Speaker 1: This is Bloomberg Business Wait inside from the reporters and
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Speaker 1: global business, finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2: Did I the up with me? Emily Schlosser?
Speaker 3: She's chief operating officer for B and Y mailing persian
Speaker 3: here on site. Before we get into some different stuff,
Speaker 3: I want to ask you what we were.
Speaker 2: Just talking about.
Speaker 3: Yeah, because I am blown away by the number of
Speaker 3: women in senior positions here at B and my milling.
Speaker 2: Yes, how is that? Because it's not you know that
Speaker 2: it's not always the case.
Speaker 4: No, it's certainly not edge the case.
Speaker 5: No.
Speaker 6: Look, I've been in the industry a long time, and
Speaker 6: it's certainly not the case. Everywhere across the street. Bank
Speaker 6: of New York Mellon has incredible female representation at the
Speaker 6: top and within Pershing. I can tell you more than
Speaker 6: half of the members of our executive committee are female.
Speaker 7: And I did do that?
Speaker 4: How did we do it?
Speaker 6: Look, we have a really strong focus on diversity and recruiting,
Speaker 6: but I can tell you that it's largely happened organically.
Speaker 6: It's not like we have an opening and we go
Speaker 6: out and say we have to hire a woman for
Speaker 6: this role. That's never the case. But we are seeing
Speaker 6: more and more just awesome talent rising to the top
Speaker 6: that's organically female.
Speaker 2: Right, So you're staying within the organization.
Speaker 6: Within the organization, and we have more and more women
Speaker 6: kind of coming up through our ranks and being promoted
Speaker 6: within the Bank of New York Mellon and within Pershing,
Speaker 6: And we're doing a lot of kind of experienced tires
Speaker 6: that are female too.
Speaker 2: All right.
Speaker 3: So I know one thing that Matt and I really
Speaker 3: want to get into and I love coming to I've
Speaker 3: been several years to this event. So year every year
Speaker 3: you get to feel like kind of a change in
Speaker 3: tone or what's on top of mine? And I was
Speaker 3: kidding with you. Last year it was like, oh my god.
Speaker 4: Masks off and it was like together again.
Speaker 3: It was like, oh my god, I can actually talk
Speaker 3: to somebody. There was this kind of euphoria. How do
Speaker 3: you compare some of the conversations about the market environment?
Speaker 3: Last year was a tough, tough year. It feels like everywhere,
Speaker 3: So how do you compare what's being talked about this
Speaker 3: year versus kind of what we talked about last year.
Speaker 4: Yeah, number of things.
Speaker 6: So it is less like, oh my god, we're back
Speaker 6: in person together and more about I think some of
Speaker 6: the dynamics that we're seeing in the market.
Speaker 4: Jim just mentioned.
Speaker 6: Jim Crowleyard Pershing CEO just mentioned in his main stage opener,
Speaker 6: you know, the recent events in March with the regional
Speaker 6: bank crisis and the uncertainty around the debt ceiling, and
Speaker 6: what we are seeing a little bit in tempered markets
Speaker 6: with many people and more of sort of a risk
Speaker 6: off posture. I think what's really important right now is
Speaker 6: strength and stability, and so we are leaning quite heavily
Speaker 6: in with our clients on just kind of the power
Speaker 6: that Bny Mellon brings to the market, and particularly to
Speaker 6: this space in the custodial market, where having that strength
Speaker 6: and stability in your partner there so critical.
Speaker 3: All Right, I've got to bring madd in because I
Speaker 3: know he's got some great views on the markets and
Speaker 3: probably has a bunch of questions for you.
Speaker 2: Matt take it away.
Speaker 8: Well, I was wondering Emily more about your experience and
Speaker 8: your role there. What do you spend most of your
Speaker 8: time doing as chief operating officer.
Speaker 7: As chief operating.
Speaker 6: Officer, yeah, chief operating officer means something different everywhere, right,
Speaker 6: So for me, I partner very closely with Jim Crowley
Speaker 6: in leading all things pershing. Technically speaking, I oversee our
Speaker 6: operations team, our product team, our transformation office. Practically speaking,
Speaker 6: I have my hands sort of in everything, and a
Speaker 6: large part of what I'm focused on is transformational change.
Speaker 6: I've really spent my whole career driving transformational change for
Speaker 6: companies across the sector, and I suspect that that's a
Speaker 6: large part of what attracted Jim to my background when
Speaker 6: I joined here three years ago. Is you know, he
Speaker 6: had been in the CEO seat for about a year
Speaker 6: at the time, and I think he saw a lot
Speaker 6: of opportunity to continue to evolve this business, which is
Speaker 6: on awesome footing with great growth prospects, and there's a
Speaker 6: lot that we can do to change and continue to
Speaker 6: be better.
Speaker 8: So that's what do you mean by transformational change? Because
Speaker 8: that sounds like an amazing buzz phrase, but I don't
Speaker 8: really get it. Where were you and where do you
Speaker 8: want to be? What are you transforming? What are you transforming.
Speaker 6: Yeah, there is substance behind it. Let me give you
Speaker 6: a couple of examples. So one thing that we're really
Speaker 6: focused on is our service and we've been embarking on
Speaker 6: a major transformation of our service model. It's multifaceted. One
Speaker 6: of the aspects is to re engineer the processes that
Speaker 6: are hardest for our clients, so things like asset movements
Speaker 6: and account openings. We're totally reworking those processes. And then
Speaker 6: we're also reworking our service operating model, so the way
Speaker 6: that our service individuals actually cover our clients, or the
Speaker 6: way that we're structured when our clients call in ask questions.
Speaker 6: We've set up a new model where you have a
Speaker 6: team that knows you very well and can answer most
Speaker 6: of your questions on the spot, but then you also
Speaker 6: have direct access to a really well curated set of
Speaker 6: our experts that can answer your more nuanced needs on
Speaker 6: the spot.
Speaker 2: Soon to be replaced by AI. I'm just kidding, no wonder.
Speaker 4: It's constantly being enhanced by AI.
Speaker 6: So we are actually employing AI in the tools that
Speaker 6: our service representatives have at their fingertips, so that they're
Speaker 6: better equipped to search quickly for answers that you may
Speaker 6: need when you call in, and we're putting those tools
Speaker 6: in front of our clients so that they can self
Speaker 6: serve well.
Speaker 3: Emily, I mean Matt and I spent a lot of
Speaker 3: time talking about generative AI ever since Microsoft made that
Speaker 3: announcement and that investment, But I mean AI has been
Speaker 3: part of the financial short landscape for a long time.
Speaker 3: How is it, though, that you guys are thinking about
Speaker 3: kind of the next leg and the generative AI piece
Speaker 3: of this and what it means.
Speaker 2: Were you playing with it already?
Speaker 4: We've been playing with it for a while.
Speaker 6: We have had artificial intelligence embedded in a lot of
Speaker 6: our processes and in our search, et cetera like many
Speaker 6: companies have. But with the large language models and the
Speaker 6: generative AI capabilities, you know, we're now looking at much
Speaker 6: broader functionality, like being able to have our clients search
Speaker 6: databases of their own data and be able to kind
Speaker 6: of pull out anything they want just using natural language
Speaker 6: and not having to have a coding background. We will
Speaker 6: quickly get to a place where we can be coding
Speaker 6: with natural language and imagine what that will do to
Speaker 6: the speed at which we can deliver new features and functionalities.
Speaker 6: The possibilities are just awesome, and the things that our
Speaker 6: tech teams are doing and our product teams are doing
Speaker 6: to play with the with the capabilities is really cool
Speaker 6: to see.
Speaker 8: Emily, how do you deal with an increasingly global trading world?
Speaker 8: You know, today we have been busy talking about the
Speaker 8: SEC going after Binance and coinbase based on a law
Speaker 8: that was written in nineteen forty six, back before virtual
Speaker 8: private networks even existed. So what do you do now
Speaker 8: that people can trade anywhere from anywhere from anywhere.
Speaker 6: Yeah, Look, we're constantly thinking about how we expand our
Speaker 6: reach and how we make sure that the investors who
Speaker 6: are on our platform have access through their advisors to
Speaker 6: the global markets. We have global trading capabilities, We leverage
Speaker 6: capabilities from other parts of the Bank of York Mellon.
Speaker 6: We have a really strong partnership with our Markets division
Speaker 6: to make sure that the trading access is there. So
Speaker 6: we're constantly thinking globally because our advisors that we serve,
Speaker 6: in our investors that we serve, or thinking globally.
Speaker 3: What's difficult about this environment, either as a chief operating
Speaker 3: officer or just even with the market environment. I mean,
Speaker 3: it's if you think about the stuff that investors have
Speaker 3: had to deal with just in the last year alone,
Speaker 3: it's a lot.
Speaker 4: Yeah.
Speaker 6: I think from the investor perspective, what's difficult is uncertainty.
Speaker 4: It's access to data.
Speaker 6: It's feeling like you have the right information to make
Speaker 6: the informed decisions. And I would say it's just time,
Speaker 6: the productivity in your time and not feeling like you know,
Speaker 6: you have the time to really focus. So it's having
Speaker 6: that easy access to the solutions that you're looking for.
Speaker 6: What's hard for us, and what we're constantly grappling with
Speaker 6: is the rapid pace of change and growth, right, which
Speaker 6: is an awesome problem to have, but we're just constantly
Speaker 6: thinking about how do we stay ahead of the growth
Speaker 6: in the industry in One of our major kind of
Speaker 6: pillars is that we're here to scale so that our
Speaker 6: clients can grow. Were committed that our clients will never
Speaker 6: outgrow our platform.
Speaker 3: Madam deceived a last question for you get thirty seconds.
Speaker 8: Oh that's so kind of you. All right, So do
Speaker 8: you think we're going to hit a new record right now?
Speaker 7: One minute? Yeah?
Speaker 4: Do you think about the market a new record, Well.
Speaker 8: I should say a bowl market rather than a new
Speaker 8: record twenty percent. We're almost there from our October lows
Speaker 8: or is this a fake out? A fake out? Yeah?
Speaker 6: Look, I don't have a crystal ball. I'm not the
Speaker 6: right person to obigh in on that, but what I
Speaker 6: can tell you is that.
Speaker 2: Okay, demand and enthusiasm.
Speaker 4: From what you're seeing from demand and enthusiasm.
Speaker 6: Look, the wealth market is growing significantly, Our investor base
Speaker 6: is growing significantly. Interest in advisory services is growing significantly,
Speaker 6: and we're prepared for that growth, and we're prepared for
Speaker 6: whatever the market has to throw at us.
Speaker 3: It definitely speaks to the wealth creation, certainly with a
Speaker 3: certain sector of our economy.
Speaker 4: Emily, thank you so much, Thanks Carol, thank you, Matt.
Speaker 2: Yeah, I really appreciate it. Emily Schlosser.
Speaker 3: She's chief operating officer for b and y Mail and
Speaker 3: Pershing right here on site at Insite twenty twenty three
Speaker 3: in Orlando, Florida.
Speaker 1: If you're listening to the Bloomberg Business Week podcast, catch
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Speaker 3: We're live on YouTube above Bloomberg Originals and I'm here
Speaker 3: in Orlando at B and Y Mellenen purshing insight.
Speaker 2: Matt, of course back at Blomberg headquarters in New York City.
Speaker 2: I want to get right to our guest.
Speaker 3: Interesting background, Joe de Grossa chairman and CEO at Access Capital,
Speaker 3: chairman of the private equity firm to Grossa Capital Partners.
Speaker 3: We're going to talk about pe a lot. He also
Speaker 3: co founded Quinn Residences, which is a real estate investment
Speaker 3: trust focused on the acquisition development of single family home
Speaker 3: rentals throughout the United States, which now you've passed on
Speaker 3: to another generation of your family.
Speaker 2: He's here though in Orlando. Great to have you here.
Speaker 2: Let's start big picture. Matt and I are.
Speaker 3: We've had a lot of great conversations, but kind of
Speaker 3: want to get into the weeds a little bit about
Speaker 3: kind of what's going on in sentiment in the markets.
Speaker 2: How do you see it? Because you sound like you
Speaker 2: a couple of different vantage points.
Speaker 9: Well, first of all, we have a long term view
Speaker 9: as private equity investors, so we tend not to get
Speaker 9: caught up in the day to day machinations of the market.
Speaker 9: Having said that, certainly the you know pretty significant rise
Speaker 9: in interest rates over the past year have affected all
Speaker 9: industries in our industries no different. So we're bullish certainly
Speaker 9: medium to long term. We think the next six months
Speaker 9: will be a good time to sort of wait and
Speaker 9: see what happens. But six to twelve months from now,
Speaker 9: I think it's going to be a great entry point
Speaker 9: back into private equity and private credit for that matter.
Speaker 2: What are you waiting to see happen?
Speaker 3: In other words, the good the bad, because it sounds
Speaker 3: like we have the discussions where it feels like you
Speaker 3: could go a couple of different places, right.
Speaker 9: You know, It's funny on any given day, I wake
Speaker 9: up either on the buy side or the cell side,
Speaker 9: so I have, you know, sort of mixed emotions about
Speaker 9: what's happening. But I try to stay somewhat to detach.
Speaker 9: But the reality is, when you're a borrower, the first
Speaker 9: bad thing that happens in a rising interest rate environment
Speaker 9: is your cash flows are diminished. You know, indust rates
Speaker 9: go up, cash flow get dibminished. First thing that happens
Speaker 9: is you trip on bank covenants, and banks generally like
Speaker 9: to be forgiving if they can. The next thing that
Speaker 9: happens is you actually have payment to faults. When those
Speaker 9: payment de faults occur, banks have to take action. And
Speaker 9: we're not yet at that sort of Malcolm Gladwell tipping
Speaker 9: point where we're seeing payment to faults. But when that happens,
Speaker 9: there's going to be some we believe, some for sales,
Speaker 9: particularly in the commercial real estate market, which we're paying
Speaker 9: a very close keeping a very close close eye on,
Speaker 9: and I really believe that's where the opportunity is going
Speaker 9: to be in the second half of the year. So
Speaker 9: those payment to faults start to happen.
Speaker 3: But manageable and not stressful in terms of the overall
Speaker 3: market environment.
Speaker 9: I figure you're absolutely right, it's going to be Certainly
Speaker 9: commercial real estate is a big sector in our economy,
Speaker 9: but we still have a vibrant, robust economy where you know,
Speaker 9: employment is close to an all time low. We have
Speaker 9: a very strong economy that can weather this, and we've weathered.
Speaker 9: You know, I've been in this business got since nineteen
Speaker 9: seventy nine. I started as a messenger, so I've seen
Speaker 9: multiple sites. Yeah, absolutely, and you know, time and time
Speaker 9: again it's it's time to buy. When there's the proverbial
Speaker 9: blood in the streets.
Speaker 2: Matt come on in.
Speaker 8: Yeah, I mean, Joe, if you could just explain why
Speaker 8: you're a buyer and a seller. Usually I would look
Speaker 8: at your company and imagine that you guys are lenders.
Speaker 8: What are you borrowing?
Speaker 7: Well, we're not necessarily borrowers.
Speaker 9: Now, having said that, we we look at it things
Speaker 9: sometimes to a different prism, a buy versus build prism,
Speaker 9: and we think this is an interesting time to build
Speaker 9: businesses for us. Capital is still relatively cheap when that
Speaker 9: shakeout occurs, and it will occur in the you know,
Speaker 9: on the dead side. We want to be buyers about
Speaker 9: debt and the companies that are being restructured, and personally,
Speaker 9: I've had experience, you know, buying three distressed companies and
Speaker 9: turning them around, and you know you can create an
Speaker 9: awful lot of value. So you know, we're we're up
Speaker 9: in the batter's box. We're we're watching some pitches going by.
Speaker 9: That's okay, there's no no strikeouts unless we swing, and
Speaker 9: we're waiting for the pitch to come across the transfer.
Speaker 8: So how are we gonna know? You know, private credit
Speaker 8: has been so huge over the last year. Retail investors
Speaker 8: are falling over themselves to get in and you can
Speaker 8: understand why to some extent. But after the FED has
Speaker 8: raised you know, five hundred and twenty five basis points
Speaker 8: and so many other things. You know, external factors are
Speaker 8: tightening up financial conditions. You got to start to be
Speaker 8: worried about defaults. So when are we going to start
Speaker 8: seeing that happen? What are you watching for sort of
Speaker 8: the sign posts?
Speaker 9: Well, first of all, if you're putting new money to work,
Speaker 9: this is an excellent time. Interest rates are up, covenants
Speaker 9: are far tougher than they were two or three years ago.
Speaker 9: I mean I was involved in a financing three years
Speaker 9: ago when we closed the deal in three weeks, and
Speaker 9: it was the most covenant light deal I'd ever seen.
Speaker 9: Basically we had money thrown at us and it is
Speaker 9: exactly the opposite today. So there's so much more discipline
Speaker 9: in the market. So this is time to be you know,
Speaker 9: putting cap to work in debt with new commitments. To
Speaker 9: the extent you're buying into an existing portfolio, you have
Speaker 9: to make sure they've been marked market properly. That'd be
Speaker 9: my biggest concern in someone going into a pre existing
Speaker 9: fund that there's a fair marked market. I personally believe
Speaker 9: there's there's generally a lag among sponsors between when they're
Speaker 9: willing to recognize a change in value of their investments,
Speaker 9: either up or down.
Speaker 7: So, but that reckoning's coming, That reckoning's coming.
Speaker 3: I'm curious about valuations when you are looking for you've
Speaker 3: got money to put to work, okay, more you have
Speaker 3: more money to put to work versus things you want
Speaker 3: to exit.
Speaker 7: Yes, okay.
Speaker 9: Well we're not under pressure to sell anything, so we
Speaker 9: can weather a storm.
Speaker 3: Okay, So tell me about valuations. What you're seeing in
Speaker 3: terms of the opportunities that are out there.
Speaker 9: Well, it's interesting because there's so much private equity capital
Speaker 9: out there. It's something like fourteen trillions. It's insane. There's
Speaker 9: a lot of dry power we talk about, yes, but
Speaker 9: you know a lot of it is focused that there
Speaker 9: can I ask you something please, and I.
Speaker 3: Talk about cash on the side drive. It feels like
Speaker 3: it's always out there.
Speaker 7: It is always out there.
Speaker 9: Yeah, there's always capital ready to be put to work
Speaker 9: for the right opportunity. But you know a lot of
Speaker 9: shrewd investors are saying, wait, let let's wait for this
Speaker 9: dislocation to play out. When that happens, you typically get
Speaker 9: this disconnect between what sellers expect and what buyers are
Speaker 9: willing to pay. So markets tend to freeze up in
Speaker 9: those times. And it's no different than the private equity markets.
Speaker 9: The markets freeze up, but ultimately there is capital to
Speaker 9: put to work. That capital has to be put to
Speaker 9: work in a defined period of time. You know, certainly
Speaker 9: over the next two to three years, two plus trillion
Speaker 9: has to be put to work. So it is going
Speaker 9: to go back to work. But what we're seeing at
Speaker 9: the very top among the largest private equity firms is
Speaker 9: there's no strong impetus to go public anymore. So what
Speaker 9: you see is the big guys trading private companies. The
Speaker 9: investment side, yeah, yeah, there's you know, that used to
Speaker 9: be the holy grail, you know, take a company public,
Speaker 9: because one you got liquidity, number two you got an
Speaker 9: evaluation jump. There was that arbitrage. But we don't see
Speaker 9: that today. That arbitrage isn't there. That private company value
Speaker 9: is starting to reach public company comps, and there is liquidity,
Speaker 9: not as much as you have in the public markets.
Speaker 9: But the flip side is for sponsors, the guys who
Speaker 9: can folks who control companies. You know, at the end
Speaker 9: of the day they you know, they don't want the
Speaker 9: regulatory pressure and scrutiny that comes with being public. So
Speaker 9: the trade off is stay private and sell to another
Speaker 9: private equity.
Speaker 3: But does that mean because there is so much money
Speaker 3: out there that you have money propping up maybe private
Speaker 3: entities that shouldn't be propped up, Like, what's the transparency
Speaker 3: for like it or not? Public markets? Ultimately, if things
Speaker 3: come undone right, investors certainly vote, you know.
Speaker 2: And it's very clear how they feel.
Speaker 3: But so what's the transparency and way of kind of
Speaker 3: keeping a check on those private investments?
Speaker 7: Well, well, it's very interesting.
Speaker 9: You know, good sponsors recognize that they can't be throwing
Speaker 9: good money at bad money, and sometimes you just have
Speaker 9: to let companies go and that happens, and that's life.
Speaker 9: In other cases, you could have a good company that
Speaker 9: had an overtax balan sheet and you have to step
Speaker 9: in and provide more equity. But it's an otherwise good
Speaker 9: and growing business. And as a sponsor, you have to
Speaker 9: understand the difference between the two.
Speaker 2: Matt, you want to come back.
Speaker 8: Well, I just wanted to get Joe your take on rates.
Speaker 8: I mean, when you look at the economy, when you
Speaker 8: look at the FED, what do you see right now?
Speaker 8: I think the markets are pricing in a hike in
Speaker 8: July and maybe one or two cuts before a year end.
Speaker 7: Yeah, it's interesting.
Speaker 9: You look at you know this, the Sofur curve going
Speaker 9: two years out, and you see a maturely lower rate environment.
Speaker 9: I'm not so sure that's going to happen. I'm not
Speaker 9: sure I buy that. It's funny. I was just on
Speaker 9: a call earlier today and one of our analysts was
Speaker 9: looking was building a model and pricing it off of
Speaker 9: two years out, which is like two seventy five to eighty.
Speaker 9: I said, look that that's insane. There's no way we
Speaker 9: can predicate a deal based on that. So I'm I
Speaker 9: don't think that's going to happen.
Speaker 3: Personally, what do you predicate a deal on. What do
Speaker 3: you say then to that car or employee and say
Speaker 3: you got to think more about this rate.
Speaker 9: Well, I'll tell you this that when I got into
Speaker 9: the business, it was all about financial engineering.
Speaker 7: And what do I mean by that?
Speaker 9: We were very balance sheet focused and not income statement focused,
Speaker 9: and we leveraged and we relied on that leverage to
Speaker 9: drive returns. And it's a completely different business today from
Speaker 9: when I started today. It's all about the income statement,
Speaker 9: and by that I mean driving revenues, driving EBITDA. So
Speaker 9: if you find a good business that can grow EBITDA consistently,
Speaker 9: historically and prospectively, understanding that you know, the markets change,
Speaker 9: technology is is uh, you know, is changing things pretty rapidly.
Speaker 9: But if you can find those fundamentally good businesses, you
Speaker 9: back them in. That's what we look for. And so
Speaker 9: the bottom line is if we see a business that
Speaker 9: we don't feel good about with a two hundred basis
Speaker 9: point increase in naterre strates, we're going to run from it.
Speaker 9: You're going to because it's not a fundamentally good business.
Speaker 2: All right, got it. Really enjoyed this come back.
Speaker 7: Thank you. We really enjoyed it. Thank you, Carol, Thank you, Matt.
Speaker 2: I love to have you back. Joda grossad chairman and
Speaker 2: CEO at ACX Capital.
Speaker 3: And of course chairman of private equity firm to Grosser
Speaker 3: Capital Partner. Certainly something we love talking about here at Bloomberg.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 3: Carol Master along with Matt Miller live on Bloomberg Business
Speaker 3: Week on YouTube on Bloomberg Originals. And of course we
Speaker 3: are at the World Center Marriott in Orlando at b
Speaker 3: and Ymeil and Pershing Insight Conference, and I'm delighted to
Speaker 3: have with us. Back with us is Alicia Levine, head
Speaker 3: of Investment Strategy and Equity Advisory Solutions at Bnymeil and
Speaker 3: Wealth Management.
Speaker 2: Unli like you have anything to talk about.
Speaker 10: Right, It's been really quiet this year?
Speaker 2: Oh my god?
Speaker 3: What is it when people are they say, Okay, here's
Speaker 3: what I'm most worried about.
Speaker 2: What do they talk about?
Speaker 10: So they talk about recession.
Speaker 5: Many of our clients are worried about recession and what
Speaker 5: that means for markets, given the fact that markets have
Speaker 5: been so buoyant this year and a lot of the
Speaker 5: stocks that our clients own have been terrific this year.
Speaker 5: Worried about recession, worried about inflation not coming down, yeah,
Speaker 5: and worried about the FED making a mistake so kind
Speaker 5: of all the things that we think about, right, but
Speaker 5: that's really what people are worried about. And then they
Speaker 5: want to know what they should do with their allocation.
Speaker 5: So I get this at a dinner table, I get
Speaker 5: this at a parade, I get this everywhere, like what
Speaker 5: should I be doing with my allocations? And you know,
Speaker 5: the general investor out there is concerned. They've lost money
Speaker 5: last year in the sixty forty and this year they
Speaker 5: want to know what they should do to protect themselves
Speaker 5: and to grow capital.
Speaker 10: And it's a it's a great conversation.
Speaker 2: All right, we want to know what we should do.
Speaker 3: But Matt, I want to bring you into this conversation
Speaker 3: because we've been we've been kind of counting the moment
Speaker 3: to talk to you.
Speaker 8: Yeah, for sure. So we are almost twenty percent out
Speaker 8: from the October lows, and we've passed the debt ceiling debate, right,
Speaker 8: so we're not worried about dropping another you know, twenty
Speaker 8: thirty forty percent when we default. Is there nowhere to
Speaker 8: go but up from here? Or are you worried that
Speaker 8: the FED and the drop in earnings is going to
Speaker 8: crush this market?
Speaker 10: So look, it's it's a great question.
Speaker 5: I'll say, technically, the market looks really good and the
Speaker 5: long awaited recession, you know, America's date with the recession
Speaker 5: got canceled, like the recession just.
Speaker 10: Didn't show up.
Speaker 2: Doesn't mean it won't show up.
Speaker 5: It means it doesn't mean it won't, but it does
Speaker 5: mean that until we actually see evidence of the slow down,
Speaker 5: the market can levitate higher from here.
Speaker 10: Is it a trap?
Speaker 5: Possibly? Right, Very hard to say whether it is or not.
Speaker 10: Today.
Speaker 5: I think the key thing for us is we're looking
Speaker 5: at lending, We're looking at credit in the economy. How
Speaker 5: much does credit get contracted as a result of the
Speaker 5: banking stress that we saw in March.
Speaker 10: How does that roll through?
Speaker 5: Obviously commercial real estate is sort of in focus for investors,
Speaker 5: but in the end, that's one point five trillion dollars.
Speaker 5: That is not a twenty trillion dollar economy. So there
Speaker 5: are pockets that may be weak. So far, earnings have stabilized, Matt.
Speaker 5: You know, their earnings no longer are dropping. Earnings are
Speaker 5: stabilizing and actually ticking up, which is leading to the
Speaker 5: market going higher. You know, for the last six months,
Speaker 5: earnings dropped, and they dropped, really they dropped a lot
Speaker 5: from June all the way into let's call it February March.
Speaker 3: Right, we talked Matt Write a lot about that we've
Speaker 3: already had the earnings recession.
Speaker 8: Yeah, and we still have such a strong labor market.
Speaker 8: And uh, in fact, consumers still have a lot of
Speaker 8: money left over in their bank accounts. Right, We do
Speaker 8: see them putting more and more on credit cards and
Speaker 8: that kind of worries me. Savings rates have dropped to zero.
Speaker 8: But when you look at the US consumer, Alestia, what
Speaker 8: do you see?
Speaker 5: So it is true what you say, there's somewhere between
Speaker 5: half a trillion and a trillion dollars left in fiscal stimulus.
Speaker 5: And you know the line that monitor terry policy works
Speaker 5: with long and variable lags. Turns out that fiscal policy
Speaker 5: also works with long and variable lags. So there are
Speaker 5: still extra stimulus in the system, you know.
Speaker 10: More or less.
Speaker 5: The thought is that by the end of the year,
Speaker 5: the consumer will have got, you know, kind of spent
Speaker 5: that down. Savings rates are lower because their consumers are
Speaker 5: spending from savings. I'd say the spending in the consumer
Speaker 5: side is bifurcated. Goods are not being purchased, services are
Speaker 5: being purchased. And so you look at the earnings of
Speaker 5: companies goods and retail and big box stores that sell
Speaker 5: things for your home, for instance, versus travel and leisure
Speaker 5: and hotels.
Speaker 10: You know, travel leisure and hotels are doing terrific.
Speaker 5: Right, Goods that aren't great, so they're still spending. It's
Speaker 5: just it's kind of skewed to make up for this
Speaker 5: skew three years ago during COVID, when the only thing
Speaker 5: people bought was goods.
Speaker 2: Matt, I know you've got a question I think from
Speaker 2: a listener, right, that's right.
Speaker 8: I know he's a fixed income guy too, So he
Speaker 8: writes in and asks, what's the tipping point for your
Speaker 8: clients to rotate out of stocks into fixed incomes and stocks?
Speaker 10: Right?
Speaker 8: Year to date highs and we're staring down the barrel of,
Speaker 8: you know, an eventual recession.
Speaker 10: So look, great question.
Speaker 5: I mean, as you know, as a fixed income investor,
Speaker 5: the bomb market is screaming recession, particularly the three month
Speaker 5: ten year which is the New York Fed recession indicator.
Speaker 10: Screaming recession.
Speaker 5: We actually went neutral on bonds beginning of this year.
Speaker 5: We had been underweight bonds last year, so we already
Speaker 5: told our investors. Bonds are back. We reallocated into bonds
Speaker 5: this year. We are neutral on equities because we do
Speaker 5: think that eventually the slow down will be here, whether
Speaker 5: it's a soft ish landing or kind of slower growth.
Speaker 5: We just feel that time to really go all in
Speaker 5: on equities is not here.
Speaker 10: But we're very positive on bonds.
Speaker 5: And as of course, Jennet Yellen is re filling the TGA,
Speaker 5: which I know you've talked about here. You know you'll
Speaker 5: get yields going higher on T bills and other bonds
Speaker 5: across the complex. So that's just as a great entry point.
Speaker 2: Do we dip though below on the S and P?
Speaker 3: I mean, Matt, I've been talking, excuse me a lot
Speaker 3: about the twenty percent move off the bottom for the
Speaker 3: S and P from last October.
Speaker 2: So does it hold here or so?
Speaker 5: I don't think we get back to that thirty five
Speaker 5: hundred place. Could you get back to that range? You know,
Speaker 5: we were in that thirty eight hundred to forty two hundred.
Speaker 5: We broke out of forty two hundred, which is why
Speaker 5: could go higher from here on a technical basis, if
Speaker 5: there is more of an earnings recession, if there's more
Speaker 5: of a you know, an event in the real economy.
Speaker 5: I think you could see the thirty eight thirty nine
Speaker 5: hundred again, but I don't think you go as low
Speaker 5: as you did there. The labor market's really quite extraordinary,
Speaker 5: and the consumer's holding up the economy right now, Yeah, Matt,
Speaker 5: you want to come back.
Speaker 8: Okay? What do you think when you look at sectors, Alicia?
Speaker 8: I mean, is there you know tech? I noticed today
Speaker 8: there was a selloff in all of the defensives and tech.
Speaker 8: So it's like become a safe haven? Right? What do
Speaker 8: you think when you when you look at sectors?
Speaker 7: What do you like?
Speaker 8: And what do you think of the incredible lack of breadth?
Speaker 5: So it look this is the real question, right, So
Speaker 5: how do you get to forty five hundred or forty
Speaker 5: six hundred from here? I don't think the seven horsemen
Speaker 5: can get you there? Right, So the seventh great stocks
Speaker 5: that have led us to this point. What you saw
Speaker 5: on Friday as a result of that better than expected
Speaker 5: labor report is that the cyclicals finally got going, the
Speaker 5: small cap, the banks got going, and it drove the
Speaker 5: market through that resistance at forty two hundred, and you
Speaker 5: saw it again today. So you saw the KRI the
Speaker 5: Small bank index at one point was up six percent. Today,
Speaker 5: you need to see participation in the rest of the
Speaker 5: market to have the really have the S and P
Speaker 5: move higher. Here. We like the industrials here, we like
Speaker 5: energy here, we like healthcare, we like the areas that
Speaker 5: have just lagged the entire year.
Speaker 10: Of course we love tech. How could you not like them?
Speaker 2: Because if fundamental are you liking them because of evaluation?
Speaker 5: Both fundamentals and valuations, right, So, I just think they
Speaker 5: have been laggers all year. And one thing we know
Speaker 5: about markets is when you get a skew in performance
Speaker 5: or you get something really bifurcated, there's always reversion to
Speaker 5: the mean. You can't ever time the market. But a
Speaker 5: lot of these sectors have been left for dead, all right.
Speaker 5: And just because seven stocks work doesn't mean four hundred
Speaker 5: and ninety three cans.
Speaker 2: You're not going into AI. What's going on now?
Speaker 10: We love it?
Speaker 5: No, We're always participating because we never get out of
Speaker 5: the market. But if the question is can the rest work?
Speaker 5: I think the evidence on Friday and today is you're
Speaker 5: starting to see the.
Speaker 10: Charts change right right. The market is telling you that
Speaker 10: these areas can rally.
Speaker 4: No, I agree with you.
Speaker 3: The broadening app we saw we all kind of like
Speaker 3: maybe the successful more at least of the being head
Speaker 3: of investment strategy and equity Advisoricent said, be my billing
Speaker 3: top Management.
Speaker 2: Thank you so great to see you, Carol.
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