1 00:00:00,840 --> 00:00:04,000 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 2 00:00:04,080 --> 00:00:06,960 Speaker 1: my co host Matt Miller. Every business day we bring 3 00:00:06,960 --> 00:00:11,560 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,560 --> 00:00:15,600 Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast 5 00:00:15,600 --> 00:00:18,479 Speaker 1: called Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:22,080 Speaker 1: at Bloomberg dot com slash podcast. Let's bring in right 7 00:00:22,120 --> 00:00:25,400 Speaker 1: now Frank Sorrentino. He is Shairming, CEO at Connect one Bank. 8 00:00:25,440 --> 00:00:31,560 Speaker 1: It's Nasdaq traded the ticker CNOB And Frank, Wow, what 9 00:00:31,960 --> 00:00:36,360 Speaker 1: an insane week or you know two or three? Or 10 00:00:36,800 --> 00:00:39,479 Speaker 1: how do you deal as a banker with the rates 11 00:00:39,600 --> 00:00:40,720 Speaker 1: volatility like this? 12 00:00:41,760 --> 00:00:43,720 Speaker 2: Yeah? How about a year? How about an insane year? 13 00:00:43,800 --> 00:00:44,480 Speaker 3: Yes, that's fair. 14 00:00:45,640 --> 00:00:47,480 Speaker 2: It's been an interesting environment. 15 00:00:47,800 --> 00:00:50,440 Speaker 4: You know, certainly there are lots of things that Connect 16 00:00:50,440 --> 00:00:54,480 Speaker 4: One that we try to control, but what the FED 17 00:00:54,560 --> 00:00:57,040 Speaker 4: policy is and where rates are going and how the 18 00:00:57,080 --> 00:01:00,440 Speaker 4: market reacts to those rates is something that's somewhat out 19 00:01:00,480 --> 00:01:03,279 Speaker 4: of our control. And so yeah, it's been very challenging, 20 00:01:03,400 --> 00:01:05,639 Speaker 4: not just for Connect one but for banks in general. 21 00:01:06,080 --> 00:01:09,160 Speaker 5: Frank, what sectors of the economy are you seeing actually 22 00:01:09,240 --> 00:01:13,000 Speaker 5: absorb the effects of the fed tightening and what areas 23 00:01:13,000 --> 00:01:16,760 Speaker 5: are maybe still waiting for the monetary policy lags to 24 00:01:16,880 --> 00:01:17,319 Speaker 5: kick in. 25 00:01:18,280 --> 00:01:20,320 Speaker 4: Yeah, I think when you look at it, I think 26 00:01:20,319 --> 00:01:23,840 Speaker 4: that question would be answered differently from different bankers from 27 00:01:24,000 --> 00:01:26,000 Speaker 4: different parts of the country, But certainly here in the 28 00:01:26,000 --> 00:01:30,200 Speaker 4: New York metro market at Connect one, we certainly see 29 00:01:30,280 --> 00:01:34,119 Speaker 4: that the vast majority of our clients are absorbing those 30 00:01:34,240 --> 00:01:37,520 Speaker 4: rate increases and it's showing up in lots of places 31 00:01:37,600 --> 00:01:41,320 Speaker 4: right Rents are up. If you've been to a restaurant lately, 32 00:01:41,400 --> 00:01:44,200 Speaker 4: you see that the price of a meal is up. 33 00:01:44,800 --> 00:01:46,080 Speaker 2: And I know, you know. 34 00:01:46,160 --> 00:01:49,240 Speaker 4: There's inflation component to all this, but that's part of 35 00:01:49,640 --> 00:01:53,920 Speaker 4: the rate increase, and so it's building into the economy, 36 00:01:54,000 --> 00:02:00,160 Speaker 4: and I think we're seeing it in higher prices, higher costs, 37 00:01:58,960 --> 00:02:03,640 Speaker 4: and being incorporated in every aspect of our economy. I 38 00:02:03,680 --> 00:02:07,240 Speaker 4: think our builders, for one, are for the first time 39 00:02:07,320 --> 00:02:10,639 Speaker 4: in a very long time having to figure out what 40 00:02:10,760 --> 00:02:15,040 Speaker 4: are the interest rates and what's the interest component of 41 00:02:15,080 --> 00:02:16,280 Speaker 4: a construction project. 42 00:02:16,520 --> 00:02:18,120 Speaker 2: But they really didn't have to think about that too 43 00:02:18,160 --> 00:02:20,880 Speaker 2: much in the past. So all these things are. 44 00:02:20,880 --> 00:02:27,560 Speaker 4: Leading to higher prices and definitely a more normalized environment 45 00:02:27,600 --> 00:02:28,840 Speaker 4: where interest. 46 00:02:28,639 --> 00:02:33,239 Speaker 1: Has a cost but nothing normal about the current housing market, right, 47 00:02:33,280 --> 00:02:38,640 Speaker 1: I mean in terms of residential, especially previously owned homes, 48 00:02:39,120 --> 00:02:41,680 Speaker 1: that market seems to have grind to a halt. 49 00:02:42,960 --> 00:02:46,000 Speaker 2: So connect one. We do a lot of new home building. 50 00:02:46,240 --> 00:02:50,080 Speaker 4: We don't see a lot of the mortgage refinance although 51 00:02:50,120 --> 00:02:54,240 Speaker 4: we do see some. And yes, for the existing home market, 52 00:02:54,320 --> 00:02:57,800 Speaker 4: it's a difficult place today because folks have low interest 53 00:02:57,880 --> 00:03:01,040 Speaker 4: rate loans. They really don't want to move and give 54 00:03:01,120 --> 00:03:04,359 Speaker 4: up that rate where they can't. But on the new 55 00:03:04,440 --> 00:03:09,080 Speaker 4: housing front, we do see a level of optimism. Where 56 00:03:09,240 --> 00:03:11,120 Speaker 4: As you know in the New York metro market and 57 00:03:11,160 --> 00:03:13,760 Speaker 4: by the way, as the nation, we are under housed, 58 00:03:13,840 --> 00:03:17,080 Speaker 4: right There's just not enough apartments, not enough housing units, 59 00:03:17,520 --> 00:03:20,640 Speaker 4: and so new product that's coming to the market is 60 00:03:20,760 --> 00:03:23,760 Speaker 4: able to absorb the higher costs due to inflation, the 61 00:03:23,840 --> 00:03:26,520 Speaker 4: higher cost due to interest rates, and there is a 62 00:03:26,560 --> 00:03:28,359 Speaker 4: ready market buying that product. 63 00:03:28,639 --> 00:03:32,639 Speaker 1: We hear all the time that builders offer incentives. You know, 64 00:03:32,680 --> 00:03:35,440 Speaker 1: they're buying down points or they're giving lower rates. And 65 00:03:35,480 --> 00:03:38,160 Speaker 1: I heard I was talking to a land developer the 66 00:03:38,240 --> 00:03:42,120 Speaker 1: other day who said they are giving builders incentives, and 67 00:03:42,160 --> 00:03:45,080 Speaker 1: I thought, you know, where does the buck stop, because 68 00:03:45,840 --> 00:03:48,440 Speaker 1: obviously at some point somebody's got to pay the price. 69 00:03:50,240 --> 00:03:53,080 Speaker 2: The end consumer pays the price, right, So with. 70 00:03:53,240 --> 00:03:58,440 Speaker 4: Certainly seeing prices have somewhat leveled off relative to new 71 00:03:58,600 --> 00:03:59,280 Speaker 4: home product. 72 00:03:59,320 --> 00:04:01,760 Speaker 2: We're also seeing it in the rental market. 73 00:04:01,800 --> 00:04:04,760 Speaker 4: Rents continue to go up over the last couple of 74 00:04:04,840 --> 00:04:09,360 Speaker 4: years at a pretty drastic clip. We are, however, starting 75 00:04:09,360 --> 00:04:12,480 Speaker 4: to see that level off and there are some places 76 00:04:12,520 --> 00:04:14,640 Speaker 4: where we are seeing some level of concessions. 77 00:04:15,520 --> 00:04:18,640 Speaker 2: So I do think we're getting to a more normalized place. 78 00:04:18,640 --> 00:04:20,440 Speaker 6: And I think that's part of the message that came 79 00:04:20,480 --> 00:04:23,280 Speaker 6: out of the FED is that the economy is beginning, 80 00:04:23,320 --> 00:04:27,600 Speaker 6: as you first question you asked, beginning to absorb a 81 00:04:27,600 --> 00:04:29,560 Speaker 6: more normalized rate environment. 82 00:04:30,520 --> 00:04:33,000 Speaker 5: Your notes it says that you think the economy is 83 00:04:33,040 --> 00:04:37,080 Speaker 5: on a soft landing trajectory. I'm wondering what you see, 84 00:04:37,120 --> 00:04:39,159 Speaker 5: as the CEO of a bank that deals with small 85 00:04:39,200 --> 00:04:41,760 Speaker 5: businesses and deals with lenders, what are you seeing that 86 00:04:41,800 --> 00:04:45,720 Speaker 5: maybe some of the other Wall Street prognosticators that are 87 00:04:45,760 --> 00:04:48,040 Speaker 5: still calling for recession are missing. 88 00:04:49,200 --> 00:04:49,360 Speaker 2: Well. 89 00:04:49,360 --> 00:04:52,919 Speaker 4: Look, I start with employment, and in all the markets 90 00:04:52,960 --> 00:04:57,599 Speaker 4: that connect one serves, we're seeing a shortage of people 91 00:04:57,920 --> 00:05:03,159 Speaker 4: to fill jobs. We're seeing very very low unemployment. We're 92 00:05:03,160 --> 00:05:08,240 Speaker 4: seeing a strong labor market overall rising wages, and that 93 00:05:08,320 --> 00:05:13,760 Speaker 4: to me underpins everything. People that are that have a 94 00:05:13,880 --> 00:05:17,880 Speaker 4: job feel good about their job and see their wages rising, 95 00:05:18,320 --> 00:05:22,200 Speaker 4: can absorb those, you know, changes in the economy, higher interest. 96 00:05:22,040 --> 00:05:23,039 Speaker 2: Rates and everything else. 97 00:05:23,279 --> 00:05:27,600 Speaker 4: They can absorb rising rents, They can absorb higher costs 98 00:05:27,600 --> 00:05:30,880 Speaker 4: of food and housing and everything else. And so to me, 99 00:05:31,040 --> 00:05:33,880 Speaker 4: that's the that that that's the foundation on which the 100 00:05:33,960 --> 00:05:38,560 Speaker 4: economy is built. And no one's been able to convince 101 00:05:38,600 --> 00:05:40,599 Speaker 4: me that that's going to change anytime soon. 102 00:05:41,600 --> 00:05:46,240 Speaker 1: I just want to ask about deposits. How sticky are they? 103 00:05:46,400 --> 00:05:48,599 Speaker 1: How do you fight deposit flight? Is it just a 104 00:05:48,680 --> 00:05:50,840 Speaker 1: question of the rate you offer, or do you think 105 00:05:52,200 --> 00:05:57,159 Speaker 1: that depositors also really look into services and the culture. 106 00:05:57,200 --> 00:05:59,080 Speaker 1: I mean, what do you what's your view on on 107 00:05:59,120 --> 00:06:00,840 Speaker 1: that look? 108 00:06:00,880 --> 00:06:05,240 Speaker 4: I think there was definitely back in March, a reorganization 109 00:06:05,320 --> 00:06:10,240 Speaker 4: of the deposit market versus large banks, small banks, medium 110 00:06:10,240 --> 00:06:14,880 Speaker 4: sized banks where people had funds, The entire notion that 111 00:06:15,600 --> 00:06:19,560 Speaker 4: interest wasn't being paid on certain types of accounts, FDIC, 112 00:06:19,720 --> 00:06:22,919 Speaker 4: insurance coverage, lots of questions, lots of things came to 113 00:06:23,000 --> 00:06:27,279 Speaker 4: the four in those few weeks of March. In early April, 114 00:06:28,440 --> 00:06:31,239 Speaker 4: I think the market overall, though, has pretty much settled 115 00:06:31,240 --> 00:06:35,039 Speaker 4: out and people are pretty much staying where they are. 116 00:06:35,080 --> 00:06:37,719 Speaker 4: There is the ease of being able to move money 117 00:06:37,880 --> 00:06:42,000 Speaker 4: from bank to bank, but folks, Connect One is mostly 118 00:06:42,040 --> 00:06:45,520 Speaker 4: a business oriented bank. People come to us not necessarily 119 00:06:45,560 --> 00:06:48,360 Speaker 4: for the highest rate. They come to us for services. 120 00:06:48,480 --> 00:06:53,240 Speaker 4: There's generally we have clients who have multiple types of 121 00:06:53,279 --> 00:06:56,440 Speaker 4: businesses with us, and so rate is not the number 122 00:06:56,480 --> 00:06:59,080 Speaker 4: one thing. That doesn't mean we're not going to pay 123 00:06:59,480 --> 00:07:03,040 Speaker 4: a market rate, but it does mean that folks are 124 00:07:03,160 --> 00:07:07,120 Speaker 4: making decisions in banks like hours relative to things like 125 00:07:07,240 --> 00:07:11,360 Speaker 4: service and availability and the ability to talk to decision makers, 126 00:07:11,400 --> 00:07:13,920 Speaker 4: and you know what the other side of the transaction 127 00:07:14,080 --> 00:07:16,760 Speaker 4: looks like, if there's a loan there, or a business 128 00:07:16,760 --> 00:07:20,080 Speaker 4: loan or something else. So I think things in general 129 00:07:20,120 --> 00:07:24,240 Speaker 4: have stabilized. Keep in mind, however, beside the FED raising rates, 130 00:07:24,560 --> 00:07:28,080 Speaker 4: they've also been shrinking the money supply and shrinking the 131 00:07:28,120 --> 00:07:30,720 Speaker 4: FED balance sheet. Right earlier this year we saw for 132 00:07:30,760 --> 00:07:33,320 Speaker 4: the first time since nineteen forty nine that M two 133 00:07:33,440 --> 00:07:35,960 Speaker 4: actually shrunk, and the FED is on a track to 134 00:07:36,040 --> 00:07:38,920 Speaker 4: continue to reduce the size of its balance sheet. That's 135 00:07:38,920 --> 00:07:42,360 Speaker 4: putting a lot of pressure on banks and other financial institutions. 136 00:07:42,960 --> 00:07:45,960 Speaker 1: Frank, great to get your views, really helpful context there. 137 00:07:46,000 --> 00:07:49,800 Speaker 1: Frank Sorrentino is the chairman and CEO of Connect One Bank. 138 00:07:51,120 --> 00:07:54,520 Speaker 7: You're listening to the team. Ken's a live program Bloomberg 139 00:07:54,560 --> 00:07:57,920 Speaker 7: Markets weekdays at ten am Eastern on Bloomberg dot Com, 140 00:07:58,040 --> 00:08:01,160 Speaker 7: the iHeartRadio app, and the Bloomberg Business App, or listen 141 00:08:01,240 --> 00:08:03,280 Speaker 7: on demand wherever you get your podcast. 142 00:08:05,280 --> 00:08:10,040 Speaker 1: Katie Greifeld in the studio with me Paul Sweeney on 143 00:08:10,120 --> 00:08:12,280 Speaker 1: an extended lunch break right now. I'll be back at 144 00:08:12,280 --> 00:08:15,560 Speaker 1: three pm. Let's talk right now about There was a 145 00:08:15,560 --> 00:08:19,960 Speaker 1: Bloomberg story the other day that said the shrinking one 146 00:08:19,960 --> 00:08:24,880 Speaker 1: point three trillion dollar col market is bad news for bankers, 147 00:08:25,000 --> 00:08:28,920 Speaker 1: and people have been talking about this market as if 148 00:08:29,080 --> 00:08:32,400 Speaker 1: it's hit a speed bump or maybe even frozen. Got 149 00:08:32,400 --> 00:08:34,520 Speaker 1: a guest here in the studio says, not the case, 150 00:08:34,600 --> 00:08:37,520 Speaker 1: not so fast. Thomas Majuski is a CEO of Eagle 151 00:08:37,600 --> 00:08:42,240 Speaker 1: Point Credit Management. He's got experience across the street from 152 00:08:42,400 --> 00:08:46,280 Speaker 1: JP Morgan to bear Stearns and Mother Merrill and then 153 00:08:46,440 --> 00:08:50,839 Speaker 1: obviously some smaller shops as well. Tom, Thanks so much 154 00:08:50,880 --> 00:08:53,840 Speaker 1: for your time. What's your view of the CLO market 155 00:08:53,920 --> 00:08:54,320 Speaker 1: right now. 156 00:08:54,440 --> 00:08:57,280 Speaker 8: Great, thanks for having me mat The market's far more vibrant, 157 00:08:57,320 --> 00:09:00,240 Speaker 8: I think than the headlines suggest. There's always waysy can 158 00:09:00,280 --> 00:09:03,040 Speaker 8: cut the data a lot of different ways. The actual 159 00:09:03,160 --> 00:09:07,560 Speaker 8: new issue volume for colos remains quite robust. However, the 160 00:09:07,600 --> 00:09:11,400 Speaker 8: activity of resetting or refinancing, which is where you go 161 00:09:11,440 --> 00:09:14,160 Speaker 8: and reopen an old deal and re extend it, that 162 00:09:14,360 --> 00:09:19,440 Speaker 8: slowed down significantly. So total volume is down, but the 163 00:09:19,480 --> 00:09:22,160 Speaker 8: actual new volume created is not too far off from 164 00:09:22,160 --> 00:09:23,240 Speaker 8: where it was last year. 165 00:09:23,760 --> 00:09:25,320 Speaker 9: Well, let's talk about one of the ways in which 166 00:09:25,360 --> 00:09:28,199 Speaker 9: they cut the data. About forty percent of issuers in 167 00:09:28,400 --> 00:09:31,200 Speaker 9: this area of corporate finance are yet to price a 168 00:09:31,240 --> 00:09:34,120 Speaker 9: new deal this year. When you hear a stat like that, 169 00:09:34,160 --> 00:09:34,959 Speaker 9: what's your reaction? 170 00:09:35,640 --> 00:09:39,160 Speaker 8: It's an indication perhaps of the state of their performance 171 00:09:39,360 --> 00:09:40,480 Speaker 8: and a state of the market. 172 00:09:40,480 --> 00:09:40,920 Speaker 7: Broadly. 173 00:09:41,679 --> 00:09:45,200 Speaker 8: Markets investors in colos, including US, have certainly gotten far 174 00:09:45,240 --> 00:09:49,600 Speaker 8: more selective in a raging bull market. There was an 175 00:09:49,600 --> 00:09:52,120 Speaker 8: old saying two guys in a Bloomberg could print a COLO. 176 00:09:52,559 --> 00:09:54,640 Speaker 8: The market needs a little more robust than that. And 177 00:09:54,679 --> 00:09:57,120 Speaker 8: now that we have over twenty years of data for 178 00:09:57,200 --> 00:10:00,480 Speaker 8: people's performance, it's easier to separate the top from the 179 00:10:00,520 --> 00:10:03,400 Speaker 8: worst that forty is out of about one hundred and twenty. 180 00:10:03,600 --> 00:10:05,240 Speaker 8: So the other way to cut that is two thirds 181 00:10:05,240 --> 00:10:07,880 Speaker 8: of the market is operating kind of business as usual. 182 00:10:08,600 --> 00:10:11,319 Speaker 1: What's your view on financial conditions right now? It seems 183 00:10:11,360 --> 00:10:14,640 Speaker 1: like they were getting tighter. The Fed was letting the 184 00:10:14,679 --> 00:10:17,640 Speaker 1: market do its job until the Fed told the market 185 00:10:17,679 --> 00:10:20,160 Speaker 1: that's what it was doing. And now the market isn't 186 00:10:20,200 --> 00:10:23,360 Speaker 1: doing its job anymore. So how do they look to you? 187 00:10:23,600 --> 00:10:27,440 Speaker 8: Well, the underlying assets and clos are syndicated loans, small 188 00:10:27,480 --> 00:10:31,080 Speaker 8: pieces of big loans to big American companies. Their floating 189 00:10:31,160 --> 00:10:34,960 Speaker 8: rate and senior and secured, which means a problem, there's 190 00:10:35,040 --> 00:10:37,920 Speaker 8: less risk of loss. The loan index is up about 191 00:10:37,920 --> 00:10:41,400 Speaker 8: ten percent this year versus the Bloomberg ag is roughly 192 00:10:41,440 --> 00:10:44,679 Speaker 8: flat for the year, down a tiny bit. That's investment 193 00:10:44,720 --> 00:10:47,560 Speaker 8: grade versus loans are below investment grade. And there was 194 00:10:47,600 --> 00:10:49,840 Speaker 8: a lot of talk early in the year with increasing 195 00:10:49,880 --> 00:10:53,520 Speaker 8: interest rates and loans are floating rate, that companies wouldn't 196 00:10:53,520 --> 00:10:55,719 Speaker 8: be able to service their debt. There was going to 197 00:10:55,720 --> 00:10:59,199 Speaker 8: be a recession coming and rates are going higher. As 198 00:10:59,200 --> 00:11:02,680 Speaker 8: an investor, great, we get a floating rate for the companies. 199 00:11:02,720 --> 00:11:04,720 Speaker 8: On the other hand, they have to pay that floating rate. 200 00:11:05,120 --> 00:11:07,800 Speaker 8: The reality though, is profits and revenue at most below 201 00:11:07,840 --> 00:11:10,880 Speaker 8: investment grade companies continue to go up in this economy. 202 00:11:11,400 --> 00:11:14,080 Speaker 8: Citybank just put out research that said more companies are 203 00:11:14,080 --> 00:11:17,640 Speaker 8: getting upgraded than downgraded, and while there are some defaults, 204 00:11:17,960 --> 00:11:20,520 Speaker 8: the default rate over this year has been roughly half 205 00:11:20,600 --> 00:11:23,560 Speaker 8: the long term average. So it's the economy is at 206 00:11:23,640 --> 00:11:27,360 Speaker 8: least the corporate borrower in leverage finances doing far better 207 00:11:27,840 --> 00:11:29,440 Speaker 8: than the headlines would suggest. 208 00:11:29,600 --> 00:11:34,439 Speaker 9: Okay, so overall, not too much consternation over increased in 209 00:11:34,440 --> 00:11:37,800 Speaker 9: interest expenses and servicing that debt. But for the pain 210 00:11:37,880 --> 00:11:41,000 Speaker 9: that you are seeing, there certainly are companies out there 211 00:11:41,040 --> 00:11:43,280 Speaker 9: that are struggling with that. Do they tend to be 212 00:11:43,320 --> 00:11:48,360 Speaker 9: concentrated to any industry or what is the common denominator there? 213 00:11:48,440 --> 00:11:51,400 Speaker 8: Thankfully it's not one industry. Sometimes we've seen that, maybe 214 00:11:51,440 --> 00:11:54,920 Speaker 8: in twenty fifteen we saw energy pose a problem. The 215 00:11:55,000 --> 00:11:57,800 Speaker 8: problems where they do exist, and they're quite few, are 216 00:11:57,840 --> 00:12:01,200 Speaker 8: generally broad based. In many case is it's due to 217 00:12:01,600 --> 00:12:04,160 Speaker 8: either a company that just put on a little too 218 00:12:04,240 --> 00:12:07,640 Speaker 8: much leverage or a company maybe with a less skilled 219 00:12:07,679 --> 00:12:10,079 Speaker 8: management team would be some of the biggest things or 220 00:12:10,240 --> 00:12:14,559 Speaker 8: change in regulation. One company recently, in Vision Healthcare, which defaulted, 221 00:12:15,240 --> 00:12:19,240 Speaker 8: had a number of businesses. Every business line was coincidentally 222 00:12:19,280 --> 00:12:22,600 Speaker 8: infected by adverse changes in regulation for them, So just 223 00:12:22,640 --> 00:12:25,200 Speaker 8: a perfect storm against that company, you think. 224 00:12:25,640 --> 00:12:29,959 Speaker 1: So, you think that regulatory capital reasons are the problem 225 00:12:30,000 --> 00:12:34,560 Speaker 1: that some banks have, I guess bought other things than 226 00:12:35,000 --> 00:12:38,400 Speaker 1: triple A clos. But you point out Japanese banks are 227 00:12:38,440 --> 00:12:42,520 Speaker 1: still big buyers. Why is that? Why are Japanese banks 228 00:12:42,559 --> 00:12:43,199 Speaker 1: notable here? 229 00:12:43,440 --> 00:12:46,760 Speaker 8: Absolutely, Japanese banks remained some of the largest buyers of 230 00:12:46,800 --> 00:12:50,559 Speaker 8: COLO triple as and holders in the world. US banks 231 00:12:50,640 --> 00:12:53,760 Speaker 8: also own meaningful amounts. Some of the largest money center 232 00:12:53,800 --> 00:12:56,360 Speaker 8: banks own more than one percent of their gross assets 233 00:12:56,360 --> 00:13:00,640 Speaker 8: and COLO paper. Frankly, we joke that had some of 234 00:13:00,679 --> 00:13:03,120 Speaker 8: the regional banks that are no longer with US bought 235 00:13:03,120 --> 00:13:05,880 Speaker 8: floating rate clos instead of mortgages, they might still be 236 00:13:05,920 --> 00:13:10,040 Speaker 8: with US in fact, but the banks in the US 237 00:13:10,960 --> 00:13:13,440 Speaker 8: there's sometimes some stigma with the name. It's still a 238 00:13:13,480 --> 00:13:17,200 Speaker 8: COLO that sounds like a cdo Many of those Japanese 239 00:13:17,200 --> 00:13:20,000 Speaker 8: investors have been in the market for over twenty years, 240 00:13:20,400 --> 00:13:23,040 Speaker 8: and across their triple A portfolios, what they've seen is 241 00:13:23,640 --> 00:13:26,040 Speaker 8: everyone has paid off at par there's never been a 242 00:13:26,040 --> 00:13:28,480 Speaker 8: default on any bond they bought in the COLO market. 243 00:13:29,080 --> 00:13:31,400 Speaker 9: And let's talk a little bit about what happened in March. 244 00:13:31,520 --> 00:13:35,040 Speaker 9: Like you said, maybe if those banks had maybe shifted 245 00:13:35,080 --> 00:13:37,800 Speaker 9: out of treasuries into colos, we'd still be with them. 246 00:13:38,200 --> 00:13:41,160 Speaker 9: But when we talk about what happened in March, we 247 00:13:41,200 --> 00:13:43,880 Speaker 9: talk about it as a boon to private credit. Certainly, 248 00:13:43,920 --> 00:13:47,000 Speaker 9: private debt has been on fire this year. Where does 249 00:13:47,040 --> 00:13:50,080 Speaker 9: the COLO market sit in relation to what we're seeing 250 00:13:50,080 --> 00:13:50,880 Speaker 9: in private credit? 251 00:13:50,960 --> 00:13:53,160 Speaker 8: Sure so we're a net beneficiary of that in a 252 00:13:53,240 --> 00:13:57,280 Speaker 8: number of ways. Frankly, banks in general are putting less 253 00:13:57,320 --> 00:14:00,800 Speaker 8: capital out as Basel three comes to fruition and higher 254 00:14:00,840 --> 00:14:04,199 Speaker 8: capital charges on banks are unambiguously trends in the market. 255 00:14:04,840 --> 00:14:07,800 Speaker 8: The steady hand of private credit, which is typically in 256 00:14:07,840 --> 00:14:11,240 Speaker 8: the form of private equity style funds, not short term 257 00:14:11,280 --> 00:14:14,240 Speaker 8: funds with redemptions, but long ten year funds that can 258 00:14:14,280 --> 00:14:17,480 Speaker 8: see a credit through from start to end. A lot 259 00:14:17,480 --> 00:14:20,400 Speaker 8: of capital going in there. They've frankly bailed out a 260 00:14:20,480 --> 00:14:23,480 Speaker 8: number of triple C rated syndicated loans and taken that 261 00:14:23,640 --> 00:14:26,640 Speaker 8: out of the syndicated loan market, brought it to private 262 00:14:26,640 --> 00:14:29,240 Speaker 8: credit as one thing and another thing. We've seen a 263 00:14:29,280 --> 00:14:32,280 Speaker 8: real increase in it. It's an opportunity we're very interested in, 264 00:14:32,240 --> 00:14:34,520 Speaker 8: and I've been deploying a lot of capital in are 265 00:14:34,560 --> 00:14:39,280 Speaker 8: something called regulatory capital relief transactions for banks. This is 266 00:14:39,320 --> 00:14:42,440 Speaker 8: where a large bank will take a portion of their 267 00:14:42,480 --> 00:14:46,600 Speaker 8: corporate loans, or their auto loans, or their fund subscription 268 00:14:46,800 --> 00:14:51,040 Speaker 8: line loans even and put them in a synthetic securitization. 269 00:14:51,680 --> 00:14:54,840 Speaker 8: Some very loaded words there, but a good way to 270 00:14:55,040 --> 00:14:58,600 Speaker 8: raise capital and they can basically transfer the risk of 271 00:14:58,600 --> 00:15:02,280 Speaker 8: owning those two investors. Basically a way to raise capital 272 00:15:02,480 --> 00:15:04,240 Speaker 8: without having to go to the stock market and do 273 00:15:04,280 --> 00:15:07,480 Speaker 8: a secondary offering. The reality is, over many years those 274 00:15:07,480 --> 00:15:10,360 Speaker 8: investments have done very very well. And what we're seeing 275 00:15:10,480 --> 00:15:12,960 Speaker 8: is banks are seeking more and more capital knowing they're 276 00:15:13,000 --> 00:15:15,800 Speaker 8: going to be facing higher capital charges. They're coming to 277 00:15:15,840 --> 00:15:17,520 Speaker 8: that market with greater frequency. 278 00:15:17,600 --> 00:15:20,200 Speaker 1: But the private credit market is one that banks are 279 00:15:20,560 --> 00:15:24,720 Speaker 1: It seems like they're losing that business to almost a 280 00:15:24,720 --> 00:15:31,080 Speaker 1: shadow banking group of lenders. Is that market even though 281 00:15:31,200 --> 00:15:33,720 Speaker 1: I mean you point out their long term lenders, you 282 00:15:33,760 --> 00:15:36,720 Speaker 1: know they aren't facing like immediate redemptions in a lot 283 00:15:36,720 --> 00:15:40,560 Speaker 1: of cases, but there's not a lot of regulation there 284 00:15:40,800 --> 00:15:44,920 Speaker 1: for how much business they're doing. So does that look 285 00:15:45,000 --> 00:15:47,520 Speaker 1: like a place where regulation is going to grow into 286 00:15:47,880 --> 00:15:48,680 Speaker 1: the good. 287 00:15:48,440 --> 00:15:50,920 Speaker 8: Part about it is it's a steady hand, and what 288 00:15:51,280 --> 00:15:53,480 Speaker 8: goes wrong with banks as people take their money out. 289 00:15:53,600 --> 00:15:55,000 Speaker 8: You and I can take our money out of our 290 00:15:55,040 --> 00:15:58,440 Speaker 8: banks today with no consequence except for the person in 291 00:15:58,480 --> 00:16:01,880 Speaker 8: line after us perhaps having these credits, even if there 292 00:16:01,880 --> 00:16:04,440 Speaker 8: are riskier credits some cases in private credit or maybe 293 00:16:04,480 --> 00:16:07,560 Speaker 8: a little more leverage, having a small number of owners 294 00:16:07,960 --> 00:16:10,920 Speaker 8: in that loan, each with a long term mindset and 295 00:16:10,960 --> 00:16:14,640 Speaker 8: a steady hand, I think is net beneficial. The investors 296 00:16:14,640 --> 00:16:18,680 Speaker 8: in those vehicles typically are large sophisticated pensions and insurance companies, 297 00:16:19,000 --> 00:16:22,000 Speaker 8: so the investor is getting involved in these underlying funds 298 00:16:22,000 --> 00:16:25,960 Speaker 8: that are making these private credit loans are quite sophisticated themselves. 299 00:16:26,600 --> 00:16:28,760 Speaker 9: Okay, so we don't have much time love with you, 300 00:16:28,920 --> 00:16:31,840 Speaker 9: but I could see regulation being a potential risk here. 301 00:16:32,280 --> 00:16:34,800 Speaker 9: Talking to you, everything sounds pretty rosy. But if you 302 00:16:34,800 --> 00:16:37,680 Speaker 9: take a look at the CLO market overall, where else 303 00:16:37,720 --> 00:16:38,880 Speaker 9: are you seeing risks lurk? 304 00:16:40,080 --> 00:16:42,080 Speaker 8: Some of the risks continue to be frankly that the 305 00:16:42,080 --> 00:16:45,440 Speaker 8: biggest thing is the change in regulation and the impact 306 00:16:45,440 --> 00:16:48,560 Speaker 8: on companies. I cited that one company before something that 307 00:16:48,640 --> 00:16:52,920 Speaker 8: makes medicare reimbursement slower or things like that, a regulation, 308 00:16:52,960 --> 00:16:55,400 Speaker 8: which might be a very valid regulation, then has an 309 00:16:55,440 --> 00:16:59,280 Speaker 8: impact and changes a company's behavior overall. Things that people 310 00:16:59,320 --> 00:17:02,320 Speaker 8: often talk about, the wall of maturities and loans has 311 00:17:02,360 --> 00:17:06,120 Speaker 8: been pushed way out, frankly, and the ability of companies 312 00:17:06,160 --> 00:17:11,080 Speaker 8: to service their higher debts remains quite strong. Idiosyncratic risk 313 00:17:11,240 --> 00:17:13,720 Speaker 8: is probably the biggest area that we look at, and 314 00:17:13,760 --> 00:17:16,920 Speaker 8: then probably when we think about in our risk management meetings, frankly, 315 00:17:17,320 --> 00:17:19,880 Speaker 8: continuing to look at our counterparties one of the things 316 00:17:19,960 --> 00:17:22,199 Speaker 8: we look at, or what's the credit default spread pricing 317 00:17:22,240 --> 00:17:24,920 Speaker 8: on banks that we do business with. While right now 318 00:17:24,960 --> 00:17:27,879 Speaker 8: it seems most banks are on steady footing, again, that 319 00:17:27,920 --> 00:17:30,320 Speaker 8: can change very quickly, so we keep our eye out 320 00:17:30,600 --> 00:17:33,160 Speaker 8: at the margins. We don't see a large systemic risk 321 00:17:33,200 --> 00:17:36,240 Speaker 8: facing us, but no one was talking about a banking 322 00:17:36,280 --> 00:17:37,800 Speaker 8: crisis in January of this year. 323 00:17:38,240 --> 00:17:40,560 Speaker 1: Absolutely, Thomas, thanks so much for your time, Really appreciated. 324 00:17:40,960 --> 00:17:44,960 Speaker 1: Thomas Majuski is the CEO of Eagle Point Credit Management. 325 00:17:44,960 --> 00:17:46,200 Speaker 1: If you want more from him, he's going to go 326 00:17:46,240 --> 00:17:48,560 Speaker 1: on Bloomberg Television in a moment and talk a little 327 00:17:48,560 --> 00:17:51,200 Speaker 1: bit Lisa Bromwitz about this as well. 328 00:17:51,520 --> 00:17:54,600 Speaker 7: You're listening to the tape. Catch our live program Bloomberg 329 00:17:54,680 --> 00:17:58,280 Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the 330 00:17:58,320 --> 00:18:01,560 Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App. 331 00:18:01,600 --> 00:18:04,399 Speaker 7: You can also listen live on Amazon Alexa from our 332 00:18:04,440 --> 00:18:08,840 Speaker 7: flagship New York station, Just say Alexa Play Bloomberg eleven thirty. 333 00:18:10,520 --> 00:18:13,520 Speaker 1: Katie Greifeld here with me in the Interactive Brokers studio. 334 00:18:13,600 --> 00:18:16,920 Speaker 1: Paul Sweeney is out today. Well he'll be back, yeah, 335 00:18:16,920 --> 00:18:20,240 Speaker 1: but not until three pm. He's taking an extended break 336 00:18:20,560 --> 00:18:23,720 Speaker 1: right now. Gina ting in the house as well. She 337 00:18:23,800 --> 00:18:27,160 Speaker 1: is the head of Global Index Portfolio Management team over 338 00:18:27,160 --> 00:18:30,840 Speaker 1: at Franklin Templeton ETFs, and she will be a guest 339 00:18:31,119 --> 00:18:36,480 Speaker 1: on our next week's ETFIQ program that's on Bloomberg Television 340 00:18:36,520 --> 00:18:38,040 Speaker 1: every Monday at one pm. 341 00:18:38,240 --> 00:18:39,240 Speaker 9: So this is the warm up. 342 00:18:39,680 --> 00:18:45,520 Speaker 1: This is a deep tease, basically, Dina, just before we 343 00:18:45,560 --> 00:18:48,720 Speaker 1: get into the important stuff, I wanted to address a 344 00:18:48,760 --> 00:18:52,480 Speaker 1: story that Katie and Eric Belchunas they don't think it's 345 00:18:52,520 --> 00:18:56,040 Speaker 1: that important, but I think it's very interesting and kind 346 00:18:56,040 --> 00:18:59,359 Speaker 1: of a big deal, and that is a big push 347 00:18:59,400 --> 00:19:02,840 Speaker 1: by regularly to shift to T plus one to faster 348 00:19:03,080 --> 00:19:06,399 Speaker 1: settlement is going to drive up costs and create a 349 00:19:06,440 --> 00:19:09,720 Speaker 1: lot of operational challenges for ETFs. What do you think 350 00:19:09,720 --> 00:19:14,320 Speaker 1: about this drive to move to at some point will 351 00:19:14,320 --> 00:19:16,439 Speaker 1: be on tea. We'll just settle as soon as you 352 00:19:16,480 --> 00:19:17,240 Speaker 1: make the transaction. 353 00:19:18,040 --> 00:19:22,920 Speaker 10: Yeah. I think all changes always have repercussion, right, So 354 00:19:23,160 --> 00:19:25,679 Speaker 10: in the case of T plus one, I think at 355 00:19:25,720 --> 00:19:29,040 Speaker 10: the end of the day, when everybody is prepared for it, 356 00:19:29,040 --> 00:19:31,800 Speaker 10: it should not be causing an issue. I've seen an 357 00:19:31,840 --> 00:19:34,960 Speaker 10: example in India where they move from T plus two 358 00:19:34,960 --> 00:19:38,480 Speaker 10: to T plus one earlier this year and everybody was worried, 359 00:19:38,680 --> 00:19:42,680 Speaker 10: especially because India the currency is restricted. Currency is a 360 00:19:42,680 --> 00:19:45,840 Speaker 10: little bit more difficult. So I would imagine with more 361 00:19:45,880 --> 00:19:49,879 Speaker 10: preparation in the US dollar in the US especially, that 362 00:19:49,960 --> 00:19:52,879 Speaker 10: it's less of an issue. And I don't know if 363 00:19:52,880 --> 00:19:57,440 Speaker 10: you're aware, but in China it's actually T plus zero. WOWK, Yeah, 364 00:19:57,560 --> 00:19:58,119 Speaker 10: good for them. 365 00:19:58,640 --> 00:20:03,280 Speaker 1: The concern is actually international settlements. So there are many 366 00:20:03,640 --> 00:20:06,520 Speaker 1: US listed ETFs that are going to have to be 367 00:20:06,560 --> 00:20:10,600 Speaker 1: settling plus one, but they hold you know ETFs that 368 00:20:10,640 --> 00:20:15,959 Speaker 1: hold European assets for example, or international assets that settle 369 00:20:16,359 --> 00:20:21,520 Speaker 1: plus two or plus five, how do they square that circle? 370 00:20:22,320 --> 00:20:25,120 Speaker 10: Yeah, so those are the balancing act that a portfolio 371 00:20:25,160 --> 00:20:26,119 Speaker 10: manager has to do. 372 00:20:26,320 --> 00:20:26,520 Speaker 5: Right. 373 00:20:26,560 --> 00:20:30,399 Speaker 10: So when you're investing in the global markets, they all 374 00:20:30,440 --> 00:20:34,000 Speaker 10: have different settlement cycles. So and if you're in the 375 00:20:34,000 --> 00:20:38,040 Speaker 10: midst of rebalancing, how would you balance something that settles 376 00:20:38,040 --> 00:20:40,919 Speaker 10: in three plus three if your funding is coming in 377 00:20:41,119 --> 00:20:44,879 Speaker 10: at even longer settlement than that. But it's nothing unusual. 378 00:20:45,119 --> 00:20:48,119 Speaker 10: So it's just about like, how would you handle the 379 00:20:48,200 --> 00:20:52,560 Speaker 10: mismatch between where you're getting your funding versus where are 380 00:20:52,600 --> 00:20:56,240 Speaker 10: you going to deploy that particular cash. Right, So if 381 00:20:56,280 --> 00:20:59,320 Speaker 10: you think about your example, so if let's say you're 382 00:20:59,359 --> 00:21:05,800 Speaker 10: investing in European countries and you're buying a US equity, right, 383 00:21:05,840 --> 00:21:08,639 Speaker 10: so the US equity will settle T plus one. But 384 00:21:08,720 --> 00:21:13,199 Speaker 10: let's say to buy the US equity you require funding 385 00:21:13,280 --> 00:21:16,800 Speaker 10: from selling the European equity. Then you have to short 386 00:21:16,800 --> 00:21:19,439 Speaker 10: stand the cycle of that one in order to be 387 00:21:19,480 --> 00:21:21,359 Speaker 10: able to fund or you can have a line of 388 00:21:21,480 --> 00:21:24,240 Speaker 10: credit to kind of handle that. So it's one of 389 00:21:24,280 --> 00:21:25,720 Speaker 10: those things that at the end of the day, it 390 00:21:25,800 --> 00:21:26,560 Speaker 10: is complicated. 391 00:21:26,800 --> 00:21:30,840 Speaker 9: Yeah, gosh, good thing that I the end investor probably 392 00:21:30,840 --> 00:21:32,159 Speaker 9: don't have to worry about. 393 00:21:31,920 --> 00:21:36,200 Speaker 10: This, right, It's true, Like that's why you trust your 394 00:21:36,400 --> 00:21:37,679 Speaker 10: money managers. 395 00:21:37,920 --> 00:21:39,840 Speaker 1: Well, unless you take to hit on the margins, she's 396 00:21:39,840 --> 00:21:41,119 Speaker 1: going to have to pay a higher fee. 397 00:21:41,280 --> 00:21:44,640 Speaker 9: Frankly, perhaps, Yeah, all right. 398 00:21:44,440 --> 00:21:47,359 Speaker 1: Franklin Templeton ETFs. What are you guys pumped about? 399 00:21:48,359 --> 00:21:52,760 Speaker 10: So we are looking at dividendal strategy. So we're pumped 400 00:21:52,760 --> 00:21:57,040 Speaker 10: about that strategy because very rarely a strategy that focus 401 00:21:57,160 --> 00:22:00,879 Speaker 10: on dividend focus beyond just dividend. So a lot of 402 00:22:00,880 --> 00:22:03,840 Speaker 10: the strategies out there all they care about is a 403 00:22:03,920 --> 00:22:07,560 Speaker 10: higher dividend yield, right, But in reality, when you only 404 00:22:08,000 --> 00:22:11,720 Speaker 10: singularly focus on higher dividend yield, you forget that you 405 00:22:11,840 --> 00:22:17,920 Speaker 10: may be underperforming in some periods by a significant amount. Likewise, 406 00:22:18,160 --> 00:22:21,560 Speaker 10: so the tracking era between your investment universe and your 407 00:22:21,600 --> 00:22:25,200 Speaker 10: strategy could deview it quite a bit. So at Franklin 408 00:22:25,280 --> 00:22:29,399 Speaker 10: Templeton we have a suite of dividendial strategies where you're 409 00:22:29,440 --> 00:22:34,080 Speaker 10: balancing the tracking error versus the investment universe and the 410 00:22:34,119 --> 00:22:37,200 Speaker 10: dividend yield. So you're still getting a higher dividend yield, 411 00:22:37,560 --> 00:22:42,200 Speaker 10: but you're not limiting yourself only two companies that pay 412 00:22:42,320 --> 00:22:46,600 Speaker 10: higher yield, you actually run an optimization to be able 413 00:22:46,640 --> 00:22:50,200 Speaker 10: to balance out the tracking air versus the investment universe 414 00:22:50,320 --> 00:22:52,760 Speaker 10: while still delivering on the higher yield. 415 00:22:53,040 --> 00:22:55,439 Speaker 9: And so it feels like income has been one of 416 00:22:55,480 --> 00:22:58,200 Speaker 9: the primary things that investors have been looking for, whether 417 00:22:58,280 --> 00:23:01,800 Speaker 9: it's through t bills funds, whether it's through these options 418 00:23:01,880 --> 00:23:06,760 Speaker 9: overlay ETFs. How does demand for dividends actually looked like? 419 00:23:07,840 --> 00:23:11,880 Speaker 10: Yeah, so we're seeing over like three hundred billion allocated 420 00:23:11,960 --> 00:23:16,640 Speaker 10: to like income slash dividend yield strategies. Within our lineup, 421 00:23:17,000 --> 00:23:22,120 Speaker 10: our dv product dv I, which is international developed dividend 422 00:23:22,160 --> 00:23:25,400 Speaker 10: tilt strategies, we were seeing like close to like half 423 00:23:25,440 --> 00:23:30,520 Speaker 10: a billion in netflows coming through. So income is an 424 00:23:30,600 --> 00:23:34,880 Speaker 10: area that, regardless of the environment, people are looking for, 425 00:23:35,119 --> 00:23:38,560 Speaker 10: and especially in the higher volatility environment that we're seeing 426 00:23:38,640 --> 00:23:41,920 Speaker 10: right now, it gives you a little bit of downside 427 00:23:41,920 --> 00:23:45,960 Speaker 10: protection as well as providing you the income that you're 428 00:23:46,000 --> 00:23:46,560 Speaker 10: looking for. 429 00:23:48,840 --> 00:23:50,040 Speaker 1: You know, it was a lot of talk about the 430 00:23:50,080 --> 00:23:52,600 Speaker 1: S and P today. Amligriffe Oros story about the fact 431 00:23:52,600 --> 00:23:53,840 Speaker 1: that a lot of the companies in the S and 432 00:23:53,840 --> 00:23:56,159 Speaker 1: P are smaller than companies in the S and P 433 00:23:56,480 --> 00:24:01,720 Speaker 1: four hundred MidCap index, all of the games are really 434 00:24:01,720 --> 00:24:07,760 Speaker 1: about the big seven getting bigger. Right, does diversification matter 435 00:24:08,320 --> 00:24:10,120 Speaker 1: right now? Or do you just have to make the right. 436 00:24:09,960 --> 00:24:11,800 Speaker 9: Bet the ication? 437 00:24:12,160 --> 00:24:13,760 Speaker 10: Diversification always matter? 438 00:24:14,280 --> 00:24:14,480 Speaker 9: Right? 439 00:24:14,920 --> 00:24:18,000 Speaker 10: The fact that the S and P five hundred is 440 00:24:18,080 --> 00:24:21,720 Speaker 10: driven by these seven companies actually is a challenge. Right, 441 00:24:21,840 --> 00:24:24,959 Speaker 10: It's not like that for ten years ago. It's not 442 00:24:25,000 --> 00:24:29,320 Speaker 10: like that twenty years ago. A company or an indices 443 00:24:29,720 --> 00:24:32,679 Speaker 10: needs to be diversified because that's how you kind of 444 00:24:32,760 --> 00:24:36,320 Speaker 10: believe in like the returns potential, Because if you're just 445 00:24:36,359 --> 00:24:39,240 Speaker 10: relying on seven to drive the contribution of return, which 446 00:24:39,560 --> 00:24:42,400 Speaker 10: I heard the number is like eighty five percent this year, right, 447 00:24:43,359 --> 00:24:46,400 Speaker 10: it's not a balance because imagine when it's doing well, 448 00:24:46,440 --> 00:24:48,840 Speaker 10: of course is good, but when it's not doing so well, 449 00:24:48,960 --> 00:24:51,960 Speaker 10: then it's less so. So that's why we're always a 450 00:24:51,960 --> 00:24:56,080 Speaker 10: big believer on like the MidCap segment and liver in 451 00:24:56,359 --> 00:25:00,800 Speaker 10: a balance approach, whether that's through a smart bab or 452 00:25:00,880 --> 00:25:05,280 Speaker 10: through a combination of strategies around. 453 00:25:05,480 --> 00:25:07,919 Speaker 9: But even still, it just feels like all of the 454 00:25:07,960 --> 00:25:11,120 Speaker 9: attention has been on the big seven, and I mean, 455 00:25:11,119 --> 00:25:12,960 Speaker 9: how are you seeing a filter cross. 456 00:25:12,680 --> 00:25:15,240 Speaker 1: These different and we don't have time for ohm questions. 457 00:25:15,240 --> 00:25:16,639 Speaker 9: Oh no, I was just gonna started. 458 00:25:16,720 --> 00:25:18,000 Speaker 1: There's only twenty seconds left. 459 00:25:18,080 --> 00:25:20,280 Speaker 9: Okay, never mind, we'll ask it next month. 460 00:25:20,359 --> 00:25:23,480 Speaker 1: We'll talk to you next week. Right next week at 461 00:25:23,480 --> 00:25:26,200 Speaker 1: one pm, you can hear more from Dina Ting, head 462 00:25:26,200 --> 00:25:30,120 Speaker 1: of Global Index Portfolio Management at Franklin Templeton etf She's 463 00:25:30,119 --> 00:25:32,400 Speaker 1: going to join me and Katie and Eric Belchunis on 464 00:25:32,520 --> 00:25:35,880 Speaker 1: Bloomberg TV Crypto Sorry etf IQ. 465 00:25:36,800 --> 00:25:39,920 Speaker 7: You're listening to the tape can's our live program Bloomberg 466 00:25:40,000 --> 00:25:43,600 Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the 467 00:25:43,640 --> 00:25:46,880 Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business app. 468 00:25:46,920 --> 00:25:49,719 Speaker 7: You can also listen live on Amazon Alexa from our 469 00:25:49,760 --> 00:25:54,159 Speaker 7: flagship New York station. Just say Alexa, play Bloomberg eleven thirty. 470 00:25:56,280 --> 00:25:59,719 Speaker 3: Let's say at Heidaword nexkus Mark Douglas CEO of Mountain. 471 00:25:59,840 --> 00:26:03,040 Speaker 3: They call themselves the hardest working software in television. They 472 00:26:03,080 --> 00:26:08,480 Speaker 3: build advertising software. I really do. I can remember back Mark. 473 00:26:08,880 --> 00:26:10,959 Speaker 3: It had to be like fifty years ago when we 474 00:26:10,960 --> 00:26:13,639 Speaker 3: were first getting cable in the area and my brother 475 00:26:13,720 --> 00:26:16,560 Speaker 3: made the pitch to the old man saying it's great, 476 00:26:16,880 --> 00:26:20,840 Speaker 3: lots of sports and they don't have advertising on cable now. 477 00:26:20,920 --> 00:26:23,959 Speaker 3: It's just like, I feel the same thing as happening 478 00:26:24,000 --> 00:26:26,560 Speaker 3: to me with streaming. What's the story. 479 00:26:27,520 --> 00:26:30,840 Speaker 11: Well, I mean that works for the first three providers, 480 00:26:30,880 --> 00:26:33,840 Speaker 11: which are willing to pay for maybe four, and then 481 00:26:34,200 --> 00:26:37,439 Speaker 11: all the other cable channels they're not getting any of 482 00:26:37,480 --> 00:26:40,800 Speaker 11: that subscription money so they have to have ads. And 483 00:26:40,840 --> 00:26:43,600 Speaker 11: then it comes full circle and the ones you weren't 484 00:26:43,640 --> 00:26:45,840 Speaker 11: getting ads from were like, well, we could double our 485 00:26:45,880 --> 00:26:48,760 Speaker 11: revenue if we add ads too, So we're just kind 486 00:26:48,760 --> 00:26:51,080 Speaker 11: of as back to the future. We're reliving that moment 487 00:26:51,119 --> 00:26:52,760 Speaker 11: in cable, but we're doing it on streaming that. 488 00:26:52,840 --> 00:26:55,159 Speaker 3: Yeah, but I don't watch those ads, and Scarlett, I 489 00:26:55,200 --> 00:26:57,000 Speaker 3: know your kids aren't watching the ads. 490 00:26:57,320 --> 00:27:00,679 Speaker 12: Gen Z is just angry about having to watch advertising 491 00:27:00,720 --> 00:27:02,760 Speaker 12: because they've grown up where they haven't had to do it, 492 00:27:02,800 --> 00:27:05,239 Speaker 12: and so when they're forced to sit through it, it's just, 493 00:27:05,600 --> 00:27:07,840 Speaker 12: you know, something that really gets at them is the 494 00:27:07,880 --> 00:27:10,400 Speaker 12: advertising that they're going to see on streaming services going 495 00:27:10,440 --> 00:27:13,280 Speaker 12: to be markedly different than what we got on network 496 00:27:13,280 --> 00:27:15,160 Speaker 12: television in the eighties and nineties. 497 00:27:16,040 --> 00:27:18,320 Speaker 11: Yeah, I mean that's it's I mean, it's literally exactly 498 00:27:18,400 --> 00:27:21,360 Speaker 11: what my company Mount does, so we democratize TV ads, 499 00:27:21,359 --> 00:27:23,240 Speaker 11: So what you're going to see is a lot more 500 00:27:23,400 --> 00:27:27,359 Speaker 11: advertisers and they're all competing to get your attention so 501 00:27:27,400 --> 00:27:30,720 Speaker 11: that they're going to be more entertaining instead of it 502 00:27:30,880 --> 00:27:33,119 Speaker 11: just being kind of the same old bear brands and 503 00:27:33,200 --> 00:27:35,919 Speaker 11: car brands. You're going to see a much you know, 504 00:27:35,960 --> 00:27:39,000 Speaker 11: a lot of merging brands that are actually using television 505 00:27:39,040 --> 00:27:42,359 Speaker 11: now on streaming to kind of basically just show you 506 00:27:42,400 --> 00:27:44,200 Speaker 11: the products they have, but do it in a very 507 00:27:44,359 --> 00:27:47,400 Speaker 11: entertaining way, so it is a bit different. You're also 508 00:27:47,520 --> 00:27:50,639 Speaker 11: starting to see the ads get shorter, and Netflix just 509 00:27:50,640 --> 00:27:54,520 Speaker 11: announced like ten second ad formats for you know, their 510 00:27:54,800 --> 00:27:58,960 Speaker 11: their property. So I mean just expect more entertainment from 511 00:27:59,040 --> 00:28:03,000 Speaker 11: the ads, more university of advertisers, and hopefully over time 512 00:28:03,040 --> 00:28:06,080 Speaker 11: they get a lot shorter just to connect with that consumer. 513 00:28:06,240 --> 00:28:09,199 Speaker 12: Will it look more like Super Bowl ads or our 514 00:28:09,240 --> 00:28:12,480 Speaker 12: Super Bobowl ads a thing unto themselves that that won't 515 00:28:12,520 --> 00:28:14,879 Speaker 12: be replicated anywhere else because of the budgets, because of 516 00:28:14,920 --> 00:28:17,000 Speaker 12: the big audience. 517 00:28:18,080 --> 00:28:21,000 Speaker 11: Well, I mean some of the best advertisings coming out 518 00:28:21,000 --> 00:28:24,159 Speaker 11: of my company have been for the you know, not 519 00:28:24,400 --> 00:28:28,000 Speaker 11: huge amounts of money we have maximum mevro Ryan Reynolds 520 00:28:28,040 --> 00:28:30,080 Speaker 11: ad agency is literally a part a mount then, so 521 00:28:30,240 --> 00:28:33,600 Speaker 11: they do ads for as little as tens of thousands 522 00:28:33,600 --> 00:28:36,359 Speaker 11: of dollars and they I think they might be doing 523 00:28:36,400 --> 00:28:38,600 Speaker 11: a Super Bowl ad, so they do them for millions. Also, 524 00:28:38,680 --> 00:28:43,000 Speaker 11: it just depends on how much special effects and the 525 00:28:43,040 --> 00:28:45,880 Speaker 11: actors and all that kind of stuff that controls the cost. 526 00:28:46,240 --> 00:28:48,680 Speaker 11: The bottom line is if you have something a product 527 00:28:48,760 --> 00:28:51,520 Speaker 11: people interested in and you present it to them an 528 00:28:51,600 --> 00:28:55,280 Speaker 11: interesting way, people do actually respond to the advertising and 529 00:28:56,200 --> 00:28:58,680 Speaker 11: you know, go check out your product and potentially become 530 00:28:58,720 --> 00:29:00,720 Speaker 11: a customer. And that's at the end of the day. 531 00:29:00,720 --> 00:29:04,240 Speaker 11: You're just trying to correct connect like match consumers with 532 00:29:04,440 --> 00:29:07,920 Speaker 11: brands are potentially gonna love. It's not like jingles anymore 533 00:29:07,960 --> 00:29:10,800 Speaker 11: and just pushing brands on you. It's more about making 534 00:29:10,800 --> 00:29:11,360 Speaker 11: that connection. 535 00:29:11,760 --> 00:29:13,880 Speaker 3: Is it right to say Netflix has sort of taken 536 00:29:13,920 --> 00:29:16,840 Speaker 3: the lead on this? And if so, based on that, 537 00:29:16,880 --> 00:29:19,560 Speaker 3: what can we what is Disney hoping to achieve? 538 00:29:20,600 --> 00:29:20,800 Speaker 2: Well? 539 00:29:20,800 --> 00:29:22,840 Speaker 11: I wouldn't say Netflix has taken the lead. I would 540 00:29:22,880 --> 00:29:25,880 Speaker 11: say they have the most green field because they have 541 00:29:26,120 --> 00:29:29,800 Speaker 11: no legacy business. Disney is kind of trapped in the 542 00:29:29,920 --> 00:29:34,360 Speaker 11: upfront and thirty seconds and fifteen second formats. When Netflix 543 00:29:34,440 --> 00:29:36,600 Speaker 11: is starting from scratch and they can just kind of 544 00:29:36,720 --> 00:29:41,320 Speaker 11: reinvent what television advertising looks like. But that being said, 545 00:29:41,440 --> 00:29:44,160 Speaker 11: it's not easy to do, and so they're they're, you know, 546 00:29:44,280 --> 00:29:48,040 Speaker 11: out the gate struggling a little bit. But I think 547 00:29:48,080 --> 00:29:51,360 Speaker 11: they will wind up becoming as innovative on the ad 548 00:29:51,480 --> 00:29:54,720 Speaker 11: side of their business as they've been on the consumer side. 549 00:29:54,720 --> 00:29:56,719 Speaker 11: The thing to remember when Netflix is they kind of 550 00:29:56,760 --> 00:30:01,520 Speaker 11: reinvented the relationship between the consumer and the content. 551 00:30:01,240 --> 00:30:01,880 Speaker 2: Making it on. 552 00:30:02,160 --> 00:30:04,000 Speaker 11: You know, you no longer had to wait for the show, 553 00:30:04,040 --> 00:30:07,000 Speaker 11: you could just binge it all all those kinds of things, 554 00:30:07,040 --> 00:30:08,960 Speaker 11: And now they have an opportunity to do the same 555 00:30:09,040 --> 00:30:12,720 Speaker 11: on advertising. It's kind of reinvent the relationship between the 556 00:30:12,840 --> 00:30:16,360 Speaker 11: advertiser which funds all this programming for the ad supported 557 00:30:16,880 --> 00:30:20,560 Speaker 11: options on Netflix, and reinvent that relationship between the advertiser 558 00:30:20,640 --> 00:30:22,800 Speaker 11: and the content. And I think they will if They've 559 00:30:22,800 --> 00:30:25,760 Speaker 11: been a very innovative company for a very long time. 560 00:30:25,800 --> 00:30:30,240 Speaker 3: But what counts as sorry, what counts for innovation in cystalizing? 561 00:30:30,280 --> 00:30:34,560 Speaker 3: I mean an example, Yeah. 562 00:30:34,000 --> 00:30:36,840 Speaker 11: So a lot has to do with the formats I 563 00:30:36,880 --> 00:30:39,240 Speaker 11: think is like, again, you know, you don't have to 564 00:30:39,360 --> 00:30:43,000 Speaker 11: sit there for thirty seconds. The if you look at 565 00:30:43,040 --> 00:30:45,600 Speaker 11: social Like if you look at ads on TikTok and 566 00:30:45,640 --> 00:30:48,880 Speaker 11: you look at them on Instagram, even though they're both 567 00:30:49,000 --> 00:30:52,800 Speaker 11: somewhat feeds, the ad content is very different. I think 568 00:30:52,800 --> 00:30:56,360 Speaker 11: on TikTok it feels much more like the content that 569 00:30:56,400 --> 00:31:00,200 Speaker 11: you're scrolling through on Instagram, it feels a little more tradition. 570 00:31:00,800 --> 00:31:01,720 Speaker 8: There's a mix of. 571 00:31:01,760 --> 00:31:06,160 Speaker 11: Video, so it's it's subtle changes that just make the 572 00:31:06,200 --> 00:31:10,040 Speaker 11: ad format again feel like a form of the entertainment. 573 00:31:10,120 --> 00:31:13,520 Speaker 11: So you're not like dreading the interruption, You're like kind 574 00:31:13,600 --> 00:31:16,880 Speaker 11: of like hopefully entertained by it. Yeah, and you know, 575 00:31:17,200 --> 00:31:20,760 Speaker 11: one thing that makes the advertising like something that we 576 00:31:20,800 --> 00:31:24,040 Speaker 11: do is what we call fasphatizing where the ads are 577 00:31:24,280 --> 00:31:28,080 Speaker 11: and this is like the maximum effort where the ad 578 00:31:28,640 --> 00:31:32,360 Speaker 11: the ad content is like just extremely culturally relevant. It's 579 00:31:32,400 --> 00:31:38,640 Speaker 11: like like today's cultural news becomes literally tomorrow's ad. There's 580 00:31:38,760 --> 00:31:42,280 Speaker 11: no delay. And so having that kind of support where 581 00:31:42,280 --> 00:31:44,280 Speaker 11: you don't have to planet a half year in advance, 582 00:31:44,560 --> 00:31:46,680 Speaker 11: you can just come up with something right now and 583 00:31:46,840 --> 00:31:50,040 Speaker 11: get it on the TV. I think that's pretty important. 584 00:31:50,080 --> 00:31:52,479 Speaker 11: I think that's something Netflix and pretty much all networks 585 00:31:52,520 --> 00:31:52,880 Speaker 11: are going. 586 00:31:52,800 --> 00:31:53,640 Speaker 2: To start to support. 587 00:31:53,920 --> 00:31:56,520 Speaker 12: So as we look ahead to Disney earnings on Wednesday, Mark, 588 00:31:56,560 --> 00:31:59,800 Speaker 12: I wonder if Disney has room to innovate advertising on 589 00:32:00,120 --> 00:32:03,840 Speaker 12: Disney Plus or ESPN Plus that really takes advantage of 590 00:32:03,880 --> 00:32:07,000 Speaker 12: its different businesses, including theme parks. What can it do 591 00:32:07,280 --> 00:32:12,840 Speaker 12: innovation wise that other media companies, other streamers can't do well. 592 00:32:12,920 --> 00:32:16,400 Speaker 11: I think that they, I mean, they can do whatever 593 00:32:16,440 --> 00:32:19,080 Speaker 11: they want. I think bob Byger for quite a while 594 00:32:19,120 --> 00:32:22,800 Speaker 11: now has been saying that he wants to kind of 595 00:32:22,840 --> 00:32:25,160 Speaker 11: do away with the concept of an upfront, and he 596 00:32:25,240 --> 00:32:28,280 Speaker 11: wants the advertising, the advertisers to have a lot more 597 00:32:28,320 --> 00:32:31,480 Speaker 11: freedom and just kind of Disney be where they want 598 00:32:31,560 --> 00:32:35,080 Speaker 11: to be, not where they're trapped into enough front contract. 599 00:32:35,560 --> 00:32:38,000 Speaker 11: That being said, I mean, I think the first order 600 00:32:38,040 --> 00:32:40,719 Speaker 11: of business that Disney is really to get all the 601 00:32:40,760 --> 00:32:44,640 Speaker 11: business units operating like at their best, and you know, 602 00:32:44,720 --> 00:32:48,040 Speaker 11: almost all of them have been struggling on some level 603 00:32:48,160 --> 00:32:53,440 Speaker 11: for growth, for profitability. So I mean, he'll probably Disney, 604 00:32:53,600 --> 00:32:56,920 Speaker 11: bob Byger that team there, they'll probably somewhat follow the 605 00:32:56,960 --> 00:33:00,680 Speaker 11: same path on as Netflix in terms of like, Okay, 606 00:33:00,720 --> 00:33:03,360 Speaker 11: we can innovate these app formats. We don't have to 607 00:33:03,400 --> 00:33:07,080 Speaker 11: stay stuck in the thirty second upfront format. But that 608 00:33:07,200 --> 00:33:09,440 Speaker 11: being said, they have to get the viewers. People have 609 00:33:09,560 --> 00:33:12,240 Speaker 11: to want to go and actually see the content before 610 00:33:12,280 --> 00:33:13,400 Speaker 11: they want to see the apps. 611 00:33:13,680 --> 00:33:16,080 Speaker 3: Mark always a pleasure, appreciate it, good to see it. 612 00:33:16,120 --> 00:33:19,840 Speaker 3: Mark Douglas, CEO Mountain. They call themselves the harness working 613 00:33:19,920 --> 00:33:24,880 Speaker 3: software in TV. You know c the new CFO Disney. 614 00:33:24,680 --> 00:33:27,360 Speaker 12: Hugh Johnson. He's a pepsiley, I don't want to say lifer, 615 00:33:27,400 --> 00:33:28,640 Speaker 12: but he's been there for decades, for. 616 00:33:28,680 --> 00:33:31,880 Speaker 3: Decades, and I inducted him into the Hall of Fame 617 00:33:31,880 --> 00:33:36,040 Speaker 3: of our high school. Did he really my classmate at CBA? 618 00:33:36,400 --> 00:33:36,600 Speaker 2: Wow? 619 00:33:36,720 --> 00:33:37,480 Speaker 12: Look at you guys. 620 00:33:37,720 --> 00:33:39,720 Speaker 3: Yeah, he's there and I'm Aaron. 621 00:33:42,440 --> 00:33:45,520 Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can 622 00:33:45,560 --> 00:33:49,360 Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever 623 00:33:49,440 --> 00:33:53,160 Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter 624 00:33:53,360 --> 00:33:56,560 Speaker 1: at Matt Miller nineteen seventy three and on Fall Sweeney 625 00:33:56,640 --> 00:33:59,240 Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you 626 00:33:59,280 --> 00:34:01,640 Speaker 1: can always cut just worldwide at Bloomberg Radio.