Speaker 1: Welcome to the Bloomberg pm L Podcast. I'm Pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. We
Speaker 1: are seeing UH oil prices slump, the worst route UH
Speaker 1: in two years. Here to speak with us about what
Speaker 1: we can expect going forward and how investors are kind
Speaker 1: of positioning around this from a credit perspective. Sharam Honari,
Speaker 1: she's he's partner of black Gold Capital Management, which overseas
Speaker 1: one point to billion dollars from Houston, Texas. But he
Speaker 1: joins us from our eleven three oh studios in New York. Sharon,
Speaker 1: thank you so much for joining us. I want to
Speaker 1: get your perspective, if from you know, a credit investor standpoint,
Speaker 1: as you see oil prices dip lower, what's our biggest concern? Well,
Speaker 1: I think from our perspective, you know, we've actually had
Speaker 1: a viewpoint that the commodity would be range bound forty
Speaker 1: to sixty dollars. UH. You know, we invest up and
Speaker 1: down the capital structure of energy companies, and and from
Speaker 1: that perspective, the you know, the daily swings in oil
Speaker 1: prices don't really impact our credits as much as they
Speaker 1: probably did when oil went from a hundred ten uh,
Speaker 1: you know, just twenty six dollars a barrel. As we've seen,
Speaker 1: you know, after kind of this history doric dislocation in
Speaker 1: the in the credit markets, we've obviously seen uh, you know,
Speaker 1: rebound and in crude prices about fifty nine dollars a barrel.
Speaker 1: Companies have really been focusing on their balance sheets. They've
Speaker 1: been cutting distributions, selling assets, increasing their efficiencies. Really those
Speaker 1: are all credit positive type of actions. So from our perspective,
Speaker 1: if you look at the market today, it's obviously very
Speaker 1: challenging for energy equities in particular. Energy equities were down
Speaker 1: last year, they're down this year again. Uh. There continues
Speaker 1: to obviously be a lot of stress, uh in the
Speaker 1: energy arena, But investors at this point of really demanding
Speaker 1: you know, return on invested capital, and it's really forcing
Speaker 1: companies again to improve their balance sheets. And I think
Speaker 1: that's really a positive for credit. What is the collateral
Speaker 1: to most of this energy credit. Well, I think it
Speaker 1: depends on obviously the the type of company. But if
Speaker 1: you're you're looking at you know e, m p S,
Speaker 1: obviously it's the the assets of PDP value and oil
Speaker 1: field services a different type of dynamic. Uh. And obviously
Speaker 1: the midstream we really like the midstream space that a
Speaker 1: lot of the infrastructure that's in the ground, we really
Speaker 1: think that can't re replaced. So you're talking about the
Speaker 1: actual refineries and the pipelines or or or the assets
Speaker 1: you set assets in the ground. So is that the
Speaker 1: natural gas and the oil in the ground. Just trying
Speaker 1: to understand. Yeah, it depends on again what subsector. If
Speaker 1: you're looking at the midstream space, we're talking about process
Speaker 1: and gathering. If you're looking to exploration companies, that's really
Speaker 1: the oil and gas in the ground. So sure you
Speaker 1: were saying, uh in a note of that you put
Speaker 1: out earlier, that you think that there is an opportunity
Speaker 1: and offering financing to high yield companies, specutive great companies. Uh,
Speaker 1: that's within them one hundred to three hundred million dollar range.
Speaker 1: Can you talk a little bit about that. Yeah, I
Speaker 1: think that's really a part of the dynamic that's really
Speaker 1: changed over the last couple of years. Again, if you
Speaker 1: look at the energy space from two thousand fourteen on, obviously,
Speaker 1: you know we had two plus bankruptcies in the space.
Speaker 1: There was really a survivorship bias. Again, companies focused on
Speaker 1: their balance sheets, but a lot of banks had a
Speaker 1: tremendous amount of exposure to the energy space, and the
Speaker 1: Office of the Controller has basically forced a lot of
Speaker 1: the banks to continue to decrease their exposure. So if,
Speaker 1: for example, you look at the e MP space right now,
Speaker 1: companies there are three times plus levered. Banks really can't
Speaker 1: lend to those type of entities. And for folks like us,
Speaker 1: there's an aspect of the market where I would say
Speaker 1: hundred to three hundred million dollar type of range. There
Speaker 1: really is a scarcity of capital for those type of companies,
Speaker 1: and we're trying to fill that void. Then the beauty
Speaker 1: I think of of that smaller kind of subsid is
Speaker 1: you know, you go three hundred million above that's where
Speaker 1: people have access to the high yield markets or leverage
Speaker 1: loan market, but below that that's not really the case.
Speaker 1: Are you doing that with direct lending or with bespoke
Speaker 1: bond offerings or yeah, for us, I'll give you an example.
Speaker 1: I mean, we actually just did a direct lending deal
Speaker 1: to a company called Atlas Sands and the Permian. It's
Speaker 1: actually a company that was started by a Bud Brigham
Speaker 1: who's very well known in the energy space. They put
Speaker 1: in about two hundred million dollars worth of equally, we
Speaker 1: provided them with a hundred fifty million dollar first lane
Speaker 1: and really the success there on our part was, you know,
Speaker 1: we've we're based in Houston, we've known but in his
Speaker 1: team for ten fifteen plus years. Uh, they decided to
Speaker 1: do the deal with us rather than with other folks.
Speaker 1: So can you tell us what is the interest rate
Speaker 1: on a hundred and fifty million that you loaned that
Speaker 1: particular thing? I cannot actually share that with you. That's
Speaker 1: kind of a private transaction, but it will give us
Speaker 1: an idea then of what would be the cost to
Speaker 1: that kind of borrower and what kind of duration are
Speaker 1: we talking about? Yeah, I think for we're looking at
Speaker 1: kind of double digit type of returns. That's actually actually
Speaker 1: a five year loan for this particular transaction. So firstly,
Speaker 1: in a piece of paper, I thought it was really
Speaker 1: interesting that you're saying that regulators are still correcting down
Speaker 1: on banks and having them reduce their exposure to energy.
Speaker 1: Uh is that continuing today or that was just throughout
Speaker 1: last year. No, it's actually continuing today. I mean our
Speaker 1: offices in Houston, we have bankers coming through all all
Speaker 1: the time. You know, they're looking to partner with us
Speaker 1: to basically liquidate some of the assets that they just
Speaker 1: can't hold on their books. At what price level does
Speaker 1: it become a real problem to maintain these credits or
Speaker 1: to lend even more money to the industry. Well, I
Speaker 1: think you looked at one of one of the aspects
Speaker 1: I think that's really been changing in this industry overall
Speaker 1: is if you look at, for example, energy equities, they've
Speaker 1: been underperforming for a decade. I think a lot of
Speaker 1: investors are also taking a step back. You're seeing it also,
Speaker 1: you know New York State Pension here, the suing Exxon
Speaker 1: and the like, and they're actually divesting their assets. So
Speaker 1: I think that's part of the aspect of scarcity of
Speaker 1: capital going forward. Where there's a need, there continues to
Speaker 1: be a need. Banker stepping back. Obviously, there's a lot
Speaker 1: of private equity firms folks like US that are trying
Speaker 1: to ultimately fill that void in the market place. Thanks
Speaker 1: very much, Sharram Jnari. He's the partner of black Gold
Speaker 1: Capital Management, talking about credit and the energy markets. We
Speaker 1: are broadcasting live from the Golden Sacks ten thousand Small
Speaker 1: Business Summit at the Washington Hilton in Washington, d C.
Speaker 1: It is brought to you by Sage Business Cloud Financials,
Speaker 1: a powerful cloud accounting solution built on the Salesforce platform
Speaker 1: to empower businesses to scale without complexity. More at Sage
Speaker 1: dot com slash Financials. Uh So, I'm we're very lucky
Speaker 1: to have Katie Coach here with us. She's Global head
Speaker 1: of Fundamental Equity Client Portfolio Management at Goldman Sachs Asset Management.
Speaker 1: And Katie, before we sort of dig into what's been
Speaker 1: going on in the markets, why are you here? Um? So,
Speaker 1: First of all, thank you so much for having me
Speaker 1: on the program. Um We are here. This is the
Speaker 1: largest gathering ever in the US for small businesses. Um
Speaker 1: And we're here because at Goldman Sacks we think that
Speaker 1: it is incredibly important to support small businesses as a
Speaker 1: way to increase the overall economic health of the economy.
Speaker 1: It's a program that we've had for eight years, We've
Speaker 1: reached sixty d businesses. We're bringing those business owners and
Speaker 1: entrepreneurs education, um, and we're also giving them connections and
Speaker 1: access to capital. So Katie, I guess, um, it would
Speaker 1: be good to connect this to what we're seeing in markets.
Speaker 1: We're seeing a lot more volatility. We're seeing the specter
Speaker 1: for rising interest rates, with even so much gold in
Speaker 1: success Management predicting that UH tenure treasure YELD could go
Speaker 1: up to three point five percent in the next six months.
Speaker 1: When does this bleed into consume business small business confidence?
Speaker 1: What does this bleed into the real economy? Right? So, Um,
Speaker 1: I think we we should really separate what's happening in markets,
Speaker 1: which is about volatility. Um I would argue that actually
Speaker 1: volatility needed to normalize. No one promised that was going
Speaker 1: to be an orderly process that rarely rarely is, but
Speaker 1: it is good to get to more normal levels of
Speaker 1: volatility in markets. UM. And what I would say is
Speaker 1: that you need to separate that from what you referred
Speaker 1: to as the real economy. When we look at the markets,
Speaker 1: they're volatile, yes, but it needs to normalize. When we
Speaker 1: look at the real economy, it actually continues to be
Speaker 1: incredibly healthy. Um. And when I'm out there talking to
Speaker 1: these small business owners, they feel incredibly optimistic about the
Speaker 1: opportunities set in front of them. And that is anecdotal
Speaker 1: to these business owners. But actually the n f IB,
Speaker 1: the National Federation for Independent Businesses, came out with some
Speaker 1: data overnight where they're looking at a very broad population
Speaker 1: of small business owners and asking them the question, what
Speaker 1: you know, what is your level of optimism and is
Speaker 1: this a good time to expand businesses? And what what
Speaker 1: you see in that survey data is that we're at
Speaker 1: record high levels. Uh So Main Street is actually roaring
Speaker 1: in the US. That's extremely good news for the economy.
Speaker 1: It doesn't mean it's going to translate into perfect equity markets.
Speaker 1: There's gonna be ups and downs, as we've seen. But
Speaker 1: if you actually feel pretty good about the underlying economic
Speaker 1: trajectory here over time, that should be good for risk
Speaker 1: assets as well, Katie. Earlier today I got the chance
Speaker 1: to speak with one of the attendees here. UM. The
Speaker 1: Debka sen is the owner and operator of a classic
Speaker 1: tours collection. They're based in Redonda Beach, California, and she
Speaker 1: told me that one of the things that she has
Speaker 1: learned from these Goldman Sachs events is not just how
Speaker 1: to operate her business in her industry, but how to
Speaker 1: operate her business in her community and how she had
Speaker 1: not necessarily understood that role. And I'm wondering if you
Speaker 1: could just maybe twin that with something that Goldman Sachs
Speaker 1: is doing with the online lender Marcus, because one of
Speaker 1: the points that she made is not everything is a
Speaker 1: sales call, and that it is sometimes difficult to remember
Speaker 1: that as a small business, the sales cycle can be
Speaker 1: long and you don't know where that next sale is
Speaker 1: going to come from, right so income when we work
Speaker 1: with these businesses, it's great that she has the learned
Speaker 1: that from the ten thousand Small Business program, that she
Speaker 1: has to be a successful business but also has to
Speaker 1: be thoughtful about um how she interacts and works with
Speaker 1: the community. And I would say that that is on
Speaker 1: two levels. The first is, of course, many of these
Speaker 1: businesses are sourcing from the community for their talent, and
Speaker 1: so they're hiring locally. And one of when we look
Speaker 1: at the challenges that these small business owners point to,
Speaker 1: there's really three main ones and and and the first
Speaker 1: amongst those is attracting and retaining employees, which they're usually
Speaker 1: sourcing from the community. And so one of the solutions
Speaker 1: that we're putting forward in this program is to help
Speaker 1: people we train them on how to to find the
Speaker 1: right talent locally. But then we also think the government
Speaker 1: should step in and help give, for example, tax credits
Speaker 1: for people in terms of training employees, because when we
Speaker 1: invest in employees, were ultimately investing in the economy. So
Speaker 1: that's one thing about interacting with the community locally is
Speaker 1: about hiring. The second thing, which you pointed to, is
Speaker 1: about access to credit and capital, which continues to be
Speaker 1: a major challenge um for these small business owners. And
Speaker 1: the regulation that we've had since the financial crisis means
Speaker 1: that it's actually been more challenging for these small business
Speaker 1: owners to tap credit and capital um because they're often
Speaker 1: actually having to do that off of a personal balance
Speaker 1: sheet and that's become much more restrict credit card yes exactly.
Speaker 1: So really when you talk to these business owners, their
Speaker 1: credit cards have been their working capital, right and so
Speaker 1: the rates are high and also we've had less access
Speaker 1: to credit coming out of the crisis, and that's been
Speaker 1: a real challenge for people in scaling their businesses and
Speaker 1: so connecting it to to what we're trying to do here.
Speaker 1: We work with a lot of local organizations, UM and
Speaker 1: helping those organizations extend and make loans to small businesses
Speaker 1: because it is about retaining people. And then the other
Speaker 1: challenge which you brought up is also about access to
Speaker 1: credit to keep the business going and be able to
Speaker 1: scale it. So just really quickly, at what point will
Speaker 1: treasure yields rise enough that it will become restrictive for
Speaker 1: small businesses to borrow? Yeah, so, UM, listen, we're I
Speaker 1: think it's important to recognize we're coming off of incredibly
Speaker 1: low rates here, so three and a half percent, I
Speaker 1: get it. That sounds high to us, but in the
Speaker 1: context of a long history of the US, we've had
Speaker 1: a lot of small business development at multiples of that.
Speaker 1: So I'm actually not that worried about the treasury yields
Speaker 1: being restrictive for barring too small business owners going back
Speaker 1: to capital markets when we have a backup and yields. Obviously,
Speaker 1: that could cause a sell off not just in the
Speaker 1: bond market, but also the equity markets. So that's something
Speaker 1: to watch as it relates to to capital markets. Thank
Speaker 1: you very much for being with us. Katie Cotch is
Speaker 1: the global head of Fundamental Equity client portfolio Management for
Speaker 1: Goldman Sacks Asset Management, and I want to thank you
Speaker 1: very much for being here. As you can hear in
Speaker 1: the background, we are here with more than well, it
Speaker 1: seems like ten thousand small businesses, and one of them
Speaker 1: joins us now is Sarah Cows. She is the founder
Speaker 1: and the chief executive of Swell that's s apostrophe uh
Speaker 1: W E l L. And she's described herself as a
Speaker 1: recovering countant, but now known for her double walled, copper
Speaker 1: coated stainless steel vessels. Sarah, thanks very much for being
Speaker 1: with us. Thanks for having me today. Tell us a
Speaker 1: little bit about how you started this business. I believe
Speaker 1: thirty thou dollars and an idea that you wanted to
Speaker 1: change the way, well, the way people consume any kind
Speaker 1: of liquid, any kind of beverage, you know. I had
Speaker 1: the idea of myself as the customer and then the
Speaker 1: market from there. I thought that the world needed less
Speaker 1: single use plastic water bottles and something that looked better
Speaker 1: and worked better to carry our drinks in. Now I
Speaker 1: understand that this really came to you when you were
Speaker 1: hiking in Arizona with your mother. That's correct. I was
Speaker 1: drinking out of a water bottle that was single walls.
Speaker 1: It was hot out. My water was hot instantly, and
Speaker 1: I had this aha moment that if only I could
Speaker 1: have cold water while I was hiking and something that
Speaker 1: actually looked beautiful too, I could convert people to really
Speaker 1: using my product. So, Sarah, we talked a lot about
Speaker 1: the manufacturing process, where things are made, the whole supply change.
Speaker 1: Can you talk us through that from your business and
Speaker 1: what the challenges have been to scale up your business
Speaker 1: as you do enter more than sixty different countries exactly.
Speaker 1: I think that's one of the hardest things about scale.
Speaker 1: You know, if I was making making software or service,
Speaker 1: I might be able to have product a lot faster, um.
Speaker 1: But but honestly, our product is made in Asia. UM.
Speaker 1: The packaging has also made in Asia. It's put together there,
Speaker 1: and it's it's shipped to the US or to the
Speaker 1: point of distribution. And as you mentioned, sixty five different countries. UM,
Speaker 1: we also have about two hundred different skews in stock
Speaker 1: at any given time. So it really comes down to
Speaker 1: having a very smart analytical planning team to understanding what
Speaker 1: colors and sizes are going to be hot in what
Speaker 1: markets at what time. And I just want to mention
Speaker 1: that I believe you can spend anywhere from twenty five
Speaker 1: dollars to even hundred dollars for one of your vessels,
Speaker 1: one of your bottles, because if you like the Schowski crystals,
Speaker 1: you could probably get one of Marcus. I believe that
Speaker 1: is correct. That was a special edition that we did
Speaker 1: where the proceeds went back to charity where mission driven companies.
Speaker 1: We work with all different kinds of charities. But I
Speaker 1: have to say I was surprised at how popular those
Speaker 1: bottles were. Well, can I ask you just about how
Speaker 1: quickly trends change and how much you do have to adjust?
Speaker 1: I mean in water bottles, how how how much can
Speaker 1: things change? That's a great question. You know our original colors,
Speaker 1: so we bought some core colors, you know, our ocean blue,
Speaker 1: which was the color I started with, the teak would
Speaker 1: bottle that looks like would. Those are our course best
Speaker 1: sellers and they really do make up the bulk of
Speaker 1: our business. But what our customers love about us is
Speaker 1: we're always innovating and Oftentimes our customers become collectors. They
Speaker 1: buy the bigger one because they hold a bottle of wine,
Speaker 1: or they buy the Lily Pulletzer collaboration because it matches
Speaker 1: their handbag or maybe their sweater. Um. We have found
Speaker 1: that customers have multiples at home, they take them to work,
Speaker 1: the gym, to school, and because we're always coming out
Speaker 1: with something that's on trend or something that our customers
Speaker 1: really cove, it that we can have these collections that
Speaker 1: come in and out all the time, even though those
Speaker 1: core best sellers are really driving the business forward. Now
Speaker 1: there's some estimates that you're doing at least if that
Speaker 1: more than a hundred million dollars in sales a year.
Speaker 1: Customers include Starbucks, Whole Foods, Jay Crew. But your first
Speaker 1: customer was the Harvard Business School. That's correct. I was
Speaker 1: an alumni and I really was hoping that I would
Speaker 1: able to convince them to use my bottles and go
Speaker 1: a little plastic free on campus. And they took up
Speaker 1: your offer. Yes, and even to this day they buy
Speaker 1: a bottle for every student. Now that's all great, but
Speaker 1: there was an Oprah moment that really kind of change things.
Speaker 1: Can you tell us about that sure so UM. In
Speaker 1: the early days when I was the only employee, I
Speaker 1: was also doing PR so I marched myself to the
Speaker 1: post office with a bottle in a box and addressed
Speaker 1: it to Oprah win Free, Chicago, Illinois. It made it
Speaker 1: to her senior editor, who actually took the bottle on
Speaker 1: her family vacation to Peru. She called me and said,
Speaker 1: I love this thing. It really works. I want to
Speaker 1: put it in a magazine. And really from there, I
Speaker 1: think that was the day we turned from a project
Speaker 1: into a business. So can you talk a little bit
Speaker 1: about how you got the capital to start with the manufacturing.
Speaker 1: Who were talking earlier about the challenges of credit for
Speaker 1: small businesses, So how did you start with that? Well,
Speaker 1: you know, Beim mentioned that I was recovering accountants, so
Speaker 1: I really did care a lot in the early days
Speaker 1: about immunity economics, and I used my personal savings, so
Speaker 1: I was very careful, even though it's making a small
Speaker 1: salary as an accountant, to always put money away, and
Speaker 1: it was my nest egg. It was my my future
Speaker 1: retirement savings that I was able to use to start
Speaker 1: manufacturing UM. But my first run of of product was
Speaker 1: only three thousand pieces. Um. I had a very small
Speaker 1: apartment and that's where the inventory was kept under my
Speaker 1: kitchen table um and really part of the reason, um,
Speaker 1: you know, I didn't raise money in the beginning. I
Speaker 1: was very careful about where the product was going to
Speaker 1: be sold. Part of it was for brand, and part
Speaker 1: of it was because I just didn't have very much
Speaker 1: inventory because I couldn't afford to buy more until I
Speaker 1: sold that first batch. When you open, you opened the boutique,
Speaker 1: I believe in Palm Beach, I did what was behind
Speaker 1: that because you've gone from that single boutique now I
Speaker 1: know you just did a deal I believe with Married
Speaker 1: International and their Elements hotel chain to put the bottles
Speaker 1: in the hotel business. You know. In the early days,
Speaker 1: I wanted to get as close to the customers as
Speaker 1: I could, so having a small store, it was a
Speaker 1: bit of a pop up store for six months, just
Speaker 1: listening to customers. What do they think about the product,
Speaker 1: what colors and finishes were they looking for. But to
Speaker 1: really scale the business, I had to start thinking about
Speaker 1: those big corporate partners and understanding are they looking for
Speaker 1: sustainability In the case of Marriott and in their elements
Speaker 1: brand or you know, are they really thinking about merchandise
Speaker 1: in the case of what we're doing with Starbucks. So
Speaker 1: it's it's great to have those small independent accounts. It's
Speaker 1: really how we built the business. I'm still in about
Speaker 1: two thousand small stores in the U S. And they
Speaker 1: just like the small businesses here at the conference, they
Speaker 1: really are the backbone of our business. But to really scale,
Speaker 1: I wanted to go with some of those bigger brands, Sarah,
Speaker 1: real quick, which country have you found to be the
Speaker 1: most fertile ground outside of the US for your business
Speaker 1: right now? It's Canada if you believe that, UM. But
Speaker 1: some of the countries that we're starting to move into,
Speaker 1: for example, we're just getting started in Japan. UM they're
Speaker 1: super interested in design and they love the design that
Speaker 1: UM that we have on the bottle. So if for me,
Speaker 1: it's a bit of a surprise if if a country
Speaker 1: is either looking for us for the sustainability angle, the
Speaker 1: fashion angle, or even the design angle, everybody seems to
Speaker 1: have something else that they sort of lean into UM.
Speaker 1: And luckily with well we have so many different messages.
Speaker 1: Sarah House, thank you so much for being with us.
Speaker 1: Sarak House chief executive officer of swell s Apostrophe W
Speaker 1: E l L. Talking about how she started that business
Speaker 1: and grew it to where it is today. Talking about
Speaker 1: financials and financial markets. Right now we are seeing uh,
Speaker 1: some declines across the board in US equity markets. And
Speaker 1: to understand uh, sort of how investors ought to be
Speaker 1: thinking about this volatility and navigating it is Jack Avalin,
Speaker 1: founding partner and chief investment officer at Crescent Wealth Advisers. Jack,
Speaker 1: thank you so much for joining us. I'd love to
Speaker 1: get your take on a on a key question today,
Speaker 1: which is the economic backdrop looks good? Pretty much everybody
Speaker 1: says that at least in the short term, Um, at
Speaker 1: what point is this just evaluation story? And how long
Speaker 1: if it is, can mis continue with stocks just overpriced
Speaker 1: where they were and uh needing to reprice a bit
Speaker 1: more before they seem fair. Yeah. Everything that I've seen
Speaker 1: so far this year, at least related to this volatility
Speaker 1: is pretty much technical evaluation related. I took comfort in
Speaker 1: in seeing that, um, you know, credit conditions uh pretty
Speaker 1: much remained intact throughout the entire downdraft. So that suggests
Speaker 1: to me that you know, this isn't sickle, This isn't
Speaker 1: anything at least related to the business cycle yet. Uh,
Speaker 1: this is just simply a repricing as you as you
Speaker 1: described Jack, there are You've written that there are three
Speaker 1: types of reversals. Right, there's the technical, which you just
Speaker 1: kind of alluded to, there's the cyclical, and then there's
Speaker 1: the systemic. Right yeah, okay, so when do we know
Speaker 1: which is which? Sure? So the the cyclical it relates
Speaker 1: to the business cycle. For example, one of the things
Speaker 1: I'm a little bit concerned about now is that we're
Speaker 1: running our economy faster than our potential GDP growth. So
Speaker 1: we're essentially beating a two percent race two percent donkey
Speaker 1: into a three percent or so racehorse, and that we
Speaker 1: can do for a while until we start running out
Speaker 1: of capacity. One of the things I loved about this recovery,
Speaker 1: while it was certainly slow, it is really steady, and
Speaker 1: one that we were growing consistently at a potential GDP
Speaker 1: which is about two. When when we start ramping higher
Speaker 1: than that, then we could see excesses. And then then
Speaker 1: what we'll see in a downturn would be things like
Speaker 1: credit conditions tighten up, maybe as lenders decide that their
Speaker 1: borrowers are less likely to repay their loans. We may
Speaker 1: see a yield curve in version. We could see some
Speaker 1: inflation as we run out of capacity for either production
Speaker 1: for labor. We're already starting to see a little of
Speaker 1: that in trucking. UH. And so those are the clues
Speaker 1: that we would be looking for to say, you know what,
Speaker 1: this is now a circle called downturn, one that typically
Speaker 1: lasts a few years, not just a couple of days. So, Jack,
Speaker 1: one thing that a lot of people have been saying
Speaker 1: has driven the sell off and equities has been the
Speaker 1: increase in benchmark US treasury yields. UH. Goldman's Access Management
Speaker 1: came out overnight was talking about out seeing that yield
Speaker 1: go to three and a half percent within the next
Speaker 1: six months. Do you agree, Yeah, Unfortunately, I don't know.
Speaker 1: I don't know about timing, but I do agree. I mean,
Speaker 1: if you think about stocks and bonds, they're just generally
Speaker 1: competing for capital um. If you you know you want
Speaker 1: steady income with low risk, you want typically gravitate the bogs.
Speaker 1: If you want higher return expectations with a little more risk,
Speaker 1: then you'd go to equities. And since two thousand nine,
Speaker 1: UM bods have been tugging, you know, tugging at this
Speaker 1: tug of war against equities with one arm time behind
Speaker 1: it's back, because yields were just held artificially. ROW. One
Speaker 1: of the ways I look at that is historically the
Speaker 1: tenure treasury yield tends to track nominal GDP. Nominal GDP
Speaker 1: right now is four percent tenure treasury two point eight,
Speaker 1: So there is some more room UH for UM yields
Speaker 1: to rise. And as a result of that, equities have
Speaker 1: been winning a tug of war and has and has
Speaker 1: have commanded a premium that they would normally not enjoy
Speaker 1: if fields were higher. Jack, you got any how much
Speaker 1: cash do you have on hand for your for your investors. UM.
Speaker 1: We have not raised cash during this UH downturn, largely
Speaker 1: because again we are looked at it as more of
Speaker 1: a technical bump than anything more serious than that. So
Speaker 1: we were pretty fully invested going into two thousand and eighteen.
Speaker 1: PIM and like I said, didn't use this as an
Speaker 1: excuse to maybe get some sideline cash in, but not
Speaker 1: an excuse to get out of the market. So are
Speaker 1: you actually buying now? Yeah? When if we have opportunity
Speaker 1: to buy. We will. Uh. It's in other words, you
Speaker 1: don't see it having come already. No, I think that,
Speaker 1: you know, I will use these down drafts as buying
Speaker 1: opportunities because, like I said, I'm not seeing much follow
Speaker 1: through to any other markets yet. UM. And if you
Speaker 1: now strip away UM valuations and look at them, look
Speaker 1: at the market relative to UM, the earnings and yield
Speaker 1: I'm sorry, earnings and dividends markets about five percent over valued.
Speaker 1: I mean to me that statistical noise, We're actually back
Speaker 1: to fair value, whereas we started the first couple of
Speaker 1: days of the year between fifteen and over valued. Jack,
Speaker 1: what kind of stocks would get you interested in buying? Uh,
Speaker 1: like Apple or Facebook or what kind of stocks? Yeah?
Speaker 1: I think that. UM. You know, I'm not a stock picker,
Speaker 1: but I would say that, you know, if you're looking
Speaker 1: to trade, certainly that's where the action is on the
Speaker 1: on the downside and of course on the upside. UM.
Speaker 1: So as a long term investment, I would say, as
Speaker 1: economic growth tends to broaden out, UH, these large cap
Speaker 1: growth companies will kind of fall behind some of the
Speaker 1: more broader names like financials UH and industrials and basic
Speaker 1: materials UM. So from a sector basis, I would say
Speaker 1: that probably plays pretty well over the next four to
Speaker 1: six quarters, but over you know, as as a trade
Speaker 1: as a hunch. Uh, These large cap growth names like
Speaker 1: the you know, Amazon, Facebook, Apple, and so forth, there
Speaker 1: are interesting plays. All Right, I'm going to leave it there,
Speaker 1: but I want to thank you very much for joining us.
Speaker 1: Jack Ablin is the founding partner and the chief investment
Speaker 1: officer at Crescent Wealth Advisors. Thanks for listening to the
Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
Speaker 1: to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform
Speaker 1: you prefer. I'm pim Fox. I'm on Twitter at pim Fox.
Speaker 1: I'm on Twitter at Lisa Abramo wits one. Before the podcast,
Speaker 1: you can always catch us worldwide on Bloomberg Radio.