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Speaker 2: This is Bloomberg Business Wait inside from the reporters and
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Speaker 2: global business, finance and tech news. The Bloomberg Business Week
Speaker 2: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 3: Let's fuck retail stocks because they certainly got a boost
Speaker 3: today as the latest read on US retail sales, excluding
Speaker 3: the impact of that cyber attack on auto dealerships that
Speaker 3: we talk so much about, rose in June by the
Speaker 3: most in three months. Carol assigned consumers regain their footing
Speaker 3: at the end of Q two.
Speaker 4: Yeah, and just a little bit more detail. Of the
Speaker 4: thirteen categories that are tracked by the Commerce Commerce Department,
Speaker 4: only three registered declines. Those included sales of gasoline reflecting
Speaker 4: lower prices in the month. Sales at sporting goods stores
Speaker 4: also edging lower. So a little bit of context there
Speaker 4: what you need to know. We want to get to
Speaker 4: that now that we've had a few hours to digest
Speaker 4: that retail sales report, Washington DC Bureau, that's where we
Speaker 4: go and to Bloomberg News. US Treasury and Economic Policy
Speaker 4: reporter Chris Condon. Hey Chris, good to be checking in
Speaker 4: with you. What do we need to take note of
Speaker 4: from this morning's retail sales report other than it was
Speaker 4: a surprise to the upside.
Speaker 5: Hi there, Caroly.
Speaker 4: Yeah.
Speaker 5: The first thing in which you've already noted is to
Speaker 5: throw out the headline number. It was distorted by the
Speaker 5: auto issue that affected auto dealers. The underlying numbers were
Speaker 5: really good X autos up zero point four percent and
Speaker 5: going further, autos and gasoline. Gasoline fell mostly because of
Speaker 5: a fallen prices, not less demand. Take those out. There's
Speaker 5: your number zero point eight that's quite strong, much better
Speaker 5: than expected, and it finishes off the quarter on pretty
Speaker 5: sound note. Now, more broadly, I would hesitate to make
Speaker 5: any big conclusion about a full recovery of the consumer.
Speaker 5: The broader trend is for cooling consumption, cooling demand. Obviously,
Speaker 5: the consumer and businesses are under pressure from high interest rates.
Speaker 5: We're seeing that across the labor markets, so that's going
Speaker 5: to further a road purchasing power. We're seeing more consumers
Speaker 5: in some level of debt distress. In a way, I
Speaker 5: would say the FED is getting exactly what they want,
Speaker 5: an incremental gradual slowing of demand. It's helping to reduce inflation,
Speaker 5: but not so much that we're hitting some kind of
Speaker 5: dramatic tipping point. In the June strong retail numbers kind
Speaker 5: of reinforced that idea that we're not tipping over into
Speaker 5: a more dangerous period quite yet.
Speaker 3: So if your fed Shair J. Powell, we've heard from
Speaker 3: him yesterday at the Economic Club of Washington. Chris, you
Speaker 3: talk about repeatedly every day, how data dependent you are.
Speaker 3: How do you take this bit of data?
Speaker 5: Well, rule of number one is it's just one piece
Speaker 5: of data. They're going to incorporate it into a bigger
Speaker 5: sphere of numbers that they're looking at. And even within consumption,
Speaker 5: the retail sales is largely focused on goods. It's not
Speaker 5: really a comprehensive take on demand from consumers. So he'll
Speaker 5: they'll take that on board, but I don't think it's
Speaker 5: likely to deter them from that feeling that they are
Speaker 5: getting closer to a raid cut. Now, it doesn't sound
Speaker 5: like they're on the cusp of say a July raid cut.
Speaker 5: There's no real firm signal of that. It does sound
Speaker 5: increasingly like a September cut is likely today's number is
Speaker 5: you know, gonna reinforce the idea that certainly July is
Speaker 5: not yet appropriate. But the overall trend, as I said,
Speaker 5: is moving them closer and closer to a September cut.
Speaker 4: You know, it's an interesting, uh environment, no doubt about it.
Speaker 4: You know, we're gonna talk to him and I a
Speaker 4: little bit later on Claire Valentine Bloomberg News has a
Speaker 4: story about carve repossession surging twenty three percent, so rocketing
Speaker 4: higher in the first half of the year, and it's
Speaker 4: just another sign of consumer distress as we've seen, you know,
Speaker 4: either higher interest rates making payments more difficult, so you
Speaker 4: would say glass more half empty when it comes to
Speaker 4: consumers at this point.
Speaker 5: Yeah, as you say, that's another sign of distress. We're
Speaker 5: seeing credit card balances ramp up. But you know, again
Speaker 5: I would come back to the point, Carol, that these
Speaker 5: are the things that you do expect when the FED
Speaker 5: has a restrictive policy in place, and it's not so
Speaker 5: bad that we're seeing a spike in unemployment or any
Speaker 5: creating in overall demand that would indicate a policy mistake
Speaker 5: has already been committed and that the FED is going
Speaker 5: to really have to start cutting dramatically. No, they are
Speaker 5: closing in. They're not quite there yet, but they are
Speaker 5: closing in on that soft land. There will be pain
Speaker 5: along the way on the margins increasingly, but so far,
Speaker 5: so good, I think from the Fed, and pretty soon
Speaker 5: I think some consumers are going to start to see
Speaker 5: some relief not only in lower inflation but lower interest rates.
Speaker 5: How long that takes to feed its way through the
Speaker 5: lower credit card rates is another question, but some relief
Speaker 5: perhaps on the way.
Speaker 6: Chris.
Speaker 3: Inflation is still not at the levels the FED wants
Speaker 3: to see that elusive two percent at this point. What
Speaker 3: economic metrics, though, are seeing a normalization? You know, take
Speaker 3: into account like pre COVID levels. Where are we seeing
Speaker 3: things normalize and where are things not normalizing?
Speaker 5: Well, you know, if I'm thinking of the bigger picture here,
Speaker 5: it's very difficult even to draw some conclusions yet. From
Speaker 5: the Fed's perspective, they're going to be wondering where to
Speaker 5: long run rates normalize, and that is still very much
Speaker 5: on unanswered question, a question they're going to have to
Speaker 5: confront in the coming once. You know, they're starting a
Speaker 5: new what they call a framework review, and they're going
Speaker 5: to have to very publicly confront this question, and so
Speaker 5: far it does seem like long run neutral interest rates
Speaker 5: are much higher than they were before the pandemic. Will
Speaker 5: they return still? Like I said, an unanswered question that
Speaker 5: economists are grappling with, well.
Speaker 4: And it's certainly something to those who invest in the
Speaker 4: banking sector are grappling with. Which is where we want
Speaker 4: to go right now. Chris, thank you so much, Always
Speaker 4: appreciate it. Chris Condon, his US Treasury and Economic policy
Speaker 4: reporter at Bloomberg News there in our DC bureau. So
Speaker 4: let's talk about the continuation of big bank earnings that
Speaker 4: came out earlier today. Morgan Stanley and Make of America
Speaker 4: reporting quarterly results this morning. Both stocks did rally for
Speaker 4: much of the day. Morgan, though losing most of its
Speaker 4: earlier gains, still up just shy of one percent. BAA
Speaker 4: still up tim about five percent today's session.
Speaker 3: And again, we're going to be hearing from Brian moynihan
Speaker 3: over at BIA just few minutes before we get there, though,
Speaker 3: let's check in on what these stocks did and what
Speaker 3: these banks reported. Morgan Stanley, like its rival Goldman Sachs
Speaker 3: and JP, Morgan beat expectations. It solidified the market's business
Speaker 3: as a hotspot across the industry. Investment banking fees Carol
Speaker 3: also increased. They sored fifty one percent from a year earlier,
Speaker 3: and then Bava.
Speaker 4: We saw their stock hitting I think it was a
Speaker 4: two year high during the day after it reported trading
Speaker 4: and investment banking results at top. Analyst Estimates also gave
Speaker 4: a forecast for net interest income, very key and BAA's
Speaker 4: biggest source of revenue that also exceeded expectations. So let's
Speaker 4: get to it. Anton Schwitz is back with US, president
Speaker 4: and chief investment Officer at Menden Capital Advisors. He joins
Speaker 4: US from Florida. His R and B mend and Financial
Speaker 4: Services Fund, by the way, up nearly sixteen percent in
Speaker 4: the past month, putting it in the ninetieth percentile among
Speaker 4: its peers. According to Bloomberg Data. The fund up twenty
Speaker 4: six percent in the past one year, putting it in
Speaker 4: the thirty six percentile in this category again according to
Speaker 4: our data. Ant, I'm good to have you back with us.
Speaker 4: How are you.
Speaker 6: Well. It's been busy, crazy, always a crazy time, and
Speaker 6: then we've added craziness.
Speaker 4: Yeah, it's crazy on top of crazy on top of crazy.
Speaker 4: But let's talk bank earnings, if we may, Morgan Stanley,
Speaker 4: b of A, let's start there. Investors seem to, for
Speaker 4: the most part, like what they heard, especially from b
Speaker 4: of A. Are these results investable? Should investors be acting
Speaker 4: on these results? In your view?
Speaker 6: Well, I mean, I think people have been negative on
Speaker 6: b of A for quite some time. It's got a
Speaker 6: very large bond portfolio. It kept talking about the bottom
Speaker 6: and that interest margin, and here we are, we're at
Speaker 6: the bottom of the interest margin. They're actually guiding higher.
Speaker 6: And obviously, as the bond portfolio you know, starts getting
Speaker 6: longer in the tooth, you know, the losses on it,
Speaker 6: you know, get smaller, interest rates drop, which people are
Speaker 6: thinking about again, the losses could you know, get smaller,
Speaker 6: may potentially even turn into gains over some period of time.
Speaker 6: So I think, you know, people may have been short
Speaker 6: Bank of America and clearly at this point there's a
Speaker 6: lot more comfort in the banks general. And then you know,
Speaker 6: also since the debate, the financials have had a very
Speaker 6: strong performance because the Trump administration is seen as friendly
Speaker 6: er towards banks.
Speaker 4: Are you buying that trade?
Speaker 6: Well?
Speaker 7: Uh, you know, I would you suggest.
Speaker 4: Others by that trade. I guess I.
Speaker 6: Know, well, I guess I guess I've said for some
Speaker 6: period of time to people are willing to listen to me,
Speaker 6: which you know, again, when you're out of favor, people
Speaker 6: aren't willing to listen. But I've said that, you know,
Speaker 6: buying my fund is like buying a call option really,
Speaker 6: you know, without a cost to it at the time,
Speaker 6: because evaluations were so cheap on if Trump wins. And
Speaker 6: it's just just going back to November sixteen, that that
Speaker 6: month banks were up sixteen percent. Now, there was a
Speaker 6: tax cut in the offing, but from a regulatory perspective,
Speaker 6: I think, you know, deals getting approved again. You know,
Speaker 6: people expect that that administration be friendlier towards M and A,
Speaker 6: and clearly m and A has been way down in
Speaker 6: the space.
Speaker 3: Anton. You know, I love asking about the consumer. Carol
Speaker 3: knows that I sound like a broken record, But one
Speaker 3: of the reasons I love hearing from Bank of America
Speaker 3: is because they have such a good eye on what
Speaker 3: the consumer's doing, how the consumer is feeling. We just
Speaker 3: talked retail sales. We're going to talk a little later
Speaker 3: about auto defaults. What what idea or what picture of
Speaker 3: the consumer. Did we get from Bank of America earnings today.
Speaker 6: Well, I mean we got we got a pretty good picture.
Speaker 6: I think they're not going down the food chain into
Speaker 6: the subprime space because I think that consumer particular is
Speaker 6: hurting a great deal. I think the stimulus money's gone.
Speaker 6: I think the employment picture is getting tougher for them.
Speaker 6: Inflation is biting hard. So I'm negative on the subprime consumer.
Speaker 6: And I think if you look at the you know,
Speaker 6: sort of the middle income part of the population. I
Speaker 6: mean you can see it in restaurant statistics that you
Speaker 6: sort of the full service restaurants are sort of struggling
Speaker 6: to you know, gain that consumer. You've seen even some
Speaker 6: of the lower end stuff like red Lobster, you know,
Speaker 6: get in a lot of trouble.
Speaker 4: Yeah, exactly, all right, So you know, b of a
Speaker 4: with Morgan Stanley today, but wrap it up for us
Speaker 4: Goldman Sachs yesterday. And I know you do focus on
Speaker 4: kind of the smaller MidCap names Anton, but I do
Speaker 4: appreciate your insight when it comes to some of the
Speaker 4: big cap names, you know, JP Morgan of course, last week,
Speaker 4: City Group and Wells Fargo. Are there any trends takeaways
Speaker 4: in terms of the overall banking sector, what we're seeing
Speaker 4: in lending, some of the commentary, what it kind of
Speaker 4: says about this environment right now.
Speaker 6: All right, I'll take up the rest of the show.
Speaker 4: Now, all yours?
Speaker 6: Yeah, really, I mean, first of all, the one thing
Speaker 6: we didn't see was credit problems. You know, and everybody
Speaker 6: keeps harping, boy, we're gonna have all this trouble in
Speaker 6: the banking system from real estate and you know, they've
Speaker 6: reserved a lot and you know we're not. You know,
Speaker 6: we're seeing losses. Banking America actually said commercial real estate
Speaker 6: losses will be lower in the second half of the year. Fascinating, right.
Speaker 6: You know. Secondly, long growth is slow. All right, we
Speaker 6: got slowing economy. We just talked about an economist on
Speaker 6: economy slowing. In fact, I think the FED is behind
Speaker 6: I wish they would get started, but you know, September
Speaker 6: appears to be in the cards, but they need to
Speaker 6: get go. Economy is slow and there's no loan growth.
Speaker 6: So what do banks have if there's no loan growth?
Speaker 6: Earnings are fine, capital grows, They buy backstock, maybe they
Speaker 6: start buying each other. That's what happens when you don't
Speaker 6: have any loan growth and credit quality is fine. I mean,
Speaker 6: they've done a nice job. They've been very conservative really
Speaker 6: since COVID, And this is not two thousand and seven
Speaker 6: or eight. Keep saying that, but it's not. It's not
Speaker 6: showing up.
Speaker 3: Well, why do you think the Fed is behind?
Speaker 6: Because there's such a lag to them moving rates right,
Speaker 6: when they raise rates, it takes a long time for
Speaker 6: a take effect. When they lower rates the same thing.
Speaker 6: It's not like twenty five basis points is going to
Speaker 6: change anybody's economic behavior or viability. So you know, my
Speaker 6: guess is they tiptoe and give us twenty fives for
Speaker 6: a while. But that's pushing on a string early on.
Speaker 6: So it takes time for all those effects to take hold,
Speaker 6: for financing to become more attract different people, for people
Speaker 6: to be able to refinance or invest in new projects. So, yeah,
Speaker 6: they've got it. They've got to get going. If the
Speaker 6: economy is slowing.
Speaker 3: When does it start to concern you that they haven't
Speaker 3: gotten going yet.
Speaker 6: Well, I mean I'm already I'm already concerned. I think
Speaker 6: they're already. They're already late. You know, if you think
Speaker 6: about unemployment, I mean where do we bottom three point four?
Speaker 6: You know word four to one. And if you look
Speaker 6: at different statistics, things like the household survey, the numbers
Speaker 6: are not as rosy on the employment side. So I
Speaker 6: think they've got work to do.
Speaker 4: I do wonder too, Anon, when you look at the space,
Speaker 4: you know, what is your favorite first of all, big bank?
Speaker 4: What's your favorite other bank? If you will in the
Speaker 4: space and why? Yeah?
Speaker 6: All right, Well, you know I've always loved geography, so
Speaker 6: again I'm going to talk about the southeastern Tennessee. So
Speaker 6: first Arizon. It's a pretty good size bank, right, just
Speaker 6: under one hundred billion in size. You know, they had
Speaker 6: agreed to sell the TV years ago. The deal got
Speaker 6: scuttle TD got in some trouble. I think that company
Speaker 6: is doing well fundamentally. I think they're in great markets
Speaker 6: and potentially someone else could go. You know what, I'd
Speaker 6: love to be in those markets as well. So I
Speaker 6: think operationally they're great, and I think fundamentally and you know,
Speaker 6: they're attractive, so you know, if you go down the
Speaker 6: food chain. And I think I may have talked about
Speaker 6: it before, but First Bank in Mississippi. They're in Georgia
Speaker 6: and Mississippi and Florida, So you know two states that
Speaker 6: are really growing well. In Mississippi, by the way, is
Speaker 6: a lower unemployment rate.
Speaker 3: In Texas, first Rising, by the way, is one of
Speaker 3: the top holdings. It's number nine in your fund. It's
Speaker 3: about four percent of your fund. Anton, what about banks
Speaker 3: that you want to stay away from? You said, well,
Speaker 3: correct me if I'm wrong, But I believe you said
Speaker 3: that we might still see some shake up in some
Speaker 3: of the regional banks when it comes to real estate.
Speaker 3: So sure, yeah, So which ones I want to avoid
Speaker 3: as a result of that?
Speaker 6: Yeah, I'm not seeing a lot of failure. So first
Speaker 6: of all, let me not say that you should go
Speaker 6: out and short a bunch of banks that have a
Speaker 6: lot of real estate exposure. But you know there will
Speaker 6: be some losses. Things like life sciences, right That's that
Speaker 6: was a hot area to lend into. It's not a
Speaker 6: good area right now. So people have exposure to things
Speaker 6: like that, you know, ar at risk. If you saw
Speaker 6: some downgrades on things like Bank of the Ozarks a
Speaker 6: month ago, that's an interesting, interesting a race to look at.
Speaker 6: I really respect the CEO, but he's got a lot
Speaker 6: of real exposure to things like that.
Speaker 4: You know, I do wonder too, you know, in terms
Speaker 4: of what the FED does or doesn't do. Do you
Speaker 4: think you know, we've been talking a lot about politics,
Speaker 4: and are you concerned that the FED gets caught up
Speaker 4: in some of the political environment and maybe doesn't do
Speaker 4: as you said? I think you that they're already behind
Speaker 4: the curve. Are you concerned that they get caught up
Speaker 4: in that and maybe you know, don't move as fast
Speaker 4: as they I mean, they're already behind the curve according
Speaker 4: to you. So do you think they kind of get
Speaker 4: caught up in that?
Speaker 6: Well, I think they had gotten caught up. I mean,
Speaker 6: I think they acted a little late in racing rates.
Speaker 6: You know, I think Sherman Powell was waiting to get reappointed.
Speaker 6: So that transitory thing on inflation was was was bad.
Speaker 6: You know, President Biden has promised a rate cut, you
Speaker 6: know some months ago that the FED is going to
Speaker 6: cut rates. Well, there's a little bit of pressure. We
Speaker 6: haven't said anything lately, but yeah, you know, at this
Speaker 6: point he's behind in the polls. A lot of the
Speaker 6: people at the FED have been appointed by him, so
Speaker 6: we can say that that's not a political organization, but
Speaker 6: you know, certainly people are going to have some loyalty
Speaker 6: to him, and he's behind in the polls, so I
Speaker 6: suspect there will be pressure on the FED to cut
Speaker 6: rates by the administration if we get any more bad
Speaker 6: economic statistics.
Speaker 4: Anton one last question we're getting ready to hear from
Speaker 4: the CEO Bank of America or David Western sitting down
Speaker 4: with him in just a moment, what would be your
Speaker 4: top question to him? What's top of mind for you?
Speaker 6: Well, you know, look, I'm a big fan of Brian Mooynhand,
Speaker 6: so I mean it was just amazing watching him take
Speaker 6: the rain after the financial crisis. So you know, the
Speaker 6: big question is what's next? Right, he can't he can't
Speaker 6: grow the company anymore from a depository perspective. One of
Speaker 6: the line of lines of business would he liked to
Speaker 6: be in, you know, is you want to continue to
Speaker 6: build out you know, the wealth management product? Does he
Speaker 6: want to continue to build out you know, other lines
Speaker 6: of business? And by the way, how is he using technology?
Speaker 6: Because technology is going to be the biggest driver efficiency
Speaker 6: ratios in this industry. AI is enormous for anybody that
Speaker 6: has all those back office jobs like the big banks do.
Speaker 4: All right, got to leave it on that note around
Speaker 4: the world of banking, we went as we always do. Anton,
Speaker 4: thank you so much, Be well, have a good summer.
Speaker 4: Anton Schutz, his president and chief investment officer at Mendon
Speaker 4: Capital Advisors.
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Speaker 4: All right, let's talk a little bit more about politics,
Speaker 4: certainly fronton center. Donald Trump, of course, as you know,
Speaker 4: made his first public appearance since an assassination attempt. That
Speaker 4: was last night, white bandage covering his right ear as
Speaker 4: Republicans gathered to nominate him as their presidential candidate for
Speaker 4: a third time.
Speaker 3: We didn't hear from the former president, but the through
Speaker 3: line of his populist doctrine was evident from tapping. Ohio
Speaker 3: Senator jd. Vance is his running mate to the spate
Speaker 3: of speakers, which range from business executives to the head
Speaker 3: of the influential Teamsters union. We've been heard from David Sachs,
Speaker 3: the venture capitalist who we were talking about a little earlier.
Speaker 4: A broad spectrum of speakers, so what will the race
Speaker 4: and run up to the November elections mean for investors
Speaker 4: short and longer term? To tackle that with us as
Speaker 4: Karen Murphy, she's chief investment officer at the registered investment
Speaker 4: advisor Kestra Investment Management, joining us right here in our studio, Kara, Welcome,
Speaker 4: Thank you, Nice to have you here. Nothing going on,
Speaker 4: very quiet, it's very quiet.
Speaker 2: Hey.
Speaker 4: Remind us we often, you know, we'll talk about this
Speaker 4: some of our Bloomberg market write up stories or write
Speaker 4: ups on the markets. We'll talk, you know, remind everybody
Speaker 4: about kind of historically what happens in a presidential year.
Speaker 4: Remind us a little bit about that.
Speaker 8: Well, Number one, there's always a lot of fretting, a
Speaker 8: lot of hand ringing, a lot of worrying. But what's
Speaker 8: interesting is that when we actually look at market performance
Speaker 8: in years when there's a presidential election, the annual turn
Speaker 8: is remarkably similar to non election years, but the way
Speaker 8: that we get there is a little bit different. And
Speaker 8: typically what we see as a kickup in volatility late
Speaker 8: in the summer prior to the election and then markets
Speaker 8: sort of take off before the election actually happens. So
Speaker 8: we've been counseling people to be aware of this. It
Speaker 8: can still be a really good market environment, but it
Speaker 8: can be a bumpy road along the way.
Speaker 3: It hasn't been that bumpy over the last year rect
Speaker 3: eighteen months.
Speaker 8: And so this is where it's all. We also have
Speaker 8: to be caution because this year is so different in
Speaker 8: so many different ways. And I think part of the
Speaker 8: reason why marcuts have been able to rally in the
Speaker 8: first half of the year is because I know it
Speaker 8: doesn't feel this way, but there's actually much less uncertainty
Speaker 8: going into this election than what we normally have, especially specifically, yeah,
Speaker 8: and especially after our weekend like we just had. That
Speaker 8: sounds weird, but we have two former presidents who are
Speaker 8: running against each other. We've never had that before. So
Speaker 8: the two presumptive candidates, we know what they do in office,
Speaker 8: we know who they surround them with, we know that
Speaker 8: what policies they favor. We actually never had that level
Speaker 8: of policy certainty going into an election. So from a
Speaker 8: market's perspective, that's actually a good thing.
Speaker 4: Do you believe though, as you know someone who has
Speaker 4: to advise investors, that a second Donald Trump term would
Speaker 4: be just like his first term, So.
Speaker 8: That's always a big question. And again, just because he
Speaker 8: served four years doesn't mean the next four years are
Speaker 8: going to be exactly do you want to say?
Speaker 4: And this isn't being political, but he's not your standard
Speaker 4: political candidates.
Speaker 3: He's also a lot of the people who were in
Speaker 3: his universe in his first term are, no question, out
Speaker 3: of his universe forever.
Speaker 4: Right what people have been calling kind of the guardrails
Speaker 4: in that first administration.
Speaker 8: But we also see, I mean even in a Biden
Speaker 8: administration or other administrations, you tend to see every couple
Speaker 8: of years a big turnover in terms of the personalities
Speaker 8: around a president. We also have this wonderful thing in
Speaker 8: the United States called political institutions, which themselves prove our
Speaker 8: guard rails and limit the amount.
Speaker 4: That any one executive can you But you have a
Speaker 4: potential president meaning Donald Trump, who says he wants to
Speaker 4: undo those institutions and take away kind of the structure
Speaker 4: that has been entrenched and in many ways the checks
Speaker 4: and balances throughout the government. So how do you kind
Speaker 4: of think about.
Speaker 8: And I think that is a very real challenge. But
Speaker 8: as we've looked through we're still relying on Congress to
Speaker 8: make policy We're still relying on courts to make judgments.
Speaker 8: So we might disagree with what those are, but we're
Speaker 8: still working through that system, and so I'm not calling
Speaker 8: the end of the American institutions just yet.
Speaker 3: What do you see as potentially inflationary about another Trump administration?
Speaker 3: We've talked a lot about this, the idea that he
Speaker 3: is interested in raising tariffs. There are some questions about
Speaker 3: other policies that would actually be inflationary. How are you
Speaker 3: thinking about that?
Speaker 8: Well, I think when we look at both potential administrations,
Speaker 8: both have potentially inflationary policies, and so for Trump it's
Speaker 8: more along the lines of tax cuts and tariffs, which
Speaker 8: you know, in some ways the market likes, right, The
Speaker 8: market likes when companies pay fewer taxes but actually be inflationary.
Speaker 8: So I think those are components to a broader picture.
Speaker 8: But there are certainly broader economic forces that'll play into
Speaker 8: inflation than just policy.
Speaker 4: So what do you tell investors when someone comes and says, Cara, Okay,
Speaker 4: I want to put some money to work. Do I
Speaker 4: play it safe, keep it in cash right now, and
Speaker 4: wait to see what happens? What do you say?
Speaker 8: I think if investors play it too safe, they risk
Speaker 8: missing a really good market environment. So what we would
Speaker 8: say is diversification is still your best friend.
Speaker 9: Right.
Speaker 8: You don't have to own just a handful of companies.
Speaker 8: You can diversify, whether it's smaller cap names outside the
Speaker 8: US bonds. So there are a lot of different ways
Speaker 8: that you can still be invested, enjoy a good market environment,
Speaker 8: but without being so behold into just a few names.
Speaker 4: Would you play the Trump trade right now, which is
Speaker 4: everybody was kind of jumping on, and I think Tim
Speaker 4: and I talked a lot about this of being like
Speaker 4: a little careful one day. We still have a few
Speaker 4: months to go before the November election. But whether it
Speaker 4: was what prisons, gunstocks.
Speaker 3: Crypto, those were all higher, we had oil stocks, we
Speaker 3: actually had clean energy stocks, and green stocks move lower yesterday,
Speaker 3: So it's like the classic Trump trade.
Speaker 8: So I think often when we look at policy baskets
Speaker 8: in previous presidential elections, they haven't been very easy to trade.
Speaker 8: You'll have these like little blips where those types of
Speaker 8: companies outperformed, but then they kind of come back down
Speaker 8: to earth. So I'm actually not a big fan of
Speaker 8: playing individual stocks because as you pointed out, there's also
Speaker 8: a lot of policy uncertainty, even with two men who
Speaker 8: have already served as president.
Speaker 3: Well, a lot of the policy uncertainty comes from what
Speaker 3: happens in the House and Senate, because you know, we
Speaker 3: talked to you about the idea of gridlock, and if
Speaker 3: there is a mixed Congress, or if the president is
Speaker 3: one party but Congress is another party, then you could
Speaker 3: see gridlock. How do you think about that?
Speaker 8: Market usually likes gridlock. They usually like Washington not being
Speaker 8: able to get a lot of things done. So that's
Speaker 8: not a bad scenario.
Speaker 3: But what's the scenario that you're playing out right now?
Speaker 8: So we're looking beyond the election. We're looking at where
Speaker 8: we think the US economy is going. And we think
Speaker 8: the US economy is slowing, but in a good way.
Speaker 8: Inflation is coming down. You have the boost of the
Speaker 8: Fed rate cuts, and I think that actually is a
Speaker 8: much more important driver of the market than you know,
Speaker 8: who's going to be in the White.
Speaker 7: House in January?
Speaker 4: Cara, what's your okay? So it sounds like you look
Speaker 4: through who is ultimately going to be in the White House?
Speaker 7: We do.
Speaker 4: What's the risk though in looking through and missing something
Speaker 4: that could be dramatically different.
Speaker 8: Well, there are a lot of risks, right, so as
Speaker 8: an investor who're always waking up at night thinking about
Speaker 8: different potential risks. But I think the biggest risk that
Speaker 8: we face is something that's more intrinsic to the US economy. Right,
Speaker 8: So maybe the FED doesn't cut enough and rates stay
Speaker 8: too high for longer and we start to see, let's say,
Speaker 8: a crisis in commercial real estate. So I think those
Speaker 8: are much easier to kind of identify and then also
Speaker 8: hedge against, rather than some huge policy mistake that ends
Speaker 8: up coming out of the White House.
Speaker 3: You mentioned commercial real estate. What else do investors have
Speaker 3: to have on their radar that could be on this
Speaker 3: bumpy road that you alluded to.
Speaker 8: So the other thing that you know, we focus on
Speaker 8: a lot is the mag seven, Right, That's all anybody's
Speaker 8: been able to talk about for the last year and
Speaker 8: a half. And what we have found is that portfolio
Speaker 8: has become increasingly concentrated in just a handful of names,
Speaker 8: and then you end up being very overlevered to things
Speaker 8: like megacap and growth. So a lot of people who
Speaker 8: think they're very core actually aren't necessarily very core.
Speaker 3: So does that make it a prime time. I mean,
Speaker 3: we talked a little bit about geographic diversification, but the
Speaker 3: US has outperformed global stocks for years at this point. Yeah,
Speaker 3: when is there going to be opportunity outside of.
Speaker 8: The US the golden question?
Speaker 3: I mean, if there's so much concentration risk here in
Speaker 3: the US, then sounds like you're saying, now.
Speaker 8: Well, we think it's always important to have non US
Speaker 8: stocks in your portfolio, but it becomes harder every year
Speaker 8: that the SMP outperforms. But we think it's even more
Speaker 8: imperative today than it was, say, five years ago, for
Speaker 8: all the same reasons. Because you get diversification, you have
Speaker 8: different growth pictures, you have lower valuations, and they act differently.
Speaker 8: And then if you're worried about political risk, then all
Speaker 8: the more reason to make sure that you have exposure
Speaker 8: outside of the US.
Speaker 4: But you are sounding like we can kind of look
Speaker 4: through the political risk of the election.
Speaker 8: Yes, I believe we can, And I say that as
Speaker 8: something who's studied politics for a really long time.
Speaker 4: Yeah, that it's not different this time around or anything.
Speaker 8: Right, And again, I worry about everything, but I think
Speaker 8: the right thing to do is for investors to look
Speaker 8: through it.
Speaker 4: All, Right, I think we're gonna leave it, Yeah, I guess.
Speaker 3: I Mean my question though, is what's There's a lot
Speaker 3: of hay being made about. And Carol mentioned this about
Speaker 3: the fragility of institutions in the US and with a
Speaker 3: Supreme Court that some would argue gave up the president
Speaker 3: much more power in a recent ruling, why doesn't it
Speaker 3: concern you?
Speaker 8: So it does concern me. I don't think it's necessarily
Speaker 8: something that we should be investing on our portfolios with.
Speaker 8: And when I ask people like do you feel like
Speaker 8: political polarization has grown in the US, everyone nods their
Speaker 8: head yes. But then I show stats showing that this
Speaker 8: has been growing trend for over forty years, and it's
Speaker 8: happening not just in the US, but outside the US
Speaker 8: as well. So this is a global phenomenon and it
Speaker 8: makes governing very very tricky. So it makes governan government
Speaker 8: harder to actually implement. But it's not necessarily going to
Speaker 8: start a crisis, right, And that's what you're going to
Speaker 8: worry about from a portfolio perspective.
Speaker 4: So even another like contested election outcome, you're saying, no,
Speaker 4: it's not good.
Speaker 8: Yeah, I don't think it's going to change the trajectory
Speaker 8: of the SMP over the next couple of years.
Speaker 4: All right, and that's the key, all right, Gonna leave
Speaker 4: it there.
Speaker 3: I know nothing can stop the stocks, Carol, that's.
Speaker 4: The mess, all right. Good to know. Thank you so much.
Speaker 4: That was good. Like we just kind of went round
Speaker 4: and round with it, and it was fun to do that.
Speaker 4: Karen Murphy, So, chief investment officer at the registered investment
Speaker 4: advisor Kester Investment Management, joining us right here in our studio.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 4: We have leaned on our next guest many times throughout
Speaker 4: the global pandemic and the days following the murder of
Speaker 4: George Floyd, throughout the twists and turns of the twenty
Speaker 4: twenty presidential race, and so much more. He is someone
Speaker 4: who's worked in leadership roles in both the private and
Speaker 4: public sectors, including a nearly thirty year career on Wall Street,
Speaker 4: which is why we love talking about him about so
Speaker 4: much of what is the Bloomberg world. His former Undersecretary
Speaker 4: of Commerce for International Trade and the US Department of
Speaker 4: Commerce that was during the Obama administration headed up the
Speaker 4: International Trade Administration. I could go on, but then we
Speaker 4: would be done. Let's get to it. Stefan Seelig is
Speaker 4: back with us, managing partner and founder of Bridge Park Advisors,
Speaker 4: the financing advisory firm here in our Bloomberg Interactive Brokers studio.
Speaker 4: So nice to have you here with us. I do
Speaker 4: always like to lean on you to kind of connect
Speaker 4: the dots for us this environment. I'm not quite sure
Speaker 4: where to start, but it does feel like politics is
Speaker 4: the right place to start in terms of what might
Speaker 4: happen in November. Does it matter who ultimately is in
Speaker 4: the White House come November?
Speaker 10: I Carol, how are you? I'm well? Thank you too,
Speaker 10: hot like everybody else, but at least cool in your studio.
Speaker 3: You know.
Speaker 10: Look, I think it depends on what the issue is,
Speaker 10: right and so some of the things we've talked about
Speaker 10: in the past, like China. You know, this is one
Speaker 10: topic where maybe the only topic where Democrats and Republicans
Speaker 10: seem you know, quite aligned, which is getting tougher on China.
Speaker 10: I'm not sure policies will be radically different between a
Speaker 10: Trump and a potentially a Biden administration. I think the
Speaker 10: deficit ain't gone down with either president. I think defense
Speaker 10: spending is going up with either president. I think as
Speaker 10: a result of that, from an economic perspective, I'm not
Speaker 10: sure there's going to be a ton of difference. I
Speaker 10: think from a political perspective, clearly President Trump is going
Speaker 10: to be much more isolationist. He is going to have
Speaker 10: much stricter immigration policies, and he is going to spend
Speaker 10: a lot of money. And so I think what all
Speaker 10: that does, which is why you're seeing the steepening of
Speaker 10: the yield curve, the so called Trump trade that you've
Speaker 10: talked about in the strengthening of the dollar, is you know,
Speaker 10: those are all going to be quite inflationary, especially if
Speaker 10: he adopts some of these more aggressive tarror proposals that
Speaker 10: he's talked about both with China and in imports, which
Speaker 10: could be Trumpian hyperbole, but if it does happen, that
Speaker 10: inflation is going to go up dramatically.
Speaker 4: And can you play that out for us? Because I
Speaker 4: don't think. I think there's times in terms of I
Speaker 4: think of voters who are just trying to pay their
Speaker 4: bills at this point. But how would that potentially play
Speaker 4: out and impact the US economy and US citizens.
Speaker 10: Well, tariffs are nothing else other than you know, taxes, right,
Speaker 10: They're taxes on goods, and unfortunately they're quite regressive because
Speaker 10: the people that are impacted most are you know, the
Speaker 10: folks that are paying their bills every month with groceries
Speaker 10: and car payments and everything else, and so prices will
Speaker 10: go up. There was not a very significant impact in
Speaker 10: the Trump original set of tariffs because they were not
Speaker 10: that significant, and President Biden obviously kept them largely in place.
Speaker 10: So the real question is he going to be much
Speaker 10: more aggressive in the next term and if that is
Speaker 10: going to happen, you know, some economists are talking about
Speaker 10: one hundred basis point two hundred basis point increases and inflation,
Speaker 10: let alone about the impact and the slowing of the
Speaker 10: economy overall.
Speaker 3: We have seen the narrative shift in the last seventy
Speaker 3: two hours following the assassination attempt on the former president.
Speaker 3: Gone are the conversations dominated by who's going to replace Biden?
Speaker 3: On the ticket if anyone. And now the focus has been,
Speaker 3: especially with the RNC happening right now, on the strength
Speaker 3: of Trump's position, at least in the polls, in sort
Speaker 3: of a renewed sense of energy around him. You talk
Speaker 3: to CEOs all the time in your position at Bridge
Speaker 3: Park Advisors. What are they telling you?
Speaker 10: Well, look, I think you're quite right, Tim that the
Speaker 10: narrative has changed on the one hand, But just to
Speaker 10: go back before we talk about the CEO perspective in
Speaker 10: a moment, I almost have a counterintuitive point of view,
Speaker 10: which is the strengthening of Trump from this horrific assassination
Speaker 10: attempt could in fact have an opposite of the Trump trade,
Speaker 10: which is this could be maybe an accelerant to having
Speaker 10: a change Democratic ticket. Really and if that were to
Speaker 10: be the case, just based on the poll numbers, you'd
Speaker 10: actually argue for taking the opposite side of that trade,
Speaker 10: because now Biden looks so much weaker than even he
Speaker 10: did after the debate that that may force Democratic leadership
Speaker 10: and the president himself to really re evaluate whether or
Speaker 10: not he wants to stay. And I have no perspective
Speaker 10: on whether that is going to be the case or not,
Speaker 10: but it is interesting that the strengthening of Trump could
Speaker 10: have that potential outcome.
Speaker 3: Do you realistically see a scenario in the next few
Speaker 3: weeks where there is a change at the top of
Speaker 3: the ticket. I mean, the President did reiterate to Lester
Speaker 3: Holt last night that he's there to he's in it
Speaker 3: to win it.
Speaker 10: Yeah, we've all heard the same thing on the one hand.
Speaker 10: On the other hand, despite what you may think about
Speaker 10: the President some of his policies, I believe he is
Speaker 10: a true patriot and he wants to do the right
Speaker 10: thing for the country. And if he becomes convinced that
Speaker 10: he is not going to be able to beat Donald Trump,
Speaker 10: change his mind, because at the end of the day,
Speaker 10: this is not just a narcissistic decision. It is a
Speaker 10: decision that many people believe is going to fundamentally affect
Speaker 10: and I'm sure he does the direction of this country.
Speaker 10: Going back to your question about CEOs, what I would
Speaker 10: say is, you know, first of all, most Fortune five
Speaker 10: hundred CEOs are Republicans. So I don't know polls have
Speaker 10: been taking seventy five percent are Republicans. You're starting with
Speaker 10: a base that most CEOs of big companies would vote
Speaker 10: for Trump. Kind of along party lines on the one hand.
Speaker 10: On the other hand, for this particular candidate, in the
Speaker 10: conversations I've had, I don't see much enthusiasm for one,
Speaker 10: I don't think they appreciate his style. Two is, some
Speaker 10: of these policies. CEOs are not isolationists, they are not xenophobic,
Speaker 10: they are not protectionists. They don't like tariffs, and so
Speaker 10: they don't like all of the social policies that are
Speaker 10: being talked about, for example LGBTQ rights, and so while
Speaker 10: I think on the one hand, you know, many of
Speaker 10: them are seeing the writing on the wall and as
Speaker 10: a result not standing up and lining behind President Biden,
Speaker 10: on the other hand, I don't think there's a lot
Speaker 10: of enthusiasm for this particular president as much as there
Speaker 10: is enthusiasm for traditionally central centrist Republican policies as a
Speaker 10: way to drive corporate profits in corporate prosperity.
Speaker 4: You know, one of the things that we've been talking
Speaker 4: a lot about is kind of the establishment folks in
Speaker 4: Silicon Valley are really in kind of the venture startup world,
Speaker 4: and they're backing of Donald Trump and JD. Vance. It
Speaker 4: seems like at this point, why do you think that
Speaker 4: they appeal to them. Is it tax like, what is it?
Speaker 10: Well, part of it is jd Vance, you know, had
Speaker 10: a job in Silicon Valley for a while, and so
Speaker 10: I think there is a little bit of a connection
Speaker 10: that he has personally with some of those folks.
Speaker 4: But Peter TiAl and Eli we're backing Trump for a
Speaker 4: long time.
Speaker 10: Yeah, And I would say, frankly, Carrol, those are not
Speaker 10: really representative of the Fortune five hundred establishment traditionally. Now
Speaker 10: it may be it may be the New World Order,
Speaker 10: but it certainly wasn't the world order of the last
Speaker 10: you know generation.
Speaker 4: Well, is it important to make that distinction because it's
Speaker 4: interesting they're in the headlines a lot.
Speaker 10: Sure, but they're in the headlines a lot because of
Speaker 10: you know, the huge you know, wealth and success of
Speaker 10: Elon Musk and a number of other folks that like to,
Speaker 10: you know, comment on this. But traditionally, corporate CEOs are
Speaker 10: going to be much more reticent for making public political,
Speaker 10: you know, statements, because it's kind of not their lane
Speaker 10: and not their job. So as a result of that,
Speaker 10: you kind of have the squeaky real sort of phenomenon
Speaker 10: where you have folks like Bill Ackman that like to
Speaker 10: comment on these things, and Elon Musk because of X
Speaker 10: and other things, that likes to comment on these things.
Speaker 10: Where traditional corporate executives, I think, because they're you know,
Speaker 10: their customers and their clients are both Republicans and Democrats,
Speaker 10: are quite chary about being as vocal.
Speaker 3: Remember the Whole Foods founder who we spoke I was
Speaker 3: just thinking about that.
Speaker 2: Yeah.
Speaker 3: We spoke to John Mackie a few weeks ago. He's
Speaker 3: got a new book out and in the book he
Speaker 3: writes about the time that he weighed in on Obamacare
Speaker 3: and how it was such a disaster and he said
Speaker 3: the board told him never again, ever, ever, don't touch anything.
Speaker 10: The cutest toy story tim that I've heard about that
Speaker 10: was a comment that Michael Jordan made. Yeah, and he said,
Speaker 10: you know, guess what, both Democrats and Republicans by sneakers.
Speaker 3: Yeah. Hey, Well, speaking of that, we did just speak
Speaker 3: to Kara Murphy over at Kestra Investment Management, and she
Speaker 3: encouraged our listeners and our viewers to look beyond the
Speaker 3: election and argued that who's in the White House really
Speaker 3: doesn't matter when it comes to financial markets. That said,
Speaker 3: we spoke to read Hoffman, the Lincoln founder and billionaire,
Speaker 3: about six weeks ago over at our San Francisco conference,
Speaker 3: and he said it absolutely does matter because he's concerned
Speaker 3: about a lack of stability as a result of a
Speaker 3: Trump presidency. What side are you on? Does it matter
Speaker 3: who's in the White House?
Speaker 10: You know, I think, of course it matters. But you
Speaker 10: also have to have to ask that question in conjunction
Speaker 10: with what happens to the Congress and is it going
Speaker 10: to be a divided government or not a divided government
Speaker 10: because that is a natural check and balance that I
Speaker 10: think will cause some of them more extreme outcomes from
Speaker 10: taking place. But what I would say is, you know,
Speaker 10: the United States position in the world will clearly be
Speaker 10: different between these two governments. And you know President ex
Speaker 10: president former President Trump and President Biden have a different
Speaker 10: worldview in terms of cooperation internationalism versus isolationism, and that
Speaker 10: is going to impact not only the citizenry, but impact
Speaker 10: businesses in many respects, and so I don't think it
Speaker 10: can be ignored. I am not quite as alarmist as
Speaker 10: some folks in terms of the end of democracy and
Speaker 10: civil war and some of the other things that you know,
Speaker 10: some people are talking about On the one hand, I
Speaker 10: do think, you know, this is an important election and
Speaker 10: we need to be rightly talking about the issues.
Speaker 4: Someone, do you feel like you worked within the government
Speaker 4: the Obama administration? Do we still have checks and balances?
Speaker 4: Will we still depending on who's in the White House
Speaker 4: come November.
Speaker 10: You know, obviously our system hasn't changed. What has changed, Carol,
Speaker 10: is we used to govern from the middle, and now
Speaker 10: we're governing from the extremes in both parties, and that
Speaker 10: is what creates a lot of I think, these tensions
Speaker 10: and a lot of our ineffectiveness in terms of our
Speaker 10: ability to implement any policies. And I think, frankly, and
Speaker 10: this is my personal point of view, until we get
Speaker 10: back to the middle, we're going to have a lot
Speaker 10: of We're going to have some real issues because that's
Speaker 10: what creates the animosity and the ability to collaborate. And
Speaker 10: you know, when when President Biden was in the Senate,
Speaker 10: he was you know, notoriously well known and rightly so
Speaker 10: for actually being a being able to collaborate across the aisle.
Speaker 10: And you don't see that from either party at the moment,
Speaker 10: and I don't see that changing with this election. In
Speaker 10: either direction.
Speaker 3: You did say until we get back to the middle,
Speaker 3: which strikes me as really optimistic. Do you see within
Speaker 3: I mean, it's not an.
Speaker 4: I think he said he was an optimistic within our lifetime.
Speaker 3: Do you get back to the middle?
Speaker 10: You know, you know, I don't know, Tim, You may
Speaker 10: as well be hopeful because it's better than the other choice.
Speaker 3: Yeah, that's fair.
Speaker 4: Your clients, what do they ask you most about and
Speaker 4: what are they up to?
Speaker 10: Well, you know, I think at the moment, as you
Speaker 10: as you rightly said, there was a whole conversation around
Speaker 10: what was going to happen on the top of the
Speaker 10: Democratic ticket.
Speaker 4: Uh.
Speaker 10: Then the implications of the assassination attempt, Uh, clearly. But
Speaker 10: I think there's still a lot of uncertainty in the economy.
Speaker 10: And you know, you guys spend a lot of time,
Speaker 10: understandably talking about the markets, but the markets in the
Speaker 10: real economy are divergent. And the fact is is that
Speaker 10: despite being at all time highs in the equity markets,
Speaker 10: you know, consumer sentiment is not high. Savings are being
Speaker 10: depleted from the pandemic relief costs, inflation is going up.
Speaker 10: Costs to consumers are going up. Car payments, mortgage payments
Speaker 10: are higher because of interest rates, and that's creating a
Speaker 10: real sense of a you know, lack of prosperity with
Speaker 10: most American households. And households Carol, you know this, households
Speaker 10: don't own a lot of stock, right, So all of that,
Speaker 10: all of that good stuff that we talk about in
Speaker 10: the equity markets really doesn't impact households traditionally, and even
Speaker 10: that high equity market. You guys talk about this all
Speaker 10: the time. It's really technology. And it's not just technology.
Speaker 10: It's a handful of companies in the technology sector.
Speaker 4: If you could change one policy, they would help more Americans.
Speaker 4: You're right, the market is not main street.
Speaker 10: What would it be though, Oh, I probably it would
Speaker 10: be a political thing, and I probably have term limits
Speaker 10: to have us govern more effectively. Yeah, so I guess
Speaker 10: that would be the answer.
Speaker 3: We just talked about car repossessions rocketing higher in the
Speaker 3: first half of the year. Carol asked you about one
Speaker 3: policy you would change though, in the last thirty seconds
Speaker 3: that we have. Why do you think that so much
Speaker 3: America is struggling at a time when the economy is
Speaker 3: so good for so many people.
Speaker 10: Well, I don't know, Tim is it's so good for
Speaker 10: so many people if there's a real wealth gap, and
Speaker 10: it's good for a lot of I think your listeners
Speaker 10: who occupy a certain economic position in this country, and
Speaker 10: I'm not so sure it's so good for so many people.
Speaker 10: A lot of people are struggling, and that is why
Speaker 10: this populism that President Trump and jd. Vance espouse has
Speaker 10: become so popular. And I think, you know, we can't
Speaker 10: ignore that, and you know, we can all have style
Speaker 10: to concerns and concerns about some of their policies, but
Speaker 10: the people, the Americans that they are talking to, you know,
Speaker 10: really feel what they are they are trying to address.
Speaker 4: Yeah, I think it explains very much the political environment
Speaker 4: that we are, not just in the United States, but
Speaker 4: really globally right in terms of people not feeling that
Speaker 4: they're doing better.
Speaker 10: For sure, and you know, Brexit, the elections in France,
Speaker 10: et cetera, et cetera. I mean this is a global phenomenon.
Speaker 4: Thank you as always, Stepan See like his magic partner
Speaker 4: Bridge Park Advisors.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 3: You might remember on Friday, Carol and I were talking
Speaker 3: quite a bit how we plan to move to the
Speaker 3: French Riviera.
Speaker 1: To broadcast show this story.
Speaker 3: Okay, before we were even done talking about it, we
Speaker 3: got a message from management that said, no, don't even
Speaker 3: think about it. The reason we were talking about, though,
Speaker 3: is because the French Riviera is so hot right now.
Speaker 3: Prices of homes valued above sixteen million along France's southeastern
Speaker 3: coast rose between fifteen percent and twenty percent in the
Speaker 3: five years through twenty twenty three, out performing the thirteen
Speaker 3: percent gains in London in the same period. That's data
Speaker 3: from broker Boushampas State Show review of the luxury real
Speaker 3: estate market closer to home and around the world too.
Speaker 3: We welcome back Daniel de la Vega, president of one
Speaker 3: Southeby's International Realty. Daniel joining us from Colorado. Daniel, how
Speaker 3: are you?
Speaker 7: I'm great, Thank you for having me back. Excited to
Speaker 7: be back on the show.
Speaker 6: Well.
Speaker 3: Southeby's International Realty just out with its Meteor Luxury real
Speaker 3: Estate Report, and it shows that luxury properties are performing
Speaker 3: better than non luxury properties. Is this all just because
Speaker 3: of rates and the folks that you're selling to don't
Speaker 3: care about mortgages?
Speaker 7: You know, the folks that we sell to do care
Speaker 7: about mortgages, right, their businesses are affected by mortgages. But
Speaker 7: our luxury market in South Florida is performing better than
Speaker 7: I mean, the French is definitely performing better than the
Speaker 7: French riviera. I heard you guys just talking a little
Speaker 7: bit about that. Our single family home market, the ten
Speaker 7: million dollar plus market for sale, product is up thirty percent,
Speaker 7: sold is up thirty five percent, pendings are up thirty percent,
Speaker 7: and the average price per square foot is up eleven
Speaker 7: percent to twenty four hundred dollars a square foot. Those
Speaker 7: are unheard of for our market. And then on the
Speaker 7: condo side, it's even higher. Right for the ten million
Speaker 7: dollar plus market for sales up thirty seven percent, solds
Speaker 7: up twenty percent, pendings are flat, but the price per
Speaker 7: square foot is up to thirty four fifty one per
Speaker 7: square foot. And that's inventory that's on the market. Those
Speaker 7: are numbers from the local MLS. Is that doesn't account
Speaker 7: for new developments, which trade for traditionally twenty to thirty
Speaker 7: percent above what's on market, so you know, interest rates
Speaker 7: aren't really affecting us. I think that everybody's kind of
Speaker 7: bullish that interest rates are going to go down, and
Speaker 7: like they say, interest rates are temporary, all right.
Speaker 4: Interesting. I do wonder though, if rates go down and
Speaker 4: people kind of like it doesn't pay as much to
Speaker 4: leave my money in cash. Although we're not, you know,
Speaker 4: down to zero or anything like that. Hey, having said that,
Speaker 4: Daniel's always important. I feel like when we have a
Speaker 4: conversation with you, this is a very kind of narrow
Speaker 4: part of the real estate market. Although obviously a lux
Speaker 4: one and a high end one and a pricey one.
Speaker 4: How does it compare to pre pandemic levels what we're
Speaker 4: seeing today?
Speaker 7: Oh, you have markets that are up three hundred percent
Speaker 7: in some instances. I mean it is a completely different market,
Speaker 7: especially in Florida. All the job creations.
Speaker 4: So stronger, hotter than it was pre pandemic.
Speaker 7: Way stronger, way hotter.
Speaker 6: Yeah.
Speaker 7: I mean those numbers that I just gave you were
Speaker 7: for were year to date numbers. So we've had an incredible,
Speaker 7: incredible first half of the year here in Florida and
Speaker 7: most of the college my colleagues that I speak to
Speaker 7: across the US. I mean, I'm sitting here in Aspen, Colorado.
Speaker 7: The market's performing incredibly well, and it's look, it's a
Speaker 7: lack of inventory. People don't have homes to sell. You know,
Speaker 7: people don't want to sell their homes. They have locked
Speaker 7: in low mortgage rates. And you know, while mortgage rates
Speaker 7: are coming down, we're very bullished that they are going
Speaker 7: to come down. We saw the CPI numbers close to
Speaker 7: three percent, we saw unemployment up to four point one percent.
Speaker 7: We're bullish that they're going to come down. Canada is
Speaker 7: about to lower for the second time, and inflation hasn't
Speaker 7: come down after the first. So very very positive outload
Speaker 7: from that standpoint. But it's an inventory crunch. There's still
Speaker 7: not a lot of inventory on the market. Most markets
Speaker 7: are averaging still below a six month supply, which is
Speaker 7: what we look at as our baseline average.
Speaker 3: Daniel, is the idea of climate change, rising sea levels,
Speaker 3: increasing volatility of storms. Is that on the rate the
Speaker 3: radar at all of your clients in South Florida.
Speaker 7: You know, it has its moments. You know, you have
Speaker 7: sometimes articles published about sea level rise and things like that,
Speaker 7: and we're trying to be as resilient as we can
Speaker 7: in Florida. It definitely has infected insurances, insurance prices. Insurance
Speaker 7: prices have double, sometimes tripled, especially waterfront properties, properties that
Speaker 7: need win mitigation. So, you know, it's something that's it's
Speaker 7: on a case by case basis, but it's not something
Speaker 7: that's happening at a more macro level. You're seeing people
Speaker 7: talk about it as they price their insurances say, WHOA,
Speaker 7: this is a lot more than I expected. But you know,
Speaker 7: the same thing goes for taxes in Florida, right, I mean,
Speaker 7: taxes in Florida are high compared to other states. We
Speaker 7: average one point eight seventy five percent as property tax.
Speaker 7: States like Colorado they have very low property tax but
Speaker 7: we still continue to have people want to purchase, want
Speaker 7: to live, want to build their careers in Florida. So
Speaker 7: you know, it's something that I think is going to
Speaker 7: be temporary. It's going to have to be it's going
Speaker 7: to have to be fixed at a federal level, and
Speaker 7: I'm bullish that our government will fix it.
Speaker 3: Do you think what you think insurance has to be
Speaker 3: fixed at a federal level.
Speaker 7: I do, especially in Florida. Yeah, it's going to have
Speaker 7: to be a federal issue.
Speaker 3: That's interesting because Texas and California are also running into
Speaker 3: some serious insurance issues. Here in New York too. I
Speaker 3: think a lot of homeowners would say that their insurance
Speaker 3: rates have gone up, just tech one of them. Yeah, yeah,
Speaker 3: I mean, I just want to play that out a
Speaker 3: little bit for us about how that would work nationally,
Speaker 3: because that's a that's an interesting solution that I haven't
Speaker 3: heard about.
Speaker 7: You know, look, I don't know how it would play out.
Speaker 7: I'm just hoping that the Fed does get involved at
Speaker 7: some level, creates some subsidies for us so that we
Speaker 7: can make insurances, you know, across the country affordable. Because
Speaker 7: while it's up three times in Florida, to your point,
Speaker 7: it is, I mean it is up. It's not two
Speaker 7: percent of property value, but it's still up in Colorado,
Speaker 7: it's up in Texas. So you know, I think there'll
Speaker 7: have to be some sort of subsidies created at the
Speaker 7: federal level.
Speaker 4: What might surprise some one who is listening right now
Speaker 4: the Bloomberg audience about your world.
Speaker 7: You know, what would I was looking at at some
Speaker 7: you know, the election is a big, big topic, and
Speaker 7: I think what people fail to realize is that property
Speaker 7: values have gone up in nine out of the last
Speaker 7: eleven elections, and eight out of the last eleven elections,
Speaker 7: mortgage rates have gone down. So I'm I'm very bullish
Speaker 7: that with interest rates coming down, statistically speaking, there there
Speaker 7: they go down, and then the pent up demand after
Speaker 7: the election, and again statistically speaking, there's there's a lot
Speaker 7: of pent up demand. And you know, you have nine
Speaker 7: out of the last eleven elections and increase in property values.
Speaker 7: I think we're I think we're in line for a
Speaker 7: really really good, strong Q one. We might see a
Speaker 7: little bit of a slowdown, you know, pre election interest
Speaker 7: rates are obviously going to help with that, but still,
Speaker 7: I think the first quarter of next year is going
Speaker 7: to be really really strong. H And we're very bullish
Speaker 7: on what's to come.
Speaker 3: What's the outside of the South Florida market, what's another
Speaker 3: market that needs to be on the radar of our audience.
Speaker 7: You know, I keep reading that New York's a buyer's market.
Speaker 7: I'm still very bullish on New York. I love Manhattan.
Speaker 7: I think the arts in the cultural scene are out
Speaker 7: of this world. The restaurants are still great, the people
Speaker 7: are still great. They have some of the best colleges
Speaker 7: in the world. So if it's a buyer's market, like
Speaker 7: everybody's saying, I would double down on Manhattan.
Speaker 3: Interesting, Okay, it's some optimism about Manhattan.
Speaker 4: Yeah, exactly, exactly, really interesting.
Speaker 7: You know, I just have a long term view on
Speaker 7: things in general when it comes to real estate.
Speaker 4: Right, Hey, one last question. Who are mostly your buyers
Speaker 4: at this point? What's the demographics of it? Is it
Speaker 4: folks in the United States? Is it global buyers? What
Speaker 4: is the age? What can you tell us?
Speaker 7: Yeah, we're still seeing a lot of Northeast buyers. We're
Speaker 7: seeing a lot of millennial buyers. Actually, I think this
Speaker 7: sixteen trillion dollar the generational shift of wealth, I think
Speaker 7: is a really big deal from the baby boomers to
Speaker 7: the millennials. We're seeing a lot of properties being bought
Speaker 7: in trusts. We're seeing a lot of that in our
Speaker 7: new the new development space. We represent a lot of
Speaker 7: new developments along the east coast of Florida. And then
Speaker 7: you know, Canada is still the number one Byron Florida,
Speaker 7: although they buy at a lower price point. We're seeing Texas,
Speaker 7: We're seeing a lot of California and Mexico. Mexico is
Speaker 7: a huge, huge market for US, and then Latin America's
Speaker 7: always been a big market for US, and it kind
Speaker 7: of depends on what's happening happening at a at a
Speaker 7: local level the countries in Latin America.
Speaker 4: All Right, we're going to leave it on that note.
Speaker 4: By the way, Elon Musk might be looking for a
Speaker 4: house in Texas because that's where he's moving his uh
Speaker 4: SpaceX headquarters from California. I know he's been out at it.
Speaker 4: I mean, did he sell all his homes?
Speaker 3: Also, he's been out exactly, I know, but I do
Speaker 3: think this is more symbolic than it is. I mean,
Speaker 3: Tesla has already moved production there. Just yeah, sorry, I
Speaker 3: don't mean to.
Speaker 4: Break That's all right, It's kind of that kind of
Speaker 4: a day. Daniel be Well, Daniel de la Vega, he's
Speaker 4: president of one Southeby's International Reality joining us from Colorado.
Speaker 1: Marco Journal.
Speaker 4: Now about you let me drive?
Speaker 3: Oh no, no, no, no, all right, please I'll travel.
Speaker 1: Excuse I want to drive.
Speaker 6: It's a question.
Speaker 2: This is the drive to the clothes well shod on
Speaker 2: Bloomberg Radio.
Speaker 4: All right, TikTok to everybody coming up on eighteen minutes
Speaker 4: left in the trading session, getting ready on just a bit,
Speaker 4: we're gonna head over to our TV colleagues catching under
Speaker 4: the closing bell on uh this Tuesday. In the meantime,
Speaker 4: we're gonna talk a little bit more about this trade.
Speaker 3: Yeah, we got Christia Coolian with us, head of I
Speaker 3: Shares Investment Strategy over at black Rock. Christy, good to
Speaker 3: have you with us. I Shared just out with its media.
Speaker 3: Everyone's out with their media report.
Speaker 4: I know what is that.
Speaker 3: It's because it's the media, That's what it is. Yeah,
Speaker 3: you and the team right the report report card? Oh yeah, Medior, Yah,
Speaker 3: say you better get on top of that. You don't
Speaker 3: know we have that?
Speaker 4: Do you have that?
Speaker 3: Christy? I do want to talk about the I Shares
Speaker 3: media report because you and the team right that since
Speaker 3: our last outlook in March, a broad sampling of data
Speaker 3: reflects a US economy with substantial growth momentum. How much
Speaker 3: momentum does the economy have?
Speaker 9: Yeah, and thanks for having me. It's so great to
Speaker 9: be here today.
Speaker 7: Yeah.
Speaker 9: So, I mean, I think that one of the biggest
Speaker 9: differences from what we were talking about earlier this year.
Speaker 9: It's certainly coming into this year is really just that
Speaker 9: the economy has remained a lot stronger than expected. So
Speaker 9: we've really taken out a lot of that left tail
Speaker 9: in terms of the recession risk. And so we've seen
Speaker 9: the economy, you know, it's stayed a lot stronger than expected,
Speaker 9: and I think that it's in a really benign deceleration
Speaker 9: mode right now. So we do expect growth to slow,
Speaker 9: but we don't expect it to slow so much that
Speaker 9: we're going to get that bumpy or that hard landing
Speaker 9: that maybe investors thought we were going to get in December.
Speaker 4: No recession at all, you.
Speaker 9: Know, right now, it certainly doesn't look like it right now.
Speaker 9: It does paint more of a soft landing picture. And
Speaker 9: I think that that's part of what encourages us in
Speaker 9: this mid year out look, is you reference to lean
Speaker 9: into risk. But you know, I think that there's a
Speaker 9: difference between leaning into risk and then just indiscriminately reaching
Speaker 9: for risky assets, and that's certainly not what we're talking about.
Speaker 9: A lot of the themes that we're talking about there
Speaker 9: are quality. So something like qu a L as a
Speaker 9: ticker that we have had top of mind and top
Speaker 9: of investor minds as well too, as we think about
Speaker 9: staying invested and leaning in a little bit, but doing
Speaker 9: so in kind of a sensible way that screens for
Speaker 9: higher quality.
Speaker 3: Christy, what was the moment where or the piece of
Speaker 3: data or what happened when you said, you know, we're
Speaker 3: going for soft landing. Well we're full on soft landing here.
Speaker 3: What was that moment that you decided that this was
Speaker 3: the narrative we're going to adopt.
Speaker 4: You know, I don't know if.
Speaker 9: It was one specific moment so much as a collection
Speaker 9: of moments and data that we've gotten over the course
Speaker 9: of the year. So maybe kind of an unsatisfying answer.
Speaker 9: You know, I think GDP growth came in a lot
Speaker 9: stronger than we expected, and a Q four a little
Speaker 9: bit softer than expected in Q three, but still twice
Speaker 9: as strong as investors expected coming into the year, So
Speaker 9: you know, I think, I mean that headline number matters,
Speaker 9: but yeah, I think it really is just the broad
Speaker 9: sampling of data that makes us more feel more comfortable.
Speaker 9: But it's not just that one single data point.
Speaker 3: You know.
Speaker 4: It's interesting. I'm looking at the it shares quality as
Speaker 4: you said, qual as the ticker and you know, if
Speaker 4: I look at some of the holdings, they're well known
Speaker 4: names and some of the big megacap tech names that
Speaker 4: have really pushed the overall market higher. So it's Nvidia,
Speaker 4: it's Apple, it's Microsoft. To be fair, there's also Visa.
Speaker 4: Meta is also in there, Costco, Johnson and Johnson. And
Speaker 4: I'm looking at a performance over the past year that's
Speaker 4: up about twenty nine percent here, five year up about
Speaker 4: fifteen percent on average annually. You know, it's kind of interesting.
Speaker 4: Does it still make sense to be somewhat passive and
Speaker 4: just buy them a market at this point?
Speaker 9: You know, it's a great question, and I think it
Speaker 9: really depends upon investor preference here. I think there's a
Speaker 9: lot of investors that we speak to who do prefer
Speaker 9: an index exposure, and for that we like quality for
Speaker 9: investors who maybe are comfortable taking a more active approach.
Speaker 6: You know.
Speaker 9: You know, we've got some great offerings there. The one
Speaker 9: that we've been talking about a ton and really, you know,
Speaker 9: I think has made for these times is DYNF. So
Speaker 9: that is our Dynamic Factor Rotation Fund. It still looks
Speaker 9: a lot like quality right now, but because of that
Speaker 9: active management tilt and the strategy that it follows, it
Speaker 9: can change a lot more quickly than an index fund can.
Speaker 9: And so what we're seeing is that as we're approaching
Speaker 9: this period where is the FED going to start to cut,
Speaker 9: is inflation going to start to fall, we're seeing these
Speaker 9: inflection points kind of form in the market and on
Speaker 9: the horizon, and I think that investors who want to
Speaker 9: be able to take advantage of that are leaning more
Speaker 9: into active strategies and we've seen that in the flow.
Speaker 4: Help me out, though, because I look at the top
Speaker 4: holdings in this one and it's a lot like the
Speaker 4: last one we just talked about, qual and Video, Microsoft, Apple, Visa, Meta,
Speaker 4: So help me understand. You know, constantly, it's really some
Speaker 4: of these large megacap names that really provide the momentum
Speaker 4: for even though you call them different things, it's really
Speaker 4: the same names that are really moving the needle.
Speaker 9: It's a lot of the same names, it's at slightly
Speaker 9: different weights, and I think the importance is the rebalance
Speaker 9: frequency as well. So, yes, the active fund looks very
Speaker 9: similar to the quality index fund right now because it
Speaker 9: chooses to be in higher quality names. What can change
Speaker 9: pretty rapidly though, is it's actually started to dial back
Speaker 9: a little bit of its quality preference, and it started
Speaker 9: to tilt up a little bit of its value preference.
Speaker 9: So that faster rebalancing schedule just means that it can
Speaker 9: move more quickly with the markets, even though you know,
Speaker 9: all of these funds are going to in broad strokes
Speaker 9: still sort of represent a market cap weighted index as
Speaker 9: a starting point, and then they're going to make adjustments
Speaker 9: from there.
Speaker 3: How are you thinking about themes that you don't have
Speaker 3: ETFs for right now? What's what's when you go into
Speaker 3: the the room at Blackrock? Can you talk about, you know,
Speaker 3: themes that you want to sort of adopt moving forward?
Speaker 3: What's interesting to you?
Speaker 9: Yeah, So there's there's a lot of growth in alternatives,
Speaker 9: right I mean, I think that that is a big
Speaker 9: part of the focus right now. I think we're talking
Speaker 9: more about some of the liquid alternative strategies, so things
Speaker 9: that can still be you know, invested in via a
Speaker 9: mutual fund wrapper for example, and that can still offer
Speaker 9: sort of daily liquidity and whatnot. But I think that
Speaker 9: as you know, as as the market matures and as
Speaker 9: you know, the ETF industry expands, and also other fund
Speaker 9: wrappers you know, we're looking at things like private markets
Speaker 9: as being opportunities and where and how those can fit
Speaker 9: into different investor portfolios. So I think a lot of
Speaker 9: the excitement and sort of the new frontiers, if you will,
Speaker 9: are sort of in that alternative space. But you know,
Speaker 9: even even now, if you just look at some of
Speaker 9: the launches, if the proof is in the putting, if
Speaker 9: you will, a much larger share of ETF launches don't
Speaker 9: look like ETFs in the past. So about forty one
Speaker 9: percent of all launches that we've seen so far this
Speaker 9: year have been active and not just lets them do
Speaker 9: different things lay in different markets. Then maybe people thought
Speaker 9: about ETFs traditionally. So even within the ETF rapper, the
Speaker 9: investment profile is changing, and outside of it, I think
Speaker 9: it's looking and pushing that frontier in terms of alternatives,
Speaker 9: liquid alternatives, private markets, things like that.
Speaker 4: We what do like when you guys talk to institutional
Speaker 4: clients just got about twenty five seconds left here, you know,
Speaker 4: or investors in general, what other kind of devices or
Speaker 4: ETFs are they looking for to play around within this market?
Speaker 4: Just real quickly.
Speaker 9: Yeah, again, I think a big part of it is
Speaker 9: active strategies. Okay, but outcome strategies, so things that are
Speaker 9: using derivatives to either enhance income or define more specific outcomes.
Speaker 9: I think that's a really quickly growing category for a
Speaker 9: lot of investors and institutional in particular too. And a
Speaker 9: breaking news for you here is just just today I
Speaker 9: Shares reached four trillion dollars globally.
Speaker 6: And that's under management.
Speaker 9: So that's a new stat.
Speaker 4: All right, well we'll take it. Hey, listen, Thank you
Speaker 4: so much. Christy Akulian. She's head of our shares investment
Speaker 4: strategy over at Blackrock, joining us from San Francisco.
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