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 moving news.
Speaker 3: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
Speaker 3: you listen to podcasts, and at Bloomberg dot com Slash
Speaker 3: podcast For broadcasting Live from the COMMONWEALTHS twenty twenty three
Speaker 3: National Financial Advisors Conference, We're at the Gaylord Rockies Resort
Speaker 3: in a rural Colorado, a world class water park.
Speaker 1: I will report for those that are into the water
Speaker 1: park thing what we're doing here. There's a lot of
Speaker 1: registered investment advisors here. People manage money for others. They
Speaker 1: gather here along with their platform, the folks at Commonwealth.
Speaker 1: Matthew Jessup joins up piece as CEO and managing partner
Speaker 1: of Jessup Wealth Management. So, Matthew, you've been in this
Speaker 1: business a long time. You started a UBS wealth management, correct,
Speaker 1: then you go off to form your own firm. Why
Speaker 1: do you go off to form your own firm and
Speaker 1: talk to us about you know, what it was like
Speaker 1: building that business.
Speaker 4: So, Paul, when I got started in the business that
Speaker 4: was back in the day of you know, cold calling,
Speaker 4: right yep, you know, smile and dial and I was
Speaker 4: able to build a client base. And in the late
Speaker 4: two thousands, you know, you go through the GFC. You know,
Speaker 4: the last thing I wanted to worry about is the
Speaker 4: custodian where my money was held. And you know, being
Speaker 4: independent had gave me the ability to invest money the
Speaker 4: way I wanted and grow the business in my fashion.
Speaker 4: And it's worked out really well over the years. We're
Speaker 4: managing over three hundred million of assets, over four hundred
Speaker 4: households across the US.
Speaker 1: So how do you build that business? What are some
Speaker 1: of the tools you use to build that business? So
Speaker 1: you know a lot of it is going to be
Speaker 1: word of mouth and referrals. I do it old school
Speaker 1: now these days, you know, the days of smile and
Speaker 1: dialing is obviously over. But you know, if you look
Speaker 1: at you know how that business has grown, it's mainly
Speaker 1: through that word of mouth, through our entire client base.
Speaker 5: In terms of.
Speaker 2: What you do to get your message out there, beyond
Speaker 2: word of mouth, I'm thinking about social media, posting on Twitter,
Speaker 2: for example. Bailey was just talking about putting charts up there,
Speaker 2: or maybe even going a little bit further a YouTube
Speaker 2: account or a podcast. What do you think are the
Speaker 2: best bang for your buck ways to spread the word.
Speaker 4: Matt, great question for us, It's gonna be our podcast.
Speaker 4: So we started the Independent Advisor's Podcast. We've been doing
Speaker 4: it for two hundred and twenty two consecutive weeks. Each
Speaker 4: of those podcasts last about thirty forty minutes. And what
Speaker 4: we do is a really good job of educating our
Speaker 4: client base and potential clients. You know, we're gonna talk
Speaker 4: about big news and headlines over the past week. We're
Speaker 4: gonna highlight you know, tweets or exes, articles and research,
Speaker 4: and then we do financial planning topics of the week.
Speaker 4: And this was started with me and my business partner,
Speaker 4: Mark mcavy, who's our firm's chief investment officer.
Speaker 1: So what do you find that your clients need the
Speaker 1: most these days? I mean, if you kind of just
Speaker 1: lose yourself in social media or in the news, it
Speaker 1: can be dizzying. So I mean, how do you try
Speaker 1: to get your clients to focus on.
Speaker 4: You know, at the end of the day, it's helping
Speaker 4: them meet their long term financial goals and avoiding the
Speaker 4: short term noise, and we if we look at the
Speaker 4: market day to day and react to that, we're going
Speaker 4: to get them off base. And so I think we
Speaker 4: do a good job putting the news headlines into perspective.
Speaker 4: You know, let's take geopolitics as an example. You know,
Speaker 4: if an investor was waiting for the absence of geopolitics,
Speaker 4: they never own stocks. And so I think we do
Speaker 4: a good job managing and balancing what they're seeing day
Speaker 4: to day in the markets pall, and managing that with
Speaker 4: their long term goals.
Speaker 1: So how do they think? I mean, everybody's different or
Speaker 1: everybody's got different goals here when you start off the
Speaker 1: conversation kind of where would you like to take them?
Speaker 1: For most of these people, it's say sixty forty portfolios
Speaker 1: still the place to start or is there a different place?
Speaker 4: You know, if a lot of retirees, I think that's fine.
Speaker 4: You know, I think that the sixty forty, due to
Speaker 4: the way the market was in twenty twenty two, is
Speaker 4: getting a bad rap lately. We don't think it's dead,
Speaker 4: you know. I think ultimately the way our firm manages money,
Speaker 4: we don't sub anything out mainly to third parties. We're
Speaker 4: using individual securities, our own research, and we have our
Speaker 4: own in house trader, and right now, I know we're
Speaker 4: going to get to it a little bit. You know,
Speaker 4: we're overweight equities right now. We have a different contrarian
Speaker 4: view than Wall Street right now. Why well, ultimately we
Speaker 4: think that Wall Street is too pessimistic right now. I
Speaker 4: think when you look at a lot of the indicators, Matt,
Speaker 4: it could be everything from investor sentiment, y you look
Speaker 4: at a lot of the extreme ratios we've seen over
Speaker 4: the past year. I think the market can't get around
Speaker 4: the fact that stocks can do good in higher interest
Speaker 4: rate environments. You know, NYU did a great study that
Speaker 4: looked at four variables, rising rates, falling rates, rising interest rates,
Speaker 4: falling with inflation on the other two variables. And when
Speaker 4: you look at those and all those scenarios of falling
Speaker 4: interest rates in inflation, ultimately stocks only do bad in
Speaker 4: one of the three, and that is going to be
Speaker 4: a rising inflationary environment. And ultimately we are seeing inflation
Speaker 4: come down. It's not going to come down every month.
Speaker 4: We know that data point just recently, but we're making
Speaker 4: a lot of headway and these fed rates hikes take
Speaker 4: time to work their self through the system.
Speaker 5: Yeah, fair enough.
Speaker 2: Hey, I want to know about your take on the
Speaker 2: long end of the curve here. I think a lot
Speaker 2: more people have been learning about it. Certainly we've seen
Speaker 2: massive inflows to TLT, which is a twenty year plus
Speaker 2: bond fund.
Speaker 5: ETFU and YEP.
Speaker 2: And one of the things that I think people are
Speaker 2: noticing is small moves in yield contribute to very big
Speaker 2: moves in principle on the long end. But a lot
Speaker 2: of your investors, a lot of your clients may be
Speaker 2: looking at say the thirty year at four and three
Speaker 2: quarters percent and saying, I don't care about moves in
Speaker 2: the principle over the time because I'm gonna hold this
Speaker 2: to maturity.
Speaker 5: Those rates look juicy. Are they gonna look juicy when
Speaker 5: we look back in ten fifteen years.
Speaker 4: Well, man, I will kind of take the other side
Speaker 4: of it. Right now, we're on the short end of
Speaker 4: the curve, because the big concern for us is ultimately
Speaker 4: rates are gonna come down, we feel over the next
Speaker 4: couple of years, and what we're going to look for
Speaker 4: is a definitive move and consistency before we start locking
Speaker 4: in some of those longer term rates. Now, I don't
Speaker 4: think I'm unique in that feeling ultimately, but I think
Speaker 4: at a certain point, owning individual bonds for our clients
Speaker 4: takes away a lot of the risk that you just mentioned, sir.
Speaker 1: All right, So Matthew talk to us about some younger investors.
Speaker 1: How do you go out and try to attract younger
Speaker 1: investors because a lot of folks are just concerned that
Speaker 1: maybe they're not saving enough early enough. Maybe they're not
Speaker 1: because they have a lot of challenges, whether it's student
Speaker 1: debt or other things. How do you approach some of
Speaker 1: the younger investors out there?
Speaker 4: Great question, Paul, So you and matt were just talking about,
Speaker 4: you know, presence on social media. You know, if you
Speaker 4: look at these next generational investors, they're looking towards professionals
Speaker 4: that can guide them and provide that advice, but they
Speaker 4: want to connect on a personal level.
Speaker 6: You know.
Speaker 4: I'm at a firm where I'm the oldest team member
Speaker 4: in my young forties. So what's great is I've built
Speaker 4: up Me and Mark have built up a great team
Speaker 4: that can sit down one on one with these younger
Speaker 4: investors who can relate to them right to their goals.
Speaker 4: That they're dealing with. And so I think that's a
Speaker 4: good thing, is that ultimately we can relate on a
Speaker 4: one to one basis in multiple levels. And what do
Speaker 4: you think they do they want anything different in their
Speaker 4: investments than maybe some of the I don't know. The
Speaker 4: baby boomers are just some of the older investors, great question, Paul.
Speaker 4: They're more risk averse, believe it or not. Okay, So
Speaker 4: what we find out is that investors in their twenties
Speaker 4: and thirties, they're not having experience shed in investing into equities.
Speaker 4: And so what we see in a lot of times is
Speaker 4: we are spending a lot of time educating in Paul
Speaker 4: up front on risk, reward, volatility, goals and objectives because ultimately,
Speaker 4: with the time horizon they have, they're going to be
Speaker 4: very much benefited by having that equity exposure. But then
Speaker 4: we have to get them past those day to day
Speaker 4: and month to month headlines that might derail that bigger
Speaker 4: plan if you think of it.
Speaker 1: And it's interesting, I mean the younger investors now fixed
Speaker 1: in come is actually an option. There's a generation of
Speaker 1: people who have had nothing but zero interest rates that
Speaker 1: it had to go out and take more and more risk,
Speaker 1: whether it's equities or alternative Now fixed income can really
Speaker 1: be a percentage of your portfolio.
Speaker 5: Absolutely.
Speaker 4: I mean I think, you know, going back to Matt's
Speaker 4: point about it, at some point, you know you've got
Speaker 4: to start thinking about locking in some longer term rates.
Speaker 4: While we have these great short term rates, you got
Speaker 4: to go out and enjoy that. It's time to harvest.
Speaker 4: But at a certain point, I think over the next say,
Speaker 4: you know, six to twelve months, looking at longer durations
Speaker 4: is probably gonna make a lot of sense.
Speaker 1: What are you were hoping to gain from this week
Speaker 1: here at this conference.
Speaker 4: First and foremost easy question. Networking with my peers. That's
Speaker 4: where I get a lot of good information best practices.
Speaker 4: You know, we're not here to reinvent the wheel, and
Speaker 4: so I have a good group of like minded individuals
Speaker 4: that we network with. We have a great study group
Speaker 4: of about ten other advisors that me and my business
Speaker 4: partner Mark we meet with and we share and get
Speaker 4: a lot of good ideas on how to run our practices.
Speaker 1: All right, Matthew, thank you so much for joining us.
Speaker 1: Matthew Jessup, he's a CEO and managing partner. Jessup Wealth Management.
Speaker 7: You're listening to the tenth can'shur Live program Bloomberg Markets
Speaker 7: weekdays at ten am Eastern conn Bloomberg dot Com, the
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Speaker 1: We're broadcasting live from Commonwealth's twenty twenty three National Financial
Speaker 1: Advisors Conference at the Gaylord Rockies Resort in Aurora, California.
Speaker 1: Today we're joined with our host here, Brad McMillan. He's
Speaker 1: the CIO, that's Chief Investment Officer for Commonwealth. Brad, thanks
Speaker 1: so much for joining us. Thanks for having us out
Speaker 1: here in Denver. Appreciate it. So I see a bunch
Speaker 1: of your clients walking around here, registered investment advisors. When
Speaker 1: you sit down and talk with them and mingle with them,
Speaker 1: what are some of their biggest concerns here is they
Speaker 1: try to figure out how to navigate these markets on
Speaker 1: behalf of their clients.
Speaker 8: There's a couple of things that are really dominating the
Speaker 8: conversation right now. One is inflation. We see it coming down,
Speaker 8: but you know there's a real fear is it going
Speaker 8: to go back up? Is it going to go back
Speaker 8: to normal levels? And what are normal levels anyway, So
Speaker 8: that's one thing, and very closely tied to that as
Speaker 8: interest rates. And you just had Matt jessipull in here,
Speaker 8: you know, talking about how rates are evolving and we
Speaker 8: have you know, very good short term rates right now
Speaker 8: and people love that. But is that going to last?
Speaker 8: You know, how is that going to change? So how
Speaker 8: do we navigate this significant shift in the fiscal and
Speaker 8: monetary structure. It's a real challenge.
Speaker 1: So what do we What are some of the big
Speaker 1: issues here? I mean, I think we heard some We
Speaker 1: had some earnings today from some of the big banks
Speaker 1: this morning, and it seems like pretty solid out there.
Speaker 1: I mean, you know, they had some good loan growth,
Speaker 1: they had some good net interest markets, some of their
Speaker 1: capital markets businesses are pretty pretty strong. So at least
Speaker 1: looking just from today's companies reporting, it looks like the
Speaker 1: economy is in decent shape. Is that concidned with how
Speaker 1: you guys think about it?
Speaker 8: It does because we've had a lot of talk over
Speaker 8: the past year eighteen months about how we're going to
Speaker 8: have a recession, and a recession is inevitable and the
Speaker 8: world is coming to an end and so forth, and
Speaker 8: so on. What we've been saying consistently is we see
Speaker 8: an economy driven by the consumer, and we see the
Speaker 8: consumer getting more jobs at higher wages. You know, when
Speaker 8: you have when you have this kind of job growth,
Speaker 8: and we've just seen that is not softened. Really, we
Speaker 8: just saw the most recent data. You know, when you
Speaker 8: have this kind of job growth, when we have this
Speaker 8: kind of wage growth, when have this kind of spending
Speaker 8: ability growth, we don't see a recession. So when you
Speaker 8: look at the earnings expectations, they're kind of based on
Speaker 8: that recession thesis and we just don't see that. And
Speaker 8: I think, as you say today's data, the banks are
Speaker 8: doing okay because people are out there spending.
Speaker 5: Concern that're spending.
Speaker 2: My concern is that people are out spending their income
Speaker 2: because we have seen wage growth, but it has not
Speaker 2: kept up with inflation. So prices are rising faster than
Speaker 2: people's paychecks. And you can see that everywhere when you
Speaker 2: look at the affordability of homes, of cars, of gasoline,
Speaker 2: all the things that the Fed doesn't really necessarily want
Speaker 2: to put into the core inflation category, right, but the
Speaker 2: things that we need excess savings have been spent off.
Speaker 2: People are putting much more or in terms of payments
Speaker 2: on credit cards. They're also delinquent on those credit cards
Speaker 2: at a higher rate, delinquent on auto loans which are
Speaker 2: too much for them to afford at a higher rate,
Speaker 2: and they've got to start paying back student loans, which
Speaker 2: they haven't been doing for a couple of years.
Speaker 5: Doesn't the consumer worry you?
Speaker 8: The consumer does worry me. And everything you've pointed out
Speaker 8: is are real issues. But at the same time, when
Speaker 8: you look at the data, we have gotten worse than
Speaker 8: we've been over the past year, and that's true, but
Speaker 8: we're still better than we have been, you know, at
Speaker 8: typical points previously in the cycle, so we still have
Speaker 8: some running room here. I mean, things are softening, We're
Speaker 8: seeing consumers maybe start to pull back a little bit,
Speaker 8: and certainly interest rates are having an effect, there's no
Speaker 8: doubt about that. But the flip side of this is
Speaker 8: a lot of people own homes with low mortgages locked in.
Speaker 8: Their spending is not going to be affected by interest rates,
Speaker 8: So there's another side to the story. But are things
Speaker 8: slowing Absolutely? Does that mean we're going to have a
Speaker 8: re anytime soon? I don't see it in the data.
Speaker 1: All right, So what do you want this Federal Reserve
Speaker 1: to do? We're gonna you know, I mean, it's they've
Speaker 1: been very, very clear and very aggressive in fighting inflation
Speaker 1: and rise and raising interestratetions. What do you think they're
Speaker 1: gonna do over the next several meetings.
Speaker 8: I think they've gotten to where they need to be.
Speaker 8: When you look at the inflation numbers, they're going to
Speaker 8: be trending down, if only because of housing. We know
Speaker 8: how the housing numbers are gonna trend. They're going to
Speaker 8: trend down. We should see inflation in the three three
Speaker 8: and a half range by the end of the year.
Speaker 8: That being the case. When you look at the surge
Speaker 8: in tenure yields, that's already done a significant amount of
Speaker 8: the tightening.
Speaker 6: You know.
Speaker 8: If the Fed wants rates to be in the five
Speaker 8: range for the ten year, hey guess what we're about there.
Speaker 8: So they have little, if anything more to do. I
Speaker 8: expect them to keep talking hawkishly because that's what the
Speaker 8: Fed does, you know, But I don't see a need
Speaker 8: to raise rates much further, if at all.
Speaker 1: All Right, So given that backdrop here, as you talk
Speaker 1: to some of these ris, I mean, are you sensing
Speaker 1: that now it's the time to get a little bit
Speaker 1: more aggressive here. Maybe you know, maybe increase your equity allocation,
Speaker 1: maybe go out a little bit more duration in your
Speaker 1: fixing come portfolio.
Speaker 8: We are talking a little bit in going out in
Speaker 8: the equity and the duration of the portfolio. You know,
Speaker 8: as Matt was talking about a minute ago. Now is
Speaker 8: the time to lock in some rates. Yeah, you can
Speaker 8: get more, you know, on a current basis, but at
Speaker 8: the same time that's going to change. So if I'm
Speaker 8: looking to lock in a longer term liability and I
Speaker 8: can get you know, four eight, four nine percent, that's
Speaker 8: a great long term yield to lock in. And I
Speaker 8: think you're going to start seeing that with insurance companies
Speaker 8: for example. As far as equities go, I'm not as pessive.
Speaker 8: I'm still optimistical inequities going forward. I think we have
Speaker 8: some opportunity for some earnings out performance. We talked about that.
Speaker 8: I think valuations, most of the hit has already been
Speaker 8: taken from rising rates, So I do think there's some
Speaker 8: optimism there. I am a little bit concerned at the
Speaker 8: index level when you look at the vulnerability to the
Speaker 8: seven major socks, so you know, individual stocks. Yeah, I
Speaker 8: think there's a running room for a lot of them,
Speaker 8: but we might see some volatility at the index level.
Speaker 2: What is your outlook in terms of rate cuts? I mean,
Speaker 2: if you're optimistic on the economy and not too worried
Speaker 2: anymore about rising rates, do you see them being held
Speaker 2: at this level for much longer or do you think
Speaker 2: that the Fed cuts rates for any particular reason next year?
Speaker 8: You know, it's interesting a lot of people are calling
Speaker 8: for rate cuts, and I think that's the wrong question.
Speaker 8: I don't think we should be asking when does the
Speaker 8: Fed cut rates? I think the question has to be
Speaker 8: why would the Fed cut rates? They are at a
Speaker 8: level that historically is normal, you know, And I think
Speaker 8: one of Powell's overriding objectives is to restore normality to
Speaker 8: the market, so he's there. So what would make them
Speaker 8: cut rates? If inflation were to rise again, they're going
Speaker 8: to raise rates. If inflation goes down to normal and
Speaker 8: they don't have to cut rates, why would they cut rates?
Speaker 8: The only thing that really might make them cut rates
Speaker 8: is a severe recession, and as I said, I don't
Speaker 8: see that. So I don't see any rate cuts for
Speaker 8: probably at least through next.
Speaker 1: Year, all right, So I guess one of the other.
Speaker 1: When you speak to some of your rias here, are
Speaker 1: you telling them maybe like some of the sectors you
Speaker 1: guys like like, you know, I'm still bullish on tech,
Speaker 1: or I think there's still room and energy. How do
Speaker 1: you kind of frame that discussion?
Speaker 8: Generally speaking, we're not tactical investors, but at the same time,
Speaker 8: we do recognize that, for example, small cap has outperformed
Speaker 8: over the past several years. Value has outperformed over the
Speaker 8: past several years, and we look at that and we
Speaker 8: know why that is, and we see, you know, potential
Speaker 8: catalysts for more outperformance going forwards. So we do have
Speaker 8: some overweights in those spaces. You know, when people talk
Speaker 8: about vulnerabilities, we've already talked about the magnificent seven there.
Speaker 8: I think there's a chance that we might see a
Speaker 8: repricing of that as we see higher yielding investments like
Speaker 8: value stocks start to become more stable. In other words,
Speaker 8: I think we're going to see a rotation. We've seen
Speaker 8: some outperformance in large growth. I think the reverse of
Speaker 8: that is due to do some catch up.
Speaker 1: All Right, we're out here in Colorado. I feel like
Speaker 1: it's kind of energy country. What's your energy call here?
Speaker 1: I mean with these energy stocks.
Speaker 8: The interesting thing is when you look at energy, you're
Speaker 8: basically talking about the oil and gas prices, and that
Speaker 8: has gone up a bit, but it hasn't really gone
Speaker 8: up that much. And I think the real tell here
Speaker 8: is what's happened in the Middle East. We haven't seen
Speaker 8: oil prices spiked to any significant degree, and that tells
Speaker 8: me a couple of things. First of all, there's a
Speaker 8: perception out there, right or wrong, that this is not
Speaker 8: going to be a wider war. Second of all, that
Speaker 8: we have the US production as a stabilizer now, and
Speaker 8: I think we just hit an all time high for production.
Speaker 8: So the US oil industry is continuing to do very
Speaker 8: well and that's stabilizing prices. So I'm not sure I
Speaker 8: see too much upside from prices. I do think we're
Speaker 8: going to see consolidation, as we just saw with the
Speaker 8: Exxon deal. So you know, it's very much an industry
Speaker 8: in fox. I think I'm not sure there's a lot
Speaker 8: about performance going forward there.
Speaker 1: All right, Bret, thanks so much for joining us. Brad McMillan,
Speaker 1: he is the CIO of Commonwealth, the host of this
Speaker 1: gig add here in Aurora, Colorado.
Speaker 7: You're listening to the tape Cat's our live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
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Speaker 1: We're broadcasting live from Commonweal's twenty twenty three National Financial
Speaker 1: Advisors Conference or at the Gaylord Rockies Resort in Aurora, Colorado.
Speaker 1: Matt Tons of big banks reporting earnings this morning. You
Speaker 1: know who we need to talk to is Allison Williams.
Speaker 2: Yeah, absolutely, our number one go to source on the
Speaker 2: big banks. Allison is here with me in the Interactive
Speaker 2: Brokers studio. And what morning we've had in terms of earnings.
Speaker 2: We had Blackrock come out, we had Wells, Fargo come out,
Speaker 2: JP Morgan, PNC Financial, and City. All of them beat
Speaker 2: at least on the bottom line. Alison, what stands out
Speaker 2: to you?
Speaker 9: So maybe I'll start with black Rock. They were the
Speaker 9: first to report they had a rare quarter of outflows,
Speaker 9: but it really was tied to Lofi Institutional. So we
Speaker 9: think that there's limited earnings impacts there, so we're less
Speaker 9: worried about them from the three big banks beats, So
Speaker 9: net interest income coming in better than expected, I would
Speaker 9: say this is consistent with a lot of the optimism
Speaker 9: that we felt in late September. The issue, really though,
Speaker 9: for the banks is twenty twenty four, so we're happy
Speaker 9: that there's upside to four Q. We have a higher
Speaker 9: run rate entering next year, but with expectations that previously
Speaker 9: suggested the FED could be cutting soon, now that's being
Speaker 9: pushed out. We're even talking about hikes that poses risk
Speaker 9: to the outlook. On the other side of things, credit,
Speaker 9: I mean, wow, the credit beat at JP Morgan was
Speaker 9: pretty tremendous. We analysts expected about a billion dollars of
Speaker 9: reserve building. They actually had a net release. So the
Speaker 9: better economy better than expected. Right like a year ago,
Speaker 9: we're talking about recession. The economy's coming better. There's rate risk,
Speaker 9: but the credit is also holding up better.
Speaker 2: So I wonder what they're making in terms of rates
Speaker 2: on an average loan compared to what they're paying in
Speaker 2: terms of average late rates. I know on a checking
Speaker 2: account you're going to get like zero point two percent
Speaker 2: and if you need a mortgage, it's going to be
Speaker 2: eight percent.
Speaker 5: So that's a killer spread.
Speaker 10: Right.
Speaker 11: So what we've.
Speaker 9: Seen in the past year, you know, a year ago
Speaker 9: where about higher rates are good because we saw the yield,
Speaker 9: as you said, what customers are paying them when they
Speaker 9: borrow that repriced pretty quickly. Yeah, and the deposit costs
Speaker 9: have come later. That's cutting into the net interest income,
Speaker 9: but not as much as expected. So I think a
Speaker 9: lot of banks were excited in September or at least
Speaker 9: alluded to the fact that things were trending better stabilizing. Again,
Speaker 9: the question is, you know, does that sort of reinvigorate
Speaker 9: as and funding costs go higher.
Speaker 2: Well, we thought after SVB that there would be, you know,
Speaker 2: a big war for deposits and that costs would rise,
Speaker 2: but it really hasn't happened, has it.
Speaker 9: Well, yeah, it hasn't. I mean it has to some extent.
Speaker 9: So we did see further increases in deposit costs, but
Speaker 9: at a slowing rate. So investors are always sort of
Speaker 9: looking for that second derivative, and so that's where we're
Speaker 9: getting the positive news. The other thing I would point
Speaker 9: to is good cost control. We did see higher than
Speaker 9: expective costs at Wells Fargo, but part of that was Severn,
Speaker 9: so that that could imply a better run rate for costs.
Speaker 9: They do have some good efficiency measures JP Morgan, their
Speaker 9: core costs coming in better than expected. That guidance again
Speaker 9: also better than expected. You know, loans is the one
Speaker 9: area that was a little bit weaker than we thought
Speaker 9: a few months ago in terms of commercial loans. But
Speaker 9: what these big banks are benefiting from is card so
Speaker 9: JP Morgan City Group. You know, aside from Capital One,
Speaker 9: there have some of the biggest card exposures out there,
Speaker 9: Bank America, Wells Fargo to a lesser extent, but still
Speaker 9: better than those regional banks. And so I think the
Speaker 9: loan the loan portfolios and the net interest income trends
Speaker 9: might not you know, necessarily repeat for those regionals.
Speaker 1: Hey, Alison, commercial real estate, what are the banks saying
Speaker 1: about the commercial real estate exposure? Is this going to
Speaker 1: be a problem for them?
Speaker 9: It is going to be a problem, but it's you know,
Speaker 9: it's it's overwhelmed this quarter. I think by all the
Speaker 9: positives that I talked about, but most significantly Wells Fargo
Speaker 9: they're the biggest commercial real estate lender. They had said
Speaker 9: in September that you know, a year ago, eighteen months ago,
Speaker 9: they were concerned about specific pockets and specific cities.
Speaker 5: Today that risk.
Speaker 9: Has broadened out. They are taking reserves, so we did
Speaker 9: see reserve building for office, commercial real estate. On the
Speaker 9: other side of that, you know, JP Morgan taking a
Speaker 9: reserve release in home mortgage, so we're seeing reserves for
Speaker 9: commercial real estate, in office, we're seeing reserves for car
Speaker 9: and as I said, there's growth there, so they're reserving
Speaker 9: for that. But we're seeing some offset.
Speaker 12: You know.
Speaker 9: JP Morgan talked about some of their economic exsumptions changing
Speaker 9: and that is really the driver in terms of the
Speaker 9: provisions coming in better than expected.
Speaker 2: And at the same time, Jamie Diamond says these are
Speaker 2: the most dangerous times in decades. I guess he's talking
Speaker 2: more about geopolitical risk than he is about the economy.
Speaker 9: I think he's talking broadly, but it's at the margin, right.
Speaker 9: So their assumptions are a bit better, but they're still conservative,
Speaker 9: So they ill are I guess, writing more conservatively, but
Speaker 9: maybe a less little bit less worried than they were
Speaker 9: a last quarter. And I think Jamie's comments go to
Speaker 9: you know, the fact that we really are in unprecedented
Speaker 9: times for a big reason. And to me, I think
Speaker 9: the biggest factor is, you know, we've never seen central
Speaker 9: bank balance sheets have this huge build up. We don't
Speaker 9: know what that unwind is going to look like, and
Speaker 9: I'd be surprised if we didn't get a surprise. Right,
Speaker 9: No one knows what that's going to look like, and
Speaker 9: so this is a very different cycle again, the consumer,
Speaker 9: very different cycle. Normally we would not be seeing card
Speaker 9: growth fueling these banks.
Speaker 5: We would that in itself has to be a concern, right.
Speaker 2: That means that more and more consumers are putting more
Speaker 2: stuff on credit cards and they're not paying their balance
Speaker 2: off right away, so they're rolling them over, even though
Speaker 2: interest rates on credit cards are extremely.
Speaker 9: High, So at this point it's more about their growing
Speaker 9: loans and so they want to reserve.
Speaker 12: For it card.
Speaker 9: It is normalizing, but it is normalizing but still very
Speaker 9: very strong. I would say the one thing to watch
Speaker 9: for for consumer is that spending is slowing, but they're
Speaker 9: still using up those deposit balances.
Speaker 2: Alison, Great, talking to you as usual. Alison Williams runs
Speaker 2: our bank coverage here at Bloomberg.
Speaker 6: You're listening to the team.
Speaker 7: Ken's a live program Bloomberg Markets weekdays at ten am Eastern.
Speaker 6: On Bloomberg dot Com, the iHeartRadio.
Speaker 7: App and the Bloomberg Business app, or listen on demand
Speaker 7: wherever you get your podcasts.
Speaker 5: Well, I'm here in New York City, capital of the world.
Speaker 2: Thank you very much for that, Paul, and we want
Speaker 2: to talk about, you know, what you do in markets
Speaker 2: when there's so much going on.
Speaker 5: From geopolitical issues like.
Speaker 2: The Hamas attacks in Israel, and of course we're all
Speaker 2: waiting for the counter attack to issues that we face
Speaker 2: here in the US, like Steve'scalisee can't even work with
Speaker 2: the Republicans, so he drops out of the run for
Speaker 2: Speaker of the House.
Speaker 5: That's likely gonna lead to or.
Speaker 2: Could likely lead to a government shutdown. But we also
Speaker 2: need funding for Israel and Ukraine. And then you've got
Speaker 2: massive swings in the bond market.
Speaker 5: Yesterday, I think the thirty year.
Speaker 2: Bond moved by like twenty basis points and that caused
Speaker 2: moves in the equity indexes and everything else as well.
Speaker 5: Let's go to Jared Dillion.
Speaker 2: He is an investment strategist at Malden Economics, also editor
Speaker 2: of The Daily Dirt Nap and Jared, what do you
Speaker 2: make of these markets? I guess probably the rates moves
Speaker 2: are the most interesting.
Speaker 13: Yeah, the rates moves are definitely the most interesting. And
Speaker 13: thanks for having me on.
Speaker 12: Yeah.
Speaker 13: I mean there was a lot of bond bears a
Speaker 13: week or two ago, and there's a lot less today.
Speaker 12: With the war in the Middle East.
Speaker 13: It's you know, I think the trend reached just absolute exhaustion.
Speaker 12: People.
Speaker 13: I saw forecasts for five percent on tens, five and
Speaker 13: a half, six percent. People were extrapolating the trend forever.
Speaker 13: You know, we came in on Monday morning and we
Speaker 13: had a completely different world. And in an environment where
Speaker 13: you have huge geopolitical tensions, you know, really what you're
Speaker 13: looking to do is do things like buy bonds by gold,
Speaker 13: buy oil, and probably sell stocks.
Speaker 12: And by volatility, well.
Speaker 2: I mean, how hard is it to deal in a
Speaker 2: bond market when you have this kind of volatility? Do
Speaker 2: you just stick to the front end or what's your take?
Speaker 13: So I actually, I personally have a pretty large position
Speaker 13: in the front end. And you know, just yesterday we
Speaker 13: had a whole parade of or I guess it was two
Speaker 13: days ago. We had a parade of FED speakers who
Speaker 13: said that we pretty much eliminated the last rate hike,
Speaker 13: and what that did was that really started the clock
Speaker 13: on when the first rate cut is going to be.
Speaker 13: And generally after a rate hike cycle, there's not a
Speaker 13: lot of time before the FED begins cutting rates again.
Speaker 13: The longest that the FED has been able to maintain
Speaker 13: rates at the highest level was at seven months, and
Speaker 13: that was back in two thousand and seven. So I
Speaker 13: think we're gonna be getting We're gonna be talking about
Speaker 13: rate rate cuts within the next few months.
Speaker 1: Hey, Jedal's just looking through your notes you provided is
Speaker 1: one of the things that really jumped out of me
Speaker 1: was your point here that shorter work weeks will cause
Speaker 1: lower economic growth. We won't see three to four percent
Speaker 1: GDP growth again, that's a big statement. Tell us what
Speaker 1: you're thinking.
Speaker 13: There, Yeah, it's you know, it's really output is a
Speaker 13: function of work. It's a function of how hard you
Speaker 13: work and how long you work, and how productively you work.
Speaker 13: I mean, if you don't, if we collectively as a country,
Speaker 13: if we work less, we will have less output and
Speaker 13: GDP will go down. I don't think that's a really
Speaker 13: controversial statement. I think, I think a lot of people
Speaker 13: want to have their cake and eat it too. I
Speaker 13: think that, you know, we think that we can have
Speaker 13: a thirty two hour work week or a three and
Speaker 13: a half day work week and still maintain the same
Speaker 13: output and the same level of prosperity and standard of living.
Speaker 13: But it's just not possible. And what's going to happen
Speaker 13: is is that when we as a society start to
Speaker 13: value leisure time over work in productivity, then we start
Speaker 13: to look a little bit more like Europe, which has
Speaker 13: had growth you know, pretty pretty pretty close to zero
Speaker 13: over the last fifteen years.
Speaker 5: But it's lovely.
Speaker 2: I'm here to tell you, having just lived in Germany
Speaker 2: for the last six years.
Speaker 5: It's much less stressful.
Speaker 2: What about the down side, Jared, I mean, if we
Speaker 2: don't grow three to four percent, does that mean we
Speaker 2: also won't have bigger sessions or do we have to
Speaker 2: deal with bigger sessions without the growth.
Speaker 13: Well, I mean, the interesting thing is is that the
Speaker 13: US has really leapfrogged most western countries in terms of
Speaker 13: wealth in the last fifteen twenty years. I mean, our
Speaker 13: per capita GDP is about sixty thousand dollars, and throughout
Speaker 13: Europe it kind of ranges between thirty five and forty
Speaker 13: five thousand dollars. I mean, you know, the United States
Speaker 13: has become fabulously wealthy. It is more stressful, you know,
Speaker 13: I'm stressed out. I work pretty much all the time.
Speaker 13: You know, I work a full day and I go
Speaker 13: home and I sit on the couch and I do
Speaker 13: more work. And that's kind of what we do as
Speaker 13: a culture.
Speaker 5: Yeah, me too, pretty much. It's a little bit of
Speaker 5: a bummer, but I actually I like work. Not everyone
Speaker 5: is that lucky. Talk to me about your view of.
Speaker 2: The economy and the sling that we're seeing here, because
Speaker 2: you know, you talk about having your cake and eat
Speaker 2: it too. Paul wants to see a soft landing and
Speaker 2: lower rates.
Speaker 13: Well, somebody told me early in my career, like twenty
Speaker 13: years ago, that there's no such thing as a soft landing.
Speaker 13: But having said that, you know, we've been on recession
Speaker 13: watch ever since the curve inverted sixteen months ago. Sixteen
Speaker 13: months ago, the yield curve inverted, So we've been on
Speaker 13: recession watch ever since then, and we haven't had a
Speaker 13: recession yet. I believe that we will. I don't believe
Speaker 13: that it will be severe, certainly not on the scale
Speaker 13: of what happened in two thousand and eight, which is
Speaker 13: really the last real recession that we got. We had
Speaker 13: a technical recession during the pandemic in the early days
Speaker 13: of the pandemic, and we had a little bit of
Speaker 13: a slowdown in twenty fifteen, but we haven't really had
Speaker 13: the downside of the business cycle in fifteen years, and
Speaker 13: a lot of people have forgotten what that feels like.
Speaker 12: Now.
Speaker 13: What's happening right now is that the yield curve is
Speaker 13: steepening pretty quickly. And as you know that, when the
Speaker 13: yield curve inverts, it signals that a recession is going
Speaker 13: to happen, and when the yield curve steepen, it is
Speaker 13: actually happening. So we should be seeing signs of that
Speaker 13: relatively soon.
Speaker 1: Hey, Jared, talk to us about your your thoughts on
Speaker 1: oil here. It's had a lot of near term volatility
Speaker 1: here due to some geopolitical issues, certainly over the last
Speaker 1: week and then over the last several months. What's your
Speaker 1: maybe intermediate to longer term call on oil.
Speaker 13: I don't think that I have a really strong opinion.
Speaker 13: I mean, there's the people who work in the energy
Speaker 13: space full time. You know, the axiom is that you
Speaker 13: generally want to fade geopolitical events. My memory of this
Speaker 13: is pretty hazy, but there was something that happened in
Speaker 13: Iran three or four years ago where oil spiked and
Speaker 13: that was a high and it never came back to
Speaker 13: that level again. I think this time is a little
Speaker 13: bit different. You know, the conflict in Israel really opens
Speaker 13: up a whole bunch of possibilities of things that could
Speaker 13: go wrong. I think, you know, if you were a trader,
Speaker 13: buying some far upside calls.
Speaker 12: In oil might not be a bad idea.
Speaker 13: We could walk in one morning it could be twenty
Speaker 13: percent higher, you know, based on a rounds involvement or
Speaker 13: something like that. So in the short term, I'm definitely bullish.
Speaker 5: Isn't this time different? For everything?
Speaker 2: Alison Williams was just telling me about Jamie Diamond's comments
Speaker 2: on world danger and saying, you know, we're in an
Speaker 2: unprecedented situation in terms of FED balance sheets, and I
Speaker 2: was thinking, we've been in an unprecedented situation for like
Speaker 2: fifteen years.
Speaker 12: That's always the case, That's always the case, you know.
Speaker 13: It was funny, I was I was on Twitter the
Speaker 13: other day and my friend Porter Collin, who's one of
Speaker 13: the figures in the Big Short movie. He's a friend
Speaker 13: of mine, and he tweeted that the end of quantitative
Speaker 13: tightening is probably near. You know, we've been rolling off
Speaker 13: the bounce sheet for the last year, year and a half,
Speaker 13: and you know, it's it hasn't really helped the situation
Speaker 13: with rates because when the Fed's selling three to five
Speaker 13: billion of treasuries every day, like it puts a lot
Speaker 13: of pressure on the Yell curve. But I think I
Speaker 13: thought that was a pretty smart comment. I think it is.
Speaker 13: I think it is likely that we will end QT
Speaker 13: sometime in the near future.
Speaker 1: Yep, all right, Jared, thank you so much for joining us, Jared,
Speaker 1: I really appreciate it. Jared Dillion. He's an investment strategist
Speaker 1: at Malden Economics Scholl.
Speaker 7: You're listening to the tape catch are Live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
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Speaker 1: We are broadcasting live from Commonwealth's twenty twenty three National
Speaker 1: Financial Advisors Conference at the Gaylord Rockies Resort in Aurora, Colorado.
Speaker 1: Joining me right now. We're right here at the conference
Speaker 1: and it's very nice. I could show you the results.
Speaker 1: Karen McCall joins us. She is senior vice president of
Speaker 1: Wealth Management at Commonwealth. Joins us, Karen, We've seen a
Speaker 1: lot of the you know, investment advisors building around here
Speaker 1: over the past couple of days. What's kind of what
Speaker 1: do they really need from you guys as they try
Speaker 1: to manage their business. They've got retail clients, They've got
Speaker 1: compliance issues, they got back office issues. I think a
Speaker 1: lot of them just want to interact with their clients.
Speaker 14: What do you what do you hear from them in
Speaker 14: terms of our advisors?
Speaker 1: Paul, is that yeah, exactly?
Speaker 8: Yeah.
Speaker 14: So this national conference, this is a great opportunity to
Speaker 14: bring our community together. We have over two thousand advisors
Speaker 14: all over the country and they really enjoy coming together
Speaker 14: in a community like this. We have the opportunity to
Speaker 14: really share with them the things that we're doing in
Speaker 14: the home office. We basically in wealth management, we exist
Speaker 14: to help the advisors attract, retain, and grow assets. We
Speaker 14: serve as an extension of their practice, and we're really
Speaker 14: there to assist them. Their client's needs are becoming more
Speaker 14: and more complex every day, and each advisor cannot be
Speaker 14: an expert in every realm that that is necessary for
Speaker 14: a client. So we're there to help them to bring
Speaker 14: that subject matter expertise to help them navigate that complexity
Speaker 14: to be able to choose the right products for clients' needs.
Speaker 1: Talk to us about high net worth ultra high net
Speaker 1: worth kind of people. It seems like we're getting more
Speaker 1: and more of those. How do you kind of adapt
Speaker 1: to some of your you know, the RAA's clients actually
Speaker 1: getting bigger.
Speaker 14: Yes, that's absolutely happening. Our advisors are seeing that on
Speaker 14: a daily basis. We're seeing lots of opportunities to work
Speaker 14: with clients at that five million dollar threshold and above,
Speaker 14: and even at that ultra high net worth, which we
Speaker 14: define at twenty million dollars and above. And you can
Speaker 14: imagine that at those asset levels, there are all sorts
Speaker 14: of needs that come into play. It's not just the
Speaker 14: investment portfolio. It's not just thinking through the asset allocation
Speaker 14: and the underlying manager selection. But you're also having to
Speaker 14: bring expertise around tech strategies and protection strategies, how to
Speaker 14: use some insurance products for example. We also can help
Speaker 14: them with estate planning, bring in legal experts where we
Speaker 14: need to. So it's the way that we've done it
Speaker 14: is really we stood up an entirely new service within
Speaker 14: Commonwealth called Private Client, and when our advisors utilize that service,
Speaker 14: a team of experts from all the realms across wealth
Speaker 14: management come together to work with that advisor so that
Speaker 14: we are addressing all of the dimensions of that client's needs.
Speaker 2: Yah Paul mentioned that it seems like there's an increasing
Speaker 2: amount of high networth individuals. Do you see that in
Speaker 2: your business as well? Are more and more people very
Speaker 2: rich and need to invest?
Speaker 14: Yeah, yes, which is a good problem to have. We
Speaker 14: are absolutely seeing more and more wealthy clients.
Speaker 5: Come.
Speaker 14: A place where we're seeing this is we have a
Speaker 14: lot of our our advisors have a lot of business
Speaker 14: owner clients, and as they sell businesses, their financial picture
Speaker 14: changes radically from one day to the next, and we
Speaker 14: want to make sure that our advisors are ready to
Speaker 14: deal with that, to be able to address the needs
Speaker 14: of an existing client that suddenly comes into an enormous
Speaker 14: amount of wealth.
Speaker 1: How about alternative investments. I've heard some of these advisors say,
Speaker 1: you know, over the last couple of years, they've heard
Speaker 1: they've been asked a lot more by their clients about
Speaker 1: private equity, hedge funds, private credit. How has that been
Speaker 1: growing as part of their business? We've seen.
Speaker 14: A heightened demand for alternatives as well, and so at
Speaker 14: Commonwealth we have a team that's dedicated to the alternative space,
Speaker 14: that really focuses there and has that expertise and is
Speaker 14: helping our advisors utilize those those solutions in the best
Speaker 14: way possible. We also recently entered a partnership with a
Speaker 14: company called I Capital, which is basically a platform of
Speaker 14: hedge funds, private equity, private debt, and our advisors are
Speaker 14: reacting very well to that and increasingly utilizing the platform.
Speaker 5: How helpful is this conference? How helpful is this conference
Speaker 5: to you?
Speaker 6: Karen?
Speaker 5: What are you doing there?
Speaker 14: This conference is incredibly helpful. I spent a lot of
Speaker 14: time in conversations with advisors. I had the opportunity yesterday
Speaker 14: to update the entire group on all of the initiatives
Speaker 14: that we have in wealth Management, and I think it
Speaker 14: really drums up excitement when they hear about things that
Speaker 14: we're doing, like our Virtual Paraplanner program, which allows them
Speaker 14: to delegate a lot of the financial planning that that
Speaker 14: they're doing. We also have the opportunity to promote things
Speaker 14: like our custom trading services, which allows which allows advisors
Speaker 14: that want to serve as portfolio managers to outsource some
Speaker 14: of the more administrative tasks like the monitoring, oversight, and
Speaker 14: trading to our team of experts. So that really allows
Speaker 14: them to free up time to be able to spend
Speaker 14: with their clients.
Speaker 5: All right, Karen, thanks so much for joining us.
Speaker 2: Really appreciate it, and I know Paul really appreciates being
Speaker 2: out at that conference as well. Karen McCall, Senior VP
Speaker 2: at a Wealth Management at Commonwealth, talking to us about
Speaker 2: her business, today's investment environment, and the conference that they
Speaker 2: are hosting out there in Colorado.
Speaker 7: You're listening to the tape catch are live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 7: tune in app, Bloomberg dot Com.
Speaker 6: And the Bloomberg Business App.
Speaker 7: You can also listen live on Amazon Alexa from our
Speaker 7: Flagship New York station. Just say Alexa, play Bloomberg eleven thirty.
Speaker 1: We're down here, We're out here, I should say, man,
Speaker 1: we're out here in Aurora, Colorado. We're broadcasting live on almost
Speaker 1: twenty twenty three National Financial Advisors Conference. We're at the
Speaker 1: Gaylord Rockies Resort Hotel and a roar and I look
Speaker 1: up at the mountains and there is snow up there,
Speaker 1: and matt at the highest elevations. I'm heading up the
Speaker 1: Breckenridge in just minutes, so I'll be able to report
Speaker 1: back on some real time conditions there. Let's go to
Speaker 1: our next guest here at the conference, Sam Millett. He's
Speaker 1: a director of fixed income at Commonwealthy Joins US. Sam,
Speaker 1: thanks so much for making your way over to the
Speaker 1: Bloomberg remote booth here. Let's talk about Fixingcome here. I mean,
Speaker 1: we've got a federal reserve that appears to be at
Speaker 1: or near peak rates. How do you expect I don't know,
Speaker 1: the next twelve months to unfold in terms of what
Speaker 1: the Fed does with interest rates.
Speaker 10: Hey, Paul, thanks so much for having me. It's a
Speaker 10: great question. It's definitely been on the mind of our
Speaker 10: advisors here at this conference. You know, I like to
Speaker 10: listen to the FED when they try to tell us
Speaker 10: what they're saying and what they're planning to do. So
Speaker 10: I believe they're going to be very data dependent at
Speaker 10: the upcoming meetings. Looking at you know, rate probabilities, i'd
Speaker 10: say that most likely, it seems like we're probably going
Speaker 10: to keep flat at this most the upcoming FED meeting,
Speaker 10: but you know, going forward from there, we're just gonna
Speaker 10: have to watch the.
Speaker 1: Data, all right. So, I mean, I think the is
Speaker 1: you when you talk to your registered investment advisors here,
Speaker 1: what are you suggesting that they do? What do you
Speaker 1: suggest they tell their clients about kind of their allocation
Speaker 1: to fixed and come where should they go? Kind of duration,
Speaker 1: all that kind of stuff.
Speaker 6: Yeah.
Speaker 10: Absolutely, So we've really had kind of a bias towards
Speaker 10: higher quality throughout the course of this year, and that's
Speaker 10: really resonated with a lot of our advisors. Additionally, you know,
Speaker 10: I think the duration question has been, you know, front
Speaker 10: and center on everyone's mind after the last couple of
Speaker 10: years and looking at most of our advisors, many of
Speaker 10: them entered the year with relatively low durations compared to
Speaker 10: their benchmarks. Therefore seeing them move a little bit closer
Speaker 10: higher up in duration get to market rate duration has
Speaker 10: really been the key.
Speaker 5: What do you think about.
Speaker 2: The current state of the thirty year I mean, yesterday
Speaker 2: we saw it jump twenty basis points, and that's not
Speaker 2: the first time we've seen this extreme volatility.
Speaker 5: Is that here to stay?
Speaker 10: Yeah, I think it's definitely been a pretty big move
Speaker 10: in the past couple of weeks. When you're looking at
Speaker 10: long term rates, I do believe that there's a likelihood
Speaker 10: we'll see them come down a bit over the course
Speaker 10: in the next few months. But you know, ultimately, I
Speaker 10: think it's very difficult to call the direction of rates
Speaker 10: when you go any further than that.
Speaker 1: How about the you know, I'm a I don't mind
Speaker 1: taking a little risk out there. I mean, should I
Speaker 1: be thinking about, you know, the high yield market, because
Speaker 1: if I look at the returns year to date across
Speaker 1: the fixing come spectrum, the only place where I see
Speaker 1: positive returns is in high yield. And the kind of
Speaker 1: surprising to me, because again, the recession talk is pretty
Speaker 1: pretty prevalent out there, is the should I be out
Speaker 1: there thinking about high yield debt here as opposed to
Speaker 1: just kind of sitting where I am now with my
Speaker 1: two year Treasury at five percent.
Speaker 10: Yeah, I think you know, when you look at high yield,
Speaker 10: the performance this year has been exemplary. It's really stood out,
Speaker 10: especially compared to most sectors within fixed income. With that
Speaker 10: being said, we do have some concerns about valuation levels.
Speaker 10: You know, you look at historical spreads in the high
Speaker 10: yield space and frankly, they seem to be relatively low
Speaker 10: if you're expecting some sort of economic slowdown in the
Speaker 10: year ahead, which gives us a little bit of pause
Speaker 10: when we hear questions about should I be moving from
Speaker 10: relatively you know, credit safe and shorter duration assets like
Speaker 10: a two year treasury out into the high yield space
Speaker 10: because you know, frankly, I think that there's a really
Speaker 10: big shift in risk that you're taking when you do
Speaker 10: that trade, and you have to be aware of the
Speaker 10: fact that you know that can work against you if
Speaker 10: you jump too soon.
Speaker 1: Well, Matt gets on, nybe my co host, Matt Miller,
Speaker 1: because I'm sitting here in two and a half to
Speaker 1: two year treasury is getting five percent. But he keeps
Speaker 1: tell me I have to worry about reinvestment risk. So
Speaker 1: what do you tell.
Speaker 5: For a year you only got a year left?
Speaker 1: Paul, I know I've a got go I think it
Speaker 1: about it, And so the question is what do you
Speaker 1: tell your advisors here about you know, maybe sitting here
Speaker 1: in this two year paper, or you know, you can
Speaker 1: even get a CD these days, you can you know,
Speaker 1: savings account, which my twenty seven year old daughter did,
Speaker 1: which is very good on her part. I'm very proud
Speaker 1: of that firsts going up maybe a little bit more duration,
Speaker 1: taking out some of that reinvestment risk.
Speaker 10: Yeah, I've definitely had that conversation a lot with our
Speaker 10: advisors because that's something their clients are asking them for
Speaker 10: a lot. You know, one year to two year CDs
Speaker 10: and treasuries have been extremely popular. The only thing that
Speaker 10: we caution with that is, you know, the idea of
Speaker 10: a lot of these client requests for this paper, they
Speaker 10: come in and say, I want to lock in yields
Speaker 10: at a high rate right now.
Speaker 12: Yep.
Speaker 10: And while you certainly can for a year or two,
Speaker 10: you know, if you look at longer term interest rate projections,
Speaker 10: including those directly from the Federal Reserve, you know, it
Speaker 10: seems quite likely that those will not be available for
Speaker 10: reinvestment at similar rates two years from now.
Speaker 1: Right, all right, Matt, thanks for joining us. Really appreciate it,
Speaker 1: Thanks so much.
Speaker 12: So.
Speaker 1: We're just kind of getting the lay of the land
Speaker 1: there on the fixed income space, and we did that
Speaker 1: with Sam Malett. He joins us here at the conference
Speaker 1: here in a Rura, California. That's Sam Mallett, director of
Speaker 1: fixed Income at Common Model.
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Speaker 1: So, Madam saying, there's a lot of stuff out there
Speaker 1: for you and you know, the litigation folks and the
Speaker 1: antitrust folks to really focus on the most recent deal
Speaker 1: I wanted to get your opinion on was exon Pioneer.
Speaker 1: You know, it's a big deal. How do you think
Speaker 1: the regulars are going to look at that?
Speaker 15: You know, I think that deal is going to get scrutiny.
Speaker 11: You said it's a big deal. It involves exon.
Speaker 15: It's a sensitive area oil and gas, but I think
Speaker 15: in the end it's probably okay. I don't see how
Speaker 15: the FTC challenges it. Mean, this is really a combination
Speaker 15: in the Permian Basin where there's a lot of competition,
Speaker 15: still a lot of other biggies, and most of the
Speaker 15: company's holdings in this area, which is called the basin.
Speaker 15: It actually comprises several basins are not really all that
Speaker 15: close to each other, and combined.
Speaker 11: They'd have about fifteen percent.
Speaker 15: So I think it's going to get some scrutiny and
Speaker 15: it could take some time, but I think eventually this
Speaker 15: will get cleared.
Speaker 5: But I wonder why the FTC seems I mean, why
Speaker 5: can we count on them to oppose big M and
Speaker 5: A what's the idea behind that? You know?
Speaker 15: I think that essentially this is an FTC that sort
Speaker 15: of has a generally I don't like to say this
Speaker 15: because it really shouldn't be this way, and they say
Speaker 15: they'll deny this, but they really tend to think that
Speaker 15: big is bad. You know, the bigger the company, the
Speaker 15: more power it has, the more dominance it has, the
Speaker 15: more ability it has to engage in anti competitive actions
Speaker 15: that could harm consumers, that could harm labor that could
Speaker 15: have also different harms.
Speaker 5: That sounds like a fair take, actually, I mean in
Speaker 5: the abstract, right.
Speaker 15: Well, in the abstract that's in the abstract, it could
Speaker 15: be a fair take. But you really have to look
Speaker 15: at these deals one by one because if you take
Speaker 15: the position that any big deal is bad, that any
Speaker 15: kind of merger and consolidation is bad, what you're not
Speaker 15: thinking about are those deals that can be pro competitive
Speaker 15: and can have efficiencies and can ultimately be actually.
Speaker 11: Be good for consumers. Right, So you're really.
Speaker 15: Just discounting any of that, and it's kind of just
Speaker 15: a blanket application across the board that simply may not
Speaker 15: be the case. It may very well be the case
Speaker 15: for some of the deals that they're looking at now,
Speaker 15: and some of the deals they've tried to block and
Speaker 15: actually have been able to block in the past. But
Speaker 15: I just think that to look at everything across the
Speaker 15: board that way probably is a mistake.
Speaker 2: I wonder how Microsoft activision. I mean by the way
Speaker 2: that deal's completed.
Speaker 5: It's done. It's not like they're looking to close it.
Speaker 5: It's quite done.
Speaker 11: It's closed.
Speaker 2: But if I think about it, you know, Microsoft a
Speaker 2: gigantic behemoth that owns the Xbox, you know, one of
Speaker 2: two video game platforms, has now bought the maker of
Speaker 2: Call of Duty, the most important video game that exists, Right, So,
Speaker 2: I mean they're vertically integrating.
Speaker 15: They're vertically integrating. They were vertically integrated already, they're vertically
Speaker 15: integrating more. But at the end of the day, it
Speaker 15: comes down to what the economics of this deal shows.
Speaker 10: Is there an.
Speaker 15: Ability and incentive by Microsoft to keep all those activision
Speaker 15: games to itself and not supply these games to their
Speaker 15: distribution competitors, to forego the licensing piece that they would
Speaker 15: get from that, to have the customer bad will of
Speaker 15: gamers that we have the other options and would like
Speaker 15: to play the game and now can't.
Speaker 11: Which side is better for them? And what was proven
Speaker 11: in court.
Speaker 15: Was that it didn't make sense financially in the long
Speaker 15: run for Microsoft to withhold these games from its competitors.
Speaker 11: That's essentially what the judge found.
Speaker 2: Right, More people play video games in PlayStation then Xbox
Speaker 2: Sony's PlayStation, and they're definitely they definitely want to play
Speaker 2: Call of Duty on that platform. If Microsoft didn't allow
Speaker 2: them that, they would be looking at a lot of
Speaker 2: lost revenue.
Speaker 15: Now, that's right, And I also think that there's still
Speaker 15: if you look at market shares just in gaming, that
Speaker 15: companies that create device and create and produce these games,
Speaker 15: there's still a lot of competition. You know, globally, Activision
Speaker 15: isn't one of the biggest players, right It has Call
Speaker 15: of Duty, which is a very popular game, but who's
Speaker 15: to say that there's not another game that's going to
Speaker 15: come along in a year or two or in five
Speaker 15: years that surpasses that.
Speaker 1: All right, let's go from gaming to supermarkets. Here, what's
Speaker 1: the status of Kroger Albertson's.
Speaker 15: It's not looking good right now. You know, the companies
Speaker 15: seem to be trying to play ball. They're talking about
Speaker 15: divesting stores in order to get antitrust clearance to a
Speaker 15: company called CNS.
Speaker 11: But it's looking like the FTC might end up suing.
Speaker 15: This was sort of what I thought early on, and
Speaker 15: now we've also heard that the California State Ag is
Speaker 15: thinking about doing the same. So it looks like if
Speaker 15: the companies want to get this closed, they're going to
Speaker 15: have to end up winning at court.
Speaker 1: That doesn't seem I mean, it seems like an easy fix.
Speaker 1: Here just to say, hey, here's our geographic overlap, and
Speaker 1: mullt divest.
Speaker 15: These right, And that's essentially what the companies are doing.
Speaker 15: And because of that, Paul I actually think they have
Speaker 15: a good shot at winning in court in front of
Speaker 15: a judge.
Speaker 11: But this particular.
Speaker 15: FTC was very skeptical of remedies generally, any kind of remedy,
Speaker 15: whether structural like this divesting stores, or whether it's just
Speaker 15: behavioral promises like Microsoft had offered up And in this case,
Speaker 15: the FDC is particularly skeptical because there was a big
Speaker 15: grossery deal years ago in which many stores were divested.
Speaker 15: This was Albertsonson Safe Way, and it failed spectacularly. The
Speaker 15: buyer of the divested assets went bankrupt and Albertson's ended
Speaker 15: up buying back a bunch of the stores that they
Speaker 15: were supposed to divest.
Speaker 11: So there's particular.
Speaker 15: Skepticism in this industry that this work. And this is
Speaker 15: a lot of stores. You're talking up to six hundred
Speaker 15: to be divested to CNS, which is primarily a wholesaler.
Speaker 5: What are the other deals that we need to be
Speaker 5: watching out for, Jen, Well.
Speaker 15: Look, we're going to trial later this month in the
Speaker 15: Jet Blue Spirit Challenge. Oh yeah, Paul has talked about
Speaker 15: that one a bit. He's skeptical about that one. But
Speaker 15: that starts trial October twenty third. It's going to go
Speaker 15: about four weeks in Boston. So that's coming up. And
Speaker 15: we still are kind of waiting around to see what
Speaker 15: happens with Adobe en Figma. This one's been dragging on
Speaker 15: and the DOJ has been really quiet about it. We
Speaker 15: know the UK and the EU are investigating that deal
Speaker 15: as well and possibly have some concerns, and the Department
Speaker 15: of Justice may be just sort of biding its time
Speaker 15: because the deal cannot close while the UK and the
Speaker 15: EU investigations are ongoing. But I tend to think there's
Speaker 15: going to be a lawsuit there.
Speaker 1: Too, all right, Jenry, that's good business for the attorneys
Speaker 1: if nobody else. Genery, she's a senior legal analyst.
Speaker 5: He covers the.
Speaker 1: Antitrust business for Bloomberg Intelligence.
Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can
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Speaker 5: I'm Matt Miller.
Speaker 2: I'm on Twitter at Matt Miller nineteen seventy three, and
Speaker 2: i'm Faull Sweeney.
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