Speaker 1: This is Bloomberg Business Wait inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2: Matt Miller here in the Bloomberg Interactive Broker studio. Jess
Speaker 2: Men were filling in for Carol and Tim. And we've
Speaker 2: got Dan Cole lined up here, senior principal and portfolio
Speaker 2: manager at Eagle Point Credit Management. He's on Zoom from
Speaker 2: Greenwich to talk to us about the leverage loan space. Dan,
Speaker 2: great to have you on the program.
Speaker 3: You are, I think one of.
Speaker 2: The biggest players in this space right and we've seen
Speaker 2: a drop in issuance, we've seen a narrowing of spreads.
Speaker 3: But you think that's about to turn around. Give us
Speaker 3: your pitch.
Speaker 4: Yeah, thanks for having me. We think that Eagle Point
Speaker 4: is the largest kind of seal equity investor out there
Speaker 4: in the market today, and I guess when we've been
Speaker 4: looking at kind of new issue col equity for the
Speaker 4: past nine months or so, it's been pretty unattractive relative
Speaker 4: to the secondary opportunities out there. You know, for the
Speaker 4: kind of the top tier COLO cloral managers, we see
Speaker 4: kind of low teen zels best case, whereas in the
Speaker 4: secondary market we can pick up paper kind of loss adjusted,
Speaker 4: you know, adjusting for all kind of the defaults to
Speaker 4: come kind of in the twenty plus percent range. Now
Speaker 4: that being said, we are seeing kind of a turn
Speaker 4: in the arbitrage, mainly because we've seen loan prices fall
Speaker 4: by a bit kind of over the past couple of
Speaker 4: weeks with all this debt ceiling kind of drama, while
Speaker 4: COLO liabilities have actually held in. So we're seeing that
Speaker 4: arbitrage kind of slightly grow. And so while maybe new
Speaker 4: issues and as attractive as secondary today, the tide certainly
Speaker 4: seemed to be turning, making new issue a little more
Speaker 4: attractive than it was before.
Speaker 5: So, Dan, why has the volume of issuees in the
Speaker 5: US dropped?
Speaker 4: Yeah, I mean so, I think most of it has been.
Speaker 4: The first kind of quarter was these captive funds that
Speaker 4: were printing these clos. So what captive funds are funds
Speaker 4: that were raised by some asset managers or private equity
Speaker 4: firms to really back the clos that they were kind
Speaker 4: of issuing, So buying all the equity, and so a
Speaker 4: lot of these I guess captive fund managers were buying
Speaker 4: equity that was uneconomic to I guess the equity investors.
Speaker 4: And why is that. It's because they had very little
Speaker 4: skin in the game, but I guess they wanted their
Speaker 4: management fee stream to turn on by doing these new
Speaker 4: clos and so you know that clearly had a large
Speaker 4: conflict of interest between the equity investors and the captive
Speaker 4: fund and the cloudal manager. You know that being said,
Speaker 4: now now that a lot of that printed at least
Speaker 4: one one COLO kind of for the year, that are
Speaker 4: being a little more cautious about issuing the second one
Speaker 4: because it could, you know, ultimately end up hurting their
Speaker 4: performance in the long run if you're doing all these
Speaker 4: uneconomic transactions that are going to underperform.
Speaker 2: So I imagine also, you know, as the debt ceiling
Speaker 2: debate has gotten you know, more dramatic, and the price
Speaker 2: for these loans has fallen, it's more difficult for these
Speaker 2: companies to get funding at all, so at least in
Speaker 2: this market. So the the issuance dropped simply due to that.
Speaker 2: With the debt ceiling issue resolved, if the debt ceiling
Speaker 2: issue is resolved.
Speaker 3: Is that part of the reason that you expect issuance
Speaker 3: to pick.
Speaker 4: Up potentially, But it's more of just the fact that
Speaker 4: loan prices have fallen a bunch of SALO liabilities have
Speaker 4: kind of held in. So we're seeing some of the
Speaker 4: arbitrage that was lost kind of middle of last year
Speaker 4: or somewhat coming back, because in about July twenty twenty two,
Speaker 4: we saw loan prices accelerate in terms of prices up
Speaker 4: while SEALO liabilities continue to widen, even though the market
Speaker 4: was feeling firmer. So that's really where kind of the
Speaker 4: COLO the arbitraged, I guess, was severely compressed. And so
Speaker 4: we're seeing that kind of compression go away with loan
Speaker 4: prices being down further today.
Speaker 2: What effect has the debt ceiling debate then had do
Speaker 2: these negotiations have on your market? And you know, if
Speaker 2: the outcome is positive or negative, what does that mean
Speaker 2: to you?
Speaker 4: Yeah, I mean clearly there it's lowered loan prices as
Speaker 4: people have kind of withdrawn or as retail money has
Speaker 4: withdrawn money from the loan market. Surprisingly on the COLO side,
Speaker 4: on the COLO debt side or the liability side. There
Speaker 4: hasn't really been much of effect as kind of spreads
Speaker 4: I held hen and I think that all just speaks
Speaker 4: to just the robust nature of the COLO acid class.
Speaker 4: I mean, it is a floating rate acid class. It
Speaker 4: has historically very low defaults. You know, the junior mezzanine tranche,
Speaker 4: the double B tronch, which is right above the equity
Speaker 4: for colos, has had about a five basis point annual
Speaker 4: default rate. So it's an asset class that has really
Speaker 4: survived I guess, numerous different cycles. And so I think
Speaker 4: people are real that this is an assea class that
Speaker 4: you can kind of ride out in the next kind
Speaker 4: of recession or downturn or whatever you want to call it.
Speaker 5: So are we likely to see more defaults and potential
Speaker 5: downgrades from here?
Speaker 4: Yeah, oh definitely. I mean we're we're not assuming that
Speaker 4: there's no less downgrades or less defaults going forward. But
Speaker 4: that's actually a good thing for col equity. If you
Speaker 4: think about CLO equity, you know, we think of it
Speaker 4: as a kind of a better version of a bank.
Speaker 4: So I guess if you look at the regional banks
Speaker 4: that recently failed, a lot of them had kind of
Speaker 4: short term funding right in the form of deposits, and
Speaker 4: then when the depositors made a run on the bank,
Speaker 4: that obviously caused a lot of these banks to fail.
Speaker 4: Whereas for clos, clos have non mark to market financing,
Speaker 4: so there's no margin calls if prices drop, and it
Speaker 4: has kind of a locked in financing for twelve years,
Speaker 4: and so in times of volatility, you're not kind of
Speaker 4: on the defensive worrying about your nancy and kind of
Speaker 4: getting pulled, but rather you're able to redeploy capital into
Speaker 4: a market that has dislocated prices and loans at a
Speaker 4: severe discount. So in the long run, as long as
Speaker 4: you have a reinvestment period remaining within your COLO. We've
Speaker 4: seen this kind of time and time and again, whether
Speaker 4: it's eight oh nine or during COVID, COLO equity actually
Speaker 4: comes out better than it was going into kind of
Speaker 4: the downturn.
Speaker 2: Hey, I want to ask you, Dan about the transition
Speaker 2: away from lib or to Sofur, which I feel like
Speaker 2: it's been happening for the better part of my life,
Speaker 2: even and I'm fifty. Is it really going to happen
Speaker 2: or are you really gonna, you know, lend money off
Speaker 2: of Sofur rather than libor.
Speaker 4: Yeah, I mean that's what's been happening I guess since
Speaker 4: kind of the beginning of twenty twenty two for the
Speaker 4: new loans that were being issued, and you know, hopefully
Speaker 4: by June thirtieth, this is a topic that we'll never
Speaker 4: have to speak about again. But you know, there still
Speaker 4: needs to be about sixty percent and the legacy loans
Speaker 4: that were issued prior to twenty twenty two switch over
Speaker 4: to SOFUR, and so a lot of these amendments are
Speaker 4: going through where the borrowers are kind of seeking. It's
Speaker 4: a negative consent amendment, so basically the lenders need to
Speaker 4: object to it, and so a lot of them are
Speaker 4: trying to sneak through these CSAs it's called, I guess,
Speaker 4: the credit spread adjustment, and it's because simply because libor
Speaker 4: is an unsecured grade and SOFA is a secure grade.
Speaker 4: So you know, theoretically librar should be a higher number
Speaker 4: than sofur, and so if you were to move over
Speaker 4: to SOFA, you have to kind of receive this also,
Speaker 4: this credit spread adjustment, to be compensator to at least
Speaker 4: have apples to apples between librar and sofur, and so
Speaker 4: a lot of these issuers, these loan issuers and private
Speaker 4: equity firms have been trying to get a nice windfall
Speaker 4: from this this switchover by proposing no CSA or ten
Speaker 4: basis points CSA, even though the I guess the Federal
Speaker 4: Reserve has come out or the ARC Committee which kind
Speaker 4: of sets this proper CSA Raiate has said it's supposed
Speaker 4: to be twenty six basis points. And so a lot
Speaker 4: of these amendments seem to come through come out at
Speaker 4: Friday at five pm, before a long weekend, So we've got,
Speaker 4: you know, a little short of two hours before presumably
Speaker 4: a lot of these firms are going to try to
Speaker 4: put out these negative consent amendments and hope that the
Speaker 4: loan issue or the loan lender sorry miss it for
Speaker 4: next week.
Speaker 5: Dan, we only have about forty five seconds left, But
Speaker 5: I want to get your thoughts. What are you hearing
Speaker 5: from clients right now? What are their concerns?
Speaker 4: Yeah, I mean, certainly there's a lot of concerns with
Speaker 4: kind of like we've talked about defaults and downgrades, but
Speaker 4: I think historically what we've seen with co equities that
Speaker 4: it's a NASA class that's performed, you know, if you
Speaker 4: had invested in COLO equity prior to the global financial
Speaker 4: crisis in eight oh nine, it had I think a
Speaker 4: medium fifteen percent return, and you know there were plenty
Speaker 4: of other I guess top quartile colos that were twenty
Speaker 4: plus percent returns, and so we really do think it's
Speaker 4: a NASA class that thrives during volatility, and so we're
Speaker 4: we're actually pretty excited about this besting environment.
Speaker 2: All right, Dan great having on the program. Thanks so
Speaker 2: much for joining us. Dan Coe joining us there from
Speaker 2: Eagle Point Credit Management, one of the biggest players in
Speaker 2: the c l O resale space, and I think they
Speaker 2: have about seven and a half billion dollars of assets
Speaker 2: under management. So he says, issuance is starting to turn,
Speaker 2: and that's something that we're definitely going to watch as
Speaker 2: well as for default.
Speaker 5: Right, especially just hearing what he's been talking to you
Speaker 5: with clients about in that sort of space, and especially
Speaker 5: ahead of this weekend obviously what you were talking about,
Speaker 5: Matt when it comes to this dead ceiling.
Speaker 2: Absolutely so hopefully he gets on those cssays and is
Speaker 2: able to deny them before he goes on his long weekend.
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Speaker 2: You've been talking for a couple of days now about
Speaker 2: the gloom lifting in terms of equity, and we singled
Speaker 2: out a couple of strategists raising price targets. One of
Speaker 2: them Savita Subrmanian, head of US Equity and quant Strategy
Speaker 2: at Bank America, raising her year end price target on
Speaker 2: the s and P five hundred to I believe forty
Speaker 2: three hundred from four thousand. Savida, thanks so much for
Speaker 2: joining us, really appreciate it. Tell us, first of all,
Speaker 2: why you raise your target, especially in the head of
Speaker 2: these debt sealing negotiations. We still haven't gotten an outcome,
Speaker 2: and if it goes the wrong way, it looks like
Speaker 2: stocks could take a real hit.
Speaker 6: Sure.
Speaker 7: Yeah, So, I think the important idea here is that
Speaker 7: the world is positioned for absolutely awful and the indicators
Speaker 7: we're looking at look not fantastic, but they look okay.
Speaker 7: So you know, I think that the idea here is
Speaker 7: the market doesn't really react on actual growth or you
Speaker 7: know what actually happens act on surprise, and I think
Speaker 7: the surprises that we get through the debt dealing with limited.
Speaker 7: I mean, I think the prevailing assumption, even amongst the bears,
Speaker 7: is that even under a protracted kind of deliberation and bringsmanship,
Speaker 7: we get to resolution. Right, So the market sells off
Speaker 7: and then comes right back. And then on top of that,
Speaker 7: I think, you know, I can count, I can't even
Speaker 7: count at this point the number of investors that we've
Speaker 7: spoken to who have capital to deploy but are waiting
Speaker 7: until after we get past that calendar date. The other
Speaker 7: reason that I'm more optimistic on stocks relative to fixed
Speaker 7: income is that I think that folks are thinking, we're
Speaker 7: going to see the exact same reaction. The market's going
Speaker 7: to sell off, bonds are going to rally. But there
Speaker 7: are two big differences today. The first is stoft versus
Speaker 7: bond allocations. Back in twenty eleven, when US debt was downgraded,
Speaker 7: we're about thirty percentage points higher in stocks relative to
Speaker 7: bonds than they are today. The world has bunkered down
Speaker 7: bond allocations of the highest we've seen in ten plus years.
Speaker 7: Stock allocations are life they did a complete reversal from
Speaker 7: being overweight to underweight last year, and by the end
Speaker 7: of this year they got to the lowest levels we've
Speaker 7: seen since, you know, basically the financial crisis. So a
Speaker 7: lot of our work is telling us that investors our
Speaker 7: positions for sort of armageddon, and what we're going to
Speaker 7: get is, you know, some muddle through. And then when
Speaker 7: you look at cyclicals versus defensive I think there are
Speaker 7: actually some positive signs for cyclicals. Dare I say it,
Speaker 7: because nobody agrees with me. But when you look at
Speaker 7: at some of the macro indicators. You know, we have
Speaker 7: a regime model that we track and it's interesting because
Speaker 7: it's made up of eight indicators, and you know, at
Speaker 7: the beginning of this year, all of them were moving down.
Speaker 7: Now five out of eight of them are actually in
Speaker 7: positive territory. So I think the world is changing very quickly.
Speaker 7: But positioning has been priming. You know, investors have been
Speaker 7: priming for a recession over the last six quarters since
Speaker 7: we started talking about it back you know, in January
Speaker 7: or February of last year. And you know, O argue
Speaker 7: is that the pain trade in equities and especially in
Speaker 7: cyclical areas of the market could be higher rather than
Speaker 7: lower from here.
Speaker 5: So Savita, I know your counterpart, Michael Hartnet he always
Speaker 5: has his flow show on Fridays. It sounds like he's
Speaker 5: singing a little bit of a different tune whenever he's
Speaker 5: looking at the flows data, and he's warning of equity stress,
Speaker 5: particularly in the next month, especially ahead of that FED beating.
Speaker 5: How do you square that away when you have a
Speaker 5: different type of call there at your firm.
Speaker 7: Well, you know, I think it's it's interesting, and I think,
Speaker 7: you know, everybody looks, but well, we'll all look at
Speaker 7: the same data. But I guess it's interpretive. And I
Speaker 7: think what I'm sort of paying attention to is the
Speaker 7: fact that our economists have dialed back their re us
Speaker 7: and forecasts to you know, just zero point eight percent
Speaker 7: peak to trust decline in US GDP. A lot of
Speaker 7: economists across Wall streets don't even expect to see a
Speaker 7: recession when you look at stocks versus bonds. You know,
Speaker 7: maybe flows have been aggressive in certain pockets of the market.
Speaker 7: But what we've seen in our desks and in our
Speaker 7: you know, hedge fund and long only positioning barometers based
Speaker 7: on US active investors, is that individual investors have seen
Speaker 7: capitulation like selling over the last four weeks, and hedge
Speaker 7: funds and long only are LFE on cyclicals, heavy on
Speaker 7: defensives and growth. So I think that, you know, there
Speaker 7: is some interpretive element here, But where I see the
Speaker 7: strongest upside risks within the market is in US more
Speaker 7: cyclical GDP sensitive stocks what I don't like, and here
Speaker 7: I think I agree with Michael hartnett Is. I think
Speaker 7: that both of us see risks to megacap tech. This
Speaker 7: is not a cyclical area of the market. In fact,
Speaker 7: this is much more bond like. These are companies that
Speaker 7: have benefited from free capital their long duration. They act
Speaker 7: kind of like ten year bonds, and they tend to
Speaker 7: suffer when real yield drive. Our view is that the
Speaker 7: biggest bubble, and I suppose I should say my view
Speaker 7: is that the biggest bubble on Waltz and across capital
Speaker 7: markets is in the ten year treasury right in long bonds.
Speaker 7: I think that's really where you know, it's been basically
Speaker 7: pushed up by foreign buyers as well as the FED
Speaker 7: aggressively buying treasuries, and now we're at a point where
Speaker 7: the FED is in quantitative tightening mode. Foreign investors are
Speaker 7: no longer buying treasuries and in fact, in some cases
Speaker 7: are selling. So I think that that is the area.
Speaker 7: Anything that looks like a bond, I e. Megacap, tech,
Speaker 7: long duration, by the dream, you know, no pass upfront
Speaker 7: types of investments to me look risky. That's interesting in
Speaker 7: public equities.
Speaker 3: It's interesting that.
Speaker 2: You know, we're also hearing from a lot of strategists
Speaker 2: that we could see a ton of issuance from treasury,
Speaker 2: you know, eight hundred billion or a trillion dollars of
Speaker 2: issuance that would just soak up liquidity in the market,
Speaker 2: especially if the FED continues QT.
Speaker 3: How does that affect your stocks outlook?
Speaker 7: Yeah, I mean I think that bolsters are viewed for cyclicals.
Speaker 7: I mean, look, the fscan stop of the economy is
Speaker 7: starting to tank. Consumers are rolling over, corporates are rolling over.
Speaker 7: But I think that you know, when you think about
Speaker 7: why the seed is aggressively hiking interest rates, it's to
Speaker 7: stem inflation, to stem demand, And that to me says
Speaker 7: you should probably be in more cyclical areas of the
Speaker 7: market rather than companies that benefit from free capital. And
Speaker 7: I think that right now investors might be using the
Speaker 7: playbooks from two thousand and eight, two thousand and nine.
Speaker 7: You know, credit sensitive stocks are financials, homebuilders, energy commodities,
Speaker 7: et cetera. And our viue is that those are actually
Speaker 7: some of the safer areas within the market because they've
Speaker 7: been starved of capital, they haven't benefited from a low
Speaker 7: cost of capital, because they've basically traded at much higher
Speaker 7: multiples for a variety of reasons. They're now probably healthier
Speaker 7: from a balance sheet perspective, from a supply discipline perspective.
Speaker 7: You know, I would say that the big banks, the
Speaker 7: fifties or the regulated banks, are in a much better
Speaker 7: position than regional banks. And you know, the S and
Speaker 7: P five hundred has a much higher exposure to fifties
Speaker 7: than two regional regionals are only I think a percentage
Speaker 7: point of the market cap of financials within the S
Speaker 7: and P five hundred. A lot of this says to me, Okay,
Speaker 7: you want to buy the equal weight to SMPI hundred
Speaker 7: because the market is still front end loaded with a
Speaker 7: bunch of really big cap tech stocks, and I think
Speaker 7: those companies might not do as well in an environment
Speaker 7: where real yields are rising. But if real yields are
Speaker 7: rising and the economy is still doing okay. Consumers are
Speaker 7: still relatively healthy, corporates have balance the strengths. We're actually
Speaker 7: continuing to hear, So this is the most surprising to me.
Speaker 7: We are continuing to hear companies saying they are spending
Speaker 7: on capac and this is more traditional capac rather than
Speaker 7: just tech capecs. There's a bunch of you know, kind
Speaker 7: of penciled in AI or tech spend, but then beyond
Speaker 7: that is actually on refurbishment, infrastructure, reshoring, near shoring, you know,
Speaker 7: structures and property and equipment, single family household constructions. So
Speaker 7: there are areas of the market that are still running hot,
Speaker 7: and those would rhyme more with cyclical sectors than defensive.
Speaker 5: So, Savita, we only have about thirty seconds left, but
Speaker 5: have to get your thoughts on AI. When you're talking
Speaker 5: about things running hot, how are you advising clients to
Speaker 5: position with that?
Speaker 7: Yeah, I think there are pockets of technology that are
Speaker 7: definitely going to benefit, and we obviously saw you know,
Speaker 7: it's a mass of surprises and earnings. I think it's
Speaker 7: not as broad spread a theme across the entire text complex,
Speaker 7: if you will, So you really need to be choosy
Speaker 7: within the tech space. Our biggest worries are that, you know,
Speaker 7: the overspent during COVID that pull forward could translate into
Speaker 7: weaker demand in the years to come. But AI itself
Speaker 7: is a much more such specific story and there are
Speaker 7: fundamental analysts can help with, you know, the areas of
Speaker 7: the market that will really truly benefit.
Speaker 5: Great Well, thanks so much for chatting with us, Savita.
Speaker 5: It's always great to have your take on that and
Speaker 5: wrapping up all things macro and strategy with us. Such
Speaker 5: a pleasure speaking with you. Thanks for having us back
Speaker 5: with y.
Speaker 2: Yeah, thanks so much for joining us, Savita. Really interesting
Speaker 2: to get a take on one of the people, one
Speaker 2: of the strategists who upgraded her forecast, and I wonder
Speaker 2: if we're going to see more of that. I know
Speaker 2: Tom Lee also has a forecast of more than forty
Speaker 2: seven hundred.
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Speaker 5: We're gonna talk a little crypto right now here we go,
Speaker 5: changing things up from Equity's I'm pretty pumped.
Speaker 3: I mean, it's been a banner year for crypto.
Speaker 2: If you hadn't seen the crash, then you would think
Speaker 2: that this sector was absolutely on fire. I want to
Speaker 2: bring in Thomas Perfumo. He is the head of strategy
Speaker 2: at KRACK and he comes to us via Zoom in
Speaker 2: New York City. He's not just a crypto nerd. He's
Speaker 2: worked on the street as well. He went to the
Speaker 2: Stern School of Business.
Speaker 3: He is a CFA.
Speaker 2: So we understand all of the stuff that I guess
Speaker 2: the masters of the universe know too. Thomas, thanks so
Speaker 2: much for joining us. Tell us first of all, what's
Speaker 2: behind the run up that we've seen this year. I mean,
Speaker 2: is it all about kind of the failing banks and
Speaker 2: failing confidence in the US dollar system.
Speaker 8: Well, of course, the narrative around crypto being an alternative
Speaker 8: solution for traditional finance. I think over time has shown
Speaker 8: supportive empirically. You know, way back when we had rallies
Speaker 8: in cryptocurrency, when we had bail ins of banks internationally.
Speaker 8: So Cyprus is a good example of this many years ago.
Speaker 8: But one perspective that you can take a look at
Speaker 8: is that on a year of a year basis, crypto
Speaker 8: has just been playing catch up to other broader equity
Speaker 8: and disease for example, the S and P five hundred
Speaker 8: and the Nasdaq, where we're more comparable to the performance
Speaker 8: over the year. And this is really of course.
Speaker 3: Oh it looks like we're having problems with Zoom. We're
Speaker 3: gonna work on Tamas. Do we have you back?
Speaker 2: So all right, we're talking about the run up that
Speaker 2: we've seen in crypto. It's been a pretty strong year
Speaker 2: today after the big drop from the massive highs.
Speaker 3: Do you think there's any chance, Tomas, that we get
Speaker 3: back up there?
Speaker 2: Do we get back to bitcoin sixty five thousand, you know,
Speaker 2: in the next year.
Speaker 8: Well, I think there was a lot of skepticism when
Speaker 8: we saw this in twenty seventeen with the drawdown from
Speaker 8: seventeen thousand, and of course we went way past that
Speaker 8: with the peak last year, and so I don't see
Speaker 8: any reason why we can't grow those levels. Just to
Speaker 8: give you some perspective, when you think about crypto adoption
Speaker 8: among the Internet connected population globally, it's only in the
Speaker 8: low teens right now, and so when we think about
Speaker 8: the long term macro tailwinds and the demographic tailwinds, we
Speaker 8: think adoption of crypto's up into the right.
Speaker 5: Tamas, what are the levels that you're keeping a close
Speaker 5: eye on when it comes to bitcoorn. I know thirty
Speaker 5: thousand has been that key kind of psychological cool threshold there,
Speaker 5: But what are you keeping an eye on?
Speaker 2: We don't really take a look, say Prime, all right,
Speaker 2: it sounds like we have an issue with our feed
Speaker 2: for some reason. We're going to try and get Tomas
Speaker 2: to turn the computer off and then restart it.
Speaker 3: Tomas, we have you back.
Speaker 2: It looks like we've fixed the internet for you. Tomas Perfumer.
Speaker 2: We're talking to a head of strategy over at Kraken.
Speaker 2: Talk to us about your business about Kracken. What what
Speaker 2: are you guys doing right now and what's the interest?
Speaker 8: Yeah, of course, so Kracken is a global player in
Speaker 8: the crypto industry. We consider ourselves an ecosystem, so we
Speaker 8: provide a variety of services, whether it's that easy buy
Speaker 8: sell experience for cryptocurrency all the way to things like
Speaker 8: staking and allowing people to earn rewards on their crypto,
Speaker 8: and our goals really are to make crypto easily accessible,
Speaker 8: allow people to transfer an exchange at your assets of
Speaker 8: any kind, and also to help create an ecosystem that
Speaker 8: people can follow as they go more deeper into their
Speaker 8: crypto journey. And you know, when it comes to things
Speaker 8: that we're focusing on this year in particular, it's just
Speaker 8: deepening our relationship with our clients by building products and
Speaker 8: services that are memorable and wonderful for them. But when
Speaker 8: it comes to the long term for the crypto industry,
Speaker 8: what we're most excited about is just following that adoption
Speaker 8: wave that we see globally. Right now, crypto penetration among
Speaker 8: the Internet connected population is in the low teens, so
Speaker 8: we're really early days and just outstandingly excited about what's
Speaker 8: to come.
Speaker 2: Tomas, what is krack and doing about the crack down
Speaker 2: that we've seen from regulators in Washington. A number of
Speaker 2: companies have I know moved offshore. Are you also looking
Speaker 2: at other places to do business as the US decides
Speaker 2: it's no longer in favor of a crypto ecosystem.
Speaker 8: Sure, so, first and foremost, you know, krack Can invests
Speaker 8: a great deal of resources to operate compliantly in all regions. Secondly, speak,
Speaker 8: we all also have the majority of our business outside
Speaker 8: of the US, So for US, the US isn't the
Speaker 8: only market that we depend on or rely on. For US,
Speaker 8: it's a big market, but nonetheless, you know, we are
Speaker 8: obviously focused on building products outside of this country. I
Speaker 8: think from our perspective, the things that we can do
Speaker 8: is to further rebuild the reputation of the industry and
Speaker 8: help create better trust within the industry. Of course, bad
Speaker 8: actors last year did a lot of damage about things
Speaker 8: that we do, for example that earn our clients trust,
Speaker 8: are proof of reserves so that clients can independently verify
Speaker 8: that their assets are safely held with Kraken and otherwise.
Speaker 8: You know, I'm pretty optimistic that given the bipartisan interest
Speaker 8: in solving for legislation for cryptocurrency, the US might have
Speaker 8: a chance at taking a real leadership role in the
Speaker 8: innovation of this technology and bringing it front and center
Speaker 8: to the world. So overall, I think long term I'm optimistic,
Speaker 8: but of course there's a lot of reverberations. In the
Speaker 8: short run.
Speaker 5: We only have about thirty seconds left. Tell me, what
Speaker 5: do you hearing anecdotally when it comes to investor interest.
Speaker 8: Of course, So when we look at the trends internally,
Speaker 8: we continue to see a lot of healthy interest in cryptocurrencies.
Speaker 8: So sign up activity is very healthy. We had a
Speaker 8: course in acceleration in April with the run up and prices,
Speaker 8: But when we take a look at, for example, the
Speaker 8: share of taker transactions that are by transactions, and a
Speaker 8: taker transaction is effectively in order to that is immediately
Speaker 8: executed on the exchange, we see for Bitcoin that it's
Speaker 8: the majority of these transactions are by and historically going
Speaker 8: back to twenty twenty one, that's been the case. But
Speaker 8: during significant drawdowns like the Midsummer of last year, the
Speaker 8: latter part of last year as well, we actually saw
Speaker 8: peak activity in terms of the share of by transactions,
Speaker 8: and even looking into this year is just under that
Speaker 8: peak activity. So we're pretty happy and we think that
Speaker 8: people are just digging their heels in and also agree
Speaker 8: with our view that the long term is positive for crypto.
Speaker 2: All right, Tomas, thanks so much for joining us. Appreciate
Speaker 2: getting your take. Tomas Perfumo there, head of strategy at Kraken.
Speaker 1: This is Bloomberg Business. Wait inside from the reporters and
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Speaker 3: Jess, We've got another AGGI lined up for you.
Speaker 5: I'm so excited we do.
Speaker 3: So.
Speaker 5: We have Alyssa Sangster, chief executive officer of Forte Foundation,
Speaker 5: on the phone from Austin, Texas, who's going to talk
Speaker 5: to us about a study from Forte about NBA pay
Speaker 5: and the promotions gap, which we've been speaking about a lot.
Speaker 5: We just had a recent story in Bloomberg Business Week
Speaker 5: about this. Alissa, how are you?
Speaker 6: How are you?
Speaker 5: Thanks so much for joining us now unpack this latest
Speaker 5: study for us. So what did you find? Because I
Speaker 5: feel like we constantly have these conversations, especially earlier this
Speaker 5: week we were talking about this Bloomberg Business Week story
Speaker 5: about how MBA is closing the gender pay gap on
Speaker 5: starting salaries and then basically it widens. I'm curious to
Speaker 5: hear what you've seen in your latest batch of data.
Speaker 6: Sure, So we looked at a number of factors and
Speaker 6: including compensation, career progression, and kind of the leadership barriers
Speaker 6: that are holding women back. And you know what we
Speaker 6: found was there was that gap that continued. We are
Speaker 6: seeing after you know, graduating with an NBA, there is
Speaker 6: a significant increase in salary and that that increase continues
Speaker 6: for both men and women in terms of earning. But
Speaker 6: where it does kind of as a little disheartening as
Speaker 6: in that gap that remains so even though men and
Speaker 6: women with the same degree and those same opportunities, we're
Speaker 6: still seeing that that gap persist. But there's a lot
Speaker 6: of other pieces there well.
Speaker 9: So if I if I read the study right, the gap,
Speaker 9: the pay gap comes down to just six percent in
Speaker 9: the first post MBA job, right, is that what first year,
Speaker 9: first salary, and then over time.
Speaker 2: It widens back again to about seventeen percent. What's the
Speaker 2: what's the time period there?
Speaker 6: Well, it's an average of a lot of different graduation
Speaker 6: years and people in that but were really looking at
Speaker 6: kind of zero to ten or eleven years post MBA,
Speaker 6: So it's in that timeframe.
Speaker 2: So I mean my immediate thought, you know, my wife
Speaker 2: took a year off when we had our first child,
Speaker 2: and she was fortunate enough to work at a great
Speaker 2: company that continued to keep in communication with her and
Speaker 2: gave her promotions even while she was on maternity leave.
Speaker 3: But that's terribly unusual.
Speaker 2: My immediate thought is that maybe women when they have babies,
Speaker 2: they fall behind a little bit. I assume there are
Speaker 2: also many other factors, But what have you found is
Speaker 2: the re reason for the gap?
Speaker 6: Yeah, I think that's kind of something we all go to,
Speaker 6: is that that childcare and stepping out for maternity, that
Speaker 6: those are some of the biggest contributing factors. But what
Speaker 6: we found was there were a lot of systemic issues
Speaker 6: that are still present, including a lack of role models
Speaker 6: for women who were advancing. They weren't receiving a sponsor
Speaker 6: as they were working in an organization, someone who was
Speaker 6: really advocating for their advancement within the organization. And they
Speaker 6: also cited that they were just not confident that they
Speaker 6: were going to be able to get ahead and advance
Speaker 6: within that workplace. So while childcare challenges seems to be
Speaker 6: something we would all expect, what they reported was very
Speaker 6: different from that.
Speaker 5: Allissa, talk to us about what you found when it
Speaker 5: came to minority women in particular.
Speaker 6: The unfortunate finding here is that out of all of
Speaker 6: the categories. If you look across underrepresented men and women
Speaker 6: and non are men and women, the RM women were
Speaker 6: always in fourth place, no matter what criteria factor you
Speaker 6: were looking at, they were always at the bottom. But
Speaker 6: what we also found that they were number one in
Speaker 6: was those most likely to leave their employer for some
Speaker 6: of these very reasons that we've just cited. And so
Speaker 6: four out of ten underrepresented women said within the next
Speaker 6: year they were looking to leave their current position and employer.
Speaker 6: So that's a big signal of concern.
Speaker 2: What do you I mean, I was thinking, what do
Speaker 2: you tell companies that want to fix this? And I'm
Speaker 2: sure that you have a list of prescription that you
Speaker 2: can give to managers to set it right. But I
Speaker 2: also wonder what you tell students who are graduating and
Speaker 2: heading into the workforce about how they can try and
Speaker 2: get ahead of this and at least do what they
Speaker 2: can on their end to try and keep it more equal.
Speaker 6: Yeah, I mean, I think you know, in any kind
Speaker 6: of educational environment, it's like a Petri dish. You know,
Speaker 6: you can test theories, you can talk about change, and
Speaker 6: I think what we think is most important during those
Speaker 6: NBA years is to really ask yourself, what kind of
Speaker 6: leader do I want to be, what kind of equity
Speaker 6: do I want to see playing out in the workforce?
Speaker 6: And how am I going to change the way business
Speaker 6: is done and thought of? Because so much of this
Speaker 6: is legacy and as I said, systemic issues. So these
Speaker 6: are our future leaders, how can we prepare them to
Speaker 6: address these things spot on when they get into those
Speaker 6: leadership positions. There's a number of things companies can do,
Speaker 6: and investing in that management talent is really critical because
Speaker 6: they're the ones that make these decisions that make it
Speaker 6: difficult for underrepresented women and non you are in women
Speaker 6: to really advance because they're not prepared and equipped to
Speaker 6: deal with the challenges. So more education, more training, more coaching,
Speaker 6: all of that really would help break down some of
Speaker 6: these barriers.
Speaker 5: When it comes to the scope of getting an MBA.
Speaker 5: I'm curious if your research and far as the findings,
Speaker 5: are we still seeing the same amount of people trying
Speaker 5: to go out and get one or have you seen
Speaker 5: any sort of pullback as far as coming out of
Speaker 5: the pandemic at this point?
Speaker 6: Sure? No, You know, applications to NBA programs EBB and
Speaker 6: flow and they actually EBB and flow with the economy,
Speaker 6: and so lingering recession usually means applications are going to
Speaker 6: go up, and as layoffs happen in corporate America, you
Speaker 6: see those numbers of people applying and enrolling in NBA
Speaker 6: programs grow. So we have not seen a decline except
Speaker 6: related to kind of the economy.
Speaker 2: And in terms of the applicants. This wasn't part of
Speaker 2: the study, but do you see more and more women
Speaker 2: applying for MBAs we do.
Speaker 6: I mean, one of the things we've tracked since the
Speaker 6: beginning is the growth in the number of women enrolling
Speaker 6: in those NBA programs. And over the twenty years that
Speaker 6: FORTE has been in existence, it's gone from about twenty
Speaker 6: five percent to where we're now seeing it around forty
Speaker 6: two percent enrolled, and many of our programs are very
Speaker 6: close to fifty if not already at fifty percent. So
Speaker 6: that's been one of the metrics we've been very proud
Speaker 6: of as an outcome from the work we've been doing
Speaker 6: with our partner schools.
Speaker 5: All right, Alyssa, thank you so much for joining us.
Speaker 5: It's been such a pleasure speaking with you. That's Alissa Sangster,
Speaker 5: chief executive Officer of Forte Foundation on the phone from Austin, Texas,
Speaker 5: and she's breaking down that data that we had in
Speaker 5: this story from Bloomberg Business Week earlier this week from
Speaker 5: Jeff Green. He did this story on NBA's closed the
Speaker 5: gender pay gap on starting salaries and then it widens.
Speaker 5: But it's a really fascinating just seeing this dynamic, Matt,
Speaker 5: and what you were talking about is specifically when it
Speaker 5: comes to your wife as well as far as the workplace.
Speaker 2: Yeah, well, she really had to push for that, and
Speaker 2: that's why I wonder what they teach MBA students. But
Speaker 2: I you know, you hope as these new companies mature
Speaker 2: that they'll encourage managers to give the same pay to
Speaker 2: women and men. Journal how about you let me drive?
Speaker 9: Oh no, no, no, no, who's going to drive?
Speaker 3: Honey? Please, I'll do the driving, gravels.
Speaker 8: Let's mate, I want to try it.
Speaker 6: It's the question.
Speaker 9: This is the drive to the Globe dot Com think well.
Speaker 1: Shot it on on Bloomberg Radio.
Speaker 5: Jessman here with Matt Miller filling in for the Carol
Speaker 5: Masser and Tim Stenovik, and we're gonna keep it going.
Speaker 5: We have a little under twenty minutes before the closing
Speaker 5: bell here on Friday, and I'm excited to bring in
Speaker 5: our next guest map because we do have Brian Frank,
Speaker 5: who's the chief investment officer at Frank Capital Partners on
Speaker 5: zoom from Miami, Florida. Frank, it's been a couple months
Speaker 5: since I last spoke to you. Have to get your
Speaker 5: thoughts on this week. Looking at the NAZAC one hundred
Speaker 5: on pace for yet another weekly game. It would be
Speaker 5: five straight weeks in a row we've seen this. What
Speaker 5: is your take here on the ladies, with the markets,
Speaker 5: with this year's well, with this week's rally.
Speaker 3: Rap there, Hi.
Speaker 10: There, Jess, Thanks for having me. It's great to be here.
Speaker 10: My take is that it doesn't look like investors have
Speaker 10: learned too much from twenty twenty one. We have these
Speaker 10: growth stocks that are leading again. In twenty twenty one
Speaker 10: they were the unprofitable growth stocks, so at least this
Speaker 10: time they're profitable companies. But the other year it looks
Speaker 10: like nobody learned anything from was nineteen ninety nine to
Speaker 10: two thousand. So we've seen this movie before. We've seen
Speaker 10: Microsoft and Cisco and you know, the Internet giants in
Speaker 10: two thousand, Lead and trade at large price to earnings
Speaker 10: ratios and have a lot of excitement behind them that
Speaker 10: was actually justified. And those companies, many of them, doubled
Speaker 10: their earnings in the ten years after two thousand, but
Speaker 10: the stock prices were down double digits in that following
Speaker 10: ten years. So the valuation matters, and that seems to
Speaker 10: be lost in the excitement this week in the AI revolution,
Speaker 10: which I admit is quite exciting. I use AI for
Speaker 10: my job. It's definitely made my life easier and better.
Speaker 10: But valuation doesn't go away. It doesn't change with new technology,
Speaker 10: and that really seems to be lost in the shuffle
Speaker 10: this week with these fantastic earnings reports and huge run
Speaker 10: ups and stuff.
Speaker 3: So when do we actually see a rotation.
Speaker 2: Then, Brian, you know, from these growth stocks into value
Speaker 2: stocks that have you know, much better.
Speaker 3: PE ratios, much lower PE ratios. When is that going
Speaker 3: to come about?
Speaker 10: I think that that's going to come about when my
Speaker 10: stress levels hit maximum. It's a tough time to be
Speaker 10: a value investor, but look, we got a good taste
Speaker 10: of it in twenty twenty two. My fund, the Frank
Speaker 10: Value Fund, which is a MidCap blend fund, sorry, MidCap
Speaker 10: value fund was actually up in twenty twenty two, so
Speaker 10: we got a little taste. We know it works, and
Speaker 10: this year the fund is actually positive when the category
Speaker 10: is down because we have some specific names that are
Speaker 10: working that aren't in the in the tech sector. So
Speaker 10: there's a little bit of it going on right now,
Speaker 10: but I think truly it will come as the economy
Speaker 10: continues to roll over. That's probably the thing I would
Speaker 10: watch most. The leading economic indicators are negative. The yield
Speaker 10: cur has been inverted for a very long time. We're
Speaker 10: just kind of waiting on the coincident indicators to go
Speaker 10: negative here, and generally that leads a rotation into value.
Speaker 10: So hopefully soon we who don't want to root for
Speaker 10: a recession, but clearly I think if you're a prudent investor,
Speaker 10: you should be planning for one right now.
Speaker 5: You said you had some names that are working. What
Speaker 5: are you buying? What are you selling?
Speaker 10: What's been working for us actually is a company called PCG.
Speaker 10: That's the ticker symbol. The company is PGNY. It's the
Speaker 10: largest electrical utility in California. It's been working spectacularly for us.
Speaker 10: We have bought in around the middle of last year
Speaker 10: under ten dollars a share, and it's currently trading around
Speaker 10: sixteen and that's because it got bootied out of the
Speaker 10: S and P five hundred when they restructured in chapter
Speaker 10: eleven after all the wildfires and you know, terrible things
Speaker 10: that that company did. But they've actually hired a new CEO,
Speaker 10: completely new management team since the restructuring. The new CEO
Speaker 10: is Patty Pope, who is the first female CEO of
Speaker 10: two different Fortune five hundred companies. She comes from an
Speaker 10: electrical utility in Michigan. She's completely turned it around and
Speaker 10: it's been working because it got back into the S
Speaker 10: and P five hundred. So one of the little known
Speaker 10: thing about active managers, how we can kind of take
Speaker 10: advantage of the indexation is we can buy things that
Speaker 10: might actually get added to the SMP over time. And
Speaker 10: that's worked out with PC and G. It got added,
Speaker 10: we got some appreciation. But what we think is left
Speaker 10: there actually is they're going to implement their dividend so
Speaker 10: they'll become more like every other utility stock, except this
Speaker 10: one's trading at thirteen times earnings and the utility space
Speaker 10: is trading over twenty times earnings, So it's evaluation play
Speaker 10: it's a dividend play, and it's a great management team play.
Speaker 3: It makes a lot of sense.
Speaker 2: We have a great story in the terminals today about
Speaker 2: the index effect, right, and how too many people are
Speaker 2: playing in that space to make any money. But I
Speaker 2: guess if you get this far ahead of it, Brian,
Speaker 2: you can definitely be a winner. You also like Jack
Speaker 2: in the Box, which I mean, I wish we had these.
Speaker 3: Do they have those in Texas?
Speaker 5: Just they do? They do? So lucky we prefer what
Speaker 5: a burger there?
Speaker 2: Well okay, yeah, in any case, we don't have either
Speaker 2: of them here.
Speaker 3: Why do you like Jack in the Box?
Speaker 5: Well?
Speaker 10: I like it, Matt, because hopefully you will have one
Speaker 10: in New York soon and I'll have one in Miami
Speaker 10: because there are some expansion possibilities left with this company.
Speaker 10: They're not in every state yet. They are the one
Speaker 10: of the largest quick serve restaurant chains in the US,
Speaker 10: and they also have a new concept called Del Taco,
Speaker 10: which they purchased last year. And what these large companies do,
Speaker 10: like McDonald's and Wendy's, is they sell all the company
Speaker 10: owned restaurants to franchisees. That lowers revenue, but it really
Speaker 10: boosts profit margins, so they've been doing that with Jack
Speaker 10: in a Box, it's over ninety percent franchise, but Del
Speaker 10: Taco is only fifty percent franchise. So on top of
Speaker 10: that you have some tough times from inflation. Last year,
Speaker 10: these companies weren't able to raise their prices fast enough
Speaker 10: because they need to keep prices low because they're mass
Speaker 10: market chains. But they're catching up now and food prices
Speaker 10: are coming down. But what the market I think discounted
Speaker 10: was that margins would stay low forever on Jack Jack
Speaker 10: in the Box, and we disagree with that our research
Speaker 10: at the Frank.
Speaker 5: Oh, keep going.
Speaker 2: I just googled Del Taco to see if we have
Speaker 2: any in New York, so those are not here yet either,
Speaker 2: But if you want out in Queens, there's a truck
Speaker 2: called l Ray Del Taco, you know.
Speaker 5: The last tie. Well, hopefully you and I were talking, Brian.
Speaker 5: You told me that you had lost a little bit
Speaker 5: of sleep over what was happening with the banks back
Speaker 5: in March. With all that mold. We only have about
Speaker 5: a minute left, but something that struck me. You said
Speaker 5: you haven't bought a bank sock since two thousand and eight,
Speaker 5: so I'm guessing you haven't been buying the dip clearly
Speaker 5: what we saw on the financial side.
Speaker 10: No, we kind of learned our lesson in two thousand
Speaker 10: and eight, where unfortunately the shareholders get all the downside
Speaker 10: and none of the bailout fun upside that the insiders
Speaker 10: get there. So my opinion really hasn't changed. I think
Speaker 10: bank stocks are just structured against the shareholder and look
Speaker 10: as a stock picker as someone who's benchmark agnostic, meaning
Speaker 10: I don't have to have financials if I don't want them.
Speaker 10: I don't see a good bet there. I see lots
Speaker 10: of other easier things to do, like Jack in the Box.
Speaker 10: So I'm happy to not play in financials right now,
Speaker 10: especially given the chaos that's going on there.
Speaker 5: All right, Brian, it was great catching up with you
Speaker 5: once again. Thank you so much for joining us. It's
Speaker 5: Brian Frank, chief investment officer at Frank Capital Partners. He
Speaker 5: was joining us from Zoom in Miami, Florida. So what
Speaker 5: do you think about those picks when it comes to
Speaker 5: Jack in the Box?
Speaker 2: I mean, very interesting Jack in the Box. I just
Speaker 2: want to see it come over here. I think the
Speaker 2: PG and E play is fascinating, especially since they're trading
Speaker 2: at such a discount to the rest of the utilities
Speaker 2: right now, and if they do get added to an index,
Speaker 2: it would be fascinating to see Brian read the rewards
Speaker 2: on that pom right.
Speaker 5: And yet again, it's more of a focus total defensive
Speaker 5: type names that we've seen, especially when you're thinking about
Speaker 5: this market this year with tech and the big jump there.
Speaker 5: This is Bloomberg.
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