WEBVTT - CPI, Financial Advising, and DC Latest 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 --> 0:00:20.000 you listen to podcasts, and at Bloomberg dot com slash 0:00:20.040 --> 0:00:23.040 podcast map. We're down here at the broadcasting live from 0:00:23.040 --> 0:00:26.400 Commonwealth's twenty twenty three National Financial Advisors Conference, or at 0:00:26.400 --> 0:00:30.120 the Gaylord Rockies Resort in Aurora, Colorado, literally right next 0:00:30.120 --> 0:00:32.680 door to the airport. I mean, you've plans of flying over, 0:00:32.720 --> 0:00:35.400 flying out's and for somebody likes planes, it's a great 0:00:35.400 --> 0:00:39.519 place to be here. We're joined here at the conference 0:00:39.560 --> 0:00:43.480 down here by Trap Cloman, COO and President of Commonwealth. Trap, 0:00:43.479 --> 0:00:44.960 thanks so much for joining us. Thanks for having us 0:00:45.000 --> 0:00:48.360 down out here in Denver. Talk to us about Commonwealth. 0:00:48.400 --> 0:00:51.480 You guys have got it's like two thousand financial advisors. 0:00:52.360 --> 0:00:54.920 What do they need from you guys? Because these markets 0:00:55.000 --> 0:01:00.800 are very either they're very difficult to navigate, equities, fixed income, alternatives. 0:01:01.000 --> 0:01:04.200 How do you try to help your rias out there? 0:01:04.640 --> 0:01:09.399 Yeah, it's it's a fascinating and endlessly challenging opportunity for 0:01:09.520 --> 0:01:13.679 us because so much is continuously changing, both in the 0:01:13.720 --> 0:01:16.880 financial markets. Frankly, technology has become such a big part 0:01:16.880 --> 0:01:20.319 of any business, but especially for financial advisors. And then 0:01:20.319 --> 0:01:23.000 of course you overlay regulation. So as you think about 0:01:23.040 --> 0:01:25.520 the opportunities we have, it's to be a great business 0:01:25.560 --> 0:01:30.680 partner for these rias and duly registered advisors who really 0:01:30.760 --> 0:01:33.680 you know, their greatest opportunity, the greatest value, is their 0:01:33.720 --> 0:01:36.080 relationship with their clients. So if we think about our 0:01:36.120 --> 0:01:38.680 role in the ecosystem, how can we maximize their time 0:01:38.720 --> 0:01:42.520 their opportunities to spend time with their clients. Uh So, yeah, 0:01:42.680 --> 0:01:46.640 we look through our research team to take on as 0:01:46.760 --> 0:01:49.600 much of that work as possible, and especially in these 0:01:49.640 --> 0:01:53.960 markets and you know volatile global political events, bringing our 0:01:54.000 --> 0:01:57.960 economists to bear to help them help navigate that, you know, 0:01:58.000 --> 0:02:00.520 really build a lot more portfolios, bring more takeechnology so 0:02:00.520 --> 0:02:03.720 they can do research faster, trade faster, and then white 0:02:03.800 --> 0:02:06.360 label and communicate it out to their clients so they 0:02:06.360 --> 0:02:10.679 can really present themselves rightfully. Is subject matter experts and 0:02:11.080 --> 0:02:15.520 really you know, tying personal needs on an individual level 0:02:15.840 --> 0:02:19.079 to you know, the marketplace and I just think that's 0:02:19.120 --> 0:02:22.040 a fantastic service that they do, you know, for over 0:02:22.040 --> 0:02:24.840 five hundred households in America, and you know, we're very 0:02:24.840 --> 0:02:25.680 proud to be a part of that. 0:02:25.760 --> 0:02:27.600 So when I talk to some of the rias around 0:02:27.600 --> 0:02:30.680 here this year and other years, they say, Man, the 0:02:30.720 --> 0:02:33.239 back office stuff is really consuming more and more of 0:02:33.280 --> 0:02:35.520 my time. That's where I need some leverage so I 0:02:35.560 --> 0:02:37.320 can talk to my clients. So I can you know, 0:02:37.960 --> 0:02:40.880 really provide some value out of advice. How do you 0:02:40.880 --> 0:02:41.840 guys try to address that? 0:02:42.560 --> 0:02:46.280 Yeah, that's exactly it, and it's only growing if you 0:02:46.320 --> 0:02:48.880 look at some of the rule proposals right now about 0:02:48.960 --> 0:02:53.000 protection of consumer data, which we fully agree with, but 0:02:53.080 --> 0:02:56.360 the difficulty in navigating that and managing the technology. So 0:02:57.280 --> 0:03:01.040 one of the values of having scale and being in 0:03:01.080 --> 0:03:03.120 the business that we're in we can focus on the 0:03:03.160 --> 0:03:08.239 complexity of trading, of compliance, of technology and you know 0:03:08.440 --> 0:03:10.440 ri I as. You know, if you look at the history, 0:03:10.480 --> 0:03:14.800 it really started upstream with large institutional rias. And what's 0:03:14.840 --> 0:03:16.639 great about what's going on in the industry is that's 0:03:16.639 --> 0:03:21.240 been moving downstream because it goes downstream to you know, smaller, 0:03:21.320 --> 0:03:25.760 more retail focused uh RIA shops, there's greater need to 0:03:25.800 --> 0:03:28.560 outsource more of those capabilities to subject matter experts, and 0:03:28.600 --> 0:03:31.359 we have the size and the scale to get incredible technologists, 0:03:31.440 --> 0:03:35.520 incredible INFOSEC people, you know, great people again in our 0:03:35.600 --> 0:03:39.040 research teams, if you will. So we really look to 0:03:39.080 --> 0:03:42.920 surround them on every way possible and then you know, 0:03:43.000 --> 0:03:44.720 be there to meet them in their needs. Because every 0:03:44.720 --> 0:03:47.400 advisor is also different. We don't take a cookie cookie 0:03:47.440 --> 0:03:48.040 cutter approach. 0:03:48.240 --> 0:03:49.040 They're all different. 0:03:49.080 --> 0:03:52.640 But you know, what's the average size of the of 0:03:52.680 --> 0:03:55.400 the I R I A that you guys are supporting 0:03:55.480 --> 0:03:58.960 And is it easier now for them to compete with 0:03:59.000 --> 0:04:01.520 the big banks than it would have been, say ten 0:04:01.600 --> 0:04:02.320 years ago. 0:04:04.000 --> 0:04:06.120 Yeah. Absolutely. 0:04:06.200 --> 0:04:06.280 So. 0:04:07.320 --> 0:04:11.800 We we have over twenty two hundred advisors, but they're 0:04:11.840 --> 0:04:15.080 in about nine hundred offices together, and so we tend 0:04:15.080 --> 0:04:17.960 to measure productivity across those offices and it's about two 0:04:18.080 --> 0:04:20.200 hundred and forty you know, two hundred and fifty depending 0:04:20.240 --> 0:04:24.520 on the market's million on average per office. And so 0:04:24.720 --> 0:04:27.640 outside of the wirehouse landscape, you know, we have the 0:04:27.720 --> 0:04:30.280 largest producers in the industry. When you start to look 0:04:30.279 --> 0:04:33.479 at the regionals and independence and some of the insurance 0:04:33.480 --> 0:04:36.080 and bank place and one of the reasons we have 0:04:36.160 --> 0:04:39.680 been so successful, I love the question, is because a 0:04:39.720 --> 0:04:43.360 lot of the capabilities that used to only be accessible 0:04:43.440 --> 0:04:46.640 in that bank, you know, the wirehouse, the large bank environment, 0:04:47.160 --> 0:04:52.200 are now available much more broadly and individual rias you know, 0:04:52.400 --> 0:04:55.240 can't necessarily access that on their own, and so there 0:04:55.240 --> 0:04:57.120 are more and more business partners who are bringing more 0:04:57.120 --> 0:05:03.000 alternative investments, banking capabilities, more sophisticated trust solutions, high net 0:05:03.040 --> 0:05:06.599 worth absolutely, and having you know, a monopoly on internal 0:05:06.640 --> 0:05:10.040 product and a fiduciary world isn't an advantage anymore. So 0:05:10.560 --> 0:05:13.240 I've really like kind of the democratization of what's going 0:05:13.279 --> 0:05:15.520 on in the industry, and it's really given advisors a 0:05:15.520 --> 0:05:18.800 lot more choice and flexibility and how they do their business, 0:05:18.800 --> 0:05:19.960 which is obviously great. 0:05:20.080 --> 0:05:21.279 Why does and I read about this. 0:05:21.320 --> 0:05:23.800 I've been on Wall Street for over thirty five years, 0:05:23.800 --> 0:05:26.840 and it's been a constant trend advisors leaving some of 0:05:26.880 --> 0:05:29.520 the big wirehouses and going out independent, and it kind of, 0:05:29.560 --> 0:05:31.400 I guess it ebbs and flows in terms of the 0:05:31.839 --> 0:05:35.160 of the pace. What's the general reason why an advisor 0:05:35.200 --> 0:05:38.120 would leave a Merrill Lynch, a Smith Barney and kind 0:05:38.120 --> 0:05:39.640 of go out on his or her own. 0:05:40.000 --> 0:05:40.240 Yeah. 0:05:40.480 --> 0:05:43.600 The reasons have you know, changed and involved and fluctuated 0:05:43.680 --> 0:05:46.440 over the years, but one of the constants has been 0:05:46.520 --> 0:05:49.360 ultimately you are now an entrepreneur, you own your business. 0:05:50.000 --> 0:05:52.400 And one of the fascinated trends, one of the great 0:05:52.440 --> 0:05:54.120 trends going on in the industry is the value of 0:05:54.160 --> 0:05:58.000 those businesses is going up significantly. So I expect to 0:05:58.000 --> 0:06:02.720 see that trend rise because when you're as an employee, uh, 0:06:03.000 --> 0:06:06.359 you know, you're obviously you paid your salary hopefully you know, 0:06:06.720 --> 0:06:08.679 they treat you well on the way out, But ultimately 0:06:08.680 --> 0:06:11.719 it's the bank's book. It's the bank's clients that they're 0:06:11.720 --> 0:06:13.640 going to you know, push it back out to all 0:06:13.800 --> 0:06:17.719 of their other employees. When you've broken to independence and 0:06:17.760 --> 0:06:20.440 you own your own shop, you can you know monetize 0:06:20.440 --> 0:06:24.240 that business, uh for great value. And so if you 0:06:24.240 --> 0:06:26.359 think about your own financial planning, you're getting a higher 0:06:26.360 --> 0:06:29.240 payout and you can sell your business at the end financially, 0:06:29.240 --> 0:06:32.080 it just makes a world of sense. And then you know, uh, 0:06:32.400 --> 0:06:34.640 the other big trend as advisors really like having the 0:06:34.640 --> 0:06:37.200 autonomy and the flexibility to make their own decisions and 0:06:37.240 --> 0:06:40.640 put their clients first and not to say that isn't 0:06:40.640 --> 0:06:43.920 necessarily happening in the employee model per se. But there's 0:06:43.960 --> 0:06:48.159 a lot of competing, uh, you know, priorities in that 0:06:48.240 --> 0:06:50.600 type of environment. When when you're an employee, and also 0:06:50.680 --> 0:06:53.440 especially of public companies. Uh, when when you have the 0:06:53.440 --> 0:06:56.560 opportunity to go independent, you're your own boss and we're 0:06:56.600 --> 0:06:59.039 a partner for you. You don't work for commonwealth, we 0:06:59.080 --> 0:06:59.600 support you. 0:07:00.160 --> 0:07:03.760 What's the what's the typical kind of I guess asset 0:07:03.800 --> 0:07:06.279 allocation for one of your rias? Is it you know, 0:07:06.400 --> 0:07:11.280 stocks and bonds or is it also alternatives? I guess 0:07:11.280 --> 0:07:13.680 how sophisticated did they get? How how far away did 0:07:13.680 --> 0:07:15.520 they get away from that sixty forty portfolio? 0:07:15.880 --> 0:07:20.600 Yeah, the sixty to forty portfolio is definitely evolving, but 0:07:20.760 --> 0:07:23.520 it's more in the construct of it. So I think 0:07:23.560 --> 0:07:28.119 the end result is greater diversification. But you're obviously seeing 0:07:28.400 --> 0:07:31.080 much more use of ETFs than mutual funds for you know, 0:07:31.160 --> 0:07:37.160 greater tax efficiency, much more demand for SMA solutions with 0:07:37.480 --> 0:07:42.400 something separately manage the council where you can have you know, 0:07:42.480 --> 0:07:47.920 individual holdings within a portfolio, a managed portfolio and an index, 0:07:47.960 --> 0:07:50.280 but then you can self select a little bit. So 0:07:50.360 --> 0:07:52.720 if you have some preferences that align with your goals 0:07:52.800 --> 0:07:57.200 or beliefs, or you have some holdings that you know 0:07:57.240 --> 0:08:00.000 you don't want to part with because of tax consequences, 0:08:00.560 --> 0:08:02.200 but you want to jump into a model, You're not 0:08:02.280 --> 0:08:04.559 forced to sell out of your position just to adhere 0:08:04.600 --> 0:08:06.680 to a model. So it gives our team and our 0:08:06.720 --> 0:08:10.880 advisors the ability to really make many more investments much 0:08:10.920 --> 0:08:14.800 more individual, uh, you know, customize for their investor. And 0:08:14.880 --> 0:08:17.240 so yeah, at the end of the day, we're seeing 0:08:17.600 --> 0:08:21.560 steady growth in SMAs and you know which ultimately hold 0:08:21.840 --> 0:08:25.440 mute funds, ETF stocks, fixed income, but also you know, 0:08:25.520 --> 0:08:27.520 greater growth in alts. You know, I mentioned a minute 0:08:27.520 --> 0:08:31.480 ago how the democratization RIA is moving downstream. The same 0:08:31.520 --> 0:08:35.280 with the investment product. The massive flin American has now 0:08:35.400 --> 0:08:39.080 far greater access to alternative investments and you know funds 0:08:39.120 --> 0:08:41.319 of funds with private equity and hedge funds. So we're 0:08:41.320 --> 0:08:44.160 seeing for you know, greater demand there and opportunity, which 0:08:44.200 --> 0:08:44.800 is great. 0:08:45.600 --> 0:08:48.760 So what's your view on the economy given your position there? 0:08:49.600 --> 0:08:54.920 Trap I far smarter people than myself who spend a 0:08:54.960 --> 0:08:58.960 lot more time on the economy. In short, the way I, 0:08:59.080 --> 0:09:00.840 you know, I try and think about it is if 0:09:00.880 --> 0:09:03.680 you are chasing whether it's the markets, interest rates, or 0:09:03.720 --> 0:09:07.680 the economy, and trying to run your business solely in 0:09:07.720 --> 0:09:12.400 that moment, you're often going to be left behind. What 0:09:12.400 --> 0:09:16.320 what how we like to manage commonwealth and work with 0:09:16.360 --> 0:09:19.960 our advisors is see through the economic uh, you know, 0:09:20.040 --> 0:09:22.880 variables in the market fluctuations and the interest rate volatility. 0:09:23.280 --> 0:09:23.480 Uh. 0:09:23.640 --> 0:09:26.760 Plan long term as as best you can. And of 0:09:26.800 --> 0:09:30.240 course you have both businesses and clients who have immediate 0:09:30.280 --> 0:09:32.840 short term needs. And then again, the people are far 0:09:32.880 --> 0:09:35.240 smarter than myself come to bear and can really help 0:09:35.320 --> 0:09:36.360 out in those situations. 0:09:36.880 --> 0:09:39.400 TRAP undergrad from the University of Virginia. I'm a big 0:09:39.440 --> 0:09:42.480 fan of the WA Who's one and five in football? 0:09:42.559 --> 0:09:47.240 Yeah hopefully not the football team, Yes, yeah, I go 0:09:47.320 --> 0:09:50.800 Who's But yeah, it's it's it's real hard these days, 0:09:50.800 --> 0:09:52.960 and it's been hard for a long time. My daughter 0:09:53.040 --> 0:09:54.680 just went to Syracuse though, so I was all ready 0:09:54.720 --> 0:09:57.839 to follow Syracuse as well, but that they're struggling too, 0:09:58.080 --> 0:10:00.480 So I guess I have to wait next year. 0:10:00.559 --> 0:10:03.600 Yeah exactly, But you always have a basketball season as well. 0:10:03.800 --> 0:10:06.280 Let's at the Paul Truder Jones Arena. 0:10:06.200 --> 0:10:07.440 John Paul Jones, John Paul Jones. 0:10:07.520 --> 0:10:09.719 Yeah, okay, awesome, very good stuff, all r beautiful place. Yeah, 0:10:09.720 --> 0:10:10.400 it is all right. Trep. 0:10:10.400 --> 0:10:12.280 Plumbing, thanks so much for joining us. Trap is the 0:10:12.360 --> 0:10:16.240 COO and president of Commonwealth. They're sponsoring this conference here 0:10:17.000 --> 0:10:20.920 in Denver, Colorado. Just outside of Denver in Aurora, Colorado. 0:10:21.600 --> 0:10:22.679 Some good stuff out here. 0:10:23.920 --> 0:10:27.319 You're listening to the team Ken's are live program Bloomberg 0:10:27.400 --> 0:10:29.760 Markets weekdays at ten am Eastern. 0:10:29.480 --> 0:10:32.520 On Bloomberg dot Com, the iHeartRadio. 0:10:31.800 --> 0:10:34.560 App, and the Bloomberg Business App, or listen on demand 0:10:34.600 --> 0:10:36.160 wherever you get your podcasts. 0:10:38.080 --> 0:10:40.839 Matt Miller, he's in that Bloomberg Interactor Broker studio in 0:10:40.920 --> 0:10:45.199 New York City. I am here live from the Commonwealths 0:10:45.240 --> 0:10:48.040 twenty twenty three National Financial Advisors Conference. We're at the 0:10:48.080 --> 0:10:51.160 Gaylord Rockies Resort in Aurora, Colorado, and Matt I can 0:10:51.200 --> 0:10:54.560 report that the sausage biscuits are to die for here. 0:10:55.120 --> 0:10:55.560 Awesome. 0:10:56.000 --> 0:10:58.040 Fire you right up, get you set for the rest 0:10:58.080 --> 0:11:00.240 of the day. All right, let's talk to our next guest, 0:11:00.320 --> 0:11:02.840 your Advance Bars. He's a wealth strategist and founder at 0:11:02.920 --> 0:11:06.920 your Dedicated Fiduciary YDF. Vance, thanks so much for joining 0:11:07.000 --> 0:11:09.640 us here. Tell us what you guys do at y DF. 0:11:10.040 --> 0:11:14.520 WHYDF is a family office style fiduciary financial planning firm 0:11:14.679 --> 0:11:18.680 that discretionarily manages assets for our sixty seven families which 0:11:18.679 --> 0:11:22.480 are all around the country, and our focus really is 0:11:22.480 --> 0:11:25.959 in the advanced planning area. Prior to founding my firm 0:11:26.000 --> 0:11:29.160 eight years ago, I spent a decade traveling the country 0:11:29.160 --> 0:11:34.440 full time, specifically consulting and teaching private wealth managers on 0:11:34.760 --> 0:11:36.800 how to invest for their high net worth clients. And 0:11:37.200 --> 0:11:40.200 I realized that much of the industry, unfortunately doesn't focus 0:11:40.240 --> 0:11:43.200 on advanced planning, and that is why I started our firm. 0:11:43.559 --> 0:11:47.559 Hey, Matt Vance, he's part of that financial mafia there, 0:11:48.040 --> 0:11:51.559 Danielle Di Martino Booth, David Kotok, all those folks Camp 0:11:51.600 --> 0:11:54.960 Kotok know, so he goes to Camp camp Kotok. Absolutely, 0:11:55.240 --> 0:11:57.880 Hey Vance, I'd love to just kind of get here. 0:11:57.880 --> 0:12:02.000 We love talking to Danielle and mister Kotok and kind 0:12:02.000 --> 0:12:03.480 of like to get their views. So when you go 0:12:03.600 --> 0:12:06.720 up there and you chat with those really smart folks 0:12:06.760 --> 0:12:09.120 about the markets, if you had to go up there today, 0:12:09.120 --> 0:12:10.120 what would your call be? 0:12:10.240 --> 0:12:12.559 Right now just in terms of the markets, the economy, 0:12:12.600 --> 0:12:13.560 how are you looking at things? 0:12:14.000 --> 0:12:15.960 It would be the same call that I had a 0:12:16.000 --> 0:12:18.160 couple months ago when I was at Danny Camp Kotok, 0:12:18.200 --> 0:12:22.400 which was amazing because I have read and corresponded, you know, 0:12:22.440 --> 0:12:25.120 with these folks, and then to be a peer among 0:12:25.160 --> 0:12:28.720 them is just truly amazing. I'm in the higher for 0:12:28.880 --> 0:12:31.080 longer camp, which is an unpopular view. 0:12:31.280 --> 0:12:33.400 Higher inflation, higher rates kind of yes, okay. 0:12:33.280 --> 0:12:36.200 Yeah, very much so, and there's there's rationale to that. 0:12:37.559 --> 0:12:41.400 My view is that the economy changed during COVID, and 0:12:41.440 --> 0:12:45.880 there's this collective palpable belief not only among our clients 0:12:45.880 --> 0:12:50.920 but also the investing public that because of the interest 0:12:51.040 --> 0:12:55.440 rate raises visa Viva FED starting in March of twenty 0:12:55.520 --> 0:12:59.080 twenty two, that unemployment is going to spike and that 0:12:59.160 --> 0:13:01.040 we're going to have this recession and it's going to 0:13:01.080 --> 0:13:02.560 be horrible, and if the FED is going to cut 0:13:02.600 --> 0:13:05.160 rates back to zero, launch the printing press again. And 0:13:05.360 --> 0:13:09.880 I fundamentally disagree with that. During COVID, people age fifty 0:13:09.880 --> 0:13:13.640 five and older were able to retire largely. Hey, you 0:13:13.679 --> 0:13:16.560 know what, it's a pleasure to be here, right, I'll 0:13:16.600 --> 0:13:17.400 get there someday. 0:13:17.480 --> 0:13:17.920 I hope. 0:13:17.960 --> 0:13:19.880 I'm in no rush, by the way, But in any event, 0:13:20.240 --> 0:13:21.079 they were able to. 0:13:21.080 --> 0:13:24.160 Retire because of the large s of their nest eggs, 0:13:24.280 --> 0:13:27.959 which was a product of the thirteen year quantitative using 0:13:28.760 --> 0:13:32.679 zero interest rate policy era that we had. People thirty 0:13:32.960 --> 0:13:34.800 years of age and younger were able to move back 0:13:34.840 --> 0:13:36.440 in with mom and dad and go back to school. 0:13:36.480 --> 0:13:41.199 So how human beings behave has materially changed, and because 0:13:41.240 --> 0:13:43.480 of that we have a different economy, if you will. 0:13:44.440 --> 0:13:46.640 If the Fed were to come out and cut rates now, 0:13:47.320 --> 0:13:49.480 my view is that it would reignite inflation and we 0:13:49.520 --> 0:13:51.280 would be in this sort of vicious cycle. So if 0:13:51.280 --> 0:13:53.720 we look at the real rate, which is interest rates 0:13:53.880 --> 0:13:57.160 minus inflation, were at about two and a half over 0:13:57.160 --> 0:13:59.559 the last five decades, what has it been about two 0:13:59.600 --> 0:14:03.199 and a half, So we believe that we're not going 0:14:03.200 --> 0:14:06.000 to see a precipitous drop in that. Because of that, 0:14:06.360 --> 0:14:09.720 the investment landscape has in fact changed, But there's opportunity there. 0:14:13.320 --> 0:14:15.920 What do you think about you know, Paul's been asking 0:14:15.920 --> 0:14:18.720 this allocation question. I heard top I heard the surveillance 0:14:18.760 --> 0:14:22.160 team talking about it this morning as well. Forty sixty 0:14:22.200 --> 0:14:24.360 we're supposed to see a comeback, and it seems like 0:14:24.440 --> 0:14:26.960 bonds and stocks are moving the same direction every day. 0:14:27.200 --> 0:14:32.480 How do you solve that? Solve that problem. 0:14:32.680 --> 0:14:36.600 Interestingly, cash is no longer trash because of the interest 0:14:36.680 --> 0:14:40.320 rate and environment that we are currently in. Clients have 0:14:40.680 --> 0:14:43.760 come out and pointed out the fact that we can 0:14:44.400 --> 0:14:47.880 really have a great return stream in money markets and 0:14:48.120 --> 0:14:50.680 or tea bills. This is this funny term tea bill 0:14:50.720 --> 0:14:52.880 and chill. And we were an early adopter to the 0:14:53.040 --> 0:14:56.560 tea bill trade, having largely blown out of bond mutual 0:14:56.600 --> 0:14:58.680 funds in December of twenty twenty one. So if you 0:14:58.760 --> 0:15:01.120 rewind back the Fed, the House, the Treasury, we're all 0:15:01.160 --> 0:15:05.239 saying inflation is transitory. Inflation is transitory. Inflation is transitory. 0:15:05.560 --> 0:15:08.880 When you hear that messaging consistently over multiple months, yet 0:15:08.920 --> 0:15:14.360 the inflation data keep increasing, Maybe just maybe it's not transitory. 0:15:14.560 --> 0:15:16.960 And we all know the rest of that story. When 0:15:17.040 --> 0:15:20.120 we look at the correlation between equities and fixed income, 0:15:20.560 --> 0:15:23.240 it is important to diversify, but we have to go 0:15:23.400 --> 0:15:30.160 back to the pre COVID era playbook and understand how 0:15:30.200 --> 0:15:34.200 to deploy across equities and fixed income and real estate 0:15:34.240 --> 0:15:37.000 and so forth. So given the interest rate and environment, 0:15:37.040 --> 0:15:41.960 we think we're pretty close to the FED largely being done. 0:15:42.480 --> 0:15:47.200 That creates an opportunity for getting back into specific types 0:15:47.240 --> 0:15:51.600 of duration, whether it's individual issues or some bond funds 0:15:51.720 --> 0:15:55.440 or even potentially ETFs. Regardless, we're going to be long 0:15:55.520 --> 0:15:59.200 duration here in the next three to six months, depending 0:15:59.240 --> 0:15:59.960 on how it plays out. 0:16:00.600 --> 0:16:03.000 All Right, So we sit back here and we've got 0:16:03.040 --> 0:16:04.560 a FED that I guess we're high. 0:16:04.800 --> 0:16:05.400 I'm in the Campta. 0:16:05.400 --> 0:16:06.920 It is just kind of high for longer, and I 0:16:06.920 --> 0:16:09.040 think I think eventually they're gonna cut because I need 0:16:09.040 --> 0:16:13.240 to refinance my mortgage I just took out. When you 0:16:13.280 --> 0:16:14.920 talk to clients, one of the things I hear a 0:16:14.960 --> 0:16:18.000 lot when I'm talking to private wealth is family offices 0:16:18.680 --> 0:16:22.680 and kind of just tax planning and estate planning. I mean, 0:16:22.880 --> 0:16:25.160 do people get that right yet? I mean, do people 0:16:25.200 --> 0:16:27.320 you talk to are they are they savvy enough to 0:16:27.400 --> 0:16:28.040 kind of deal with that? 0:16:28.880 --> 0:16:32.360 No, And having spent thousands of hours inside of wealth 0:16:32.400 --> 0:16:35.960 management firms and with financial advisors for a decade, that 0:16:36.160 --> 0:16:40.920 was my largest observation. There's a huge generational shift in 0:16:41.000 --> 0:16:43.680 terms of asset transfer that's going to happen from the 0:16:43.720 --> 0:16:48.120 boomers to largely Gen X, but also millennials. And people 0:16:48.200 --> 0:16:50.160 like to make jokes about millennials, but let me tell 0:16:50.200 --> 0:16:54.080 you they're a very purpose driven cohort. They're really smart. 0:16:54.280 --> 0:16:57.640 They grew up with technology. They really don't need to 0:16:58.280 --> 0:17:01.960 have help selecting ets. The real alpha, if you will, 0:17:02.360 --> 0:17:06.280 is in the advice idiosyncratic to the family. And my 0:17:06.440 --> 0:17:09.840 cry to the wealth management industry is to bring maximum 0:17:09.920 --> 0:17:13.520 value by way of incorporating true tax planning. For example, 0:17:13.560 --> 0:17:17.000 a financial advisor cannot bring maximum value to a family 0:17:17.080 --> 0:17:20.960 unless they are literally looking through and analyzing the tax returns. 0:17:21.280 --> 0:17:23.560 I'd liken it to this. If a client has ever been. 0:17:23.400 --> 0:17:26.080 To a medical specialist, what's the first thing they ask 0:17:26.160 --> 0:17:28.960 for the general health history from the GP, Well, I 0:17:29.119 --> 0:17:31.960 need that. I need the equivalent of that, which is 0:17:32.040 --> 0:17:34.639 the last three to five years of tax returns, so 0:17:34.720 --> 0:17:37.959 that I can look for different planning opportunities. Big planning 0:17:37.960 --> 0:17:40.879 cliff coming up, which is the sun setting of the 0:17:40.920 --> 0:17:43.800 Tax Cuts and Jobs Act, and that will happen December 0:17:43.840 --> 0:17:46.800 thirty first of twenty twenty five. We're going to blink, 0:17:46.880 --> 0:17:49.280 it's going to be here, but the current estate tax 0:17:49.359 --> 0:17:53.160 threshold will be cut in half. So the largest underserved 0:17:53.160 --> 0:17:56.560 cohort in the wealth management industry is that million to 0:17:56.680 --> 0:17:58.040 twenty five million. 0:17:57.720 --> 0:17:58.960 Dollar liquid profile. 0:17:59.160 --> 0:18:03.200 Why because many of the retail financial advisors and I'm 0:18:03.200 --> 0:18:06.639 talking old guard retail financial advisors don't have the advanced 0:18:06.640 --> 0:18:11.719 planning technical expertise and acumen to understand certain things like 0:18:11.760 --> 0:18:14.560 idgits and islets and grots and different types of grand 0:18:14.600 --> 0:18:16.040 tour trusts and so forth. 0:18:16.640 --> 0:18:18.400 And if you're. 0:18:19.280 --> 0:18:21.960 One with a really high level money problem, which is 0:18:22.000 --> 0:18:24.720 having twenty five million liquid a lot of the private 0:18:24.720 --> 0:18:28.119 wealth firms don't focus on you because their minimum is 0:18:28.160 --> 0:18:29.119 fifty million. 0:18:28.840 --> 0:18:29.280 And above me. 0:18:29.240 --> 0:18:32.679 And these are big numbers, right, But there's a huge opportunity. 0:18:32.680 --> 0:18:35.080 And one of the great things about Commonwealth is that 0:18:35.119 --> 0:18:38.720 there's a big push for the advanced planning area with 0:18:38.760 --> 0:18:40.359 respect to bringing maximum value. 0:18:41.240 --> 0:18:43.679 All right, So I gotta go to this because this 0:18:43.720 --> 0:18:44.800 is a theme I've been going on. 0:18:45.000 --> 0:18:45.960 University of Maryland. 0:18:46.119 --> 0:18:50.560 The worst conference decision of all time for you guys 0:18:50.600 --> 0:18:53.480 to leave the ACC and it's set off twenty five 0:18:53.560 --> 0:18:57.720 years of disaster in college sports. Twenty five years later, 0:18:57.760 --> 0:18:59.359 what did the Terps feel about their. 0:18:59.280 --> 0:19:01.080 Moved leaving for the Big ten? 0:19:01.280 --> 0:19:04.800 I'm really sorry to disappoint you. So I love San Diego, 0:19:04.880 --> 0:19:07.639 California very much, and I grew up in Maryland. Right 0:19:07.800 --> 0:19:10.080 native of Maryland or not crabby, I might add. But 0:19:10.520 --> 0:19:12.600 I had moved to San Diego at nineteen and realized 0:19:12.600 --> 0:19:14.679 that if I stayed, I probably would never go back 0:19:14.720 --> 0:19:17.040 to school. So I went back to Maryland, to the 0:19:17.160 --> 0:19:20.080 University of Maryland because they have a great neuroscience program. Yep, 0:19:20.280 --> 0:19:23.879 seldom do I use my undergrad degree at neuroscience. But 0:19:23.920 --> 0:19:25.600 then again, i'd use it every day when looking at 0:19:25.600 --> 0:19:28.160 portfolios and estate planning and tax planning and so forth. 0:19:28.440 --> 0:19:31.560 But I couldn't tell you the first thing about the terps. 0:19:33.080 --> 0:19:35.280 As soon as I graduated, I went right back to 0:19:35.400 --> 0:19:38.600 San Diego. Smart move life had a different plan, and 0:19:38.600 --> 0:19:41.680 I ended up in institutional investing and then here. 0:19:41.600 --> 0:19:44.360 Good awesome stuff. Vince, thanks so much for joining us. Vance. 0:19:44.400 --> 0:19:50.400 Barci's a strategist, a founder at YDF. That's your dedicated fiduciary. 0:19:50.720 --> 0:19:53.080 I working with a lot of the folks here at Common, 0:19:53.160 --> 0:19:54.880 with a lot of the rias at Common. 0:19:54.960 --> 0:19:55.200 Author. 0:19:55.440 --> 0:19:59.040 You're listening to the tape Catcher Live program Bloomberg Markets 0:19:59.080 --> 0:20:02.840 weekdays at tenn Eastern on Bloomberg Radio, the tune in app, 0:20:02.880 --> 0:20:04.200 Bloomberg dot Com, and. 0:20:04.160 --> 0:20:05.480 The Bloomberg Business App. 0:20:05.520 --> 0:20:08.320 You can also listen live on Amazon Alexa from our 0:20:08.359 --> 0:20:13.320 flagship New York station, Just say Alexa, play Bloomberg eleven thirty. 0:20:14.080 --> 0:20:18.919 Fuck now about politics, though, because yesterday the GOP chose 0:20:19.040 --> 0:20:22.280 a Speaker of the House candidate, it's not been brought 0:20:22.320 --> 0:20:24.600 to a vote on the House floor yet and may 0:20:24.600 --> 0:20:26.800 not be brought to a House a vote on the 0:20:26.800 --> 0:20:30.760 House floor this week. Wendy Schiller joins us professor over 0:20:30.800 --> 0:20:37.919 at Brown University. Wendy, this is obviously a gigantic mess. 0:20:38.400 --> 0:20:43.600 And I noticed today that there's a few never scalezers, 0:20:43.720 --> 0:20:46.120 which I think that term is meaningless because of course 0:20:46.119 --> 0:20:48.000 they'll vote for scalize if they get what they want. 0:20:48.040 --> 0:20:51.520 But one of them is George Santos. So we're in 0:20:51.560 --> 0:20:55.760 a position where the Republicans have to bargain with George 0:20:55.800 --> 0:20:58.840 Santos to get their candidate elected as House Speaker of 0:20:58.880 --> 0:20:59.240 the House. 0:21:00.359 --> 0:21:03.800 But you're raising a really interesting point because also any 0:21:03.880 --> 0:21:07.160 measure to expel, because the House can expel its own members. 0:21:07.320 --> 0:21:09.760 They can censure, but it can also expel, and so 0:21:10.040 --> 0:21:13.359 any measure to expel George Santos requires that there'd be 0:21:13.359 --> 0:21:15.879 a governance structure of the House, that there'll be a 0:21:15.920 --> 0:21:19.719 speaker in place. Now the interim Speaker, Patrick McHenry of 0:21:19.720 --> 0:21:22.080 North Carolina, he can do that. He can be in 0:21:22.119 --> 0:21:24.320 the House that way, So they could actually try to 0:21:24.440 --> 0:21:28.040 kick George Sandos out before they have repeated votes on 0:21:28.040 --> 0:21:28.719 the speakership. 0:21:28.920 --> 0:21:30.680 This is an absolute to. 0:21:30.600 --> 0:21:34.359 Me, a crisis for the Congressional Republican Party, but not 0:21:34.520 --> 0:21:37.520 necessarily for Donald Trump or Ronda Santis or Nikki Haley 0:21:37.600 --> 0:21:39.800 or Tim Scott or any of the other contenders for 0:21:39.840 --> 0:21:43.600 the presidential nomination. So there are you know, there's pressure 0:21:43.640 --> 0:21:45.920 on the Republicans, but it's really how do you keep 0:21:45.920 --> 0:21:48.680 the House? And are the voters of California New York 0:21:48.720 --> 0:21:52.000 who really gave the Republicans the majority with additional seats 0:21:52.040 --> 0:21:54.679 and flip seats in twenty twenty two, are they going 0:21:54.760 --> 0:21:56.320 to be happy with this and put up with this 0:21:56.800 --> 0:21:59.399 or will the Democrats manage to put a moderate up 0:21:59.400 --> 0:22:01.680 in those races and take those seats back. 0:22:02.000 --> 0:22:03.800 One of the other things I noticed, Wendy, you know, 0:22:03.840 --> 0:22:07.200 we all talk about the fact that maybe the Senate 0:22:07.240 --> 0:22:12.240 needs to come down here and like put an adult 0:22:12.280 --> 0:22:16.800 in the room, right, But even when you know, Kevin 0:22:16.880 --> 0:22:20.119 McCarthy does a bipartisan deal, and of course he's punished 0:22:20.160 --> 0:22:23.240 by being thrown out of that position. But even then, 0:22:24.080 --> 0:22:26.000 what they're, what the adult in the room is allowing 0:22:26.000 --> 0:22:29.040 them to do, is spend recklessly like children. So it's 0:22:29.080 --> 0:22:32.120 like there's no good solution, right, either they're shut down 0:22:32.200 --> 0:22:35.640 and not governing, or they're governing but spending like there's 0:22:35.680 --> 0:22:36.440 no tomorrow. 0:22:37.520 --> 0:22:38.320 What's going to happen. 0:22:39.680 --> 0:22:41.879 Well, when you say spending, I goes, there's no tomorrow. 0:22:41.920 --> 0:22:43.600 There was a debt ceiling deal. 0:22:44.160 --> 0:22:46.399 And I'm saying, if you keep running one and a 0:22:46.440 --> 0:22:49.560 half trillion dollar deficits and we have thirty three trillion 0:22:49.640 --> 0:22:52.520 dollars in debt, that's not the way you should run 0:22:52.560 --> 0:22:53.360 your finances. 0:22:54.440 --> 0:22:57.800 So what's interesting to me, though, is that the choices. 0:22:57.400 --> 0:23:00.400 That are framed, I think are a false dichotomy for us, 0:23:00.480 --> 0:23:02.000 for the American people, for everybody. 0:23:02.040 --> 0:23:04.080 Right, you say yourself, oh, well, you know you have. 0:23:04.040 --> 0:23:06.040 To cut this kind of spending, but we still want 0:23:06.040 --> 0:23:07.960 to have tax cuts and give money back to the 0:23:08.000 --> 0:23:11.040 American people. But the American people also need a national defense, 0:23:11.040 --> 0:23:13.280 they need roads, that aren't going to destroy their cars. 0:23:13.440 --> 0:23:15.760 They're going to need some sort of mass transportation. They're 0:23:15.760 --> 0:23:18.280 going to need climate help to adjust the climate change, 0:23:18.320 --> 0:23:19.399 they need disaster relief. 0:23:19.560 --> 0:23:21.920 How do you pay for all that? You can't cut 0:23:22.000 --> 0:23:22.920 all the revenue and. 0:23:23.000 --> 0:23:25.119 Still pay for all these things that Americans are used to, 0:23:25.240 --> 0:23:27.600 not to mention the big entitlements, which as you well know, 0:23:27.960 --> 0:23:31.480 are about thirty to forty percent now of the federal budget, 0:23:31.640 --> 0:23:34.119 which are just you can't touch them, right, So. 0:23:34.160 --> 0:23:36.480 Why why can't we touch them? And how much longer 0:23:36.520 --> 0:23:40.040 do we have enough money to pay Social Security without borrowing? 0:23:41.080 --> 0:23:42.600 Well, I don't know. I'm old enough to remember. 0:23:42.760 --> 0:23:44.560 You know, the last two times SO Security was in 0:23:44.600 --> 0:23:45.639 crisis and. 0:23:45.520 --> 0:23:46.520 They came to terms. 0:23:46.560 --> 0:23:48.840 They raised the age, they raised how much money they 0:23:48.880 --> 0:23:50.720 have to pay. You know, one of the good things 0:23:50.880 --> 0:23:53.919 I think is that income levels are now adjusted for inflation. 0:23:54.000 --> 0:23:55.719 They go up in terms of how you know what 0:23:55.760 --> 0:23:58.119 income level is the cap I'm paying So Security. You 0:23:58.119 --> 0:24:00.800 can raise that cap quite a bit more and still 0:24:00.840 --> 0:24:03.720 generate money. People are living longer. We want great healthcare 0:24:03.760 --> 0:24:06.000 in America. Therefore, if we want everybody to have it, 0:24:06.240 --> 0:24:08.480 I don't disagree with you that cuts need to be made, 0:24:08.560 --> 0:24:11.720 and in particular, the Democrats have a problem because they 0:24:11.720 --> 0:24:14.200 want everything from the federal side. But in fact it's 0:24:14.240 --> 0:24:16.880 easier to hold things accountable sometimes at the state level. 0:24:16.880 --> 0:24:20.480 It's closer to home. Theoretically, I'm a tiny state, Rhode Island. 0:24:20.560 --> 0:24:22.520 We have a huge budget. We can't keep track of 0:24:22.520 --> 0:24:23.080 all the money. 0:24:23.280 --> 0:24:27.640 So government itself is you can argue unmanageable and inefficient, 0:24:28.000 --> 0:24:31.480 but targeting programs that actually affect that, you know, the 0:24:31.560 --> 0:24:33.840 people who need the money most, it's probably not the 0:24:33.920 --> 0:24:36.200 smartest way to make government work better. 0:24:36.359 --> 0:24:38.760 And they're just so polarized they can't see straight. But 0:24:38.800 --> 0:24:41.400 I don't see any of the people, including. 0:24:41.000 --> 0:24:44.240 The eight people who are blocking the speaker, turning down 0:24:44.359 --> 0:24:45.080 federal money. 0:24:45.240 --> 0:24:46.800 Some states are trying. 0:24:46.560 --> 0:24:49.040 To do that because they don't want implement policies that's 0:24:49.080 --> 0:24:51.400 you know, the state government. But those federal commerce people 0:24:51.440 --> 0:24:53.679 are not saying no to the Highway AID, they're not 0:24:53.680 --> 0:24:56.040 saying no to the Day After AID, They're not saying 0:24:56.040 --> 0:24:58.280 no to the fundamental things that the federal government funds. 0:24:58.600 --> 0:25:00.679 So there's also a fair bit of a hipocracy that 0:25:00.760 --> 0:25:03.560 runs rampant, not just the Republican side, but the Democratic 0:25:03.600 --> 0:25:04.560 side as well. 0:25:06.080 --> 0:25:08.520 Hey, Wendy, let's switch gears a little bit of focus 0:25:08.560 --> 0:25:10.399 on Israel that it was quite the past two or 0:25:10.400 --> 0:25:15.760 three days for President Biden. The administration Secretary Defense Lincoln 0:25:15.880 --> 0:25:18.880 is in Israel as we speak. How do you kind 0:25:18.880 --> 0:25:23.040 of view the Biden and the Biden administration response so far. 0:25:24.440 --> 0:25:28.240 Well, there's the national security element of course, anti terrorism, 0:25:28.440 --> 0:25:32.080 and I think many people have equated the sentiment. 0:25:31.680 --> 0:25:33.959 In Israel to the one that we experienced after nine 0:25:34.000 --> 0:25:34.879 to eleven, So. 0:25:35.040 --> 0:25:38.520 The shock, the destruction, the loss of life, but there's 0:25:38.520 --> 0:25:41.400 also a tremendous amount of loss of life now in Gaza, 0:25:42.000 --> 0:25:46.280 militarily people, but also Amas, but also civilians, many, many civilians. 0:25:46.560 --> 0:25:49.399 This is a really difficult time for the Democratic Party 0:25:49.440 --> 0:25:52.600 politically because the very left wing of the Democrat Party, 0:25:52.600 --> 0:25:55.000 as we saw in New York last week, has been 0:25:55.080 --> 0:25:59.760 advocate at very vocal in their support for Palestine, and 0:26:00.040 --> 0:26:02.840 you know, not as willing to criticize Hamas sometimes as 0:26:02.880 --> 0:26:06.640 other people. This is very delicate for the Democrats who 0:26:06.680 --> 0:26:09.919 need every single vote possible a year from now. And 0:26:10.000 --> 0:26:13.040 how do you actually perceive a strong coort for Israel 0:26:13.320 --> 0:26:19.120 if Israel continues to defend itself but the casualties civilian 0:26:19.119 --> 0:26:24.240 wise in Gaza increase, that becomes a problem for the Democrats, 0:26:24.560 --> 0:26:28.160 and you know, that's a very hard balance for the president. 0:26:28.400 --> 0:26:31.439 The sentiment in America is generally pro Israel to defend 0:26:31.480 --> 0:26:35.480 itself against the terrorist attack. How long that lasts depends 0:26:35.480 --> 0:26:38.760 on how much involvement Biden approves in terms of the 0:26:38.840 --> 0:26:39.480 United States. 0:26:39.680 --> 0:26:42.640 No boots on the ground. I think there's no support 0:26:42.680 --> 0:26:45.280 for that in America. But what do you do? 0:26:45.400 --> 0:26:48.879 How do you give military support but stay within the boundaries. 0:26:49.400 --> 0:26:52.000 Biden has a lot of experience, and one thing Americans 0:26:52.080 --> 0:26:54.119 might want to think about is when you are electing 0:26:54.160 --> 0:26:55.880 the next president, how much. 0:26:55.680 --> 0:26:56.880 Experience do they have. 0:26:56.880 --> 0:27:00.000 Dealing with these kinds of crises versus having no experience 0:27:00.160 --> 0:27:02.440 with them. I think that's going to affect our presidential 0:27:02.480 --> 0:27:03.440 considerations as well. 0:27:04.400 --> 0:27:08.240 I wonder if they can tie aid for Ukraine to 0:27:08.359 --> 0:27:11.359 aid to Israel, because a lot I'm sure of these, 0:27:11.640 --> 0:27:16.200 especially right wing Republicans, who don't want to help Ukraine 0:27:16.200 --> 0:27:21.119 defend itself against a Russian invasion definitely do want to 0:27:21.160 --> 0:27:23.840 help Israel. Do you think they tie those things together 0:27:23.960 --> 0:27:26.480 or is it insulting to do that? 0:27:28.240 --> 0:27:28.359 No? 0:27:28.440 --> 0:27:31.359 I mean I mean the Democrats putting those two things together. 0:27:31.920 --> 0:27:37.640 I think strategically fighting against incursion and invasion. 0:27:37.280 --> 0:27:38.240 Might be a theme. 0:27:39.240 --> 0:27:43.440 And certainly Russia has been accused of atrocity and Ukrainian 0:27:43.440 --> 0:27:46.560 soldiers have also been accused of atrocity, so I think. 0:27:46.480 --> 0:27:48.840 It gets very tricky to do that. 0:27:49.280 --> 0:27:53.480 But it also limits the capacity for Republicans to be isolationists. 0:27:53.520 --> 0:27:56.280 Now right, you can't say we don't want to get involved, 0:27:56.320 --> 0:27:58.760 but we want to help Israel. That's just really hard 0:27:58.760 --> 0:28:01.600 to do an independents and districts won't really put up 0:28:01.640 --> 0:28:03.919 with that, I don't think. So it puts the Republicans 0:28:03.920 --> 0:28:06.439 in a tough mind to say yes to Israel but 0:28:06.520 --> 0:28:07.400 no to Ukraine. 0:28:08.280 --> 0:28:11.120 And I think you're right, but I think to actively tie. 0:28:11.080 --> 0:28:14.680 Together in a package has risks for the Democrats as well. 0:28:14.720 --> 0:28:17.480 But the pressure is on the Republicans to decide whether 0:28:17.520 --> 0:28:19.120 they want to sort of say no to in being 0:28:19.160 --> 0:28:21.919 involved in anything, but then get credit for supporting a 0:28:22.000 --> 0:28:23.480 response against Hamas. 0:28:23.600 --> 0:28:24.960 So I think it puts pressure. 0:28:24.960 --> 0:28:27.080 And since there is no leader really of the Republican 0:28:27.080 --> 0:28:29.560 Party in the House right now, you know, the spokesperson's 0:28:29.600 --> 0:28:31.520 Mitch McConnell on the Senate sign and we know that 0:28:31.560 --> 0:28:33.600 he's been having health difficulties. 0:28:33.240 --> 0:28:37.399 But he has experienced. He doesn't you're a fan of experience. 0:28:37.520 --> 0:28:38.160 Mitch has it. 0:28:40.040 --> 0:28:41.920 Mitch has it, but there's a fair number of other 0:28:42.000 --> 0:28:44.040 Republicans in the Senate right now that that do. And 0:28:44.080 --> 0:28:46.600 it's it's it's interesting to me how we you know, 0:28:46.680 --> 0:28:49.520 one year it's the Senate's fault. They're filibustering, Ted Cruise 0:28:49.560 --> 0:28:50.600 is shutting everything down. 0:28:50.880 --> 0:28:53.160 They're horrible. Let's get rid of the philibuscher, Let's make 0:28:53.160 --> 0:28:53.600 it more. 0:28:53.480 --> 0:28:54.000 Like the House. 0:28:54.280 --> 0:28:56.200 And then the House falls apart and we look to 0:28:56.240 --> 0:28:57.960 the Senate and say, oh, can't they save the day. 0:28:58.280 --> 0:29:00.840 So I think we have a christ the leadership on 0:29:00.920 --> 0:29:04.400 all sides, more so right now in the Republican Party. 0:29:04.680 --> 0:29:05.200 Than the den. 0:29:06.840 --> 0:29:08.280 All Right, Wendy, thank you so much for that. We 0:29:08.320 --> 0:29:11.840 really appreciate getting your thoughts there. Wendy Schilder, she's a 0:29:11.880 --> 0:29:13.840 professor at Brown University. 0:29:15.120 --> 0:29:19.000 You're listening to the Team ken'shar Live program Bloomberg Markets 0:29:19.000 --> 0:29:22.120 weekdays at ten am Eastern on Bloomberg dot Com, the 0:29:22.200 --> 0:29:25.320 iHeartRadio app, and the Bloomberg Business App, or listen on 0:29:25.400 --> 0:29:27.360 demand wherever you get your podcasts. 0:29:29.120 --> 0:29:32.120 Well, we have Asam Naji here in the studio. I'm 0:29:32.160 --> 0:29:35.320 pleased to say he's the president CEO of Marcus and 0:29:35.440 --> 0:29:37.280 Milla chap and we're going to talk a little bit 0:29:37.320 --> 0:29:40.160 of real estate with him in the face of, you know, 0:29:40.320 --> 0:29:41.920 rates that just continue to arise. 0:29:42.320 --> 0:29:43.120 Paul Hassan. 0:29:43.200 --> 0:29:45.680 Paul the other day was quoting, I think the bank 0:29:45.760 --> 0:29:51.600 rate thirty year mortgage out to eight percent, which has 0:29:51.680 --> 0:29:55.200 got to put real pressure on a market where affordability 0:29:55.320 --> 0:29:57.840 is already off the charts. What does this mean for 0:29:57.880 --> 0:29:58.440 real estate? 0:30:01.040 --> 0:30:01.560 Back with you. 0:30:02.640 --> 0:30:06.640 The answer to that question, Matt, is a severe disruption 0:30:06.920 --> 0:30:11.240 in trading activity, in investors' ability to value real estate, 0:30:11.280 --> 0:30:14.160 and a lot of uncertainty out there. On the housing front. 0:30:14.760 --> 0:30:17.920 We're seeing anyone who has a low interest rate already 0:30:18.840 --> 0:30:22.760 declined to bring inventory to market or stay put, which 0:30:22.840 --> 0:30:27.080 is really reducing sales velocity there As a buyer. The 0:30:27.120 --> 0:30:30.200 affordability has gone so out of control that people are 0:30:30.240 --> 0:30:34.680 renting apartments longer, they're staying in their apartments much longer 0:30:34.680 --> 0:30:38.120 than anticipated, and the renewal rates of apartments are actually 0:30:38.200 --> 0:30:41.720 showing really good rent growth. On the commercial side, it's 0:30:41.760 --> 0:30:43.720 not just the price to this location. It's the fact 0:30:43.760 --> 0:30:46.320 that banks have pulled out of the market by pricing 0:30:46.320 --> 0:30:49.120 themselves out of the market, and other lenders have not 0:30:49.240 --> 0:30:51.600 been able to step in to make up for what 0:30:51.680 --> 0:30:55.480 banks normally do in financing commercial real estate. So there's 0:30:55.480 --> 0:30:58.160 a real log jam in the marketplace as we speak. 0:30:58.240 --> 0:31:02.040 So on the housing side and the residential side, there's 0:31:02.080 --> 0:31:06.080 just not any preowned houses trading hands. Right on the 0:31:06.120 --> 0:31:10.880 commercial real estate side, what you're saying is people can't 0:31:10.920 --> 0:31:14.200 get refinancing that they need, and so what are they 0:31:14.240 --> 0:31:15.160 forced to sell. 0:31:16.000 --> 0:31:19.080 Well, the refinancing issue in and of itself is a 0:31:19.120 --> 0:31:22.280 serious one because the loans that are maturing today were 0:31:22.280 --> 0:31:25.240 issued five to seven years ago. Thankfully, a lot of 0:31:25.280 --> 0:31:27.280 equity has been built up, a lot of rank growth 0:31:27.280 --> 0:31:31.600 has been basically achieved, So not every maturing loan is 0:31:31.600 --> 0:31:34.760 in trouble, but there is a pretty good chunk of 0:31:34.800 --> 0:31:37.880 the maturing loans, especially in office not really so much 0:31:37.920 --> 0:31:40.800 any other property type that is having to either be 0:31:40.880 --> 0:31:44.320 sold as distressed or having to get a workout between 0:31:44.320 --> 0:31:46.840 the lender and the borrower. The Treasury and the Fed 0:31:47.000 --> 0:31:50.080 have really pushed lenders to work with the borrowers to 0:31:50.200 --> 0:31:52.920 avoid a fire sale if you will. So we're not 0:31:52.960 --> 0:31:56.600 expecting a huge wave of fire sale and even in 0:31:56.640 --> 0:31:59.040 the office sector, but you're already starting to see some 0:31:59.120 --> 0:32:02.960 distress sales in older office product. Newer office product is 0:32:02.960 --> 0:32:06.120 actually performing better than most people realize. 0:32:07.360 --> 0:32:09.560 All right, haseam, I am a huge bear when it 0:32:09.600 --> 0:32:11.920 comes to commercial real estate in you know, particularly the 0:32:12.000 --> 0:32:14.280 office space. I just think we have a doom loop 0:32:14.480 --> 0:32:18.160 kind of building here where you know, and you know 0:32:18.520 --> 0:32:21.400 the values of these real estates are nowhere near enough 0:32:21.440 --> 0:32:24.560 to support their debt. And it's going to become really 0:32:24.600 --> 0:32:27.520 apparent when we see some transactions across the market and 0:32:27.600 --> 0:32:30.440 reset the market. So I'm wondering, have we ever have 0:32:30.480 --> 0:32:34.400 we seen anything in like New York, Chicago, San Francisco, La. Like, 0:32:34.640 --> 0:32:36.640 I haven't really seen any big, big property in New 0:32:36.720 --> 0:32:39.800 York trade. And when it does trade, I'm afraid it's 0:32:39.800 --> 0:32:42.520 gonna be at thirty forty fifty percent discount. 0:32:43.240 --> 0:32:44.320 How are you thinking about that? 0:32:45.080 --> 0:32:47.520 It really depends on the asset. Some of the assets 0:32:47.560 --> 0:32:50.880 that are going to trade will phone the exact description 0:32:51.000 --> 0:32:55.320 that you're sharing right now. Older office product has vacancy 0:32:55.400 --> 0:32:58.240 rates in the twenty to twenty five percent or higher 0:32:58.680 --> 0:33:01.680 newer office product on average, meaning the build in the 0:33:01.760 --> 0:33:07.120 last fifteen years or earlier, is half that about eleven percent. 0:33:07.400 --> 0:33:10.960 So there is a huge dichotomy and the obsolescence of 0:33:11.040 --> 0:33:15.000 older office buildings. Unlike obsolescence of shopping centers, where you 0:33:15.000 --> 0:33:18.280 could knock down a shopping center or an old warehouse 0:33:18.440 --> 0:33:21.680 that is obsolete and have a reuse or reimagination, it's 0:33:21.800 --> 0:33:25.280 much harder to do that with older office product. So 0:33:25.360 --> 0:33:29.600 the reuse is one rescue channel. Another is just a 0:33:29.680 --> 0:33:32.720 pure discounting of the asset to what the fair market 0:33:32.800 --> 0:33:34.960 value would be. Believe it or not, there is a 0:33:35.000 --> 0:33:39.360 lot of entrepreneurial buyers of that product. We're actually helping 0:33:39.520 --> 0:33:42.240 a number of them either go directly to the lenders 0:33:42.440 --> 0:33:45.200 or wait for product to come to market, but the 0:33:45.240 --> 0:33:48.840 cycle will be pretty ugly for that older office stock 0:33:49.000 --> 0:33:50.320 that you're describing, Paul. 0:33:50.240 --> 0:33:52.920 Yeah, what's going to happen to you know? Bloomberg Business 0:33:52.960 --> 0:33:55.840 Week did a cool piece last year about the Third 0:33:55.880 --> 0:33:58.680 Avenue Corridor, which has a lot of that office space 0:34:00.480 --> 0:34:03.600 with the problem that you're talking about. It's just unconvertible. 0:34:03.640 --> 0:34:06.280 There's no way to make it into apartments, and nobody 0:34:06.320 --> 0:34:07.160 wants to use. 0:34:07.040 --> 0:34:08.120 It as office space. 0:34:08.600 --> 0:34:10.719 What happens do We just have a ton of storage 0:34:10.760 --> 0:34:13.200 space buildings all the way down Third Avenue and in 0:34:13.239 --> 0:34:15.440 the middle of Manhattan, some of the most expensive real 0:34:15.520 --> 0:34:16.280 estate in the world. 0:34:16.400 --> 0:34:19.960 Here's what I predict. I predict opportunistic buyers will come 0:34:20.000 --> 0:34:22.200 and buy it, as Paul was saying, thirty forty cents 0:34:22.200 --> 0:34:26.839 on the dollar. They'll upgrade it, do a value add 0:34:26.920 --> 0:34:29.799 and wait for the return to office to improve. It's 0:34:29.800 --> 0:34:31.840 never going to go back to pre pandemic. But I 0:34:31.880 --> 0:34:34.960 also think we've come off the lows of people's resistance 0:34:35.000 --> 0:34:37.600 to come back into the office. Urban America is not 0:34:37.760 --> 0:34:40.960 dead forever. It's hit really hard right now. But those 0:34:41.000 --> 0:34:44.320 opportunistic investors, because of the basis points they're going to 0:34:44.520 --> 0:34:48.520 basically come in on acquiring those assets or the price 0:34:48.560 --> 0:34:53.120 point versus replacement cost, have a much longer kind of 0:34:53.160 --> 0:34:55.920 a viewpoint on it and a time horizon than a 0:34:55.920 --> 0:34:56.799 two or three year hold. 0:34:56.840 --> 0:35:00.239 So there's just a repricing then of assets. That's your 0:35:00.320 --> 0:35:02.680 view then, and this gets big, this is like thirty 0:35:02.680 --> 0:35:06.560 five thousand feet, But what's your view on the cities 0:35:06.719 --> 0:35:07.480 of America? 0:35:08.280 --> 0:35:11.279 Well, Urban America is taking it on the Chin, no 0:35:11.360 --> 0:35:14.719 question about it, whether it's Chicago or San Francisco or 0:35:14.760 --> 0:35:18.000 Seattle or anywhere else. Now, if you look at Miami, 0:35:18.200 --> 0:35:20.760 if you look at even the comeback we were seeing 0:35:20.800 --> 0:35:24.719 in somewhere like Seattle versus San Francisco, Chicago, or New York, 0:35:25.760 --> 0:35:29.080 you can see that the comeback can be affected in 0:35:29.120 --> 0:35:31.640 those other markets. It's just going to take a lot 0:35:31.640 --> 0:35:33.960 of time. New York, adding one hundred thousand jobs in 0:35:34.000 --> 0:35:36.279 the last twelve months is actually much better off than 0:35:36.320 --> 0:35:38.680 other urban areas because we are creating those jobs and 0:35:38.719 --> 0:35:40.200 a lot of young people want to live here. 0:35:40.560 --> 0:35:43.640 Yeah, that's pretty well. We haven't got the congestion charge yet, 0:35:43.719 --> 0:35:44.480 so just wait for that. 0:35:45.520 --> 0:35:46.279 And John Tucker is. 0:35:46.280 --> 0:35:48.400 Going to be staying home and doing all of his 0:35:49.120 --> 0:35:50.480 broadcasting from the shore. 0:35:50.840 --> 0:35:52.600 But Matt, you know, one thing to add is there 0:35:52.640 --> 0:35:55.640 is such a judge the book by the cover. Everyone's 0:35:55.640 --> 0:35:58.760 talking about commercial real estate as though the whole industry 0:35:58.840 --> 0:36:02.080 is older office build and older office buildings are an 0:36:02.080 --> 0:36:04.440 important segment. But office, as I pointed out last time 0:36:04.440 --> 0:36:06.640 I was on the air with you guys, makes up 0:36:06.680 --> 0:36:10.239 fifteen percent of the total outstanding commercial loans. And if 0:36:10.239 --> 0:36:13.319 you look at the entire commercial real set industry. It 0:36:13.400 --> 0:36:16.759 makes up twenty four percent of the total bank loans outstanding, 0:36:16.960 --> 0:36:21.120 so it's a much smaller percentage of risk than people realize. 0:36:21.600 --> 0:36:24.719 And we're concerned that this perception of older office is 0:36:24.760 --> 0:36:27.600 going to affect financing for self storage units or shopping 0:36:27.600 --> 0:36:29.719 centers even or apartments that are doing much better. 0:36:29.880 --> 0:36:31.880 So I was going to ask, then, looking at the 0:36:31.920 --> 0:36:35.520 whole pie of commercial real estate, and office space, as 0:36:35.520 --> 0:36:39.040 you're pointing out, is just a fairly small piece. 0:36:39.600 --> 0:36:41.880 What are the parts of the pie that you like? 0:36:42.440 --> 0:36:45.239 Well, fifty percent of the outstanding commercial loans held by 0:36:45.239 --> 0:36:49.359 banks is in multifamily, ninety five percent occupancies RENK growth 0:36:49.400 --> 0:36:52.000 has flattened out after jumping almost thirty percent in the 0:36:52.080 --> 0:36:53.759 last three years, so it's taking a little bit of 0:36:53.800 --> 0:36:56.359 a breather. And within multi family, we have a lot 0:36:56.360 --> 0:36:59.560 of assets that were financed on short term financing with 0:36:59.600 --> 0:37:02.240 debt fund in the last three years that are already 0:37:02.239 --> 0:37:05.319 coming due. They're having some problems refining as well, but 0:37:05.480 --> 0:37:06.840 nothing like the office market. 0:37:07.200 --> 0:37:11.800 But do you see opportunity there then? I mean, in multifamily, 0:37:11.960 --> 0:37:15.600 if you get a good deal a low valuation, do 0:37:15.640 --> 0:37:16.560 you go and snap it. 0:37:16.560 --> 0:37:20.000 Up absolutely for any property that on an equal to 0:37:20.040 --> 0:37:23.080 equal basis is coming to market fifteen to twenty percent 0:37:23.120 --> 0:37:25.560 below peak pricing as of March of twenty twenty two, 0:37:25.680 --> 0:37:29.200 we have multiple bits, multiple offers for those assets. 0:37:29.480 --> 0:37:31.799 All right, fascinating stuff, Sam, Thanks so much for coming in. 0:37:32.000 --> 0:37:35.279 I always appreciate you stopping by. Asam Naji is the 0:37:35.320 --> 0:37:38.000 president and CEO of Marcus and Millichapter. 0:37:38.239 --> 0:37:41.800 You're listening to the tape KENSUR Live program Bloomberg Markets 0:37:41.880 --> 0:37:45.239 weekdays at ten am Eastern on Bloomberg Radio, the tune 0:37:45.320 --> 0:37:47.120 in app, Bloomberg dot Com. 0:37:46.840 --> 0:37:48.279 And the Bloomberg Business App. 0:37:48.320 --> 0:37:51.120 You can also listen live on Amazon Alexa from our 0:37:51.160 --> 0:37:56.200 flagship New York station. Just say Alexa play Bloomberg eleven thirty. 0:37:56.920 --> 0:37:59.960 We're broadcasting live from Commonwealth twenty twenty three and National 0:38:00.040 --> 0:38:02.720 Financial Advisors Conference. We're here at the Gaylord Rockies Resort 0:38:03.120 --> 0:38:08.200 in Aurora, Colorado. Joined next by Shelbyquino. She's a certified 0:38:08.200 --> 0:38:11.279 financial planner at Independent Wealth Management. She joins me here 0:38:11.360 --> 0:38:16.160 at the conference here in Colorado. Shelby, so we'll talk 0:38:16.160 --> 0:38:17.960 about the markets and stuff like that. But what I 0:38:18.040 --> 0:38:21.040 find interesting about your background. You've been into business a 0:38:21.080 --> 0:38:24.400 long time, but you lead an all women team of 0:38:24.440 --> 0:38:28.000 financial advisors. Now, I do see in the mixture a 0:38:28.000 --> 0:38:31.160 lot of women here, But tell me what's the percentage 0:38:31.160 --> 0:38:33.080 of women in kind of like the in your line 0:38:33.120 --> 0:38:35.000 of the business, financial advisory business. 0:38:35.400 --> 0:38:39.839 Yeah, thank you, Paul, good morning. Right now, the statistics 0:38:39.840 --> 0:38:45.400 are still under twenty percent women financial advisors in our industry. 0:38:46.000 --> 0:38:48.240 We haven't grown the way we'd like to have grown, 0:38:49.040 --> 0:38:52.440 certainly in the last ten years, so we're working on that. 0:38:53.200 --> 0:38:56.239 So I guess the issue here is for a lot 0:38:56.239 --> 0:38:59.960 of folks is let me get people into these financial services. 0:39:00.000 --> 0:39:02.600 I've had a lot of experience in recruiting. At the 0:39:02.800 --> 0:39:03.239 entry level. 0:39:03.280 --> 0:39:04.960 You get a lot of diversity because it's easy to 0:39:04.960 --> 0:39:07.280 go onto a campus or something and find a diverse 0:39:07.320 --> 0:39:10.440 incoming class. But then four, five, six, seven years later, 0:39:10.440 --> 0:39:13.040 when it's time to do for the promotion for leadership positions, 0:39:13.880 --> 0:39:16.560 it's not so diverse anymore. Do you find that in 0:39:16.600 --> 0:39:17.480 your experience as well? 0:39:18.200 --> 0:39:21.799 Yes, we do, and we're trying to change that. I'm 0:39:21.880 --> 0:39:27.880 not sure we know exactly why that is. Certainly there's 0:39:27.960 --> 0:39:33.760 some extra pressure to you know, run a financial planning 0:39:33.920 --> 0:39:38.560 practice investment firm along with everything else you want to 0:39:38.560 --> 0:39:39.280 do personally. 0:39:39.440 --> 0:39:42.200 So yep, all right, So let's get to your business here. 0:39:42.280 --> 0:39:44.719 Talk to us about just what you're telling your clients 0:39:44.840 --> 0:39:47.840 these days about these markets. You know, last year was 0:39:47.880 --> 0:39:50.279 a tough, tough year, whether in your equities or you're 0:39:50.320 --> 0:39:52.359 in fixed income. This year is a little bit better, 0:39:52.960 --> 0:39:54.879 certainly the equity side, if you're in the right names. 0:39:54.920 --> 0:39:57.000 I guess what are you telling your clients these days? 0:39:57.560 --> 0:40:01.120 Yeah, you know, this has been historic. Celebrate forty years 0:40:01.120 --> 0:40:04.120 in the business next year. And I think that twenty 0:40:04.160 --> 0:40:08.840 two having the combination of the stock and the bond 0:40:08.920 --> 0:40:14.560 market in negative territory, the average balance fund sixteen down 0:40:14.640 --> 0:40:17.840 sixteen to eighteen percent. It tested the best of the best. 0:40:18.480 --> 0:40:22.640 We do our best to assess where a risk temperament 0:40:22.760 --> 0:40:27.719 is with our clients and run through the respective you know, 0:40:28.120 --> 0:40:31.920 tests on that. But this past year we found out 0:40:31.960 --> 0:40:37.520 where the risk temperament really was. So we're telling them it's, 0:40:37.800 --> 0:40:39.640 you know, we got to take a deep breath. With us. 0:40:40.480 --> 0:40:46.000 We're huge proponents of having emergency cash set aside so 0:40:46.040 --> 0:40:50.080 that we can actually allocate a portfolio of quality investment 0:40:50.120 --> 0:40:54.319 holdings to see them through on their short term, medium term, 0:40:54.640 --> 0:40:58.520 long term goals. But this has been such a balancing 0:40:58.560 --> 0:41:02.120 act between the technicality of this market and the emotional 0:41:02.160 --> 0:41:06.720 wherewithal So it's it's been a it's been a heavy lift. 0:41:07.400 --> 0:41:11.120 So do you still how do you diversify a portfolio 0:41:11.239 --> 0:41:14.360 now or how do you protect against correlations? 0:41:16.640 --> 0:41:22.040 Yeah, you know, that's that has been an interesting challenge 0:41:22.080 --> 0:41:26.200 obviously last year, where we've historically relied on the bond 0:41:26.280 --> 0:41:31.680 market to stabilize the portfolio and create that income stream, 0:41:31.880 --> 0:41:36.120 we couldn't go there, and so there was heavier cash positions. 0:41:36.920 --> 0:41:40.080 I you know, we look out in every sector of 0:41:40.120 --> 0:41:45.680 the market to determine you know, that risk reward temperament, 0:41:46.120 --> 0:41:50.640 and it's been you know, a combination. So there's some 0:41:51.040 --> 0:41:54.600 you know, solid dividend paying stocks in there, We've got 0:41:54.600 --> 0:41:58.920 some commodity exposure. We've tried to keep it simple. I 0:41:59.400 --> 0:42:05.000 you know, historically have used some of the more advanced 0:42:05.520 --> 0:42:09.279 instruments and not always been rewarded for the ex or 0:42:09.360 --> 0:42:10.759 expense we pay. Internally. 0:42:11.719 --> 0:42:13.120 Well, I mean, you could go I mean I've been 0:42:13.120 --> 0:42:16.000 telling people after twenty twenty two, where there's no place 0:42:16.000 --> 0:42:18.959 to highe equities down double digits, even most fixed income 0:42:18.960 --> 0:42:22.440 classes down double digits, which had never happened before. I 0:42:22.440 --> 0:42:24.319 can sit here at until your treasury at five point 0:42:24.400 --> 0:42:26.640 zero seven percent. Even my twenty seven year old daughter 0:42:26.640 --> 0:42:28.359 called me and says, I'm gonna go put some money 0:42:28.360 --> 0:42:31.880 into a Hi savings account for Marcus. So she's already 0:42:32.000 --> 0:42:34.200 playing the markets and she's in the music business. 0:42:35.040 --> 0:42:35.880 So I can sit there in. 0:42:35.880 --> 0:42:38.720 Some of these relatively secure places and get a decent return. 0:42:38.960 --> 0:42:42.239 Yeah, so you know what, And Marcus has been a 0:42:42.320 --> 0:42:47.600 solid place for short term money and emergency funds. That's 0:42:47.640 --> 0:42:53.760 an easy call. So for maybe short term emergency funds, great, 0:42:54.320 --> 0:42:56.520 but we got you know, it's time. 0:42:57.239 --> 0:42:58.560 To dip your toe in yep. 0:42:59.120 --> 0:43:02.400 And I think perspective in this environment is the most 0:43:02.440 --> 0:43:05.879 important thing. And with all the noise that we've got 0:43:05.880 --> 0:43:08.239 going on out there, that's really hard to do. 0:43:09.200 --> 0:43:10.560 All right, So what are some of So if I 0:43:10.600 --> 0:43:11.800 want to come to you, if I came to and 0:43:11.880 --> 0:43:14.480 I said that, you know, sixty forty portfolio, it sounds 0:43:14.480 --> 0:43:17.680 reasonable to me. What's what stocks would you look at? 0:43:17.719 --> 0:43:19.360 What sectors would you look at? Or how would you 0:43:19.360 --> 0:43:20.759 think about that five set out? You know, I've got 0:43:20.800 --> 0:43:22.360 my five and ten yere horizon. 0:43:22.560 --> 0:43:27.839 Yeah, you know, Paul, I think it's actually we we 0:43:27.920 --> 0:43:32.480 love growth. I mean, this Ai, it's real. But I 0:43:32.520 --> 0:43:34.239 think at the end of the day, you have to 0:43:34.280 --> 0:43:38.400 be balanced the heavy you know, we've we've relied on 0:43:38.480 --> 0:43:42.120 the large cap space for the bulk of the returns, 0:43:42.280 --> 0:43:45.279 and I think it's time to make sure you've got 0:43:45.280 --> 0:43:47.840 the mid cap and the small cap exposure for the 0:43:47.880 --> 0:43:51.600 next wave. You know, we look at that one hundred 0:43:51.680 --> 0:43:55.480 year chart of this market. We've been through really difficult times. 0:43:55.520 --> 0:43:58.360 Before we're going to get through this, you've got to 0:43:58.400 --> 0:44:01.719 be positioned to be able to take advantage of it. 0:44:01.760 --> 0:44:04.719 Is I mean, you guys, and I'm sure everybody in 0:44:04.719 --> 0:44:08.000 Colorado is in fantastic shape, but the rest of America 0:44:08.120 --> 0:44:10.799 needs a little help. You mentioned AI, and it makes 0:44:10.840 --> 0:44:14.040 me think of what I've come to dub Ai Junior, 0:44:14.080 --> 0:44:16.120 and that's the GLP one drugs. 0:44:16.280 --> 0:44:17.239 What do you think about that? 0:44:17.400 --> 0:44:23.000 Is it really like a strategy changing development or is 0:44:23.000 --> 0:44:24.719 it just fun for us to talk about in a 0:44:24.719 --> 0:44:25.760 few stocks. 0:44:27.520 --> 0:44:29.680 No, you know what, from the sounds of it and 0:44:29.760 --> 0:44:32.680 everything I've read, it sounds like it is a real thing. 0:44:33.080 --> 0:44:36.560 And I think, you know, the innovation that we're seeing 0:44:36.600 --> 0:44:41.239 in the healthcare space and also in the automotive industry 0:44:41.600 --> 0:44:47.000 is pretty mind bending. So, you know, used properly, I 0:44:47.000 --> 0:44:50.040 think AI could be enormously impactful. 0:44:51.000 --> 0:44:53.640 Hey Shelby, thank you so much for joining us. Trancano 0:44:54.040 --> 0:44:59.040 Certified Financial Planner or Independent Wealth Management, Independent Wealth Strategies 0:44:59.360 --> 0:45:02.319 joining us here at the conference in Aurora, Colorado. 0:45:02.640 --> 0:45:05.759 You're listening to the tape cancer our live program Bloomberg 0:45:05.800 --> 0:45:09.400 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:45:09.440 --> 0:45:11.600 tune in app, Bloomberg dot Com, and the. 0:45:11.480 --> 0:45:12.680 Bloomberg Business App. 0:45:12.719 --> 0:45:15.560 You can also listen live on Amazon Alexa from our 0:45:15.560 --> 0:45:20.520 flagship New York station, Just say Alexa play Bloomberg eleven thirty. 0:45:20.960 --> 0:45:23.200 I'm bringing Peter Essel. He is a senior vice president 0:45:23.280 --> 0:45:27.320 of Investment management and Research at Commonwealth, and Peter I 0:45:27.400 --> 0:45:29.920 spent a long part of my career in equity and 0:45:29.960 --> 0:45:30.680 investment research. 0:45:30.680 --> 0:45:32.960 Tell me how you guys do it at Commonwealth? 0:45:33.080 --> 0:45:36.440 Sure, absolutely, thanks for having me so. Our role is 0:45:36.440 --> 0:45:40.399 in support of roughly twenty five hundred independent advisors, where 0:45:40.440 --> 0:45:44.120 we cover everything from individual equities to mutual fund research 0:45:44.200 --> 0:45:48.239 to credit analysis on the fixed income side, and what 0:45:48.239 --> 0:45:50.360 we've seen as of late is that there's been a 0:45:50.920 --> 0:45:55.480 strong interest in creating model based solutions. So we've really 0:45:55.520 --> 0:45:58.560 partnered with a lot of our advisors acting more so 0:45:58.680 --> 0:46:02.319 as like an outsourced CIO capacity, where we support them 0:46:02.320 --> 0:46:06.040 in their model construction efforts, monitoring, and so forth. In 0:46:06.080 --> 0:46:09.200 addition to that, there are a number of advisors who 0:46:09.239 --> 0:46:12.600 have elected to outsource investment management to us, and so 0:46:12.640 --> 0:46:18.120 we directly advise over twelve billion in assets and then 0:46:18.320 --> 0:46:20.960 advise on another about one hundred and fifty billion or so. 0:46:21.120 --> 0:46:21.400 Wow. 0:46:21.520 --> 0:46:25.800 Okay, So what's a typical I guess what's a typical 0:46:25.880 --> 0:46:29.359 ask from an RAA from you guys from your organizations 0:46:29.520 --> 0:46:33.560 to say, hey, should I buy Apple? Or are you 0:46:33.600 --> 0:46:36.600 know is this AI thing for real? What kind of 0:46:36.600 --> 0:46:39.520 request do you typically get? Absolutely, honestly, it's anything under 0:46:39.560 --> 0:46:42.239 the sun at this point, everything from AI stocks to 0:46:42.320 --> 0:46:45.399 the latest and greatest to going back a few years 0:46:45.400 --> 0:46:50.800 ago looking at cannabis stocks. And what we've seen recently 0:46:50.920 --> 0:46:54.520 is a lot of advisors looking for a red flag analysis. 0:46:54.560 --> 0:46:58.960 So that is everything from taking a deep dive into 0:46:59.080 --> 0:47:03.640 a client's perspective of portfolio that comes over looking at 0:47:03.640 --> 0:47:08.200 structured products individual equities like you talked about. In addition 0:47:08.320 --> 0:47:11.960 to just general outlook and commentary around the direction of 0:47:12.000 --> 0:47:18.200 the economy. So obviously with inflationary concerns persisting pretty heavily 0:47:18.280 --> 0:47:22.040 as of late, they want our views on interest rates 0:47:22.040 --> 0:47:24.480 and what that outlook looks like and how that should 0:47:24.480 --> 0:47:29.160 be reflected in their portfolio positioning related to duration and 0:47:29.200 --> 0:47:33.160 so forth. So honestly, it runs the gamut from individual 0:47:33.239 --> 0:47:35.719 security analysis all the way out to views on the 0:47:36.040 --> 0:47:37.080 markets and the economy. 0:47:37.200 --> 0:47:38.400 So what's a red flag I mean? 0:47:38.480 --> 0:47:38.960 Is that. 0:47:40.560 --> 0:47:44.520 Is that like if I think two years ago, weedstocks 0:47:44.520 --> 0:47:50.400 are definitely screaming by because I see that, you know, 0:47:50.520 --> 0:47:53.000 revenues are picking up in the states where they're legal, 0:47:53.120 --> 0:47:54.719 and I feel like it's time to get in. But 0:47:55.120 --> 0:47:57.799 you come back and say, well, they're not federally legal 0:47:57.880 --> 0:48:00.080 yet and they can't do any banking, so and this 0:48:00.160 --> 0:48:01.240 would be a very bad idea. 0:48:01.520 --> 0:48:02.760 This would be a very bad idea. 0:48:04.360 --> 0:48:08.160 It can come in that form. It generally involves a 0:48:08.239 --> 0:48:11.640 look into a security as it relates to a client's 0:48:11.719 --> 0:48:16.120 investment risk tolerance. So, for instance, if there's a high 0:48:16.120 --> 0:48:21.560 concentration in distressed debt for an eighty year old investor 0:48:21.640 --> 0:48:26.359 who has very little assets and as a conservatively positioned 0:48:27.320 --> 0:48:31.360 risk tolerance that would be a major red flag for US, obviously, 0:48:32.280 --> 0:48:36.920 But there are instances where, yes, on a security specific basis, 0:48:37.000 --> 0:48:39.920 where you have sort of these thematic plays that are 0:48:40.080 --> 0:48:44.360 very binary in nature, where they can either sort of 0:48:44.360 --> 0:48:48.399 the clouds or basically turn out into pennies. That would 0:48:48.400 --> 0:48:52.320 be a red flag for US as well. But generally 0:48:52.320 --> 0:48:54.320 it relates to the client's risk tolerance. 0:48:54.680 --> 0:48:57.120 So what are you telling your clients these days about, 0:48:58.000 --> 0:48:59.520 I don't know, just kind of you have like a 0:48:59.560 --> 0:49:02.520 market here that you guys are pretty constructive on the 0:49:02.520 --> 0:49:04.000 ECUADEM markets are not, So how do you how do 0:49:04.040 --> 0:49:05.040 you kind of frame it out for them? 0:49:05.280 --> 0:49:08.720 Yeah, generally we try to deploy a twelve to twenty 0:49:08.719 --> 0:49:12.600 four month outlook and we often try to sift through 0:49:12.600 --> 0:49:14.480 the noise. And a perfect example of that would be 0:49:14.560 --> 0:49:17.640 March of twenty twenty, where obviously there was a lot 0:49:17.680 --> 0:49:20.400 going on. Markets were down. I believe the SMP was 0:49:20.400 --> 0:49:22.480 down over thirty percent in the course of a month, 0:49:23.440 --> 0:49:25.680 and that's an environment where we tend to get a 0:49:25.680 --> 0:49:28.600 little bit more optimistic and like to add risk into 0:49:28.600 --> 0:49:31.719 our portfolios, and we did so on In fact, it 0:49:31.760 --> 0:49:34.000 was on March twenty third twenty twenty where we added 0:49:34.000 --> 0:49:37.200 equity exposure roughly eight hundred basis points for a sixty 0:49:37.280 --> 0:49:41.200 forty portfolio. So we like to look for those opportunities 0:49:41.280 --> 0:49:44.800 of volatility when when investors are rushing for the exits, 0:49:44.800 --> 0:49:47.839 we're generally rushing in. But as far as as our 0:49:47.880 --> 0:49:50.480 outlook at this point, you know, there's clearly a lot 0:49:50.520 --> 0:49:53.799 going on on the geopolitical side of things. Again, we 0:49:53.960 --> 0:49:58.720 like to look through that noise and you know, deploy 0:49:58.800 --> 0:50:02.000 that twelve to twenty four outlook, and we are still optimistic. 0:50:02.040 --> 0:50:05.080 Heading into this year, there was a lot there were 0:50:05.120 --> 0:50:06.920 a lot of economists out on the streets saying that 0:50:06.960 --> 0:50:09.160 this was the year of the recession. This is probably 0:50:09.200 --> 0:50:13.399 the most anticipated recession in my career, and we sort 0:50:13.400 --> 0:50:15.400 of take the opposite or took the opposite of you 0:50:15.719 --> 0:50:18.840 to that where we saw more of the goldilocks economy scenario, 0:50:18.960 --> 0:50:22.680 which thankfully has played out year to date. And we're 0:50:22.800 --> 0:50:25.520 somewhat concerned at this point because it seems like a 0:50:25.560 --> 0:50:28.640 majority of those economists have now shifted more in line 0:50:29.160 --> 0:50:32.840 with what our outlook is, where we continue to see 0:50:33.160 --> 0:50:37.080 modest wage growth. We do believe inflation is going to 0:50:37.080 --> 0:50:40.240 to reach the Fed's mandate by Q four of twenty 0:50:40.280 --> 0:50:43.040 twenty four, And as such, we don't think that there's 0:50:43.080 --> 0:50:45.440 going to be a significant rise on the long end 0:50:45.440 --> 0:50:49.000 of the curve, and we're mentioning to our clients and 0:50:49.600 --> 0:50:52.960 advisors that they think that they should think about redeploying 0:50:53.000 --> 0:50:55.000 some of that cash that they'd stock potted. Peter does 0:50:55.280 --> 0:50:56.760 pass six to twelve months. 0:50:57.920 --> 0:51:00.920 Does the spending of the US government not concern you? 0:51:01.120 --> 0:51:04.360 I mean, we, you know, post COVID are still running 0:51:05.600 --> 0:51:10.319 trillion dollar plus plus plus deficits every year, and you 0:51:10.360 --> 0:51:13.560 know we've already amassed such a huge debt it's towering 0:51:13.640 --> 0:51:16.279 over our GDP. That's the kind of thing that would 0:51:16.320 --> 0:51:20.160 make me, as an investor, want to join the bond 0:51:20.200 --> 0:51:22.359 vigilantes and drive those long term rates up. 0:51:22.520 --> 0:51:23.920 Drive those long term rates. 0:51:23.760 --> 0:51:26.400 Up right, I hear what you're saying. I mean, certainly 0:51:26.440 --> 0:51:28.680 next year the politicians will be throwing stones ahead of 0:51:28.719 --> 0:51:32.960 the election, and there's going to be some volatility as 0:51:33.000 --> 0:51:37.279 it relates to the fiscal deficit. But still at the 0:51:37.400 --> 0:51:40.200 DA I mean, the US Treasury is the benchmark yield, 0:51:40.719 --> 0:51:44.160 the benchmark asset around the world. So even if there 0:51:44.200 --> 0:51:47.800 are concerns over our fiscal issues, there's going to be 0:51:47.840 --> 0:51:51.799 a significant amount of demand from foreign governance, from large 0:51:51.800 --> 0:51:55.560 pension plans that will help keep yields at a reasonable level. 0:51:56.280 --> 0:51:58.840 What are you saying about the fixed income space again, 0:51:58.880 --> 0:52:01.279 I'm kind of a scaredy after what happened in twenty 0:52:01.320 --> 0:52:03.480 twenty two, where there's no place left the high equities 0:52:03.560 --> 0:52:05.000 or fixing come and I feel like, if I can 0:52:05.000 --> 0:52:07.560 get five percent for giving my money to Uncle Sam 0:52:07.600 --> 0:52:09.120 for a couple of years, that's not a bad thing. 0:52:09.320 --> 0:52:12.120 That's that's absolutely how we're looking at it. So if 0:52:12.160 --> 0:52:14.520 you can get four and a half four point seventy 0:52:14.560 --> 0:52:16.680 five on a ten year treasury locked in and clip 0:52:16.719 --> 0:52:19.439 that coupon over the next ten years, we feel that's 0:52:19.440 --> 0:52:22.120 a much more attractive option than placing all your assets 0:52:22.120 --> 0:52:24.640 into a cash like exposure that perhaps is giving you 0:52:24.680 --> 0:52:26.279 a little bit more. You're getting five to five and 0:52:26.320 --> 0:52:28.919 a quarter, but will that be five and a quarter 0:52:29.000 --> 0:52:31.520 for the next decade. We don't necessarily think so. So 0:52:31.560 --> 0:52:34.520 that's why we've been advising our advisors to think about 0:52:34.760 --> 0:52:37.879 inching out in duration and locking in some of those 0:52:37.960 --> 0:52:40.080 higher yields for the next ten years. 0:52:40.680 --> 0:52:43.399 How much you use ETFs or how much do your 0:52:43.560 --> 0:52:46.280 rias use ETFs? Because when I came to the business, 0:52:46.280 --> 0:52:48.560 there weren't any ETFs, it was mutual funds. Now now 0:52:48.600 --> 0:52:50.560 the ETFs are taking all the market share. 0:52:50.680 --> 0:52:53.520 Yep, they certainly are, I believe asset wise it's split 0:52:53.600 --> 0:52:55.320 fifty to fifty at this point, with maybe just a 0:52:55.360 --> 0:53:00.080 little bit more in ETFs. We are seeing them, and 0:53:00.160 --> 0:53:03.000 we've seen a lot of core satellite type portfolios which 0:53:03.160 --> 0:53:07.120 the core, the base is allocated to either index mutual 0:53:07.120 --> 0:53:09.600 funds or ETFs, and then advisors are rounding out that 0:53:09.680 --> 0:53:15.960 exposure with higher active share, higher concentration active mutual fund managers. 0:53:16.480 --> 0:53:18.640 But certainly over the next few years, with the evolution 0:53:18.719 --> 0:53:23.239 of ets in the active space, we're really going to 0:53:23.239 --> 0:53:26.000 become product agnostic, where if there's a viable solution on 0:53:26.000 --> 0:53:29.399 the ATF side, if it's active, we can allocate to that. 0:53:30.000 --> 0:53:32.600 We'll take a look at active mutual funds, passive ETFs, 0:53:32.600 --> 0:53:34.839 et cetera. Alternatives. 0:53:36.040 --> 0:53:38.080 Do your clients ask you about alternatives? 0:53:38.239 --> 0:53:40.399 We do get private equity or private credit or other 0:53:40.440 --> 0:53:40.920 kind of stuff. 0:53:40.960 --> 0:53:43.839 Oh, absolutely, both on the private and the liquid side, 0:53:43.840 --> 0:53:47.520 and the way we generally approach alternatives is that it's 0:53:48.120 --> 0:53:50.920 it's when it get we get asked, well should I 0:53:50.960 --> 0:53:52.919 allocate to alternatives? It's kind of like saying, well should 0:53:52.960 --> 0:53:55.960 I I'm hungry, I should eat food? Right, There's many 0:53:56.040 --> 0:53:59.280 different types of alternatives out there, as you mentioned, private equity, 0:53:59.320 --> 0:54:03.560 private credit, there's managed futures, et cetera. So it really 0:54:03.680 --> 0:54:06.680 comes down to the type of exposure that you're looking for, 0:54:06.719 --> 0:54:10.200 the type of factor you're looking for in a portfolio. 0:54:11.040 --> 0:54:15.240 But certainly for higher net worth clients, we are seeing 0:54:15.280 --> 0:54:19.040 a greater interest as of late on the private credit 0:54:19.120 --> 0:54:20.040 side of things. 0:54:19.760 --> 0:54:21.600 And that's where all the money's going. It seems like 0:54:21.600 --> 0:54:23.600 private right, all right, Peter, thanks so much for joining us. 0:54:23.600 --> 0:54:26.440 Peter sla He's our senior VP of Investment Management and 0:54:26.520 --> 0:54:28.160 Research at Commonwealth. 0:54:29.239 --> 0:54:32.319 Thanks for listening to the Bloomberg Markets podcast. You can 0:54:32.360 --> 0:54:36.120 subscribe and listen to interviews at Apple Podcasts or whatever 0:54:36.200 --> 0:54:39.920 podcast platform you prefer. I'm Matt Miller. I'm on Twitter 0:54:40.120 --> 0:54:42.000 at Matt Miller nineteen seventy three. 0:54:42.520 --> 0:54:44.880 And I'm fall Sweeney. I'm on Twitter at pt Sweeney. 0:54:45.000 --> 0:54:47.680 Before the podcast, you can always catch us worldwide at 0:54:47.680 --> 0:54:49.439 Bloomberg Radio