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 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
Speaker 1: All right, let's switch gears to real estate, and we
Speaker 1: can do that because I've got a lot of questions
Speaker 1: about real estate, particularly because half of midtown Manhattan nobody's
Speaker 1: in their office buildings, So we want to get to
Speaker 1: the bottom of that. Lisa Nie, she is managing partner
Speaker 1: of real estate at Eisner Amper. I'm taking that as
Speaker 1: a promotion, dude, managing partner anywhere you go, managing partner
Speaker 1: is big. But she helps us kind of think about
Speaker 1: what's going on in the real estate sector. She's at
Speaker 1: Eisner Amper, So Lisa talk to us about kind of
Speaker 1: where we are with the real estate market today. We
Speaker 1: are on the other side of the pandemic that's in
Speaker 1: the rear view. The world's back to normal on so
Speaker 1: many metrics. Where are we in real estate? Yeah?
Speaker 3: Thank you?
Speaker 1: For having me.
Speaker 4: But that's that's a great point and a great question.
Speaker 4: But let's put a little bit of landscape on that.
Speaker 4: So everyone's worried about where we are in office space,
Speaker 4: but when we look back, it's a supply and demand problem.
Speaker 1: And you go back.
Speaker 4: Even to the nineteen nineties. I don't know if you remember,
Speaker 4: but there was the sea through office problem, so the
Speaker 4: offices were empty. People weren't in those office buildings in
Speaker 4: nineteen ninety. We had too much supply at that point,
Speaker 4: and then as we've sort of grown over the last
Speaker 4: couple of years, the pandemic is one of many problems
Speaker 4: that office has had. First we started with it was
Speaker 4: three hundred square foot of person, and then it went
Speaker 4: down to one hundred square feed. Then we started doing hotel,
Speaker 4: so now we needed less people in the space. Then
Speaker 4: when you start looking at office open space concept, exactly
Speaker 4: what we have at Bloomberg, exactly what we.
Speaker 1: Might get that in nineteen eighty two, by the way,
Speaker 1: before like Zuckerberg was even born, before there was an Internet,
Speaker 1: I was doing.
Speaker 4: Fully space, so that's also less space. And then we looked,
Speaker 4: you know, I'm in a service profession. We had libraries,
Speaker 4: we had file rooms, file cabinets. You don't have any
Speaker 4: of that. So that was four problems that were happening
Speaker 4: with office before we even got to the pandemic, which
Speaker 4: is now a behavioral issue of where are we at
Speaker 4: when where we need that hybrid office space? So what's
Speaker 4: the nail on the coffin and where's that equilibrium of
Speaker 4: what really people need for space to do their jobs.
Speaker 4: And I think that's that realignment right now is what
Speaker 4: the pain we're having, and no one's able to figure
Speaker 4: out where we're going to solve that. And so that's
Speaker 4: why you hear about Crepsy's watch list and the delinquency
Speaker 4: rate for the mortgages is going up. People are giving
Speaker 4: back office buildings here in New York. And it's not
Speaker 4: because they don't believe or that they don't have the
Speaker 4: capital to invest. They just don't think that that is
Speaker 4: a good investment right now of their capital. And so
Speaker 4: I think that's where we're sitting with office, well the core.
Speaker 5: Of any kind of investment. Paul will agree to this
Speaker 5: as timing right, it's kind of forecasting exactly how long
Speaker 5: that trend is going to last. And it feels like
Speaker 5: when we talk about commercial real estate. This idea of
Speaker 5: hybrid work or hybrid lie or whatever it is something
Speaker 5: still kind of registers as temporary when you are valuing
Speaker 5: commercial real estate or looking at it. Is this something
Speaker 5: that we're going to be still talking about in ten
Speaker 5: years time or is this something that's going to kind
Speaker 5: of maybe dissipate once this recession hits.
Speaker 4: So real estate's cyclical, so we can talk about retail,
Speaker 4: we can talk about multi family, single family, and it's
Speaker 4: all pretty cyclical, and we don't really know the value
Speaker 4: of real estate because there's not a lot of transactions
Speaker 4: happening right now. So to your point, we don't know
Speaker 4: where things are going to end up with office or
Speaker 4: with any of the sectors of real estate. And that's
Speaker 4: what people are waiting for, is when is the trading
Speaker 4: going to happen so I know the value And it's
Speaker 4: a behavioral issue of when are people going to come back?
Speaker 4: It's more of remember, really, when you think about an
Speaker 4: office building, you are leasing it for seven days of
Speaker 4: a week, but you were only ever using it for
Speaker 4: five and now you're at two or three. So it
Speaker 4: was a unique rental or a unique acquisition to begin with.
Speaker 4: So where's that behavioral and where does the pencil mark
Speaker 4: out what am I going to pay for that office
Speaker 4: lease if I'm only using it two to three days
Speaker 4: a week. To your point, it's valuation exactly.
Speaker 1: And do we have any evidence yet? I don't know
Speaker 1: when if there's a big waterfall of leases expiring and
Speaker 1: renewing in New York or San Francisco or Chicago, is
Speaker 1: there a year or a time when we're going to
Speaker 1: get a really good market sense of where the market is,
Speaker 1: Like you can tell me like five jillion square feet
Speaker 1: are going to come up for renewal next year in
Speaker 1: New York. And the question is is it down twenty percent?
Speaker 1: Is down thirty percent? Do we have any sense of
Speaker 1: when we're going to get that or is it just
Speaker 1: kind of over time.
Speaker 4: So that's a great question because the realignment is two things.
Speaker 4: It's the expiration of your mortgages and it's the expiration
Speaker 4: of leases. Mortgages we can tell because we know when
Speaker 4: when the debt cycle is going to come up, and
Speaker 4: we know when it is the lease is that's going
Speaker 4: to be a slow bleed because we don't know when
Speaker 4: people are going to start giving back or what their
Speaker 4: needs are, and so that's where the uncertainty is that
Speaker 4: credit worthy tenant that people were so excited to have
Speaker 4: into their space. We don't know how much space they're
Speaker 4: going to take back and when those leases are going
Speaker 4: to start to expire within the building. And so that's
Speaker 4: your point is exact onto that's the uncertainty.
Speaker 5: What about kind of all the talk we hear about
Speaker 5: that this banking turmoil that we've talked about in the community
Speaker 5: banks is ultimately going to have this big ripple effect
Speaker 5: in commercial real estate. One has that kicked off, are
Speaker 5: we seeing that? Are we going to see that? How
Speaker 5: are you viewing it as someone who's part of this industry?
Speaker 4: So that that is going to have a huge impact,
Speaker 4: and it's part of what the regulators within the banking
Speaker 4: community are going to allow the banks to have on
Speaker 4: their balance sheets and where underwriting is. And so they're
Speaker 4: all very skittish, they're skittish to invest back in there.
Speaker 4: And so as the mortgagees come back up, somebody's going
Speaker 4: to have to put capital back in and infuse capital
Speaker 4: back into those buildings, because if you had a hedge,
Speaker 4: or if they're for the interest rate environment, somebody has
Speaker 4: to come up with that capital, and the banks most
Speaker 4: likely are going to keep a very low loan to
Speaker 4: value ratio. They don't want to take the properties back,
Speaker 4: they don't want to put them on the balance sheet,
Speaker 4: and they absolutely don't want to write down their balance
Speaker 4: sheets for those discounts. And so there is going to
Speaker 4: be a point where the banks, and this the banking
Speaker 4: industry is going to have a huge role as to
Speaker 4: when they go out there. Are they going to sell
Speaker 4: portfolios of loans that's very expensive. Are they going to
Speaker 4: give back the buildings one at a time? The banks
Speaker 4: don't want to run those buildings, and so the regulators
Speaker 4: are going to keep really really strict lending restrictions going forward,
Speaker 4: and certainly they're going to be looking at what's on
Speaker 4: the balance sheets of those banks right now and be
Speaker 4: very concerned about.
Speaker 1: Uh boy, is how they do that. I just feel
Speaker 1: like this is can get worse before it gets better.
Speaker 1: Lisa Nie, thanks so much for joining us. Lisa Nie
Speaker 1: is the managing partner of real estate at Eisner Amper,
Speaker 1: joining us live in our Bloomberg Interactive Broker studio. Talking
Speaker 1: about that the commercial real estate is some tough times
Speaker 1: and some tough times ahead.
Speaker 6: You're listening to the Team Ken's live program Bloomberg Markets
Speaker 6: weekdays at ten am Eastern on Bloomberg dot com, the
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Speaker 1: Pretty you know, on the Mount rushmore of work from Home.
Speaker 1: The two of the founding members, Yeah, to be our
Speaker 1: next guest.
Speaker 5: I used to sit between both of them.
Speaker 1: Really, yeah.
Speaker 5: My desk was nestled right in between.
Speaker 1: I have such huge respect for these guys and how
Speaker 1: they're doing their business these days. Cameron Christ and Vince Cignirella.
Speaker 1: They cover their macro strategists. They write some really good
Speaker 1: smart stuff on these markets. They talk to a lot
Speaker 1: of smart people and we get a few minutes of
Speaker 1: their time every once in a while.
Speaker 5: And went together every once in a while they're even right,
Speaker 5: and every once.
Speaker 1: In a while they're even right. But to get them
Speaker 1: together at one spot is big, camer I want to
Speaker 1: start with you here. Matt Miller just walked in. You know,
Speaker 1: he starts his day a little bit. Lady gets in
Speaker 1: here around ten thirty. But he walked in here with
Speaker 1: his brand new leather jacket, and he says he doesn't
Speaker 1: believe he thinks the FED is not going to raise
Speaker 1: rates this June meeting. Do I should I listen to
Speaker 1: Matt Miller?
Speaker 7: Well, I mean they've basically told you they're not. Philip
Speaker 7: Jefferson is the mooted new vice Erman basically came out
Speaker 7: last week and uh said that they should pause and
Speaker 7: have a look around, not necessarily saying they're gonna it's
Speaker 7: a definitive end, but that they they should they should pause.
Speaker 7: And you know, it's kind of they're like Ef Hutton
Speaker 7: when they talked, you're supposed to you're supposed to listen.
Speaker 7: Pretty pretty won't get that joke, but I know you will, Paula,
Speaker 7: I know Vince will as well.
Speaker 1: See what I had to deal with every day.
Speaker 7: If you guys give us a stick for where we work,
Speaker 7: you know, we can give you, uh you know, let
Speaker 7: it let our experience come to bear. Yeah. So, I
Speaker 7: mean they basically provided some some jawboning over the last
Speaker 7: week or so that June is probably off the table.
Speaker 7: So that's adjusted market pricing, and we're kind of going
Speaker 7: to be left parsing the signals for the second half
Speaker 7: of the year. Right now. Market still thinks there's a
Speaker 7: decent chance that they'll have to go again. But obviously
Speaker 7: things can change, and and today's service services eyes ISM
Speaker 7: provides a less robust or less upbeat signal than we
Speaker 7: had from say, the labor market data last Friday.
Speaker 5: Well, Vin's hop on in here because one of the
Speaker 5: key stark memories of the start of this monetary tightening regime,
Speaker 5: Chairman Powell said over and over and over again, we
Speaker 5: don't want to make the mistake of the seventies. We
Speaker 5: don't want to stop too prematurely, and therefore we're going
Speaker 5: to kind of put our full force behind tightening. And
Speaker 5: yet here we are with a super super hot payrolls
Speaker 5: report on Friday, one trading session later, not even we
Speaker 5: have this ISM data. How does the Federal Reserve in
Speaker 5: that context avoid some sort of vulgar repeat by potentially
Speaker 5: skipping this month.
Speaker 3: Well, you know, I think any comparison to the seventies,
Speaker 3: having sat on guess lines waiting for the ODDI even
Speaker 3: number license plate situation, this is nowhere near the seventies.
Speaker 3: And I think what Powell is speaking about and worrying
Speaker 3: about credibility, it's not credibility that they're going to make
Speaker 3: the mistake of the nineteen seventies, I think realistically, and
Speaker 3: he's not emitting it. They don't want to make the
Speaker 3: mistake they made with calling inflation transient. They're trying to
Speaker 3: catch up for a major mistake they made through the pandemic,
Speaker 3: and not to be fair to them, wasn't so much
Speaker 3: of their mistake as much as it was the fiscal
Speaker 3: policy of overstimulating the economy at that time. Now, all
Speaker 3: well and good, it was necessary, but then when the
Speaker 3: economy started a turn, there was no movement interest rates
Speaker 3: and there was no appetite on a federal level to
Speaker 3: take money out of the economy. So now he's faced
Speaker 3: with this dilemma of trying to maintain the Fed's credibility
Speaker 3: that they've actually lost the financial markets and not thinking
Speaker 3: they're very credible at the moment, and trying to walk
Speaker 3: this tightrope between not seeing inflation come down fast enough
Speaker 3: for them and overtightening and perhaps pushing the economy into
Speaker 3: a recession. I will make a note there was a
Speaker 3: you know this headline that's going not at all really
Speaker 3: spoken about the idea of raising capital reserves on banks
Speaker 3: is going to be a very very big draw on
Speaker 3: growth and no one's talking about it and no one's
Speaker 3: seeing it. But when you raise capital reserves on banks,
Speaker 3: that's lending they can't make, and that's not even being discussed.
Speaker 3: So depending upon how high they raise those additional capital
Speaker 3: requirements could be enough tightening that the FED doesn't have
Speaker 3: to do anything else.
Speaker 1: Interesting all right, Cameron, I was on a holiday on Friday,
Speaker 1: so I missed this whole non farm payroll thing. But
Speaker 1: it seems like people want a job. They can get
Speaker 1: a job. You can't have a recession in that kind
Speaker 1: of scenario.
Speaker 7: Can you?
Speaker 8: No?
Speaker 7: You and the thoughts so, but two provisos. One is
Speaker 7: that you often find that the labor data is misleading
Speaker 7: at turns, because it's not like the payroll numbers comprised
Speaker 7: of the BLS calling every business in America and saying
Speaker 7: how many people you I'm going to feel you out
Speaker 7: working for you?
Speaker 8: Right?
Speaker 7: So, there's a lot of statistical techniques that are used
Speaker 7: to estimate a broader conclusion from a relatively limited sample,
Speaker 7: and that works very well in normal circumstances, but at
Speaker 7: turning points you find that these modeling techniques don't work.
Speaker 7: So there is a that's one thing to consider and
Speaker 7: the other is that this economic cycle is likely to
Speaker 7: be very nonlinear. Things will look great and then you'll
Speaker 7: have a wily coyote moment and things will suddenly look
Speaker 7: not very great at all. Now, we thought that there
Speaker 7: was a reasonable probability that that would be the outcome
Speaker 7: of the March banking sector turmoil. The evidence thus far
Speaker 7: is that that hasn't actually been the case. And I'll
Speaker 7: admit had in the air that I thought we would
Speaker 7: have a more immediate and more substantial impact than we've
Speaker 7: seen in the data thus far. That han't been said.
Speaker 7: And this is adding on to sort of Vince's point
Speaker 7: about the transmission of credit, is that we're now at
Speaker 7: the point, now that the dead ceiling nonsense has been resolved,
Speaker 7: where the Treasury is going to be sucking a lot
Speaker 7: of money out of the financial system by issuing a
Speaker 7: veritable everest of Treasury bills, and that is going to
Speaker 7: have an impact. Traditionally, when bank reserves at the FED
Speaker 7: decline substantially, you tend to see lending go down, and
Speaker 7: you tend to see financial markets, certainly the equity market
Speaker 7: go down. At this point, it's indeterminate whether the demand
Speaker 7: for treasury bills will come from bank deposits or from
Speaker 7: money funds, who would then try, you know, essentially take
Speaker 7: money out of the reverse repot facility at the FED
Speaker 7: and use it to buy treasury bills. But it's a
Speaker 7: significant risk that we have to consider moving forwards.
Speaker 5: You know, the irony of Fens and Cam talking to
Speaker 5: me about issue and treasury auctions and stuff like that.
Speaker 5: They actually taught me how to how to interpret them
Speaker 5: back in the day, all that funny jargon stops and
Speaker 5: tails and all that jazz.
Speaker 1: Yeah too, I just wait to read the first two paragraphs.
Speaker 5: Yeah, well, they're usually the ones writing it well. Cam
Speaker 5: following up on that point when it comes to kind
Speaker 5: of issuance and lending, haven't both lending and liquidity kind
Speaker 5: of been on I don't want to say like the drop,
Speaker 5: but like they've been declining significantly in the last couple
Speaker 5: of months because of the banking turmoil. I get your
Speaker 5: point about liquidity, but to marry it with the point
Speaker 5: that Ben's just made about the capital requirements. If lending
Speaker 5: is already dropping, how big of a difference can that
Speaker 5: capital requirement increase really make If there is an appetite
Speaker 5: to lend anyway, Well.
Speaker 7: Again, I think it's it's not the sort of thing
Speaker 7: you're gonna wake up one day and lending will have
Speaker 7: dropped by half a trillion dollars. It will be gradual
Speaker 7: until it's not gradual. And from a financial markets perspective,
Speaker 7: I think it's reserves that are going to be the
Speaker 7: more timely issue to consider, because even though sort of
Speaker 7: bank deposits have dropped over obviously substantially so far this year,
Speaker 7: bank reserves and FED have actually increased as the Treasury
Speaker 7: has drawn down its general account, sort of spending every
Speaker 7: last penny that it had hidden under the FED sofa cushions.
Speaker 7: As that treasury account is built back up through the
Speaker 7: issues of Treasury bills, now there's going to be a
Speaker 7: disproportioned impact on other FED liabilities, the two main components
Speaker 7: of which are these bank reserves and the money fund
Speaker 7: usage of the reverse repot facility, and how which one
Speaker 7: bears the brunt of treasury. Treasury is real rebuilding a
Speaker 7: general account, I think is going to have a significant
Speaker 7: impact on financial markets more broadly and liquidic conditions.
Speaker 5: All right, So thirty seconds, Vince, I'm putting you on
Speaker 5: the spot in the context of what Cam just said,
Speaker 5: Vince is like, bring it on. Is there a sense
Speaker 5: then of even more risk taking to get that yield,
Speaker 5: to get that carry? What are you seeing in that
Speaker 5: thirty seconds?
Speaker 3: Real quick? I will tell you this, Like you looked
Speaker 3: that was up seven hundred on Friday. Yeah, everybody knew
Speaker 3: on Friday this treasury issuance is coming. And this is
Speaker 3: the third lie that media and analysts are pushing. First
Speaker 3: Europe was going to freeze to death, and the death
Speaker 3: ceiling was going to crush us. And now treasury issuance
Speaker 3: is going to blow the lid off interest rates. If
Speaker 3: they go up high enough, there'll be a lot of buyers.
Speaker 3: It's just I think another story.
Speaker 1: All right, guys, thanks very much for joining us. Both
Speaker 1: of you, Cameron Christ and Vince Cignarello, the macro strategists
Speaker 1: with Bloomberg News. They're the work from home kings. They've
Speaker 1: mastered it, and nobody does it better than we appreciate
Speaker 1: getting their time and getting their time together.
Speaker 6: You're listening to the tape Cancer Live program bloom Markets
Speaker 6: weekdays at ten am Eastern on Bloomberg Radio, the tune
Speaker 6: in app, Bloomberg dot Com, and the Bloomberg Business app.
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Speaker 6: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 1: All right, here's one of the biggest trends I've noticed
Speaker 1: over the last five or ten years, which is just
Speaker 1: this whole thing of exchange traded funds. The kids call
Speaker 1: them ETFs. Man, what an exploding business. And our next
Speaker 1: guest was smart enough, you know, twenty some odd years
Speaker 1: ago to kind of get in on this game, Ben Slaven,
Speaker 1: Global head of ETFs at B and Y Mellon asset Servi.
Speaker 1: And that's a pretty good gig. Ben, Thanks so much
Speaker 1: for joining us here in our studio. Here again, I've
Speaker 1: just been awed by the amount of capital going to
Speaker 1: the ETF space just over the last five to ten years.
Speaker 1: It seems like where are we today. Just give us
Speaker 1: an overview of kind of the ETF space in general.
Speaker 9: Well, first of all, thanks for having me back. Look,
Speaker 9: this trend has not abated and actually continue to accelerate.
Speaker 9: So we've seen a huge divergence between investor's appetite to
Speaker 9: put capital into ETFs versus traditionally mutual funds and other
Speaker 9: structures and what we saw really in the last couple
Speaker 9: of years was a significant pickup. So last year was
Speaker 9: the widest gap ever between inflows into ETFs and outflows
Speaker 9: from mutual funds, and that gap was around one point
Speaker 9: five trillion dollars, which is kind of hard to get
Speaker 9: your head wrapped around. But what we're also seeing is
Speaker 9: a little bit you know different under the hood. So
Speaker 9: this equity trade or this equity difference in terms of
Speaker 9: investor preference has you know, been in place for a while,
Speaker 9: and last year we saw a much larger pickup in
Speaker 9: investor adoption of fixed income ETFs and it picked up
Speaker 9: about three percent of market share against mutual funds. And
Speaker 9: that's a huge leap and a shift now showing investors
Speaker 9: widening out their preference for the ETF structure.
Speaker 5: When it comes to ETFs. I mean, the reason for
Speaker 5: a lot of the retail investor based to hop into
Speaker 5: them is liquidity. At the end of the day, access
Speaker 5: things like the bond market or the commodities market, which
Speaker 5: is harder to get to. Are you seeing that kind
Speaker 5: of sustained momentum from that class of investor.
Speaker 9: It's a mix, So retail is absolutely part of it.
Speaker 9: And actually we saw a pretty large uptick, especially in
Speaker 9: the pandemic and kind of the rise of the retail
Speaker 9: trader really adopting thematic ETFs. We saw some of the
Speaker 9: leverage and short ETFs as well catch a lot of
Speaker 9: attention from investors. But also what's changed in the last
Speaker 9: couple of years is certainly the institutional investors are really
Speaker 9: getting involved in ETFs in a big way. So for example,
Speaker 9: that stat I just quoted on fixed income ETFs, Yes,
Speaker 9: it's some retail, but a big piece of that is
Speaker 9: also the institutions jumping in to use ETFs exactly as
Speaker 9: you were just saying as a liquidity vehicle priced discuss
Speaker 9: and in a way to get access to some of
Speaker 9: these harder to reach asset types.
Speaker 1: What type of institutional use is there for ETFs? Is
Speaker 1: it hedge funds? Who uses that? From an introdutional perspective?
Speaker 9: So the short answer is yes to all of it. Okay,
Speaker 9: you know, just a couple quick examples. You know, we're
Speaker 9: seeing the traditional institutional investors like pension funds for example,
Speaker 9: who again are using ETFs for a variety of different
Speaker 9: ways to equitize cash to you know, use them as
Speaker 9: again a source of liquidity. But we're also seeing the
Speaker 9: hedge funds get increasingly involved in different using more sophisticated
Speaker 9: strategies of course, But most interesting is mutual funds themselves
Speaker 9: have become a bigger buyer of ETFs, using ETFs to
Speaker 9: do either asset allocation. So think about a fund of
Speaker 9: ETFs or just using again ETFs in that same way
Speaker 9: to get exposure to a targeted asset class or a
Speaker 9: liquidity sleeve inside their portfolio. So we're starting to see
Speaker 9: this convergence happen, and again that's another trend that's accelerating.
Speaker 5: Well, let's talk about trends in the marketplace then in
Speaker 5: terms of kind of any favorites that are seeing excess
Speaker 5: flows or no flows at all or outflows.
Speaker 10: What are you seeing?
Speaker 9: Well, look, in May, we've started to see a pickup
Speaker 9: in flow into etf so we saw about thirty five
Speaker 9: billion come into the industry, which is muted considering we
Speaker 9: had the last two years of record inflows. Now granted
Speaker 9: that has everything to do with markets getting a lot
Speaker 9: of competition from money market mutual funds, so the data
Speaker 9: is skewed. So there's really an anomaly here with all
Speaker 9: the investor interest in chasing those high money market yields.
Speaker 9: But we've started to see some money come back in
Speaker 9: What's interesting is under the hood again in May, we've
Speaker 9: started to see an increase in appetite for equity ETFs
Speaker 9: fixed income much more so early in the year. But
Speaker 9: looking under the hood again, what is another little trend
Speaker 9: that we're picking up on is with that inflow, we've
Speaker 9: seen money come out of value ETF specifically products like
Speaker 9: dividend themed ETFs, which again had caught quite a bit
Speaker 9: of institutional and retail attention in the last you know,
Speaker 9: nine to twelve months for sure.
Speaker 1: Talk to us about this. The structure of the ETF
Speaker 1: market in general, is it who are the big players?
Speaker 1: Is it diversified? Just give us a sense of like
Speaker 1: who really runs this business in terms of assets?
Speaker 9: That's a great, great question. Look, one another interesting element
Speaker 9: here is the amount of firms, both everything from startups
Speaker 9: to large brand name acid managers seem to be jumping
Speaker 9: into the space. So in the last couple of years,
Speaker 9: we've seen record amount of product issuance. Actually a stat
Speaker 9: I like to quote it B and Y Mellon. We've
Speaker 9: been launching approximately one ETF a day on average somewhere
Speaker 9: in the world the last couple of years, just to
Speaker 9: give you a sense of how quickly these products are
Speaker 9: coming to market. At the same time, it's driven by
Speaker 9: some of the existing players like Blackrock, Vanguard, Invesco and others,
Speaker 9: but also startups and brand name asset managers who have
Speaker 9: just said enough mutual funds can't just cut it anymore.
Speaker 9: I'm looking to launch an ETF as a way to
Speaker 9: again attract invest your interest and certainly recognize it for
Speaker 9: the benefits and potentially the better structure in many cases
Speaker 9: for investors.
Speaker 5: And what does that then mean in terms of kind
Speaker 5: of your competitive ability now that I'm thinking about it.
Speaker 5: When you mentioned your Vanguards and your black Rocks about
Speaker 5: thirty seconds here, I mean, if you're putting out one
Speaker 5: ETF a day for years, are you able to see
Speaker 5: kind of demand catch up to that or is that
Speaker 5: just purely offerings?
Speaker 9: It's great question. Different is obviously key. A lot of
Speaker 9: those bigger names and those assets are in passively managed ETFs,
Speaker 9: but a lot of the action and the majority of
Speaker 9: products coming to market are actively managed. So it's these
Speaker 9: are firms that are trying to differentiate and that is
Speaker 9: going to be absolutely critical. But I would say one
Speaker 9: of the reasons why I guess to bring it full
Speaker 9: circle I got into ETFs all those years ago was
Speaker 9: the innovation. And I always make the joke that it's
Speaker 9: the most fun in the industry by far, because this
Speaker 9: is where the actions that is, and that is where
Speaker 9: the competitive game is being played.
Speaker 1: All right, Ben, thanks so much for joining us. Ben Slavan,
Speaker 1: Global head of ETFs for b n Y Melon Asset Servicing,
Speaker 1: joining us here in our Bloomberg Interactive Broker Studio.
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Speaker 1: Kind of the news today, you can make it the
Speaker 1: lo How does Maddie was in the commodity space and
Speaker 1: crude oil Saudi Arabia? I think a surprise to me,
Speaker 1: at least cutting production outside of the OPEC plus group,
Speaker 1: but just cutting production on its own by a million
Speaker 1: barrels a day. That seems material. I don't see that
Speaker 1: every day. So I figured, let's get this commodities guy
Speaker 1: in the studio. Maybe he can help us out there,
Speaker 1: Mike mcgloone. He covers all the commodities from port bellies
Speaker 1: to corn, to oil to crypto. He's our guy, and
Speaker 1: he's actually in the Bloomberg Interactive Broker studio. And that's
Speaker 1: just because it's getting down towards summer. John in Miami
Speaker 1: it's too hot, so now he has to summer up
Speaker 1: there in Midtown Manhattan. I told him it was going
Speaker 1: to happen. Mike, thanks so much for joining us here.
Speaker 1: I don't recall seeing an OPEC member kind of on
Speaker 1: its own, much less Saudi Arabia kind of stepping out
Speaker 1: and changing production. What do you make it?
Speaker 10: Today's it is rare for them to kind of front
Speaker 10: run the market like this. What's typical is for them
Speaker 10: to cut during bear markets. Okay, And that's my signal
Speaker 10: that this is a bear market. And I think they
Speaker 10: know you've seen it with price action today. We bounced
Speaker 10: about two bucks overnight, three two fifty for a while now,
Speaker 10: or maybe up a buck seventy two dollars a barrel.
Speaker 10: And it's what's happening now is markets are kind of
Speaker 10: waiting for this the Saudi minister warned us, you know
Speaker 10: that they might be hurting, and so people who've been
Speaker 10: waiting to resell at higher levels have been waiting for this,
Speaker 10: and I think that's what's happening because.
Speaker 8: It's a bear market.
Speaker 10: Remember crewell peaked around one thirty last year, it's seventy
Speaker 10: two now, and it's the macro that's overwhelming. So I
Speaker 10: wrote about it again today. I still looking for the
Speaker 10: head towards fifty dollars a barrel.
Speaker 1: Now, okay, fifty dollars per barrel is your call. And
Speaker 1: you've been there for a long time. Fifty before one fifty.
Speaker 1: I forget how you phrased it, but yeah, you're still
Speaker 1: sticking out with.
Speaker 10: That, sticking with it and adding to it because to me,
Speaker 10: now it's getting worse. We're in a situation now. First
Speaker 10: of all, it's the macro's overwhelming. We talk about China demand.
Speaker 10: We're all seeing that is becoming less. You know, it's disappointing.
Speaker 10: Now that's what we expected because remember China kind of
Speaker 10: made enemies with its best customers US and Europe. Okay,
Speaker 10: so that's tilting that way, that's my And then it
Speaker 10: is the massive paradigm shift of US production. So if
Speaker 10: you add Canada to our US production liquid fuels, it's
Speaker 10: about twenty six million barrels a day. The significance of
Speaker 10: that is as well above consumption, maybe four million bills
Speaker 10: above consumption. That's what's changed versus maybe the great financial crisis.
Speaker 10: That's overwhelming force and the ruling commodities. As you're always
Speaker 10: going towards the marginal cost of production. Now natural guests
Speaker 10: already did that. It spike to ten, back down to two,
Speaker 10: and it's stuck at two. Crude else is following that path,
Speaker 10: and the US the largest producer, the average cost of
Speaker 10: production based on data and the terminals around fifty dollars
Speaker 10: a barrel.
Speaker 11: Is it concerning at all? Or what's the thinking on
Speaker 11: Saudi being the main driver, the only opet.
Speaker 10: Plus memory Exactly, they're just trying to catch up being
Speaker 10: the main driver.
Speaker 1: Well, that's more.
Speaker 10: What they're wise and what they're really doing that why.
Speaker 10: But the matters for me is what's it going to
Speaker 10: do for the market. It actually helps the US in
Speaker 10: a way. We're net energy exporter in terms of massively
Speaker 10: if he terms natural gas. This is what's change. And
Speaker 10: yes there's some oil that's still important to us, so Saudi,
Speaker 10: but it really hurts their customers more. I mean they're
Speaker 10: raising price, isn't cutting production? And what's the number one
Speaker 10: customer China? So I look at it. It's just a
Speaker 10: part of the tree in the forest of that diminishing
Speaker 10: significance of this cartael.
Speaker 1: That was a big part of our lives.
Speaker 10: I mean, I grew up in the seventies and you
Speaker 10: remember those crisses those days. It's amazing how we've completely
Speaker 10: shifted the other way. And now it's also part of
Speaker 10: this significant paradigm shift. First of all, if you add
Speaker 10: in FED tightening that's very rare, commodits collapsing, and then
Speaker 10: towards evs. I mean almost ten percent of total Automo
Speaker 10: sales and are evs. That's stuff that we dreamed of
Speaker 10: ten years ago.
Speaker 1: The United States is not part of OPEK, right Is
Speaker 1: there any reason they should be? Now that we're kind
Speaker 1: of a big player now, I mean, aren't we Like?
Speaker 1: How can we not be involved in.
Speaker 10: Free market capitalism? Natural gas is a good exactly, mean,
Speaker 10: it's just good old free market capitalism on a global
Speaker 10: basis is what energy has become. It's because of OPEC's
Speaker 10: really boosting that price up above one hundred dollars a barrel,
Speaker 10: you know, up till twenty fourteen. That really accelerated the
Speaker 10: USL revolution. And that's part by piece of prices collapse.
Speaker 10: Now people keep talking about, oh, Shelle production is going
Speaker 10: to decline. They've been hearing that for a decade. And
Speaker 10: I read this book called the Domino Effect, and it
Speaker 10: just points out, Okay, that might peak a little, but
Speaker 10: then there's the next technology, in the next technology. That's
Speaker 10: what's happening so fast. And I like to point out
Speaker 10: crude oil from a supplying demand standpoint, we're creating more
Speaker 10: of it with technology, replacing it with technology more than
Speaker 10: any other commodity. So if you're gonna be bush of commodity,
Speaker 10: you start with gold and maybe triple trickle down the copper.
Speaker 10: But crude oil is the one that's just being replaced.
Speaker 10: I mean, I ride my electric bike too in Florida
Speaker 10: every day and I don't need a car anyone.
Speaker 1: Yes, you do. Look at him now, is it a
Speaker 1: pedal assisted bike? Of course I did that, big old sissy, okay,
Speaker 1: but but it's battered assist as opposed to these guys
Speaker 1: who deliver the food here on sixth Avenue or Election
Speaker 1: to Avenue. They're just you don't have to pedal, you
Speaker 1: just fly down the show. I'm glad you mentioned that, Paul.
Speaker 10: That was the paradigm shift for me.
Speaker 1: About five years ago.
Speaker 10: I remember seeing all these guys you I always here.
Speaker 10: Here are the motorbikes right now. They're all silent, they
Speaker 10: hardly ever pedal. But I looked at those bikes. They're
Speaker 10: not pretty, they're ugly, but they go fast. They don't
Speaker 10: have to pedal, Like, that's what I want. And so
Speaker 10: I came back a couple, you know, a couple of
Speaker 10: weeks ago, and you see.
Speaker 1: All of you don't hear motorbikes anymore.
Speaker 10: It's just that it's the technology is moving so fast.
Speaker 10: And the key question I asked, so TESTA is the
Speaker 10: same thing. It's just set power unit providing that electricity.
Speaker 10: Where's that power unit going from? It's only getting cheaper,
Speaker 10: faster and more powerful from batteries to made me feel sales,
Speaker 10: it's just what's all right?
Speaker 1: All right, so you're zipping around South Beach on your bike.
Speaker 1: I get the visual, all right, Let's switch gears to
Speaker 1: crypto for just a second, not a good day for
Speaker 1: crypto space Finance Holdings, and as chief executive officer jo
Speaker 1: workus of breaking US rules according to a federal court
Speaker 1: following by the Securities Exchange Commission. What's it mean to
Speaker 1: you is somebody who looks at this crypto space parish.
Speaker 10: I hate to say, because the crypto people do not
Speaker 10: like you when you say things they do now want
Speaker 10: to hear, which is particularly why I have to use
Speaker 10: my independent voice to say, I think you people are
Speaker 10: too overwhelming, the optim optimist, optimistic that the worst is
Speaker 10: not over. And I got that sense a lot in
Speaker 10: the bitcoin Miami. I see it a lot. Everybodybody says
Speaker 10: the worst is over. I hear it in the stock
Speaker 10: market too. And that's what's happening late with crypto bloom Bloomberg, Galaxy,
Speaker 10: Crypto in NIXT the bitcoins down on the quarter about
Speaker 10: six percent, yet the stock market's up. That's not supposed
Speaker 10: to happen. So I think what's happened is you're seeing
Speaker 10: more and more. There's just massive speculation in that space
Speaker 10: and still needs to be purged. And the fact we
Speaker 10: had a big boom, a big bounce, means to me
Speaker 10: the risk is it tilts back lower. So typically what
Speaker 10: happens if we're having this, you know, NASDAK lifting all
Speaker 10: boats rally, Crypto should be leading and they're not. So
Speaker 10: I'm sure I'm pointing out that maybe the Nasdaq is
Speaker 10: just in a short term bounce and everything's heading back
Speaker 10: towards that recession. That most of the spect and on
Speaker 10: along pointed out. Is this work from home unemployment. It's
Speaker 10: really ticking up. It's a good sign. Ono Wong's are
Speaker 10: chief economists. It's truly ticking up, showing signs.
Speaker 1: Of RECESSI familiar with this whole work at home concept,
Speaker 1: but I hear that's the thing, all right. I appreciate it.
Speaker 1: Mike mcglohone, he covers all the strategy stuff, all the
Speaker 1: commodity stuff for Bloomberg Intelligence based down in the self
Speaker 1: proclaimed crypto capital of the United States, Miami, but we
Speaker 1: got him up here on our Bloomberg INTERACTI Brooker Studio
Speaker 1: in New York.
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Speaker 6: You can also listen live on Amazon Alexa from our
Speaker 6: flagship New York station, Just say Alexa playing Bloomberg eleven
Speaker 6: thirty Madison.
Speaker 1: My fixed income strategy is simple. I'm walking up, I'm
Speaker 1: buying a two year treasury like four point five percent,
Speaker 1: and that's it. I'm done. I'm going down to the
Speaker 1: beach toes in the sand. That's it. But some people
Speaker 1: make it more difficult. I think our next guest is
Speaker 1: one of those guys, Steven O, Global head of fixed
Speaker 1: Income at pine Bridge Investments. He's based in Los Angeles,
Speaker 1: but of course he felt the need to come to
Speaker 1: the global financial capital of the world that is New
Speaker 1: York City, and he's in our Bloomberg INTERACTI Brooker Studio. Dave,
Speaker 1: what do you think of my strategies buying to your
Speaker 1: treasures and just kind of rolling them over.
Speaker 12: You know, it's not a bad strategy at this point
Speaker 12: in time, giving the yields that you're getting, although I
Speaker 12: would recommend if that's the approach you're going to take,
Speaker 12: you're probably better off rolling three month t bills because
Speaker 12: our view is that the FED is not going to
Speaker 12: be as aggressive or as quick to cut rates than
Speaker 12: what's being priced in.
Speaker 11: You think a longer pause or.
Speaker 12: I do you know? Right now, the market is expecting
Speaker 12: that the FED will start cutting at the end of
Speaker 12: this year, as well as the depth of cuts into
Speaker 12: next year. We think it's just unlikely to play out,
Speaker 12: and therefore market expectations are a bit too optimistic with
Speaker 12: respect to FED support.
Speaker 1: All right, So if I wanted to take maybe a
Speaker 1: little bit more risk, a little bit more duration corporate credit,
Speaker 1: where should I start my analysis there?
Speaker 12: Well, corporate credit right now is much maligned, in part
Speaker 12: because of all these talks about recessionary pressures, the faults
Speaker 12: and so forth. We think there's a lot of value
Speaker 12: across the spectrum of corporate credit. Of course, for more
Speaker 12: risk averse investors, investment great corporate credit is a very
Speaker 12: good space to be. But I think some parts of
Speaker 12: the leverage finance market right now, I think the you know,
Speaker 12: ugly step child is leverage loans. But we think leverage
Speaker 12: loans are a little bit misguided in terms of what
Speaker 12: markets believe are going to be the default race and
Speaker 12: the problems and the absolute yields that you're getting there
Speaker 12: are more than adequately constant compensating you or another hybrid
Speaker 12: way to play that market is CLO tranches. Right now,
Speaker 12: when you look at where CLO tranches are yielding, you know,
Speaker 12: double bclos are fourteen to fifteen percent, Triple a's are
Speaker 12: spreads of you know, one eighty to two hundred over.
Speaker 12: And then finally, last year for US was a theme
Speaker 12: about going within the US as a defensive strategy because
Speaker 12: we thought US was really where the fundamentals were superior.
Speaker 1: This year it's about.
Speaker 12: Also expanding outside of the US more toward emerging markets
Speaker 12: and other parts of the world.
Speaker 11: Is that strategy partially because you're anticipating downside to the
Speaker 11: US dollar or what's the single I guess driving force find.
Speaker 12: That the downside to the US dollar is a small component,
Speaker 12: but more so than expecting the dollar to depreciate meaningfully.
Speaker 12: We don't think that the dollar has much risk of appreciating,
Speaker 12: and so the headwinds will dissipate. But the bigger element
Speaker 12: of that is if you look out for the next
Speaker 12: two years at the growth expectations of US, which is
Speaker 12: decelerating versus emerging markets, the gap is going to increase,
Speaker 12: which favors the fundamental outlook for many parts of emerging markets.
Speaker 1: All right, Steven, So if I'm an analyst in one
Speaker 1: of your funds and I bring an idea to my manager,
Speaker 1: to you as the head of fixingcome, am I running
Speaker 1: my recession model for the forecast? Or am I running
Speaker 1: kind of the world's okay kind of model?
Speaker 12: Well, first of all, we have over one hundred investment
Speaker 12: professionals who are focused on the strategy, So you know,
Speaker 12: what is the analyst giving us in terms of that
Speaker 12: outlook and what is our top down view? And even
Speaker 12: though we get caught up into debate around recession or
Speaker 12: no recession, I think it's more important is what type
Speaker 12: of recession environment will it be? You know, we believe
Speaker 12: that there will in all likelihood be a technical recession
Speaker 12: or recession definitionally, but we don't see unemployment levels going
Speaker 12: up much more than another percent or so. So it's
Speaker 12: the type of recession which would be very mild in nature.
Speaker 12: And I think that the FED is definitely headed toward
Speaker 12: engineering a soft landing.
Speaker 11: Do you think the FED has had any missteps along
Speaker 11: the way or would you advise them to do anything
Speaker 11: differently than you're anticipating.
Speaker 12: I think it's easy to criticize in hindsight, and that's
Speaker 12: what we do all the time. But I think the
Speaker 12: FED has done a fairly laudable job. I think the
Speaker 12: one area where I would somewhat disagree with is we
Speaker 12: are definitely in restrictive terrictory, and I would argue we
Speaker 12: have been. It's really how quickly do you want to
Speaker 12: achieve the deceleration goals with respect to inflation in particular.
Speaker 12: And you know, my view is that you're much better
Speaker 12: easing on the breaks to a glide path rather than
Speaker 12: slamming on the bs.
Speaker 1: And I don't think.
Speaker 12: The FED necessarily needed to be even where we are today,
Speaker 12: but they want to achieve their goals a lot more quickly,
Speaker 12: and that's the differential that I would have with them.
Speaker 1: Early in my career was at the Chase Manhattan Bank
Speaker 1: lending money to media companies, technolo telecom companies. They had
Speaker 1: no assets. We lent against cash flow, We land against
Speaker 1: airwaves frequencies. My credit guys had no idea what we
Speaker 1: were doing, but we would lend to four or five
Speaker 1: six times cash flow on a senior basis. That's leverage lending.
Speaker 1: To me, what are you guys doing in leverage finance
Speaker 1: these days?
Speaker 12: What are some of the sectors you guys like, you know,
Speaker 12: we are value investors and traditional credit investors.
Speaker 1: We look at cash flows.
Speaker 12: And for me, I just never understood when the telecom
Speaker 12: infrastructure build out was taking place into early two thousands
Speaker 12: on business plans. That may be a great equity story,
Speaker 12: but that's certainly not a fixed income.
Speaker 1: Creditsortance we took on. We led money to fleet call,
Speaker 1: no company. It was just against spectrum. People don't know
Speaker 1: what fleek call is. It was basically a taxi thing.
Speaker 1: But we lend money those guys, but we got warrants.
Speaker 12: Well, you know you're talking about the days of excess,
Speaker 12: right and during Polish periods, that's exactly what you have.
Speaker 12: And I think make Samir John, it's very important to
Speaker 12: have discipline when when you're chartered with making loans, when
Speaker 12: you have capital to invest, often it's not about making
Speaker 12: prudent investments. It's about what do you do that's the
Speaker 12: relatively the more attractive, And I think it's important to
Speaker 12: say we're not going to lend to those types of segments.
Speaker 12: That's not what we do. That's beyond our knitting, that's
Speaker 12: beyond our comfort level, and be willing to in the
Speaker 12: short term in some ways underperformed by not getting the
Speaker 12: type of yields that the market may offer.
Speaker 11: Wait, but I love this line of questioning, Paul, because
Speaker 11: you have the exact experience.
Speaker 1: To why to what you do now we didn't know
Speaker 1: any better?
Speaker 11: Give me another example.
Speaker 1: I love this, Why just again? My favorite stuff? We
Speaker 1: just again? You lend against cash flow and Steven knows
Speaker 1: all about that because your cash net income doesn't pay
Speaker 1: you back. Cash flow pays you back. Free cash flow
Speaker 1: is what pays you back. Are there some sectors here
Speaker 1: right now? Let's talk about that emergent market thing, because
Speaker 1: we don't talk about emerging markets enough. In emergent markets,
Speaker 1: where would I start? I mean, I can't go to China?
Speaker 1: Can I?
Speaker 12: You absolutely can go to China. We think there's a
Speaker 12: fair amount of value in you know, Asia. Credit is one.
Speaker 12: Even though China's you know rebound right now is bit
Speaker 12: irregular and there's fits and starts, it is absolutely rebounding.
Speaker 12: So one component of China where there'd be no greater
Speaker 12: comfort level. Everyone tends to focus is on real estate
Speaker 12: and property. But that's not all about China. There's other
Speaker 12: things beyond that. I think travel and leisure rebound. For example,
Speaker 12: we have been proponents of the McCall casino reopening and rebound.
Speaker 12: So there are pockets of consumer leisure and entertainment and
Speaker 12: consumer travel that we think just as the US coming
Speaker 12: out of COVID still is on the rebound.
Speaker 1: That's the sector.
Speaker 12: But also we believe that with China reopening greater parts
Speaker 12: of Asia, whether with or without, China has also experienced
Speaker 12: some very good growth dynamics overall our opportunities, but we
Speaker 12: tend to approach it not from necessarily a less buy
Speaker 12: a basket of everything. You got to pick and choose,
Speaker 12: and we have teams on the ground over there who's
Speaker 12: responsible for doing that.
Speaker 11: And you think that the China reopening story has just started,
Speaker 11: then like what inning are we in when it comes
Speaker 11: to the demand that's going to come from that.
Speaker 12: The demand is going to be a little bit disappointing
Speaker 12: and has been versus expectations overall, but we do see
Speaker 12: if you look at things like airline travel data within
Speaker 12: and outside of China, that's one area where we're still
Speaker 12: in the very early innings of that demand rebound. Overall,
Speaker 12: I think the manufacturing side is going to still struggle
Speaker 12: a bit. So that's why we're turning more toward the consumer,
Speaker 12: more towards services, and more toward internal expenditures.
Speaker 1: Steve, and I know you spend some time at Bank
Speaker 1: of America, which I refer to as Merrill Lynch on
Speaker 1: the Hyld trading and distress that trading desk. If you
Speaker 1: have a big position in pine Bridge and you need
Speaker 1: to move it, can you move it?
Speaker 12: The good news is we don't have big positions because
Speaker 12: we're mid size of institutions. But no, you cannot move
Speaker 12: big positions anymore. The market is, you know, has always
Speaker 12: been semi liquid for distress or even you know, any
Speaker 12: type of credit, and now it's become much more illiquid overall,
Speaker 12: and so it becomes a much more challenging environment where
Speaker 12: you have to have greater conviction of what you're buying
Speaker 12: within credit because the liquidity is definitely going to be
Speaker 12: more challenging. And I think at some level of size,
Speaker 12: you know, for example, in the most liquid part of
Speaker 12: credit investment, great corporates. You know, back pre financial crisis,
Speaker 12: we used to get fifty by fifty markets. Now you're
Speaker 12: lucky if you can get a five y five market yep, yep.
Speaker 1: Chat times have change. Steven Oh, thank you so much
Speaker 1: for joining as Steven Oh. He's a global head of
Speaker 1: fixed income at pine Bridge Investments based in the City
Speaker 1: of angels but he joins us here in New York
Speaker 1: City on our Bloomberg Interactor Broker studio. We appreciate him
Speaker 1: coming in giving us his lay of the land in
Speaker 1: the fixed income space. I'm just looking down at the market.
Speaker 1: I'll give you some of the treasury quotes here. We
Speaker 1: got the two year treasury four point four to nine percent. Again,
Speaker 1: I can sit there for a couple of years and
Speaker 1: get that that's not too bad. Ten year treasury off
Speaker 1: about three basis points here, three spot six eight percent
Speaker 1: on your ten year treasury.
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Speaker 1: All right, now, let's pivot to Maddie. I think this
Speaker 1: debt ceiling discussion, which was front and center for you know,
Speaker 1: a month or so, it seems like it's been resolved.
Speaker 1: In My question is kind of what comes next. Doctor
Speaker 1: Nancy Kimmelman joins us. She's an economics professor from Northeastern
Speaker 1: University and Tuffs University. So doctor Kimmelman, thanks for joining
Speaker 1: us here. What does come next here with this debt
Speaker 1: ceiling deal? What should we be thinking about?
Speaker 13: Well, I think what we're seeing on the political side
Speaker 13: right now is sort of an interpretation of what was
Speaker 13: the dynamic, what were the dynamics between the Biden administration
Speaker 13: and the Republicans in Congress. And there have been some
Speaker 13: interesting articles written about how really Biden seems to have
Speaker 13: gotten a good handle on the Republican Party, and maybe
Speaker 13: there's some opportunity ahead through the two parties and for
Speaker 13: Congress and the White House to work better together. I
Speaker 13: think that would be hopeful. At the same time, we
Speaker 13: do know certainly that the Republican members of Congress are
Speaker 13: our claiming this of success and that it got the
Speaker 13: administration to take some cuts. The cuts aren't actually that significant,
Speaker 13: and in fact, you know, everyone pretty much knew that
Speaker 13: there was eventually going to be a deal, and there
Speaker 13: was a deal. I think at this point, you know,
Speaker 13: other than maybe a little bit of post mortem, I
Speaker 13: think the markets and most people are sort of looking
Speaker 13: ahead and saying to ourselves, Okay, well we're now what
Speaker 13: We're past the dead ceiling. We're back into worrying about
Speaker 13: whether what the FET has done is enough? Yette. Is
Speaker 13: the economy weakening? Is it weakening considerably? Is it weakening
Speaker 13: at all? So I think, unfortunately the Friday employment reports
Speaker 13: that we got through a lot of questions our way,
Speaker 13: and we're back into the sort of old story of
Speaker 13: we in terms of this, in terms of this tightening cycle,
Speaker 13: and where's the economy? Where's it going?
Speaker 11: Does the back and forth over the debt ceiling lead
Speaker 11: to any repercussions for the US economy on the global
Speaker 11: stage moving forward? Or is the global world sloughing it
Speaker 11: off as much as markets did.
Speaker 13: I think everyone's sloughing it off. First off, I don't
Speaker 13: think it has any repercussions in terms of economic performance
Speaker 13: from what I have read. I don't personally have my
Speaker 13: own macroeconomic model, but I read the results of those
Speaker 13: who do, and the folkse who run these models do
Speaker 13: not see any real impact on the performance of the
Speaker 13: economy and the remainder of this year or even next year.
Speaker 13: Did the debt ceiling talk the most aggressive? The most
Speaker 13: aggressive result that I saw was that maybe it would
Speaker 13: turn into a one tenth of one percent increase in
Speaker 13: the unemployment rate at some point this year. So I
Speaker 13: think the economic impact is mooted, muted, and I think
Speaker 13: also the political point is moot at this point. The
Speaker 13: fact is, everyone sort of knew that they were eventually
Speaker 13: going to get together. They took it a little bit
Speaker 13: too close to the wire for everyone concerned, but they
Speaker 13: did come through and it was sort of back to normal.
Speaker 1: So I guess with the deal in place now, there
Speaker 1: are some folks in the in the money markets, I
Speaker 1: guess that are concerned that the Treasury will soon replenish
Speaker 1: its cash balance by selling more than one trillion dollars
Speaker 1: of bills through the end of the third quarter. That
Speaker 1: seems like a big number to me. How does that
Speaker 1: all work?
Speaker 3: Is a big number.
Speaker 13: It is a big number, but it's not a surprising number.
Speaker 13: I mean, the Treasury had to train its auction schedule
Speaker 13: as a result of the potential for the debt ceiling
Speaker 13: not to be lifted. Now that things have gotten back
Speaker 13: to normal. They're going to resume a much more normal
Speaker 13: after we get through the next couple of weeks, They're
Speaker 13: going to resume a much more normal auction schedule. You know,
Speaker 13: I looked this morning, and from what I could see,
Speaker 13: the three and the six month Treasury auction, the results
Speaker 13: that I thought eleven thirty looked pretty damn good. So
Speaker 13: my suspicion is that people are worried about there being
Speaker 13: enough liquidity in the market in order to be able
Speaker 13: to stop up the new securities that the Treasury is
Speaker 13: ready to offer. And that really hasn't been an issue
Speaker 13: for the US Treasury for many years now. And I
Speaker 13: suspect that there's plenty of money on the sidelines, whether
Speaker 13: it's in money market funds or maybe it's in some
Speaker 13: equity funds where they were just sort of hoping at
Speaker 13: some point to be able to push it back into
Speaker 13: a saber asset like treasury builds. So my suspicion is
Speaker 13: that we're not going to see distortions in the yield curve,
Speaker 13: and we're not going to see distortions in the in
Speaker 13: the markets due to the Treasury and zooming fairly fairly
Speaker 13: aggressive schedule of auctions.
Speaker 11: So money market funds specifically, that's that's all good from
Speaker 11: your perspective.
Speaker 7: Well, I think I think the.
Speaker 13: Money market funds. First of all, there's a lot of
Speaker 13: money there, but I think those money market funds will
Speaker 13: tilt towards putting more treasury securities in the portfolio. And frankly,
Speaker 13: if I were running a money market fun and I
Speaker 13: were an aggressive active manager, that is something that I
Speaker 13: would want to do. First off, because the economy is
Speaker 13: still uncertain. We don't know where the said is going.
Speaker 13: But the other part of it is that the banking
Speaker 13: system is a little bit risky. We're seeing we've seen,
Speaker 13: you know, already a couple of name failures this year.
Speaker 13: People are concerned about the fact that there's going to
Speaker 13: be new bank capital regulations UH that are imposed upon
Speaker 13: the banks, and that could lead to some more trouble
Speaker 13: amongst some of the big name banks. So I think
Speaker 13: it makes sense now that the Treasury is going to
Speaker 13: be back selling a lot of treasury securities, I think
Speaker 13: it does make sense for money market funds and a
Speaker 13: lot of actively amounaged funds to put more treasuries back
Speaker 13: in the portfolio because the risk profile is there.
Speaker 1: So January twenty five, do we just come run and
Speaker 1: do this all again? Is this kind of the new
Speaker 1: normal or them?
Speaker 13: You say, yeah, oh yeah, unless by some miracle we
Speaker 13: end up with either a fully Republican or a fully
Speaker 13: democratic Washington. Yeah, we're going to do it again. We've
Speaker 13: been doing it over and over again. It is a
Speaker 13: broken system. That's the easiest way for me to say it.
Speaker 13: We should have a government that is functioning. We should
Speaker 13: have a government where the Treasury, the representatives of the
Speaker 13: Late House the Treasury sit together with representatives of Congress,
Speaker 13: and we have to have a budget and then cows.
Speaker 13: We've patched out the budget. There's an agreement that will
Speaker 13: raise the debt ceiling in order to be able to
Speaker 13: fund that budget. But for reasons which evades me, unfortunately,
Speaker 13: we do not come up with a budget and then
Speaker 13: at the same time agree this is what we need
Speaker 13: to raise the debt ceiling too.
Speaker 3: In order to fund it.
Speaker 13: Everything that this debt ceiling was going to put off
Speaker 13: the spending and make ways in the marketplace, it was
Speaker 13: all based on spending that has already been approved by Congress.
Speaker 13: Now facing at the third the Congress has already approved
Speaker 13: the spending, and yet now they're saying, we're not gonna
Speaker 13: let you raise the money. Uh, it's got to be
Speaker 13: done better than that. But we have not, we have
Speaker 13: not had a two party system that has allowed that
Speaker 13: to happen.
Speaker 1: All right, interesting analysis there, because this is an issue
Speaker 1: that just keeps coming back and back. It seems like
Speaker 1: doctor Nancy Kimmelman, economics professor at Northeastern University and at
Speaker 1: Tufts University, so got the Boston area covered there from
Speaker 1: economics perspective. But again, talking about the debt ceiling, it's done,
Speaker 1: that's the good news. Looks like the Fed has to
Speaker 1: rebuild its balance sheet. It's the lowest level of cash
Speaker 1: they've had on balance for a number of years. So
Speaker 1: they could be out there in the market selling up
Speaker 1: to one trillion dollars in securities to replenish the balance sheet.
Speaker 1: And so the folks in the bond market, the money
Speaker 1: markets are getting ready for that.
Speaker 6: You're listening to the tape Cat's are live program Bloomberg
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Speaker 1: Just do a little tech talk? Shall we round table
Speaker 1: at Madison. We can do that because we've got a
Speaker 1: couple of smart analysts joining us here, Man Deep Singing,
Speaker 1: anorog Rana, their senior tech analysts for Bloomberg Intelligence. We've
Speaker 1: got an rog Via Zoom and mandeep here in the
Speaker 1: studio on rag are with you. You're kind of one
Speaker 1: of your companies. I don't know. I think it's called Apple,
Speaker 1: Apple Computer or something. It's out in California. I think
Speaker 1: in some valley out there. They got an event today.
Speaker 1: What are they eventing? What are they going to show us?
Speaker 14: Yeah, thanks, Paul, so it Such events are very common
Speaker 14: for all the technology companies. And you know, historically on
Speaker 14: this event in or Apple, they've been launching new software updates,
Speaker 14: any kind of new products. So I would say the
Speaker 14: biggest product launch is going to be their mixed reality
Speaker 14: headset that's going to come out after the use of waiting.
Speaker 14: It's going to create a lot of buzz. It's already
Speaker 14: creating a lot of buzz. But I think it's going
Speaker 14: to be a spectacular event when it comes to showcasing
Speaker 14: of what this thing can do. Frankly, on the functionality
Speaker 14: side of it.
Speaker 1: What is multiple what's it called again?
Speaker 11: Mixed reality?
Speaker 1: Mix mix, mixed reality? What's mixed reality? From virtual reality?
Speaker 1: From augmented reality? What is mixed reality? I thought was.
Speaker 14: Well, mixed reality is a combination of augmented and virtual reality.
Speaker 14: So in virtual reality you would have you know, your
Speaker 14: avatar drinking some you know, something nice, and then the
Speaker 14: augmented reality you would have half of it real and
Speaker 14: half of it not real.
Speaker 11: So Google Glass didn't work. I'm never going to put
Speaker 11: a headset on my face. Menteep. Does Apple care about that?
Speaker 8: Well?
Speaker 15: So I think they're trying to create a new form factor.
Speaker 15: That is when they're to their you know, iPhone AirPod ecosystem,
Speaker 15: and really this is their way to drive more you know,
Speaker 15: sps out of the install base they have. And look,
Speaker 15: I think the reason why Apple works so well in
Speaker 15: terms of just keeping their ecosystem intact is because of
Speaker 15: the bundle that they have created. And to me, you know,
Speaker 15: they can sell this high priced product to a subset
Speaker 15: of people that can afford it, and they may find
Speaker 15: a use case around it, whether it's on the corporate
Speaker 15: side or consumer side. But the problem that Meta had
Speaker 15: is they never were able to bring the developer community
Speaker 15: to build on their ecosystem. Apple doesn't have that problem.
Speaker 15: They can have developers build on this ecosystem because they
Speaker 15: already have a big ecosystem.
Speaker 12: Built on the iOS.
Speaker 8: Oh.
Speaker 15: I see the apps that they already have, some of
Speaker 15: that can be extended into this augmented reality or the
Speaker 15: mixed reality form factor that Anarag mentioned, And there could
Speaker 15: be certain apps that are good in that sort of uh,
Speaker 15: you know, form factor because it can enhance productivity. And
Speaker 15: I think that's the part that Meta, even though they
Speaker 15: were early to it they have invested billions of dollars,
Speaker 15: they never had that ecosystem aspect where developers would come
Speaker 15: and build on their platform.
Speaker 1: Hey, an Rog, do I have to pay attention to
Speaker 1: this AI thing or did you guys have your time
Speaker 1: in the sun last week with a big boom and
Speaker 1: in video stock? What's your view here on AI and
Speaker 1: how it may develop?
Speaker 14: So, I mean, at the end of the day, it
Speaker 14: will develop at its own pace, frankly, but it is
Speaker 14: one of the bigger you know, you could say change
Speaker 14: is in the technology ecosystem and almost in each and
Speaker 14: every piece. We're trying to figure out how it impacts
Speaker 14: different players. You know, from our side, this is just
Speaker 14: another boost the technology industry gets. And you know, some
Speaker 14: of this thing is you can't run this stuff in
Speaker 14: older infrastructure, old and stuff. You have to have newer,
Speaker 14: shiny toys like moving things to the cloud. So I
Speaker 14: think it really helps the entire technology ecosystem in all forms,
Speaker 14: whether it's hardware, software services. I mean, it's going to
Speaker 14: be a fun thing to see how it evolves over
Speaker 14: the next few years.
Speaker 11: But this is my question. Isn't the metaverse a couple
Speaker 11: of years ago what AI is today? But AI is better?
Speaker 11: Like did Apple bet on this when the metaverse was
Speaker 11: cool and now the actual product is coming out a
Speaker 11: little too late. I'm looking at Mandy if you can't
Speaker 11: see that on early.
Speaker 15: Yes, Look, I think for me, the key thing is
Speaker 15: if Apple was to leverage generative AI, they have to
Speaker 15: do it on their phone. The difference is the loud
Speaker 15: guys are all adding AI capabilities in their data center,
Speaker 15: whether it's awlu ass, Google Cloud. Apple has the install
Speaker 15: base in terms of the edge and we actually distinguish
Speaker 15: that and a report the training versus the inference side.
Speaker 15: So the training side is where you train a large
Speaker 15: anguid model. Inference is where you use a large anguige
Speaker 15: model to answer questions. And that's where Apple has that
Speaker 15: install base. So if they develop a phone that can
Speaker 15: leverage generative AI, that would drive a whole new refresh cycle.
Speaker 15: And so imagine Apple phones are refreshed every three four years.
Speaker 15: This could just be things up in terms of everybody
Speaker 15: wanting that new iPhone version because it has that generative
Speaker 15: AI element.
Speaker 1: All right, who's our chip guy?
Speaker 15: We have a chip guy, right, Well, we have Kunjin
Speaker 15: who is based out of the West coast.
Speaker 1: Kunjin, right, he's right, okay, so he's our chip guy.
Speaker 1: So he had his moment in the sun with Nvidia
Speaker 1: and stuff like that. But I know you guys, and
Speaker 1: I know how technology works, hardware software. It's almost like
Speaker 1: you want to play the arms player for you know,
Speaker 1: I think the beginning of the Internet we said by Akamai,
Speaker 1: you know, because they make this stuff that makes the
Speaker 1: Internet go, and we don't even know what the Internet's
Speaker 1: going to become. What are you guys thinking about now?
Speaker 1: On Rock I'll start with you, what are you guys
Speaker 1: thinking about hardware software? How should investors approach this thing
Speaker 1: called AI?
Speaker 14: See from again, one of the things I mentioned before,
Speaker 14: you have to upgrade your oldest infrastructure, which means, you know,
Speaker 14: from our side, the hyperscale cloud providers are the biggest
Speaker 14: beneficiary of this particular shift on the software side. Almost
Speaker 14: all the all the big companies, you know, whether it's Microsoft,
Speaker 14: whether it's Adobe, whether it's you know, Salesforce, all of
Speaker 14: them will be investing heavily because remember, if they have
Speaker 14: the biggest installed based of users, millions of people using
Speaker 14: their products, they are the ones who can figure out
Speaker 14: things in a much faster way compared to a smaller company.
Speaker 11: Man do anything to add on that.
Speaker 15: Well, so to me, I think the interesting aspect here
Speaker 15: is these are all the companies that are on the
Speaker 15: verge of disruption, but we are betting on, you know,
Speaker 15: these companies actually being the kind of the torch bereers
Speaker 15: when it comes to the disruptive element that's going to
Speaker 15: play out. And so there will be I'm sure you know,
Speaker 15: a new startup that will really come out big in
Speaker 15: terms of finding that stellar use case that will scale revenues,
Speaker 15: and maybe chat GPT.
Speaker 1: Is that use case.
Speaker 15: But clearly there's a lot of disruption on the horizon.
Speaker 15: I think the interesting point to make here is that
Speaker 15: we're really betting on all the incumbents to drive that
Speaker 15: disruption forward.
Speaker 1: Right so, I'm waiting for the next wave of the
Speaker 1: Google facebooks of AI, and.
Speaker 15: So right now it is the Metas and the Googles
Speaker 15: that are the most likely gonna disrupt themselves. And you know,
Speaker 15: I don't see and look, there could be somebody else
Speaker 15: out there, and that's why I mentioned chat GPT. But Meta,
Speaker 15: given its scale and the first party data it has
Speaker 15: and the resources it has, looks to be the best position.
Speaker 1: Who's the merry meeker of AI?
Speaker 15: Is it?
Speaker 8: You?
Speaker 1: And Honora? We got to establish because all right, let's
Speaker 1: go down allay, this is where man Deep is. He
Speaker 1: can go high on the hog on some of the
Speaker 1: big tech but Twitter, what's elon? I mean, is anybody
Speaker 1: buying ads on this thing? We keep hearing the reporting
Speaker 1: is just brutal.
Speaker 15: Yeah, I mean down fifty nine percent, But to me,
Speaker 15: the engagement isn't down fifty nine percent. So even though
Speaker 15: some advertisers have pulled back that's more of a reflection
Speaker 15: of them being concerned in the short term about the
Speaker 15: brand safety on Twitter's platform. Twitter's engagement is still holding up.
Speaker 15: I mean, I would bet you know it's down, but
Speaker 15: probably not down more than single digits.
Speaker 1: These dollars go on to Facebook and Google and Snap and.
Speaker 15: I mean, we are in that part of the digital
Speaker 15: ad cycle where everybody is pulling back. And we know
Speaker 15: digital ad is a cyclical market, so some of it
Speaker 15: is that. But yes, clearly meta and you know, all
Speaker 15: the kind of the direct response players, including Alphabet, they
Speaker 15: are the ones who are still kind of doing much
Speaker 15: better than the smaller players.
Speaker 11: But Elon has said he doesn't care, right, hon rog
Speaker 11: At some point does Elon have to care about the
Speaker 11: lack of ad dollars?
Speaker 7: There?
Speaker 11: We have just about forty five seconds left.
Speaker 14: See, from my point, this is a two different business models.
Speaker 14: You know, I can't mix enterprise versus consumer oriented stuff.
Speaker 14: I think in my personal view, if he just focuses
Speaker 14: on the car, that's going to be best for all
Speaker 14: of us.
Speaker 1: Focus on the car there you go, right, all right,
Speaker 1: So all right, we're gonna let you guys go. We've
Speaker 1: had enough of technology talk for the day Mandy's saying
Speaker 1: on Rock Rana, their senior tech analysts part of this,
Speaker 1: I'm gonna say, a global team of close to twenty
Speaker 1: technology analysts around the world, and you know, we're gonna
Speaker 1: send man Deep to London next week. We're gonna send
Speaker 1: him to Asia the week after that to kind of
Speaker 1: check in on all our tech analysts, make sure they
Speaker 1: are focusing on the right things, make sure they're you know,
Speaker 1: focusing on the right trends. And AI has got to
Speaker 1: be at the top of the Listcus boy, even for
Speaker 1: like you know, people like you and I, Matty, we
Speaker 1: hear about it every day.
Speaker 11: We can't stop hearing about it. And it feels to
Speaker 11: Mendep's point, I guess the idea is that the BMTH
Speaker 11: names we already know are going to be the ones
Speaker 11: with the power to gobble up the next big AI
Speaker 11: names as well.
Speaker 1: Yeah, but it just you know, I keep again, when
Speaker 1: you think about the beginning of the Internet, in some
Speaker 1: of these big companies like a Google, and then in
Speaker 1: social media came along you had Facebook. You know, are
Speaker 1: there going to be similar moments like that when new
Speaker 1: companies come into the marketplace, And you got to think
Speaker 1: the answer is yes, But I guess people were just
Speaker 1: trying to identify where those companies, what type of companies
Speaker 1: are they, what applications do they have, What's what technologies
Speaker 1: do they bring to the marketplace, because we keep hearing
Speaker 1: about artificial intelligence being the next big, big, big thing
Speaker 1: in technology, so have to see how that plays out.
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
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Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 2: at Matt Miller nineteen seventy three.
Speaker 1: And I'm Paul Sweeney. I'm on Twitter at pt Sweeney.
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Speaker 1: Bloomberg Radio.