Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Talk about two thousand
Speaker 1: and eight. It was obviously the kickoff to the Great
Speaker 1: Financial Crisis. It was a horrible year for a lot
Speaker 1: of investors, but not for our next guest, Phil Tays,
Speaker 1: managed to keep his head above water or just barely
Speaker 1: right two thousand eight, UH Tays was down just three percent.
Speaker 1: The rest of the market was down forty one percent. Um.
Speaker 1: He did just as well, maybe better. He returned money
Speaker 1: in two thousand and the benchmark lost thirteen percent UH
Speaker 1: in the beginning of the pandemic. He was also smart
Speaker 1: enough to get out right away in March and to
Speaker 1: get back in until mid April. He joins US Now
Speaker 1: Phil Tays, he runs Tay's asset management. Phil, how do
Speaker 1: you manage? How do you navigate these choppy waters? Um?
Speaker 1: It's been two is awful as well. Um, how was
Speaker 1: the year for you and what are you doing in Yeah,
Speaker 1: so two is a pretty good year for us on
Speaker 1: a relative basis. People don't like relative to returns. They'll
Speaker 1: they like absolute returns, but only people who didn't lose
Speaker 1: money don't like relative terms. Right, so we lost less.
Speaker 1: But what what we do is, as a core principle,
Speaker 1: is we try to create ways to people for people
Speaker 1: to be in markets, participate in financial asset appreciation, but
Speaker 1: address the contingency that they may go down. And I
Speaker 1: think that's what's so fascinating about this marketplace is that
Speaker 1: Gene Fama, with his oppressive amount of data that support
Speaker 1: the efficient market hypothesis, suggest that you should always be
Speaker 1: invested no matter what. What that does is it creates
Speaker 1: amazing contrarian plays, right because if the entire world thinks
Speaker 1: that you should be fully invested at thirty times earnings,
Speaker 1: and it's pretty is that markets are going to go
Speaker 1: down at some point, then if you create a mechanism
Speaker 1: uh to de risk, that is helpful. So what what
Speaker 1: is it? You're probably looking for more detail. What we
Speaker 1: do is we have two ways of hedging against risk.
Speaker 1: One is trend following algorithms, that just move us out
Speaker 1: of the way. In the beginning parts of declines have
Speaker 1: been pretty liable, reliable historically. We've been doing it since
Speaker 1: nineties six, as you pointed out, so it's you know,
Speaker 1: it's got a good track record. But we also use
Speaker 1: options and creative ways to both use options to hedge
Speaker 1: but also figure out ways to pay for those options. Nice.
Speaker 1: So what is your go to hedge at the moment?
Speaker 1: I felt like in twenty two was you buy the dollar,
Speaker 1: you buy commodities, You were set, what what's the hedge? Well,
Speaker 1: so ours is less complicated than you might imagine. We're not.
Speaker 1: What we're not doing is creating complex head hedge fund strategies.
Speaker 1: What we are doing is just investing in conventional types
Speaker 1: of things stocks and bonds, high yeld bonds, UH and
Speaker 1: the way we hedge right now, we're actually almost fully
Speaker 1: allocated right bonds. Stocks and bonds have been moving up
Speaker 1: decently this year. We're back in the markets, but we're
Speaker 1: very close where a hair trigger away where if the
Speaker 1: market turns lower it penetrates our target cell level for
Speaker 1: at least our trend following algorithms will scale out of
Speaker 1: the markets and we'll go to sometimes investment grade bonds,
Speaker 1: but if bonds are getting battered as well, will be
Speaker 1: fully in cash instruments. Yeah, I mean, we UM have
Speaker 1: seen a little bit of a turnaround. The last couple
Speaker 1: of days under the SP five came in below it's
Speaker 1: two day moving average, and we snapped a bunch of
Speaker 1: winning streaks that we've seen. Also warnings from some big,
Speaker 1: big investors. Howard Marks was on with Romaine Bostic the
Speaker 1: other night and said he thinks it's the possibly the
Speaker 1: end of the junk rally, or at least we're UM
Speaker 1: fully priced there. Yeah, so fairly priced, fairly valued. You know,
Speaker 1: if you look at the downturns we've seen since the
Speaker 1: financial crisis, including the financial crisis, they've lasted as long
Speaker 1: as sixteen months. I would guess that the market place
Speaker 1: as a whole just has this sense that it's over,
Speaker 1: that the downturn is over. We've had a you know,
Speaker 1: a twelve month horrible market for both asset chlorasset classes.
Speaker 1: But I think the thing that is a real challenge
Speaker 1: for most investor terms and that vast majority of people
Speaker 1: listening to this show, is that it's not over. And really,
Speaker 1: if you have a big percent decline. Without a long duration,
Speaker 1: it doesn't matter that much as long as you don't sell.
Speaker 1: But once you start to stretch out to two years
Speaker 1: or three years, people that need to take uh income
Speaker 1: from assets, and that includes bonds of course, where the
Speaker 1: people have losses start to be negatively affected. So if
Speaker 1: you ask what gets you back in the workforce when
Speaker 1: you're retired when you don't want to be, it's that
Speaker 1: multi year declient. So I think, you know, looking at
Speaker 1: valuations in the stock market, h just looking at all
Speaker 1: of the challenges, one of them being global debt, and
Speaker 1: you know, and you're you're just talking about the fact
Speaker 1: that everyone's so focused on this binary question about what
Speaker 1: the Fed is going to do. I think it's because
Speaker 1: it really matters, and there's a lot more risk in
Speaker 1: the marketplace in their historically. I mean also because you know,
Speaker 1: we could be looking at an absolute see change. I
Speaker 1: make fun of crittious youth because a I'm Elis and
Speaker 1: she's smarter than everybody else, So you got to pick
Speaker 1: something right. But the last time we had interest rates
Speaker 1: above zero, she was on juice boxes and snack of us.
Speaker 1: You know, it's been it's been a solid generation of
Speaker 1: extraordinary monetary policy, and now are we just back to
Speaker 1: something that none of us is really used to anymore. Well,
Speaker 1: it's interesting as you say that, it sounds like, oh,
Speaker 1: we're gonna get back to normal, But I don't think
Speaker 1: there's a normal right now, because if you think about
Speaker 1: where when were we lasted a hundred times depth of
Speaker 1: GDP on a on a fiscal debt level in the
Speaker 1: United States back in back in after World War Two? Right, Well,
Speaker 1: what was the GDP growth following that? Around eight percent
Speaker 1: a year for two decades. So we have these sort
Speaker 1: of existential crises, these things that are really fascinating things
Speaker 1: to think about, but potentially perilous to live through. That
Speaker 1: are gonna be with us. We're gonna have to, you know,
Speaker 1: fight our way through. And so I think that it
Speaker 1: pays to start to think unconventionally, start to think about Okay, yeah,
Speaker 1: Gene Fama is right, Normally you should just stay invested
Speaker 1: in the markets. But how can we address and this
Speaker 1: is everyone just wants to bet on the optimistic scenario, right,
Speaker 1: just stay invested, conventional portfolio, But how can we address
Speaker 1: the contingency that one of two things happens that could
Speaker 1: both happen together. First, the rate could continue to go
Speaker 1: higher and we have more persistent inflation. You know inflation
Speaker 1: in the United States If you look back in the
Speaker 1: last three episodes of the last hundred years, it lasted
Speaker 1: between four and nine years, not twelve months, right, So
Speaker 1: we could have more persistent inflation, higher rates, which is
Speaker 1: caused bonds to lose. And also that we could test
Speaker 1: the loads and break a lot lower in the stock market.
Speaker 1: So don't bet on that, but address the contingency of that. Well,
Speaker 1: you're speaking about the credit market earlier, and I want
Speaker 1: to circle back to that, because if you are worried
Speaker 1: about the risk and the recession, it doesn't feel like
Speaker 1: credit markets are really pricing then in when you're looking
Speaker 1: at spreads on the surface, I mean investment graines spreads
Speaker 1: for our audience, on downturns, you usually go about two
Speaker 1: hundred bases means we're nowhere near there. Even on high
Speaker 1: yield eight dred to a thousand basis points, again we
Speaker 1: are nowhere near there. So pretty this is the same
Speaker 1: imaginary friend we've had for the past year, which is
Speaker 1: the FED pivot, right, uh, And so everyone still I mean,
Speaker 1: we started out no inflation, then transient inflation, now inflation,
Speaker 1: and all along the way we were not thinking the
Speaker 1: FED RUC is gonna be raising rates as much as
Speaker 1: they have. So it's really just the same story played
Speaker 1: out in three where everyone's assuming the Fed's are not
Speaker 1: going to act as much as they are, but then
Speaker 1: they do, and then we potentially realize the consequences. I'm
Speaker 1: keeping that one imaginary friend is the FED pivot. I
Speaker 1: love that you started, by the way, the Behavioral Investing Institute,
Speaker 1: and we've been talking for a couple of days now
Speaker 1: pretty seriously about the consumer. Because the big banks were
Speaker 1: at with earnings right so we're all watching savings rates,
Speaker 1: banking balances, credit card usage. What do you think about
Speaker 1: the US consumer right now? It's pretty strong every kind
Speaker 1: of behavior right now, the investor behavior, consumer behavior as
Speaker 1: a whole, a whole another ball of wax right right.
Speaker 1: And I think that's a good indicator that that maybe
Speaker 1: markets haven't bottomed. I mean, when when you've got lines
Speaker 1: around the corner for fifteen dollar salads and you know,
Speaker 1: everything else seems to be durable good for big big
Speaker 1: goods purchases are still pretty impressive. I think it indicates
Speaker 1: that the mindset of bear market or crash or recession
Speaker 1: has not set in. And that means probably once people
Speaker 1: realize that it may, that'll be a negative for markets.
Speaker 1: All Right, you have, I guess founded a new holiday.
Speaker 1: How do you how do you put this into words?
Speaker 1: You have established um and inaugural National Investment Risk Management Day.
Speaker 1: What what are you trying to do increase financial literacy? Well,
Speaker 1: it started out as our head of education and Training,
Speaker 1: Dan Coleman, came up with the idea, it's actually on
Speaker 1: my birthday, which was yesterday birthday, thank you or happy
Speaker 1: after birthday? You have to say after birthtor like anyway,
Speaker 1: So and and we it was sort of a an
Speaker 1: austere suggestion that the investors should look at their portfolios
Speaker 1: and address risk. And we were talking to our PR
Speaker 1: team and I said, let's let's let's make this fun.
Speaker 1: And what I what we did is I rewrite the
Speaker 1: press release myself. And it became like, oh my god,
Speaker 1: what are we doing? And so now every year we're
Speaker 1: going to try to address what are the three stupidest
Speaker 1: investment ideas we've had. I'm gonna I'm gonna tweet out
Speaker 1: the press release for you. Phil taste from TAS Asset Management.
Speaker 1: Great having on the program, we've heard, you know, layoffs
Speaker 1: coming out of Microsoft and for layoffs coming out of Amazon. Um,
Speaker 1: what's the furniture wayfair? There you go? So tons of
Speaker 1: these West Coast companies. Let's bring an Aora Runna right now.
Speaker 1: He covers tech for Bloomberg Intelligence. Don what what are
Speaker 1: we seeing in tech? Is it fair to say that
Speaker 1: this is the beginning of a wave of layoffs. I
Speaker 1: don't know if it's a beginning or be out of
Speaker 1: the middle eanning. But you know, if you look at
Speaker 1: it over the last three to five years, a lot
Speaker 1: of these companies have you know, some of them have
Speaker 1: doubled their head counts, some of them have gone even
Speaker 1: you know, more than that. And that was driven by
Speaker 1: a lot of demand that we saw in the pandemic.
Speaker 1: But if we see this year, take spending is going
Speaker 1: to slow down. Cloud businesses are going to slow down.
Speaker 1: And then if you want to maintain your margins and
Speaker 1: be you know, have the right size UM I would
Speaker 1: say workforce, you will see some layoffs. So you know,
Speaker 1: let's say the case of Microsoft, five percent decline in
Speaker 1: head count is not that big of a deal when
Speaker 1: you've doubled your head count in five years, But then
Speaker 1: what happens when is this kind of a a scenario
Speaker 1: where it's one step backwards in terms of headcount only
Speaker 1: to kind of release the valve for the next few years.
Speaker 1: Is that kind of the way to look at this.
Speaker 1: It will a lot will depend on what kind of
Speaker 1: demand we see next year or what kind of rebound
Speaker 1: will see. Now, if there is a lack of demand,
Speaker 1: then you're not going to see massive hiding going in.
Speaker 1: But if the demand comes back like we expect it will,
Speaker 1: you're going to see a massive acceleration and by our
Speaker 1: hiding at that point. Because there is a very strong
Speaker 1: quote lation of revenue growth and employee growth, it's usually
Speaker 1: you know, very close to one to one or point
Speaker 1: one to point nine. But what especially at Apple sauce um,
Speaker 1: they are sorry alphabet, they are not only laying off
Speaker 1: six and a half percent of their workforce. We saw
Speaker 1: reports on CNBC the other day that they're pushing out
Speaker 1: bonuses um and this is pretty harsh. I mean, normal people,
Speaker 1: even if you're not supposed to rely on bonuses as
Speaker 1: a way to cover living expenses. So if you all
Speaker 1: of us shudden say in the middle of January. Hey,
Speaker 1: we know you're used to getting your whole bonus now,
Speaker 1: but we're only going to give you part of it
Speaker 1: and the rest of it in two months. That screws
Speaker 1: up a lot of people's uh, you know, bill paying abilities.
Speaker 1: You would only do that if you were in some
Speaker 1: kind of trouble, wouldn't you. Um, they didn't generate a
Speaker 1: lot of free cash flow a b unlike Amazon's you know,
Speaker 1: workers in vade houses. The people who work at Google
Speaker 1: are not struggling. They make a lot of fair point,
Speaker 1: fair point. I mean, there probably are some people who
Speaker 1: don't make a ton. They're not all programs. I'm fairly
Speaker 1: fairly confident that the average compensation throughout the ecosystem is
Speaker 1: way over you know, three d four thousand dollars over there. Well,
Speaker 1: hopefully they don't have too many kids in private schools.
Speaker 1: I don't know, man, four hundred thousand still, so so
Speaker 1: let me let me back up. Let's say go three
Speaker 1: to four years. These the tech workers have had a
Speaker 1: bonanza over the last several years, from stock options to
Speaker 1: really high raises because of the shortage of labor. And
Speaker 1: I can assure you, right now even for almost every
Speaker 1: category in technology. If you break down database administrator, software engineers,
Speaker 1: um AI developers, all of them are in massive demand
Speaker 1: right now. So other industries out there, you know, whether
Speaker 1: it's energy, industries, manufacturing, anywhere, They're going to be hired
Speaker 1: without a problem. This rings a lot of bells when
Speaker 1: it comes to and you might not be able to
Speaker 1: answer this, but tell me if this is in the discourse.
Speaker 1: Here are people talking about things like immigration when it
Speaker 1: comes to hiring right now. I mean, I'm thinking, like
Speaker 1: my parents tech boom of the nineties here going into
Speaker 1: computer engineering, what happens when that immigration standard is up,
Speaker 1: dropped down or made more complicated. So I did a
Speaker 1: big report six seven years ago, um, you know about
Speaker 1: the restrictive immigration policy and what it would do and
Speaker 1: one of Trumpian policy that Biden really hasn't turned around. Yeah,
Speaker 1: I I was surprised at that. And you know, one
Speaker 1: of my predictions was Canada is going to really benefit
Speaker 1: from it. And we have seen a massive boom of
Speaker 1: immigrants and for that matter, a massive tech center near
Speaker 1: Mississauga because of that, because of a lot of the
Speaker 1: immigrants going there and creating development centers for software companies.
Speaker 1: But let me assure you this thing. You know, from
Speaker 1: a tech unemployment rate, we are still way past full employment.
Speaker 1: This you know, if if you have added let's say
Speaker 1: for Microsoft case, I'll tell you, in the last five
Speaker 1: years they've added hundred thousand people, letting go of ten
Speaker 1: thousand people is not that big of a deal in
Speaker 1: my view. All right, Well, hopefully those ten thousand people
Speaker 1: see it the same way because sound our push up.
Speaker 1: Pish I is taking full responsibility and he apologized, and
Speaker 1: I just can't imagine this generates a lot of positive
Speaker 1: sentiment towards him running the company. You know, even if
Speaker 1: you're making four a thousand, if you've got three kids
Speaker 1: and you've got a ten dollar mortgage, I mean, I
Speaker 1: realize you're living large, but it's still kind of hurty. Yeah,
Speaker 1: children are expensive. All right, We're gonna continue to talk
Speaker 1: about the layoffs on the West coast. They're really global
Speaker 1: layoffs as well as the winning quarter that Netflix had.
Speaker 1: The stock is up again six percent. Let's bring in
Speaker 1: right now. Are Bloomberg Intelligence analyst Punham Goyle joins us
Speaker 1: see a senior analyst for e commerce as well as
Speaker 1: ath leisure and off price retail. That is a hell
Speaker 1: of a round up there. And then Man Deep saying
Speaker 1: senior analyst for tech companies. He covers all those tech
Speaker 1: companies that touch the consumer like Apple, sauce. Man Deep,
Speaker 1: let me start with you, uh these layoffs from Google,
Speaker 1: and I want to get your take also on the
Speaker 1: kind of I feel like suspicious name change. I know
Speaker 1: it's been years now, but I still haven't forgiven them
Speaker 1: for it. What do you think? Well, so look at
Speaker 1: how much these companies have grown in terms of employee
Speaker 1: based Google or Alphabet, for example, has added about fifty
Speaker 1: employees in the last two years. Now. Granted they were
Speaker 1: growing out of you know, the top line growth was
Speaker 1: also north of and they're operating profits also doubled in
Speaker 1: this period. The question that you have to ask the
Speaker 1: management right now is what were they forecasting in terms of,
Speaker 1: you know, future growth. And I think that's where all
Speaker 1: these large tech companies got it wrong, in terms of
Speaker 1: just you know, what is the projected top line growth.
Speaker 1: And in the case of Alphabet specifically, it's the search
Speaker 1: business that subsidizes everything else, whether it's cloud, YouTube, their
Speaker 1: hardware ambitions, and none of those other segments actually is
Speaker 1: close to being profitable barring maybe YouTube and and so
Speaker 1: that's where I think they're realizing that search is obviously maturing,
Speaker 1: and we have all sorts of problems with the digital
Speaker 1: ad environment right now, and they just can't maintain that
Speaker 1: profitable growth anymore. And I think I mean again, in
Speaker 1: terms of the head count, it's still twelve thousand versus
Speaker 1: fifty thousand they have added in the last two years.
Speaker 1: But it just goes to show that this period, if
Speaker 1: you look back, was unprecedented in terms of tech hiring. Yeah,
Speaker 1: well man, deep it's interesting to find that this this
Speaker 1: tech story just continues to unravel at a time when
Speaker 1: almost the share prices are almost rewarded by it, and
Speaker 1: and it really comes down to a question of cost efficiency.
Speaker 1: Of course, we do feel for the folks who are
Speaker 1: getting laid off, of course, but I want to fold
Speaker 1: in the retail side of the story as well. Putam
Speaker 1: Goyle also joins us from Bloomberg Intelligence, because it's not
Speaker 1: just Alphabet that came out with this news. Wayfair also
Speaker 1: announced job cuts and put them I wonder, is it
Speaker 1: the same dynamic in the retail space that made is
Speaker 1: talking about in the tech space a little bit of
Speaker 1: it is the same. You know, if you look back
Speaker 1: to Wayfare than the number of employees they had in
Speaker 1: eighteen it was about twelve thousand, and as of the
Speaker 1: latest ten cakes about sixteen and a half thousand, So
Speaker 1: definitely yet you know, a big step up and employees
Speaker 1: and as they scale back roughly seventeen hundred and fifty
Speaker 1: employees now it's just really a measure to get cost
Speaker 1: back in line. All retailers across the board are struggling
Speaker 1: to drive profitability as sales have come off following pandemic boom,
Speaker 1: especially for Wayfare where you know, the home is where
Speaker 1: people invested at the peak of the pandemic, that's where
Speaker 1: your funds went, and Wayfare benefited from that. And as
Speaker 1: all that pulls back, even though they are in a
Speaker 1: secular shift where they will benefit from the move from
Speaker 1: stores to online, sales have dwindled and now the move
Speaker 1: is towards profitability. So for them to get to their
Speaker 1: goal of IBADA neutral this year, UM, they needed to
Speaker 1: cut these costs. They had to cut a billion and
Speaker 1: a half dollars roughly, and half of that is through
Speaker 1: the employee cuts. Well, stick with that story because I
Speaker 1: almost wondered, and Mandy, if I'll get to you in
Speaker 1: just a moment, but I almost wonder how much of
Speaker 1: these layoffs are really some sort of dynamic of one
Speaker 1: step backwards to kind of be cost efficient in the
Speaker 1: short term only to kind of prepare for mass hiring
Speaker 1: as we talked about a new economic expansion. Do you
Speaker 1: see that dynamic playing out in the retail space over
Speaker 1: the next couple of years now for rightfare, because if
Speaker 1: you look at the composition of their cost cuts to
Speaker 1: the seventeen and fifty employees that they talked about cutting today,
Speaker 1: the bulk of that is in corporate so um. You know,
Speaker 1: you can argue that when they weren't in their peak
Speaker 1: growth mode, which was largely you know, they went from
Speaker 1: one point three billion dollars in revenue to five billion
Speaker 1: dollars in twenty seventeen seventeen, and now they're approaching about
Speaker 1: twelve to thirteen billion dollars, so massive growth. But the
Speaker 1: hiring that they're pulling back isn't at the warehouse level largely,
Speaker 1: it's it's our corporate right. If you think about the
Speaker 1: number of employees that they're letting go up, So I
Speaker 1: don't I don't think that we will have another massive increase,
Speaker 1: especially also as retailers and brands are largely right now
Speaker 1: looking at automation to help alleviate some of these growing costs.
Speaker 1: You know, wages are rising, rents are rising, transportation expenses, shipping,
Speaker 1: everything is up um in multiple folds. So I think
Speaker 1: they'll just be looking at automation more as they continue
Speaker 1: to grow the business to save costs. Man, deep, is
Speaker 1: there risk um that some of these at least some
Speaker 1: of these companies and we've got a list now too
Speaker 1: long for me to mention of tech companies that are
Speaker 1: coming cutting you know, double digit thousands of jobs. Is
Speaker 1: there a risk that things go better than expected and
Speaker 1: they have to turn around and hire back again after
Speaker 1: having tarnished their reputations. I don't think so. I think
Speaker 1: this is a sort of you know, downturn where clearly
Speaker 1: in hindsight, there was a pull forward both in terms
Speaker 1: of growth and profitability, and that's why these companies ended
Speaker 1: up in this position where they overhired. So in my mind,
Speaker 1: even if we have a shallow recession or slow down
Speaker 1: and things rebound, they have learned their lesson and I
Speaker 1: doubt they're gonna do it again in terms of, you know,
Speaker 1: the hiring spree they went on, in terms of you know,
Speaker 1: just the talent wars that transpired, and and now it's
Speaker 1: the same with layoffs. Every company is doing it the
Speaker 1: same way they hired all these people. So I don't
Speaker 1: think we're going to see a return of that anytime soon.
Speaker 1: Mandy thirty seconds here very quickly. Do you see the
Speaker 1: stock market or do you share prices really benefiting from
Speaker 1: more and more of these layoffs. Well, so they will
Speaker 1: come out of this downturn. I don't know how long
Speaker 1: this is gonna be much stronger, and the businesses that
Speaker 1: do survive again, not every company is gonna be in
Speaker 1: the same position as they were before, but the ones
Speaker 1: they do survive and they're competitive of motives in tech,
Speaker 1: will be a more profitable down the line, all right,
Speaker 1: Man Deep saying senior analysts for technology at Bloomberg Intelligence
Speaker 1: and uh Punum Goyle as well, senior analysts for e
Speaker 1: commerce at Leisure and off price Retail, but really kind
Speaker 1: of techy there as well from b I great to
Speaker 1: have both of you on the program. What today for
Speaker 1: for tech for West Coast firms acting globally in terms
Speaker 1: of UM, their layoffs, in terms of their head counts.
Speaker 1: A lot of them with massive head counts. Amazon has
Speaker 1: a two million people working for him, and a lot
Speaker 1: of them with big cuts in percentage terms UM. Alphabet
Speaker 1: cutting six percent of its workforce. We're gonna continue talking
Speaker 1: about these markets were on an up trend. This is Bloomberg.
Speaker 1: We've been talking a lot this week about the reopening
Speaker 1: of China, especially as it relates to commodities. Remember the
Speaker 1: dream I had at the beginning of the week creating yeah,
Speaker 1: I had. I had this dream that I was at
Speaker 1: a diner with Jeff Curry from Goldman Sachs and we
Speaker 1: were pitching some investors on commodities because his story I
Speaker 1: thought was so good, or his premise that the reopening
Speaker 1: of China plus a not not so bad economic outlook
Speaker 1: in Europe plus a slowdown in the FED would just
Speaker 1: drive commodities prices higher. I lived through this in two
Speaker 1: thousand seven, two thousand and eight, I saw, you know,
Speaker 1: oil go up to one of barrel for West Texas
Speaker 1: Intermediate and it was pretty amazing. I want to bring
Speaker 1: in Nick stat Miller right now. He is the head
Speaker 1: of Global product over at Medley Advisors and he joins
Speaker 1: us now in the Bloomberg Interactive Broker Studio. Nick, what's
Speaker 1: your take on having had a lot of experience internationally
Speaker 1: um in the Middle East, watching what goes on in
Speaker 1: Asia on the China reopening, what does this mean for
Speaker 1: global markets? Well, thanks, Matt. We're actually a bit more
Speaker 1: optimistic than the consensus. We think full your growth in
Speaker 1: China is actually going to come in north of five percent,
Speaker 1: which is a higher than the market consensus. But this
Speaker 1: is going to be a different kind of recovery than
Speaker 1: what you've seen in China in previous times. You mentioned
Speaker 1: the post GFC recovery in China, which was very infrastructure
Speaker 1: lad an investment from government spending. But China actually already
Speaker 1: did a lot of infrastructure stimulus last year and they're
Speaker 1: unlikely to repeat that. And the housing market is getting
Speaker 1: slightly better but coming in on a pretty low base.
Speaker 1: But it's going to be consumption that's going to lead
Speaker 1: this one, which is very different. Chinese consumers have of
Speaker 1: GDP and excess savings right now, and as that economy
Speaker 1: opens up, we really look for a Chinese consumer demounts
Speaker 1: to grow quite a bit. Well, there's I think a
Speaker 1: couple of things that we shouldn't lose sight of. One
Speaker 1: is that not everybody expected China to cancel COVID zero
Speaker 1: so quickly and so soon. Um, so that's kind of
Speaker 1: a surprise to investors or it has been, you know,
Speaker 1: now a two month old surprise. But also they have
Speaker 1: been working hard to build up this Belt and Roads initiative, uh,
Speaker 1: you know, based priming trading partners, especially in Europe and Africa, Europe,
Speaker 1: the Middle Eastern Africa. What kind of dividends is that
Speaker 1: going to pay as they open up. Well, on the
Speaker 1: domestic side, I think that, you know, it did catch
Speaker 1: a lot of people off surprise by surprise, and our
Speaker 1: China analysts says that this was, you know, largely due
Speaker 1: to some domestic pressures, and so rather than trying to
Speaker 1: flatten the curve, they're basically just steepening the curve on
Speaker 1: COVID and saying, let everybody get it and let's reopen
Speaker 1: and move on. So that's the domestic story. On the
Speaker 1: foreign story, you know, the Belton Road initiative has has
Speaker 1: hit a lot of snags over the years, and especially
Speaker 1: right now, you have several African countries deep in distress,
Speaker 1: and then Pakistan and Sri Lanka, who are also pretty
Speaker 1: big beneficiaries, having some serious problems with their death sustainability.
Speaker 1: So it's probably going to be a pretty bumpy road,
Speaker 1: I would say, in terms of China's foreign investments and
Speaker 1: sort of reaping those long term dividends, at least in
Speaker 1: the short term. I don't think that they're going to
Speaker 1: see a lot of benefit fit from the Belton Road
Speaker 1: investments that they've made. Well, one of the I want
Speaker 1: to go back to Matt's dream here slash the street
Speaker 1: call from Jeff Curry. One of the reasons he's so
Speaker 1: bullish on this commodity supercycle that he he says is
Speaker 1: going to come is this idea that he's comparing the
Speaker 1: Chinese reopening specifically something similar that we saw in two
Speaker 1: two thousand nine, this kind of massive stimulus package we
Speaker 1: saw back then. Is that a fair comparison to make.
Speaker 1: Are we expecting Chinese demand, domestic demand to really come
Speaker 1: to that level? Well, I think the story is again
Speaker 1: the consumption led by the excess savings, the fact that
Speaker 1: you have, you know, the Chinese consumers who just haven't
Speaker 1: been able to travel or do a lot of things
Speaker 1: that they wanted to. So one of the places you're
Speaker 1: probably going to see a big pickup in demand is
Speaker 1: in jet fuel. And there are a lot of interesting
Speaker 1: proxy traits that our clients have been looking at to
Speaker 1: play reopening in China. One of them is to go
Speaker 1: along that TI bought because of increased tourism into Thailand.
Speaker 1: Thailand opens and Chinese consumers start getting out again. UM.
Speaker 1: But in terms of the other metals, I think because
Speaker 1: infrastructure is going to be less a part of this
Speaker 1: recovery than once you've seen back in two thousand and
Speaker 1: eight and two thousand nine, it's probably not an immediate
Speaker 1: fillip to some of the industrial commodities UM in the
Speaker 1: same way that it was in the past. But there
Speaker 1: are some you know, over the mediums from over the
Speaker 1: next decade, there's some other reasons to be quite excited
Speaker 1: about copper and some other commodities. But I don't think
Speaker 1: it's the China reopening story this year that does it.
Speaker 1: So how do you model something like that if your
Speaker 1: numbers are still perhaps a little bit confusing when it
Speaker 1: comes to the death rate, when it comes to the
Speaker 1: case counts coming out of China, how do you model
Speaker 1: a timeline. It's it's not easy, is the short answer.
Speaker 1: But I think you know around what actually happens with
Speaker 1: consumer confidence in China, because that's a big problem. You
Speaker 1: have lockdowns and then you have sort of self imposed
Speaker 1: isolation where people don't want to travel because they're afraid
Speaker 1: of catching COVID. Our China analysts seems to think that
Speaker 1: because it's just been such a long time and people
Speaker 1: have been so cooped up, and the Chinese government are
Speaker 1: really trying to push that confidence, and that this will
Speaker 1: probably happen a lot faster than some of the reopenings
Speaker 1: in the West dead and that you'll see a quicker
Speaker 1: return to normal consumer patterns. It almost feels like something
Speaker 1: we saw, I want to say, in the UK actually
Speaker 1: when everyone was so cooped up there, like you know what,
Speaker 1: we're just going to go out and revenge, revenge travel
Speaker 1: sort of. But it came it came from the came
Speaker 1: from the government as well, right there, like all right,
Speaker 1: we're done. Yeah, well even before they let the rest
Speaker 1: of the populations. What about the FED, which is such
Speaker 1: an important part of you know, the global picture. There
Speaker 1: seems to be kind of a binary bet either you
Speaker 1: believe that the FED is going to raise rates and
Speaker 1: hold them high, or you think they're going to have
Speaker 1: to cut or won't even be able to get to
Speaker 1: five all of Jeff, goodluck. What do you think over
Speaker 1: at Medley, Well, our house view is that the FED
Speaker 1: is going to get at least to five and probably
Speaker 1: five in a quarter. Uh And you know, we take
Speaker 1: the FED at their word, and all the FED officials
Speaker 1: have uniformly said that they don't anticipate to ease this year.
Speaker 1: We think the most likely condition if they do go
Speaker 1: back on that would be a significant deterioration in the
Speaker 1: labor market. But despite you know, inflation coming down and
Speaker 1: you know, bad retail sales, bad industrial production numbers out
Speaker 1: of the US, the labor market still looks really strong.
Speaker 1: So I think we're quite a ways away from seeing
Speaker 1: a labor market that's weak enough that the FED might
Speaker 1: uhum contradict themselves and end up cutting this year. So
Speaker 1: we're looking for rates to stay at five or higher
Speaker 1: end to the end of twenty three. Yeah, we We've
Speaker 1: We've gotten some pretty depressing news out of the specific
Speaker 1: companies today, um Alphabet cutting six percent of its workforce
Speaker 1: this week. You know, Microsoft cutting five percent of its workforce,
Speaker 1: Amazon laying off eighteen thousand people, But you don't see that,
Speaker 1: uh in the labor market data yet. Three and a
Speaker 1: half percent unemployment, more than ten million job openings, and
Speaker 1: the jolts. When when do we start to see that
Speaker 1: come in? I think it's gonna be a while. And
Speaker 1: you know, the big tech companies and a few of
Speaker 1: the big banks have been making headlines because of these
Speaker 1: job cuts, but it seems for the time being to
Speaker 1: be rather limited to just a couple of sectors. And
Speaker 1: then you talk to people and a lot of services
Speaker 1: industries and there's you know, just constantly talking about how
Speaker 1: hard it is to find still get employees. Yeah. So
Speaker 1: if the aggregate, it doesn't really look like a job
Speaker 1: market where people are really worried about losing their job.
Speaker 1: By the m Live question of the day, do you
Speaker 1: see evidence of a wage price spiral? No, that's what
Speaker 1: I thought. I thought that's an easy question to answer,
Speaker 1: But that was did you see it pretty? That was
Speaker 1: their question. I didn't see the question, but I I
Speaker 1: also don't see it. I have to agree with you
Speaker 1: on that one, because they're coming down. Yeah. And also
Speaker 1: I mean We've seen wages rise clearly, Um, you know,
Speaker 1: more than they have in the past, but they haven't
Speaker 1: those increases haven't even kept up with inflation. Yeah. Absolutely, Um,
Speaker 1: we think we have about a minute left with you.
Speaker 1: I've got to talked about to you about lot am here.
Speaker 1: I want to know how you play for the Argentina.
Speaker 1: Is it worth having exposure right now? Given the geo
Speaker 1: political uncertainty there well, particularly in Brazil, there's been a
Speaker 1: lot of turbulence around uh Lula taking office and of
Speaker 1: course the storming of the of the capital by a
Speaker 1: Bosonaro supporters. UM also some concerns that Lula might take
Speaker 1: a more populous tact with economic management. But our Brazil
Speaker 1: analysts thinks that these worries are a bit more a
Speaker 1: bit overblown, and then over the next few months we're
Speaker 1: going to see more orthodox policies out of Lula's new team.
Speaker 1: So we we have a fundamentally constructive view on Brazil
Speaker 1: at the moment, especially if you get a nice pickup
Speaker 1: to oil and some other commodities in the coming year.
Speaker 1: Argentina has always been sort of a difficult distress case,
Speaker 1: and we were talking about this at the break and
Speaker 1: I I just find it very hard to believe that
Speaker 1: a new government in Argentina later this year is just
Speaker 1: magically going to be able to solve all their debt problems.
Speaker 1: So I'm a bit more cautious there than i am
Speaker 1: in some of the other countries the region. Alright, great
Speaker 1: to have you on the program. Thank you so much
Speaker 1: for coming into the Bloomberg Interactive Broker studio. Always great
Speaker 1: when we can live. Nick stat Miller, um there. He
Speaker 1: is the head of Global product over at Medley Advisors.
Speaker 1: We did just get that news from the Wall Street Journal,
Speaker 1: the Federal Reserve probing Goldman's consumer business. It is moving
Speaker 1: the market, by the ways, The shares of Goldman Sachs
Speaker 1: to Denise's point, down about two point two. It was
Speaker 1: higher earlier in the session, by the way, Coming on
Speaker 1: a day that you're seeing a lot of green on
Speaker 1: the screen in the market, who better to break it
Speaker 1: all down and give us some context than our very
Speaker 1: own Wall Street correspondent, Only Bassik right here in studio,
Speaker 1: walk us through the context here. What do we need
Speaker 1: to know? So a few months ago we ourselves reported
Speaker 1: that the FED had questions about this consumer business operation
Speaker 1: at Goldman Sachs. Now, the Wall Street Journal is reporting
Speaker 1: that the probe itself has concerns around proper monitoring and
Speaker 1: control systems inside that consumer business. Now, listen, when we
Speaker 1: think about Marcus, when we think about the broader consumer
Speaker 1: business over Goldman Sacks, we have not yet really thought
Speaker 1: about it in terms of any potential compliance and audit functions. Listen.
Speaker 1: Goldman is a massive bank with some of the like
Speaker 1: the most you know, impressive lawyers in the world. Right.
Speaker 1: But um, when we did think about Marcus and consumer
Speaker 1: really the problems that have been pretty public, and David
Speaker 1: Solomon said this himself as I grew too fast, too soon. Uh,
Speaker 1: and it came at the expense of execution. So you know,
Speaker 1: really the procution or compliance, well, that execution and that's
Speaker 1: the thing, that execution of compliance, execution of profitability of
Speaker 1: the business. So that's why the compliance issue here raised
Speaker 1: by the Wall Street Journal and the Federal Reserve here,
Speaker 1: according to their reporting, is that the compliance, audit and
Speaker 1: legal functions that that would be separate from a lot
Speaker 1: of the markets reporting we've been doing. It is interesting
Speaker 1: that the FED is reviewing this business as Goldman is
Speaker 1: kind of winding it down because it's not like you know,
Speaker 1: at first, I thought, oh, they have seen the error
Speaker 1: in their way days. Um, not that I know as
Speaker 1: much about you uh, you know about it as as nothing.
Speaker 1: I know as much about it as you do. You know,
Speaker 1: you're all over this story. Um, you know, I just
Speaker 1: read your reporting. But it does seem it did seem
Speaker 1: like at first they were just closing this down because
Speaker 1: it wasn't a profitable business. It wasn't a great idea.
Speaker 1: Alison Williams has been against it since day one, and
Speaker 1: she's our chief banks analyst for Bloomberg Intelligence. On the
Speaker 1: other hand, um, it is interesting that the FED is
Speaker 1: reviewing this because it may be a different motivation for
Speaker 1: them to wind down the business. Maybe they've had problems
Speaker 1: there that we weren't aware of. Listen, they have an
Speaker 1: investor day in a couple of weeks here at the
Speaker 1: end of February. But I would say that you have
Speaker 1: to think about, you know, the other problems that Marcus
Speaker 1: has had. You said, winding down the business. You have
Speaker 1: to understand very importantly, they're not winding down the whole business.
Speaker 1: They're winding down certain parts of the business, particularly the
Speaker 1: Marcus Lending business. Another interesting part of that business is
Speaker 1: how they get rid of that port folio of loans.
Speaker 1: Is it just to wind down? Do they look to
Speaker 1: sell those loans? How does this current probe impact that.
Speaker 1: Remember this is an era under the Biden administration where
Speaker 1: we're seeing massive, massive crackdowns on the big banks, big concerns,
Speaker 1: lots of big fines from different regulatory agencies. We have
Speaker 1: Michael Barr stepping up as a supervision chair over at
Speaker 1: the Federal Reserve. The heat is on for all the banks,
Speaker 1: and so that's kind of why when you see the
Speaker 1: review Englment's consumer operations, it being a concerning thing because
Speaker 1: you know that the regulators are coming down hard. But
Speaker 1: the point I'm making here is that the whole consumer
Speaker 1: business is not winding down. There are still pieces left,
Speaker 1: and so how does this impact that go forward plan
Speaker 1: when one of the top priorities for David Solomon from
Speaker 1: his own mouth is to make that unit profiti profitable.
Speaker 1: So that's the Wall Street perspective. Let's bring in uh
Speaker 1: senior litigation analysts for Bloomberg Intelligence, Elliot Stein on kind
Speaker 1: of the legal perspective of this. Elliot, your initial take, Well,
Speaker 1: it's still pretty early you know, to know exactly what
Speaker 1: the and on. But I think, you know, the concern
Speaker 1: probably is that in the way uh you know, the
Speaker 1: c STV is cracked down on the Wells Fargo and
Speaker 1: you know before that we saw occ fines against City
Speaker 1: Bank all related to retail operations. You know, I think
Speaker 1: the concern here is, you know what, what's the magnitude
Speaker 1: of what they said is looking at um, But it's
Speaker 1: still very early to say, you know, I would say that, um,
Speaker 1: you know, just it's the concern is that there's going
Speaker 1: to be some sort of like acid cap imposed that
Speaker 1: you know, well spargo has to suffer through, is suffering through. Um.
Speaker 1: You know, it doesn't seem like it would escalate to
Speaker 1: that level based on what we've seen so quick. But
Speaker 1: again it's still very early and we don't have a
Speaker 1: complete picture. What is Elliott Just generally the problem that
Speaker 1: regulators have with these consumer businesses, what what are they
Speaker 1: doing wrong with regards to consumer That's not sitting right
Speaker 1: with Washington. Yeah, Well, you know what we saw with
Speaker 1: Wells and City was that you know, um that you know,
Speaker 1: consumers brought complaints to the bank. Um. You know those
Speaker 1: complaints were not um, addressed properly. But there's just not
Speaker 1: enough robust compliance to SERMOS monitoring systems to make sure
Speaker 1: that that consumers are protected. And and you know we
Speaker 1: saw that with the Worlds Fargo penalty and again with
Speaker 1: the City Bank penalty a couple of years before that.
Speaker 1: But do you know of any concerns that consumers have
Speaker 1: brought with regards to Goldman, Sachs, Marcus, the Apple card um,
Speaker 1: with that consumer part of the business. I haven't seen it, um,
Speaker 1: you know, And like I said, you know that that's
Speaker 1: the kind of stuff that that we may get more
Speaker 1: reporting on and then we'll have a better sense. Um.
Speaker 1: You know. One thing I haven't done, but that's been
Speaker 1: me I'll do after this call is you know, the
Speaker 1: CFTD does keep a uh a database of complaints, so
Speaker 1: and you can usually see, um, you know, which companies
Speaker 1: were named in them. So UM, you know, I may
Speaker 1: take a look at that, um. But again this is
Speaker 1: the Federal Reserve. Although you know, Bloomberg News did report
Speaker 1: um I think a few months ago that that this yes,
Speaker 1: tob is also looking at Goldman with respect to cedit cards. Um.
Speaker 1: And but it was also reported in that article. You
Speaker 1: know that Goldman is is cooperating with those that investigation,
Speaker 1: and I assume they're cooperating extensively with the feed investigation
Speaker 1: as well, so that will also help any potential fall that. Yeah,
Speaker 1: I mean, I think that CFPB investigation that Goldman had
Speaker 1: disclosed last summer is an interesting and important this idea
Speaker 1: that and remember this is a separate set of issues
Speaker 1: from the Federal Reserve. We said, that's audit, that is compliance,
Speaker 1: but the CFPB it reports to remind listeners. That's the
Speaker 1: Consumer Financial Protection Bureau that was set up in the
Speaker 1: wake of the financial crisis. You mean, that's not an
Speaker 1: ordinary acronym these days, I think to give everybody the acronyms,
Speaker 1: will you call if you have a problem with a bank?
Speaker 1: Your bank? And so that that organization really spearheaded by
Speaker 1: Elizabeth Warren in the wake of the financial crisis. As
Speaker 1: you say, um, they're investigating, according to Goldman's disclosure last summer,
Speaker 1: how the bank resolves bills, refunds cardholders, advertises its cards.
Speaker 1: I think another interesting thing that this happened years ago,
Speaker 1: but I want to point it out still is that
Speaker 1: there was a lot of questions and because it's not
Speaker 1: the first time, of course, that the consumer business has
Speaker 1: come under pressure. I don't know if you remember we
Speaker 1: broke a couple of years ago about the question of
Speaker 1: any potential discriminate oratory practices there with the technology. They
Speaker 1: were cleared of that, um, but you know, this is
Speaker 1: definitely a business that has come under pressure over time.
Speaker 1: All right. Elliott Steinum are legal analyst Bloomberg Intelligence, UH
Speaker 1: Legal Analysts, and Snelly Bassik are Chief Wall Street correspondent.
Speaker 1: Thanks very much for joining us on this breaking news
Speaker 1: the FED looking into goldman Sacks consumer business. Thanks for
Speaker 1: listening to the Bloomer Markets podcast. You can subscribe and
Speaker 1: listen to interviews with Apple Podcasts or whatever podcast platform
Speaker 1: you prefer. I'm Matt Miller. I'm on Twitter at Matt
Speaker 1: Miller y three and on Fall Sweeney I'm on Twitter
Speaker 1: at pt Sweeney. Before the podcast, you can always catch
Speaker 1: us worldwide at Bloomberg Radio.