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Markets, Gender Equality, Equities, and Hostess (Podcast) · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day, we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news on the Bloomberg Markets Podcast,
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. A couple weeks ago,
• 0:21
  Speaker 1: I'm sitting at the Veil airport, Matt, and there's this
• 0:24
  Speaker 1: guy pounded away next to me on his laptop work. Wait,
• 0:26
  Speaker 1: there's an airport in Vail. There is Eagle. It's not
• 0:29
  Speaker 1: a half hour from Vail. So I see this guy
• 0:31
  Speaker 1: next to me. He looks kind of familiar to say, hey,
• 0:33
  Speaker 1: Matt Luzetti. He's's economist guy at Deutsche Bank. So I say, hey,
• 0:37
  Speaker 1: how is your ski trip? He didn't ski. He was
• 0:39
  Speaker 1: actually out there on a conference and he didn't ski.
• 0:42
  Speaker 1: So I said, people do that. It's we're no. I mean,
• 0:45
  Speaker 1: I said, we got to get you in studio here.
• 0:47
  Speaker 1: We need to figure out what's going on. Matt Luzetti's
• 0:49
  Speaker 1: in our studio today. He's from Deutsche Bank, chief US
• 0:51
  Speaker 1: economist and not an Avid skier obviously, but I appreciate
• 0:56
  Speaker 1: the work. He did actually ski for the first time
• 0:58
  Speaker 1: this past weekend. Oh you did, Okay, you are We appreciate.
• 1:02
  Speaker 1: I could tell Matt to clients he was at a vail,
• 1:04
  Speaker 1: working hard, and that's what you want for your chief
• 1:07
  Speaker 1: US economists. So, Matt, we had some ECO data today
• 1:10
  Speaker 1: that just seem kind to kind of put a you know,
• 1:14
  Speaker 1: I guess solidify the call that this FED can go
• 1:16
  Speaker 1: higher for longer? Is that what you guys? A Deutsche
• 1:19
  Speaker 1: banker thinking, yeah, absolutely, I think you got the data
• 1:21
  Speaker 1: this morning. Obviously, the jobless claims data remain very low,
• 1:24
  Speaker 1: consistent with a tight labor market with a lot of momentum.
• 1:27
  Speaker 1: I'd also note the core PC inflation data were revised higher.
• 1:30
  Speaker 1: We expected that a little bit because it's reflecting what
• 1:32
  Speaker 1: we've already seen from the CPI data. I think tomorrow
• 1:35
  Speaker 1: would get core PC. We're above consensus we expected to
• 1:38
  Speaker 1: be point five month on month, and I really think
• 1:41
  Speaker 1: the trend of the recent data is with upward revisions,
• 1:44
  Speaker 1: a lot of momentum in the economy, a lot of
• 1:45
  Speaker 1: resilience in the economy and the labor market, and less
• 1:48
  Speaker 1: disinflation than the FED thought at the February meeting, So
• 1:50
  Speaker 1: inflation looked like it was slowing down pretty quickly from
• 1:54
  Speaker 1: the June headline CPI peak of nine point one percent,
• 1:58
  Speaker 1: And what's the idea now that we've slowed at around
• 2:02
  Speaker 1: six and we're not getting any lower. Yeah, I think
• 2:05
  Speaker 1: I would focus on these three month changes because it
• 2:08
  Speaker 1: strips out the very high prints that we saw early
• 2:10
  Speaker 1: last year, and I think the revisions there have been
• 2:13
  Speaker 1: really important. So course CPI looked like on a three
• 2:16
  Speaker 1: month change it was decelerating down to three point one percent,
• 2:19
  Speaker 1: getting closer to the level that's consistent with the FED
• 2:21
  Speaker 1: subjective that was actually revised higher by more than a
• 2:24
  Speaker 1: percentage point. And then with this latest data you have
• 2:26
  Speaker 1: a three month annualized change for course CPI that's four
• 2:29
  Speaker 1: and a half four point six percent, you know, very
• 2:31
  Speaker 1: far away from the FED subjectives. I do think, you know,
• 2:34
  Speaker 1: as we see corepc tomorrow, it'd be closer to four
• 2:36
  Speaker 1: point four four and a half percent. You've seen some disinflation,
• 2:39
  Speaker 1: we're off the peak, but the latest data tell us
• 2:42
  Speaker 1: that the path here isn't easy. It's not just continued disinflation.
• 2:44
  Speaker 1: We're likely to see somewhat higher in prints over the
• 2:46
  Speaker 1: next few months. So, Matt, smart guys like you, are
• 2:49
  Speaker 1: you taking the recession call off the table? I'm not
• 2:52
  Speaker 1: sure if you had a recession call, but are the
• 2:54
  Speaker 1: economists in general taking that recession call off the table?
• 2:57
  Speaker 1: Do you think we've always had a recession call, but
• 2:58
  Speaker 1: it's always been the back half of this year? Okay,
• 3:00
  Speaker 1: it is in Q four for us right now. I
• 3:02
  Speaker 1: think the latest flow the data fits well with that
• 3:05
  Speaker 1: type of timeline. And it fits well with that because, look,
• 3:08
  Speaker 1: the economy has good momentum. Now, the idea that's going
• 3:11
  Speaker 1: to fall into recession in Q one or probably even
• 3:13
  Speaker 1: Q two doesn't seem very likely given the momentum. At
• 3:16
  Speaker 1: the same time, the repricing that we're seeing with the FED,
• 3:19
  Speaker 1: the idea that the terminal rate needs to be higher.
• 3:21
  Speaker 1: We're at five point six for the terminal rates, so
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  Speaker 1: we think they hike through through July. I think that
• 3:25
  Speaker 1: will create tighter financial conditions consumers that that households are
• 3:30
  Speaker 1: eating through their excess savings through the second half of
• 3:33
  Speaker 1: this year. So we still have that timeline in place
• 3:36
  Speaker 1: for our recession call. So how bad does it get?
• 3:38
  Speaker 1: How bad to these long and variable lags hit us
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  Speaker 1: in Q four. We're already hearing news about huge price
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  Speaker 1: drops in housing, over a trillion dollars nationwide off five percent.
• 3:53
  Speaker 1: We're hearing news about a slowdown in I just stuck
• 3:56
  Speaker 1: to the CEO of Ducati in North America and he said,
• 3:58
  Speaker 1: you know, the high rates are putting a crimp on
• 4:01
  Speaker 1: motorcycle sales for example. Yeah, I think that's been you know,
• 4:04
  Speaker 1: assessing that long and variable acts is always difficult. I
• 4:06
  Speaker 1: think that there's been some quick transmission from the Fed's
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  Speaker 1: policies to financial conditions. We saw certainly what happened with
• 4:12
  Speaker 1: the housing market mortgage rates spiking, but it's been I
• 4:16
  Speaker 1: think a little bit slower to impact the consumer and
• 4:19
  Speaker 1: a little bit slower to impact the labor market. I
• 4:21
  Speaker 1: think in part that's because you've had this latent fiscal
• 4:23
  Speaker 1: stimulus out there, with households still with one trillion of stimulus.
• 4:26
  Speaker 1: And it's also because you have a structurally undersupplied labor market,
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  Speaker 1: so you have firms that need labor have had difficulty
• 4:33
  Speaker 1: in finding labor and has led to this very resilient
• 4:36
  Speaker 1: labor market. Knowing exactly when when that financial condition tightening
• 4:39
  Speaker 1: hits the economy, I think is always always very difficult.
• 4:41
  Speaker 1: How deep do you think the recession could be? Because
• 4:44
  Speaker 1: two quarters of contraction, we've seen that already and it
• 4:47
  Speaker 1: wasn't a recession apparently as far as we know, and
• 4:51
  Speaker 1: we could see it again without feeling like we're in
• 4:55
  Speaker 1: a deep recession. Is that what you expect? Shallow or
• 4:57
  Speaker 1: do you think it could hit us hard and unemployment
• 4:59
  Speaker 1: could eyes to five percent or more? Yeah? So I
• 5:02
  Speaker 1: think it's all about the labor market. You know, whether
• 5:04
  Speaker 1: or not we have a technical recession that has two
• 5:06
  Speaker 1: quarters of negative growth I think is somewhat irrelevant to
• 5:09
  Speaker 1: the market and the FED at this point. It's really
• 5:11
  Speaker 1: about does the labor market begin to crack and does
• 5:13
  Speaker 1: it begin to weaken. From a historic perspective, our recession
• 5:16
  Speaker 1: looks kind of moderate. It looks like the early nineteen nineties.
• 5:20
  Speaker 1: You have the unemployment rate rising by about two percentage
• 5:22
  Speaker 1: points from from trough to peak. It's a big move
• 5:25
  Speaker 1: from today's perspective, no doubt, But from a historic perspective,
• 5:28
  Speaker 1: it's actually a relatively mild recession that we're expecting. What
• 5:32
  Speaker 1: is your view on the labor market, it's just shocking
• 5:35
  Speaker 1: to me that it is so strong, so vibrant, the
• 5:39
  Speaker 1: jolts data, the unemployment day, everywhere you look. We don't
• 5:42
  Speaker 1: see any cracks, do we No. I think you've seen
• 5:45
  Speaker 1: it in some sectors. You know, obviously you have tech
• 5:48
  Speaker 1: layoffs that are ongoing. You've seen it in the sectors
• 5:50
  Speaker 1: that have employment well above the pre COVID trend. You know,
• 5:53
  Speaker 1: all those sectors have slowed materially. Many of them are
• 5:56
  Speaker 1: actually reducing their jobs in those sectors that have employment
• 5:59
  Speaker 1: that are well below pre COVID trends. Leisure and hospitality
• 6:02
  Speaker 1: is one, healthcare is another, the government sector is another.
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  Speaker 1: They've really been driving employment growth. They're really driving I
• 6:08
  Speaker 1: think a lot of the tightness in the labor market,
• 6:10
  Speaker 1: and really until that changes, it's unlikely that you're going
• 6:13
  Speaker 1: to see negative payrolls prints. I don't think that that's
• 6:16
  Speaker 1: happening over the next few months, just given the momentum.
• 6:18
  Speaker 1: But the FED needs something to change here in the
• 6:20
  Speaker 1: labor market, especially with what's happened with the inflation data recently.
• 6:24
  Speaker 1: I think that we should have a lot less confidence
• 6:25
  Speaker 1: than inflation is on this very clear downtrend back to target.
• 6:28
  Speaker 1: So what about if we do have a recession. If
• 6:31
  Speaker 1: we do have a weakening labor market, and you know
• 6:36
  Speaker 1: that affects growth, do we see cuts? Do you expect
• 6:39
  Speaker 1: the FED to cut rates at the end of this year,
• 6:41
  Speaker 1: at the beginning of twenty twenty four, So we've pushed
• 6:43
  Speaker 1: out our expectation for cuts. We do expect that they
• 6:46
  Speaker 1: begin to cut rates in early twenty twenty four. But
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  Speaker 1: I think it's all about not only inflation, but what
• 6:51
  Speaker 1: happens with the labor market. If we end this year
• 6:53
  Speaker 1: and the labor market looks a lot like it does
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  Speaker 1: today and core inflation is three percent or above, the
• 6:58
  Speaker 1: Fed's not going to be cutting rates. Yeah, and you
• 7:00
  Speaker 1: know that that's close to what the FED has been forecasting.
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  Speaker 1: They have this rise in the unemployment rate. So I
• 7:05
  Speaker 1: think it's if you get this weekending in the labor market,
• 7:07
  Speaker 1: if you see that uemployment rate rising four and a
• 7:08
  Speaker 1: half five percent, that's an environment where if inflation is
• 7:12
  Speaker 1: closer to three percent, I do think the FED would
• 7:14
  Speaker 1: be cutting rates. That's our baseline, But there's this risk
• 7:17
  Speaker 1: of the labor market remaining more resilient, inflation remaining a
• 7:20
  Speaker 1: bit closer to three percent inflation. Do they they say
• 7:25
  Speaker 1: two percent, right, But do they really mean three? No?
• 7:29
  Speaker 1: I think they're you know, they're adamant today, no doubt,
• 7:31
  Speaker 1: and I think that they will stick to that. But
• 7:32
  Speaker 1: the question is what does the labor market look like
• 7:34
  Speaker 1: in that environment. If it's still very tight producing wage
• 7:37
  Speaker 1: growth that's very elevated, they can't cut rates. If the
• 7:39
  Speaker 1: labor market is looking very loose and disinflationary pressures are
• 7:42
  Speaker 1: clear looking forward, then they can back off of a
• 7:45
  Speaker 1: plus five percent fed funds rate, bring it back down,
• 7:48
  Speaker 1: and track inflation lower to a more normal level. Got
• 7:51
  Speaker 1: a PhD in UCLA? How good was that? UCLA? So
• 7:56
  Speaker 1: it'd be a lot more fun if you weren't getting
• 7:57
  Speaker 1: a PhD undergrad? CLA sounds awesome, Not so much, not
• 8:02
  Speaker 1: as fun. You look out out of the library at
• 8:05
  Speaker 1: the weather, and it's not as fun as you would expect.
• 8:06
  Speaker 1: I guess, are you good? Matt Lozetti, proud graduate of
• 8:09
  Speaker 1: Villanova undergrad got his PhD at UCLA. Pretty cool. They're
• 8:13
  Speaker 1: great business school at UCLA, at the high school. Matt Louseettie,
• 8:16
  Speaker 1: chief US economist Story Bank, joining us live in our
• 8:19
  Speaker 1: Bloomberg Interactive Broker studio, And again I can attest to
• 8:22
  Speaker 1: all Matt's institutional investor clients out there that he was
• 8:24
  Speaker 1: in veil, but he was working. He wasn't skiing bumming
• 8:27
  Speaker 1: off like I was so good stuff there. I'm gonna
• 8:33
  Speaker 1: talk aboutferred stock. Their analysts don't know if from livestock
• 8:36
  Speaker 1: and preferred stock and named that movie Wall Street. Yeah, okay.
• 8:41
  Speaker 1: Doug Baker, portfolio manager and head of preferred securities at
• 8:44
  Speaker 1: New Ven. He's based in Chicago, but we got him
• 8:46
  Speaker 1: live in our Bloomberg Interactive broker studio. We don't talk enough,
• 8:51
  Speaker 1: nearly enough, Doug about preferred stock, preferred securities. What's the
• 8:54
  Speaker 1: pitch to own preferred securities? What's the advantage I think?
• 9:00
  Speaker 1: I think for us it's an income solution that's that's
• 9:02
  Speaker 1: high quality, okay. And you can generate this income without
• 9:05
  Speaker 1: taking excessive credit risk. And if you choose your securities carefully,
• 9:10
  Speaker 1: you can do it without taking significant duration risk or
• 9:13
  Speaker 1: interest rate risk. And I think in this environment today,
• 9:15
  Speaker 1: with rates as volatile as they are, finding a solution
• 9:19
  Speaker 1: where you can generate and it's also tax efficient income
• 9:22
  Speaker 1: in a lot of instances, doing that without having to
• 9:25
  Speaker 1: make a significant call on interest rates, I think is
• 9:28
  Speaker 1: appealing for a lot of folks, and then again for
• 9:31
  Speaker 1: those folks that think, hey, there's a recession around the corner,
• 9:34
  Speaker 1: not driving that income through taking a lot of credit
• 9:37
  Speaker 1: risk at this point in time too, is also kind
• 9:38
  Speaker 1: of compelling. So why are they called preferred? I mean,
• 9:41
  Speaker 1: are you higher up on the credit list, creditors list
• 9:45
  Speaker 1: if you if they go bankrupt, are you not broke
• 9:48
  Speaker 1: as a preferred holder? Do you get better voting rights?
• 9:52
  Speaker 1: That's yeah, so if you get special dividends, that's that's
• 9:55
  Speaker 1: that's the So you're preferred, but not very preferred. If
• 9:59
  Speaker 1: you're preferred to the common shareholder, and that's typically about it.
• 10:02
  Speaker 1: So you're typically your payments, and for a lot of
• 10:05
  Speaker 1: our securities, there will be a clause that will say, hey,
• 10:09
  Speaker 1: if you're making a distribution to your common shareholder that
• 10:12
  Speaker 1: common equity dividends going out, you have to pay your
• 10:15
  Speaker 1: preferred security. So you do get some preference from that point.
• 10:18
  Speaker 1: And then also if and we'll talk about why this
• 10:21
  Speaker 1: is a low probability event, but if you did have
• 10:24
  Speaker 1: one of our issuers say default or go bankrupt in
• 10:28
  Speaker 1: our space, you would have a claim on assets above
• 10:31
  Speaker 1: the common shareholder, So you do get a preferential treatment
• 10:34
  Speaker 1: in that from that perspective, From the issuer's perspective, are
• 10:38
  Speaker 1: there certain sectors that whether their financials or whatever, that
• 10:42
  Speaker 1: typically our issuers or preferreds And if so, why so?
• 10:45
  Speaker 1: It's heavily dominated by financial services and in particular banks.
• 10:49
  Speaker 1: So banks are a big issue or preferreds roughly about
• 10:52
  Speaker 1: sixty five percent of our issuer base. Banks, another ten
• 10:55
  Speaker 1: or fifteen percent insurance companies. That's a plus and no minus.
• 10:59
  Speaker 1: So we're going to have se concentration. But we think
• 11:01
  Speaker 1: that that's a good thing in this environment because look,
• 11:04
  Speaker 1: let's face it, banks today are incredibly strong and it's
• 11:07
  Speaker 1: really a result of the financial crisis we had close
• 11:10
  Speaker 1: to ten twelve years ago that they're in a great
• 11:13
  Speaker 1: position today. But the outlook is also really constructive for banks.
• 11:18
  Speaker 1: They're benefiting tremendously from this rise and interest rate environment,
• 11:21
  Speaker 1: and so it's a it's a way, I think for
• 11:25
  Speaker 1: us to also benefit from rise and interest rates from
• 11:29
  Speaker 1: a fundamental perspective when you invest in prefers, so the
• 11:35
  Speaker 1: story that gets lost a lot of times and preferred.
• 11:36
  Speaker 1: So when people look at the securities, they're often rated
• 11:39
  Speaker 1: triple B, sometimes double B, and people will say, oh,
• 11:42
  Speaker 1: this is kind of a high yield type of investment.
• 11:45
  Speaker 1: The reality is that the senior rating on average for
• 11:48
  Speaker 1: the issuers is closer to single A. Our securities are
• 11:52
  Speaker 1: rated lower because they're subordinate. And we use JP Morgan
• 11:55
  Speaker 1: as an example all the time. JPMorgan at the senior
• 11:57
  Speaker 1: level rated single A, single A, double A by the
• 12:00
  Speaker 1: big three radiing agencies across the board, preferred A triple B.
• 12:03
  Speaker 1: But if you own a JP Morgan preferred, you don't
• 12:06
  Speaker 1: have exposure to a triple B company, right you're subordinate
• 12:09
  Speaker 1: to JP Morgan, you really have that single A slash
• 12:12
  Speaker 1: double A type of credit exposure. So so there's a
• 12:14
  Speaker 1: lot of I think benefits to preferreds, But at the
• 12:18
  Speaker 1: end of the day, when you have this much sector concentration,
• 12:20
  Speaker 1: you need to be cognizant at in your overall portfolio.
• 12:23
  Speaker 1: That's JP Morgan's your go to example. In the US,
• 12:27
  Speaker 1: I just got back last year from living in Berlin
• 12:30
  Speaker 1: for five years. I think of Volkswagen. I don't know
• 12:34
  Speaker 1: if it's a different structure, but VAW three GI on
• 12:38
  Speaker 1: the terminal is preferred and that's almost traded like they're common.
• 12:42
  Speaker 1: Like if you buy Volkswagen shares, you're buying those. I
• 12:44
  Speaker 1: don't get why. So there are sector there is sector
• 12:48
  Speaker 1: exposure outside of financial services, and for US, we really
• 12:53
  Speaker 1: still like to kind of even though it's it's concentrated
• 12:56
  Speaker 1: in that space, that's where we like to hit the
• 12:59
  Speaker 1: ball down the fairway, kind of like staying within the banks,
• 13:02
  Speaker 1: the insurance utilities because the US in the US. But
• 13:05
  Speaker 1: you know, do you stay in the US though, or
• 13:07
  Speaker 1: do you also look overseas? When we go overseas, the
• 13:10
  Speaker 1: market is still dominated by non I would say, non
• 13:13
  Speaker 1: US financial institutions. The corporate hybrid corporate preferred universe is
• 13:20
  Speaker 1: larger outside the US, but still the majority of the
• 13:23
  Speaker 1: exposure is financial services. And so you know, just remember
• 13:26
  Speaker 1: we're benefiting not just here in the US, but also
• 13:28
  Speaker 1: globally from this higher regulatory environment that these banks are
• 13:34
  Speaker 1: operating under today, and we benefit as investors from that
• 13:37
  Speaker 1: added layer of security from that oversight. These banks are
• 13:41
  Speaker 1: incredibly well capitalized, and the insurance space is incredibly strong too,
• 13:45
  Speaker 1: I mean, sitting on record levels of statutory capital. The
• 13:49
  Speaker 1: pricing environment for insurance has been incredibly strong. So so
• 13:53
  Speaker 1: the one big takeaway that we want people to know
• 13:56
  Speaker 1: and understand is that, look, the underlying fundamentals of the
• 14:00
  Speaker 1: large sectors in the preferred space are incredibly compelling, and
• 14:04
  Speaker 1: that this income which we you know, I only touched
• 14:07
  Speaker 1: on briefly, which is why a lot of people will
• 14:09
  Speaker 1: access our asset class oftentimes as tax advantage. For individual investors,
• 14:14
  Speaker 1: a lot of times the distributions are treated as dividends,
• 14:17
  Speaker 1: and so for folks that are in a high tax
• 14:19
  Speaker 1: bracket that needs some income but they don't have any
• 14:23
  Speaker 1: more room in a qualified account, the tax advantage of
• 14:27
  Speaker 1: the distributions from a lot of preferred strategies puts the
• 14:30
  Speaker 1: taxable equivalent yield much higher than even the stated yield. Now,
• 14:33
  Speaker 1: when I buy a preferred am I getting a fixed
• 14:36
  Speaker 1: rate a floating rate, How does that'll work? It just
• 14:39
  Speaker 1: depends what you want you can find at all. And
• 14:41
  Speaker 1: so this is where we think also active management comes
• 14:44
  Speaker 1: into play, because an active manager can go out there
• 14:47
  Speaker 1: and find those securities that have either a fixed rate
• 14:50
  Speaker 1: coupon or something that's a floating rate, or something that's
• 14:53
  Speaker 1: a hybrid affixed to a floating rate structure. And so
• 14:57
  Speaker 1: when we look at the overall preferred universe, You're going
• 14:59
  Speaker 1: to some securities that do have durations of seven, eight,
• 15:02
  Speaker 1: nine plus years, others floating rate pretty much zero durations.
• 15:08
  Speaker 1: So you can, depending on your appetite for interest rate risk,
• 15:13
  Speaker 1: you know, really customize a portfolio preferreds to meet your needs.
• 15:17
  Speaker 1: I would need an active manager like a seeing eye dog.
• 15:20
  Speaker 1: And I'm blind here, but I mean, for example, I
• 15:23
  Speaker 1: look at JP Morgan's preferred LA see seven. I don't
• 15:26
  Speaker 1: know where I would go. I guess this dividends six
• 15:29
  Speaker 1: percent dividend is a strong one. But are you worried
• 15:33
  Speaker 1: your job gets replaced by AI soon? Or do you
• 15:36
  Speaker 1: use AI? Can you use AI at your job? You?
• 15:40
  Speaker 1: I think it's really really tough because there's such very
• 15:43
  Speaker 1: little standardization across the preferred market, and a lot of
• 15:47
  Speaker 1: the things that create value and help alleviate risk is
• 15:51
  Speaker 1: how the prospectus is written. So could we get to
• 15:54
  Speaker 1: a point where AI could go through a prospectus and
• 15:57
  Speaker 1: really pull out those important data points, those minute details
• 16:01
  Speaker 1: that make one security meaningfully different from another. Absolutely, are
• 16:05
  Speaker 1: we there yet? You know, I think we're still a
• 16:08
  Speaker 1: ways off. But you feel comfortable, you're secure in your job.
• 16:11
  Speaker 1: I'm probably more likely to get replaced at home by
• 16:13
  Speaker 1: aim in the workplace. Yeah, all right, City a thousand
• 16:18
  Speaker 1: dollars par floating rate preferred. It's got a current coupon
• 16:22
  Speaker 1: of nine point zero nine three five seven. I mean
• 16:25
  Speaker 1: that's pretty good, right, And it's qdi qdi meaning it's
• 16:29
  Speaker 1: tax advantage. It's tax advantaged, right. So so this was
• 16:33
  Speaker 1: one of those structures that started off paying a fixed
• 16:35
  Speaker 1: rate coupon. It was just shy of six percent, got
• 16:38
  Speaker 1: up to its call date, and then for these types
• 16:41
  Speaker 1: of structures, if if the issuer doesn't redeem the security,
• 16:44
  Speaker 1: then the coupon starts to reset. This is one of
• 16:47
  Speaker 1: those examples. Now, City right now, could they refinance this
• 16:51
  Speaker 1: security at a lower coupon, absolutely, but if they do,
• 16:56
  Speaker 1: they're going to be locked into a new preferred for
• 16:58
  Speaker 1: probably at minimum five years. So what they're doing right now,
• 17:02
  Speaker 1: in our opinion, is they're paying up now to maintain
• 17:05
  Speaker 1: optionality to take this preferred exposure out if they don't
• 17:10
  Speaker 1: need it down the road. And what we feel is
• 17:12
  Speaker 1: and is some of the feedback we're getting from the
• 17:14
  Speaker 1: banks is that they're expecting their balance sheets to shrink
• 17:17
  Speaker 1: over time as the economy shrinks, and if that's the case,
• 17:21
  Speaker 1: they won't need as much capital, and that's why they
• 17:23
  Speaker 1: issue prefers. Preferreds count as capital, so as their balance
• 17:26
  Speaker 1: sheet shrinks, this security now is really cullable quarterly, so
• 17:31
  Speaker 1: it gives them a lot of optionality just to take
• 17:33
  Speaker 1: it out at some point, whereas if they refinance it today,
• 17:36
  Speaker 1: they'd lock themselves into a new preferred for a long
• 17:38
  Speaker 1: period of time. All right, just real quick, thirty seconds.
• 17:41
  Speaker 1: Aircraft lesser sector, Yeah, what's that all about it? Yeah,
• 17:45
  Speaker 1: so this is important, right, We're just talking about sector concentration,
• 17:48
  Speaker 1: so we try and come with some ideas, some thoughtful
• 17:50
  Speaker 1: ideas outside of outside of that area. So the aircraft
• 17:54
  Speaker 1: lesser space is a weight I think to really leverage
• 17:57
  Speaker 1: the very strong story that's that's underlining and underpinning the
• 18:03
  Speaker 1: airlines air travel today, this post COVID environment and the
• 18:08
  Speaker 1: air lesser business model oversimplifying it as to provide financing
• 18:13
  Speaker 1: to the airlines when they buy fifty sixty seventy aircraft.
• 18:16
  Speaker 1: These guys today, I think offer us exposure to a
• 18:21
  Speaker 1: unique opportunity. It's timely and you can still find securities
• 18:26
  Speaker 1: here that our interest rate, you know, kind of moderate
• 18:29
  Speaker 1: exposure interesting stuff, really interesting stuff. Glad we got some
• 18:32
  Speaker 1: some of your time. Doug Baker, portfolio Management, head of
• 18:34
  Speaker 1: Preferred Securities at Nouvene, talking about preferred securities. Really interesting
• 18:39
  Speaker 1: discussion there. We'll get Doug back and we appreciate them
• 18:42
  Speaker 1: coming into our Bloomberg Interactive Broker studio the Northern Line.
• 18:50
  Speaker 1: I've been commuting to the City of London on this
• 18:53
  Speaker 1: train for decades. Raised in the era of Margaret Thatcher
• 18:57
  Speaker 1: and the city's big bang women thought that we'd be
• 19:00
  Speaker 1: making the decisions by now and getting the rewards. But
• 19:05
  Speaker 1: how wrong we were. The reality is that only twelve
• 19:09
  Speaker 1: percent of UK fund managers are women. The person who's
• 19:12
  Speaker 1: been at the vanguard of advancing women in the city
• 19:16
  Speaker 1: is Helena Morrissey, Dame Helena, former CEO of Newton Investment Management,
• 19:21
  Speaker 1: ex chair of aj Bell. She's advised the government and
• 19:24
  Speaker 1: has a seat in the House of Lords. She's now
• 19:27
  Speaker 1: putting her considerable contacts, book and profile to work to
• 19:31
  Speaker 1: get more women managing money. I do think there's an
• 19:35
  Speaker 1: image problem that people look and they think, oh, fund management,
• 19:38
  Speaker 1: it's not for me. It would be very isolated to
• 19:41
  Speaker 1: be a woman. It's kind of macho environment, and I
• 19:45
  Speaker 1: think there is still though a bit of a sort
• 19:47
  Speaker 1: of cultural impediment as well. I think many men now,
• 19:52
  Speaker 1: especially in our industry, really are just as frustrated as
• 19:55
  Speaker 1: the women that we're not seeing more progress. So is
• 19:58
  Speaker 1: this Morrissey's more muscular approach to diversity. I love your expression,
• 20:02
  Speaker 1: Karim muscular, because you know it should feel very robust.
• 20:05
  Speaker 1: It should be like a you've got a business objective here,
• 20:08
  Speaker 1: Let's improve diversity of talent. Let's make sure that people
• 20:12
  Speaker 1: are included when they join if they're diverse, and let's
• 20:15
  Speaker 1: achieve better results for our clients. Mentoring some sixty women
• 20:18
  Speaker 1: over a year sounds modest, smaller than the intake at
• 20:22
  Speaker 1: a big investment or law firm. There are around one thousand,
• 20:25
  Speaker 1: six hundred UK fund managers but only about two hundred
• 20:30
  Speaker 1: women in all. You could fit all of those women
• 20:33
  Speaker 1: on a single London Underground tube train seated. So as
• 20:38
  Speaker 1: Morrissey's legacy achievable. You know they used to go to
• 20:41
  Speaker 1: be a veteran. Now, Lexie, I'm not beyond the grave
• 20:44
  Speaker 1: next tithing my hope. This is not sort of you know,
• 20:46
  Speaker 1: my parting shop. But I've always said you know, I
• 20:48
  Speaker 1: really don't want to leave this industry until it looks
• 20:51
  Speaker 1: and feels very different. And for me, that means that
• 20:54
  Speaker 1: we have, you know, as many women in it as men,
• 20:56
  Speaker 1: and so people expect if they have a fun manager
• 20:59
  Speaker 1: to come visit them and their thorough client. They have
• 21:02
  Speaker 1: just as much expectation that's going to be a woman
• 21:03
  Speaker 1: as a man, and that's not the case. Now meet
• 21:06
  Speaker 1: the mentors and what they hope to pass on. My
• 21:09
  Speaker 1: name is Rosie McMillan. I work at Fidelity International, where
• 21:12
  Speaker 1: I'm the director of portfolio Management. To say it's been
• 21:15
  Speaker 1: an easy ride would be a lie. It's a case
• 21:20
  Speaker 1: of changing mindset, changing habits, changing deeply in rooted beliefs,
• 21:26
  Speaker 1: and opening people's eyes to possibility. If gender diversity has stalled,
• 21:32
  Speaker 1: ethnic diversity is even worse. My name is I'm Jim
• 21:36
  Speaker 1: day Lawal and I work at Bearings. I'm the head
• 21:38
  Speaker 1: of Ian Corporate Debt at Bearings. I think there are
• 21:41
  Speaker 1: certain circumstances in certain situations you find yourself in as
• 21:45
  Speaker 1: a female portfolio manager, a female fund manager, and you
• 21:49
  Speaker 1: feel you'ressuming against the tide. I've got the intersectionality of
• 21:53
  Speaker 1: being an ethnic minority as well as a female, and
• 21:56
  Speaker 1: I see that come through in my own journey. Ellen
• 22:00
  Speaker 1: Man is a mentee. She's studying to become a chartered
• 22:04
  Speaker 1: financial analyst at Cambridge Graduate in Japanese. She's working at
• 22:08
  Speaker 1: Jupiter Asset Management. I'd started my career during lockdown, so
• 22:14
  Speaker 1: I spent almost two years working pretty much by myself.
• 22:19
  Speaker 1: So I just was really excited to honestly meet other
• 22:22
  Speaker 1: people getting started and here from them. I've joined a
• 22:26
  Speaker 1: team where my my line manager is someone very committed
• 22:33
  Speaker 1: to the mentor role already. So you've got a mail mentor. Yes,
• 22:37
  Speaker 1: the idea of having a mentor and the kind of
• 22:40
  Speaker 1: check ins with them and providing some guidance on how
• 22:44
  Speaker 1: do you support someone in those career goals. I think
• 22:47
  Speaker 1: that's very valuable, especially from the kind of gender perspective.
• 22:52
  Speaker 1: So cautious optimism then, because the numbers truly are embarrassing.
• 22:58
  Speaker 1: Citywar totted up five hundred and sixty two new funds
• 23:02
  Speaker 1: launched in the UK in twenty twenty two, but only
• 23:06
  Speaker 1: ten percent are being managed by women. It's hard, though,
• 23:10
  Speaker 1: not to be swept up by Helena Morrissey's determination. But
• 23:15
  Speaker 1: in the twenty years that I've been covering finance, the
• 23:18
  Speaker 1: sector has seen little change. Helena and others have a
• 23:22
  Speaker 1: battle to move fund management forwards. I'll leave the final
• 23:27
  Speaker 1: word though, to Ellen, I'm hopeful, but I think my
• 23:31
  Speaker 1: hopefulness is very much in the context of being lucky
• 23:35
  Speaker 1: enough to be around a team who are very supportive,
• 23:38
  Speaker 1: and to have a kind of first boss who has
• 23:41
  Speaker 1: been extremely supportive and wants me to flourish. Caroline joins
• 23:47
  Speaker 1: us right now on the phone from Lunn. Caroline, what
• 23:50
  Speaker 1: is your level of optimism about change here in the
• 23:54
  Speaker 1: UK fund business? Well, great to be speaking to you. Look,
• 23:59
  Speaker 1: I think it's it's very difficult. On the one hand,
• 24:01
  Speaker 1: this is hugely ambitious, right Helena Morrissey. If she continues
• 24:05
  Speaker 1: this program with the Diversity Project, in three years time,
• 24:09
  Speaker 1: she could double the number of female fund managers. That
• 24:12
  Speaker 1: is massively ambitious, even though it's only sixty women. So
• 24:16
  Speaker 1: you could have sort of Morrissey's view and this whole
• 24:20
  Speaker 1: program really amazingly influential in the space. On the other hand,
• 24:25
  Speaker 1: we've had so many initiatives and the numbers have been
• 24:28
  Speaker 1: so difficult to move. The UK's got gender pay reporting
• 24:32
  Speaker 1: for the big financial institutions, big, big employers in the
• 24:36
  Speaker 1: UK that hasn't moved the needle that much. You look
• 24:39
  Speaker 1: at the Alison Rose review just this week. She's the
• 24:42
  Speaker 1: CEO of nat West Bank here in the UK, and
• 24:45
  Speaker 1: that review of entrepreneurship record numbers of women starting new businesses,
• 24:49
  Speaker 1: but they still struggle to get funding. So that's the context,
• 24:53
  Speaker 1: and I think it's reflected in some of the comments
• 24:55
  Speaker 1: by the women that I spoke to. For me, it's
• 24:58
  Speaker 1: great having on the program. I'll listen to your show
• 25:00
  Speaker 1: every single morning as I drive to work and I
• 25:03
  Speaker 1: can't think of any better way to prepare for my
• 25:05
  Speaker 1: trading day, well, my reporting day. I wonder if this
• 25:12
  Speaker 1: is specifically a UK problem or if you see it,
• 25:15
  Speaker 1: you know any better or worse in New York? Is
• 25:18
  Speaker 1: it any better or worse in Frankfurt? Look, the numbers
• 25:22
  Speaker 1: speak for themselves, right Globally eighteen percent of fun managers
• 25:27
  Speaker 1: are female, so it's not particularly better anywhere else in
• 25:31
  Speaker 1: the world. But also I think that it's important not
• 25:34
  Speaker 1: to think about this pathway program, which is accompanied by
• 25:38
  Speaker 1: doing your CFA, your exams as well to be a
• 25:42
  Speaker 1: fun manager in Britain. It is global isn't it, Because
• 25:46
  Speaker 1: as one of the women told me, Rosie, these companies
• 25:49
  Speaker 1: that are taking part thirty three firms, they're global investors,
• 25:52
  Speaker 1: and so perhaps the optimism also is that there's a
• 25:55
  Speaker 1: cascade effect and financial cities and centers around the world.
• 26:00
  Speaker 1: We'll be looking at London maybe maybe take that example.
• 26:03
  Speaker 1: All right, great stuff. I really appreciate you taking the time, Caroline,
• 26:06
  Speaker 1: and a fascinating piece of reporting there Bloomberg Daybreak Europost
• 26:10
  Speaker 1: Caroline Hepcker with the story about the I guess what
• 26:13
  Speaker 1: is a stubborn problem on a global basis. It is
• 26:16
  Speaker 1: the lack of diversity, gender and otherwise in the fund
• 26:20
  Speaker 1: management business. Yeah. Absolutely, and again I'll encourage people four Am.
• 26:25
  Speaker 1: Caroline Hepker and team act Tom Mackenzie on the radio
• 26:28
  Speaker 1: deliver everything you need to get started. And uh, it's
• 26:33
  Speaker 1: really don't miss programming. And they're assuming you're awake it
• 26:37
  Speaker 1: for you, Assuming you're awake it for you. Let's talk
• 26:42
  Speaker 1: stocks with an old friend, Callie Cox. She's in our
• 26:45
  Speaker 1: Bloomberg in Actor Broker studio. She's US equity analyst with
• 26:49
  Speaker 1: e Turo. And I think memory serves you went to
• 26:53
  Speaker 1: that trade school in Chapel Hill is right if I remember, Yeah,
• 26:56
  Speaker 1: that trade school that's not doing so hot with basketball. Yeah. Anyway, Callie,
• 27:00
  Speaker 1: do you make of this market? I think the last
• 27:01
  Speaker 1: time we talked to you a month or so ago,
• 27:03
  Speaker 1: the narrative is very different. People were talking about the FED,
• 27:06
  Speaker 1: this inflation things. It's it's in the past. The FED
• 27:09
  Speaker 1: actually made pause and pivot sooner than we think. That
• 27:12
  Speaker 1: was driving the markets in January. But the narts a
• 27:14
  Speaker 1: little bit differently. Now, how are you thinking about it? Yeah, well,
• 27:17
  Speaker 1: now people think the FED could go even higher, and
• 27:19
  Speaker 1: FED officials are saying the same thing. We have FED
• 27:22
  Speaker 1: speakers stepping out and saying, you know, maybe a fifty
• 27:24
  Speaker 1: basis point hike is warranted. You know, maybe we should
• 27:27
  Speaker 1: re accelerate, and markets are pricing that back in. From
• 27:30
  Speaker 1: our side, you know, we didn't expect a rate cut
• 27:32
  Speaker 1: anytime soon. We expected maybe a little bit of excitement
• 27:35
  Speaker 1: around the fact that inflation is coming under control. But
• 27:38
  Speaker 1: maybe it's not coming under control as quickly as people think.
• 27:41
  Speaker 1: So I think that's just shifted the mindset of it.
• 27:43
  Speaker 1: So what does that mean? I just saw Cliff Assess
• 27:45
  Speaker 1: actually from AQR on Bloomberg TV and he was saying,
• 27:49
  Speaker 1: this market has priced in inflation coming down pretty rapidly.
• 27:54
  Speaker 1: So that to me says Cliff thinks we got a
• 27:57
  Speaker 1: ways to go on the down side. What do you think?
• 28:00
  Speaker 1: I agree with him. I think it's going to be
• 28:01
  Speaker 1: a lot harder to take inflation from six percent to
• 28:04
  Speaker 1: two percent than it was from nine percent to six percent.
• 28:06
  Speaker 1: I'm talking about CPI when I say that, right headline, CPI,
• 28:10
  Speaker 1: right right. And the reason why I say that is
• 28:11
  Speaker 1: because services inflation is still fiery hot, and that's the
• 28:15
  Speaker 1: strong part of the economy too. This is not a
• 28:17
  Speaker 1: bad story if you step back and look at it,
• 28:19
  Speaker 1: but it does make the Fed's job a lot harder
• 28:21
  Speaker 1: because services inflation is more demand driven and more tied
• 28:24
  Speaker 1: to the job market. And let's be honest, investors did
• 28:28
  Speaker 1: get over their skis. It makes sense because bon yields fell,
• 28:30
  Speaker 1: but now that bonn yields are rising again, there is
• 28:33
  Speaker 1: a bit of a mismatch. So what do we do here?
• 28:35
  Speaker 1: I mean, do we just wait for the Fed to
• 28:38
  Speaker 1: signal that rates of peaked endor they would put a
• 28:41
  Speaker 1: rate cut on the table, or is there some way
• 28:43
  Speaker 1: to be active here and trying to get positioned for
• 28:46
  Speaker 1: the remainder of this year. Well, I think it's important
• 28:49
  Speaker 1: to sit down and figure out what your view is
• 28:52
  Speaker 1: if you're looking for a short term opportunity, and I
• 28:54
  Speaker 1: put it in three camps. I think of doomsday bears,
• 28:57
  Speaker 1: I think of cautious bears, and I think of straight
• 28:59
  Speaker 1: up bulls. We fall into the cautious bearers camp, where
• 29:02
  Speaker 1: we think that prices are a little bit too high,
• 29:04
  Speaker 1: sentiment has gone a little bit too far, but at
• 29:06
  Speaker 1: the same time, we're still hopeful that the economy can
• 29:08
  Speaker 1: avoid a recession, and that means markets may not take
• 29:11
  Speaker 1: out the lows. So in that camp, you know, we
• 29:14
  Speaker 1: really like looking for value. We like looking for quality,
• 29:17
  Speaker 1: low valuations. Uh, you know, maybe looking at some cheap
• 29:20
  Speaker 1: cyclical sectors. But I think depending on what camp you
• 29:23
  Speaker 1: fall in, that could determine how you approach this market.
• 29:26
  Speaker 1: I don't know if you have a view on crypto.
• 29:29
  Speaker 1: I think of e toro and crypto together, just because
• 29:34
  Speaker 1: so much of the great analysis I read, you know,
• 29:37
  Speaker 1: I first started covering bitcoin was from e Toro. Um,
• 29:42
  Speaker 1: I've been amazed by the fact that it's holding at
• 29:45
  Speaker 1: let's check where bitcoin is right now see rypico on
• 29:48
  Speaker 1: the twenty three thousand, So it's holding at twenty four
• 29:52
  Speaker 1: thousand dollars, basically just about fifteen bucks under and at
• 29:57
  Speaker 1: a time when the market has decided, oh darn it,
• 30:00
  Speaker 1: we believe the FED narrative. Now they really are going
• 30:03
  Speaker 1: to keep raising and holding. And so stocks, you know,
• 30:07
  Speaker 1: tanked a couple days ago. Bitcoin did nothing. Why is
• 30:09
  Speaker 1: it so resilient? So this is a really interesting story
• 30:13
  Speaker 1: that I'm watching, and there are a bunch of different theories.
• 30:15
  Speaker 1: But within crypto bitcoin is seen as the quality. It's
• 30:19
  Speaker 1: seen like seen as the gold of the crypto space,
• 30:22
  Speaker 1: and from a portfolio management perspective you look at it differently,
• 30:25
  Speaker 1: but let's be honest, that's the brand that it has.
• 30:27
  Speaker 1: So we're seeing the flight to quality within the crypto
• 30:29
  Speaker 1: space out of alt coins, out of stable coins, into
• 30:33
  Speaker 1: bitcoin and ethereum, just because they're so well known and
• 30:36
  Speaker 1: because there is that institutional underpinning. It's a little weird
• 30:39
  Speaker 1: to me, I'll be honest, because again, as from a
• 30:42
  Speaker 1: portfolio management perspective, it's a risk asset, and risk assets
• 30:46
  Speaker 1: tend to do worse in high rate environments, especially if
• 30:49
  Speaker 1: they don't have underlying cash flows and profits. But it's
• 30:52
  Speaker 1: it's a perspective thing. From what I've seen, there are
• 30:54
  Speaker 1: just more flows going into bitcoin within the space, and
• 30:57
  Speaker 1: that's kept the price afloat. How about fixed income? It
• 31:02
  Speaker 1: was so so brutal performance in twenty twenty two. What
• 31:05
  Speaker 1: are the you guys at eteral thinking about just broadly
• 31:09
  Speaker 1: fixed income? So fixed income, You're right, it was a
• 31:12
  Speaker 1: really weird year last year. I mean, stocks were down
• 31:15
  Speaker 1: ten percent, bonds in general were down more than ten percent.
• 31:18
  Speaker 1: It seems like they're rebounding at the same time. You know,
• 31:21
  Speaker 1: we look at the ten year yield, we say, you know,
• 31:24
  Speaker 1: it probably can't go much higher than four percent here.
• 31:27
  Speaker 1: There seems to be a lot of technical push and
• 31:29
  Speaker 1: pull around that point. Look at short term yields too.
• 31:32
  Speaker 1: You know, the FETE is talking about re accelerating rate hikes,
• 31:35
  Speaker 1: but again, let's be honest here, how much more are
• 31:37
  Speaker 1: they going to re accelerate it? Because the FETE is
• 31:40
  Speaker 1: trying to keep this balance and check of controlling inflation
• 31:43
  Speaker 1: and you know, basically steering the economy and the job
• 31:46
  Speaker 1: market through a slowdown. So, you know, we talk to
• 31:51
  Speaker 1: more speculative short term traders, we remind them that. Of course,
• 31:55
  Speaker 1: the recession is still a risk out there, and it
• 31:57
  Speaker 1: may be smart to head your positions. Bonds are the
• 31:59
  Speaker 1: obvious hedge there. But at the same time, you know,
• 32:02
  Speaker 1: as a retail investor, you have to realize your time frame.
• 32:05
  Speaker 1: So we're also saying if you're longer term, you know,
• 32:07
  Speaker 1: maybe you have those short term goals that you want
• 32:09
  Speaker 1: to meet, but longer term, let's look at more risk
• 32:12
  Speaker 1: at these levels. Because stocks are ten to fifteen percent
• 32:15
  Speaker 1: away from their highs. This is a buying opportunity if
• 32:18
  Speaker 1: you have the time on your side. So tell me
• 32:21
  Speaker 1: about ETRO. I don't know that much about it. Who's
• 32:23
  Speaker 1: kind of your customer base talk to us about Yeah,
• 32:27
  Speaker 1: so I love E Toro bias so I Toro is
• 32:31
  Speaker 1: a retail brickrage. We have a lot of millennial and
• 32:34
  Speaker 1: Gen X clients are kind of claim to fame is
• 32:37
  Speaker 1: that we have a social investing feed and we offer
• 32:40
  Speaker 1: a lot a lot globally in the US we offer
• 32:43
  Speaker 1: stocial investing is not going to be enough for Paul.
• 32:45
  Speaker 1: You got to tell them what that is, Paul. There's
• 32:48
  Speaker 1: a social feed and you can post your trades and
• 32:51
  Speaker 1: so you can then follow other people's trades. Right. So
• 32:54
  Speaker 1: the idea is you can, if you you know, love
• 32:58
  Speaker 1: Callie's portfolio management, you can follow her trades online. You
• 33:01
  Speaker 1: can just copy her portfolio, okay, which is kind of
• 33:05
  Speaker 1: a cool idea. I had never heard of it before that. Yeah,
• 33:08
  Speaker 1: it's really cool, especially in this era of community when
• 33:11
  Speaker 1: everybody's looking to everybody else on how to trade, how
• 33:14
  Speaker 1: to invest, and more and more, how to speak. Yes
• 33:19
  Speaker 1: for good and bad reasons, yes, but you know, being
• 33:22
  Speaker 1: in that space and having that power to help investors
• 33:26
  Speaker 1: find each other and find community is just such a
• 33:28
  Speaker 1: cool offering. And I feel really honored that, you know,
• 33:31
  Speaker 1: I'm I'm kind of the face of that in the
• 33:33
  Speaker 1: US and helping helping, you know, connect this community along
• 33:36
  Speaker 1: with the markets that we're all trying to understand alone.
• 33:39
  Speaker 1: Gen Z. Millennials do they invest? Are the active investors? Yes?
• 33:42
  Speaker 1: They invest? You're talking to a millennial Rod, Yeah, you
• 33:47
  Speaker 1: are talking and she invests. Yeah. From data that we
• 33:52
  Speaker 1: run and we keep a close pulse check on the
• 33:54
  Speaker 1: retail investors through a bunch of different surveys we do.
• 33:57
  Speaker 1: But retail investors, millennials and gens excuse me, gen X,
• 34:02
  Speaker 1: We'll talk about all of them, gen X, gen Z.
• 34:04
  Speaker 1: Millennials are investing at a more and more rapid clip.
• 34:07
  Speaker 1: We're seeing a millennial coming of age basically in the economy,
• 34:10
  Speaker 1: and when people have more money, they tend to invest it.
• 34:13
  Speaker 1: So yeah, we're seeing a lot of those demographic shifts
• 34:16
  Speaker 1: where these younger investors are feeling more empowered to invest.
• 34:19
  Speaker 1: Great stuff. I love learning about the new ways to invest.
• 34:22
  Speaker 1: Kelly Cox, she's a US investment analyst for e Turo.
• 34:26
  Speaker 1: I think you guys are based in Hoboken, right, that's
• 34:27
  Speaker 1: pretty cool. We are. We are, but we just got
• 34:29
  Speaker 1: our New York bit license so we can move across
• 34:32
  Speaker 1: the river. Now, Okay, I'm a big Hoboken fan, So
• 34:34
  Speaker 1: that's good. There. Good stuff kind of Cox join us
• 34:36
  Speaker 1: here in our Bloomberg Interactor Broker studio today in our
• 34:41
  Speaker 1: c suite conversation, we'll talk about the snack food business.
• 34:45
  Speaker 1: We'll be there with our good friends and Hostess Brands
• 34:47
  Speaker 1: stock symbol. This is one of my faves. T w
• 34:50
  Speaker 1: n K think Twinkie, Hostess Brands. It's a three point
• 34:54
  Speaker 1: three billion market cap company. Stocks up nine percent. They
• 34:57
  Speaker 1: report it's some better and expected results Tuesday, after the
• 35:00
  Speaker 1: clothes stock traded up yesterday. We're joined by the CEO
• 35:04
  Speaker 1: of Hostess Brands, Andy Callahan, joins us via the phone. Andy,
• 35:08
  Speaker 1: thanks so much for joining us here. You had some
• 35:10
  Speaker 1: pretty good numbers Tuesday after the close. What are some
• 35:13
  Speaker 1: of the highlights from your quarterly results? Yeah, thanks for
• 35:16
  Speaker 1: having me. We're coming off a great week in total earnings.
• 35:19
  Speaker 1: As part of that, I mean, we're coming off our
• 35:21
  Speaker 1: third consecutive year of double digit top line growth. We
• 35:25
  Speaker 1: have double digit earnings growth and double digit EPs growth,
• 35:29
  Speaker 1: so we're really we're really feel like we're in a
• 35:33
  Speaker 1: good spot on our sustainable growth plan, and we reaffirmed
• 35:38
  Speaker 1: our long term algorithm, gave guidance that was once again
• 35:41
  Speaker 1: another profit guidance above our long term algorithm. And what's
• 35:46
  Speaker 1: really driving our growth is our ability to be able
• 35:51
  Speaker 1: to connect with consumers reimagine the snacking category for a
• 35:54
  Speaker 1: new set of consumers, and a lot of that has
• 35:56
  Speaker 1: driven by our innovation. We launched Bouncers back at the
• 35:59
  Speaker 1: end of last year, and yesterday we just announced the
• 36:02
  Speaker 1: launch of KS Bars, which is really bringing baking, which
• 36:05
  Speaker 1: we do better than anybody else, into a new confectionery
• 36:08
  Speaker 1: form and both our customers and consumers are really excited
• 36:11
  Speaker 1: about it. So a big week overall. All right, I'll
• 36:15
  Speaker 1: bite there you go. What are casbars? So? I love it?
• 36:18
  Speaker 1: I love the so well consumers, So I love it.
• 36:21
  Speaker 1: What are cas bars? Are? We? I mean as I
• 36:25
  Speaker 1: know obviously, and everyone knows the twinkie. I'm a big
• 36:28
  Speaker 1: fan of the Choco dial and the ding Dongs. I
• 36:32
  Speaker 1: like the cupcakes, prefer the orange ones. But you don't
• 36:35
  Speaker 1: drink soda. Uh well, I don't drink soda any right,
• 36:40
  Speaker 1: we're not going out. I don't drink soda anymore. But anyway,
• 36:42
  Speaker 1: I still do eat this stuff when I can. Um,
• 36:46
  Speaker 1: it's because it's not an everyday thing, right, I'm not
• 36:48
  Speaker 1: like living on twinkies. It's just occasionally in the gas station,
• 36:52
  Speaker 1: I'll be like, damn, I need some cupcakes. Um. So,
• 36:54
  Speaker 1: what is a casbar? Yeah? So a cas bar in
• 36:58
  Speaker 1: a basic And then I'll give you the background because
• 37:00
  Speaker 1: although your behaviors are terrific to you, what we find
• 37:04
  Speaker 1: at a macro level is that snacking continues to grow.
• 37:07
  Speaker 1: Snacking is growing greater than food and indulgence. Snacking is
• 37:11
  Speaker 1: growing greater than a non indulgence, snacking by about twenty percent.
• 37:16
  Speaker 1: And with all that being said, almost fifty percent of
• 37:19
  Speaker 1: Americans snack more than three times a day, and so
• 37:24
  Speaker 1: they take a balance sheet of prowth. Our Teeth chief
• 37:26
  Speaker 1: growth officer talked about that and baking specifically. Consumers care
• 37:30
  Speaker 1: about quality. We've invested in quality, and there's a lot
• 37:33
  Speaker 1: of confections company the indulgence of confections that are trying
• 37:36
  Speaker 1: to get into baking. Well, guess why we bring in
• 37:39
  Speaker 1: baked goods to the confection category with a hostless strength
• 37:44
  Speaker 1: of a baked good in a convenient package form. But
• 37:47
  Speaker 1: you can discover a kazillion layers of delicious in our
• 37:51
  Speaker 1: kaz bars. And that's gooey gooey cream, fluffy fluffy chocolate cake,
• 37:55
  Speaker 1: pieces of sweet crunch, delightful drizzle. It is really an
• 38:00
  Speaker 1: affection form with all the great goodness and quality that
• 38:03
  Speaker 1: consumers wanted a bake goods, and we think it is
• 38:05
  Speaker 1: really a big idea. Hey, Andy, When I think about
• 38:08
  Speaker 1: the food business, whether it's a snack business or just
• 38:10
  Speaker 1: overall food, I think of a GDP or GDP plus
• 38:13
  Speaker 1: type type of top line growth story. But as you mentioned,
• 38:16
  Speaker 1: the last three years, you guys put up low double digits.
• 38:19
  Speaker 1: That also coincides with the pandemic. How did the pandemic
• 38:23
  Speaker 1: impact your business? And will let have any residual effect
• 38:27
  Speaker 1: going forward? Yeah, So the residual effects means will we
• 38:30
  Speaker 1: continue to grow in the answer is a resounding yes.
• 38:34
  Speaker 1: What the pandemic did for us. As consumers are in
• 38:37
  Speaker 1: their home, around their home and traveling around their home,
• 38:39
  Speaker 1: they snack more and snacking before COVID, during COVID, and
• 38:42
  Speaker 1: after COVID had trends, especially indulgent snacking that were greater
• 38:46
  Speaker 1: than total food. Consumers are changing the way they eat.
• 38:50
  Speaker 1: They eat more with now with a balance sheet approach.
• 38:54
  Speaker 1: My chief growth officer talked about that yesterday. So as
• 38:57
  Speaker 1: they increase the total occasions or interactions food there, each
• 39:01
  Speaker 1: of those occasions are more choiceful and they have a
• 39:03
  Speaker 1: role in their life. And if they have an indulgence
• 39:05
  Speaker 1: snack one time, they may then later in the day
• 39:09
  Speaker 1: or earlier in the day have a more non indulgence
• 39:11
  Speaker 1: snack to balance that all out. So that macro trend
• 39:15
  Speaker 1: is unmistakable and we're living in that. So that what
• 39:19
  Speaker 1: happened with COVID is we were able to given our
• 39:22
  Speaker 1: investment in quality, the new innovation forms, we're able to
• 39:25
  Speaker 1: reintroduce a new consumer to host this in a way
• 39:29
  Speaker 1: that they hadn't seen before. And those investments during COVID,
• 39:32
  Speaker 1: both innovation, reaching out to consumers, talking to them, our
• 39:35
  Speaker 1: investment in quality, our ability to do that has been
• 39:39
  Speaker 1: able to propel this business and that momentum has continued
• 39:42
  Speaker 1: after COVID. You know, just a finer point on that,
• 39:45
  Speaker 1: when we attract new consumers into our franchise, a lot
• 39:49
  Speaker 1: of those are millennial parents. They then repeat at In
• 39:54
  Speaker 1: other words, our addition of two times buyers is growing
• 39:58
  Speaker 1: at more than twice the rate of anybody else that
• 40:01
  Speaker 1: does bake goods. So we're really attracting consumers. But when
• 40:06
  Speaker 1: we attract them, we really keep them. So those trends
• 40:08
  Speaker 1: are really unmistakable the same consumer. It's not a it's
• 40:12
  Speaker 1: not a binary choice of eating healthy or eating indulgence.
• 40:15
  Speaker 1: It's really a balance sheet of how does it all
• 40:17
  Speaker 1: fit within my life? And we're really capitalizing those trends
• 40:21
  Speaker 1: with our innovation, our marketing outreaching, our investment in quality.
• 40:24
  Speaker 1: I got to ask, but this is going to sound
• 40:27
  Speaker 1: maybe flippant or but I'm wondering, really in states where
• 40:32
  Speaker 1: marijuana is legal. Do you see a bump in sales?
• 40:36
  Speaker 1: You know what? I don't know that specifically, but you know,
• 40:39
  Speaker 1: consumers have choices, and that's what we provide. We want
• 40:43
  Speaker 1: to provide them the best choice at the really accessible value.
• 40:47
  Speaker 1: That's what we do and that's why we invest in
• 40:50
  Speaker 1: our productivity. We want our operation to be really focused
• 40:53
  Speaker 1: on what consumers care about, really focused on what customers
• 40:57
  Speaker 1: care about. Growing the category by doing that and then
• 41:00
  Speaker 1: running an operation and a team that unlocks the greatest
• 41:03
  Speaker 1: potential of our terrific team and our culture to be
• 41:07
  Speaker 1: able to provide that to our customers. And we're doing
• 41:10
  Speaker 1: that in a real, real good way. So consumers have
• 41:13
  Speaker 1: a breath of choices and uh, and I support all
• 41:17
  Speaker 1: of those we want to give Andy, do you? I mean,
• 41:19
  Speaker 1: but you seem very focused and I'm not sure if
• 41:22
  Speaker 1: I know all of your brands, but they all seem
• 41:24
  Speaker 1: like something that could add to my waistline. Do you
• 41:27
  Speaker 1: also go after food categories, you know, in the fitness
• 41:30
  Speaker 1: or our health food sector. Yeah, so I'm glad you
• 41:34
  Speaker 1: brought that up because I was going to bring that
• 41:35
  Speaker 1: up to you. Not only do we have an indulgent
• 41:37
  Speaker 1: snacks We are the number one cookie brand with our
• 41:42
  Speaker 1: Avoortment brand in the reduced sugar and sugar free segment
• 41:46
  Speaker 1: and our Avoortment business that which we purchased three years ago,
• 41:51
  Speaker 1: Integrate It and Grew, is one of the fastest brands
• 41:56
  Speaker 1: in an eight billion dollar cookie segment. It's been growing
• 42:00
  Speaker 1: at a rate last year of nearly twenty eight percent
• 42:03
  Speaker 1: a point of sale, slightly above twenty eight percent point
• 42:07
  Speaker 1: of sale, and we think we're well positioned to capitalize
• 42:10
  Speaker 1: on consumers focus on reduced sugar as well. We have
• 42:14
  Speaker 1: a leading position that subsegment of cookies is growing a
• 42:17
  Speaker 1: greater than twice the rate of total cookies. So we
• 42:20
  Speaker 1: have a portfolio of bait goods that provide for what
• 42:25
  Speaker 1: consumers choices are. That's an important consumer segment, so we
• 42:29
  Speaker 1: provide both of them. All right, Andy, great stuff. I
• 42:31
  Speaker 1: really appreciate you taking the time to speak with us.
• 42:34
  Speaker 1: Andy Callahan, he's the CEO of Hostess Brands, NASAC, Symbolt
• 42:38
  Speaker 1: w n K think Twinkie again. The stock is up
• 42:43
  Speaker 1: about nine percent year to date. Had a nice quarterly
• 42:45
  Speaker 1: earnings reported after the closed Tuesday. Stock popped yesterday, so
• 42:50
  Speaker 1: good to check in with the CEO. Thanks for listening
• 42:56
  Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen
• 42:59
  Speaker 1: to an interviews with Apple Podcasts or whatever podcast platform
• 43:03
  Speaker 1: you prefer. I'm Matt Miller. I'm on Twitter at Matt
• 43:06
  Speaker 1: Miller nineteen seventy three. And I'm Fall Sweeney. I'm on
• 43:10
  Speaker 1: Twitter at pt Sweeney. Before the podcast, you can always
• 43:12
  Speaker 1: catch us worldwide at Bloomberg Radio