Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Tom Keene along
Speaker 2: with Paul Sweeney. Join us each day for insight from
Speaker 2: the best in economics, finance, investment, and international relations. You
Speaker 2: can also watch the show live on YouTube. Visit the
Speaker 2: Bloomberg Podcast channel on YouTube to see the show weekday
Speaker 2: mornings from seven to ten am Eastern from our global
Speaker 2: headquarters in New York City. Subscribe to the podcast on Apple, Spotify,
Speaker 2: or anywhere else you listen and always I'm Bloomberg Radio,
Speaker 2: the Bloomberg Terminal, and the Bloomberg Business App. We turned
Speaker 2: out of Torston Slock. Paul, you read the note, I
Speaker 2: didn't read the note. Why don't you bring in Slock
Speaker 2: of Apollo Management?
Speaker 3: Absolutely?
Speaker 4: Torson Slock joins us here. He is the Apollo partner
Speaker 4: and chief economist Torston. A lot of the parlor game
Speaker 4: here on Wall Street is when will the Federal Reserve
Speaker 4: cut interest rates in twenty twenty four and by how much?
Speaker 3: You came out with a note today saying whoa whoa, whoa,
Speaker 3: whoa whoa. There's a reasonable.
Speaker 4: Argument that they won't cut rates in twenty twenty four,
Speaker 4: tell us what you're thinking, I and I.
Speaker 1: Thanks for having me, Paul and Tom. I think that
Speaker 1: the reality now is that we can no longer ignore
Speaker 1: how much financial conditions have eased since the December thirteen
Speaker 1: FMC meeting. We have seen the stock market reaching new
Speaker 1: all time highs. Of course, every day at the moment,
Speaker 1: as we know, we're seeing credit spreads titan a lot
Speaker 1: in investment grade, in high yield in loans. We're also
Speaker 1: seeing it issuings in January, and now it looks like
Speaker 1: in February also would be the highest January and highest
Speaker 1: beginning of the year that we have had ever in history.
Speaker 1: High yield issuance has been strong, loan issuance has been strong.
Speaker 1: On top of that, IPO activity has been picking up.
Speaker 1: M and A activity has been picking up. It really
Speaker 1: is not surprising, with this significant rebound in capital markets activity,
Speaker 1: that the employment report for January was strong, and it
Speaker 1: is really also not surprising that the inflation data also
Speaker 1: was strong. So the bottom line is I think that
Speaker 1: the market now has to realize that the data is
Speaker 1: just not slowing down, and the fat pivot has given
Speaker 1: an additional tailwind to the economy. And to financial markets
Speaker 1: and financial conditions, and to capital markets, and all that
Speaker 1: is likely to continue to be supporting growth in consumer spending,
Speaker 1: in captic spending, in hiring for most likely the better
Speaker 1: part of this year.
Speaker 4: Is there a scenario for you where the Fed actually
Speaker 4: hikes rates in twenty twenty four.
Speaker 1: So I know Larry Summers and several others have been
Speaker 1: talking about this as a possible scenario. I do think
Speaker 1: that they would be reluctant and very reluctant to do that.
Speaker 1: But I do think at the same time that it's
Speaker 1: clear that the market has, on the back of the
Speaker 1: fit pivot, declared victory and said that inflation is no
Speaker 1: longer a problem. And the problem is that if indeed
Speaker 1: looking like it's becoming a problem again, you're having Obviously
Speaker 1: average hourly earnings is in the reins of four to
Speaker 1: five percent. This has to come further down. This is
Speaker 1: not consistent with a two percent inflation target. If you
Speaker 1: look at the NFIB survey, both for wage expectations and
Speaker 1: selling price expectations, they are all beginning to go up.
Speaker 1: And finally, you also have a number of other indicators
Speaker 1: that are leading in terms of what inflation is doing,
Speaker 1: and all those continue to point in particularly we look
Speaker 1: at some of the underlying trends in the trim mean
Speaker 1: and the media inization to also more upside. So the
Speaker 1: conclusion is we are simply not done fighting inflation, Turstan.
Speaker 2: The hallmark of your work at Deutsche Banking nowt Apollo
Speaker 2: has been a holistic approach to economics. What's the character
Speaker 2: of our nominal GDP? Everybody, not everybody near, everyone's got
Speaker 2: it wrong. What's the character of our animal spirit out
Speaker 2: two in three years?
Speaker 1: I think this is a really important question, Toron, because
Speaker 1: as should said, first of all, let's think about and
Speaker 1: let's evaluate our own meaning, the market's ability to forecast
Speaker 1: things going into twenty twenty three and twenty twenty four
Speaker 1: and twenty twenty three. Everyone everywhere, including most likely also
Speaker 1: the Fed, forecast the consensus. The market was saying we
Speaker 1: will have a recession, and we turn out to not
Speaker 1: have a recession. They continue strength in the economy. Surprised everyone.
Speaker 2: This year.
Speaker 1: Everyone came in and said, oh, the Fed will cut
Speaker 1: rates the six times, maybe even seven times at some
Speaker 1: point because we will get that slowed down. And now
Speaker 1: we're sitting here a few months into the year and
Speaker 1: the economy has simply not slowed down. The employment report
Speaker 1: in January, at more than three hundred thousand jobs created,
Speaker 1: was just really, really strong. So I think a very
Speaker 1: important dimension to your question, Tom is that the US
Speaker 1: economy is just incredibly diversified. It is really difficult for
Speaker 1: the Fed to cool things down. It has turned out
Speaker 1: to be that the consume is much less sensitive to
Speaker 1: rate hikes. Corporates a lessonses to rate hikes. One of
Speaker 1: the consequence the diverse, tight economy continues to do.
Speaker 2: Well, and the scale of it, folks, I think the media,
Speaker 2: and I'm guilty of this as well, does a terrible
Speaker 2: job of showing the size of the American economic experiment
Speaker 2: versus other nations. We're on Apple car Play, We're on
Speaker 2: YouTube type in Bloomberg Podcasts. We've had a huge response
Speaker 2: to YouTube. Paul and I are humbled by at least
Speaker 2: as not humbled by it. Paul and I are humbled
Speaker 2: by it. And there's a live chat there where someone
Speaker 2: just told me their mother throughout their varsity jacket and
Speaker 2: they've been in therapy for thirty eight years. Why don't
Speaker 2: you continue with Torston slock is important research note this.
Speaker 4: Morning, absolutely, Tom, we are speaking with Torston Slack Apollo
Speaker 4: partner and chief economists. Torston, just from an optics perspective,
Speaker 4: not an economics perspective, but from an optics perspective, how
Speaker 4: difficult would it be for bet Cherman Jpel not to
Speaker 4: cut rags this year after I don't know, strongly hinting
Speaker 4: in December that that was going to be the scenario.
Speaker 1: Yeah, I know, But I mean I think that the
Speaker 1: modics have been only interpreting what the Fed actually has
Speaker 1: been saying. He was at the press conference in December
Speaker 1: actually reasonably balanced. He was just saying that, well, for now,
Speaker 1: we're on holes and this was certainly the clear message.
Speaker 1: But more recently several from C members have been coming
Speaker 1: obviously out and saying, well, maybe we do need to
Speaker 1: stay higher for longer. So with that backdrop, I actually
Speaker 1: don't think that it's quite it's quite simple for the
Speaker 1: Fed to just continue to say, well, maybe the risks
Speaker 1: have now tilted more towards some more upside risk, both
Speaker 1: on both sides of the dual mandate, both when it
Speaker 1: comes to employment and when it comes to inflation. So
Speaker 1: on that front, I think that the FED communication challenge
Speaker 1: is actually much much more straightforward relative to the significant
Speaker 1: roller coaster that markets had been through from first again
Speaker 1: pricing six or seven cuts to now pricing three cuts,
Speaker 1: and maybe as the data again we had jobless claims
Speaker 1: that was wrong yesterday, we had inflation chaken up a
Speaker 1: bit high yesterday on the month and month. All that
Speaker 1: would make the market where a lot of the action
Speaker 1: and a lot of the movements needs to be.
Speaker 2: But Turstan, we're here among friends, nobody's listening. That's a Friday.
Speaker 2: Hasn't ISLM theory and aggregate demand supply theory been overwhelmed
Speaker 2: by bulk productivity across America? Hasn't basically the is curve
Speaker 2: taken over from the LM analysis?
Speaker 1: True? I mean, there's certainly a lot to think about it,
Speaker 1: because another way of saying that is this question whether
Speaker 1: was it supply that drove inflation up and now down
Speaker 1: or was it actually also demand? And the San Francisco
Speaker 1: Fed studies that have looked at this have found that
Speaker 1: indeed supply played a role. There two thirds of the
Speaker 1: increase the supply chains was because of supply chains that
Speaker 1: got clocked up and now being straightened out. But one
Speaker 1: third was demand. So that's why the issue now becomes Well,
Speaker 1: if demand did play a role, and maybe now we
Speaker 1: have more demands simply because of the wealth effect, because
Speaker 1: the stock market going up because of the easier financial conditions,
Speaker 1: then maybe we're having a shift in the ISLM curve
Speaker 1: where we now set the hand that is demand that's
Speaker 1: beginning to play a role in driving in nation higher. Yes,
Speaker 1: yesterday's story was that it was supply, but looking ahead,
Speaker 1: it looks like demand is beginning to become more important.
Speaker 2: Turston. One final question, Paul asks, Paul didn't want to
Speaker 2: be rude. Are you buy holders sell on Apple? Which
Speaker 2: way would you go?
Speaker 1: Tourst So I don't have any of you on individual stocks,
Speaker 1: but I would say that my main conclusion from an
Speaker 1: investing perspective is that if there's one thing that we
Speaker 1: should do as investors, it is to listen very carefully
Speaker 1: to what is the FED trying to tell us.
Speaker 2: And you now you're supposed to say, you're supposed to say,
Speaker 2: you have to listen to Bloomberg surveillance Bloomberg.
Speaker 1: If the Fed says they will keep right higher for longer,
Speaker 1: then they will probably keep right higher for longer. So
Speaker 1: that means front end fixed income continues to look attractive.
Speaker 2: Did we get an answer there?
Speaker 3: I'm sure you.
Speaker 2: Turston Slock, thank you so much. Un joining us now,
Speaker 2: and you know, Paul, this is the romance you've lived
Speaker 2: on the cell side. You get on the plane, it's
Speaker 2: romantic and all that. We're looking at him on YouTube here, Dan,
Speaker 2: Iives looks like you could blow him over. He's so tired.
Speaker 2: He's in Bangkok, Thailand right now. We're thrilled. I wanted
Speaker 2: to join us on an Asian tour. Dan, how long
Speaker 2: does it take you to get done with jetlag coming
Speaker 2: back from Asia?
Speaker 5: I mean, look it depends. I mean look it's these
Speaker 5: trips not too well worth it, but yeah, you always
Speaker 5: have some jet lag going in after that twenty one hours.
Speaker 2: For those of you on Apple car Play, you can
Speaker 2: just see that Ives's channeling Deborah Kerr and the King
Speaker 2: and I here, it's the same color scheme as what
Speaker 2: Deborah was doing with Yule Brenner. Dan, serious conversation now,
Speaker 2: and you are more than qualified. I understand AI and
Speaker 2: Vidia AI Microsoft. Paul explains to me they're gonna make
Speaker 2: fancy chips. Apple's not going to do that what's the
Speaker 2: AI plan you glean for Apple?
Speaker 5: Look within Cooper Tino. The next big thing I think
Speaker 5: comes out WWDC. I mean obviously German breaking the story
Speaker 5: how they ripped the band aid off on evs, but
Speaker 5: now it's all focused on AI. We believe the AI
Speaker 5: app store, a separate AI app store, will be the
Speaker 5: first step. And I think for developers that's important because
Speaker 5: for consumers, they're going to be able to now over
Speaker 5: the next one two years be buying separate AI driven
Speaker 5: apps off of an iPhone sixteen that has exclusive AI
Speaker 5: capabilities in llms built in. This is the next phase
Speaker 5: of the growth story within Cooper Tino.
Speaker 4: So Dan, I mean, I think what we've seen and
Speaker 4: you've certainly explained it to us very well over the years,
Speaker 4: that Apple doesn't feel the need to be first, even
Speaker 4: in iPhones, for example, they just need to come in
Speaker 4: with the best and most elegant product.
Speaker 3: Is that kind of the strategy we're seeing with AI.
Speaker 4: Either's certainly not first, they're certainly not leading edge, but
Speaker 4: do you fully expect them to have a play here
Speaker 4: in angle book?
Speaker 5: I mean there's two point two billion reasons. I mean,
Speaker 5: that's the amount of iOS devices for them, they don't
Speaker 5: have to be first because they have a golden install
Speaker 5: base that's unrivaled. Then clearly right now, I mean sentiment's
Speaker 5: negative on Apple out there, and I believe what the
Speaker 5: streets missing is going to be this renaissance of growth,
Speaker 5: not just AI into the Apple ecosystem, but I think
Speaker 5: it's gonna respawn just more and more upgrade opportunities we
Speaker 5: go into the next you're called twelve eight, ten months,
Speaker 5: and that's that's gonna be huge for the some of
Speaker 5: the parts. You know, Keen talked about AI in terms
Speaker 5: of Nvidium, Microsoft, but now it's the second, third, fourth
Speaker 5: derivatives of this AI revolution that hit.
Speaker 3: So, Danny, you're in Asia as we speak.
Speaker 4: What's the feeling there about China and Apple and as
Speaker 4: an end up market for Apple products going forward there?
Speaker 4: Because as you are, well, that's probably the big issue
Speaker 4: for the stock right now.
Speaker 5: Yeah, earlier this week in Hong Kong and you're in
Speaker 5: around China. It's a it's like the the video thriller,
Speaker 5: the negative the horrors show right in terms of the
Speaker 5: view right now of China tech and I think fears
Speaker 5: about just the economy and China, I think when he
Speaker 5: looks at Apple, it all comes down to what does
Speaker 5: demand look like in economy like that. We believe to
Speaker 5: that point it has started to stabilize. I believe the
Speaker 5: streets factoring in a lot more negative than we're seeing here.
Speaker 5: I think the overall sentiment right now is basically anything
Speaker 5: but China and you own us tech revolution. No one
Speaker 5: wants to be outside the bar. At ten pm, Win
Speaker 5: it goes to four am.
Speaker 2: I'm gonna talk with Paul Sweeney on this, and then
Speaker 2: we're going to go to Dan. I I want to
Speaker 2: hear from both you on this. There's got to be
Speaker 2: a point where operating officers of any visible company just
Speaker 2: get angry. Yeah, and the CFO turns to the CEO
Speaker 2: and says, look, we're modeling this out the next eighteen months,
Speaker 2: Paul Sweeney, let's do it now. Is that where Apple
Speaker 2: is now? Paul?
Speaker 3: You know, I think for China and Dan. I'll get
Speaker 3: to Dan on this.
Speaker 4: But for China, it's twenty percent of their sales, it's
Speaker 4: a huge part of their infrastructure. They have to be there.
Speaker 4: Tim Cook is over there all the time trying to
Speaker 4: make it work here. So Dan, I mean, is there
Speaker 4: a scenario where China is not, you know, a critical
Speaker 4: market for Apple.
Speaker 5: Look, I mean it's the hearts and lungs of Apple
Speaker 5: in term, not the growth of course from a supply perspective.
Speaker 5: And that's that's the reality. And I think Apple recognizes
Speaker 5: you have two hundred million iPhones in China. They've gained
Speaker 5: threeing bits of market share the last eighteen months. Just
Speaker 5: because of what they're going through. They're not throwing in
Speaker 5: the white towel.
Speaker 2: But dad, come on, let's see it for they got
Speaker 2: nobody's got a profit machine like Apple. Let's start with
Speaker 2: it basic summary here, there's almost a point where just
Speaker 2: put on Apple they go enough and do something financially
Speaker 2: to write the ship. Is that feasible?
Speaker 5: Look, I think for app anything's possible, and there was
Speaker 5: like all all options are on the table in terms
Speaker 5: of where they can navigate things. And for Apple right
Speaker 5: now they are in just a massive position of strength
Speaker 5: because of the installments, and I think they recognize cook
Speaker 5: they'll they'll navigate headwinds. And China it's again to the
Speaker 5: other side is because of what's on the horizon. It's
Speaker 5: start with the vision bro then it's Ai app store,
Speaker 5: and then it's AI with an iPhone.
Speaker 2: Get one more in here? Can I stay off the
Speaker 2: WACC in a Bulberg terminal? The return on invested capital
Speaker 2: for this dog of Coopertino is fifty five percent. I've
Speaker 2: never said that number of folks in I'm teen years exactly.
Speaker 4: Hey, Dan, real quickly, what's the prognosis here on the
Speaker 4: Apples decision to back out of the car business.
Speaker 5: I think that was just Ryan Wisner law where they
Speaker 5: to rip the band aid off focus on on AI.
Speaker 5: Obviously a decade lost, but for them, you can't keep
Speaker 5: putting good money after bad. They got focused on AI.
Speaker 5: This is no different than Zuckerberg and Meta you know,
Speaker 5: taken away from metaverse going toward AI. It's the smart
Speaker 5: move they needed to do it, and look it was.
Speaker 5: It was a painful learning lesson I think.
Speaker 2: For Cook, right, Dan, seriously, safe travels, your trooper, love
Speaker 2: what you're doing. I don't you know, I don't agree
Speaker 2: with them, but you know, small detail, Dan, the wet bush.
Speaker 2: It's not that we agree or disagree on bihled cell.
Speaker 2: Mister Reive's leading the charge for the enthusiasts YEP of
Speaker 2: artificial intelligence, and this is our technology Conversation of the month.
Speaker 2: It's March first, but we're done, Paul after mister Narrier,
Speaker 2: Antonio Nairy of HPE, their CEO, and I'm going to
Speaker 2: put up here for those of you on YouTube you
Speaker 2: can see one of my most beloved Hewlett and Packard artifacts.
Speaker 2: This is the twelve see that got me into this
Speaker 2: chair with the obligatory CFA stick around it and Sweeney's
Speaker 2: got their killer Antonio Nairy HP twelve c app on
Speaker 2: his Apple iPhone. Mister Nay, honored to have you with
Speaker 2: us today. I want to carry on from Chris Miller's
Speaker 2: wonderful Chip Wars, the battle of say Silicon Graphics coming
Speaker 2: into HPE, and all of his hot air about AI.
Speaker 2: You've got Hpe, Green Lake. How are you going to
Speaker 2: join in Vidia? In Microsoft? You're good competitors in the
Speaker 2: excitement of AI. What's the path over the next two years?
Speaker 6: Well, good one and Tom and Paul, thanks for having
Speaker 6: me today. And obviously we are living an massive inflection
Speaker 6: point where the AI, where I think you know, is
Speaker 6: the most revolution of technology or lifetime, is going to
Speaker 6: change everything the way we work with where we live.
Speaker 6: And when you think about that opportunity I think about
Speaker 6: the opportunity to change everything from a technology standpoint, but
Speaker 6: also from the business standpoint, and so US with HP
Speaker 6: Green Lake, we have a unique opportunity to democratize these
Speaker 6: AI technology to everyone because today AI has been only
Speaker 6: used for the large institution its government and academia. But
Speaker 6: going forward, enterprise have to ads those technology.
Speaker 2: I get like Sid, I get the AI idea within
Speaker 2: computer science. It's like what you've done in your leadership
Speaker 2: over the US at Hewlett Packard. But what I don't understand,
Speaker 2: and I think there's a lot of doubters when you
Speaker 2: say an HPE Greenlake you're going to unleash the potential
Speaker 2: of your people. What does it actually mean two years out.
Speaker 6: Well, it means you now a significant amount of automation
Speaker 6: and business inside that you can gather through the data
Speaker 6: and the application these technologies. We see that across multiple
Speaker 6: vectors or industries, the robotics in manufacturing, through finding cures.
Speaker 2: For major diseases.
Speaker 6: We have some amazing use cases we're working today with AI,
Speaker 6: finding an asserting a queue for Alzheimer's and dementia. You know,
Speaker 6: one of the things we're doing is trying to model
Speaker 6: entirely neural neurological brain to find what the protein is
Speaker 6: that causing those issues, but also better climate research and forecasting.
Speaker 6: But when you bring it to enterprise, it's all about
Speaker 6: productive you know, in the legal space and the finance space,
Speaker 6: in the operation space, and this large language model accelerates
Speaker 6: that set of capabilities, Antonio.
Speaker 4: What I think a lot of investors are trying to
Speaker 4: figure out here in these early innings of AI is
Speaker 4: how much of this AI spending in terms of capital
Speaker 4: expenditures is incremental or how much of it is taken
Speaker 4: away from other tech budgets.
Speaker 3: Maybe it budgets for example. What's your experience so far.
Speaker 6: Yeah, Paula, I will say AI has a life cycle
Speaker 6: from training to fine tune into inferancy. Most of the
Speaker 6: action in the last five quarters or so since we
Speaker 6: have going through this hype has been on the training side.
Speaker 6: These are companies, unique companies that are building large language
Speaker 6: models now exceeding a trillion parameters if you will, and
Speaker 6: they need a lot of compute power right to keep
Speaker 6: training and retraining the model, to reduce the cost of
Speaker 6: those models, but also to make it more accurate so
Speaker 6: you can trust it. Enterprises are in the early stages,
Speaker 6: and I don't think they're going to build the models itself.
Speaker 6: They're going to take a model, They're going to give
Speaker 6: context to the model with their data in a location
Speaker 6: where they can afford. Honestly, I think that's the why
Speaker 6: reason why grileg is important in as a service model,
Speaker 6: you only pay for what you consume. Versus are laying
Speaker 6: tens of millions of dollars of capex upfront, and then
Speaker 6: the value comes from the infancy where you deploy the model,
Speaker 6: where the data is generated so you can actually deliver
Speaker 6: the outcome, whether it's in all processing, video surveillance, or
Speaker 6: whether it is you know, in the manufacturing floor to
Speaker 6: automate processes. This is where we are in the early stages,
Speaker 6: and I think you know that's gonna you know, it's
Speaker 6: going to be one of the biggest growth in twenty
Speaker 6: four and twenty five.
Speaker 4: Antonio, you just reported earnings. You took your four year
Speaker 4: guidance down. That was in part due to the networking
Speaker 4: business leading to that miss, and that was one of
Speaker 4: your better performing businesses last year. What's changed for you
Speaker 4: in that business?
Speaker 6: You know, it's a little bit the the success we
Speaker 6: have had, right so, in the last two years, we
Speaker 6: raised our revenues in the networking business by two billion dollars.
Speaker 6: We took share from Cisco, and we have an amazing portfolio.
Speaker 6: And I just came back from all Congress. You can
Speaker 6: see the use cases of inferencing at the edge of
Speaker 6: the network, for example, the monetization of five G and
Speaker 6: private five G. But what's going on now, Customers are
Speaker 6: digesting the last two years purchases. We're very significant. We
Speaker 6: grew over forty percent year over year, and so this
Speaker 6: comes back. But this is why the merger with Juniper
Speaker 6: in the networking space is going to be a terrific
Speaker 6: addition to our portfolio and the creation for us going forward.
Speaker 2: We have time, sir for one more question. I've just
Speaker 2: got to go back and folks, full disclosures. I'm going
Speaker 2: to redo it as a book of the summer chip Wars,
Speaker 2: Chris Miller's fabulous book. Antonio Seymour Kray was with controlled
Speaker 2: data and all that, and he made a wonder computer
Speaker 2: of my childhood out of Wisconsin and Minnesota. After three mergers,
Speaker 2: Silicon Graphics and all Hewlett Packard Enterprise, which people think
Speaker 2: is stodgy, picks up one of the magic names in
Speaker 2: twenty nineteen in computers. What are you going to do
Speaker 2: with Cray excess scale?
Speaker 6: Well, I mean amazing company, amazing companies that changed the
Speaker 6: landscaping computing. Both now Cray and SGI Silicon Graphic are
Speaker 6: part of our server business delivering these amazing systems. We
Speaker 6: call it supercomputing to give a sense. Those systems today
Speaker 6: are deploying Department of Energy and have many coming online.
Speaker 6: And so our goal is to use the system to
Speaker 6: solve some of the biggest challenges, to design better engines,
Speaker 6: more sustainable solutions in the life science and climate research, sustainability.
Speaker 6: So this is why we made the investment. I think
Speaker 6: I would say, Tom, what people misunderstood when we bought Cray.
Speaker 6: We bought a company that had silicon and software, and
Speaker 6: we're able to turn that intrough a culpability. That's all
Speaker 6: these strategies. That's why we are excited about it.
Speaker 2: We're at a time antony and aary. You got to
Speaker 2: come to New York, you got to come to in
Speaker 2: our studio. I need to show you my HP twelve
Speaker 2: C mister Neary with HPE, the wonderful follow on of
Speaker 2: all the work at cult.
Speaker 7: Packard Cody, I'll come back.
Speaker 2: This is a joy out of Chicago with Bandery and
Speaker 2: Capital Management. Victoria Bills joins us with incredibly detailed notes
Speaker 2: about where we are in, what to do with money,
Speaker 2: tell us what Bandery and does exactly? What is the
Speaker 2: client tele what's your headache on a Monday morning?
Speaker 3: Oh wow?
Speaker 8: Well, personally, my headache this morning is just the jet
Speaker 8: lag getting in. But I'm super excited to be here
Speaker 8: Bannery and Capital. What we do is we're an alternative
Speaker 8: investment platform for financial advisors to access alternam investment solutions
Speaker 8: on behalf of their clients. So we're talking reads, private equity,
Speaker 8: venture capital, anything related to the private markets. Essentially, we
Speaker 8: help to be a facilitator for financial advisors.
Speaker 2: Then, what Paul and I've been talking about all this
Speaker 2: week is the valuation of private equity and credit given
Speaker 2: that there's no transparency. What transparency do you see it?
Speaker 2: Banery in on this new PAM, I write exploding industry.
Speaker 7: Ye oh absolutely.
Speaker 8: A lot of what we're seeing right now is again
Speaker 8: there is a lot of delay or lag in reporting
Speaker 8: when it comes to private equity credit. But what we
Speaker 8: try to do is we work directly with asset managers
Speaker 8: to help them understand how they can better service the
Speaker 8: financial advisory space. Financial advisors work with clients that are,
Speaker 8: for the most part, like people like myself and people
Speaker 8: like you, guys who are just looking to build on
Speaker 8: their wealth and so they want to know that their
Speaker 8: investments are safe. What we try to do is provide
Speaker 8: a lens of due diligence from an investment and operational
Speaker 8: perspective as well to help financial to help the financial
Speaker 8: advisor fully understand the scope and scale of what they're
Speaker 8: getting so.
Speaker 2: She's not worried about what the FED is going to do.
Speaker 7: Partially I am.
Speaker 8: I'm always I'm always worried about the FED. I think
Speaker 8: it's very It's always important to kind of keep what's
Speaker 8: happening in mind. And like for me, growing up, I
Speaker 8: came like I was in a I grew up in
Speaker 8: a zero interest rate environment. So now that things are
Speaker 8: up to five percent, I would say that's kind of normal.
Speaker 7: But I'm definitely assaulting.
Speaker 2: But at least some Mateo and Victoria Bills. I'm getting
Speaker 2: hammered today.
Speaker 9: These guys are just you know, the US.
Speaker 3: He her that it is thankfully so so Victoria.
Speaker 4: I was actually surprised to learn, you know, years ago,
Speaker 4: how much the average retail advisor is allocating to alternatives.
Speaker 4: I thought, but it would have been a really small number,
Speaker 4: if not zero, But I'm hearing it's meaningful. It's more
Speaker 4: than five percent of a port portfolio. For a lot
Speaker 4: of these folks talk to us about kind of what
Speaker 4: you think or what you're hearing from your clients is
Speaker 4: a is a usable allocation in a traditional sixty forty portfolio?
Speaker 3: Two alternatives?
Speaker 8: Great question. I would say, like a traditional allocation, we're
Speaker 8: looking at around ten to fifteen percent in terms of
Speaker 8: allocations to alternatives, But of course that's also contingent upon
Speaker 8: your client's risk profile, timeline, liquidity restraints. There are a
Speaker 8: lot of things that come into play outside of just
Speaker 8: what would be like a standard or like a traditional allocation.
Speaker 8: And always keep in keeping in mind again like those
Speaker 8: liquidity restraints. So one of the things that we do
Speaker 8: is we offer not only just private vehicles, but also
Speaker 8: forty ACT vehicles and forty ACT vehicles.
Speaker 3: So it was a forty ACT vehicle.
Speaker 8: So forty ACT vehicle essentially allows.
Speaker 4: For securities Exchange Act of nineteen forty yes, forty act.
Speaker 8: Okay, So Securities Exchange Act basically allows for fiduciary discretion
Speaker 8: but also higher transparency on the spectrum.
Speaker 4: One of the engining areas on the alternative side that
Speaker 4: it's just blown me away and its growth has been
Speaker 4: private credit. I mean, it's been such a hot area,
Speaker 4: and I always say, if I came back to Wall
Speaker 4: Street again, I might think about going into private credit directly.
Speaker 3: It seems like a great business.
Speaker 4: We all know about private equity, but private credit something
Speaker 4: relatively new.
Speaker 3: How do you guys think about private credit?
Speaker 8: Very positive around private credit. I'm more bullish around actually
Speaker 8: smaller levels of private credit. So when we think about
Speaker 8: the space where essentially now the interest rates have gone up.
Speaker 7: The average I would say, like.
Speaker 8: The average like business owner, someone who has like less
Speaker 8: than like a million in like revenue, they're having a
Speaker 8: difficult time finding loans from banks. So if you, for example,
Speaker 8: are trying to get non deluded capital outside of VC
Speaker 8: small credit loans, private credit private credit loans are actually
Speaker 8: a great opportunity and they're great growing space. So looking
Speaker 8: at private credit funds that have that basically work with
Speaker 8: companies that have less than about five five million or
Speaker 8: working working to provide like five million dollars in.
Speaker 4: Life and there are investment vehicles for your clients to
Speaker 4: get some exposure to that.
Speaker 8: Absolutely, yes, So we have a actually we do have
Speaker 8: a private credit vehicle on our roster right now called
Speaker 8: Meriwether Capital Group. They provide what's called the Hero Fund.
Speaker 8: And the amazing thing about is that they essentially invest
Speaker 8: in businesses within the Pacific Northwest and their mom and
Speaker 8: pops stores particularly, So these are basically small town, small
Speaker 8: time companies, but very good balance sheets, very good like
Speaker 8: debt to ibadah and essentially like they're being managed very well,
Speaker 8: but are not a client when it comes to what
Speaker 8: the traditional banks are looking for, large private credit funds
Speaker 8: would be looking for.
Speaker 2: You came out of the Babson combine. The Babson combine.
Speaker 2: It's not yeah, pound for pound, it's great and part
Speaker 2: of their courage back forty years I lily looked out
Speaker 2: a window years ago at the David Babson Institute building.
Speaker 2: But the answer is up in Wellesley Hills and you
Speaker 2: go up the road past the country Club, and here's
Speaker 2: this oasis of bigger, broader thinking. Sift that through artificial intelligence,
Speaker 2: where do you look on AI? I mean feature in Nvidio.
Speaker 2: But does everyone win an AI or is it a
Speaker 2: narrow group that you've really got to do some work on.
Speaker 8: I love this question.
Speaker 2: Okay, can I go home? I'm leaving right now, go
Speaker 2: back A.
Speaker 8: It's AI is one of those hot topics that everyone
Speaker 8: is very excited about right now without getting into like
Speaker 8: the nitty gritty details, there is a lot of Essentially,
Speaker 8: I would say that there's a lot of noise surrounding it.
Speaker 8: So true AI in the sense we're looking at companies
Speaker 8: or we're looking at essentially the ability to create more
Speaker 8: generative AI. So to me, that's where the real market
Speaker 8: is using AI tools, for example, to create better create
Speaker 8: market efficiencies, whether that's using I use AI for example
Speaker 8: or chat GBT to draft emails for myself, or can you.
Speaker 2: Use AI to draft emails?
Speaker 7: I do, yes, so well.
Speaker 8: Or and I'll even say, like, hey, I want to
Speaker 8: draft an email to say like I I look like
Speaker 8: looking for an opportunity to network, and it'll spout four
Speaker 8: paragraphs and they'll say, okay, make it one paragraph and
Speaker 8: it'll do the exact same thing but in one paragraph.
Speaker 8: And then I can even say for example, I used
Speaker 8: fun example of like using AI to basically ask the
Speaker 8: question of how do I optimize my social media things?
Speaker 8: There are a lot of things that AI.
Speaker 9: She's spouting four paragraphs. Here, here's my AI all capital letters.
Speaker 9: I can't meet at ten fifteen boom. What's AI going
Speaker 9: to do for me.
Speaker 2: On that email?
Speaker 8: It's essentially it will kind of it. I mean, when
Speaker 8: it comes to like, what do you do on that email,
Speaker 8: I'm sure there's not much that AI can do for that.
Speaker 9: Mister Bloomberg can do something for that will show me
Speaker 9: the door.
Speaker 8: But it's essentially there's a lot of opportunities in AI.
Speaker 8: But what we want to focus on more is on
Speaker 8: the generative side of AI. So while it's good for
Speaker 8: operational efficiency making certain that you're sending the right emails,
Speaker 8: trying to figure out what has tags to use where
Speaker 8: a lot of the AI tools are being used right now,
Speaker 8: is essentially to try and get around where other people
Speaker 8: weren't able to work in the space.
Speaker 2: Victoria, thank you so much having me Henryan of Chicago.
Speaker 2: Victoria Bills joins us. This morning, I got to write
Speaker 2: an email in the break good luck with spout it
Speaker 2: out four paragraphs. Longest email I've ever done is three sentences.
Speaker 2: You daily look at the front pages around the world.
Speaker 2: What do you got for the newspapers?
Speaker 7: All right, this one stuck out to me. There finally
Speaker 7: could be an IPO for athletes. This is in the
Speaker 7: New York Post. I had to read through this a
Speaker 7: few times. So it's a new investment platform. It's called Vestible.
Speaker 7: It allows fans to buy and sell shares in the
Speaker 7: future on the field earnings of college professional athlete receive
Speaker 7: federal approval to begin trading on the US stock market.
Speaker 7: Denver Broncos linebacker Baron Browning he's going to headline their
Speaker 7: IPO the week of March eighteenth. So it's really intricate
Speaker 7: as to how it works, but it's an interesting story
Speaker 7: as to how this can.
Speaker 4: So he gets a big chunk of the ip he does.
Speaker 7: He gets about eighty percent of the proceeds.
Speaker 4: From his He gets cash today. Now he's on the
Speaker 4: last year. I guess I'm a rookie contract. So he's
Speaker 4: about to go to free agency. And if he does,
Speaker 4: if I buy a share of this guy, I get
Speaker 4: a piece of his incremental upside in his new contracts
Speaker 4: Now and going forward. So that's my risk return opportunity
Speaker 4: as a shareholder.
Speaker 2: Okay, I'm looking at this. If you equitize his income,
Speaker 2: he gets a capital gains treatment out of an IPO yep,
Speaker 2: versus ordinary income as.
Speaker 3: That makes a good point. Any thinking about that, I
Speaker 3: don't know. I always thinking of taxes. Yeah, possible.
Speaker 4: Just monetizing that revenue stream going forward.
Speaker 7: So what's the depreciation exactly?
Speaker 3: That's the risk yep.
Speaker 7: Okay, good stuff, yeah, okay. We have a big pre
Speaker 7: wedding party today.
Speaker 2: Okay, is there anybody in my isle at Bloomberg not
Speaker 2: getting married? Lee's getting married. Everybody's getting married.
Speaker 3: It's amazing.
Speaker 2: They've all got Bride's marri right, Bride's Magazine, Arizona's over there,
Speaker 2: She's got Bride's Magaze, like four pages thick.
Speaker 4: Well, this this is like big time as riches man
Speaker 4: is getting married and like all the A list slubs
Speaker 4: globally all coming.
Speaker 9: Out to it.
Speaker 2: What do you got, Lisa explained, Do.
Speaker 7: You have Mukesh and Bonnie? It's his youngest son, a
Speaker 7: non m body three day celebration. Okay, this guy doesn't
Speaker 7: get married till July twelfth, but it starts today. You
Speaker 7: have people like Rihanna performing. You have American illusionist David Blaine,
Speaker 7: he's going to be performing there. You have five hundred
Speaker 7: types of dishes. But this is like big wigs showing up.
Speaker 7: We're talking about meta platforms. Mark Zuckerberg, he's going to
Speaker 7: the ding the thing, Micro's co founder Bill Gates, Black
Speaker 7: Rock co founder Larry Think you have Sundar for alphabet CEO.
Speaker 7: I mean this is like big time and it just
Speaker 7: shows like the reliance. Yes, yes, yes, isn't that worth
Speaker 7: there's one hundred and ten billion dollars you have to
Speaker 7: go Now. My question is what kind of gift? What
Speaker 7: kind of check are you handing out at this kind
Speaker 7: of wedding?
Speaker 2: Exactly? Gift? I don't know.
Speaker 3: Handlesticks always make a good gift.
Speaker 2: Hey, mine is a case in there against it that
Speaker 2: really goes well.
Speaker 7: Next, luxury skiing in the Alps, getting even.
Speaker 2: Fa Sweeny story.
Speaker 7: Yes he's gonna love this. Okay, how would you like
Speaker 7: your own ski?
Speaker 3: Butler need it?
Speaker 7: Who shows up with extra gloves boots like right there
Speaker 7: ready for you?
Speaker 2: That's called still to know.
Speaker 7: You have the helicopter for just over two grand. It
Speaker 7: could take you to a mountaintop restaurant. You can indulge
Speaker 7: in two thousand bottle of Tuscan red. You know, here's
Speaker 7: the thing. Winter are getting warmer. Let's know, they're trying
Speaker 7: to attract these big spenders. That's why they're doing the
Speaker 7: Does it matter if.
Speaker 2: The Alps I'm speaking unbriefed is running out of snow?
Speaker 3: Yeah, I mean it's every year. The question is where
Speaker 3: do you go? Do you go east to the to
Speaker 3: Europe or west in the US. And that's what people
Speaker 3: ask I'm going west in a couple of years.
Speaker 2: But I'm showing my age. You stay with me all
Speaker 2: your fossils on YouTube live. That's scene in the beginning
Speaker 2: of Charade where Carrie Grant shows up on the European
Speaker 2: and Audrey heppern is sitting there. That's all I want
Speaker 2: the Can the butler give me the coolness of Carrie
Speaker 2: Grant and Audrey.
Speaker 7: Right there at your beck and call yes.
Speaker 2: It defines for a generation European.
Speaker 3: Skiing, m skiing. It was a whole different gig. Yes,
Speaker 3: it's great.
Speaker 2: Why is it different?
Speaker 3: It's just the like, it's just the gig up in
Speaker 3: the Alps.
Speaker 4: That's just it's so international, so global, and and it's uh,
Speaker 4: it's it's not corporate like you might resorts resorts in
Speaker 4: the US, which are phenomenal, by the way, it's just
Speaker 4: a little bit different.
Speaker 2: The difference there is you got Audrey Yupper, and if
Speaker 2: you say Laurent and Aspen, you've got a guy with
Speaker 2: the Kansas City cheese jacket, right exactly.
Speaker 7: The final one go yes, because it's Friday. Martinis are
Speaker 7: having a moment. Okay, I'm shostingwhere shot. Okay, you're gonna
Speaker 7: pay more for it. Shot thirty dollars to one hundred
Speaker 7: and fifty dollars a glass. That's what they're going for
Speaker 7: places like New York. It's called loud luxury. So post
Speaker 7: a soft luxury, quiet luxury where you don't say this
Speaker 7: is like where you spend a lot and you own
Speaker 7: it and you say, I'm drinking a fifty dollars Martinia
Speaker 7: and you post it wherever you want to post it to.
Speaker 7: There's a place in Manhattan in case you want to go.
Speaker 7: Of course, it is forty five dollars a citrus martini
Speaker 7: at Illis. There's a thirty four dollars martini at Monkey
Speaker 7: Bar in Manhattan. So those are some places you can
Speaker 7: go to. It's Friday.
Speaker 3: I'm shocked.
Speaker 7: I'm no happy.
Speaker 2: I shot at tequila at the Monkey Bar, No over
Speaker 2: in fifty whatever. You sit there at the bar and
Speaker 2: they got a black and white TV up in the
Speaker 2: right of Phil Silvers from like nineteen fifty five playing,
Speaker 2: and you know you'll there'll be like some nurse there
Speaker 2: and you'll go, could I please buy you a shot
Speaker 2: at tequila? And the shot is like an old fashioned
Speaker 2: glass at the Monkey that costs three five dollars too
Speaker 2: as well. So that's what we're that's what we're doing
Speaker 2: with the martinis, right, Yes.
Speaker 7: Very expensive truffle infused vodka serve in a specialty tray
Speaker 7: with olives in there in case you want.
Speaker 2: Now, that's a nice time. They do that at the
Speaker 2: Hotel Chelsea they have the multiple they're beneath that, but
Speaker 2: not much. They're really actually exquisite. What I would say,
Speaker 2: and this is the basic thing I am interested with
Speaker 2: what you two think. I hate when they fill the
Speaker 2: martini to the brim, so sad you spill it. Yes,
Speaker 2: it's so needless. Don't everyone out there when you're pouring
Speaker 2: a beverage this weekend don't fill it to the brim now,
Speaker 2: I mean, that's a messy pro tip. That was brilliant.
Speaker 2: Can you do that series? On Monday, I go over
Speaker 2: from forty dollar Martinez, Lisa Mateo, thank you so much.
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best
Speaker 2: in economics, finance, investment, and international relations. You can also
Speaker 2: watch the show live on YouTube. Visit the Bloomberg Podcast
Speaker 2: channel on YouTube to see the show weekday mornings from
Speaker 2: seven to ten am Eastern from our global headquarters in
Speaker 2: New York City. Subscribe to the podcast on Apple, Spotify,
Speaker 2: or anywhere else you listen, and always on Bloomberg Radio,
Speaker 2: the Bloomberg Terminal, and the Bloomberg Business app.