WEBVTT - Banks, Housing, Markets, and UK CPI 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:05.280 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day, we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moving news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets Podcast on Apple Podcasts or wherever 0:00:17.400 --> 0:00:20.480 you listen to podcasts, and at Bloomberg dot com slash podcast. 0:00:20.880 --> 0:00:23.360 Our great friends of Goldman Sachs kind of a tough quarter. 0:00:23.480 --> 0:00:25.239 You know, I don't feel sorry for them because they 0:00:25.280 --> 0:00:28.520 win a lot more than they don't. I competed against 0:00:28.520 --> 0:00:31.640 them for many, many years, with some success, but always 0:00:31.720 --> 0:00:36.199 always tough competitors everywhere you go. Somebody's also followed this 0:00:36.240 --> 0:00:39.280 company for a long long time. Allison Williams Bloomberg Intelligence. 0:00:39.520 --> 0:00:41.480 She's her senior banks analyst, and you know she's also 0:00:41.520 --> 0:00:45.920 a suit. She's now management. She runs the US Bloomberg Intelligence. 0:00:45.960 --> 0:00:48.440 So it's like, you know, now she's a suit, she's 0:00:48.440 --> 0:00:48.920 a boss. 0:00:49.040 --> 0:00:51.360 You're a boss now exactly you were a boss before 0:00:52.240 --> 0:00:53.199 because I have tough. 0:00:54.880 --> 0:00:56.920 So, you know, Allison, I don't know talk to us 0:00:56.960 --> 0:00:59.600 about Goldman Sachs here. It feels like they kind of 0:00:59.600 --> 0:01:01.840 got a little off track with that retail push and 0:01:01.880 --> 0:01:05.200 maybe that took some attention away from some of their businesses. Yes, 0:01:05.240 --> 0:01:08.039 it is a tough environment, but Goldman Sacks is still 0:01:08.080 --> 0:01:08.960 Goldman Sacks. 0:01:08.720 --> 0:01:12.000 Right they are, and you know you're seeing the other 0:01:12.040 --> 0:01:15.240 side of holatility to some extent, right, So, I mean 0:01:15.560 --> 0:01:18.440 the ro is very tough. This quarter includes a lot 0:01:18.480 --> 0:01:21.720 of one timers, there's some charges, there's you know, they're 0:01:21.920 --> 0:01:25.160 working towards a longer term strategy and I think they're 0:01:25.160 --> 0:01:29.479 doing the right things. The alternative strategy. You're really showing 0:01:29.520 --> 0:01:32.360 this quarter why that they're implementing that in terms of 0:01:32.720 --> 0:01:35.039 moving to a model that's more focused on fees and 0:01:35.080 --> 0:01:38.319 managing assets for clients versus taking the risks directly on 0:01:38.360 --> 0:01:40.839 their balance sheet, which is something that regulators have wanted 0:01:40.880 --> 0:01:43.720 them to move away from for a long time. So 0:01:43.760 --> 0:01:47.360 they had that charge. They also had the charge related 0:01:47.400 --> 0:01:52.360 to Green Sky offset by a little small gain related 0:01:52.400 --> 0:01:55.680 to some sale Marcus Loans. I think, you know, moving 0:01:55.680 --> 0:01:58.680 away from those businesses also strategically the right thing for 0:01:58.760 --> 0:02:02.400 Goldman focused on want what you're good at. Unfortunately, it's 0:02:02.440 --> 0:02:05.680 a tough quarter for the business. But equities trading up 0:02:05.760 --> 0:02:09.800 one percent, I mean that's oppressive in this quarter, and 0:02:09.840 --> 0:02:11.679 that's you know, that's a prime brokerage business, and that 0:02:11.720 --> 0:02:13.720 shows that they're executing on what they do well. 0:02:14.120 --> 0:02:16.960 So when it comes to the consumer business in Green Sky, 0:02:17.120 --> 0:02:19.560 like you mentioned, is part of what we're seeing right 0:02:19.600 --> 0:02:21.960 now with Goldman, just some pain that they have to 0:02:22.000 --> 0:02:25.200 go through to kind of have this transition out of 0:02:25.320 --> 0:02:26.760 and away from those two things. 0:02:27.080 --> 0:02:29.640 Yeah, I mean general, when you shift strategy and do 0:02:29.720 --> 0:02:32.040 some kind of restructuring, you know, first of all, it's 0:02:32.080 --> 0:02:36.400 never in a straight line, and there's always charges before 0:02:36.400 --> 0:02:38.400 you sort of move on to the better stuff. Because 0:02:38.960 --> 0:02:41.880 they were performing well, you probably are were not businesses 0:02:41.880 --> 0:02:45.920 that you're getting rid of, and so it's tough for 0:02:45.919 --> 0:02:47.679 them to take the impairment and shows that that was 0:02:48.200 --> 0:02:53.760 not an asset purchase. Well, but I think that on 0:02:53.800 --> 0:02:59.200 the cost side of things, if we strip out these costs, 0:02:59.000 --> 0:03:00.960 there's stills a little bit more work to do. So 0:03:01.000 --> 0:03:02.959 they do you know, they want to get to a 0:03:03.040 --> 0:03:05.640 sixty percent cost ratio over the cycle. They're at about 0:03:05.720 --> 0:03:09.760 seventy percent once you make all the adjustments. So part 0:03:09.760 --> 0:03:13.280 of that is the tougher part of the cycle. So 0:03:13.520 --> 0:03:16.880 I talked about equity trading which was a real positive fix. 0:03:16.960 --> 0:03:20.639 Trading was weak as expected. You know, Goldman and Morgan 0:03:20.639 --> 0:03:24.200 Stanley especially you're seeing big declines because they had such 0:03:24.240 --> 0:03:27.840 good quarters a year ago due to commodities. And on 0:03:27.919 --> 0:03:31.639 the banking side, Goldman is the m and a revenue leader, 0:03:32.040 --> 0:03:35.360 as you know Paul from competing with them in the past. 0:03:35.440 --> 0:03:38.560 That so they you know, the league tables move around, 0:03:38.600 --> 0:03:43.120 but that's a big chunk for them, and that's just 0:03:43.160 --> 0:03:45.080 going the wrong way right now for the industry. We're 0:03:45.120 --> 0:03:48.640 hearing a lot of constructive comments about the pick up there, 0:03:50.120 --> 0:03:53.480 and you know you've also mentioned from some folks, you know, 0:03:54.760 --> 0:03:56.920 hearing some positive comments, but those are really not going 0:03:56.960 --> 0:03:58.760 to play out in the second half. That's a twenty 0:03:58.800 --> 0:03:59.520 twenty four story. 0:03:59.560 --> 0:03:59.760 All right. 0:03:59.800 --> 0:04:02.040 Let's step back and just talk regulation, not so much 0:04:02.080 --> 0:04:04.080 for for Goldman per se, but just for the banks, 0:04:04.120 --> 0:04:07.080 all right. Post financial crisis, a lot of new regulations 0:04:07.120 --> 0:04:07.880 came on in the industry. 0:04:07.960 --> 0:04:08.720 Fine, we get it. 0:04:09.120 --> 0:04:12.400 There had to be some response and probably well deserved regulations, 0:04:13.120 --> 0:04:15.240 I would have thought, and over time a lot of 0:04:15.240 --> 0:04:17.479 those regulations would just kind of fall to the wayside, 0:04:17.520 --> 0:04:20.440 peel back. But now the discussion is actually even for 0:04:20.520 --> 0:04:24.320 more regulations. What is driving that that need for more 0:04:24.360 --> 0:04:26.200 regulation of the banks? I know Jamie Diamond's been a 0:04:26.200 --> 0:04:29.039 big spokesperson kind of against that with along with Brian 0:04:29.080 --> 0:04:29.480 morning Hand. 0:04:30.680 --> 0:04:33.839 So there's two things, you know, first, which is on 0:04:34.080 --> 0:04:36.720 you know the quote smaller banks, but you know, not 0:04:36.760 --> 0:04:39.200 the not the biggest banks that I cover. Right, So 0:04:39.240 --> 0:04:41.280 we had the issues in March that did raise a 0:04:41.279 --> 0:04:43.680 lot of questions of you know, some of the things 0:04:43.680 --> 0:04:46.720 that were rolled back, Okay, should they have been? And 0:04:46.760 --> 0:04:49.320 so I think that sort of, you know, to your point, 0:04:49.320 --> 0:04:51.359 things started to roll back, but now the question was 0:04:51.400 --> 0:04:54.359 like was that the right thing to do. The second 0:04:54.480 --> 0:04:57.320 part that's more germane to the banks that I cover, 0:04:57.360 --> 0:04:59.840 which is Basil three endgame, which we hope is finally 0:04:59.839 --> 0:05:03.920 the end. So again we've had all these regulations over 0:05:03.960 --> 0:05:08.960 the years. You know, there's some some still finalization that 0:05:08.960 --> 0:05:11.560 we're expecting any day now for the last few weeks. 0:05:12.320 --> 0:05:16.040 And I think that why you're hearing the bank management's 0:05:17.000 --> 0:05:19.560 complain is that you know, first of all, the way 0:05:19.640 --> 0:05:22.400 that the basil works, because you hear this term a lot, right, 0:05:22.440 --> 0:05:25.560 So Basil is really an entity that sort of sets 0:05:25.600 --> 0:05:29.039 the guidelines and then the jurisdictions go out and implement those. 0:05:29.360 --> 0:05:32.640 So the US has a lot of other very strict 0:05:32.680 --> 0:05:35.479 regulations that other countries don't have. Right, so we have 0:05:35.560 --> 0:05:38.600 the stress test every year. That adds a lot of volatility, 0:05:39.600 --> 0:05:42.720 and that really is very punitive to the trading books 0:05:42.720 --> 0:05:47.880 of banks. This buzzle three endgame, again supposedly from what 0:05:47.880 --> 0:05:50.680 we've heard from the proposal outlines, is also going to 0:05:50.720 --> 0:05:53.000 be tough on the trading books of banks. So do 0:05:53.040 --> 0:05:55.320 you really need to have this sort of double whammy 0:05:55.760 --> 0:05:59.719 and these different types of conflicting regulations that you know, 0:05:59.760 --> 0:06:01.839 really make it very difficult. And I think you know 0:06:01.880 --> 0:06:04.920 what the bank managements will say is you might make 0:06:04.960 --> 0:06:07.480 the banks safer, but the risks will still be there 0:06:07.520 --> 0:06:09.120 and they'll be outside of the system. 0:06:09.320 --> 0:06:09.400 Ye. 0:06:09.760 --> 0:06:11.039 And is that really what you want? 0:06:11.080 --> 0:06:14.320 Unintended consequence, because that goes too just to the business 0:06:14.320 --> 0:06:16.200 at Maddie and I talked to talk about a lot, 0:06:16.240 --> 0:06:17.719 which is the private credit business. 0:06:18.160 --> 0:06:22.000 And these private creditors come in with almost these Cheshire smiles. 0:06:22.200 --> 0:06:24.640 You know, they're like, I can't believe how good it 0:06:24.680 --> 0:06:26.360 is for us now because the banks have so much 0:06:26.400 --> 0:06:28.880 regulation that they're reluctant to put some of these loans 0:06:28.920 --> 0:06:32.560 on their books, and so the barers, big private equity 0:06:32.560 --> 0:06:35.000 shops are coming to us and we're making money handover 0:06:35.080 --> 0:06:35.599 faced here. 0:06:36.040 --> 0:06:37.719 And if you look at if you looked at a 0:06:37.839 --> 0:06:41.000 very long term chart of banks, you know since the crisis, 0:06:41.480 --> 0:06:44.640 you will see the huge growth of credit in the 0:06:44.680 --> 0:06:47.200 non bank center, shadow bank, whatever you want to call it, 0:06:47.320 --> 0:06:51.320 private credit is that is certainly a huge player there. 0:06:51.400 --> 0:06:55.080 And then the decrease on banks balance sheets. But again 0:06:55.160 --> 0:06:57.320 like these private credit firms are getting there. You know, 0:06:57.360 --> 0:07:01.520 they're raising capital, you know, from someone, And if you 0:07:01.560 --> 0:07:04.800 think about it, the private private credit is really sort 0:07:04.839 --> 0:07:08.280 of the talk of the entire asset management industry, even 0:07:08.279 --> 0:07:12.480 the traditional managers buying into private credit, the private equity 0:07:12.520 --> 0:07:15.400 managers building up their private credit businesses. So you have 0:07:15.480 --> 0:07:16.720 all this money going there. 0:07:16.840 --> 0:07:17.680 There's more talk. 0:07:17.560 --> 0:07:20.480 About getting this into pension portfolios and other portfolios. So 0:07:20.520 --> 0:07:22.760 you can think about, you know, sort of wear the 0:07:22.840 --> 0:07:24.920 risks and who's going to bear those risks and how 0:07:24.960 --> 0:07:25.920 that's all shaping up. 0:07:25.840 --> 0:07:27.200 Thinking about going into the private credit. 0:07:27.440 --> 0:07:30.680 See I went through thesemen bank, the Chase Manhattan Bank 0:07:30.800 --> 0:07:34.040 credit training, which is the best on Wall Street. Back 0:07:34.040 --> 0:07:35.760 back in the day, I can take those skills and 0:07:35.800 --> 0:07:36.640 go to private credit. 0:07:36.680 --> 0:07:37.120 There you go. 0:07:37.360 --> 0:07:39.480 I should have done it. I mean, there's still time 0:07:39.520 --> 0:07:42.720 for me, you guys, I can get an MBA tomorrow. Allison. 0:07:42.720 --> 0:07:44.160 I want to ask you a weird one in our 0:07:44.200 --> 0:07:46.440 final minute and a half with you. A lot of 0:07:46.440 --> 0:07:49.640 my friends got the Apple savings card with the Goldman. 0:07:50.400 --> 0:07:52.080 What do I need to tell them? Are they gonna 0:07:52.240 --> 0:07:54.120 get ditched by Goldman any day? 0:07:54.160 --> 0:07:54.360 Now? 0:07:54.520 --> 0:07:56.600 What's going on with I mean, they they probably don't 0:07:56.600 --> 0:07:59.360 even know that Goldman's evolved, and except that you probably 0:07:59.360 --> 0:08:02.800 told them that, and that's why those cards are those 0:08:02.800 --> 0:08:03.960 cards are generally. 0:08:03.640 --> 0:08:04.680 Called private label. 0:08:05.400 --> 0:08:08.600 So what Goldman had said right was that they were 0:08:08.600 --> 0:08:11.480 getting away from Marcus. They did keep the GM relationship, 0:08:11.520 --> 0:08:14.320 the Apple relationship, where there's some kind of a relationship, 0:08:14.920 --> 0:08:18.680 but in general, when those relationships fall apart, it's it 0:08:18.840 --> 0:08:22.160 tends to be because the economics just aren't working for 0:08:22.240 --> 0:08:24.760 one or someone else is coming in and willing to 0:08:25.040 --> 0:08:29.080 accept lower economics. So, you know, and of course we 0:08:29.160 --> 0:08:31.920 never know that, We never know that. Most of us 0:08:32.000 --> 0:08:34.719 never know exactly what happens. But you know, that could 0:08:34.760 --> 0:08:37.080 be the case that someone's coming in and just you know, 0:08:37.200 --> 0:08:40.160 more interested in the credit card business, and now that 0:08:40.480 --> 0:08:43.720 it's not so strategically important for Goldman, you know, will 0:08:43.760 --> 0:08:46.440 they be willing to sort of give that away? And 0:08:46.480 --> 0:08:48.880 it's it's also been interesting, right So the other side 0:08:48.880 --> 0:08:51.800 of it is the deposit gathering business, and you see 0:08:51.960 --> 0:08:54.560 Apples introducing this new product, but then you have the 0:08:54.600 --> 0:08:56.880 Marcus product and you see the yields on both of 0:08:56.920 --> 0:08:59.880 those and kind of competing, and you know where we're 0:09:00.280 --> 0:09:02.800 you know, Goldman liked those. They obviously would like to 0:09:02.840 --> 0:09:04.720 get one hundred percent of the economics where they. 0:09:04.640 --> 0:09:07.280 Can, right, Okay, all right, Alison, thanks so much for 0:09:07.360 --> 0:09:09.480 joining us. I know there's a busy, busy few days 0:09:09.559 --> 0:09:09.840 for you. 0:09:09.920 --> 0:09:10.560 Alison Williams. 0:09:10.559 --> 0:09:12.640 She covers all the banks on a global basis for 0:09:12.679 --> 0:09:15.720 Bloomberg Intelligence. She's also the director of research for the 0:09:15.840 --> 0:09:18.280 US business for Bloomberg Intelligence, so we appreciate getting some 0:09:18.320 --> 0:09:21.440 of her time here in the Bloomberg Interactive Brokers Studio. 0:09:22.880 --> 0:09:26.280 You're listening to the Team Ken's are Live program Bloomberg 0:09:26.320 --> 0:09:29.720 Markets weekdays at ten am Eastern on Bloomberg dot com, 0:09:29.760 --> 0:09:32.920 the iHeartRadio app, and the Bloomberg Business app, or listen 0:09:33.000 --> 0:09:37.360 on demand wherever you get your podcasts, Madison. 0:09:37.360 --> 0:09:40.400 When I bought the Jersey Shore Compound earlier this year, 0:09:40.440 --> 0:09:43.240 my mortgage had a six handle on it, and I 0:09:43.320 --> 0:09:44.360 was not happy. 0:09:45.320 --> 0:09:47.000 Just got rooked at because I know Matt. 0:09:46.760 --> 0:09:49.920 Millers is I think sub three on his estate up 0:09:49.920 --> 0:09:53.480 in Westchester. But I'm looking at the bankrate dot com 0:09:53.559 --> 0:09:57.360 US home mortgage thirty year fixed national average today seven point, 0:09:58.240 --> 0:10:00.520 So maybe I'm not that dumb of a buyer. But 0:10:00.840 --> 0:10:03.120 any who, where are mortgage rates going? What's going on 0:10:03.160 --> 0:10:06.840 in that market? I have no idea other than we'd 0:10:06.920 --> 0:10:10.040 call Erica Adelberg. She's an MBS strategist that's mortgage backed 0:10:10.040 --> 0:10:13.840 securities for you out there for Bloomberg Intelligence. She joins 0:10:13.920 --> 0:10:16.679 us here in our Bloomberg Interactive Brokers studio. So, Erica, 0:10:16.880 --> 0:10:20.200 how are mortgage backed securities? How's the market in twenty 0:10:20.640 --> 0:10:22.440 twenty three so far you're to date? 0:10:23.200 --> 0:10:27.880 Hi, thanks for having me on. The market is actually 0:10:28.920 --> 0:10:32.600 just barely up, I think on an excess return basis, 0:10:33.000 --> 0:10:36.600 and it's we actually have great rates are up one 0:10:36.640 --> 0:10:38.640 hundred as you pointed out, they're up about one hundred 0:10:38.679 --> 0:10:42.920 basis points in terms of primary mortgage rates year every year. 0:10:43.200 --> 0:10:45.880 But they are off their recent peaks, so at least 0:10:45.960 --> 0:10:48.600 you didn't take out a seven point three five percent 0:10:48.720 --> 0:10:53.320 mortgage last week or so. As you know, they ratesed, 0:10:53.559 --> 0:10:57.280 you know, fled higher once again when non fine pay 0:10:57.360 --> 0:10:59.559 rolls came in a little stronger than some people had 0:10:59.559 --> 0:11:02.520 hoped her expected. But there has been some retreat in 0:11:02.600 --> 0:11:05.160 that again with CPI coming in a little bit lower. 0:11:05.320 --> 0:11:09.400 So you know, we're still closer to the hives than 0:11:09.400 --> 0:11:12.120 the lows, but you know, we are off the tippy top. 0:11:13.080 --> 0:11:16.480 But anytime you have mortgage rates around or above seven percent, 0:11:17.440 --> 0:11:21.440 it probably is restrictive on an affordability basis for quite 0:11:21.440 --> 0:11:22.080 a few people. 0:11:22.480 --> 0:11:24.680 Yeah, well, it's really interesting. I know that you know 0:11:24.840 --> 0:11:28.080 all about this, but this Redfin report was fascinating to 0:11:28.160 --> 0:11:30.959 me showing that just one percent of the nation's homes 0:11:30.960 --> 0:11:33.480 have changed hands this year. And they also have data 0:11:33.520 --> 0:11:36.480 showing the ninety percent of Americans do have a mortgage 0:11:36.559 --> 0:11:40.320 under six percent. So why would anyone ever be incentivized 0:11:40.400 --> 0:11:43.480 to let that go when, like you said, Paul, now 0:11:43.480 --> 0:11:47.559 we're at the seven handle. What could be the catalyst 0:11:47.640 --> 0:11:51.720 for people to start to say it's time to leave 0:11:51.800 --> 0:11:53.640 behind my home and get a new mortgage. 0:11:53.720 --> 0:11:56.199 I mean to state the obvious. Life happens. You know, 0:11:56.440 --> 0:12:00.600 people have kids, you know, there's divorces, there's you know, 0:12:00.640 --> 0:12:02.880 so over time and and I mean, if you look 0:12:02.920 --> 0:12:06.360 at the very long range average, it's not like seven 0:12:06.400 --> 0:12:09.600 percent is it's it's high, but you know, we've had 0:12:09.679 --> 0:12:11.760 rates a lot higher. It seems like all of our 0:12:12.280 --> 0:12:15.559 you know, older siblings or parents, depending on what generation 0:12:15.640 --> 0:12:18.800 we're in, you know, at one point probably had rates 0:12:18.880 --> 0:12:21.920 that were seven seven to ten percent or you know, 0:12:21.960 --> 0:12:24.600 even higher. And of course all those people have now 0:12:24.640 --> 0:12:27.479 refinanced two and a half percent if they still have mortgages. 0:12:28.000 --> 0:12:31.200 But is that the move then for people listening? Just 0:12:31.400 --> 0:12:34.560 if you are waiting to buy a home, don't wait, 0:12:34.720 --> 0:12:36.040 just do it now in refinance. 0:12:36.320 --> 0:12:38.720 That's that's certainly what a new homebuilder would tell you. 0:12:38.880 --> 0:12:39.880 Yeah, and new. 0:12:39.720 --> 0:12:42.720 Home builders are you know that That's that's really the 0:12:42.760 --> 0:12:45.240 game in town right now, because as you just mentioned, 0:12:45.280 --> 0:12:46.839 except for the people who do have to move for 0:12:46.920 --> 0:12:49.800 one reason or another, very few people are listing their 0:12:49.840 --> 0:12:52.400 their homes. You know, the numbers on listenings are extremely low. 0:12:52.720 --> 0:12:55.560 So the resale market as they call it is, or 0:12:55.559 --> 0:12:58.880 existing home market, is very slow. But new home builders, 0:12:59.360 --> 0:13:03.680 as just alluded to, permits and starts, are up new 0:13:03.720 --> 0:13:06.080 home sales. New home inventories are about a third of 0:13:06.120 --> 0:13:10.280 existing homes of homes listed for sale these days, and 0:13:10.480 --> 0:13:16.000 the new home builders are finding ways to incentivize first 0:13:16.000 --> 0:13:18.400 time home buyers and you know, even some move up 0:13:18.400 --> 0:13:22.960 buyers by offering them slightly lower rates. What's interesting, I 0:13:23.000 --> 0:13:25.640 was reading just the other day that some of these buydowns, 0:13:25.640 --> 0:13:28.400 as they call it, were relatively temporary. They offered like 0:13:28.440 --> 0:13:30.920 a three two one buy down, where it's basically only 0:13:30.960 --> 0:13:33.040 good for three years the first year they buy down 0:13:33.040 --> 0:13:35.760 the rate for three years, then two, then one. They 0:13:35.800 --> 0:13:38.400 have to qualify them at the higher mortgage rate, so 0:13:38.760 --> 0:13:42.440 you know, unlikely to be another subprime teaser mortgage rate, 0:13:42.480 --> 0:13:44.320 but it might become as a rate shock. Maybe some 0:13:44.360 --> 0:13:47.520 people had expected, as you mentioned, rates to fall sooner 0:13:47.800 --> 0:13:50.280 and to be able to refinance in that time, and 0:13:50.280 --> 0:13:52.840 that's what the home builders are selling. They're like, you know, 0:13:52.920 --> 0:13:54.760 for right now, we'll give you a lower rate because 0:13:54.800 --> 0:13:56.640 surely you'll be able to refin in a year or two. 0:13:57.040 --> 0:13:58.880 Some of those people certainly haven't been able to. 0:13:59.240 --> 0:14:02.520 Yeah, I kind of thought I gave myself twelve months, 0:14:02.520 --> 0:14:04.439 which I still plenty plan of time that i'd refinance 0:14:04.480 --> 0:14:07.120 with a FOE handle, and I'm not sure that's going 0:14:07.160 --> 0:14:09.160 to happen, but we'll see, but I will refinance a 0:14:09.200 --> 0:14:11.360 low I'm not too concerned about that, all right, So 0:14:11.440 --> 0:14:15.440 talk to us about Uh yeah, I think about office space, 0:14:15.720 --> 0:14:17.760 and in some of the biggest cities there's so much 0:14:17.800 --> 0:14:19.400 office space, and people are telling us that's going to 0:14:19.440 --> 0:14:22.440 be a real problem for the lenders and so on 0:14:22.480 --> 0:14:22.960 and so forth. 0:14:22.960 --> 0:14:27.000 How does that impact your market, the mortgage backed securities market, I. 0:14:27.320 --> 0:14:30.680 Think the actual office space. There's two ways that could 0:14:30.880 --> 0:14:33.480 impact it. For one thing, as we've just mentioned, there 0:14:33.600 --> 0:14:36.880 is a bit of a lack of availability of homes 0:14:36.880 --> 0:14:38.720 for sale for those who do want to get into 0:14:38.720 --> 0:14:42.120 the market. You know, the new home builders are picking up, 0:14:42.160 --> 0:14:44.840 but actually if you look at the charts of permits 0:14:44.840 --> 0:14:47.200 and starts, we're a lot higher than we were in 0:14:47.280 --> 0:14:50.240 pre pandemic levels. But that's because there had been ten 0:14:50.400 --> 0:14:54.160 years post financial crisis of underbuilding. So there's a big 0:14:54.240 --> 0:14:56.920 troth after two thousand and nine two thousand and eight, 0:14:57.240 --> 0:15:00.840 and it was just creeping slowly up and then shot 0:15:00.960 --> 0:15:05.040 up during the pandemic. So we're about twenty percent below 0:15:05.080 --> 0:15:07.480 pandemic levels. We're well above that we were in the 0:15:07.520 --> 0:15:10.200 ten years beforehand. But what that means, that's the other 0:15:10.240 --> 0:15:12.560 reason there are so few homes being listed. Not only 0:15:12.600 --> 0:15:16.320 are people locked into their mortgages, but honestly, there was 0:15:16.360 --> 0:15:20.280 probably a structural underbuilding of new homes to begin So 0:15:20.320 --> 0:15:22.400 some of the people have talked about converting some of 0:15:22.400 --> 0:15:28.880 this office space into residential loans, residential homes, which could 0:15:29.000 --> 0:15:32.960 offer more opportunities. But you know, from a macro perspective, 0:15:35.360 --> 0:15:37.920 loans that were made to office spaces that are now 0:15:38.160 --> 0:15:41.560 falling a price, maybe even underwater, those have to be refinanced, 0:15:42.120 --> 0:15:47.160 re constructed, you know, on a more regular basis, and 0:15:47.200 --> 0:15:50.800 that could be a drag for lenders, which, whenever you 0:15:50.840 --> 0:15:54.000 have a drag in the banking industry, can be a 0:15:54.080 --> 0:15:55.840 drag generally for the economy. 0:15:56.800 --> 0:16:01.800 Is the decreasing construction costs and kind of the alleviation 0:16:01.880 --> 0:16:03.920 of some of the deeper supply chain issues of the 0:16:03.960 --> 0:16:07.280 pandemic having an impact on home builders that will ever 0:16:07.320 --> 0:16:10.800 gets passed on to home buyers. 0:16:11.280 --> 0:16:14.360 Yeah, actually, in some ways it already is. If you 0:16:14.360 --> 0:16:17.680 look at the difference between the median new home price 0:16:17.920 --> 0:16:21.680 and the median existing home price, because existing home prices 0:16:21.720 --> 0:16:24.160 haven't fallen maybe as quickly as some would have expected 0:16:24.200 --> 0:16:26.960 given the lack of listing, the difference between those is 0:16:27.000 --> 0:16:29.840 almost a record type, like new homes are normally more 0:16:29.880 --> 0:16:33.920 expensive right but right now they're just very marginally more expensive. 0:16:34.240 --> 0:16:36.160 So I think some of that, whether it's you know, 0:16:36.200 --> 0:16:39.680 through price concessions which actually builders say they're not really 0:16:39.720 --> 0:16:43.520 offering as much anymore, or just costs coming down relative 0:16:43.640 --> 0:16:47.080 to what they had been, I think that already is 0:16:47.200 --> 0:16:50.520 manifesting itself, and some people have I've read some people 0:16:50.600 --> 0:16:54.120 even calling for new homes to be priced below existing homes. 0:16:54.440 --> 0:16:56.640 And again this is all median prices, so this is 0:16:56.680 --> 0:16:59.800 not adjusted for square footage or anything. But it's an 0:17:00.000 --> 0:17:02.800 interesting you know, potential. 0:17:02.960 --> 0:17:07.720 Eesg Environmental social governance is that kind of a part 0:17:07.760 --> 0:17:09.400 of the mortgage lending market as well. 0:17:10.280 --> 0:17:13.159 It is interestingly I put out a note yesterday that 0:17:13.200 --> 0:17:16.640 you may have seen that you're referring to, And first 0:17:16.640 --> 0:17:19.480 of all, in terms of Ginny made mortgages, those back 0:17:19.520 --> 0:17:22.880 by FHA, for instance, in some ways those were already 0:17:23.119 --> 0:17:27.200 fundamentally ESG loans because they're targeted towards trying to improved 0:17:27.240 --> 0:17:31.399 affordability for lower income and higher LTV borrowers. Now Fanny 0:17:31.440 --> 0:17:35.360 and Freddie have also started to highlight their efforts. They've 0:17:35.359 --> 0:17:37.800 always they've always had a little bit of a mandate 0:17:37.800 --> 0:17:40.240 there anyway, and their duty to serve. But they have 0:17:40.359 --> 0:17:44.960 these new social criteria scores and social density scores that 0:17:44.960 --> 0:17:47.720 they're publishing that are available here on the terminal that 0:17:47.880 --> 0:17:51.520 tell you just how many of these socially responsible criteria 0:17:51.520 --> 0:17:55.040 they're fitting. And in the research that we put out yesterday, 0:17:55.359 --> 0:17:58.760 we pointed out that some of these highest social responsibility 0:17:58.760 --> 0:18:05.480 loans and Somebody's offer the best risk award characteristics because 0:18:05.560 --> 0:18:07.560 a lot of these homeowners are a little more restricted 0:18:07.600 --> 0:18:11.040 from refinancing, but at the same time they may have 0:18:11.359 --> 0:18:17.120 more more incentive to be move up borrowers, for instance, 0:18:17.800 --> 0:18:19.920 so they tend to have less extension risk too. 0:18:20.200 --> 0:18:21.200 All right, interesting stuff. 0:18:21.240 --> 0:18:24.639 Always talking about the housing market, the mortgage market. Everybody 0:18:25.320 --> 0:18:28.600 has their thoughts and opinions. Eric Adelberg, we get pay 0:18:28.640 --> 0:18:31.320 her to have for those opinions in that analysis. Eric Aidelberg, 0:18:31.359 --> 0:18:34.120 she's a mortgage backed security strategist for Bloomberg Intelligence. Joining 0:18:34.200 --> 0:18:37.199 us here in our Bloomberg Interactive Broker Studio again that 0:18:37.520 --> 0:18:40.520 you know, the bankrate dot com average mortgage rate for 0:18:40.600 --> 0:18:46.240 thirty year mortgage seven point. It's off the highs, as 0:18:46.880 --> 0:18:49.479 Erico was just mentioning, but certainly a lot higher than 0:18:49.480 --> 0:18:51.080 a lot of people want to deal with. 0:18:51.119 --> 0:18:53.600 That question is to what extent? When will that come down? 0:18:53.880 --> 0:18:57.000 You're listening to the tape Cat's are Line program Bloomberg 0:18:57.040 --> 0:19:00.639 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:19:00.720 --> 0:19:03.920 tune in app, Bloomberg dot Com, and the Bloomberg Business App. 0:19:03.960 --> 0:19:06.800 You can also listen live on Amazon Alexa from our 0:19:06.800 --> 0:19:11.840 flagship New York station. Just say Alexa, play Bloomberg eleven thirty. 0:19:12.960 --> 0:19:13.080 You know. 0:19:13.080 --> 0:19:14.320 Every once in a while, we'd like to get a 0:19:14.400 --> 0:19:17.520 sense of kind of where high net worth investors are 0:19:17.560 --> 0:19:19.760 putting their capital these days, and to do that we 0:19:19.920 --> 0:19:22.679 check in with Michael Sonefeld. He's a chairman and founder 0:19:22.720 --> 0:19:25.360 of Tiger twenty one. Tiger twenty one is a network 0:19:25.760 --> 0:19:29.600 of learning groups for high net worth investors. We usually 0:19:29.600 --> 0:19:33.120 get some really interesting perspective from Michael. So Michael, again, 0:19:33.160 --> 0:19:35.439 the first half of the year was a lot better 0:19:35.880 --> 0:19:38.640 for most investors in twenty twenty two, where you really 0:19:38.680 --> 0:19:40.840 had nowhere to hide last year, whether it's equities or 0:19:40.880 --> 0:19:43.960 fixed income. Maybe some of your alternative investments did better. 0:19:44.320 --> 0:19:47.520 What are your members saying today? How did they feel 0:19:47.560 --> 0:19:49.840 here in mid July after what was a pretty good 0:19:49.840 --> 0:19:50.600 first half of the year. 0:19:52.920 --> 0:19:55.840 Nice to see you guys, And you know, our members 0:19:55.880 --> 0:19:59.280 are mixed, like the reports that you've been sharing all morning. 0:19:59.359 --> 0:20:03.119 On the one hand, inflation is coming down, the business 0:20:03.400 --> 0:20:07.520 climate is good, unemployment is low, but everybody thinks that 0:20:07.600 --> 0:20:10.600 we're sort of at the crest, or many people think 0:20:10.600 --> 0:20:12.920 we're at the crest, and at least half of our 0:20:12.960 --> 0:20:16.000 members think we're going into recession. And when you have 0:20:16.119 --> 0:20:20.280 this kind of diversity, our members try and create something 0:20:20.359 --> 0:20:23.960 like an all weather portfolio where they have some bets 0:20:24.000 --> 0:20:28.240 on the upside and protection on the downside. And that's 0:20:28.240 --> 0:20:32.280 sort of been the magic quest that they're looking for 0:20:32.440 --> 0:20:33.800 in preserving their wealth. 0:20:34.320 --> 0:20:38.240 Part of the flows into the SMP, obviously related to 0:20:38.280 --> 0:20:42.320 the Magnificent Seven, are related to the AI rally. I 0:20:42.320 --> 0:20:46.480 wonder to what extent your clients experience FOMO when something 0:20:46.520 --> 0:20:48.720 like an AI rally is happening, or are they kind 0:20:48.720 --> 0:20:49.520 of immune to that? 0:20:50.960 --> 0:20:54.160 So I just have to say we don't have clients, 0:20:54.160 --> 0:20:57.280 We only have members. These are all entrepreneurs who have 0:20:57.440 --> 0:21:02.159 no problem. These are alleople who built great businesses and 0:21:02.240 --> 0:21:04.240 now we're preserving wealth. But I don't think it's so 0:21:04.320 --> 0:21:07.600 much bomo because our members have been playing AI. Over 0:21:07.680 --> 0:21:11.840 fifty six percent of our members either have or intend 0:21:11.880 --> 0:21:14.880 to make AI investment plays. And one of the things 0:21:14.880 --> 0:21:18.000 that's really different about AI if you think about recent fads, 0:21:18.040 --> 0:21:21.840 either in crypto or the web, twenty years ago, when 0:21:21.840 --> 0:21:25.600 you had these technology plays, you didn't have the equivalent 0:21:25.640 --> 0:21:28.720 of a Microsoft, which is already a cash flowing company, 0:21:29.080 --> 0:21:32.639 also be the technology play if you want to play AI. 0:21:32.720 --> 0:21:36.359 Of course, there's lots of small venture capital opportunities, but 0:21:36.440 --> 0:21:39.640 the best opportunities, many of our members think, are in 0:21:39.760 --> 0:21:43.080 like the Microsoft and the Googles that have the largest 0:21:43.480 --> 0:21:47.919 AI treasure troves, and yet they're really solid businesses. So 0:21:48.320 --> 0:21:51.960 it's very it's a unique moment in AI that this 0:21:52.119 --> 0:21:54.800 kind of fad. I don't mean that it's unimportant. I 0:21:54.840 --> 0:21:58.440 mean this flavor of what everybody is focused on. You're 0:21:58.440 --> 0:22:01.359 not taking the kind of extra ordinary risks that most 0:22:01.520 --> 0:22:06.159 other technology rallies require, because here you have comp have 0:22:06.359 --> 0:22:10.600 real profits and real businesses and real futures no matter 0:22:10.680 --> 0:22:14.040 what happens on AI. But it'll be really enhanced as 0:22:14.119 --> 0:22:17.959 they roll out and continue to build their AI functions. 0:22:18.160 --> 0:22:20.960 Hey, Michael, how about alternative investments? I mean your members 0:22:21.000 --> 0:22:23.639 they sell oftentimes their businesses for tens or hundreds of 0:22:23.680 --> 0:22:26.320 millions of dollars and then they really have to allocate 0:22:26.359 --> 0:22:30.320 capital cross a portfolio. How is investing in alternative investments, 0:22:30.359 --> 0:22:32.639 whether it's head funds or private equity or private credit. 0:22:32.680 --> 0:22:34.719 Has that changed over the last decade for your members? 0:22:35.880 --> 0:22:40.040 So the two biggest changes, The single biggest is that 0:22:40.160 --> 0:22:44.240 private equity fifteen years ago with about ten percent of 0:22:44.240 --> 0:22:48.479 our members' portfolios. Today our members manage one hundred and 0:22:48.480 --> 0:22:53.600 fifty billion dollars and private equity is just about thirty percent. Wow, 0:22:53.800 --> 0:22:57.159 that's been the biggest change. And a big portion of 0:22:57.160 --> 0:23:02.760 that private equity is venture capital because a period of 0:23:02.880 --> 0:23:05.680 time ago you wouldn't have even seen venture capital fifteen 0:23:05.760 --> 0:23:09.840 years and now we think that's the largest sub segment 0:23:10.240 --> 0:23:13.760 of private equity. But on the other side, more recently, 0:23:13.800 --> 0:23:17.480 the biggest down shift we've ever seen is in real estate. 0:23:17.520 --> 0:23:22.399 Real estate was king for fifteen years bouncing between twenty 0:23:22.480 --> 0:23:25.719 seven and thirty percent, and in the last year it 0:23:25.800 --> 0:23:30.520 came down quite precipitously to around twenty two percent. And 0:23:31.480 --> 0:23:35.359 you know, our members are exquisitely sensitive to interest rates, 0:23:35.760 --> 0:23:40.040 and as interest rates are going up, that takes some 0:23:40.160 --> 0:23:43.359 of the potential off the table for real estate. But 0:23:43.440 --> 0:23:48.200 as your last speaker was mentioning, office, which was one 0:23:48.240 --> 0:23:52.119 of the most solid areas in the real estate area, 0:23:52.320 --> 0:23:54.840 is now up for grabs. A lot of problems, not 0:23:55.000 --> 0:23:59.560 just with vacancies, but you know where offices were easy 0:23:59.600 --> 0:24:02.880 to lev and so as buildings, they probably are more 0:24:02.960 --> 0:24:05.639 highly levered and the equity is more at risk. And 0:24:06.040 --> 0:24:09.159 behind that on the negative would be retail and on 0:24:09.240 --> 0:24:13.679 the positive side would be industrial. But the office, you know, 0:24:13.720 --> 0:24:16.800 where the office is going is one of the great 0:24:16.880 --> 0:24:20.440 conundrums that will only figure out over the next decade. 0:24:20.640 --> 0:24:23.040 Well, that's one of the things I find interesting about 0:24:23.080 --> 0:24:26.840 these member feedback results you sent us is that you 0:24:27.520 --> 0:24:31.560 asked about their most favorite public equity sectors and they're tied. 0:24:31.720 --> 0:24:34.199 Twenty four percent said real estate and twenty four percent 0:24:34.520 --> 0:24:38.560 said it. I'm fascinated that real estate is getting as 0:24:38.640 --> 0:24:41.240 much love as the IT space given the big tech 0:24:41.359 --> 0:24:43.439 rally that we've seen this year, can you help me 0:24:43.480 --> 0:24:44.160 make sense of that? 0:24:45.240 --> 0:24:51.040 Sure, our members are by accomplishment about one in ten thousand, 0:24:51.280 --> 0:24:55.160 equivalent to being in the major League. And the largest 0:24:55.280 --> 0:24:58.919 area our members created wealth in maybe a quarter of 0:24:58.960 --> 0:25:03.520 our members, was in real estate. So you have extraordinary 0:25:03.640 --> 0:25:06.840 knowledge that most investors don't have. That's the advantage of 0:25:07.040 --> 0:25:09.040 being in one of our groups and being with somebody 0:25:09.040 --> 0:25:12.280 who built their career in real estate. So my guess 0:25:12.400 --> 0:25:15.119 is that real estate has been beaten up in certain 0:25:15.160 --> 0:25:18.879 areas and our members are a little more attuned. The 0:25:18.920 --> 0:25:21.840 big question we ask in a meeting is if you 0:25:21.920 --> 0:25:24.680 buy something at twenty and it goes down to fifteen, 0:25:24.760 --> 0:25:27.639 should you get out? And the answer is, if you 0:25:27.760 --> 0:25:30.119 really knew what you were investing at twenty and it 0:25:30.160 --> 0:25:33.680 goes down to fifteen, it's a better deal. But as 0:25:33.760 --> 0:25:37.000 I think you guys well know, over the history of 0:25:37.040 --> 0:25:41.240 the stock market, individual investors have never matched the returns 0:25:41.560 --> 0:25:43.600 because they buy at the wrong time and sell at 0:25:43.640 --> 0:25:46.600 the wrong time. And so I think the high interest 0:25:46.720 --> 0:25:50.840 in real estate opportunities shows the sort of expertise that 0:25:50.880 --> 0:25:55.080 our members has looking for deals and navigating in this 0:25:55.840 --> 0:25:56.960 volatile climate. 0:25:57.480 --> 0:25:59.159 Hey Michael, real quick, just give us the latest on 0:25:59.320 --> 0:26:02.199 kind of estate planning. What are your members kind of 0:26:02.200 --> 0:26:03.560 focused on these days. 0:26:04.760 --> 0:26:07.439 Well, first of all, there's a big date coming up 0:26:07.480 --> 0:26:10.320 at the end of twenty twenty five where some of 0:26:10.359 --> 0:26:15.879 the major estate planning tools will sunset. But you know, 0:26:15.920 --> 0:26:21.440 I think our members are focused on the tension between 0:26:21.600 --> 0:26:27.960 giving kids too much and ruining. Essentially, what they saw 0:26:28.240 --> 0:26:32.200 was their entrepreneurial ability to be successful. So this notion, 0:26:33.080 --> 0:26:37.240 this notion of kying to figure out what to do 0:26:37.480 --> 0:26:40.119 and how much to leave. So you know, there's something 0:26:40.200 --> 0:26:43.600 called the giving pledge among billionaires where they are at 0:26:43.960 --> 0:26:47.960 half of their money to foundation and philanthropy, and a 0:26:47.960 --> 0:26:50.520 lot of our members are thinking about philanthropy in a 0:26:50.560 --> 0:26:53.159 new way, particularly with all the problems that are in 0:26:53.200 --> 0:26:53.919 the world today. 0:26:54.040 --> 0:26:55.720 All right, Michael, thank you so much for joining us. 0:26:55.760 --> 0:26:59.200 Always a unique perspective there, Michael Snefelt. He's a chairman 0:26:59.200 --> 0:27:01.520 and founder of Tiger twenty one kind of collection of 0:27:01.560 --> 0:27:04.200 high net worth individuals get a really interesting perspective how 0:27:04.200 --> 0:27:07.560 they allocate capital across the sectors. 0:27:09.640 --> 0:27:13.040 You're listening to the teenth Ken's Are Live program Bloomberg 0:27:13.080 --> 0:27:16.479 Markets weekdays at ten am Eastern on Bloomberg dot Com, 0:27:16.520 --> 0:27:19.680 the iHeartRadio app, and the Bloomberg Business App, or listen 0:27:19.760 --> 0:27:22.040 on demand wherever you get your podcasts. 0:27:24.320 --> 0:27:25.960 We've been hearing from a lot of the big banks 0:27:25.960 --> 0:27:28.520 over the last four or five days talking about their 0:27:28.560 --> 0:27:32.960 business net interesting income positive, but certainly offset by a 0:27:33.040 --> 0:27:35.520 lack of deal making for a lot of these companies. 0:27:35.640 --> 0:27:37.760 Comparisons are very tough. We want to get a sense 0:27:37.800 --> 0:27:39.800 of what's happening in the mn A space. We talked 0:27:39.840 --> 0:27:42.639 to Rob Brown, he's the CEO of Lincoln International. He 0:27:42.800 --> 0:27:45.719 joins us here live in the Bloomberg Interactor Brokers studio. 0:27:45.760 --> 0:27:49.800 They're based in Chicago, one of my favorite towns anywhere. Rob, 0:27:49.840 --> 0:27:52.880 thanks for joining us here. Talk to us about kind 0:27:52.880 --> 0:27:55.720 of the m and A environment we're seeing out there now. 0:27:56.080 --> 0:27:59.919 A lot of uncertainty about the economy and not historically 0:28:00.000 --> 0:28:02.960 it doesn't really bode well for boards and CEOs getting 0:28:03.000 --> 0:28:04.400 out there and putting big capital to work. 0:28:04.400 --> 0:28:05.840 What are you seeing in your practice? 0:28:05.920 --> 0:28:08.720 Yeah, I think what you just allude to, Paul is 0:28:08.760 --> 0:28:11.720 what we've seen really over the last eight months to 0:28:11.760 --> 0:28:16.320 a year, right, the economic uncertainty really slowing down on 0:28:16.320 --> 0:28:17.920 the m and a market, and you're seeing it in 0:28:18.200 --> 0:28:20.120 the release of some of the big bakes and even 0:28:20.119 --> 0:28:24.480 Goldman's release today, in the investment banking business being down. 0:28:25.320 --> 0:28:26.280 So I think that's what we've seen. 0:28:26.359 --> 0:28:31.919 Interestingly, there's some alchemy right now for improved activity, and 0:28:31.960 --> 0:28:34.119 I think there's really four factors that are driving that. 0:28:34.200 --> 0:28:36.680 I think one is, if you go back to how 0:28:36.680 --> 0:28:38.920 we came into the year, there seems to be more 0:28:38.960 --> 0:28:42.280 consensus of a soft landing, or at least not a 0:28:42.280 --> 0:28:43.120 really hard landing. 0:28:43.320 --> 0:28:45.560 And I think there was always that. 0:28:45.480 --> 0:28:47.719 Fear of investors saying, well, joh, I don't want to put 0:28:47.760 --> 0:28:49.200 something to work and have the bottom fall out of 0:28:49.200 --> 0:28:51.920 the economy. So I think the backdrop is we may 0:28:51.920 --> 0:28:53.400 have a recession, but it's probably not going to be 0:28:53.400 --> 0:28:56.120 as severe as I thought. I think the other the 0:28:56.160 --> 0:28:59.480 other key input here is that as each quarter has 0:28:59.520 --> 0:29:02.360 gone by since probably midyear last year, when you saw 0:29:02.520 --> 0:29:06.320 inflation spike and the FED respond aggressively, you're seeing sellers 0:29:06.360 --> 0:29:07.680 expectations moderate. 0:29:07.360 --> 0:29:07.800 Down a bit. 0:29:07.920 --> 0:29:10.000 So you know, twenty twenty one and the first half 0:29:10.040 --> 0:29:12.480 of twenty twenty two were really peak valuations. So I 0:29:12.480 --> 0:29:14.880 think as time has gone on, sellers are starting to 0:29:14.920 --> 0:29:17.240 realize I may not be able to sell it for 0:29:17.320 --> 0:29:19.240 exactly what I could, but I can still get a 0:29:19.280 --> 0:29:21.840 good return. So and I think the two last pieces 0:29:21.880 --> 0:29:24.520 are we are seeing the aperture of the private credit 0:29:24.560 --> 0:29:28.040 markets improve a bit, the credit markets are actually hardening 0:29:28.120 --> 0:29:30.240 up in a good way, and that lenders are saying, 0:29:30.640 --> 0:29:32.840 I will finance this deal. It's going to be expensive, right. 0:29:32.880 --> 0:29:35.480 Rates are high, but they're going to be there. And 0:29:35.520 --> 0:29:38.920 the last and maybe the biggest driver is the amount 0:29:39.000 --> 0:29:43.160 of dry powder sitting in institutional equity holders, in private equity, 0:29:43.440 --> 0:29:46.479 venture capital, and even the private debt funds. It's starting 0:29:46.520 --> 0:29:49.200 to burn a hole in the pocket of investors, and 0:29:49.240 --> 0:29:51.840 on top of that, they're under pressure to show some 0:29:51.880 --> 0:29:55.320 returns and return some capital to raise the next fund. 0:29:55.360 --> 0:29:58.080 So I think all of that kind of pointing maybe 0:29:58.160 --> 0:29:59.880 not up hugely, but starting to trend in the right. 0:30:00.640 --> 0:30:02.840 I think we're expecting much better activity for the back 0:30:02.840 --> 0:30:04.360 half of the year than the first half. 0:30:04.720 --> 0:30:06.440 Well, Paul and I talk about this all the time, 0:30:06.560 --> 0:30:09.320 just that it's a challenging environment to get deals done 0:30:09.560 --> 0:30:14.120 in I'm curious how your conversations and strategies have shifted, 0:30:14.160 --> 0:30:18.160 if at all, Given some of the hawkishness that we've 0:30:18.200 --> 0:30:20.840 seen from the FDC, from the Justice Department when it 0:30:20.840 --> 0:30:22.200 comes to M and A deals. 0:30:22.200 --> 0:30:23.400 Well, there's no doubt about that. 0:30:23.440 --> 0:30:25.080 I mean, we're all trying to wait and see what 0:30:25.200 --> 0:30:28.920 comes out of the new proposed FTC rules for Heart 0:30:28.920 --> 0:30:32.000 Scott Ridino and clearance, and we're in a comment period 0:30:32.040 --> 0:30:34.840 on that, and I know our industry is commenting aggressively 0:30:35.280 --> 0:30:36.520 to we understand. 0:30:36.520 --> 0:30:38.680 Listen, these rules haven't been changed in forty or fifty years. 0:30:38.720 --> 0:30:41.400 It's okay to revisit them, but I think they need 0:30:41.440 --> 0:30:43.760 to be done in a way that's going to achieve 0:30:43.800 --> 0:30:46.320 the objective. So there is worry about that. But I 0:30:46.320 --> 0:30:48.320 think your point is right. Deals are harder to get done. 0:30:48.440 --> 0:30:52.600 I think what we're seeing is more targeted processes, making 0:30:52.600 --> 0:30:55.800 sure you have financing lined up before you approach anybody, 0:30:56.600 --> 0:30:59.640 and really going to investors with a pretty compelling investment 0:30:59.640 --> 0:31:03.360 thesis that says, listen, you know, we know what you 0:31:03.480 --> 0:31:05.760 like to acquire. Here's why you really need to look 0:31:05.760 --> 0:31:08.960 at this. But it's more challenging to get things done right. 0:31:08.960 --> 0:31:10.560 You got to get the financing in place. I think 0:31:10.640 --> 0:31:13.320 the leverage has shifted a bit to the buyers in 0:31:13.400 --> 0:31:16.479 terms of dictating the due diligence schedules and dictating what 0:31:16.520 --> 0:31:19.600 they need to get done. But we are seeing things 0:31:19.600 --> 0:31:21.800 get done. They're taking longer, they're a little more painful, 0:31:21.840 --> 0:31:22.960 but they're getting done. 0:31:23.160 --> 0:31:25.920 Talk to us about the role of private credit because 0:31:25.920 --> 0:31:27.360 that's kind of a relatively new business. 0:31:27.360 --> 0:31:27.800 In Madison. 0:31:27.880 --> 0:31:30.000 I we spend a lot of time talking about We 0:31:30.040 --> 0:31:31.560 try to speak to as many smart people as we 0:31:31.600 --> 0:31:34.640 can about the private credit business because really it's really 0:31:34.720 --> 0:31:38.720 just became a big source of capital after the financial crisis. 0:31:38.920 --> 0:31:41.479 How does that factor into your deals? You typically do 0:31:41.520 --> 0:31:45.040 more middle market transactions. How does that factor into your deal? 0:31:45.280 --> 0:31:46.520 It factors in massively. 0:31:48.320 --> 0:31:51.160 Most of our deals, particularly if we're selling to a 0:31:51.200 --> 0:31:54.520 financial sponsor, a private equity group, or an institutional investor. 0:31:55.120 --> 0:31:56.600 A good chunk of our deals are going to need 0:31:56.640 --> 0:31:59.840 leverage to get done. And the entire market for that 0:31:59.880 --> 0:32:01.960 is a private credit market. I mean, the banks have 0:32:02.400 --> 0:32:04.920 you know, the compliance issues coming out of the global 0:32:04.960 --> 0:32:06.920 financial crisis. The banks are out of this market, so 0:32:06.960 --> 0:32:12.320 now you're dealing with private credit funds, hedge funds, unitronics investors, 0:32:12.800 --> 0:32:17.440 and that market has attracted a tremendous amount of capital 0:32:17.480 --> 0:32:18.960 over the last decade, and they have a lot of 0:32:19.000 --> 0:32:23.640 dry powder too, But that market really closing up a 0:32:23.680 --> 0:32:26.040 bit in the back half of the last year as 0:32:26.160 --> 0:32:29.040 much as the fear of the economy downturning is what 0:32:29.240 --> 0:32:31.800 really casts a little of appall over our market. So 0:32:31.840 --> 0:32:34.760 what happens in that market is a really important driver 0:32:35.000 --> 0:32:39.320 of the overall private the overall private capital markets and 0:32:39.360 --> 0:32:40.960 the deals that get done on the private market. 0:32:41.240 --> 0:32:44.320 Did some of the banking turmoil have any impact on 0:32:44.960 --> 0:32:47.640 you guys via the impact on private. 0:32:47.360 --> 0:32:52.400 Credit, You know, not really. 0:32:52.440 --> 0:32:54.280 I think in particularly you look at SVB, there was 0:32:54.280 --> 0:32:55.600 a little bit of a shock as to you know, 0:32:55.640 --> 0:32:57.120 what does that mean? But they were really in the 0:32:57.240 --> 0:33:02.400 venture debt market, and so the short answer is not really. 0:33:02.600 --> 0:33:05.440 Although one thing I will say that's interesting is our 0:33:05.600 --> 0:33:10.080 European M and A business, and we have offices in 0:33:10.240 --> 0:33:13.360 sixteen countries, twenty offices. We've got a lot of offices 0:33:13.400 --> 0:33:15.200 in Europe. It's a big part of our business. That 0:33:15.400 --> 0:33:17.720 M and A market is actually holding up better than 0:33:17.720 --> 0:33:21.560 the US M and A market this year, partly because 0:33:21.560 --> 0:33:23.640 there still is a bank lending market in some of 0:33:23.640 --> 0:33:26.200 the major economies to get deals done where we don't 0:33:26.200 --> 0:33:28.000 have that here, so they've been able to look through 0:33:28.520 --> 0:33:31.160 some of the private credit markets pulling their horns in. 0:33:31.920 --> 0:33:33.920 I think they also have a situation where in the UK, 0:33:34.120 --> 0:33:37.880 the largest capital market in Europe, they're worried about a 0:33:37.920 --> 0:33:40.560 labor government next year and cap gains rates going up, 0:33:40.600 --> 0:33:42.080 so there's a little bit of a push to get 0:33:42.080 --> 0:33:42.720 things done now. 0:33:42.840 --> 0:33:44.680 The more regulation in the UK. 0:33:44.680 --> 0:33:47.920 Definitely, definitely. I think the regulation headwinds are going to 0:33:47.920 --> 0:33:48.360 be everywhere. 0:33:48.520 --> 0:33:50.560 Okay, you guys are a lot bigger than I thought 0:33:50.560 --> 0:33:53.800 you were in I'm just reading some reporting that you 0:33:53.800 --> 0:33:54.160 guys did. 0:33:54.200 --> 0:33:57.440 It recently got into Australia, India. 0:33:57.840 --> 0:34:00.479 You guys, you said you're in sixteen countries reporting here, 0:34:00.520 --> 0:34:02.320 eight hundred and fifty investment bankers. 0:34:02.400 --> 0:34:03.200 Why don't you guys. 0:34:03.040 --> 0:34:06.000 Public You know we've followed. 0:34:06.040 --> 0:34:08.440 We have followed our public investors or our public competitors. Right, 0:34:08.480 --> 0:34:12.399 there's clearly an appetite for what we do. I think 0:34:12.440 --> 0:34:15.680 for us, we have a pretty clearly stated goal to 0:34:15.760 --> 0:34:18.640 be the leading advisor in the private capital markets, and 0:34:18.719 --> 0:34:21.359 to date we felt that being a private. 0:34:21.040 --> 0:34:22.600 Partnership is the right way to do that. 0:34:23.600 --> 0:34:26.200 But we're constantly evaluating should we have a different ownership 0:34:26.200 --> 0:34:30.160 structure and access to broader capital. So it's something we 0:34:30.200 --> 0:34:32.719 haven't ruled out. And I think we've made some investments 0:34:32.760 --> 0:34:36.120 to be public company ready. If and when we determine 0:34:36.120 --> 0:34:36.920 that's the right thing to do. 0:34:37.360 --> 0:34:37.879 What is the. 0:34:37.840 --> 0:34:40.080 Biggest benefit for you staying private? 0:34:40.160 --> 0:34:43.480 Then you know, for us, I think the thing we 0:34:43.520 --> 0:34:46.600 need to balance that. What's made us unique and what's 0:34:46.600 --> 0:34:49.560 allowed us to grow from seven of us to one 0:34:49.600 --> 0:34:52.600 of the largest private markets M and A Advisors in 0:34:52.640 --> 0:34:55.080 the world has been a real focus on culture that 0:34:55.280 --> 0:34:58.160 attracts people and keeps people for the long time, long term. 0:34:58.239 --> 0:35:01.560 And we've been able to define that measure against it 0:35:01.600 --> 0:35:04.640 managed to it as a private company without having to 0:35:04.640 --> 0:35:07.440 worry about what's going on in every single quarter. And 0:35:07.800 --> 0:35:09.239 you know, if we were to go public, we'd want 0:35:09.280 --> 0:35:11.839 to make sure that we can continue to really have 0:35:11.880 --> 0:35:16.000 that as the oxygen of everything we do. So and 0:35:16.080 --> 0:35:18.080 I think part of it's just different, right We kind 0:35:18.080 --> 0:35:20.240 of know, we know the governance, we know how this works. 0:35:20.400 --> 0:35:21.879 But I think organizations, if. 0:35:21.760 --> 0:35:24.000 They're going to evolve, if they're going to continue to grow, 0:35:24.120 --> 0:35:27.480 have to continually reevaluate, you know, what's the right capital 0:35:27.520 --> 0:35:29.720 structure and ownership structure to achieve our goals. 0:35:30.040 --> 0:35:33.439 So India, for example, a lot of folks are saying 0:35:33.520 --> 0:35:35.719 India over the next twenty years is going to be 0:35:35.960 --> 0:35:37.200 the It's gonna be China. 0:35:37.080 --> 0:35:39.920 Was the last twenty years maybe for example, but better. 0:35:40.280 --> 0:35:42.799 How do you guys view if you I agree with 0:35:42.840 --> 0:35:44.680 that statement. We have been in India a long time. 0:35:44.760 --> 0:35:47.360 We've been in India over a decade. We are about 0:35:47.440 --> 0:35:50.680 to announce in the very near term here an acquisition 0:35:50.719 --> 0:35:54.040 in India that's going to materially increase our presence there 0:35:55.560 --> 0:35:58.200 as And we also have offices in China. As we're 0:35:58.200 --> 0:36:01.080 seeing as we're seeing those off to slow down, as 0:36:01.120 --> 0:36:04.839 we're seeing the economic ties really cool with China, we 0:36:04.920 --> 0:36:07.960 think that the biggest benefactor of that is going to 0:36:08.000 --> 0:36:11.480 be India. I mean India, it's the largest democracy on 0:36:11.560 --> 0:36:14.600 the planet. Their laws based on English common law, it's 0:36:14.719 --> 0:36:18.600 much easier to do business there, and it's a really 0:36:18.719 --> 0:36:23.839 really innovative economy. So we're very bullish on what we're 0:36:23.840 --> 0:36:26.680 seeing in India right now and really doubling down in 0:36:26.719 --> 0:36:27.080 that market. 0:36:27.160 --> 0:36:29.720 And conversely, twenty seconds left China. 0:36:30.840 --> 0:36:34.960 Yeah, you know, I don't see in the near term 0:36:35.120 --> 0:36:38.200 any sort of warming up of the economic ties with China. 0:36:38.320 --> 0:36:42.000 I think that it's very difficult to get a Chinese 0:36:42.000 --> 0:36:45.160 investor clear we were talking about compliance. Trying to sell 0:36:45.200 --> 0:36:48.120 something to a Chinese buyer today in any Western country, 0:36:48.239 --> 0:36:48.959 very very hard. 0:36:49.760 --> 0:36:51.560 Interesting, all right, Rob, thanks so much for joining us. 0:36:51.840 --> 0:36:55.480 Fascinating company which I need to learn more about. Rob Brown, 0:36:55.600 --> 0:36:58.640 CEO of Lincoln International. They're based in the Great City 0:36:58.680 --> 0:37:01.239 of Chicago, but as Rob is just saying, these guys 0:37:01.280 --> 0:37:03.960 are all over and they focus on middle market M 0:37:03.960 --> 0:37:06.279 and A, which, as we've learned from a lot of 0:37:06.280 --> 0:37:08.880 people like Rob, a very lucrative business. Competitive business, but 0:37:09.000 --> 0:37:12.399 very lucrative business, and so we'll pay attention to that 0:37:12.560 --> 0:37:13.080 as well. 0:37:14.880 --> 0:37:18.520 You're listening to the tape Can't Live program Bloomberg Markets 0:37:18.600 --> 0:37:22.000 weekdays at ten am Eastern on Bloomberg Radio, the tune 0:37:22.000 --> 0:37:24.959 in app, Bloomberg dot Com, and the Bloomberg Business App. 0:37:25.000 --> 0:37:27.839 You can also listen live on Amazon Alexa from our 0:37:27.840 --> 0:37:32.240 flagship New York station, Just say Alexa play Bloomberg eleven thirty. 0:37:33.960 --> 0:37:35.200 Let's check out with Poocha Kumra. 0:37:35.440 --> 0:37:37.719 She's a European rate strategist at TD. 0:37:38.160 --> 0:37:38.920 Poocha, what did you. 0:37:38.920 --> 0:37:42.160 Make of the UK economic data. The inflation data came 0:37:42.200 --> 0:37:42.680 out today. 0:37:43.920 --> 0:37:47.160 Good morning. Yes, never a dull moment in UK. I 0:37:47.160 --> 0:37:50.239 think for the first time since February, the inflation did 0:37:50.280 --> 0:37:52.359 surprise you downside, and I think this has come as 0:37:52.360 --> 0:37:55.880 a big relief for the hawkish expectations that we're actually 0:37:56.200 --> 0:37:59.280 playing out in UK and right our markets have actually 0:37:59.360 --> 0:38:03.040 moved the tom expectations from close to six point five 0:38:03.120 --> 0:38:05.279 that you saw a month ago to actually five point 0:38:05.320 --> 0:38:08.759 seventy five, which seems much more reasonable. But as you say, 0:38:08.920 --> 0:38:12.719 inflation in UK is still very elevated. Food intation is 0:38:12.760 --> 0:38:15.200 almost thrice the levels that we see in US, so 0:38:15.320 --> 0:38:17.560 I think we do have a long way to go. 0:38:17.880 --> 0:38:21.360 But on the positive side, going forward, the base effects 0:38:21.640 --> 0:38:25.239 both the energy and good prices should actually allow UK 0:38:25.320 --> 0:38:28.400 inflation to actually be more correlated to what we are 0:38:28.400 --> 0:38:30.880 seeing in UK and we have in sorry in Europe, 0:38:31.160 --> 0:38:33.400 and we do see inflation to end the year around 0:38:33.480 --> 0:38:35.480 the four to five percent level, which is a big 0:38:35.480 --> 0:38:37.160 relief for BOE as well as riches. 0:38:37.280 --> 0:38:37.480 Luck. 0:38:38.040 --> 0:38:40.400 You mentioned the cost of food and I wonder to 0:38:40.440 --> 0:38:44.080 what extent your average I'm going to steal this from 0:38:44.080 --> 0:38:48.240 Paul the watering Hole attendees of the UK are able 0:38:48.280 --> 0:38:52.640 to feel any sort of decrease in the inflation numbers 0:38:52.680 --> 0:38:55.040 when they're still going out to get the same meal 0:38:55.040 --> 0:38:57.000 they would have gotten a year ago and it's so 0:38:57.160 --> 0:39:01.480 much more expensive. Do you have a take on when 0:39:01.719 --> 0:39:04.200 the consumer in the UK might start to be able 0:39:04.239 --> 0:39:07.759 to feel any sort of decline to the red hot 0:39:07.760 --> 0:39:09.440 inflation they've been experiencing. 0:39:10.719 --> 0:39:12.640 Yes, I mean the last six months have been pretty 0:39:12.719 --> 0:39:17.120 much high prices everywhere, but we are actually seeing prices 0:39:17.160 --> 0:39:20.080 going down when we go to all supermarket as well 0:39:20.080 --> 0:39:22.960 as grocery stores there. We are actually getting emails from 0:39:22.960 --> 0:39:25.720 all the grocery chains that they are actually reducing prices. 0:39:25.719 --> 0:39:28.760 So I think there is some government pressure also involved. 0:39:29.080 --> 0:39:31.680 And also one of the key things that the government 0:39:31.719 --> 0:39:34.279 as well as the BOE is aware of is that 0:39:34.320 --> 0:39:37.120 we are going to get very big mortgage payments as 0:39:37.120 --> 0:39:39.760 we enter towards the end of the year and twenty 0:39:39.840 --> 0:39:43.319 twenty four, so household buffer is actually going to be 0:39:43.360 --> 0:39:46.080 more compressed and it's going to be a slow move, 0:39:46.280 --> 0:39:48.960 but definitely we are moving in the right direction and 0:39:49.000 --> 0:39:50.560 that should be a good news for you. 0:39:50.680 --> 0:39:50.879 Ken. 0:39:50.880 --> 0:39:53.760 That's why the crank basis points rally in today's session. 0:39:54.680 --> 0:39:58.960 So putji, you talk to your institutional clients around the world, 0:39:59.440 --> 0:40:02.080 and you're talk talking to about the European rates business, 0:40:02.600 --> 0:40:05.480 what's kind of the most common trade that you're hearing people, 0:40:06.160 --> 0:40:08.279 I guess are most interested in right right right now. 0:40:09.480 --> 0:40:12.279 So right now, I think the US CPI as well 0:40:12.320 --> 0:40:14.879 as the UK CPI have actually told us one thing 0:40:15.000 --> 0:40:17.759 that we are done with this entire hiking story you 0:40:17.760 --> 0:40:20.400 want or two hikes more central banks are done And 0:40:20.440 --> 0:40:22.839 the key thing is how long we stay here. From 0:40:22.880 --> 0:40:25.759 a trading perspective, we like long duration and I think 0:40:25.760 --> 0:40:28.719 that is something even investors are looking at. But I 0:40:28.719 --> 0:40:31.680 think after today's UK CPI report, one of the key 0:40:31.719 --> 0:40:34.640 traits that I like is being long UK versus Bunce. 0:40:35.160 --> 0:40:37.359 Just given the fact that that I think euro has 0:40:37.480 --> 0:40:41.120 rallied quite a bit, when inflation will be equally sticky 0:40:41.200 --> 0:40:43.520 in Europe as compared to in UK as. 0:40:43.440 --> 0:40:46.839 Well, are you thinking about currency quite a bit then 0:40:46.880 --> 0:40:50.279 in your calculations. 0:40:50.640 --> 0:40:55.960 When it comes to the general strong pounds. 0:40:55.200 --> 0:40:57.960 In Yeah, the strong pound, and I guess, particularly as 0:40:58.000 --> 0:41:00.360 we're starting to see the decline of the U US 0:41:00.400 --> 0:41:05.000 dollar hitting fourteen months low last week, is that something 0:41:05.000 --> 0:41:08.000 that you think is going to be potentially a tail 0:41:08.120 --> 0:41:09.720 or headwind for you this year. 0:41:11.160 --> 0:41:14.280 I think generally now it's the FEDS show, just because 0:41:14.280 --> 0:41:16.919 the fact that I mean so far, what we saw 0:41:16.960 --> 0:41:19.640 that UK was just not correlated with the moves in 0:41:19.920 --> 0:41:23.200 US as well as in Europe, just because we had 0:41:23.239 --> 0:41:26.239 the strength of inflation, and BOE actually had to come 0:41:26.320 --> 0:41:29.360 up more hawkish as well as hawk fifty basis points 0:41:29.360 --> 0:41:32.760 when most of the central banks are actually at the terminal. 0:41:32.800 --> 0:41:36.480 But I think that pound strength should actually be a 0:41:36.520 --> 0:41:38.600 little new, more muted, and we should now be more 0:41:38.719 --> 0:41:41.680 driven by where FED takes it from here, whether it's 0:41:41.760 --> 0:41:44.920 one hike or two hikes going forward. And I think 0:41:45.000 --> 0:41:47.439 that would be key when it comes to messaging going 0:41:47.480 --> 0:41:48.840 into next week's FED meeting. 0:41:49.480 --> 0:41:51.640 And to what extent just give us a kind of 0:41:51.640 --> 0:41:53.799 a little bit of tutorial here, to what extent does 0:41:53.840 --> 0:41:56.000 the Bank of England and the European Center Bank, to 0:41:56.000 --> 0:41:58.360 what extent do they follow the US FED Reserve? 0:42:00.400 --> 0:42:03.080 Well, to quote unquote, I mean actually's on the central 0:42:03.080 --> 0:42:05.319 back meetings. We are told that we are different, we 0:42:05.400 --> 0:42:09.279 have different economic background to handle it. But I think 0:42:09.560 --> 0:42:14.480 FED is one central bank that basically determines interest rate 0:42:14.560 --> 0:42:17.239 for the entire world, so I think one way or 0:42:17.280 --> 0:42:20.680 the other one when FED actually decides to stop, it 0:42:20.680 --> 0:42:23.359 would actually mean that the other central banks also need 0:42:23.360 --> 0:42:26.120 to do less. So I think yes, FED still plays 0:42:26.120 --> 0:42:28.800 a very key role when it comes to where terminal comes. 0:42:28.800 --> 0:42:30.040 For most central. 0:42:29.640 --> 0:42:33.560 Banks, we think that next week the FED is it 0:42:33.640 --> 0:42:35.960 seems like a foregone conclusion. Here in the state, it's 0:42:35.960 --> 0:42:38.960 a twenty five basis point hike. When you look ahead 0:42:39.000 --> 0:42:43.160 to August for the ECB, is it going to be 0:42:43.200 --> 0:42:47.000 maybe down to twenty five basis points after this inflation print. 0:42:48.400 --> 0:42:51.600 So for when it comes to ECB, they've already told 0:42:51.680 --> 0:42:53.880 us that they will be doing a twenty five basis 0:42:53.920 --> 0:42:57.080 points in July. I think the key question is whether 0:42:57.080 --> 0:43:00.960 they go twenty five again in September. I think at 0:43:00.960 --> 0:43:03.520 this stage they will like to maintain the optionality. But 0:43:03.640 --> 0:43:07.520 we have had hawks even coming in last this week's thing, 0:43:07.600 --> 0:43:10.160 that there's no need to press that much on terminal. 0:43:10.239 --> 0:43:12.759 So I think it is very much possible that we 0:43:12.800 --> 0:43:15.960 are done with one high. But I think central banks 0:43:16.040 --> 0:43:19.200 right now, including FED, wants to keep the optionality for 0:43:19.239 --> 0:43:21.719 going in September as well. And I think the key 0:43:21.840 --> 0:43:28.080 driver right now will be the August Jackson Hole meeting. 0:43:28.120 --> 0:43:30.240 I think that would be the stage, the next stage 0:43:30.280 --> 0:43:33.319 where central banks give us the key insight into what 0:43:33.400 --> 0:43:35.919 they are thinking for the September meeting. I think right 0:43:35.960 --> 0:43:38.840 now all central banks want a little more data to 0:43:39.040 --> 0:43:42.320 convince themselves, whether it's one or two highs and they're done. 0:43:42.800 --> 0:43:45.240 Hey, Pusha, thanks so much for joining us. Really appreciate 0:43:45.239 --> 0:43:48.000 getting your perspective. The European call there the UK call 0:43:48.120 --> 0:43:52.200 on rates Poosiakumra European rates Strategists at TD. 0:43:53.239 --> 0:43:56.840 You're listening to the Tape Cancer Line program Bloomberg Markets 0:43:56.920 --> 0:44:00.400 weekdays at ten am Eastern on Bloomberg Radio. Tune in 0:44:00.520 --> 0:44:03.400 up Bloomberg dot Com and the Bloomberg Business App. You 0:44:03.440 --> 0:44:06.680 can also listen live on Amazon Alexa from our flagship 0:44:06.719 --> 0:44:11.280 New York station, Just say Alexa playing Bloomberg eleven thirty. 0:44:12.680 --> 0:44:14.880 So Madison back in my cell said research days, you'd 0:44:14.920 --> 0:44:17.279 have to slip out through San Francisco two or three 0:44:17.280 --> 0:44:19.400 times a year to see institutional investor clients out there. 0:44:19.560 --> 0:44:21.160 Love that town, still one of my faves. 0:44:22.560 --> 0:44:24.320 But then you'd have to go not downtown, you have 0:44:24.400 --> 0:44:26.440 to go slept all the way out to San Mateo 0:44:26.480 --> 0:44:28.040 to see these Franklin Templeton people. 0:44:28.360 --> 0:44:29.680 Now, it wasn't a. 0:44:29.680 --> 0:44:31.399 Bad trip because they have a great Starbucks right there. 0:44:31.440 --> 0:44:35.160 But nice people, smart people, and they manage a bunch 0:44:35.160 --> 0:44:37.040 of money. So I've still got some bodies out there 0:44:37.040 --> 0:44:39.439 from back in the day. Ed Perks, he's out there 0:44:39.440 --> 0:44:44.319 in San Mateo. He's the CIO Franklin Templeton Income Investors. Ed, 0:44:44.480 --> 0:44:47.920 I mean, you got fix income folks had a brutal 0:44:48.080 --> 0:44:51.440 twenty twenty two. There was just nowhere to hide off 0:44:51.520 --> 0:44:53.120 to a little bit better start this year. How are 0:44:53.120 --> 0:44:57.000 you guys position out there with some of your fixingcome, 0:44:57.480 --> 0:44:59.760 you know, kind of asset allocations in your performance? 0:45:01.280 --> 0:45:04.480 Yeah, absolutely, you're right. Twenty twenty two was a tremendous 0:45:04.560 --> 0:45:06.719 challenge for fixed income investors. You know, I think the 0:45:07.520 --> 0:45:11.120 key element for us, for Franklin income investors is multi 0:45:11.120 --> 0:45:15.800 asset flexibility. So really, at no other time in my career, 0:45:15.840 --> 0:45:18.480 really have I theened this play out in a six 0:45:18.560 --> 0:45:22.279 to eight quarter way where we entered twenty twenty two 0:45:22.360 --> 0:45:26.200 with a very strong bias and tilting our multi asset 0:45:26.239 --> 0:45:30.520 portfolios towards dividend paying common stock, and that was really 0:45:31.080 --> 0:45:35.600 just reflecting the landscape and the opportunity set entering last year. 0:45:36.040 --> 0:45:38.080 Ten year rates were I think we were down here 0:45:38.120 --> 0:45:40.399 one and a quarter still one in a quarter, one 0:45:40.400 --> 0:45:44.200 and a half percent, and you just didn't have enough spread. 0:45:44.239 --> 0:45:45.880 And you know, the key things that we looked to 0:45:46.000 --> 0:45:51.120 fixed income for in our portfolios attractive yield, potential for 0:45:51.200 --> 0:45:55.200 some upside, or potential to help diversify our portfolio. And 0:45:55.680 --> 0:45:57.640 I tell you, you know, most of twenty twenty two, 0:45:57.640 --> 0:45:59.600 particularly the start of the year, we couldn't check any 0:45:59.640 --> 0:46:03.040 of those. So we've come full circle though, and today 0:46:03.080 --> 0:46:06.720 we sit from a tilt of nearly seventy five twenty 0:46:06.760 --> 0:46:11.759 five in favor of equities eight to twelve quarters ago 0:46:11.920 --> 0:46:14.919 to now better than sixty forty tilting to fixed income. 0:46:15.000 --> 0:46:18.000 So that landscape has totally changed. And yes, you are 0:46:18.000 --> 0:46:23.080 seeing it, whether you look at broader aggregate bomb market returns, investment, 0:46:23.080 --> 0:46:26.680 great corporate returns. How ye, corporate returns all doing much better, 0:46:26.719 --> 0:46:29.520 a little paling in comparison to something like the NASDAK move, 0:46:29.600 --> 0:46:32.360 But I think fixed income investors have a lot to 0:46:32.360 --> 0:46:32.920 look forward to. 0:46:33.760 --> 0:46:35.759 Well, Okay, since you brought up the NASDAK move, I 0:46:35.800 --> 0:46:37.400 just have to ask you about this. We saw the 0:46:37.480 --> 0:46:40.640 NASDAK dip into the red a couple of minutes ago 0:46:40.760 --> 0:46:43.520 because of some moves that we're seeing in the big 0:46:43.600 --> 0:46:47.680 tech names, the Microsoft's, the Googles. It feels like the 0:46:47.680 --> 0:46:50.640 perfect example of why it's a challenge when you have 0:46:50.760 --> 0:46:55.320 this breadth of names leading the charge when it comes 0:46:55.360 --> 0:46:59.000 to these indices. Is that a concern for you that 0:46:59.080 --> 0:47:04.719 you think think about in terms of your allocation into equities, you. 0:47:04.680 --> 0:47:07.280 Know it as it relates to the Nasdaq in particular, 0:47:07.719 --> 0:47:11.320 given given worry income investors, we really aren't too concerned about, 0:47:12.360 --> 0:47:14.680 you know, some of those moves or the narrowness of 0:47:14.760 --> 0:47:18.120 the leadership. I know that's well been well discussed in 0:47:18.480 --> 0:47:21.200 markets here the last couple of months. You know, we're 0:47:21.239 --> 0:47:23.480 really focused on this kind of broader move. So we 0:47:23.640 --> 0:47:25.560 clearly point more to you know, the S and P 0:47:25.719 --> 0:47:29.960 five hundred, both the difference we've seen, the dispersion we've 0:47:30.000 --> 0:47:33.120 seen year to date between something like the market cap 0:47:33.160 --> 0:47:36.200 weighted index and the equal weighted index. You know that's 0:47:36.200 --> 0:47:40.040 starting to perform a little bit better, But we wouldn't 0:47:40.080 --> 0:47:43.239 be surprised if there's a pretty significant breather here in 0:47:43.320 --> 0:47:46.040 in equity markets, and uh, you know we are going 0:47:46.120 --> 0:47:51.120 to see you know, we'll see even even with companies 0:47:51.160 --> 0:47:55.640 reporting slightly better earnings, we're still looking at at likely 0:47:55.680 --> 0:47:58.640 flat to slightly negative year year earnings. And that's something 0:47:58.680 --> 0:48:01.040 that you know, we think as you look forward into 0:48:01.080 --> 0:48:05.000 the end of twenty three and particularly into twenty twenty four, 0:48:05.120 --> 0:48:09.080 this bar, the hurdle really starts to rise, because consensus 0:48:10.280 --> 0:48:14.080 really bakes in a resurgence in growth in Q four 0:48:14.120 --> 0:48:16.480 and then into twenty twenty four, and we just think 0:48:16.520 --> 0:48:19.240 that maybe a little premature. You know, we're still looking 0:48:19.280 --> 0:48:23.359 at a pretty modest level of GDP growth, we're seeing disinflation. 0:48:23.880 --> 0:48:25.920 We think a lot of companies have actually had a 0:48:25.920 --> 0:48:29.239 bit more of a struggle with unit volumes, but have 0:48:29.280 --> 0:48:32.239 had tremendous pricing that's going to start to wane and 0:48:32.280 --> 0:48:36.560 certainly become much tougher with comps. So you know, we 0:48:36.600 --> 0:48:39.879 wouldn't be surprised if the remainder of this year might 0:48:39.960 --> 0:48:41.600 tilt a little bit more to some of the fixed 0:48:41.640 --> 0:48:45.839 income markets, and equities have some digesting to do of 0:48:45.880 --> 0:48:47.120 this very big move they've had. 0:48:48.160 --> 0:48:50.120 Hey ed in the fixed income space, you know, as 0:48:50.120 --> 0:48:53.239 income investors where are you guys kind of putting. 0:48:52.880 --> 0:48:55.360 Your money to work? Where have you been putting your 0:48:55.360 --> 0:48:56.200 money to work this year? 0:48:57.640 --> 0:49:00.640 Yeah, we've really focused on some of the higher quality 0:49:00.680 --> 0:49:03.920 segments within investment great corporates. And that's a big difference 0:49:03.960 --> 0:49:07.640 from you know, last year, where we started with much 0:49:07.680 --> 0:49:11.880 shorter duration. We're very selective, actually liked high yield bonds. 0:49:11.880 --> 0:49:14.839 We didn't see the economy completely create airing and then 0:49:14.880 --> 0:49:18.040 high yield you can find some really interesting opportunities with 0:49:18.200 --> 0:49:22.000 very minimal interest rate risk as rates move first into 0:49:22.040 --> 0:49:25.160 the fall last year, then this spring before the regional 0:49:25.160 --> 0:49:28.120 banking crisis, and then more recently we've had you know, 0:49:28.200 --> 0:49:31.600 opportunities with the ten year in and around four percent 0:49:32.040 --> 0:49:34.880 through that level a couple of times, and UH and 0:49:34.960 --> 0:49:37.360 spreads while not maybe as wide as a lot of 0:49:37.360 --> 0:49:42.440 credit investors would would you know, would ideally like to see. 0:49:43.360 --> 0:49:45.840 You had yields at levels that we haven't seen in 0:49:45.840 --> 0:49:49.280 a while. You had bond prices because of last year's decimation, 0:49:49.840 --> 0:49:54.279 at much more attractive discounts to face, and like I 0:49:54.320 --> 0:49:56.279 said before, you know, you want to check some of 0:49:56.320 --> 0:49:59.600 these boxes and fixed income today, particularly higher quality investment 0:49:59.600 --> 0:50:03.360 Great corpor Brits you now have that opportunity incomes. Attractive 0:50:03.760 --> 0:50:06.480 total return possibilities are there as we think rates do 0:50:06.640 --> 0:50:09.560 decline over the next four to six quarters, and they're 0:50:09.640 --> 0:50:12.160 nice diversification again in a multi ASID portfolio. 0:50:12.280 --> 0:50:14.720 Right, hey, Ed, why don't you in your lunch break 0:50:14.960 --> 0:50:16.719 hop down on the one on one go a little 0:50:16.719 --> 0:50:19.040 bit south to Coopertino see our friends there that make 0:50:19.160 --> 0:50:21.879 cell phones and tell them to step up and pay 0:50:21.920 --> 0:50:25.040 a real dividend. Is that frustrate you as an income investor 0:50:25.080 --> 0:50:26.960 that you got a company with a ga jillion dollars 0:50:27.000 --> 0:50:29.120 of cash on a balance sheet, one hundred billion dollars 0:50:29.160 --> 0:50:31.000 for free cash flow every year and they pay a 0:50:31.000 --> 0:50:32.400 dividend yield less than one percent. 0:50:33.280 --> 0:50:36.760 Yeah, you're preaching to the choir. We certainly are strong 0:50:36.800 --> 0:50:39.120 advocates of that. We think it just makes sound sense. 0:50:39.719 --> 0:50:42.440 It broadens your investor base, and you know, there's certainly 0:50:42.480 --> 0:50:45.960 other things that we can do with using convertible securities, 0:50:45.960 --> 0:50:49.600 for example in our portfolios or other structured equity like 0:50:49.680 --> 0:50:52.399 investments where you're kind of effectively doing some covered call 0:50:52.440 --> 0:50:54.839 writing and getting some premium. So you know, we do 0:50:54.880 --> 0:50:58.360 have some opportunity in lower dividend paying or non dividend 0:50:58.400 --> 0:51:02.520 paying stocks, but absolutely would firmly agree with you there. 0:51:02.600 --> 0:51:04.680 All right, if you see him, you know, Tim Cook, 0:51:04.719 --> 0:51:07.439 around the neighborhood, maybe can put that in his ear. 0:51:07.760 --> 0:51:11.000 Ed Perks Cio Franklin Income Investors out in San Mateo, 0:51:11.520 --> 0:51:14.560 giving us some good discussion on income investing. 0:51:15.400 --> 0:51:18.520 Thanks for listening to the Bloomberg Markets podcasts. You can 0:51:18.560 --> 0:51:22.320 subscribe and listen to interviews at Apple Podcasts or whatever 0:51:22.440 --> 0:51:26.120 podcast platform you prefer. I'm Matt Miller. I'm on Twitter 0:51:26.360 --> 0:51:28.400 at Matt Miller nineteen seventy three. 0:51:28.719 --> 0:51:31.160 And I'm Faul Sweeney. I'm on Twitter at pt Sweeney. 0:51:31.200 --> 0:51:33.880 Before the podcast. You can always catch us worldwide at 0:51:33.920 --> 0:51:35.640 Bloomberg Radio