Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moven news.
Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
Speaker 1: What's new in the last twenty four hours here? What
Speaker 1: are we seeing?
Speaker 3: Look, the resolution with First Republic was great to see.
Speaker 3: The market is working, the market resolution mechanism is working.
Speaker 3: But on the other hand, there's still some uncertainty within
Speaker 3: the regional bank space. There's lots of negativity with regards
Speaker 3: to deposits stability, rising fundy costs, increased regulation, potentially in
Speaker 3: inadequacy on the capital front, so there's lots of negativity.
Speaker 2: Those things all sound like not the reason we saw
Speaker 2: the seale off yesterday.
Speaker 1: I mean it not.
Speaker 2: Is it not that shorts after First Republic didn't see
Speaker 2: any kind of relief rally and said, you know, let's
Speaker 2: short the hell out of this basket of stocks again.
Speaker 2: Let's let's have another run at them, because I saw
Speaker 2: from S three data, you know, Bob Sloan shop S three.
Speaker 2: They give us a lot of important short selling data.
Speaker 2: Ninety six percent of KRI shares are sold short. That's amazing, really.
Speaker 1: Wow, ninety six percent.
Speaker 2: That means that there's only four percent of shares out
Speaker 2: there that haven't been borrowed to sell short. And that's
Speaker 2: probably because those share holders don't even know they have them.
Speaker 3: Look, the short sellers have done a great job with
Speaker 3: what happened with SBB, with signature, with First Republic and
Speaker 3: the playbook still there. Nothing has changed from an exogy
Speaker 3: to standpoint from Washington or the regulators to derail the
Speaker 3: narrative that if you short a stock it could go
Speaker 3: into receivership.
Speaker 1: All right, I want to bring in another smart mind,
Speaker 1: and so Matt and I could just sit on the
Speaker 1: sidelines and let these people kind of debate it. Neil Grossman,
Speaker 1: former CIO with t k n G Capitol, joins, is, Neil,
Speaker 1: you've been around the block once or twice. What do
Speaker 1: you make this bank stuff here? I mean I placed
Speaker 1: all the blame squarely on Herman Chen and the fellow
Speaker 1: regional bank people.
Speaker 4: Look, there are a couple of levels of this. Number one,
Speaker 4: it was pretty hard to accept what happened with SVB
Speaker 4: and signats are to begin with, because senior management had
Speaker 4: to know how badly impaired their assets.
Speaker 2: Were, not to mention regulators at the Federal Reserve and
Speaker 2: the FDI see they all claim to have known a
Speaker 2: year in advance and apparently did nothing.
Speaker 4: They didn't do anything. However, on the other side, which
Speaker 4: I believe is in part equally culpability. A year ago today,
Speaker 4: I think we were all together. Inflation was peaking at
Speaker 4: nine percent, the FED was just starting to cut and
Speaker 4: mister Powell and Coe just starting to raise. Were a
Speaker 4: parton me. We're promising or expecting that by September of
Speaker 4: this year, FED funds would be peaking between two and
Speaker 4: two and a half percent. So if you're running an
Speaker 4: institution like SVB or anything even JP Morgan, and for
Speaker 4: the last twenty five years, you've been told to ignore
Speaker 4: reality and ignore risk and just listen to the guy
Speaker 4: at the FED telling you what she's gonna do. You
Speaker 4: don't react in interrrational and conservative way.
Speaker 2: Has anybody herman at these banks tried to put any
Speaker 2: of the blame on the FED because it is fact
Speaker 2: that they have raised interest rates by five hundred basis
Speaker 2: points in about a year. Right, that would be difficult
Speaker 2: for a lot of investors.
Speaker 3: There has been no blame on the FED, and I
Speaker 3: don't think you want to do that because the FED
Speaker 3: also is your regulator, so you can be blaming the
Speaker 3: regulators for your own problems.
Speaker 4: Well, that's why we're here. We can blame. And by
Speaker 4: the way, they were way too slow in raising rates
Speaker 4: even when they started to be very clear. But at
Speaker 4: the end of the day, you're now a year into
Speaker 4: this SVB and signature go, which is bad enough. But
Speaker 4: first Republic, there is no excuse before they had six
Speaker 4: weeks right where first of all, you'd had a big
Speaker 4: rally treasuries, which meant asset prices were actually appreciating. You
Speaker 4: knew how impaired your capital was, and yet you didn't
Speaker 4: do one thing to reduce your balance sheet leverage and
Speaker 4: give yourself a chance to survive and maybe raise some
Speaker 4: capital at the same time.
Speaker 1: Why they didn't use them?
Speaker 2: Why didn't they?
Speaker 5: Yeah?
Speaker 3: I just think that the management team are not crisis managers.
Speaker 3: They've always been lauded for just how well they run
Speaker 3: the bank, and so they.
Speaker 1: Weren't in terms of customer service, in.
Speaker 3: Terms of customer service and in terms of having above
Speaker 3: peer evaluation. So they just weren't experienced enough to deal
Speaker 3: with the crisis, whereas a bank like Western Alliance.
Speaker 2: You're on the phone with Jamie Diamond. Jamie Diamond called
Speaker 2: up the CEO of First Republic, didn't he say it, like, dude,
Speaker 2: do this right now?
Speaker 3: You just compare with what happened with Western Alliance. It
Speaker 3: almost failed during the financial crisis, and they have a
Speaker 3: litany of actions that they took in terms of increasing
Speaker 3: the deposit coverage, insurance coverage, selling assets, a plan to
Speaker 3: increase their capital, seeing deposits come back. So it's a
Speaker 3: start contrast to what happened between the two managements.
Speaker 1: So, Neil, I mean, when we'll hear from Fred Truman
Speaker 1: j Palll later today, how much of all this banking
Speaker 1: stuff and today, yesterday was a really bad day for
Speaker 1: the regional banks. How much is that factor into his
Speaker 1: calculuss analysis, his messaging.
Speaker 4: Maybe, well, look, I think you have no choice but
Speaker 4: to be considering it. And there's no doubt that there
Speaker 4: is significant risks. My guess is one of the problems
Speaker 4: with this bank and others is in fact there has
Speaker 4: been tremendous impairment of capital due to the sharp fall
Speaker 4: and assets the values of assets they hold. The problem
Speaker 4: on the other side, of course, is as you've seen
Speaker 4: the last number of days, Yeah, the data is not
Speaker 4: really helping them, and the inflation data was higher. Look
Speaker 4: at the ADP numbers this morning, another three hundred thousand jobs.
Speaker 4: So you have a very strange set of circumstances where
Speaker 4: the inflation and by the way, I think we've talked
Speaker 4: about this, I suspect as you've move into later in
Speaker 4: the year, you're going to have up with pressure begin
Speaker 4: to develop again on asset price on prices.
Speaker 2: So what does the FED do now? I mean, they're
Speaker 2: clearly going to raise today, right twenty five basis points.
Speaker 2: What does Powell have to say to calm markets in
Speaker 2: terms of financial stability and to rein in inflation when
Speaker 2: you're worried about upper pressure later in the year.
Speaker 4: Well, a couple of things. First of all, for the
Speaker 4: next couple of months, I mean, if you look at
Speaker 4: gone on with oil and commodity prices, there is going
Speaker 4: to be some downwards.
Speaker 2: We'll drop five dollars over it was crazy.
Speaker 4: Right, So there's going to be some temporary drop in
Speaker 4: prices to begin with, which may give them some cover
Speaker 4: for the moment. And I think you're seeing. You know,
Speaker 4: they're going to continue to talk about the fact that
Speaker 4: there seems to be some slowing in the employment picture.
Speaker 4: And look, I don't know what you do at this
Speaker 4: point in a general scheme of things. They have raised
Speaker 4: rates five percent to five percent, and there's an there's
Speaker 4: a legitimacy to be sent to say five to five
Speaker 4: and a quarter is not really relevant. I suspect he's
Speaker 4: going he's going to say that whether they raised today
Speaker 4: or not, they're now going to start to step back
Speaker 4: and give it time to see what the what the
Speaker 4: effect is. Look, you know there's always a lag between
Speaker 4: FED action and results, and you know that they don't
Speaker 4: want to totally unsettled the economic system right now. So
Speaker 4: I'm guessing that's where you head.
Speaker 1: Now.
Speaker 4: The problem on the other side is if he's going
Speaker 4: to stimulate a rally in equities, and equities are quite
Speaker 4: interesting right now as well. I mean, if you look
Speaker 4: leaving aside the the the the banks in theory, stocks
Speaker 4: are actually a lot higher. The banks have been getting killed,
Speaker 4: but the stocks are actually near the highest level in
Speaker 4: six months. But if I said, prices continue to go
Speaker 4: up without the fundamental supporting them, then the system becomes
Speaker 4: more more at risk to unexpected conces.
Speaker 1: Somebody said, we had our earlier guests on said it
Speaker 1: just kind of feels a little bit nineteen ninety nine,
Speaker 1: two thousand and I said, oh, don't go there. I
Speaker 1: live through that, herman. Are the regional banks expecting the
Speaker 1: FED and the FDIC and other regulators to kind of
Speaker 1: increase regulations on them going forwards? That the expectation for investors.
Speaker 3: Yeah, the base case is that the capital ratios will
Speaker 3: go up because banks will now need to incorporate the
Speaker 3: unrealized losses and the available sales securities into the capital calculation.
Speaker 1: Increase.
Speaker 3: The liquidity requirements that went away during the Trump administration
Speaker 3: for the regionals and potentially higher debt issue went to
Speaker 3: help protect the capital structure of banks as well.
Speaker 6: So that's the base case.
Speaker 3: I think everybody's just expecting that if it gets worse,
Speaker 3: then that's could be an incremental.
Speaker 1: A know, earlier I pitched to this is me and
Speaker 1: my pitch to Stevie Cohen, give me two billion dollars.
Speaker 1: I'm going to buy some regional banks. I'm not sure when,
Speaker 1: but I'm very close to buying a basket of these
Speaker 1: high quality regionals, and I'm gonna make you thirty forty
Speaker 1: percent twelve months.
Speaker 4: Well, you know you can. You can actually take advantage
Speaker 4: of the fact that not only your price is dropping,
Speaker 4: but the volatility is going up in the regional so
Speaker 4: you can actually write put options on on regional banks
Speaker 4: in the end of seas let's say five percent below
Speaker 4: the market, and I haven't looked at the prices today,
Speaker 4: but I'll bet you get paid an awful lot of
Speaker 4: money for that. So you break events on this type
Speaker 4: of strategy, you're probably ten to twenty percent below market,
Speaker 4: depending how far are you out your go guys, this
Speaker 4: probably will be doing that.
Speaker 1: This is gold.
Speaker 2: Why don't we start a buffer regional banks buffer ETF.
Speaker 1: Yes, exactly know. But yeah, we've heard a lot of
Speaker 1: those are all the rage right now? They are all right, Neil,
Speaker 1: thanks so much for joining us. Neil Grossman, former CIO
Speaker 1: a tk n G Kapital, joining us here in our studio,
Speaker 1: as is our resident bank expert, Herman Channing. You might
Speaker 1: as well, just you know, take the seat for the
Speaker 1: Day Vandlinberg Interactive Broker studio. Herman Chan covers the regional
Speaker 1: banks for Bloomberg Intelligence.
Speaker 5: You're listening to the Team Ken's Are Live program Bloomberg
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg dot Com,
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Speaker 5: on demand wherever you get your podcasts.
Speaker 1: All right, FED Day today, a lot of folks are
Speaker 1: going to be paying attention safe for our Federal Reserve
Speaker 1: and FED Chairman j Palll probably no more than Omar Aguilar.
Speaker 1: He's the CEO and CIO of Schwab Asset Management. What
Speaker 1: does that mean. Well, here's a couple of just ridiculous
Speaker 1: stats about Schwab seven hundred and fifty five billion billion
Speaker 1: in assets under management as of the end of last year,
Speaker 1: third largest provider of index mutual funds and fifth largest
Speaker 1: provider of ETFs. I don't know how they even manage
Speaker 1: all that stuff, but somehow Omar does it. I mean
Speaker 1: we get a few minutes of his time. Omar, thanks
Speaker 1: so much for making some time in your schedule to
Speaker 1: chat with us today. What are you expecting from your
Speaker 1: Federal Reserve and kind of where do we go from here.
Speaker 7: Hey Paul, good morning. Always happy to talk to you
Speaker 7: and the rest of the audience. Yes, you know it
Speaker 7: is and it isn't important. It's called Guess FED Day
Speaker 7: and we all, you know, get together to just figure out.
Speaker 7: I mean, I never see most of my fixed income
Speaker 7: team so excited as FED Day. I mean, yeah, that
Speaker 7: tells you a lot about fixed income, but in general
Speaker 7: they get really really excited about, you know, what happens.
Speaker 7: I would probably say the expectations, just like the rest
Speaker 7: of the market, is that there will be at twenty
Speaker 7: five basis points increase in the FED rates. I think
Speaker 7: what is gonna be the probably the most interesting, you know,
Speaker 7: part of the of the day is gonna be what
Speaker 7: the conference called will look like and the kind of
Speaker 7: questions and any insights that we may get from from
Speaker 7: Jerom Powell about you know, what may come ahead. You know,
Speaker 7: our expectations continue to be that, you know, given you know,
Speaker 7: where we are with the stress in the banking sector,
Speaker 7: with the potential tidening of credit conditions as a result
Speaker 7: of the failed banks, as well as just the overall
Speaker 7: you know, structure of this lowing down of the economy,
Speaker 7: that there is the possibility that the Fed may actually
Speaker 7: pause or that hint that they will pause, you know,
Speaker 7: provided that they will have themselves thinking that inflation numbers
Speaker 7: continue to go high. They will continue, but you know,
Speaker 7: clearly the signs that inflation is coming down maybe on
Speaker 7: their on their side.
Speaker 1: Oh, Mark, we're you know, sixty sixty five percent of
Speaker 1: the way through earning season here, and let's let's take
Speaker 1: our eye off the FED ball for just a moment.
Speaker 1: What are you seeing in earnings? Does anything kind of
Speaker 1: jumping out at you, either on the plus or the
Speaker 1: negative side.
Speaker 7: Yes, that's a that's a great question. And yes, we're
Speaker 7: roughly like seventy percent of the S and P already reporting,
Speaker 7: and we continue to see that, you know, the the
Speaker 7: numbers to be probably in line to what we expected.
Speaker 7: The big part of the driver here, you know, tends
Speaker 7: to be obviously that these what I call this inflation
Speaker 7: of earnings that came out as a result of you know,
Speaker 7: higher inflation number increasing the top line for most companies.
Speaker 7: And now as that pricing power starts to you know,
Speaker 7: go away, then we're starting to see just those softened
Speaker 7: you know, pieces of that. And just to give you
Speaker 7: a couple of things. You know, earnings that are batting
Speaker 7: estimates by seven percent is roughly around seventy four percent
Speaker 7: of the companies, and that's again that tells you a
Speaker 7: little bit of the fact that, you know, earnings estimates
Speaker 7: going into the quarter were actually load to begin with.
Speaker 7: But that also shows you that when you compare that
Speaker 7: to previous year, that we're going to see this, you know,
Speaker 7: sort of this inflation of EPs, you know, compared to
Speaker 7: what we saw last year, that is expected given where
Speaker 7: we are in the cycle.
Speaker 2: So what does it mean by year end, are we
Speaker 2: in a recession?
Speaker 7: We're We're definitely, I would probably say that on earning side, well,
Speaker 7: we're getting to that point that the earnings recession has begun.
Speaker 7: I think economic wise, we have gone on our theory
Speaker 7: and our you know, continued claim is that there is
Speaker 7: these rolling recessions of different parts of the economy that
Speaker 7: will continue to take place. We saw already the selfness
Speaker 7: in housing, We saw the softness in manufacturing. We haven't
Speaker 7: seen the softness in the service sector. And I think
Speaker 7: by the time we get to that soltness in the
Speaker 7: service sector, we're probably gonna have a rebound in housing.
Speaker 7: We're going to have a rebound of this, and in
Speaker 7: many cases what we have encouraged clients to think about
Speaker 7: it is, you know, what does that mean for your
Speaker 7: overall portofolio. You know, we have encouraged clients to reduce duration.
Speaker 7: There is this time period given the higher interest rates
Speaker 7: at the front end, but this is maybe a time
Speaker 7: for people to start thinking about rebalancing their strategy and
Speaker 7: increasing duration given that the expectation that we're going to
Speaker 7: be a top you know, of the FED cycle is
Speaker 7: coming soon.
Speaker 1: So Matt Omar is obviously a smart guy. Got his
Speaker 1: PhD in statistics and decision sciences from Duke, so he's
Speaker 1: a Duke Blue devil. So that's why we like talking
Speaker 1: to him. So, Omar, you've got a gajillion and one
Speaker 1: Schwab clients out there. What's kind of the question you're
Speaker 1: getting most often from them these days?
Speaker 7: Well, the bigger question is similar to when you said,
Speaker 7: is that are we going to see a big recession?
Speaker 7: And is this going to happen tomorrow? And what we
Speaker 7: have described to folks is that recessions don't necessarily a
Speaker 7: peer one morning and then that's appear the next week.
Speaker 7: We tend to see these cycles play out. I think
Speaker 7: what has the bigger question that we get as well,
Speaker 7: is the recession something that we're going to see it
Speaker 7: will be sustained. And then second question that comes right
Speaker 7: is how about inflation? And now our answers, you know,
Speaker 7: to those questions tend to be twofold. One is, you know,
Speaker 7: normally every cycle, you know has a different you know pass,
Speaker 7: and what we're seeing here is a very unique cycle
Speaker 7: because of the tithing, of the speed of the tithing,
Speaker 7: of central banks racing raids. So therefore we're not seeing
Speaker 7: this similar type of cycles for that recession to just
Speaker 7: be you know, claim as the way it was. But
Speaker 7: what we saw, as I said earlier, is these rolling
Speaker 7: recessions of different parts of the economy. But the good
Speaker 7: news though is that the economy is still holding up
Speaker 7: well and even though we're going to see some softness
Speaker 7: on the labor report on Friday, you know, I think,
Speaker 7: you know, that is a healthy path for getting a
Speaker 7: full recovery.
Speaker 1: All right, Omar, thank you so much for joining us.
Speaker 1: Really appreciate it. Omar Aguilar, he's the CEO and CIO
Speaker 1: of schwab Asset Management.
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Speaker 5: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Speaker 1: Let's talk a little fixed income. And when we talk
Speaker 1: fixed income, let's talk to somebody who kind of just
Speaker 1: does nothing but fixed income. And our next guest certainly
Speaker 1: fills up Bill Joanna Go Diego's co founder of bond Blocks,
Speaker 1: and that is an ETF focusing exclusively or family of
Speaker 1: ETFs at focus exclusively on fixed income. And when we
Speaker 1: talk ETFs, we need Katie Greifel. Yeah, she's like an
Speaker 1: expert here. She does an NEEDTF show with you. That's true, right,
Speaker 1: Mondays or something.
Speaker 2: It's usually on Mondays.
Speaker 1: It's actually tomorrow's Okay, go figure out Thursday. That works
Speaker 1: fine as well. Joanna, thanks so much for joining us
Speaker 1: here at our Bloomberg Interactive Broker Studio. We appreciate you
Speaker 1: coming into the studio. Man. There's a lot going on
Speaker 1: out there in the fixed income space. After a disastrous
Speaker 1: twenty two guys found your footing here in twenty twenty three,
Speaker 1: you guys being the fixed income space.
Speaker 8: That's right, the income is back in fixed income and
Speaker 8: we're potentially today ending the hiking cycle. We're at the
Speaker 8: end of a cycle and it's now time, we believe,
Speaker 8: for investors to get right back into portfolio, reposition their
Speaker 8: portfolios in a fixed income and take advantage of the
Speaker 8: opportunity ahead.
Speaker 1: We do see.
Speaker 2: We do see pricing indicating that today's the last hike.
Speaker 2: So you don't think there's gonna be another hike in June.
Speaker 8: So whether there's another hike or not, we probably we
Speaker 8: need to be thinking about these yields that are going
Speaker 8: to be really powerful in your portfolio. They're at historic levels,
Speaker 8: and we think investors should be, you know, getting their
Speaker 8: allocations back into fixed income.
Speaker 2: I wonder, I mean, we do see the two year
Speaker 2: yielding almost four percent right coming down a little bit.
Speaker 2: But we've spoken to you in the past. I don't
Speaker 2: know if Katie wants to jump in here. We've also
Speaker 2: spoken to investors who buy your products quite often in fact,
Speaker 2: and it doesn't seem like it's the yield level that
Speaker 2: drives that they sometimes need some of your ETFs for
Speaker 2: certain strategies that they're trying to execute on.
Speaker 8: Yeah, exactly. I mean you can take this simple X
Speaker 8: half an X one they are that's the sixth month
Speaker 8: and the one year treasury products we have. I mean,
Speaker 8: they're really excellent, excellent places to sort of you know,
Speaker 8: stay in there for safety, low volatility, also tax exempt
Speaker 8: from state taxes because it's a treasury portfolio. I think
Speaker 8: there's been really with these yields in that feature. Like,
Speaker 8: I think it's a really great place for investors to
Speaker 8: use for cash management. So those that's a fairly simple
Speaker 8: trade all of our clients have been making this year.
Speaker 8: But we also think that investors should be looking opportunistically
Speaker 8: at credit because you know, as we enter the next
Speaker 8: phase of this cycle, and whether or not you believe
Speaker 8: there's an economic slowdown coming, you know, there are opportunities
Speaker 8: here across different credit ratings and credit that are really
Speaker 8: compelling because the yields are giving you a huge head
Speaker 8: start in returns. This year, well, it's.
Speaker 9: Really interesting if you look at the flow show across
Speaker 9: the whole industry, fixed income ETFs have taken in something
Speaker 9: to the tune of sixty five billion dollars this year
Speaker 9: equity ETFs, and there's a ton more of them. They've
Speaker 9: only taken in somewhere in the neighborhood of forty billions.
Speaker 2: So in fact, when you type in ETF go, the
Speaker 2: launch screen default to equities.
Speaker 9: Because I mean they make up the bulk of assets still.
Speaker 9: But obviously fixed income ETFs have taken in the bulk
Speaker 9: of flows at least when it comes to twenty twenty three.
Speaker 9: You and I were talking a little bit earlier this
Speaker 9: morning about how if you look at the common position
Speaker 9: of those fixed income flows, you are seeing a little
Speaker 9: bit of a dynamic shift.
Speaker 8: Yeah, so there's two things we're observing right now. Is
Speaker 8: in treasuries, you're seeing obviously there's kind of equal flows
Speaker 8: this year to date in both the short end of
Speaker 8: treasuries and also now year to date in the long end.
Speaker 8: So you're seeing investors take a little bit of risk
Speaker 8: on in their portfolio, is at least in the treasury space.
Speaker 8: And that's someone that's taken on risk understanding that maybe
Speaker 8: there is going to be an economic slowdown and bond
Speaker 8: prices may rise towards the end of the year. And
Speaker 8: then what we just tapped into which I think is
Speaker 8: really interesting is just in April, you're seeing people shift
Speaker 8: back into corporate debt and also high yield, and that's
Speaker 8: a space that we've been we've launched into, you know,
Speaker 8: significantly across credit ratings and across sectors, and we really believe,
Speaker 8: as I mentioned before, there's a lot of relative opportunity
Speaker 8: within high yield versus just looking at it so broadly.
Speaker 9: So you mentioned that people when it comes to the
Speaker 9: treasury market specifically, people taking a little bit more risk
Speaker 9: going out the curve duration risk, But at the same time,
Speaker 9: it feels like investors are also taking on more credit risk.
Speaker 9: Also to your point, high yield ETFs coming back into
Speaker 9: vogue a little bit here. How do you marry those
Speaker 9: two things? Because when I think long duration treasuries, I think,
Speaker 9: oh my goodness, this economy is going to slow down.
Speaker 9: Why might high yield also be seeing love in this environment?
Speaker 8: Well, I think that what people don't haven't been able
Speaker 8: to see more as clearly as they should and Hyael
Speaker 8: is that the categories are very different. And so for
Speaker 8: something like if you just look at the very first
Speaker 8: high yield category of XPB, it actually has the lowest
Speaker 8: default rate amongst the high yield category.
Speaker 2: If there's high yield, and there's high there.
Speaker 8: High it's only one percent in XPB in our product XBB,
Speaker 8: And it's if you can get access to a big
Speaker 8: diversified portfolio in that credit writing space, you know, you're
Speaker 8: looking at yields that are you know, close to seven percent,
Speaker 8: and that's it. That's a really interesting thing. So if
Speaker 8: you're worried about a weakening I cannot conditions, you should
Speaker 8: consider adding some XBB to your portfolio because it's the
Speaker 8: least exposed to this risk over time, and so you
Speaker 8: now have an opportunity to be more precise, more timely
Speaker 8: tools to really take advantage of what's coming.
Speaker 4: Well.
Speaker 2: So it's I mean, we're all worried about weakening economic conditions,
Speaker 2: but if you think that they're not going to get
Speaker 2: so weak that everybody defaults, this is what you buy, right.
Speaker 8: Yeah, exactly. And then even if you go, you know,
Speaker 8: a little further down the credit rating scale, some people
Speaker 8: take a view and this is why we created so
Speaker 8: many products. In a granular way. Some people could give you,
Speaker 8: I mean, this is your favorite, the triple C product. Okay,
Speaker 8: so it has a yield that's almost fourteen percent, So
Speaker 8: it has a yield that's almost fourteen percent. So there
Speaker 8: are investors out there. Like you said, even just taking
Speaker 8: that really long treasure review sounds really you know, compelling
Speaker 8: to you. But the truth is, like, if you believe
Speaker 8: the risk of recession in the second half of twenty
Speaker 8: twenty three is over, you could consider some X triple C.
Speaker 8: It offers a higher yield, and it's just it's something
Speaker 8: that like it. So I went back into high yield.
Speaker 8: You may, you know, take a small portion of your
Speaker 8: high old exposure and tilt a little bit with these products.
Speaker 9: Really quickly, we have a question from a listener writing in,
Speaker 9: when are you going to bring an investment grade sector
Speaker 9: suite of products into the market. We only have about
Speaker 9: thirty seconds left.
Speaker 8: We just filed for three triple B products two weeks ago,
Speaker 8: and what we've done is we've carved them up into
Speaker 8: maturity buckets, not sectors yet, but we always will take
Speaker 8: suggestions and we have looked at sectors and I think
Speaker 8: it's an interesting thing that you know, fixed incomes should
Speaker 8: be more ganular.
Speaker 1: Right watch the space, Watch the space, and you guys
Speaker 1: have it completely covered on the ETF front, joined Diego's
Speaker 1: co founder of bond Blocks, joining us live here in
Speaker 1: our Bloomberg Interactive Broker Studio as it does Katie Greifel.
Speaker 1: She covers all things on the ETF front. You guys
Speaker 1: got your show on tomorrow.
Speaker 2: Tomorrow Tomorrow, souly. Our show is Monday, is at one pm.
Speaker 2: It's called ETFIQ.
Speaker 5: You're listening to the team Ken's are live program Bloomberg
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg dot com,
Speaker 5: the iHeartRadio app and the Bloomberg Business App, or listen
Speaker 5: on demand wherever you get your podcasts.
Speaker 1: Looking forward to this next discussion. It's about logistics moving
Speaker 1: stuff around. You know, all the boxes on railroads and
Speaker 1: trucks and who knows what else. Drew Wiklson he does
Speaker 1: this stuff. He's the CEO of RXO, which is a
Speaker 1: tech enabled broker services platform that will spun out of
Speaker 1: its parent XPO. I guess recently, I'm looking at the
Speaker 1: RXO stock and it's got a market cap at two
Speaker 1: point three billion, it's up fifteen and a half percent
Speaker 1: this year, up seven and three quarters percent today, and
Speaker 1: the parent company stock XPOS up thirty five percent. So
Speaker 1: it looks like shareholders are winning all over the place
Speaker 1: with this spin out story.
Speaker 4: Here.
Speaker 1: RXO reported numbers last night, so we appreciate getting a
Speaker 1: few minutes of Drew's time. So, Drew, you guys reported
Speaker 1: your earnings last night. What are the highlights from ROXO
Speaker 1: and the logistics business?
Speaker 10: Thanks for having me, Paul and Matt. When you look
Speaker 10: at what the highlights were, the first is that while
Speaker 10: the macro economy is tough right now, we took market
Speaker 10: share and we grew volume by six percent on a
Speaker 10: year every year basis. So while there's less volume out
Speaker 10: there in the freight world, we're able to grow and
Speaker 10: grow profitably. We have best in class margins where our
Speaker 10: brokerage gross profit percentage came in at sixteen point three percent.
Speaker 10: That's well ahead of where the industry came in. And
Speaker 10: the last point that I'll make is our technology continues
Speaker 10: to work. We've invested in technology from day one, and
Speaker 10: our technology is allowing us to operate at best in
Speaker 10: class gross profit percentage. It's helping us grow volume, and
Speaker 10: it's helping us continue to increase our employee productivity. So
Speaker 10: we're very pleased with the results for the quarter and
Speaker 10: fill our best days are ahead of us.
Speaker 2: Are you not worried about a slow down in overall volume?
Speaker 2: We were hearing from some shippers. Ups is one for sure,
Speaker 2: but there are a couple others Fernando Valley was talking
Speaker 2: about who have said we're in a freight recession already.
Speaker 10: We absolutely are seeing a slowdown in the overall macro economy,
Speaker 10: and as I said, there's less volume out there. But
Speaker 10: we've done things that are idiosyncratic to our business that
Speaker 10: are allowing us to grow volume on a year of
Speaker 10: a year basis despite the tough macro. Again, our technology
Speaker 10: is best in class. It does things like help customers
Speaker 10: decide what day of the week they should ship something,
Speaker 10: what mode of transportation they should use. So when they
Speaker 10: look at this as a tool and they are consolidating
Speaker 10: the number of carriers that they're working with, even though
Speaker 10: the pie for them may get smaller, our piece of
Speaker 10: the pie is getting larger, and it positions us very
Speaker 10: well for when the market and flex.
Speaker 1: So Drew explain to us kind of your business, because
Speaker 1: you're not really like owning rare roads and trucks and
Speaker 1: things like that. You're more kind of logistics and software
Speaker 1: and a brokerage business. Can you explain kind of what
Speaker 1: you guys do day to day, who your customers are.
Speaker 10: Yeah, we work with a lot of the Fortune one
Speaker 10: hundred and five hundred companies and we're a best in
Speaker 10: class tech enabled truck brokers. So what we do is
Speaker 10: help the largest shippers in the world connect with massive
Speaker 10: amounts of capacity. We do business with fifty eight of
Speaker 10: the Fortune one hundred and over two hundred of the
Speaker 10: Fortune five hundred, and we give them access to about
Speaker 10: a million and a half trucks and these are mostly
Speaker 10: small to mid sized cares, typical sized cares. As a
Speaker 10: large shipper, you wouldn't sign up, but as we're able
Speaker 10: to aggregate capacity for our customers, it's a huge benefit
Speaker 10: to them.
Speaker 2: Do we see smooth logistics in terms of the US
Speaker 2: or North American supply chain now? I mean, has everything
Speaker 2: been figured out that was all stopped up over the
Speaker 2: last couple of years of the pandemic.
Speaker 10: I don't think there's anything that's been smooth about the
Speaker 10: last few years.
Speaker 2: If you go from but we are we back to
Speaker 2: normal now, is what I'm wondering.
Speaker 10: You're seeing inventory levels at much stronger levels than what
Speaker 10: they were last year. So if you go to last
Speaker 10: year and retailing e commerce specifically, customers were talking to
Speaker 10: us about destocking their inventory, and we're having conversations now
Speaker 10: of how they are restocking their inventory and continuing to
Speaker 10: get it out to the end consumer, and we're a
Speaker 10: great choice for them to be able to use for that.
Speaker 1: Who do you compete against, Drew, Who's share are you
Speaker 1: taking based upon the results you've reported last night? Are
Speaker 1: you this morning?
Speaker 10: Yeah, So we take share from everybody. We're not picky
Speaker 10: on where the share comes from. What we do is
Speaker 10: we look at the customer as a whole and see
Speaker 10: where we can provide value and where our service is
Speaker 10: best fit. And if you think about our top twenty customers,
Speaker 10: we grew volume with our top twenty customers, which again
Speaker 10: is some of the biggest brands in the country. We
Speaker 10: grew volume with them by thirteen per sent on a
Speaker 10: year of a year basis. So our largest customers come
Speaker 10: back to us year after year, and they don't just
Speaker 10: come back to us and award us with what we
Speaker 10: did the previous year, because we've got great service, because
Speaker 10: we've got the best technology in the industry, and we've
Speaker 10: got great operators who know and understand the market, they're
Speaker 10: rewarding us with more freight.
Speaker 2: When you look at the future, Drew and you have
Speaker 2: so much experience with XPO before becoming CEO of RXO,
Speaker 2: do you see you know, EV trucks, Do you see
Speaker 2: an automated fleet or how far off is that?
Speaker 10: It's something where we're talking to EV manufacturers on an
Speaker 10: ongoing basis right now. I think the one thing that
Speaker 10: you have to watch is while I do think that
Speaker 10: you will see EV pick up as a trend, you
Speaker 10: have to watch to see how long the truck will
Speaker 10: be able to drive before it has to be charged again.
Speaker 10: So if you think of average length of haull across
Speaker 10: across the industry, is you know, plus six hundred mile,
Speaker 10: you know right now today you would have to stop
Speaker 10: and recharge before reaching your destination. And so I think
Speaker 10: the end state whenever you're able to have a truck
Speaker 10: drive further operating hours and be able to go from
Speaker 10: shipper to constantee and deliver that that's the end state
Speaker 10: of where we're going. But on short hauls, I think
Speaker 10: that it's something that you're going to see in the
Speaker 10: near term.
Speaker 1: It's true give us the latest on kind of the
Speaker 1: labor piction picture within the logistics pipeline in the United States.
Speaker 1: You know, whether it's the truckers or or some of
Speaker 1: the other pieces of the puzzle, because a lot of
Speaker 1: the trucks are saying, boy, it's always hard to maintain
Speaker 1: and keep our drivers, but it's been even harder over
Speaker 1: the last several years.
Speaker 4: Help.
Speaker 1: Is that still a big, big issue for you and
Speaker 1: your customers.
Speaker 10: Yeah, all of last year we saw capacity coming into
Speaker 10: the market, and so the first quarter was really the
Speaker 10: first time that we saw capacity exit the market. And
Speaker 10: for our business, that's actually a good thing because anytime
Speaker 10: there are shifts in the market, customers are going to
Speaker 10: lean on carriers who they trust the most and that's
Speaker 10: been us. So as you start to see the load
Speaker 10: to truck ratio increase over time, what you'll see is
Speaker 10: you'll see tender rejection start to pick up from asset
Speaker 10: based carriers. And that's where a company like RXO can
Speaker 10: come in and be a big winner.
Speaker 1: So when you talk to your customers, when you talk
Speaker 1: to your transportation partners, what's their view of the economy
Speaker 1: over the next twelve to eighteen months.
Speaker 10: I think there's still a lot of uncertainty on the
Speaker 10: macro economy as a whole, and so as you start
Speaker 10: to look into the back half of the year, there
Speaker 10: are some encouraging signs for US. I talked earlier about
Speaker 10: retail and e commerce inventory levels picking up. We've seen
Speaker 10: pickups in healthcare and technology and home furnishing as verticals.
Speaker 10: So there are some encouraging signs. And I just talked
Speaker 10: about capacity exiting the market. That's again that's actually a
Speaker 10: good thing for our business at this point in the cycle.
Speaker 10: So there are some encouraging signs, but I don't think
Speaker 10: that anybody's got the crystal ball to when they can
Speaker 10: point to when this market and inflection will be, whether
Speaker 10: it's Q three, Q four, Q one.
Speaker 1: All right, Really appreciate getting some of your time. Drew
Speaker 1: Wilkelson Wilkerson, he's the CEO of RXO. The ticker is
Speaker 1: our XO. Pop that in your terminal and you can
Speaker 1: see the stocks up eight point three percent today. They
Speaker 1: reported some better than expected results this morning in the
Speaker 1: market reacting favorably to that. So love talking to the
Speaker 1: folks into the logistics business in the supply chain issue
Speaker 1: that was such a big issue starting with the pandemic
Speaker 1: and maybe getting a little bit more back to normal.
Speaker 5: You're listening to the tape Can's our live program Bloomberg
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the
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Speaker 1: Let's get a sense of what to do with these
Speaker 1: markets here. We're going to get a lot of cross
Speaker 1: currents out there with Divot, with earnings coming out, with
Speaker 1: the FED decision today, with some bank uncertainty. Let's get
Speaker 1: a couple of pros in here. Daviddet's senior investment strategist
Speaker 1: at Pepack Private Wealth Management, and Tim Courtney, cee IO
Speaker 1: at Eccential Wealth Advisors join us here. Let's talk. Let's
Speaker 1: start with you, Tim, what are you telling your clients
Speaker 1: here in a very uncertain time after coming out of
Speaker 1: a brutal twenty twenty two in terms of equities and debt?
Speaker 1: What are you telling your clients these days?
Speaker 11: Yeah, you know, what we've been saying is just kind
Speaker 11: of the simple message of continue to diversify, and you know,
Speaker 11: we are still working through so many distortions of historic proportions.
Speaker 11: In twenty twenty and twenty twenty one, coming off of
Speaker 11: those zero rates, you had capital labor flowing into areas.
Speaker 11: You've got capital moving back out of those and labor
Speaker 11: moving back out of those areas. So many distortions, it's
Speaker 11: hard to just be able to make sense of how
Speaker 11: the market is readjusting to to more normal times with
Speaker 11: normal rates. And so we're saying, look, there's lots of
Speaker 11: discounts out there. The market appears to be pricing in
Speaker 11: some troubles for small caps international value stocks. That's typically
Speaker 11: what you would see going into some slowdowns or potentially recession.
Speaker 11: The market has already discounted those. In some cases, small
Speaker 11: caps are trading about thirty percent lower than their twenty
Speaker 11: year average, and so it's okay to go get some
Speaker 11: exposure there. Own some small caps, own some international stocks
Speaker 11: as well as some of the larger growth stocks, which
Speaker 11: should see their way through a recession, you know, in
Speaker 11: a better way.
Speaker 2: Are you not terribly concerned about a recession? A lot
Speaker 2: of people coming on this program say they expect a
Speaker 2: recession to be short and shallow. Nonetheless, you know that,
Speaker 2: you know, it could be worse, especially if we continue
Speaker 2: to get bank runs.
Speaker 11: Yeah, you know, the story on the recession has gone
Speaker 11: back and forth. At the beginning of the year, it
Speaker 11: was we're definitely going into recession, and then we had
Speaker 11: strong numbers in February and it was, well, we can
Speaker 11: avoid it, and then we had the bank failures, and
Speaker 11: now we're back into Okay, we're definitely going into recession.
Speaker 11: You know, I'm not so sure this recession, if it
Speaker 11: comes this year. I do also think it's likely to
Speaker 11: be shorter and probably lighter, just because there is so
Speaker 11: much capital out there still. Even with the housing gains,
Speaker 11: the stock gains, even though we pulled back in twenty two,
Speaker 11: stocks are still hugely higher from where they were just
Speaker 11: a few years ago. So there's a lot of wealth,
Speaker 11: a lot of dollars out there, and just anecdotally, there's
Speaker 11: still a lot of spending and we're seeing that in
Speaker 11: earnings come through. Earnings are coming through, Okay, So I
Speaker 11: think that it likely will be a little bit lighter
Speaker 11: than a deep recession, and it's priced in in a
Speaker 11: lot of areas.
Speaker 1: Hey, David You've been at this game a long time. Here,
Speaker 1: how do you put all this together? We've got a
Speaker 1: FED decision today, We've got some turmoil slash crisis in
Speaker 1: the bank space, and you know, right in the midst
Speaker 1: of earnings, what are you telling your clients here?
Speaker 12: Well, you know, it all comes down to the time horizon.
Speaker 12: I mean, if you've got a time horizon that goes
Speaker 12: past the end of this week, I think there's a
Speaker 12: lot of great places to put your money to work.
Speaker 12: I mean, let's look at some of the big advantages.
Speaker 12: One is, you've got a market that's eighteen percent off
Speaker 12: of it's all time high. You know, we've always come
Speaker 12: back to that. You know, is that going to be
Speaker 12: this year? Probably not. If that's in three years, that
Speaker 12: looks pretty good relative to stuff and your money under
Speaker 12: the mattress. We know the FED is probably going to
Speaker 12: raise today. What's it going to do going forward? We
Speaker 12: do know it's close to finishing its work. We do
Speaker 12: know that inflation has come down dramatically since last summer,
Speaker 12: and that's been one of the big problems that the
Speaker 12: FED is reacting to. The economy is staying reasonable. We've
Speaker 12: just got a nice report coming out of ADP with
Speaker 12: far more jobs created in the private sector than we expected.
Speaker 12: We still have positive job gration, So I think buying
Speaker 12: stocks for the long term still makes sense here, but
Speaker 12: we would avoid some of the megacap tech stocks, which
Speaker 12: have accounted for close to eighty percent of the games
Speaker 12: this year, and anything that's touting AI be very cautious.
Speaker 2: Wait, I thought, first of all, that's that's well said. Yeah,
Speaker 2: that's something that we're going to clip and probably use
Speaker 2: in commercials from now on. With the what about Amazon?
Speaker 2: I thought you liked Amazon and they're a megacap tech stock.
Speaker 12: And I love the fact that it fell after a
Speaker 12: better than expected earnings report because they said it didn't
Speaker 12: make a convincing AI case. I think they're just being honest.
Speaker 12: But you know, here's the thing. You've got the two
Speaker 12: best businesses on the planet. One is cloud, the other
Speaker 12: is e commerce. We know that those businesses are going
Speaker 12: to be growing double digit rates for as far as
Speaker 12: you can look out into the future. We know they're
Speaker 12: number one in both by the cloud, they're double the
Speaker 12: size of Microsoft. We also know that Amazon is down
Speaker 12: forty five percent frons high, So you're not buying it
Speaker 12: at a peak. You know what I love here is
Speaker 12: Amazon's trade about two times sales, or you can buy
Speaker 12: Microsoft eleven time sales. Amazon's got the better cloud business,
Speaker 12: and you're paying about one fifth as much. Amazon's even
Speaker 12: trained less for eBay, who has the better e commerce site.
Speaker 2: Compelling valuation there for a lot of folks, that's for sure.
Speaker 2: Amazon's the answer to David's question.
Speaker 1: I think that is, Hey, hey, Tim, are there sectors?
Speaker 1: Are there areas where you're saying to your clients, let's
Speaker 1: put a little put some chips on the table here,
Speaker 1: you know, whether it's an equity so or fixed income?
Speaker 11: Yeah, yeah, well, you know, I I don't know that
Speaker 11: there's any any specific areas. There are some areas that
Speaker 11: we probably would avoid, you know, when you're looking on
Speaker 11: the fixed income side, you know, with spreads being still
Speaker 11: really narrow, really compressed, there are some areas that just
Speaker 11: don't the risk reward doesn't look like they make sense,
Speaker 11: you know, owning some higher yield bonds, some riskier bonds,
Speaker 11: you know, going into a recession or a potential recession,
Speaker 11: even if it's light you it probably doesn't make sense
Speaker 11: to get you know, slightly higher yields from there, if
Speaker 11: you're going to take on that risk, you know, you
Speaker 11: might just consider going into equities instead with with higher upsides.
Speaker 11: So we're we're we're looking to avoid some of the areas.
Speaker 11: I would agree with, you know, the comment that some
Speaker 11: of the megacaps look a little expensive. You know, you
Speaker 11: may not want to overweight there. The market is certainly
Speaker 11: overweighted in the megacap the space, and so you know,
Speaker 11: maybe you didn't want to take a full weight there,
Speaker 11: but otherwise, you know, I think, just broadly, now that
Speaker 11: that rates are higher and things have more normalized, you know,
Speaker 11: outside of those few areas maybe where the risk returned
Speaker 11: doesn't line up, I think getting exposure in most broad
Speaker 11: asset classes, including you know, including real assets like commodities
Speaker 11: in real estate. Real estate had a really poor year
Speaker 11: last year. It's still risky, but there's with with rates higher,
Speaker 11: you could look to put some money into real estate
Speaker 11: in those areas as well.
Speaker 2: David, you like Alexandria real Estate Equities. What is that company?
Speaker 2: AARI is the ticker.
Speaker 12: Absolutely so it's the only pure play in office space
Speaker 12: for the biotech industry, and I think that makes more
Speaker 12: sense than conventional office space for less of lawyers and
Speaker 12: accounts because you know you're just not going to work
Speaker 12: from home for your lab work. The companies that have
Speaker 12: about forty percent from the start of the year four
Speaker 12: percent dividend yield, it's a unique property that I think
Speaker 12: can rebound here.
Speaker 1: Okay, David Deets, we appreciate it. Tim Courtney appreciate as well.
Speaker 1: Getting the latest on these markets.
Speaker 5: You're listening to the tape cats our live program Bloomberg
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 5: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 5: You can also listen live on Amazon Alexa from our
Speaker 5: flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
Speaker 1: Some news out in the pharma space today Lily drug
Speaker 1: slows Alzheimer's disease and final stage study UH shares of
Speaker 1: Eli Lellyer up six point five percent today. In part
Speaker 1: on that news, we want to get the latest on
Speaker 1: what that means for Lily, what it means for the
Speaker 1: space and all things pharmas we do that with Sam Fizzelli.
Speaker 1: He is the head of European Research and he is
Speaker 1: a pharmaceutical analyst at Bloomberg Intelligence based in London. God
Speaker 1: knows where he is in any given day, but he
Speaker 1: is based in London. So Sam, talk to us about
Speaker 1: this fit this farmer news from Eli Lilly. What's it
Speaker 1: mean for Lily and for this disease?
Speaker 6: Hey, Paul, I'm actually sitting in the studio in lod Yes,
Speaker 6: there we go, so so based on in the in
Speaker 6: the in the mothership. So look, any positive news for
Speaker 6: this devastating disease has to be taken positive. You know,
Speaker 6: it is no question that we need drugs for treating
Speaker 6: this curse that's going to be at some point, hopefully
Speaker 6: not affecting you and I, but somebody close to us potentially.
Speaker 6: So the question, however, is well, how good is this
Speaker 6: data and how does it set up Lily compared to
Speaker 6: the competition. Well, it certainly gives Lily an opportunity to
Speaker 6: play in the in the to be a contributor in
Speaker 6: this business, and that that that is going to be
Speaker 6: a positive, There's no question about that. But how much
Speaker 6: you know, you look at the efficacy that they reported,
Speaker 6: it's not that different to another drug that we talked
Speaker 6: about just about a year ago as the data was
Speaker 6: rolling out, and that was biogens the Camby now that's
Speaker 6: on the market. So twenty nine percent reduction in the
Speaker 6: speed of decline versus twenty seven percent for the Camby
Speaker 6: different trials. But that's what we're seeing. The issue we
Speaker 6: have and the worry I have, is that the Lily
Speaker 6: drug has higher side effects. There's a particular side effect
Speaker 6: that they look at in for Azhonma's patients and it
Speaker 6: seems to have not exactly not quite double, but it
Speaker 6: seems to have quite a higher rate of that particular
Speaker 6: side effect, and that's something that worries me about its commercial.
Speaker 2: Wait, what's the side effect?
Speaker 6: So what you get with these drugs, with all of
Speaker 6: them is something called amyloid related imaging abnormality ARIA. Yeah,
Speaker 6: and a lot of them are exactly just that you
Speaker 6: scan the brain and you find these weird dots around it,
Speaker 6: and that's being called ARIA. Some of them cause inflammation,
Speaker 6: real inflammation, and unfortunately there is a version of it
Speaker 6: where there's little hemorrhages. Now that doesn't sound good, right, So,
Speaker 6: and that's what you want to try and avoid. Now,
Speaker 6: the Kenby has a much lower percentage of patients who
Speaker 6: suffer the hemorrhage type aria h than the data that
Speaker 6: we've seen from dunanamap from Lily. So that's the question
Speaker 6: that I think a lot of physicians are going to
Speaker 6: be asking, how good is the efficacy? And am I
Speaker 6: going to be wanting to put my patients through this
Speaker 6: given that they're going to you know, these are elderly
Speaker 6: patients already, if they get these side effects of what
Speaker 6: we have going to manage.
Speaker 1: It, Sam, What are the folks in the medical community,
Speaker 1: the scientific community, what do they believe is the realistic
Speaker 1: I guess ultimate treatment of Alzheimer's.
Speaker 6: You know, Paul, it's just pretty much like cancer. I
Speaker 6: think if you think about it, the biology is multifaceted.
Speaker 6: There are many things that are going wrong in the brain.
Speaker 6: And remember, by the time you get to the deficits
Speaker 6: in memory and cognition, you've had this disease developing for
Speaker 6: ten years, fifteen years. So what everybody's trying to do
Speaker 6: is to go as early as possible, identify markers, and
Speaker 6: find treatments that have side effects that you can manage
Speaker 6: for somebody who's going to get treated for ten years,
Speaker 6: but also gives really seriously slows down the risk of
Speaker 6: you developing that later Alzheimer's. That's the holy grail. So
Speaker 6: you know this is in patients that have got some
Speaker 6: signs of cognitive decline already. We need to get earlier
Speaker 6: and there are definitely going to be more than one
Speaker 6: way of doing it and possibly come nations.
Speaker 2: Why are Lily's drug is called done nanomab and Biogen's
Speaker 2: drug is add you canomab.
Speaker 6: And that was the old one it canomap.
Speaker 2: Or well, the same question, then what's the mab?
Speaker 1: What are these things?
Speaker 6: The maps? The maps are antibodies, so basically they are
Speaker 6: biological biologicals I either manufactured, you have them in your blood.
Speaker 6: You know when you got your vaccine for COVID. A
Speaker 6: lot of the action against the virus initially when the
Speaker 6: virus enters your body is done by antibodies. They are
Speaker 6: highly specific. They're buying to one particular tiny little area
Speaker 6: on a cell or a protein or whatever it is
Speaker 6: and deactivate it. And that's what their job is, I mean,
Speaker 6: really really making it a lot simpler than biology.
Speaker 2: Does we need you to do that?
Speaker 6: So that's what this is. You injected and of course
Speaker 6: what you're doing here is injecting it into the blood
Speaker 6: stream and then hoping that a bunch of it gets
Speaker 6: into the brain. Of course, the brain is very privileged.
Speaker 6: It's protected from your bloodstream because we put a lot
Speaker 6: of stuff in our blood stream.
Speaker 2: Unfortunately, but so certainly ideal goodness. This is this still
Speaker 2: an attack on the plaque. This is a simple idea
Speaker 2: that I have found easy to understand that there's some
Speaker 2: kind of plaque that forms around our synapses or something
Speaker 2: like that, and that that's the Alzheimer's problem, and we
Speaker 2: need to get that plaque away, just like we do
Speaker 2: when we're kind of brushing our teeth.
Speaker 6: Right, I thought you said your knowledge was elementary.
Speaker 1: That was pretty they impressed me.
Speaker 6: There, Yeah, I'm well done. Absolutely right, These things begin
Speaker 6: to form in brains. Not everybody who dies and has
Speaker 6: a brain looked at and has got plaques actually got Alzheimer's.
Speaker 6: That's one of the problems. Only some people do so
Speaker 6: at least what we know here now, two trials, two
Speaker 6: drugs that lower plaques have been able to produce some efficacy.
Speaker 6: We need to push that boundary that bar higher and
Speaker 6: higher and higher.
Speaker 1: And Sam, is this something in the next few years
Speaker 1: or is this kind of like cancer or there really
Speaker 1: isn't any kind of light at the end of the tunnel.
Speaker 6: Maybe Yeah, I mean, I think with Alzheimer's we're going
Speaker 6: to end up having the same sort of situation where
Speaker 6: you're getting a thirty percent reduction in the decline. Remember,
Speaker 6: this is not as stopping, although in some people it
Speaker 6: probably will so if you're one of those lucky people,
Speaker 6: But this is reducing the rate to decline. And what
Speaker 6: you want to do is take that from twenty nine
Speaker 6: percent to forty percent to fifty percent to sixty percent
Speaker 6: and if you're lucky tow one hundred percent. So that
Speaker 6: and without side effects. Of course, as I said that,
Speaker 6: that's rarely going to be the outcome, but that's what
Speaker 6: people are working on different mechanisms.
Speaker 11: Here.
Speaker 6: We are attacking plaque. Should we attack another molecule in
Speaker 6: the brain called TAW. People are trying that. Should we
Speaker 6: go after the inflammation that these things cause? People are
Speaker 6: trying that. It would be a long long way, But
Speaker 6: I'm optimistic that with these little wins we're going to
Speaker 6: be able to see a better upsidey.
Speaker 1: So investing in farmers stocks, Sam, I'm just looking at
Speaker 1: kind of the trailing twelve month performance of some these
Speaker 1: on in. You know, I got Lily up fifty percent.
Speaker 1: That's great, it's fifty two week high. But nobody else
Speaker 1: is really doing I guess Murkers up forty percent. But
Speaker 1: is it You can't just say I'm going long Farmer,
Speaker 1: can It's really company by company, drug by drug.
Speaker 6: Well, Macro has has done that. I mean, you know,
Speaker 6: as we had recession coming and worries about interest rate
Speaker 6: rises and worries, and you know, the defensive the defensive
Speaker 6: play is farma. So one of the defensive plays is farmer.
Speaker 6: So so you can you can pile into some etf
Speaker 6: or some form of a basket. But as you rightly say,
Speaker 6: there are some who've done phenomenally well and over in
Speaker 6: Europe you'll see that nova notice kids. But Lily has
Speaker 6: been one of the best performer. They had many things
Speaker 6: going right for them, and it's been a fantastically well
Speaker 6: managed story in the past three or four or five years.
Speaker 6: As their pipeline has evolved, their margins got better, and
Speaker 6: of course these drugs hit. You just keep adding to
Speaker 6: that baseline of of your salesforce and you keep pushing
Speaker 6: that revenue up and hopefully your margin up. So and
Speaker 6: in the meantime, you treat people, I mean, how can
Speaker 6: you be in a better business.
Speaker 2: And well, people who pay a heck of a lot
Speaker 2: for your drugs here and far less everywhere else. Is
Speaker 2: that the case? Do we Americans subsidize the rest of
Speaker 2: the world in terms of drug prices?
Speaker 6: Yeah? But then you do you do? And the problem
Speaker 6: the difference therefore, is that US has usually got access
Speaker 6: to first to drugs first year, two years, three years,
Speaker 6: four years ahead of other countries. So the patients are
Speaker 6: reaping the benefit, and a lot of the industry, and
Speaker 6: the biotech industry is based out of there. That's jobs.
Speaker 6: So look, I'm not defending prices. This is not our
Speaker 6: what I'm doing here. There are probably some prices that
Speaker 6: should be lower, absolutely, but the system has so many
Speaker 6: middle men in it that need to be sorted out.
Speaker 6: And you know that some of the of the politicians
Speaker 6: are going after the PBMs, so many this is the
Speaker 6: pharmacy benefit maledges. So many middlemen that that just death
Speaker 6: needs to be cleaned out and sort it out. But
Speaker 6: let's just remember, I think Lily's talked about this. The
Speaker 6: cost of obesity, for example, to the US is a
Speaker 6: trillion dollars a year. Their estimate. How much would you
Speaker 6: spend on an obesity reducing drug if you could cut
Speaker 6: that by half?
Speaker 2: Oh yeah, I'm all in because as soon as I
Speaker 2: get that obesie reduction drug, I'm gonna go get a
Speaker 2: root beer float.
Speaker 1: You know, we can eat.
Speaker 2: Anything we want, never exercise, and still say skinny.
Speaker 5: Yeah.
Speaker 2: Well no, thank you so much pharmacy industry.
Speaker 1: Sam's gonna push back on that, all right, Sam, thanks
Speaker 1: so much for joining us. Always appreciate checking in with you.
Speaker 1: Sam Fazzelli, Folks, he runs the research business for Bloomberg
Speaker 1: Intelligence over in Europe. He's got like, I know, one
Speaker 1: hundred people reporting to him, and he's also the top
Speaker 1: pharmaceutical analyst in the city of London, so we appreciate
Speaker 1: getting some of his time. So he's there doing all
Speaker 1: that for Bloomberg Intelligence. He's based out of London, but
Speaker 1: we never really know where he is. He's always traveling
Speaker 1: all over the place.
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Speaker 1: I'm Matt Miller.
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