Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanibek. We're here every day bringing
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Speaker 1: You can also listen to our radio show at two
Speaker 1: pm Eastern Time on Bloomberg Radio or watch us on
Speaker 1: YouTube search Bloomberg Global News. Well this week, man, we
Speaker 1: get reads on a lot of economic data points new
Speaker 1: home sales, durable goods, GDP, core PC E f O
Speaker 1: MC minutes or something coming steady say that five times
Speaker 1: fast not gonna happen. What really tell us about the economy?
Speaker 1: Peak inflation? More so? Many questions, So we're gonna put
Speaker 1: a few of them to our next guest. Peter Atwater
Speaker 1: is adjunct professor of economics at william and Mary. Peter
Speaker 1: joins us on the phone from Pennsylvania. You may recall
Speaker 1: that Peter is the one who came up with the
Speaker 1: idea of the K shape recovery, something that we've been
Speaker 1: talking about for the last two years. Peter, good to
Speaker 1: have you with us. How are you. I'm doing well. Tim,
Speaker 1: thanks so much for having me. Well. We love having
Speaker 1: you on because what you focus on is sentiment, the
Speaker 1: way that people are feeling, and you connect that to
Speaker 1: the market. So so give us an idea, you know,
Speaker 1: on a day where it seems like we're coming back
Speaker 1: from touching a bear market in the what sentiment is
Speaker 1: like out there? So depends on where you look. Um.
Speaker 1: You know, within the economy, I am very concerned about
Speaker 1: the sentiment of those at the very low end socio economically. UM.
Speaker 1: They have been hit by a barrage of really difficult
Speaker 1: um actions because of the inflation, whether it's food, energy, housing, childcare.
Speaker 1: They're really facing um enormous challenge in every direction they face.
Speaker 1: On the other hand, I look at the sentiment in
Speaker 1: the market and I laugh with everyone looking for a
Speaker 1: bottom because at Loews and sentiment, nobody can anticipate there
Speaker 1: being a possible bottom. I I feel like the investors
Speaker 1: today are like kids on a long vacation car ride.
Speaker 1: All going are we there yet, and that doesn't mark
Speaker 1: a market low. You know, later on we're gonna play
Speaker 1: um a clip of an interview are Bloomberg Surveillance and
Speaker 1: TV team did with Clembia University professor and Nobel Prize
Speaker 1: winning economist Joe Stiglets, and he talked about Peter saying
Speaker 1: raising interest rates is not going to solve the problem inflation.
Speaker 1: It's not going to create more food. It's going to
Speaker 1: make it more difficult because you aren't able to be
Speaker 1: able to make the investment. Um. Tim talks about this
Speaker 1: all the time. We all talk about this, that this
Speaker 1: whole idea of the Fed raising interest rates isn't going
Speaker 1: to fix supply chains, certainly not overdight. Maybe it reduces
Speaker 1: demand perhaps a little bit, but you know, that's not
Speaker 1: going to fix all of our supply chain challenges and
Speaker 1: certainly not help those who are probably being hit the hardest.
Speaker 1: Like you talk about, Yeah, and I and I worry
Speaker 1: is that, Um, you know, the FEDS activity, particularly when
Speaker 1: it ripples through to things like used car loans and
Speaker 1: to you know home, you know the cost of a mortgage. Um,
Speaker 1: that's really setting a barrier for those at the at
Speaker 1: the low end. So what's the FED to do? And
Speaker 1: I know, you know you're not advising the FED right now,
Speaker 1: but you know the FED FED Chief J. Powell has
Speaker 1: has talked about the blunt instruments that it has to
Speaker 1: to tame inflation, It needs to tame inflation. Is it
Speaker 1: not doing it the right way? So I have some
Speaker 1: sympathy for the folks and at the FED, because you know,
Speaker 1: their tools are not designed for this sort of a
Speaker 1: the supply shock. But at the same time, I think
Speaker 1: we need to be careful in terms of overreacting to
Speaker 1: an overreaction in the first place. So if you go
Speaker 1: back to March, we pushed all of the stimulus onto
Speaker 1: the economy and and folks were not paying attention to
Speaker 1: the likely bullwhip effect that then manifested. And so I
Speaker 1: feel like the FED is constantly now chasing the last
Speaker 1: impactful moment in trying to um respond to what is
Speaker 1: already a very impulsive um consumer. And I think we're
Speaker 1: in this environment sentiment wise, where we we tend to overreact.
Speaker 1: You know, there's there's not a lot of certainty that
Speaker 1: people feel, there's not a lot of control people feel,
Speaker 1: and so there's a high level of impulsivity, and I
Speaker 1: get concerned that the FED is now trying to to
Speaker 1: play in that same impulsive manner because we the population
Speaker 1: are being very impulsive at the same time that I
Speaker 1: feel like sums up so much of what's going on. Peter,
Speaker 1: I keep talking about, I don't know what they're really
Speaker 1: economy is, to be quite honest, because we did have
Speaker 1: so much stimulus globally pumped into it, and now we're
Speaker 1: kind of trying to find our way back. And I
Speaker 1: feel like data points don't necessarily indicate that one thing
Speaker 1: that really jumped out along those lines from the research
Speaker 1: you shared with us and our producer Paul, you noted below,
Speaker 1: the service of today's record low unemployment rate is a
Speaker 1: crisis that has the potential disrupt to disrupt the broader
Speaker 1: economy just got about a minute left. So what do
Speaker 1: we need to kind of have on our radar along
Speaker 1: those lines? So I think we need to be very
Speaker 1: aware of the stacked inequities that exist the bottom and
Speaker 1: that you know, you have an environment where sentive negative
Speaker 1: sentiment upon negative sentiment upon negative sentiment, and I think
Speaker 1: we need to be careful that we don't reach a
Speaker 1: tipping point, particularly because we have an economy today that
Speaker 1: is so dependent on those at the bottom because everything
Speaker 1: is being delivered to us, and that that chain of
Speaker 1: individuals at the low end of the of the system
Speaker 1: are keeping those who are working from home of flu.
Speaker 1: All right, well, a good point, and um, wish we
Speaker 1: had more time. We will have you back very soon.
Speaker 1: Peter Atwater, he's adjunct professor of economics. That will Eave
Speaker 1: and Mary on the phone from Pennsylvania. I have to
Speaker 1: tell you one thing. One of the panels I did
Speaker 1: and Panama was on the global food crisis. And in
Speaker 1: some of the research I did that it talked about
Speaker 1: rising food prices often lead to political instability, and so
Speaker 1: there are repercussions of this type of environment the longer
Speaker 1: it goes on. Yeah, people allude, you know, people talk
Speaker 1: about what happened back in the Middle East in the
Speaker 1: early two thousand tens Arab spring. Exactly. It's exactly right.
Speaker 1: All right, So much to talk to you, and we've
Speaker 1: got lots more to come. You're listening to Bloomberg Business Week.
Speaker 1: Cow Master Tom Stenovik were Bloomberg Radio. You're listening to
Speaker 1: Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes
Speaker 1: Tim Stenovic on Bloomberg Radio. Yeah, Jimmy Diamond talks. We
Speaker 1: all listen. And as Charlie mentioned, talking about some storm clouds.
Speaker 1: As you said, here's a meteorologist now at him. Yeah,
Speaker 1: strong clouds over the US economy. They may dissipate, may dissipate.
Speaker 1: That would be good. Yes, indeed, let's bring in Sally
Speaker 1: bake Well, finance team leader for Bloomberg News. Sally joins
Speaker 1: us via zoom from New York City. Sally, good to
Speaker 1: have you with us. We got our live blog going
Speaker 1: right now about JP Morgan's investor Day. Just give us
Speaker 1: the highlights of what's happened thus far. That'st of all.
Speaker 1: I really like the idea of Jamie dian And as
Speaker 1: a meteorologic. If it doesn't, if this whole banking thing
Speaker 1: doesn't work out for you, Jamie, we got something else
Speaker 1: you know where to go. Um. Well, Diamond has been
Speaker 1: a big champion of the U s economy, and he
Speaker 1: struck that note again today. Um. You know, it's robust
Speaker 1: because of all the stimulus that has been pumped into it.
Speaker 1: But of course he nodded to this very unusual cocktail
Speaker 1: we have at the moment of surging instation quantitative tightening
Speaker 1: by the Fed. He also nodded to the volatile market
Speaker 1: and lots of liquidity out there, but overall he we
Speaker 1: got no sense that any recession is in an and um,
Speaker 1: he has previously in recent weeks sort of made the
Speaker 1: prediction that there is a thirty percent or so chance
Speaker 1: of recession, much like the Goldman Sax CEO David Solomon,
Speaker 1: who made a similar forecast. But you know, with Diamond's
Speaker 1: words today and with projections by the Bank, we've got
Speaker 1: the kind of this this relatively politic positive picture with yeah,
Speaker 1: there's no real imminent recession on the horizon. We we
Speaker 1: saw new higher guidance for net interest income, accelerating loan growth,
Speaker 1: strong credit quality. In fact, Diamond said that he had
Speaker 1: never seen credit looks so good. Um, no particular changes
Speaker 1: in consumer behavior and at least flat, if not up deposits.
Speaker 1: So it's not a particularly negative. You know, there's not
Speaker 1: too many negatives to take away. I guess the ominous
Speaker 1: thing is, you know, it's hard and as Diamond said,
Speaker 1: it's very hard to predict what any recession, if it
Speaker 1: did happen, would look like, because this cocktail is so
Speaker 1: unusual and um, sort of precedented. I gotta say, Sally too.
Speaker 1: He said they may dissipate me in those storm cloud
Speaker 1: It's like if you said, of course, folks, they're going
Speaker 1: to dissipate, just might take a little while. But he
Speaker 1: said they may dissipate. So I agree with you, right,
Speaker 1: It is hard to predict, and I think that's the
Speaker 1: dilemma that so many CEOs and leaders find themselves in.
Speaker 1: Having said that wasn't part of the update about their
Speaker 1: growth and movement increasingly into the wealth management side of
Speaker 1: the business, and I feel like I want to bring
Speaker 1: that up because it plays to a very specific sector
Speaker 1: of our economy. Yeah, they want to have ten percent
Speaker 1: of wealth market share. They're hiring some one thousand, three
Speaker 1: hundred advisers as they doubled down in in that area. UM,
Speaker 1: so it's definitely a big focus for them. I mean,
Speaker 1: they gave a lot of updates on some of the
Speaker 1: you know, the company's plans. They're expanding by product, there
Speaker 1: is expanding by country. They're entering seven new markets. Um.
Speaker 1: They've announced plans to introduce an interest free paying for
Speaker 1: option for debit card customers, which is, you know, to
Speaker 1: compete with the likes of Klana and after pay you know,
Speaker 1: the buy now, pay later. UM. They're investing in building
Speaker 1: out their international commercial bank, so they're they're expanding in
Speaker 1: a in a lot of places, and what they had
Speaker 1: to balance maybe today was UM the idea of assuaging
Speaker 1: investors who had been slightly worried about the bank's higher
Speaker 1: expenses in forecasts and eight point six increase in expenses
Speaker 1: versus the need to show where they're expanding and investing
Speaker 1: UM to capture you know, hopefully something that feeds into
Speaker 1: the bottom line. But they seem to do that pretty
Speaker 1: well today because the shares were UM at one point
Speaker 1: about seven point five pc and lifted, as you mentioned
Speaker 1: at the beginning, UM lifted the whole of the sector. Well.
Speaker 1: These expenses also have to do with the money that
Speaker 1: Jamie Diamond is paid, specifically because there was recently some
Speaker 1: pushback right against that in terms of shareholders support UM.
Speaker 1: I wonder if that's part of it, Like Jamie coming
Speaker 1: out and saying, hey, here's what you're getting for the money.
Speaker 1: I think he probably did feel that pressure. It was
Speaker 1: a really unusual rebuke for the CEO to have such
Speaker 1: little support for his executive pay package. He got about
Speaker 1: support for his compensation which did include some sort of
Speaker 1: special perk, special bonuses to entice him and other senior
Speaker 1: executives to stay on at the bank. UM, And I
Speaker 1: think going into the investor day that was That's why
Speaker 1: this one was particularly significant, not only because it was
Speaker 1: the first one since before COVID, but they had to
Speaker 1: kind of win back investors who had allowed the stock
Speaker 1: to tank UM over the past well so far this
Speaker 1: year it was the worst performing among all all Wall
Speaker 1: Wall Street banks, so they did have to kind of
Speaker 1: win back some some shareholders. But in terms of whether
Speaker 1: that UM that those expenses were a link directly to
Speaker 1: his you know conversation package, UM, certainly within the court.
Speaker 1: At an investment bank, they have about three point eight
Speaker 1: billion of expenses for this year. I think some three
Speaker 1: one billion goes technology. UM. So that's the I think
Speaker 1: the bulk of it is, you know, technology investment. All Right,
Speaker 1: Sally got a round Sally bake Well, she is finance
Speaker 1: team leader here at Bloomberg News. This is Bloomberg Business
Speaker 1: Week with Carol Masser and Bloomberg Quick Takes. Tim Stinovic
Speaker 1: on Bloomberg Radio. Well, with everything going on in the world,
Speaker 1: I love love when our Bloomberg team draws our attention
Speaker 1: to innovation going on around the world, and I definitely
Speaker 1: saw that last week in Panama, Panama, some of the
Speaker 1: Unicorn startups in Latin America. Now, it's Ashley Vance's turn
Speaker 1: in a story in this week's new upcoming issue of
Speaker 1: Bloomberg Business Week out later on this week. Timmy's introducing
Speaker 1: us to a company that discussed its business with the
Speaker 1: news media Bloomberg for the first time. Yeah, I had
Speaker 1: never heard of it before reading this story. The company
Speaker 1: is called Meter, It's founded by two brothers, and it's
Speaker 1: got a new way to get workplaces online, as well
Speaker 1: as some noteworthy backers as well. Join us now is
Speaker 1: Ashley Vance, features writer for Bloomberg Business Week. Actually is
Speaker 1: also the author of Elon Musk, Tesla, SpaceX and The
Speaker 1: Quest for a Fantastic Future. Actually joins us on the
Speaker 1: phone from Palo Alto, California. Joel Webber is the editor
Speaker 1: of Bloomberg Business Week. He's with us in the Bloomberg
Speaker 1: Interactive Broker's studio. Joel is actually writes a couple of brothers. Uh,
Speaker 1: you know, such as these would could go off and
Speaker 1: they'd graduate college early. They could go off and they
Speaker 1: could basically do anything. They could go work at a
Speaker 1: crypto startup or start their own, you know, crypto company.
Speaker 1: They choose to solve a problem that many people would say,
Speaker 1: Wait a second, that's not necessarily the you know, for
Speaker 1: lack of a better term, sexy thing to be doing
Speaker 1: right now. That's right, um, although maybe maybe starting another
Speaker 1: crypto company wouldn't be the right call right now either. Um.
Speaker 1: What I what I liked about the story was just
Speaker 1: you know, when we think about the way the world works, Uh,
Speaker 1: there are things that just the world seems to maybe
Speaker 1: have forgotten. And have you tried turning off the router
Speaker 1: that have bad WiFi is one of them? Um, And
Speaker 1: I've done that at home many times. I've turned it on,
Speaker 1: turn it off during the pandemic. It worked sometimes. The
Speaker 1: other place that that happens is in offices. And what
Speaker 1: what makes makes these brothers interesting is this whole startup
Speaker 1: is about bringing better WiFi to the office, which, hey,
Speaker 1: in these times of r t O, anything counts, right Ashley.
Speaker 1: So where did this idea come from? Yeah? Well, these
Speaker 1: the brothers are fascinating. I mean to your point. There
Speaker 1: a Neil and Sunil VARNSONI are their names, and and uh,
Speaker 1: I mean they're kind of throwbacks to me. They they
Speaker 1: had this business in college installing networking equipment at offices
Speaker 1: and they realized it was just too hard, and so
Speaker 1: they decided to go fix the problem build all this
Speaker 1: new networking hardware and software themselves. But the big idea
Speaker 1: here is you're a company, you move into a new
Speaker 1: office space, you want to set up the Internet. It's
Speaker 1: still this kind of archaic process where you have to
Speaker 1: call about five different companies to make that happen. And
Speaker 1: so they wanted to be more like I think up
Speaker 1: your telephone or your water in your office, where you
Speaker 1: essentially just kind of click a button or a button
Speaker 1: on a website and and it appears, and so you know,
Speaker 1: it's one thing just for you and I to have
Speaker 1: this idea. Um, and I'll tell you were like getting
Speaker 1: yourself there. Actually, uh, but they actually have have an
Speaker 1: interesting role index and they were able to get some
Speaker 1: interesting backers. Who who did they who did they call
Speaker 1: and who put money behind them? Yeah, the backers is
Speaker 1: kind of like a who's who, But you can imagine
Speaker 1: in Silicon Valley you've got the Collinson brothers who started Stripe,
Speaker 1: Diane Green who started gm ware, Egan Durbin who runs
Speaker 1: silver Lake, Sam Altman, and open A. I mean, the
Speaker 1: funny thing about this story is the list of investors
Speaker 1: is incredibly impressive. But this company is operated for about
Speaker 1: six years in almost complete secrecy UM and so all
Speaker 1: these people somehow kept kept as a secret. And this
Speaker 1: is the first time, you know, the founders ever talked
Speaker 1: that anyone's written a single story about this company called Meter.
Speaker 1: It's so interesting actually because these guys, you know, you
Speaker 1: could try to solve a problem from Silicon Valley or
Speaker 1: you know, from Virginia or from New York City, but
Speaker 1: these guys actually moved to Shenzen because the hardware in
Speaker 1: this they really wanted to understand the hardware. Here talk
Speaker 1: about what they did in order to to really make
Speaker 1: it so they understood the ins and out of the business. Yeah,
Speaker 1: I thought this was this is when I started to
Speaker 1: think they were the real deal. Uh. They had this
Speaker 1: previous networking business that they started in college, and they
Speaker 1: took all that money and they just flew on a
Speaker 1: whim almost to Shenzen and and decided they were going
Speaker 1: to manufacture their online of routers and switchers and access points.
Speaker 1: But they had to talk their way into it. And
Speaker 1: so they lived in a hospital for eighteen months, and
Speaker 1: and and did manage to talk their way into a factory.
Speaker 1: They would sleep on the factory floor, and they had
Speaker 1: their beds. They had no beds even in their hospital.
Speaker 1: It was awful of their networking gear. And so these
Speaker 1: were two kids that you know, they believe in themselves,
Speaker 1: and then they wanted to know every little piece of
Speaker 1: how this works, and so they fund it, you know,
Speaker 1: before they got all these big name backers. They funded
Speaker 1: all of that themselves and lived through it. So I
Speaker 1: get it, and I could see and as you report
Speaker 1: that a lot of companies, they've already got a lot
Speaker 1: of clients out there, some larger ones. But is there
Speaker 1: success based on really lining up massive companies who already
Speaker 1: have invested so much in their own networks at this
Speaker 1: point they want to get there, but it's obviously a
Speaker 1: harder sell. You know. Traditionally, what you do is you're
Speaker 1: in a building. You've bought a ton of equipment, probably
Speaker 1: from Cisco. Um. You probably have people on staff who
Speaker 1: manage all that stuff. You've invested millions of dollars to
Speaker 1: have the internet working at your office and so to
Speaker 1: to rip all of that out and bet on a
Speaker 1: startup is a little bit harder. But if you're a company,
Speaker 1: you could be a large company that's moving into a
Speaker 1: new office that you don't want to go through all
Speaker 1: that pain. Again, the idea as you called meter and
Speaker 1: they set everything up for you and they bill you
Speaker 1: per month like UM, and so I think that's the
Speaker 1: the easier cell right now is started larger companies moving
Speaker 1: to a new spot and once you're in the cloud,
Speaker 1: everything goes great, right like what else could go what
Speaker 1: else could go wrong? Here? Though? Actually I mean they
Speaker 1: you know, they've got serious challenges ahead of them, which
Speaker 1: is like you know, the network. If your WiFi is
Speaker 1: not working at the office, you're gonna hear about it.
Speaker 1: If there's some security disaster, you're gonna you're gonna hear
Speaker 1: about that and possibly get egg on your face publicly.
Speaker 1: And so so it's a young company. They have to
Speaker 1: prove that their networking gear is as good as they
Speaker 1: say it is. So this is gonna be it's gonna
Speaker 1: be a long march. That said, they reminded me a
Speaker 1: lot of kind of like a young vm Ware. Um,
Speaker 1: just it's it's potentially this huge infrastructure play if they
Speaker 1: get it right. And so it's a it's a big deal.
Speaker 1: Does a company like this Ashley and like, I don't
Speaker 1: want to put the card too much before the horse,
Speaker 1: but it's got some big name backers and they're looking
Speaker 1: for an exit here. Is this the type of company
Speaker 1: that I p O s or gets it gets acquired
Speaker 1: by an established player like a Cisco. Yeah, exactly. Yeah,
Speaker 1: this is a conserved Cisco through the years, as they're
Speaker 1: one of the most inquisitive companies ever. And what generally
Speaker 1: happens is as soon as you're doing well in networking,
Speaker 1: Cisco buys you or Juniper buys you, and and there's
Speaker 1: a tendency for the technology to languish. Of course, these founders,
Speaker 1: as they always say, you know, promise me, they're not
Speaker 1: going to do that. They're in this for the long haul.
Speaker 1: They're going to be the ones who stick it out
Speaker 1: there will see if if history is our guy, Cisco
Speaker 1: tends to end up with this stuff. But but these
Speaker 1: brothers seem quite determined to go to make make their
Speaker 1: name for themselves. Well, definitely an interesting model that makes
Speaker 1: sense certainly in today's environment. Um, actually, thank you so much.
Speaker 1: Ashley Vance, features writer of Bloomberg Business Week, also author
Speaker 1: of Elon must Tesla, SpaceX, and The Quest for a
Speaker 1: Fantastic Future. This story, by the way, in the upcoming
Speaker 1: new issue of Bloomberg Business Week do out later this week,
Speaker 1: and of course our thanks to Joe Webber. He is
Speaker 1: the editor of Bloomberg Business Week. You're listening to Bloomberg Radio.
Speaker 1: You're listening to Bloomberg Business Week with Carol Messer and
Speaker 1: Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. All right,
Speaker 1: this is gonna be a tale of where reporting out
Speaker 1: the story is probably even more interesting in the story itself.
Speaker 1: Excuse me, everyone, it's a market moving store. It's totally
Speaker 1: market moving story. Intrigue behind the scenes is pretty good too,
Speaker 1: So should we get to it. Yeah. Lenna Baker is
Speaker 1: Deal's team leader for Bloomberg News. She's with us in
Speaker 1: the Bloomberg Interactive Broker studio. Leona and her colleague for
Speaker 1: Busy Yesterday breaking the news that Broadcom is said to
Speaker 1: be in talks to buy vm Ware. Uh, we do
Speaker 1: see Broadcom lower vm Ware surging on this story. Uh
Speaker 1: good to have you with us. Can you take us
Speaker 1: through your weekend and just what happened when this news
Speaker 1: broke because you broke this story yesterday. Sure, so on
Speaker 1: our team, we usually have someone on the weekend shift,
Speaker 1: but I took off this weekend because it was my
Speaker 1: bridal shower. I'm getting graduation, thank you. Um So, I
Speaker 1: thought the coast was clear, but I had my phone
Speaker 1: in my hand to take some photos, you know, it's
Speaker 1: with my future mother in law. And the call came
Speaker 1: in that this deal was in the work. So luckily
Speaker 1: I cleaned up quickly, you know, send people on their way.
Speaker 1: Luckily things were dying down by then and we started
Speaker 1: working the phones, and luckily, around seven o'clock we did
Speaker 1: break the story of the broad commas and talks about
Speaker 1: vm Ware. Alright, to remember, all right above and beyond Bloombergers,
Speaker 1: you like a couple of wedding presents right there, and
Speaker 1: that I'm just or maybe like paying for the honeymoon
Speaker 1: or something unbelievable. Alright, so just kidding, just kidding, Well,
Speaker 1: maybe not Let's get to this story, because this is
Speaker 1: massive and what I like about these stories at the
Speaker 1: middle of this market volatility, companies are talking about are
Speaker 1: possibly doing mega deals. So one thing that it does
Speaker 1: seem counterintuitive, why is big strategic m and A happening
Speaker 1: right now, especially in the text sell off. But if
Speaker 1: you look at Broadcom and vm Ware stocks, they've fallen
Speaker 1: in tandem. So as long as you are trading UM
Speaker 1: in the same direction as the partner in your deal,
Speaker 1: you could still do a deal. If they're trading in
Speaker 1: different directions, that would then be problematic. But where we
Speaker 1: are going to see deals like this UM as as
Speaker 1: things slow down, is it It's not a distressed deal though.
Speaker 1: It's not like the type of deal that we'd see
Speaker 1: in a bear market or a downturn where we see
Speaker 1: some high flying stocks having fallen se like private equity
Speaker 1: coming in and swooping up some of those companies. It's
Speaker 1: totally different than that. Totally broad Colm under its CEO
Speaker 1: Hawk Tan, they've been on the lookout for big acquisitions.
Speaker 1: They wanted to do something to really move the needle
Speaker 1: in software. They've done deals before, you know, ten billion,
Speaker 1: twenty billion, but now at over forty billion, This would
Speaker 1: be its largest to date in software. So they're just
Speaker 1: very deal hungry. Vm Ware has been UH doing deals
Speaker 1: also for years since bought e m C back in
Speaker 1: tw e MC hit high controlled vm Ware and Michael Dell,
Speaker 1: the billionaire UH is the top shareholder in vm Ware,
Speaker 1: so he's had his hands in this deal for a
Speaker 1: long time and he's he's made a lot of money
Speaker 1: out of vm Ware already. But this will be sort
Speaker 1: of the final chapter should they end up selling Lee.
Speaker 1: And I know you're the deals person on here, so
Speaker 1: looking at it from that perspective, but I mean a transaction.
Speaker 1: I mean this broadcast Com has been a pretty inquisitive company.
Speaker 1: UM strategically. Are people saying this makes sense? Sure? So
Speaker 1: Broadcom does a lot of financial engineering and they're almost
Speaker 1: like a publicly traded like tech private equity firm for
Speaker 1: all the deals they've done. But we are hearing that
Speaker 1: there are synergies here, and you know, some of Broadcom's
Speaker 1: customers could benefit from being up sold you know, infrastructure
Speaker 1: software from vm Ware. So it's very complicated and kind
Speaker 1: of the guts of what runs the Internet is what
Speaker 1: these cloud companies are doing. But yeah, we're hearing that
Speaker 1: there there are some some cost cuts and synergies. It
Speaker 1: could happen here, Aleana. Just the latest from from you
Speaker 1: and at Hammond Crossing just about a half hour ago.
Speaker 1: The deal is said to come as soon as this week.
Speaker 1: What's the latest there? Sure, So when we reported yesterday
Speaker 1: we didn't know, you know, what stage they were in,
Speaker 1: But now we could safely report that the deal could
Speaker 1: come as early as this week. There are some earnings
Speaker 1: that are planned, so we're keeping an eye on it.
Speaker 1: Although no deal is ever done until it's announced. Even then,
Speaker 1: as you can see with Elon Musk and Twitter, even
Speaker 1: if you announce a deal, it's not a done deal
Speaker 1: until it closes. So we'll be keeping an eye on
Speaker 1: it um to see what happens. Is there a chance
Speaker 1: that somebody else comes in? So vm Ware has been
Speaker 1: publicly traded for a while, and um, you know, different
Speaker 1: companies could definitely swoop in. I wouldn't be surprised if
Speaker 1: they're looking at it right now. Always on the cusp
Speaker 1: of a sale to someone else, you get that final look.
Speaker 1: So we'll be chasing it as of now. Nothing to report.
Speaker 1: What does the landscape look like right now we've been
Speaker 1: talking a lot about well, uncertainty and unease with the
Speaker 1: public markets and the economy and typic leak. During that time,
Speaker 1: you'd probably see a decline in deal activity. What are
Speaker 1: you hearing from your sources? So we are seeing that
Speaker 1: general M and A activity is down thirty compared to
Speaker 1: last year, but last year was a blockbuster year, so
Speaker 1: that doesn't mean M and A is dead. If for
Speaker 1: downt tech deal making has been a bright spot, like
Speaker 1: you see what this deal today, and also private equity
Speaker 1: firms are licking their chops. They're looking at every software
Speaker 1: company under like ten billion and thinking I'm going to
Speaker 1: buy that. So we're gonna be very busy trying to
Speaker 1: break the next deals and tech. And they've got a
Speaker 1: lot of dry powder too, they're sitting on mountains of it.
Speaker 1: It might be harder for them to exit some of
Speaker 1: their investments because the I p O market is totally dead.
Speaker 1: Um stack market has also died. But if they want
Speaker 1: to do deals, there's a lot of stocks that have
Speaker 1: sold off as you guys you know, report every day,
Speaker 1: So the flow hasn't slowed down from the market instability
Speaker 1: that we saw. The volatility. I mean pretty extreme last week.
Speaker 1: We certainly saw in the first quarter. But I'm curious
Speaker 1: people that you're talking to your saying no, no, we
Speaker 1: we still see a pipeline. People are busy, and private
Speaker 1: equity deals is on track to be like the second
Speaker 1: biggest year I think for private equity deal making, only
Speaker 1: surpassed by last year. So things are looking good, especially
Speaker 1: in that space. Yeah, fascinating. Um, well, I hope you've warned,
Speaker 1: like your team when you're getting married, when you're going
Speaker 1: on your honeymoon, so that like if there is a
Speaker 1: follow up, if this isn't closed, you're off limits. No
Speaker 1: phone in the hand right, Well, you know if this,
Speaker 1: if I break this from the bridle shower, the wedding,
Speaker 1: you know, maybe I'll break a hundred billion dollars. Don't
Speaker 1: say that. Leanna Baker, thank you so much. She's Deal's
Speaker 1: team leader at Bloomberg News, joining us here in our
Speaker 1: interactive broker studio. I do find it interesting even the
Speaker 1: deal flow is down. She's right, like, we've had a
Speaker 1: record year last year, so it doesn't mean it's still
Speaker 1: not a busy year. Sure's a broadcast, by the way,
Speaker 1: down about three point five percent, all right, you're listening
Speaker 1: to Bloomberg Business Week. This is Bloomberg Radio broad Journal. Yeah,
Speaker 1: but you let me drive? Oh no, no, no, should
Speaker 1: be home please, I'll do. I want to drive. Good question.
Speaker 1: This is the Drive to the Clothes music on Bloomberg Radio.
Speaker 1: All right, here we go, everyone, Just about ten minutes
Speaker 1: left to today's trading session. Definitely risk on trade, but again,
Speaker 1: if you look at the year to date averages, we
Speaker 1: are still way way off our highs, certainly of the trade.
Speaker 1: Let's get into it with Michael Sheldon, an executive director
Speaker 1: and chief investment officer at High Tower r d M
Speaker 1: Financial Group. Michael joining us this afternoon on the phone
Speaker 1: from New York City. Michael, how are you good? Thanks?
Speaker 1: Thanks for having me. Yeah, it's good to have you
Speaker 1: with us. Certainly a changing sentiment from what we saw
Speaker 1: at the end of last week with you know, we
Speaker 1: entered the bear market for the S and P five
Speaker 1: hundred that we didn't close in it. What are you
Speaker 1: what are you hearing right now? What are you seeing
Speaker 1: right now when you look across the investment landscape. Well,
Speaker 1: it's definitely a challenging and vironment right now, I think, um,
Speaker 1: I mean, it's been well documented that fed policy, inflation,
Speaker 1: the events in China, the events in Russia, all of
Speaker 1: those are sort of conspiring to to make it a
Speaker 1: very difficult market environment, one that's very different than than
Speaker 1: last year and much different than the past three years.
Speaker 1: So it's it's gonna be choppy, I think over the
Speaker 1: next several months until we get more clarity on on
Speaker 1: many of those issues. Um. You know, there's a lot
Speaker 1: of talk about do we go into a recession, do
Speaker 1: we not go into recession, And obviously that may have
Speaker 1: the outcome or the answer to that question may may
Speaker 1: ultimately determine how much more downside there is. If you
Speaker 1: look back at all the all the recessions into World
Speaker 1: War two, for example, there have been twelve of them.
Speaker 1: On average. In a recession, equity markets decline a median
Speaker 1: of two and average of so Um. Many parts of
Speaker 1: the market have already experienced a lot of pain, unfortunately,
Speaker 1: but depending on you know, the direction of the economy,
Speaker 1: there unfortunately maybe more downs before we ultimately get out
Speaker 1: of this and and there will be another bull market
Speaker 1: at some point um. But we're keeping our sort of
Speaker 1: we're keeping an eye on that. In terms of inflation,
Speaker 1: do you think, realistically, we need to think about it
Speaker 1: being a much higher number until we work through some
Speaker 1: of these supply chain problems. And also you know the economy,
Speaker 1: the global economy shifting away from fossil fuels, moving towards
Speaker 1: alternative energy. I mean, these are things that take time. Yeah,
Speaker 1: you're absolutely right. Um. I think in terms of inflation,
Speaker 1: I think we're sort of at the peak pain sort
Speaker 1: of threshold right now. Um. You know, Jeremy Siegel from
Speaker 1: from the Warden School has has famously talked about how
Speaker 1: the money supply has been a big factor in influencing inflation.
Speaker 1: So you know, for example, the money supply, the M
Speaker 1: two money supply, which is basically broadly money and circulation,
Speaker 1: grew it about really about five point four in the
Speaker 1: decade or so leading up to two thousand twenty. But
Speaker 1: but then due to COVID, the Federal Reserve basically pulled
Speaker 1: out all the stops and the money supply grow to
Speaker 1: over on a year of a year basis. And now
Speaker 1: as it's been pulling back liquidity, the money supplies back
Speaker 1: under ten percent. So there are some potential reasons to
Speaker 1: be more optimistic looking forward. And if you look at
Speaker 1: for example of freight rates around the world are here
Speaker 1: in the US UM. You can look at some of
Speaker 1: the comments from the retailers that we heard from earlier
Speaker 1: this week, where individuals are shopping for different items, and
Speaker 1: you can also look at five year forward UM inflation indicators.
Speaker 1: So there are some signs that maybe on the margin
Speaker 1: inflation maybe in the process of peaking, but it's hard
Speaker 1: to tell how quickly it will come down. Having said that,
Speaker 1: Peter Atwater was on with us Tim and myself, Magic
Speaker 1: professor of economics Evert William and Mary, and he said,
Speaker 1: the Feed has to be careful about overreacting to an
Speaker 1: overreaction in the first place, meaning that you know, we
Speaker 1: had so much stimulus during the pandemic and now the
Speaker 1: FET has to be careful about, you know, the impulsiveness
Speaker 1: of today's market and mistake of the FED policy overreacting
Speaker 1: to what was an overreaction in terms of stimulus in
Speaker 1: the first place. Well, that's a good point. So there
Speaker 1: are five rate meetings left in this year, and then
Speaker 1: the FED funds rate right now is at one percent,
Speaker 1: So the expectation is that the FED will raise rates
Speaker 1: by a half point at each of the next two meetings,
Speaker 1: which would bring the FED funds rate to two percent,
Speaker 1: I believe, and then maybe do quarter point rate hikes
Speaker 1: into early next year. There are some FED members who
Speaker 1: think we should be doing more than that, raising rates
Speaker 1: three quarters of a point or one percent. I think
Speaker 1: Powell was on the camp that, you know, you want
Speaker 1: to see what the effect of current rate increases is
Speaker 1: over time and not overdo it, and then may re
Speaker 1: reassess things as we go into the end of this year.
Speaker 1: So I there are there's a wide range of opinions,
Speaker 1: but I'm in that same camp where you don't want
Speaker 1: to overdo it and maybe give time a little bit
Speaker 1: of a give things a little bit of time. Michael,
Speaker 1: I want to go back to something that you said
Speaker 1: a couple of minutes ago. You said that we're starting
Speaker 1: to see signs of optimism, and you mentioned retail earnings
Speaker 1: last week, which were really brutal when it came to
Speaker 1: Walmart into Target. Why why do those results make you optimistic?
Speaker 1: Because I do. I do agree that to a certain extent,
Speaker 1: the slowdown that we're seeing in the stock market, and
Speaker 1: it's from some firms during earning season, is kind of
Speaker 1: what the FED is going for. Well, maybe I misspoke
Speaker 1: when I said optimism, optimism in sense that maybe inflation
Speaker 1: is starting to show that it may be in the
Speaker 1: early signs of peaking. And if you look at some
Speaker 1: of the earnings from the retailers last week, unfortunately a
Speaker 1: couple of the earning a couple of the retailers really
Speaker 1: so their stocks decline significantly, But that's because consumers are
Speaker 1: shifting their buying patterns, so they're not buying the same
Speaker 1: things which they loaded up on during the during the
Speaker 1: shutdown of the economy, and retail sales are way above
Speaker 1: trends if you look at them on an historical basis.
Speaker 1: So as consumers start to pull back, that will mean
Speaker 1: left demand and that would be unfortunately, some of the
Speaker 1: retails will be left with extra goods on their shelves,
Speaker 1: which will lead to lower prices and ultimately what the
Speaker 1: FED wants in terms of reducing inflation over time. So
Speaker 1: what do we do as investors right now? Michael Well,
Speaker 1: I think one of the most important things is you
Speaker 1: have to have a financial plan, and a financial plan
Speaker 1: will help you meet your long term investment goals. So
Speaker 1: I think you want to be balanced in your approach.
Speaker 1: We've been adding to growth versus Sorry, we've been adding
Speaker 1: to value versus growth. We're still overweight growth and we
Speaker 1: are trying to take into consideration taxes. Uh. You want
Speaker 1: to have a little bit of waiting overseas, but it's
Speaker 1: too early to really get too excited about foreign markets.
Speaker 1: And you do want to have be balanced. And unfortunately
Speaker 1: markets may be volatile over the over the next several months,
Speaker 1: but but having the right asset allocation will allow you
Speaker 1: to sleep at night to ride out the inevitable ups
Speaker 1: and downs that come with investing in these times of environments.
Speaker 1: When do you see an opportunity to buy the SMP five, Well,
Speaker 1: if not necessarily the the SMP five itself, you want
Speaker 1: to look at different sectors of the market. Uh, we
Speaker 1: like healthcare for example, and all there's parts of the market.
Speaker 1: You want to continue to have some exposure too to
Speaker 1: technology because that's the growth party your portfolio. You do
Speaker 1: generally want to be um. You want to have a
Speaker 1: variation and you want to be barbelled in your portfolio
Speaker 1: and not just load up on one particular sector going forward. Hey,
Speaker 1: thirty seconds, Michael, Energy up forty percent last week. If
Speaker 1: I'm looking at the major industry groups in the SMP
Speaker 1: five hundred, it's a top performing group this year. Get
Speaker 1: up another I think fifty here would you be committing
Speaker 1: more money to energy? This is one sector that's that's
Speaker 1: hard to love. And right now it's about four percent
Speaker 1: of the SMP five hundred and and some are talking
Speaker 1: about the fact it could go to ten of the
Speaker 1: SMP five hundred unless something changes. It looks like energy
Speaker 1: should continue to to outperform. It is hard to jump
Speaker 1: in after the massive run it's had. It's amazing. Michael
Speaker 1: Sheldon over a Hi Tower, RDM Financial, Thank you so much.
Speaker 1: Thanks for listening to Bloomberg Business Week. Download the podcast
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