Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul swing you.
Speaker 1: Along with my co host Lisa Brahma Waits. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money. Whether at the grocery store or
Speaker 1: the trading floor, find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. Stocks are up, giving a little
Speaker 1: bit of a pop, although you know, really the action
Speaker 1: is underneath the surface. There has been a rotation out
Speaker 1: of those momentum names tech for example, and into value
Speaker 1: led by banks. Interestingly enough, we are getting a little
Speaker 1: bit of yield curve skeepening, but not not a whole
Speaker 1: lot to justify the move that we have seen. We
Speaker 1: are so lucky to have with us on Wheti Bajugana.
Speaker 1: She is senior portfolio manager and a head of multi
Speaker 1: asset Strategy at Columbia thread Needle Investments, which oversees almost
Speaker 1: five hundred billion dollars on wheat. Thank you so much
Speaker 1: for being with us. I want to just start with
Speaker 1: what's getting you excited right now? I mean this sort
Speaker 1: of trade out of momentum and into value. Do you
Speaker 1: think of this is something that has legs very short
Speaker 1: term Li Sa I have been watching this rotation as well,
Speaker 1: and on the equity front, it's value versus growth. But
Speaker 1: if you look at the bond market, it's really quite
Speaker 1: correlated to what's happening to rate. And we have seen
Speaker 1: a few days now of sustained sell off in UM bonds,
Speaker 1: which is leading this rotation UM in the stocks also,
Speaker 1: and really the drivers for both markets is the same.
Speaker 1: It is some sense um in the markets of reduced risk,
Speaker 1: the escalation of some of the issues that had dominated
Speaker 1: UM folks mindset in August. So and we we've seen,
Speaker 1: as you mentioned, some rotation driven by rates. What is
Speaker 1: your kind of economic backdrop in your base case, We've
Speaker 1: seen the consumer really kind of supporting in this economy
Speaker 1: in the face of kind of what some weakening manufacturing data.
Speaker 1: Right So that's why I'm a little uh skeptical of
Speaker 1: the rotation that we are seeing right now. It's definitely
Speaker 1: worth watching. But what would get me really excited to
Speaker 1: answer Lisa's question, would be if we begin to see
Speaker 1: some improvement on the economic front, and that Paul still
Speaker 1: remains to be seen In fact, if you look at
Speaker 1: the data that's been released in September so far, we're
Speaker 1: beginning to see cracks on the consumer side of the economy. Also,
Speaker 1: we saw a leg down in the consumer sentiment in
Speaker 1: the Michigan survey for August, and if we look at
Speaker 1: the payroll report, we're seeing slow down in hiring also.
Speaker 1: So I would be super excited if we see improvement
Speaker 1: in economic data. That would give me confidence that the
Speaker 1: movie you're seeing in Rapes is sustainable, and that would
Speaker 1: make more sense to me than one that's probably based
Speaker 1: more on um, you know, a sense of the escalation,
Speaker 1: even though none of the underlying issues in my mind
Speaker 1: have been resolved. Okay, So, given the fact that you
Speaker 1: don't necessarily see a sea change underpinning the move that
Speaker 1: we have seen, are you selling, for example, bank stocks
Speaker 1: into the rally and are you buying bonds? We are
Speaker 1: maintaining very much the mindset we had in August, which
Speaker 1: is that we are slightly underweight equities and for us
Speaker 1: Lisa at an aggregate level, that would be selling equities
Speaker 1: on rallies and buying bonds. So that's what that's that's
Speaker 1: what you've been doing. For example, yes, that's right. So
Speaker 1: and we just you know, we talked about, you know,
Speaker 1: what are the key drivers for this market, and you know,
Speaker 1: we can't escape the fact that global trade tensions discussions
Speaker 1: between the US and China more likely than not, are
Speaker 1: you know, kind of influencing day to day moves in
Speaker 1: the market. How are you discounting kind of in Europe
Speaker 1: base case outlook kind of what is a very uncertain
Speaker 1: trade environment between US and China. UM, it happened very
Speaker 1: difficult to get that call, right, Paul Um. So we
Speaker 1: are staying out of it. We don't see any improvement
Speaker 1: other than really just the mood music on on the
Speaker 1: trade front. That it's no real substantial movement on the
Speaker 1: trade front. There's a lot of back and forth. We
Speaker 1: don't believe we would see a substantial deal anytime soon,
Speaker 1: and so we are staying on the way risk affettes
Speaker 1: in our portfolios. It would be helpful if um we
Speaker 1: see the breaksit issues get resolved. But you know, even there,
Speaker 1: the only positive that I've seen is that there is
Speaker 1: some lowering of the risk of UM no deal hard brexit.
Speaker 1: But by and large, the thing that's giving us most
Speaker 1: confidence really is the fact that the FED is thing
Speaker 1: accommodative threads, not of its not complete pivot on their
Speaker 1: strategy since the beginning of the year, and is um
Speaker 1: maintaining a policy stance which is supportive of risk that
Speaker 1: prevents us from getting up two nervous about the market
Speaker 1: because there is a backstop. So, given the fact that
Speaker 1: the FED is likely to remain accommodative and perhaps provide
Speaker 1: even more accommodation in the very near near term, I'm
Speaker 1: wondering how you feel about credit right now. You talked
Speaker 1: about buying bonds. Does that extend to risk your bonds
Speaker 1: at a time when companies such as for example today
Speaker 1: Kraft Heins is looking to push out their maturities so
Speaker 1: longer dated debt and lock in these lower borrowing costs. Yes,
Speaker 1: I think completely so doing a really good UM, you
Speaker 1: know the job taking advantage of the yield environment. I
Speaker 1: think we still don't really like the risk are segments
Speaker 1: of the credit market such as high yield was staying
Speaker 1: in the investment grade and securitized space and reyn old
Speaker 1: treasury bonds, mainly because we can see more accommodation this
Speaker 1: year and even more next year. But that would really
Speaker 1: just mean that the economic conditions continue to deteriorate and
Speaker 1: the trade issues continue to escalate, So that is not
Speaker 1: really a very encouraging environment for longer term health of
Speaker 1: the economy. UM in that scenario, you know, spread easing
Speaker 1: even more aggressively or getting even more accommodative. That is
Speaker 1: likely because the other two issues have not been resolved,
Speaker 1: and that's not a great environment for the risk are
Speaker 1: segments of the board market. So I was that's kind
Speaker 1: of where I was going to go. Unwitty emerging markets.
Speaker 1: There's been some debate whether you know, the the that
Speaker 1: the lower rate environment we had been experiencing was conducive
Speaker 1: to emerging markets, but the performance just hasn't been there.
Speaker 1: What is your view on emerging markets? Very similar views
Speaker 1: as in high yield pole. I would also be uh
Speaker 1: cautious on emerging markets. You know, they are actually bearing
Speaker 1: the brunt of this trade trade escalation. Uh there is
Speaker 1: this location in their export and what's happening UM with
Speaker 1: the global trade flowdown, So there is no reason to
Speaker 1: uh take a lot of risk in that space. Also
Speaker 1: at this point in the cycle, we're speaking with Anuti Bahuganas,
Speaker 1: senior portfolio manager and head of multi asset strategy at
Speaker 1: Columbia thread Needle Investments, which overseas four hundred and sixty
Speaker 1: eight billion dollars based in Boston, Massachusetts. Uh and today
Speaker 1: is quite a day on Wall Street. We're remembering nine
Speaker 1: eleven and the interspersed throughout the day, we are having
Speaker 1: moments of silence that are incredibly appointed for everybody who
Speaker 1: experien arians what happened eighteen years ago. Hard to believe
Speaker 1: it was eighteen years ago and we did. I want
Speaker 1: to shift gears a little bit away from just sort
Speaker 1: of allocations to the ECB because everyone is on high
Speaker 1: alert for what the what the e c B is
Speaker 1: willing to do in terms of accelerating their stimulus, whether
Speaker 1: they're going to cut the deposit rate further, whether they're
Speaker 1: going to add some to their quantity of easy or
Speaker 1: purchase even stocks. What are you expecting out of the
Speaker 1: e c B. Um, not as much as I think
Speaker 1: the market is expecting. I think, you know, they will
Speaker 1: do some rate cards and maybe a little bit more queue.
Speaker 1: And I've seen lea a very different estimates of the
Speaker 1: range of QUEUEE deposit cuts of twenty basis points is
Speaker 1: quite likely. I think if they do a little more
Speaker 1: quee uh, that would be supportive of risk assets in Europe.
Speaker 1: But if you look at risk assets in Europe, and
Speaker 1: I mean away from bomb looking at European equities, they've
Speaker 1: been performing quite well, in fact, their neck to neck
Speaker 1: with the U S stock markets. So I think risk
Speaker 1: efforts are pricing in more accommodation from ECB, and that
Speaker 1: would be sort of druggs foreign gifts to UM monetary
Speaker 1: policy in that space. But what happens actually this raise
Speaker 1: is a good question, what happens if the ECB disappoints.
Speaker 1: I mean, how big of a sell off could we
Speaker 1: be looking at? Well, it's I wouldn't be able to
Speaker 1: give a sense of the sell off, but I really
Speaker 1: really doubt that they would disappoint enormously. I think they
Speaker 1: would still go through about thirty billion or so per
Speaker 1: month in QUEI, and I think that we would see
Speaker 1: deposit cut rate cuts, which is, you know, perhaps given
Speaker 1: the noise of some opposition by some of the shadow
Speaker 1: policymakers UM and a fair amount of debate within e
Speaker 1: CD on whether they should be doing this or not
Speaker 1: is not fully priced in. So and we you know,
Speaker 1: we seem to be having a global race to lower
Speaker 1: rate to the bottom. How effective do you think continued
Speaker 1: rate cuts are to address what could be slowing economies?
Speaker 1: So so there are they are small bandids, small and
Speaker 1: they can help if broader economic health remains um you know,
Speaker 1: well maintained. In other words, we are seeing this the
Speaker 1: deceleration of growth even in the US from where we
Speaker 1: were at three percent to now to do too in
Speaker 1: a quarter or so and you know, back to sort
Speaker 1: of trend growth around the best performing economies of the
Speaker 1: world are seeing below trend growth or trend trend growth,
Speaker 1: but we are not in recession and that sort of
Speaker 1: the support all this accommodation is providing. While at the
Speaker 1: same time we are seeing change, see change in how
Speaker 1: global trade is conducted. So there is to your point,
Speaker 1: limits to how much help they can give, they can support.
Speaker 1: They can be there with lower rates. Lower rates are
Speaker 1: not really holding back businesses. It's the uncertainty around the
Speaker 1: bigger question of trade that's holding back businesses. And who
Speaker 1: gonna thank you so much for joining us on what
Speaker 1: he is Senior portfolio manager and head of multi asset
Speaker 1: strategy for Columbia Threadneedle Investments, based in Boston, Massachusetts right now.
Speaker 1: It's interesting to just to remember that over the trailing
Speaker 1: twelve months, Uh, the SMP five hasn't really moved that much.
Speaker 1: We've had a tremendous amount of oility at that time,
Speaker 1: but essentially unchanged of the trailing twelve months. What But yeah,
Speaker 1: we are better a one and a half percent from
Speaker 1: the all time high. So the question is kind of
Speaker 1: where do we go from here and can we expect
Speaker 1: more volatility going forward? There's no one better to discuss
Speaker 1: some of those market issues. And Ken Fisher Ken as
Speaker 1: a founder, executive chairman and co c IO of Fisher
Speaker 1: Investments with one and seven billion dollars under management based
Speaker 1: on Whatside, California, but joining us here in our Bloomberg
Speaker 1: Interactive Broker studio. Thanks so much for being here. So
Speaker 1: there's a lot of folks, I think, trying to figure
Speaker 1: out what the next step is for the equity markets.
Speaker 1: For example, we've had trade issues, we've got an easing FED,
Speaker 1: we were ten plus years into an economic cycle. What
Speaker 1: are you advising your clients? Well, I certainly don't think
Speaker 1: we have an easy FED. I don't believe that for
Speaker 1: a heartbeat. I mean, the FED is um idiotic at best,
Speaker 1: uh and and always has been. I learned that for
Speaker 1: Milton Friedman when I was very young. He always said
Speaker 1: they always would be, and I'm gonna stick with that.
Speaker 1: But the fact is that right now it's fairly obvious
Speaker 1: if you think about it on a Bloomberg terminal, that
Speaker 1: the non US world for the first time is leading
Speaker 1: the American market. And if we think of what's going
Speaker 1: on overseas, what you were saying, which is true when
Speaker 1: we think of the American market, becomes more visibly directional
Speaker 1: if we think overseas, so whether it's Sweden, whether it's um, Germany,
Speaker 1: whether it's Britain, I mean Britain with all our bricks stuff,
Speaker 1: the UK markets doing better than the US market is right.
Speaker 1: Hold on, let's let's translate this basically. Basically, it's leading
Speaker 1: US in terms of the ECB, the Bank of England,
Speaker 1: the Swedish all The direction is easy. The direction of
Speaker 1: the market is positive and upward overseas more so than here.
Speaker 1: Here it looks like you're in that trading channel there
Speaker 1: it looks like it's broken out, because it's not that
Speaker 1: the economy is so much better there. Oh, I think
Speaker 1: it's because just simply there's this fairly st andrew economy
Speaker 1: being better. G Who in the heck needs a better economy?
Speaker 1: We have a near Goldilocks economy as it is. If
Speaker 1: you could grow the global economy at two percent with
Speaker 1: no inflation, that's kind of what in the nineties we
Speaker 1: thought Goldilocks should look like. The fact of the matter
Speaker 1: is they've been having enough problems over there that at
Speaker 1: every place you've got the almost equivalent of having recognized
Speaker 1: a recession. It's not a recession, but it's that quasi
Speaker 1: growth recession, which is almost as positive for stocks after
Speaker 1: that as an actual recession. The history of big slowdowns
Speaker 1: grinding through what what are what are recessions and bearer
Speaker 1: markets supposed to do. They're supposed to overcome and fix
Speaker 1: the excesses of the prior boom. That's what's supposed to happen.
Speaker 1: Right now, We've got a comparable period where we're doing
Speaker 1: the same thing over there. How about here in the U.
Speaker 1: S are you in the camp that it feels like
Speaker 1: a recession is av for the US? I would be
Speaker 1: stunned if we have a social care uh in that timeframe. Okay,
Speaker 1: The fact of the matter is that there's really other
Speaker 1: than the fact that things are going along pretty darn well.
Speaker 1: For example, folks point to uh manufacturing p m s,
Speaker 1: but if you think about its services are three times larger,
Speaker 1: and service p m I is are just fine, thank you.
Speaker 1: When if we're up to me and I would have fed,
Speaker 1: I would dump all those stupid bonds that they bought
Speaker 1: that they never should have bought in the first place. Well, okay,
Speaker 1: well let's let's let's talk about what you're actually doing
Speaker 1: or what you're actually advising your clients to do. And
Speaker 1: it sounds like you're bullish on Europe right now, given
Speaker 1: the fact that they're they're cheaper than the U S. No,
Speaker 1: I didn't say cheaper, that they that they're basically they
Speaker 1: have more bearishness sort of built into them. Uh so,
Speaker 1: therefore there's more potential upside the US maybe less so
Speaker 1: in terms of where we are in that cycle is
Speaker 1: right here, right now, And we're also with a stage
Speaker 1: in the American political cycle were normally the market slows
Speaker 1: down for a little bit in America. Okay, so then
Speaker 1: how much are you advising clients to overweight Europe over
Speaker 1: the US. You know, I'm not that extreme. So you know,
Speaker 1: I kind of have a overweight view. I don't want
Speaker 1: to be extreme. I don't have a you know, hit bigger,
Speaker 1: go home better in me, because too often you go
Speaker 1: home and you're wrong too often. I mean, I live
Speaker 1: in a world where it's a world of probabilities, not certainties,
Speaker 1: and I got to be able to live through mistakes,
Speaker 1: which I know I'm going to make a lot of.
Speaker 1: If I could, if I could be right seventy percent
Speaker 1: of history, which I can't, i'd be become a living legend.
Speaker 1: And so I got to be prepared to be wrong
Speaker 1: at least thirty percent of the time and lived through it. Okay,
Speaker 1: so close to a living legend, one could argue, certainly,
Speaker 1: giving your performance and the assets under management. But so
Speaker 1: the question, one of the questions is simply, we've had
Speaker 1: it just this week. It seems, at least on Bloomberg
Speaker 1: Radio a discussion and on Bloomberg News about maybe a
Speaker 1: little bit of rotation going on underneath the surface kind
Speaker 1: of what is your sent is that? Just to me,
Speaker 1: it seems like boy people are making a big deal
Speaker 1: about what might just be some anomalous trading over a
Speaker 1: couple of days. But that's something more and that might
Speaker 1: be true. But pretty often after you've had a trading
Speaker 1: range like this, where the prior leadership has stalled, you
Speaker 1: get a bounce back effect that's not extraordinary. And that
Speaker 1: bounce back effect in this case would be value over growth,
Speaker 1: smaller over big. That's been what's been going on in
Speaker 1: that rotation. My guess is, however, usually if we assume
Speaker 1: the bull market continues, usually the girl that brought you
Speaker 1: to the dance stays with you, and that probably is
Speaker 1: what happens, which is the leadership then eventually reverts back.
Speaker 1: I mean, normally, as you move towards the end of
Speaker 1: a bull market, you get what is referred to as
Speaker 1: narrowing breadth. Fewer and fewer big stocks lead the market
Speaker 1: higher and higher, typically of the same categories that led earlier.
Speaker 1: So I'd expect over the course of the rest of
Speaker 1: the year for that process to eventually revert. One thing
Speaker 1: I've been in wondering how often do you trade? How
Speaker 1: often do you trade? How often as little as I can?
Speaker 1: So when when I was young, there was a great
Speaker 1: columnist for Forbes magazine named Lucian Hooper. He was the
Speaker 1: third longest running columnists in Forbes History. Uh, and he
Speaker 1: had a lot of great he was in New England
Speaker 1: or he had a lot of great lines. And one
Speaker 1: of them is, you know, you make more money sitting
Speaker 1: on your hands and you do dancing on your feet.
Speaker 1: And there's a lot of truth to that. You you
Speaker 1: make your bets and unless you come to the realization
Speaker 1: that you were wrong in the first place, which should
Speaker 1: have some fundamental arguments to it, you let the volatility
Speaker 1: dance through you. So when was the last time that
Speaker 1: you traded? Oh? Well, we trade little bits all the
Speaker 1: time because we got a lot of money. But but yeah,
Speaker 1: big trades. You know, we haven't done anything other than
Speaker 1: trimming little things for months. Is it less than usual? Yeah,
Speaker 1: because the market is not that volatile. People think the
Speaker 1: markets volatile, but the markets volatility this year is actually subnormal.
Speaker 1: If you actually look at the markets, volatility this year
Speaker 1: is not high. How about I P S. Do you
Speaker 1: guys look at No. When I wrote a book thirty
Speaker 1: two years ago where I had a chapter that I
Speaker 1: P O S. I mean, it's probably overpriced, and I
Speaker 1: still believe that's true. The fact of the matter is
Speaker 1: I P O S or priced for the issuer. They're
Speaker 1: not priced for the consumer. And the fact is if
Speaker 1: if they want the history of I p o s
Speaker 1: is a short term pop. And you know, if you're
Speaker 1: gonna try to create a short term pop, usually that's
Speaker 1: going to go against you. Look at what happened with Uber,
Speaker 1: Look what happen would lift. Uh. The good part about
Speaker 1: I p o s right now is that we have
Speaker 1: not gotten to that part where we're floating garbage on
Speaker 1: top of the water like it's gold. Uh, the garbage
Speaker 1: in there. You know, we're not having manufactured i p
Speaker 1: o s for the purpose of going public in volume
Speaker 1: like you know we do when we have exuberance. The
Speaker 1: lack of that as a sign of a lack of exuberance,
Speaker 1: which is healthy. Ken Fisher, thank you so much for
Speaker 1: being with us. Thanks for having me. Ken Fisher is founder,
Speaker 1: our executive chairman, and co chief investment officer of Fisher Investments,
Speaker 1: which overseas a hundred and seven million dollars from Woodside, California.
Speaker 1: But he joins us here in our Bloomberg Interactive broker's studios. Well,
Speaker 1: we woke up to a surprise deal in financial services
Speaker 1: this morning. Hong Kong Exchange has made an unexpected thirty
Speaker 1: six point six billion dollar bid for the London Stock Exchange,
Speaker 1: a move there that would upend the UK Borses combination
Speaker 1: just announced recently with definitive. So to get the latest
Speaker 1: on what this means in the world of global exchanges,
Speaker 1: we welcome Sarah Siad. Sarah's a Bloomberg News reporter, UM
Speaker 1: to get her sense. Sarah, thanks so much for joining us.
Speaker 1: Just give us kind of the background and what happened here.
Speaker 1: This was really an unexpected announcement, wasn't. Yeah. I mean
Speaker 1: we're saying, UM, the words that are being used is
Speaker 1: the unexpected, the shark, the surprise. I mean definitely had
Speaker 1: London scrambling around. UM this morning. Certainly the deal's team
Speaker 1: woke up to to some big news this morning. I mean,
Speaker 1: as you mentioned, it is a bit of a shock.
Speaker 1: UM announcement. It wasn't one that any of us or
Speaker 1: our competitors broke. It was. It was an announcement that
Speaker 1: came directly from from the Hong Kong Exchange UM itself.
Speaker 1: I think, UM, the timing is quite interesting. It comes
Speaker 1: on the off the back of the the announcement about
Speaker 1: of the LSE refinitive deal. I think what's indicative of
Speaker 1: the timing of the announcement is UM. Had the refinitive
Speaker 1: LSE deal gone through, it would have made the LSE
Speaker 1: pretty much unaffordable for many other interested parties UM. But
Speaker 1: whilst the deal is still UM not completely through, buying
Speaker 1: else by itself makes it a more affordable play than
Speaker 1: with together with refinitive. What's the what's the larger here
Speaker 1: for the Hong Kong exchanges? Well, I think you know
Speaker 1: Hong Kong. These are two of the world's most significant
Speaker 1: UM exchanges, and it really depends on what I mean.
Speaker 1: It's clear what Hong Kong wants to do. They want
Speaker 1: to create an exchange powerhouse. The question is what does
Speaker 1: Elsie want to do. I mean the deal with refinitive
Speaker 1: meant would have meant that UM the London Exchange was
Speaker 1: not only reliant on on the exchange but diversifying into
Speaker 1: more data driven a more data driven business. They need
Speaker 1: to now ask themselves, do we want to continue on
Speaker 1: that path and and this strategy that we had in
Speaker 1: play to diversify into more data or do we want
Speaker 1: to grow and become a exchange powerhouse by by by
Speaker 1: being acquired by the Hong Kong Exchange. We should note
Speaker 1: that refinitive is the old Thompson Reuter's business, the icon
Speaker 1: terminal neck competed directly with Bloomberg LP. Uh, sir, give
Speaker 1: us the sense of what the political overtones maybe here,
Speaker 1: because this is, you know, the London Stock Exchanges a
Speaker 1: in a national treasure if you will, for the UK
Speaker 1: and Hong Kong coming in and maybe even by extension,
Speaker 1: China coming in and buying such an iconic UK asset.
Speaker 1: How do you think that's going to play up? It's
Speaker 1: definitely and it would be an understatement to say that
Speaker 1: it is a politically sensitive um UM scenario. For sure.
Speaker 1: Hong Kong Exchange is interestingly UM pitting itself as a
Speaker 1: global exchange, trying to move away from being a pure
Speaker 1: Hong Kong or Chinese UM entity. And I think that
Speaker 1: is to UM an extem placate London and the government
Speaker 1: UH here for any concerns there may be about UM
Speaker 1: there being a Chinese bidder for UM. I guess this
Speaker 1: gem of in London. You know, the UK Government's Andrea
Speaker 1: Ledson said this morning um On on bloom Vegta TV,
Speaker 1: just as the announcement was breaking that it's something that
Speaker 1: they would look into and most likely scrutinized. So it's
Speaker 1: certainly not without any political issues or involvement. I think
Speaker 1: that there could also be a US angle with with
Speaker 1: with Cyphius um Um coming into place. So yeah, from
Speaker 1: a political perspective, there's certainly it would not It's not
Speaker 1: a straightforward deal. It would not be a straightforward deal.
Speaker 1: It just is a rabid up. But with the three
Speaker 1: six point five billion dollar offer, how does it sort
Speaker 1: of sit with analysts? They think it's expensive? Do they
Speaker 1: think it's cheap? Um? I mean a lot of the
Speaker 1: analysts report that we have read today have suggested that
Speaker 1: it's a deal that they don't think we'll go through
Speaker 1: for a number of reasons, politically, um being one of them.
Speaker 1: But you know they have also said, um, you know
Speaker 1: that the UK is an attractive market for some foreign
Speaker 1: investors at the moment, particularly with the drop in in Sterling.
Speaker 1: But the Hong Kong exchanges um. Charles leaves that made
Speaker 1: an interesting metaphor earlier today, describing the potential tie up
Speaker 1: between Hong Kong and London as a corporate Romeo and
Speaker 1: Juliet But I think we all know how that story ended. Yeah,
Speaker 1: not not exactly auspicious. No, it's a bizarre it was
Speaker 1: a bizarre connection to make. So yeah, let's see narrator.
Speaker 1: They both died. Sarah's said, thank you so much for
Speaker 1: being with us, Sarah said. Bloomberk News reporter are joining
Speaker 1: us to talk about the Hong Kong Exchanges surprise, a
Speaker 1: proposal to combine with the London Stark Exchange. Generalist saying
Speaker 1: it's unlikely, uh to see it come to fruition, but
Speaker 1: nonetheless definitely shocking markets this morning and sort of making
Speaker 1: them imagine the possibility. Is interesting to know what the
Speaker 1: business cases for a lot of these exchanges. It has
Speaker 1: increasingly become a data one, UH in terms of feeds
Speaker 1: and UH and and an other market intelligence. We've been
Speaker 1: focusing on financial technology this week. We were earlier in
Speaker 1: Boston at the Boston's Fintech Week, which was really interesting
Speaker 1: as people sort of try to reimagine, uh, the way
Speaker 1: that the financial industry will look in the years to come.
Speaker 1: Joining us now in that theme as Michael Tannenbaum. He
Speaker 1: is chief financial Officer of Brex based in San Francisco.
Speaker 1: Michael thank you so much for being with us. Why
Speaker 1: don't you just start by telling us what Brex is. Sure,
Speaker 1: Brex is a credit card for early stage businesses like
Speaker 1: tech startups, life sciences companies, and e commerce businesses. So, Michael,
Speaker 1: what are kind of what is your product your card
Speaker 1: designed to do? Is there is there a problem or
Speaker 1: a need in the marketplace for some of these startup
Speaker 1: companies that your card in your service tries to address. Yeah,
Speaker 1: I think it's really around both products, underwriting, and text,
Speaker 1: so all three of those. On the product side, I
Speaker 1: think we're offering innovative rewards and technology and expense management
Speaker 1: that is targeted to these businesses. On the underwriting side,
Speaker 1: unlike most credit cards, we underrate based on bank account
Speaker 1: rather than personal FICO or credit scores um and the
Speaker 1: combination of that delivers a really high quality product experience
Speaker 1: for these customers, often who are fast growing but have
Speaker 1: limited credit or operation history. So talk a little bit
Speaker 1: about the creation of BRAX. I know that you have
Speaker 1: the support of some pretty significant play ayres in Silicon Valley. Yeah. So,
Speaker 1: the it's backed by Peter Thiel and Mac Lection, the
Speaker 1: two co founders of PayPal. We also had a bunch
Speaker 1: of investments from Silicon Valley and tech investors including y Combinator,
Speaker 1: d st Um, Kliner, Perkins, so a lot of big
Speaker 1: names that really saw the opportunity for credit cards to
Speaker 1: deliver more um to these these fast growing segments of
Speaker 1: the economy. So, Michael, I'm just looking at the brex
Speaker 1: website here, and it talks about higher limits um, you know,
Speaker 1: ten to twenty times higher than any competing card for
Speaker 1: a corporate card. So how do you get there? How
Speaker 1: do you get comfortable? What's your process your underwriting process
Speaker 1: to get there. Yeah, it's interesting because when you think
Speaker 1: about counterparty risk as a lender, which ultimately we are
Speaker 1: in that respect, you want to look at the business
Speaker 1: rather than the person. So if you think about traditional
Speaker 1: credit card businesses in the small small business space, they're
Speaker 1: underwriting the founder or some executive as a person and
Speaker 1: using that personal credit score to make that decision breakfast
Speaker 1: saying no, We're going to look at the business and
Speaker 1: underwrite the cash that is in the business bank account.
Speaker 1: And because we're doing that, we can actually offer much
Speaker 1: higher limits than competitive cards which are just underwriting people.
Speaker 1: So the business is our counterparty and that's why we
Speaker 1: can offer higher limits. This is such an interesting conversation
Speaker 1: to be having at a time when a lot of
Speaker 1: cash burning unicorns are trying to I, P O and
Speaker 1: and and come to market to raise more money. And
Speaker 1: I have to wonder, if you're looking at the actual
Speaker 1: cash of a company, how do you factor in potential growth?
Speaker 1: I mean, how do you sort of extrapolate out to
Speaker 1: see what this company may look like if you do
Speaker 1: extend them alone and they're able to do something legitimate
Speaker 1: with it totally? I think, Well, one of the nice
Speaker 1: things about what we do is we have thirty day
Speaker 1: statement periods, So from our perspective, if you think about
Speaker 1: the way you know financial markets work, it's a very
Speaker 1: short term product. We're repricing it to some extent each
Speaker 1: thirty days because each thirty days opens a new statement
Speaker 1: cycle and I think broader when you think about the industry.
Speaker 1: What we do is we look at it two ways.
Speaker 1: One is on a cash basis, do you have money
Speaker 1: in your bank account? We have real time access to
Speaker 1: that bank account, so we always know if the company
Speaker 1: can make their payment within thirty days. And then we
Speaker 1: also look at for those companies that are further along
Speaker 1: and do have revenue. We look at forecasts and sales,
Speaker 1: particularly in the e commerce space, as a way to
Speaker 1: determine ability to pay. So, Michael, it give us a
Speaker 1: sense of kind of how you're doing in the marketplace,
Speaker 1: why don't you kind of enter this marketplace, and how's
Speaker 1: Brex doing relative to competitors in terms of market share?
Speaker 1: Got it? So? We have started. We started in early
Speaker 1: two thousand seventeen. We launched publicly in mid two th eighteen.
Speaker 1: We've had really tremendous growth. We've been one of the
Speaker 1: fastest growing companies in Silicon Valley. If you look at
Speaker 1: the market today, as you've already indicated, there's a bit
Speaker 1: of a bifurcation between consumer and consumer facing businesses and
Speaker 1: those in the B two B space. We're serving businesses,
Speaker 1: and I think that the soft the financial software and
Speaker 1: underwriting that we've built in that space has been really,
Speaker 1: really attractive, especially as we've added newer markets outside of
Speaker 1: our core startup market to include the life sciences and
Speaker 1: the e commerce sector. Who do you partner with for
Speaker 1: the capital? Got it? So? Our card is a MasterCard product,
Speaker 1: So anywhere master cards accepted um you can use Brex
Speaker 1: on the capital side. We actually have a warehouse line
Speaker 1: UM with far Plays where UM we use funds there
Speaker 1: um to help expand our balance sheet and in terms
Speaker 1: and so I think that's one of the ways that
Speaker 1: we can continue to grow but also do so in
Speaker 1: a low cost way that does that require as much equity.
Speaker 1: So what are some of the unique needs from a
Speaker 1: corporate credit perspective for some of these startup companies that
Speaker 1: you're targeting. Sure, I think it's one being able to
Speaker 1: get a card instantly and online. It's actually still a
Speaker 1: paper based process. When you think about UH applying for
Speaker 1: a credit cards, you're usually even if you're applying online,
Speaker 1: you're typically receiving something in the mail that lets you
Speaker 1: know whether you're approved. That's one. Two is the ability
Speaker 1: to scale with your businesses with your business Brex because
Speaker 1: we underwrite based on a bank account with which we
Speaker 1: have real time access our credit limits dynamically as just
Speaker 1: as the business grows. And I think the last is
Speaker 1: on rewards, which is always a popular topic among UH
Speaker 1: you know credit cards, and the reality is Brex has
Speaker 1: built a rewards program that has not only rewards UM
Speaker 1: and accelerators on categories that the people in this industry
Speaker 1: spend on but it also has a lot of high
Speaker 1: quality sign up offers on UM the goods and services
Speaker 1: that these businesses use, one example being Amazon Web Services.
Speaker 1: Brex offers five thousand dollars of credits on a WUS
Speaker 1: for all of its cardholders. Michael Tannebaum, thank you so
Speaker 1: much for joining us. Michael's the chief financial officer of
Speaker 1: Brex Incorporated, based in San Francisco, with kind of a
Speaker 1: new take on the corporate credit card, targeting UM, the
Speaker 1: start up community and some of the unique needs that
Speaker 1: some of these early stage companies have from a credit perspective.
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
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Speaker 1: you can always catch us worldwide on Bloomberg Radio.