to where we are now SP five
Speaker 5: hundred up over twenty five percent.
Speaker 6: Just a big, big move, big first quarter as.
Speaker 5: Well to kind of finish that off, and we got
Speaker 5: a little bit more green here today.
Speaker 6: So the question for a lot of folks is, boy,
Speaker 6: that was quick.
Speaker 5: And did I miss that move in the market. Let's
Speaker 5: check in with Walter Todd. He does his stuff for living.
Speaker 5: He's a president, chief investment officer, managing director of Greenwood Capital.
Speaker 6: And Walter, I'm guessing you're in South Carolina.
Speaker 9: I am.
Speaker 11: I've got my clips glasses ready for the viewing later today, and.
Speaker 5: I'm guessing you're pretty happy after your lady game Cocks
Speaker 5: last night put on a heck of a show.
Speaker 9: Yeah, congratulates.
Speaker 11: I gave a shout out to dawns Daley and the
Speaker 11: team for a great win, undefeated season.
Speaker 9: Pretty incredible, Yes, amazing.
Speaker 5: All right, Walter, what are you telling your clients? You're
Speaker 5: about kind of these markets where they've moved, where the
Speaker 5: opportunities are.
Speaker 6: What are you talking? What do you saying to your
Speaker 6: clans these days?
Speaker 11: Yeah, Well, as you kind of alluded to in the
Speaker 11: lead in here, it's been quite a move off the lows,
Speaker 11: and you know, it's this year has been a little
Speaker 11: bit hard to figure out, quite honestly for me. I mean,
Speaker 11: the move off the loads in October and rates peaked
Speaker 11: at five and the SMB started to rise as rates fell.
Speaker 9: That made a lot of sense.
Speaker 11: But as we see here today, you know, up almost
Speaker 11: ten percent for the first quarter for the SMP. You know,
Speaker 11: rates have risen, the expectation for fed cuts has gone
Speaker 11: from seven to less than three. So it's a little
Speaker 11: bit puzzling to see the market kind of screaming in that.
Speaker 11: With that backdrop, having said that, you know, the reason
Speaker 11: for the rate cut push out is because economic data
Speaker 11: has been better and that should be good for earnings.
Speaker 11: I think, you know, depending on your time horizon. In
Speaker 11: the very short term, it feels like this market's a
Speaker 11: little bit tired, kind of churning here.
Speaker 9: We're seeing some rotation underneath the surface.
Speaker 11: So I think you can kind of bide your time
Speaker 11: a little bit here and look for opportunities in the
Speaker 11: volatility that we think will come. But again, it's it's
Speaker 11: it's It reminds me of the quote from Mark Twain.
Speaker 11: It ain't once you don't know that gets you into trouble.
Speaker 11: It's what you know for sure that just ain't.
Speaker 2: So yeah, and Walter, that really depends on the volatility
Speaker 2: actually materializing. What what does that volatility look like, and
Speaker 2: what do you think finally causes that.
Speaker 11: Yeah, well, I think we got a little bit of
Speaker 11: a peek at that last week. If you look at
Speaker 11: the action on Thursday from the you know, the comments
Speaker 11: from Kashkari Thursday afternoon and then the you know, geopolitical issues.
Speaker 9: Going on in the Middle East.
Speaker 11: You saw the market drop you two percent, basically from
Speaker 11: high to low in a couple of hours. So that's
Speaker 11: I think a little snapshot of what could happen. I mean,
Speaker 11: we'll see what happens with the CPI report on Wednesday,
Speaker 11: and if that were to come out a little bit high,
Speaker 11: we could see some more volatility. But you're right, I mean,
Speaker 11: it's been incredibly low volatility backdrop for markets really off
Speaker 11: the lows from last October. So there's no guarantee that
Speaker 11: it will emerge, but I think the odds are that
Speaker 11: it likely will as a function of probably higher rates
Speaker 11: being the catalyst there.
Speaker 5: Walter, Walter, what are you guys doing in the fixed
Speaker 5: income space here? Man, I can just park myself for
Speaker 5: to your treasure and get four point seven eight percent.
Speaker 6: That's a lot too bad.
Speaker 9: Yeah, absolutely.
Speaker 11: I mean I think on the fixed income side, when
Speaker 11: we have managed you know, a good number of fixed
Speaker 11: income assets, I mean we take a Barbelle approach on that,
Speaker 11: you know, as you say, you know, taking advantage of
Speaker 11: the short end, but also you know, taking advantage of
Speaker 11: rates moving higher and starting to step out a little
Speaker 11: bit on the duration spectrum, but still staying you know,
Speaker 11: shorter than the index. The other aspect of fixed income
Speaker 11: is corporate spreads. Those are extremely tight right now. And
Speaker 11: kind of back to the previous point about where where's
Speaker 11: the volatility and it come from? You really haven't seen
Speaker 11: anytime you've seen volatility in the equity market, the little
Speaker 11: that we've seen, you really haven't seen spreads react, and
Speaker 11: so we're kind of watching that to see it kind
Speaker 11: of as a coincident indicator to validate any type of
Speaker 11: sell off maybe has some legs on the corporate bond markets.
Speaker 11: So we were actually transitioning a little bit of weight
Speaker 11: out of corporates into treasuries as a result of those
Speaker 11: tight spreads.
Speaker 2: Yeah, yeah, you know, you and everybody else have been
Speaker 2: waiting for those spreads to change. It's really fascinating. Do
Speaker 2: you think we see for the tenure three percent or
Speaker 2: five percent?
Speaker 9: First, that's a great question. I think we I think
Speaker 9: we can. Uh.
Speaker 11: I think we could see a push back towards five percent,
Speaker 11: you know, in that direction. Whether we whether we clip
Speaker 11: it or not and get back to those highs from October,
Speaker 11: IM not sure, but I think directionally we're gonna move
Speaker 11: towards five percent before we head back below four and
Speaker 11: and maybe head towards three as we moved through this year.
Speaker 11: Because the other dynamic here is the federal government just
Speaker 11: continues to run deficits and spend, you know, have deficit spending,
Speaker 11: which has really kind of been the support for financial
Speaker 11: markets in the economy. If you look over the past
Speaker 11: several years, we've been running you know, five percent deficits
Speaker 11: a year after year, which is you know, certainly helpful
Speaker 11: to uh, the economic environment, financial conditions.
Speaker 5: So on the equity side here, where are you seeing
Speaker 5: opportunities here? Are you kind of all in with some
Speaker 5: of those big growth stocks that have been powering the
Speaker 5: market really for the last eighteen months, you know, the
Speaker 5: nvd's of the world, or are you looking for maybe
Speaker 5: some value in other spots.
Speaker 9: Yeah, for us, it's kind of a bar bell.
Speaker 11: So we certainly have exposure to you know, technology, not
Speaker 11: in Nvidia specifically, but other technology names within the index
Speaker 11: because that is I think a multi year kind of
Speaker 11: growth dynamic with AI, but probably getting a little bit
Speaker 11: stretched here in the short term. On the flip side,
Speaker 11: we also see opportunities and want to have some exposure
Speaker 11: to the value side of the equation, so think energy, materials, industrials,
Speaker 11: And that's something we've really seen over the past month
Speaker 11: is kind of this emerging inflation trade where you've seen
Speaker 11: the commodities kind of catch a bid here. Industrials have
Speaker 11: been consistently good, particularly down the cap scale. So we
Speaker 11: believe you want to have a balance within the portfolio
Speaker 11: between the growth and the value engine energy.
Speaker 2: Thank you very much. So how do you want to
Speaker 2: play that? Like, what's the best way to play the
Speaker 2: recent our performance?
Speaker 11: Yeah, Alex, I know you're a big energy energy fan
Speaker 11: there and follower and expert.
Speaker 9: Yeah.
Speaker 11: So within the portfolio we have, you know, a variety of.
Speaker 9: Different exposures there.
Speaker 11: So certainly on the EMP front, I think this m
Speaker 11: and A that we've seen over the past year is
Speaker 11: going to continue as we move through the rest of
Speaker 11: this year and into twenty twenty five. We also have
Speaker 11: exposures to some of the big integrated names like Exxon
Speaker 11: and Chevron and different strategies. We don't have a ton
Speaker 11: of exposure to the equipment and service space right now,
Speaker 11: but I know that's been catching, you know, catching up
Speaker 11: a little bit to the to the broader energy space.
Speaker 11: So we think having a you know, a broad exposure
Speaker 11: within energy and quite frankly, you know, it's just four
Speaker 11: percent of the S and P, so you can have
Speaker 11: you know, a pretty good overweight with just six to
Speaker 11: seven percent of the portfolio in there. And we still
Speaker 11: think this dynamic of you know, Nvidia, for example, being
Speaker 11: larger than the entire energy space just make a whole
Speaker 11: lot of common sense to us.
Speaker 9: So we think there are opportunities in the energy space.
Speaker 6: How about in healthcare?
Speaker 5: A lot of folks are suggesting that could be a
Speaker 5: defense area, but still some some growth, I guess.
Speaker 11: Yeah, healthcare has been been disappointing, certainly disappointing. You know,
Speaker 11: it was great in twenty twenty two when the market
Speaker 11: was off, it was you know, lagged last year, started
Speaker 11: to kind of emerge early this year, but it's falling
Speaker 11: back off.
Speaker 9: We see a lot of value within healthcare.
Speaker 11: You know, whether that be pharmaceuticals, biotech, healthcare equipment, but
Speaker 11: certainly has lagged the overall market. But we definitely have
Speaker 11: a healthy weight within that sector and see opportunities. One
Speaker 11: of the challenges for healthcare is an election year, which
Speaker 11: tends to be a little bit of a headwind for
Speaker 11: those names.
Speaker 2: What don't you like right now, like what's like Forbotten
Speaker 2: where you are?
Speaker 11: Yeah, so we're we're underweight consumer discretionary right now. We're
Speaker 11: underweight you know, real estate and utilities as interest rates
Speaker 11: sensitive sectors and we're actually slightly underweight technology, which I
Speaker 11: know is it seems like a crazy thing right now,
Speaker 11: but again we think a little bit stretched here in
Speaker 11: the short term given the move that we've seen, you know,
Speaker 11: over the past eighteen months in that sector.
Speaker 2: Yeah, that's so funny. It's like you don't want it,
Speaker 2: but you have to have it, but it's stretched. That's
Speaker 2: a tricky spot, definitely.
Speaker 6: To be That's why people get absolutely this stuff matter's
Speaker 6: tr true.
Speaker 2: That's why I don't do that.
Speaker 5: Walter Todd, thank you so much for joinings our president,
Speaker 5: chie investment officer, Managing director Greenwood Capital. Coming to us
Speaker 5: from the great state of South Carolina. Greenwood, South Carolina,
Speaker 5: or I guess the whole state's going nuts.
Speaker 6: I know. Amy mars is at Bloomberg News down in Washington.
Speaker 6: We chatter with her this morning. She was overcome with
Speaker 6: emotion talking about her University of South Carolina sports lady
Speaker 6: game piks, when's basketball?
Speaker 2: Yeah, no, I you know, puzz looking at me like,
Speaker 2: come on, Alex, I get it a little bit together.
Speaker 2: I got a little bit together.
Speaker 6: For that, got a little bit together.
Speaker 1: Yeah.
Speaker 6: So that was a lot of fun for those folks
Speaker 6: down there.
Speaker 2: So We're done with that. Now we're moving on to
Speaker 2: the men's match. Right, when's that.
Speaker 6: Nine T tonight? So I'm not even nice exactly.
Speaker 2: Wait, we got on the clips and the final four
Speaker 2: in one day.
Speaker 5: And you got coach cal Pari leaving Kentucky for Arkansas.
Speaker 5: Perhaps the biggest news of the day.
Speaker 2: Wow.
Speaker 6: See she has no idea.
Speaker 2: I don't, I really don't.
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