WEBVTT - UBS, China, Markets, and the Fed 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.200 at Bloomberg dot com slash podcast. Alison Williams joins us. 0:00:22.200 --> 0:00:25.320 She's a senior banks analyst at Bloomberg Intelligence and Bloomberg 0:00:25.320 --> 0:00:27.800 Opinion Calms. Paul Davies also joining us here for a 0:00:27.800 --> 0:00:32.000 little roundtable here. Paul, what's the feeling here about bringing 0:00:32.080 --> 0:00:37.080 back mister Emodi to UBS. I guess the market likes it. 0:00:37.080 --> 0:00:38.360 It's kind of seen as a good thing. What do 0:00:38.360 --> 0:00:40.800 you think, Yeah, no, I think it's it seems it's 0:00:40.800 --> 0:00:42.839 definitely a good thing. I mean, you know, UBS now 0:00:42.880 --> 0:00:46.040 presents a very different leadership challenge than it did. You 0:00:46.080 --> 0:00:48.400 know three weeks ago. Three weeks ago, it was still 0:00:49.000 --> 0:00:52.120 a very well run, self contained wealth manager with some 0:00:52.200 --> 0:00:55.160 good sort of growth prospects, you know, churning out good 0:00:55.360 --> 0:00:59.000 profits and buying backstock, and lots of people quite liked it. 0:00:59.320 --> 0:01:02.960 Then it was you know, sort of shoehorned into this 0:01:03.040 --> 0:01:06.400 incredibly large and complicated takeover deal to sort of rescue 0:01:06.400 --> 0:01:10.880 its long time you know, crosstown rival credit Swiss, and 0:01:11.120 --> 0:01:15.039 there is a very difficult you know, cultural and financial 0:01:15.120 --> 0:01:19.880 integration to do. And there's also Swiss taxpayer money, you know, 0:01:19.959 --> 0:01:22.880 on the line here if things don't go well. So 0:01:23.280 --> 0:01:26.760 I think for shareholders, for the Swiss government, for the 0:01:26.760 --> 0:01:29.720 Swiss people who don't necessarily like this deal either. You know, 0:01:29.800 --> 0:01:32.880 they need somebody with the experience and the background of 0:01:32.920 --> 0:01:35.560 Sergio or Matty and someone who has his kind of 0:01:35.760 --> 0:01:38.600 you know, statesmanlike presence as well, and they need someone 0:01:38.600 --> 0:01:42.560 who has his kind of citizenship as well. It's a 0:01:42.640 --> 0:01:45.000 kind of a dirty little secret. Nobody likes to talk 0:01:45.040 --> 0:01:49.320 about this, but I remember when Joseph Ackermanz, who is Swiss, 0:01:49.800 --> 0:01:52.200 was put in charge of Deutsche Bank, which is German, 0:01:52.320 --> 0:01:54.360 and guess what, it did not go down well with 0:01:54.400 --> 0:01:56.160 the German I know, I know, I'm not saying that 0:01:56.200 --> 0:02:01.160 there's xenophobic, but the Swiss do not like when foreigners 0:02:01.160 --> 0:02:04.840 come in and run their big institutions. That that's an 0:02:04.840 --> 0:02:08.000 issue with a lot of countries, right, Paul, how much 0:02:08.040 --> 0:02:11.519 of this is about ermodi not being Dutch, Ralph Hammers. 0:02:11.560 --> 0:02:15.760 I mean, eighty percent of the people in that country 0:02:15.840 --> 0:02:20.160 in a recent poll were against this force takeover. Is 0:02:20.200 --> 0:02:22.040 this a little bit of a throwing them a bone? 0:02:22.200 --> 0:02:24.880 You know, here's a Swiss guy. Don't worry, the old 0:02:24.960 --> 0:02:26.960 dude that you know and love is coming back, and 0:02:27.000 --> 0:02:29.640 he's from our own country. So how much is that? 0:02:29.760 --> 0:02:31.560 How much of that is playing into this? I mean, 0:02:31.600 --> 0:02:35.000 I think, you know, the swissness sort of helps in 0:02:35.040 --> 0:02:37.640 the sense of, you know, you've got to win the 0:02:37.680 --> 0:02:40.600 trust of the people of Switzerland and like I say, 0:02:40.680 --> 0:02:45.200 the politicians and regulators whose own careers and reputations are 0:02:45.200 --> 0:02:47.680 on the line as well after this, after this kind 0:02:47.680 --> 0:02:50.760 of shotgun marriage. So I mean, it definitely helps. And 0:02:50.800 --> 0:02:53.120 there is you know, everybody kind of you know, says 0:02:53.160 --> 0:02:55.240 there's this unwritten rule that at least one of the 0:02:55.240 --> 0:02:58.720 two top top jobs sorry chairman or CEO, needs to 0:02:58.720 --> 0:03:00.760 be held by a Swiss person, right, you know, it 0:03:00.800 --> 0:03:03.880 hasn't always been true, um, and I don't think Switzerland 0:03:04.000 --> 0:03:07.000 is you know, quite as um, you know, blinkered in 0:03:07.040 --> 0:03:09.600 that way as as as you might as some people 0:03:09.680 --> 0:03:11.880 might think. But I mean it's it is a conservative 0:03:11.880 --> 0:03:14.880 country and right now they need a leader who can 0:03:14.919 --> 0:03:18.800 sell this deal to the Swiss people exactly. So, Alison, 0:03:18.840 --> 0:03:21.080 from your perspective as a research channels looking at the 0:03:21.080 --> 0:03:24.680 fundamentals to financials here, what are mister Emodi's kind of 0:03:24.680 --> 0:03:27.720 top two or three tasks do you believe to ensure 0:03:27.760 --> 0:03:31.280 that this is a success? Wow? Top two or three? 0:03:31.520 --> 0:03:36.880 So um so, First, you know, they have to right 0:03:36.920 --> 0:03:41.080 size the units in terms of um, you know, deciding 0:03:41.480 --> 0:03:43.400 what they're what they're going to keep and what they're 0:03:43.400 --> 0:03:46.480 going to leave behind. I think you know, in particular 0:03:47.640 --> 0:03:50.040 hell guide Chard do you have the investment bank, but 0:03:50.080 --> 0:03:54.600 hopefully there are people with expertise evaluating those assets and 0:03:54.640 --> 0:03:57.480 client risks and you know, making sure that there's no 0:03:57.600 --> 0:04:01.360 doubling down on risks they don't want. Um you know, 0:04:02.120 --> 0:04:05.280 I think that that the second so so first is 0:04:05.360 --> 0:04:09.520 sort of making those decisions which we've seen broad strokes, 0:04:09.560 --> 0:04:12.360 but I think Urmanti has to sort of confirm those 0:04:12.440 --> 0:04:19.280 and implement that. Second, I would say is culture and 0:04:19.320 --> 0:04:21.960 so maybe this is actually the this is even more 0:04:22.000 --> 0:04:26.120 important than picking the businesses, right, So think about the 0:04:26.160 --> 0:04:30.799 culture of ubs in terms of especially under the range 0:04:30.839 --> 0:04:36.560 of Armani pulling back of risk and really strong controls 0:04:36.560 --> 0:04:38.520 of the business. One of the charts we like to 0:04:38.560 --> 0:04:41.000 show is, you know, if you look at overall trading 0:04:41.000 --> 0:04:45.720 and revenue for the global trading and investment banking business, uh, 0:04:45.880 --> 0:04:48.360 you know, UBS is at the lower end of variability 0:04:48.360 --> 0:04:50.680 on that scale, and Credit SUITEZES is at the high end. 0:04:50.720 --> 0:04:54.800 And so taking on those businesses and instill in culture, 0:04:54.839 --> 0:04:59.200 I think it's probably the most important task and the 0:04:59.240 --> 0:05:04.080 most difficult tasks. And then you know, finally, um, the 0:05:04.160 --> 0:05:09.239 restructuring cost cutting program is going to be significant. Managing 0:05:09.400 --> 0:05:13.839 the risk, especially within the Command Swiss unit where they 0:05:13.880 --> 0:05:17.560 have a significant share, a share that I think would 0:05:17.560 --> 0:05:20.560 have prevented it a deal if not for the troubles 0:05:20.600 --> 0:05:23.320 that the government was trying to avoid. Um. You know, 0:05:23.360 --> 0:05:26.760 that's a key challenge. And so Armadi obviously brings the 0:05:27.040 --> 0:05:31.440 Swiss expertise. As you said, he's also undergone a significant 0:05:31.520 --> 0:05:35.520 de risking and restructuring program under his reign in prior years. Hey, Paul, 0:05:35.880 --> 0:05:38.680 you know I've seen reporting that the this deal, this 0:05:38.720 --> 0:05:44.520 combination is extremely unpopular with the Swiss people. Why is that? 0:05:46.279 --> 0:05:48.120 I mean, I think there's there's a couple of things. 0:05:48.160 --> 0:05:50.719 I mean, there was some of the some of the 0:05:50.760 --> 0:05:56.479 surveys I saw were about the credibility of the regulator 0:05:56.520 --> 0:06:00.080 FINNMA and the government. Do they have credibility? Well, I 0:06:00.080 --> 0:06:03.920 don't know that the overseeing Credit Swiss, which has like 0:06:04.000 --> 0:06:07.240 a global scandal every six months. I mean, there are 0:06:07.279 --> 0:06:10.200 plenty of people who thinks that, who think that Finnmer, 0:06:10.640 --> 0:06:14.160 the financial regulator, could have and should have intervened in 0:06:14.520 --> 0:06:17.159 stronger ways, you know, much sooner. I think there's you 0:06:17.160 --> 0:06:19.359 know that you could even find people at Credit Suis 0:06:19.520 --> 0:06:21.640 who who would have hoped that the regulator might have 0:06:21.680 --> 0:06:26.320 rescued them from themselves much quicker. Um. But but then 0:06:26.360 --> 0:06:27.800 the other, I mean, the other key thing about the 0:06:27.880 --> 0:06:30.960 unpopularity of this deal is just you know, the dominant 0:06:31.200 --> 0:06:34.040 bank at home that it will create. And again that's 0:06:34.040 --> 0:06:36.640 a kind of I think that's another reason why the 0:06:36.760 --> 0:06:40.599 presentation of this and the effort that you know, Sergio 0:06:40.720 --> 0:06:43.359 Mutty will have to make to win over people and 0:06:43.400 --> 0:06:46.720 win over win back trust is going to be so important. 0:06:46.839 --> 0:06:50.200 You know, they waived competition rules to let this deal happen. 0:06:50.640 --> 0:06:52.960 Colin Keller her the chairman, you know, when they were 0:06:53.000 --> 0:06:55.040 announcing this deal the other week said you know, we 0:06:55.040 --> 0:06:56.839 were going to do everything we can to kind of 0:06:56.839 --> 0:07:00.080 hold onto this enlarged Swiss Bank. You know, we've not 0:07:00.200 --> 0:07:02.960 heard the last of this at all. So I think, 0:07:03.000 --> 0:07:07.760 you know, there's a real public public relations charm offensive, 0:07:07.800 --> 0:07:09.760 whatever you want to call it, effort to be made 0:07:10.200 --> 0:07:13.120 to try and keep this together, you know, on the 0:07:13.160 --> 0:07:16.360 part of UBS. I mean, they had to do something right. 0:07:16.480 --> 0:07:20.320 Credit Swiss had they were spying on their employees, remember 0:07:20.360 --> 0:07:26.240 that they had bet big on Green Silly. They were 0:07:26.240 --> 0:07:29.200 willing to give as much credit to Archagos as he 0:07:29.320 --> 0:07:31.880 wanted exactly, you know, I mean the reality is, I mean, 0:07:31.880 --> 0:07:34.880 this has been going on for now, getting tax issues. 0:07:35.400 --> 0:07:38.720 I mean, is there anything they didn't do wrong? What 0:07:38.760 --> 0:07:41.160 would the Swiss people have preferred? You know, I mean 0:07:41.600 --> 0:07:44.840 I don't know, Alison, what just from the investment banking perspective, 0:07:45.400 --> 0:07:48.640 do you put one and one together and get two plus? 0:07:48.960 --> 0:07:50.600 How do you think they're going to play the investment 0:07:50.640 --> 0:07:55.040 banking business? So unfortunately, we think it's actually the opposite. 0:07:55.040 --> 0:07:58.360 You put one and one together and the combined edity 0:07:58.440 --> 0:08:01.760 is probably going to come in below. You know, sort 0:08:01.760 --> 0:08:04.240 of what would be ProForma estimates at least for the 0:08:04.280 --> 0:08:08.680 near term. For for two key reasons. One is, you know, 0:08:08.720 --> 0:08:10.960 as I mentioned, they're going to want to mitigate combined 0:08:11.040 --> 0:08:14.640 risk to clients in terms of UM exposures to clients 0:08:14.720 --> 0:08:18.040 and what they're providing them. They're not going to double 0:08:18.120 --> 0:08:20.440 down from the client side. They're also not going to 0:08:20.480 --> 0:08:23.240 want to double down as well clients like two UM, 0:08:23.640 --> 0:08:26.320 you know, sort of diversify the people that they're working 0:08:26.320 --> 0:08:30.520 with in their exposures. And then secondly, you know, when 0:08:30.520 --> 0:08:33.400 you look at UM, you know, in particular the fixed 0:08:33.400 --> 0:08:36.040 income trading business of credit swees, a lot of this 0:08:37.120 --> 0:08:40.160 are types of businesses that UBS has shied away from 0:08:40.200 --> 0:08:43.319 and moved away from a long time ago. UBS is 0:08:43.360 --> 0:08:47.760 fixed income trading unit is very currencies rates focused. UM 0:08:47.840 --> 0:08:50.800 so really focused on flow based businesses if you will, 0:08:50.840 --> 0:08:53.600 that don't use the balance sheet as much. UM. Credit 0:08:53.640 --> 0:08:56.559 sweet was the opposite. We know that they've already been 0:08:56.600 --> 0:09:00.640 moving away and reducing that and we think that well 0:09:00.679 --> 0:09:02.960 UBS has said they're going to do it, and we 0:09:03.000 --> 0:09:05.360 expect that that happens on an accelerated time from that 0:09:05.400 --> 0:09:08.600 they cut those assets more. All right, guys, great having 0:09:08.640 --> 0:09:11.160 you both together on this. It's a big, big day 0:09:11.320 --> 0:09:15.480 for UBS as it tries to navigate its acquisition of 0:09:15.559 --> 0:09:18.080 Credit Swiss really over. It's going to be a multi 0:09:18.160 --> 0:09:20.199 year issue, is kind of how it appears at this point. 0:09:20.240 --> 0:09:23.480 We had Paul Davies, Bloomberg Opinion columnists joining us from London, 0:09:23.720 --> 0:09:26.720 and Alison William's, senior Global Banks annalyst fro Bloomberg Intelligence, 0:09:26.920 --> 0:09:29.760 joining us from the phone from Princeton, New Jersey, kind 0:09:29.800 --> 0:09:32.280 of rounding it all out. Yeah, I just think it's 0:09:33.480 --> 0:09:35.640 not the end. We're gonna hear more. I think your 0:09:35.679 --> 0:09:39.440 story exactly right. There's probably a lot of issues that 0:09:39.559 --> 0:09:41.880 UBS is gonna find over the coming weeks, months, and 0:09:42.040 --> 0:09:47.240 maybe years. This is Bloomberg. You're listening to the Team 0:09:47.600 --> 0:09:51.440 Cancer Live program, Bloomberg Markets weekdays at ten am, easting 0:09:51.600 --> 0:09:54.280 on Bloomberg dot Com, the I Heard Radio app, and 0:09:54.360 --> 0:09:57.280 the Bloomberg Business App. We're listening on demand wherever you 0:09:57.320 --> 0:10:03.200 get your podcast. David Bonson, cio of the Bonson Group. 0:10:03.200 --> 0:10:05.720 Before that, you spend a bunch of time at Morgan 0:10:05.800 --> 0:10:09.480 Stanley and then at UBS running money here so under 0:10:09.480 --> 0:10:14.679 Sergio Armudi exactly now. Interesting, mister Monti's back. David, thanks 0:10:14.720 --> 0:10:17.920 so much for joining us. Here. What are you telling 0:10:17.920 --> 0:10:21.400 your clients these days? You know it just January was great, 0:10:21.120 --> 0:10:24.440 February not so much, March just kind of hanging out here. 0:10:24.440 --> 0:10:26.640 And now we've started quarter two. What are you telling 0:10:26.640 --> 0:10:31.200 your clients? Well, essentially, I'm telling them exactly what markets 0:10:31.240 --> 0:10:32.679 are telling us, which is that there's a lot of 0:10:32.760 --> 0:10:36.080 uncertainty in the equity market and that volatility is likely 0:10:36.240 --> 0:10:40.439 to continue. I'm struck by Bullard's comment about the equity 0:10:40.520 --> 0:10:44.600 volatility can mean certain things at different times for financial conditions, 0:10:44.640 --> 0:10:47.600 and it's just not really their job to look at it, 0:10:47.640 --> 0:10:49.640 because I very much agree with them. It is not 0:10:49.679 --> 0:10:52.960 their job to look at that. Financial conditions are going 0:10:53.000 --> 0:10:56.200 to move for any number of different reasons, and their 0:10:56.320 --> 0:11:00.439 job is to not to be taking their signals that way. Rather, 0:11:01.640 --> 0:11:05.120 it is quite evident that the disinflation is upon us. 0:11:05.440 --> 0:11:11.360 They have overtightened, and they seem hell bent on exacerbating 0:11:11.400 --> 0:11:14.400 the mistakes they make on both ends, staying too low 0:11:14.480 --> 0:11:16.880 too long and then staying too tight too long. Well 0:11:16.880 --> 0:11:18.760 don't they. I mean, it seems what they really want 0:11:18.760 --> 0:11:21.880 to do is avoid the fate of Arthur Burns. They 0:11:22.040 --> 0:11:26.600 don't want to uh, you know, shoot before they see 0:11:26.640 --> 0:11:32.760 the whites of the eyes of I guess disinflation, right, Well, 0:11:32.800 --> 0:11:35.400 I would love to believe that they cared about that. 0:11:35.480 --> 0:11:38.520 I don't. I definitely understand rhetorically the pal has talked 0:11:38.640 --> 0:11:41.840 much more that way, more volkerlike than Burns like. But 0:11:42.160 --> 0:11:44.800 Arthur Burns never had the luxury of dealing with M 0:11:44.880 --> 0:11:49.160 two dropping three percent in one quarter and the CPI 0:11:49.320 --> 0:11:54.800 lag essentially representing over half the shelter lag, rather in 0:11:54.920 --> 0:11:57.840 CPI representing over half of what we see in CPI. 0:11:59.120 --> 0:12:01.520 Burns was not coming off of a shutdown of the 0:12:01.559 --> 0:12:05.200 economy that then led to a supply side really a 0:12:05.280 --> 0:12:08.920 debacle in the production of goods and services, labor shortages, 0:12:09.040 --> 0:12:11.880 other things like that. And so there were a lot 0:12:11.920 --> 0:12:14.440 of differences in the inflation of the seventies and the 0:12:14.440 --> 0:12:17.680 inflation we've had in the last eighteen months. But what 0:12:17.720 --> 0:12:20.200 do you what do you think then, David? It's been 0:12:20.240 --> 0:12:23.120 suggested to us by I think daniel D. Martineau Booth 0:12:23.480 --> 0:12:26.079 that part of what Powell wants to do is just 0:12:26.280 --> 0:12:29.720 break the FED put for now and forever. What do 0:12:29.760 --> 0:12:34.200 you think his endgame is? Yeah? And I love Danielle 0:12:34.200 --> 0:12:36.280 and I think that Danielle's an assessment of what Pale 0:12:36.320 --> 0:12:38.440 did back in eighteen and nineteen was some of the 0:12:38.480 --> 0:12:41.439 best out there, But I don't agree with her that 0:12:41.440 --> 0:12:44.800 that is the case. I don't think any said chair 0:12:45.200 --> 0:12:47.520 can break the FED put. I think that it is 0:12:47.559 --> 0:12:50.520 not merely a matter that Wall Street or Main Street 0:12:50.559 --> 0:12:53.199 has gotten dependent on it, both of which is true, 0:12:53.800 --> 0:12:56.679 but the US economy has gotten dependent on it. The 0:12:56.800 --> 0:13:02.920 pension funds, the unfunded liabilities of pensioners all around the 0:13:02.960 --> 0:13:06.880 country to totally break the put. If we really thought 0:13:06.920 --> 0:13:09.720 that was happening, credit spreads would be five hundred basis 0:13:09.760 --> 0:13:12.360 points wider than they are. We had a year last 0:13:12.400 --> 0:13:15.720 year where everyone was talking about recession and yet duration 0:13:16.080 --> 0:13:19.640 underperformed credit. I mean it was It's surreal that we're 0:13:19.679 --> 0:13:22.319 having a banking moment right now and there isn't a 0:13:22.400 --> 0:13:25.920 single lick of credit impairment. It's entirely interest great risk. 0:13:26.440 --> 0:13:29.280 So I don't think that the FED put is going anywhere. 0:13:29.320 --> 0:13:32.040 But again, even if Daniel's right, we wouldn't know it 0:13:32.440 --> 0:13:35.320 until they really get tested. I mean, the SMPS down 0:13:35.400 --> 0:13:39.400 twenty the NAVSDAC was from last year. The NAVSDAC had 0:13:39.440 --> 0:13:43.720 already gone up fifty before it came down thirty. Credit 0:13:43.800 --> 0:13:48.120 spreads are still really really tame. Nothing has broken yet. 0:13:48.320 --> 0:13:51.760 Now we have the banking system, you know, I certainly 0:13:51.800 --> 0:13:54.640 think the FED can control housing price, inflation of the 0:13:54.679 --> 0:13:57.560 interest rate, and that bubble was out of control. So 0:13:57.600 --> 0:13:59.920 that's one element where I believe they can control inflation. 0:14:00.040 --> 0:14:02.079 And I just don't believe they have any control with 0:14:02.160 --> 0:14:05.520 the sad funds rate over normal goods and services. All right, Dave, 0:14:05.600 --> 0:14:08.400 let's get to brass tax here. Where do we go 0:14:08.440 --> 0:14:10.080 with our money? A lot of folks are telling me 0:14:10.200 --> 0:14:13.120 to go to quality. I'm not really sure what that means, 0:14:13.160 --> 0:14:14.920 but it feels like I should be buying companies that 0:14:15.000 --> 0:14:19.560 sell toothpaste and I mean cash shampoo and have high dividends. 0:14:19.640 --> 0:14:23.560 I mean, how do you think about quality in today's market? 0:14:23.600 --> 0:14:26.040 What does that mean to you? Yeah, so I can 0:14:26.040 --> 0:14:29.080 only assume that you're seeing me up accidentally. I certainly 0:14:29.120 --> 0:14:31.640 am talking to my book here, but the differences. I'm 0:14:31.640 --> 0:14:34.720 not making a tactical call for quality. It's all we do, 0:14:34.800 --> 0:14:36.920 it's all we ever believe in. We never want to 0:14:36.960 --> 0:14:40.600 be buying high priced, high multiple What do you mean, David, 0:14:40.600 --> 0:14:43.840 when you say quality? We mean balance sheet strength and 0:14:43.920 --> 0:14:46.600 free cash flow, and that's all anyone should mean. I mean, 0:14:46.640 --> 0:14:49.000 I would add to that, although I think it's sort 0:14:49.000 --> 0:14:52.840 of implied a business model that is sensible and defensible 0:14:52.920 --> 0:14:56.000 and so forth. But out of that business model that 0:14:56.160 --> 0:14:59.000 is not quite so cyclical and not quite so speculative. 0:14:59.400 --> 0:15:02.680 Quality is a financial condition. It refers to balance sheet strength, 0:15:02.760 --> 0:15:07.360 lower debt ratios, and more predictable and growing free cash flow. 0:15:07.400 --> 0:15:10.280 And how do we know if a company has dependable 0:15:10.720 --> 0:15:13.240 dividend growth? It's from the free cash flow growth. You 0:15:13.280 --> 0:15:16.400 can't pay a dividend from money that doesn't exist. And so, 0:15:16.440 --> 0:15:19.920 as dividend growth managers, a little over two and a 0:15:19.960 --> 0:15:22.280 half a billion of the over four billion that I 0:15:22.360 --> 0:15:25.480 manage is in dividend growth equity and it is doing 0:15:25.640 --> 0:15:28.840 extremely well right now, and we believe it's the right 0:15:28.840 --> 0:15:31.480 place to be going forward. But again, we believe that 0:15:31.520 --> 0:15:34.040 even when Fang is rallying. But hey, while you're talking 0:15:34.080 --> 0:15:37.360 your book, you want to give us some names. Yeah, 0:15:37.400 --> 0:15:39.800 by the way, I think the name I Blackstone and Apollo. 0:15:39.840 --> 0:15:42.440 If you're a couple of asset managers, they get lumped 0:15:42.440 --> 0:15:44.600 in with financials. And we know the banks of at 0:15:44.600 --> 0:15:47.880 a hard time. But these are just unbelievable dividend growers 0:15:47.920 --> 0:15:50.560 that simply don't have a bank business model at all. 0:15:50.640 --> 0:15:54.400 They don't take balance sheet risk. They're using investor money 0:15:54.440 --> 0:15:57.080 from which they get really good fees, really good promotes, 0:15:57.640 --> 0:16:00.240 and they are mostly a non traditional asset class is 0:16:00.280 --> 0:16:04.600 private equity, hedge funds, real estate, credit and their asset 0:16:04.680 --> 0:16:08.520 gathering machines. And so Blackstone and Apollo are two robust 0:16:08.640 --> 0:16:12.280 dividend growing names. Blackstone we've owned for a decade and 0:16:12.640 --> 0:16:16.040 believe that they will continue growing the dividend in high 0:16:16.080 --> 0:16:18.680 single digits per year. You're going to get about a 0:16:18.800 --> 0:16:21.960 five percent dividend annualized, and you're going to get we 0:16:22.000 --> 0:16:26.720 think that much or more in price grows. How about energy, 0:16:27.120 --> 0:16:30.440 I'm thinking, David, I might have missed that whole train there, 0:16:30.480 --> 0:16:35.160 that whole boat. What happened with energies or anything left there? Yeah, 0:16:35.160 --> 0:16:37.200 there certainly is, although we are a little bit more 0:16:37.240 --> 0:16:39.880 bullish than now a midstream than upstream. But you know, 0:16:39.960 --> 0:16:41.640 when you say missed the boat, if you mean the 0:16:42.400 --> 0:16:46.160 forty five percent move and in the sixty percent move 0:16:46.280 --> 0:16:49.240 last year, but you know what, it's trading at nine 0:16:49.280 --> 0:16:52.160 point two times earnings. Okay, it's trading at half of 0:16:52.200 --> 0:16:56.920 its annualized evaluation. Meanwhile, Tech, which was pummelo last year, 0:16:57.040 --> 0:16:59.920 is still trading at twenty four times versus in eighteen 0:17:00.120 --> 0:17:04.080 times historical. So I would still argue that energy is 0:17:04.160 --> 0:17:08.520 undervalued relative and tech is overvalued relative. But a better 0:17:08.560 --> 0:17:11.960 place to be from a quality standpoint is midstream. Really 0:17:12.160 --> 0:17:15.840 robust free cash flow growth, heavy dividend coverage, and they 0:17:15.920 --> 0:17:22.000 really delevered. What is midstream is that refineries. No refineries 0:17:22.000 --> 0:17:24.840 would be more downstream, and midstream would be the pipelines 0:17:24.920 --> 0:17:29.200 and storage transportation. It's a very environmentally friendly play as well. 0:17:29.240 --> 0:17:32.520 You don't want oil and gas being transported by truck 0:17:32.600 --> 0:17:35.560 and by rail, and so we like the pipeline space. 0:17:35.600 --> 0:17:38.520 And then of course the LNG exports story is a 0:17:38.560 --> 0:17:41.960 midstream story too, and we think there's huge growth potential there. 0:17:42.680 --> 0:17:44.639 If I wanted to build a new pipeline today, I 0:17:44.640 --> 0:17:46.760 couldn't get it done, could not in this administration. Why 0:17:46.760 --> 0:17:50.000 did we all hate that big pipeline down from Canada. 0:17:50.119 --> 0:17:52.760 I don't know, something the ELK migration or something, so, 0:17:53.040 --> 0:17:55.000 but I mean, I mean, that's also kind of a 0:17:55.040 --> 0:17:57.840 bullish part of the midstream called they're not going to 0:17:57.880 --> 0:18:01.439 be adding more pipelines. Yeah. I do hope that that 0:18:01.480 --> 0:18:05.040 will change. I believe it is without getting overly political 0:18:05.080 --> 0:18:08.040 and incredibly foolish decision by the current administration. But the 0:18:08.080 --> 0:18:10.960 fact that matter is you're right. It boosts up the 0:18:11.040 --> 0:18:15.600 value of incumbent assets when you artificially constrain new supply. 0:18:15.920 --> 0:18:17.600 All right, we'll have to see how that place out. 0:18:17.640 --> 0:18:20.280 David Bonson always a pleasure to chat with, get some 0:18:20.400 --> 0:18:23.680 good ideas. David Bonson, CIO of the Bonson Group. He's 0:18:23.800 --> 0:18:26.919 been managing private wealth money for a long Time's got 0:18:26.960 --> 0:18:28.800 a lot of perspective. He's out there in the West Coast, 0:18:28.800 --> 0:18:31.720 to which we late out there in Newport Beach, California. 0:18:31.960 --> 0:18:33.720 That's got to be tough going to tennis every day. 0:18:33.960 --> 0:18:37.080 You're listening to the tape kens Are Live program Bloomberg 0:18:37.160 --> 0:18:40.680 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:18:40.800 --> 0:18:44.000 tune in app, Bloomberg dot Com, and the Bloomberg Business App. 0:18:44.080 --> 0:18:46.879 You can also listen live on Amazon Alexa from our 0:18:46.920 --> 0:18:52.040 flagship New York station, Just Say Alexa, play Bloomberg eleven thirty. 0:18:53.119 --> 0:18:55.680 The news coming out of China, I guess most recently 0:18:56.119 --> 0:19:00.000 is company specific. Ali Baba one of the leading conglomerate telecom, 0:19:00.400 --> 0:19:03.560 cloud companies, e commerce companies. One of the real success 0:19:03.560 --> 0:19:06.639 stories of China is going to be breaking itself up 0:19:06.640 --> 0:19:08.760 into six smaller pieces. And I don't want to necessarily 0:19:08.760 --> 0:19:10.400 talk about that per se, but what does it mean 0:19:10.800 --> 0:19:13.040 for the economy, for the tech sector, for just the 0:19:13.080 --> 0:19:17.600 government's involvement in the economy of China. And to do 0:19:17.640 --> 0:19:22.080 that we check in with Bloomberg Economics chief economists Tom Orlick. Tom, 0:19:22.160 --> 0:19:25.840 you lived and worked in China and Beijing for many, 0:19:25.880 --> 0:19:29.040 many years. You've got a fantastic perspective here. You see 0:19:29.040 --> 0:19:34.040 the Ali Baba news And is this entirely in response 0:19:34.119 --> 0:19:36.879 or primarily in response to the government saying you guys 0:19:36.880 --> 0:19:38.200 got too big? I mean, we want to see you 0:19:38.240 --> 0:19:43.440 get smaller. So I think what Ali Baba has done here, Paul, 0:19:43.800 --> 0:19:49.280 is potentially rather ingenious. They've got a plan which could 0:19:49.320 --> 0:19:54.120 satisfy their two key constituencies. On the one hand, you've 0:19:54.119 --> 0:19:58.560 got investors who are frustrated that they see Ali Baba, 0:19:58.960 --> 0:20:02.119 the big company, not being valued as it should be 0:20:02.720 --> 0:20:06.280 and see potential for much higher valuations if some of 0:20:06.320 --> 0:20:10.960 the fast growing components of the business, from e commerce 0:20:11.080 --> 0:20:15.679 to cloud to logistics, can be split off. And on 0:20:15.720 --> 0:20:19.719 the other hand, you've got Beijing Jijinping, who were worried 0:20:19.720 --> 0:20:24.200 about the power of tech monopolies, worried perhaps that very 0:20:24.240 --> 0:20:27.880 powerful entrepreneurs could one day pose a challenge to Communist 0:20:27.960 --> 0:20:31.359 party rule. And so this plan to split the company 0:20:31.440 --> 0:20:38.800 up into six different smaller companies potentially satisfies both groups. 0:20:38.840 --> 0:20:42.840 All right, So you hit on something there that I 0:20:42.920 --> 0:20:46.440 was wondering about. Since these Ali Baba headlines came out, really, 0:20:46.480 --> 0:20:52.880 since the photos of Jack Mass surfaced reportedly back in China, 0:20:53.040 --> 0:20:56.119 how much does Ali Baba really get to decide for itself? 0:20:56.400 --> 0:20:59.120 I mean, when we say Ali Baba made a genius decision, 0:20:59.560 --> 0:21:02.320 isn't it? Aren't they just kind of told what to do? 0:21:04.280 --> 0:21:06.360 You know? I mean, that is a really good question. 0:21:06.800 --> 0:21:09.199 And I do not have a crystal ball into the 0:21:09.359 --> 0:21:15.560 Ali Baba boardroom. Certainly, China's Common Prosperity Agenda, which has 0:21:15.640 --> 0:21:21.720 included a sweeping crackdown on the big tech company's Ali Baba, 0:21:21.880 --> 0:21:25.959 ten Cent, ma Chuan and others, will have exerted a 0:21:26.000 --> 0:21:31.080 bunch of pressure on company leadership at the same time, 0:21:32.040 --> 0:21:35.000 are the regulators kind of in the weeds of this 0:21:35.200 --> 0:21:39.080 kind of calling the shots on what happens. I don't 0:21:39.119 --> 0:21:42.760 know the answer to that, but my suspicion is that 0:21:42.880 --> 0:21:46.760 China's government aren't that silly. They know what they want, 0:21:47.160 --> 0:21:50.560 They want to clamp down on monopolistic power, but they 0:21:50.720 --> 0:21:54.720 also know the limits of their own understanding, and they 0:21:54.760 --> 0:21:58.879 know that at its heart, Ali Baba is a very competitive, 0:21:58.960 --> 0:22:02.440 very dynamic, aentual, the world beating company, and they don't 0:22:02.440 --> 0:22:04.240 want to stop that. They don't want to they don't 0:22:04.240 --> 0:22:07.560 want to kill it. But the direction comes from the government, 0:22:07.600 --> 0:22:10.399 but the decisions come from the corporate board. Let me 0:22:10.480 --> 0:22:14.160 ask you a question that I started thinking about when 0:22:16.080 --> 0:22:19.240 I guess fifteen years ago when Yukos goot Um find 0:22:19.400 --> 0:22:22.919 like twenty billion from Russia and then um, you know, 0:22:23.040 --> 0:22:27.560 their their boss ended up in a Siberian gulag China. 0:22:27.800 --> 0:22:31.880 I wonder the same thing about do they do they 0:22:32.040 --> 0:22:36.800 risk driving away international investors who are scared about the 0:22:36.880 --> 0:22:41.000 lack of a you know, real justice system, the lack 0:22:41.040 --> 0:22:43.719 of the rule of law, when they start disappearing leaders 0:22:44.080 --> 0:22:46.640 and investment bankers, do they do they care about that? 0:22:48.520 --> 0:22:52.640 So I mean, firstly, whilst there are obviously some commonalities 0:22:52.680 --> 0:22:57.600 between Russia and China, um, I think that what happens 0:22:57.720 --> 0:23:04.200