Latest / Bloomberg Intelligence / Dimon Annual Letter, EV Charging Profit

Transcript

Dimon Annual Letter, EV Charging Profit · Bloomberg Intelligence

0:02
Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. You're listening to the
0:10
Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
0:15
Speaker 1: Eastern on Apple, Cardplay and Android Auto with the Bloomberg
0:18
Speaker 1: Business App. Listen on demand wherever you get your podcasts,
0:21
Speaker 1: or watch us live on YouTube.
0:24
Speaker 2: At the other headline of the day, we love it.
0:26
Speaker 2: It's Jamie Diamond, CEO of JP Morgan and his annual letter.
0:31
Speaker 2: Lots of things to get through on this one. You know,
0:33
Speaker 2: he says that AI could augument virtually every job, so
0:37
Speaker 2: that was sort of the one thing he did talk about. Obviously,
0:39
Speaker 2: he doesn't like lots of regulation in Boswell three, so
0:42
Speaker 2: let's dig into it. Allison Williams, Bloomberg Intelligence, Senior Analyst,
0:45
Speaker 2: Global Banks and Asset Managers, joins us. Now, all right, Alison,
0:48
Speaker 2: what are some of the takeaways here?
0:51
Speaker 3: So I think, you know, it's always interesting to hear
0:54
Speaker 3: what's on Jamie's mind. I think some things are consistent.
0:58
Speaker 3: He gives his views on on regulation, which he feels
1:01
Speaker 3: like there definitely needs to be some changes as well
1:05
Speaker 3: as the policy.
1:07
Speaker 4: And the political front.
1:09
Speaker 3: You know, one of the interesting things this year was
1:12
Speaker 3: the twenty year look back it's the anniversary of the
1:16
Speaker 3: JP Morgan Bank One deal. As you may remember, Bank
1:21
Speaker 3: One was actually the buyer of JP Morgan, and I
1:25
Speaker 3: was lucky enough to be at the dinner that night
1:27
Speaker 3: with the CEOs of both Bank One and JP Morgan,
1:30
Speaker 3: and certainly did not anticipate what would be where we'd be,
1:36
Speaker 3: you know, twenty years later, But did anticipate that. Jamie Diamond,
1:42
Speaker 3: even I think at that time, showed himself to be
1:45
Speaker 3: a patient CEO. He waited to take the job, he
1:49
Speaker 3: was selective, he took the job with Bank One, he
1:52
Speaker 3: was selective about the JP Morgan deal. He stored up
1:55
Speaker 3: his capital and was in a good position at the crisis.
2:00
Speaker 3: And so you know, today when we're seeing a lot
2:02
Speaker 3: of headlines around some of his concerns, and again certainly
2:07
Speaker 3: he does outline a lot of these in the annual report,
2:09
Speaker 3: it just really just puts into mind that the risk.
2:13
Speaker 4: Manager that he is.
2:14
Speaker 3: And so while there's a lot of headlines about his
2:17
Speaker 3: talk about inflation, he's been very vocal about the world
2:21
Speaker 3: needing to be prepared for higher rates. I think it's
2:25
Speaker 3: just a way that he does his job and manages
2:28
Speaker 3: his company thinking about the downsides, thinking about the risks
2:32
Speaker 3: out there and sort of always being prepared to be
2:35
Speaker 3: in the best position he can.
2:37
Speaker 5: All right, Allison, So those are you know, we always
2:39
Speaker 5: look to that letter for some long term trend issues
2:42
Speaker 5: and he calls out AI in particular this time, how
2:45
Speaker 5: about the short term stuff. We're gonna hear about the
2:47
Speaker 5: short term stuff this Friday with the earning starting.
2:49
Speaker 6: What are you what are you looking for.
2:51
Speaker 5: From JPM and maybe from some of the other big
2:53
Speaker 5: banks that we care about.
2:55
Speaker 3: Sure, and you know, there are a lot of call
2:57
Speaker 3: outs about the great job that they've been doing, the
2:59
Speaker 3: great year that they had last year, and we really
3:03
Speaker 3: think that this quarter they're going to continue to you know,
3:08
Speaker 3: execute on all cylinders. I think that the net interest
3:11
Speaker 3: income story is you know, that's sort of the big
3:13
Speaker 3: thing that everyone's watching. We've had a big shift in
3:17
Speaker 3: the market view on rates since the last time these
3:19
Speaker 3: banks have reported, but we think that JP Morgan will
3:22
Speaker 3: continue to show resilience in that net interest income and
3:26
Speaker 3: surprise investors positively on that front. Part of that is
3:31
Speaker 3: the credit card business, where it just continues to show
3:34
Speaker 3: very strong growth, and part of it is the deposit pricing,
3:38
Speaker 3: which has come in a little bit better than expected.
3:42
Speaker 4: So we think that's that's going to help JP.
3:44
Speaker 3: Morgan, it's going to help Bank of America the card side,
3:47
Speaker 3: helping JP Morgan and City Group a little bit more.
3:50
Speaker 3: But also we're we may see provisions tick up, but
3:54
Speaker 3: that's not because of the weaker environment. It's more because
3:58
Speaker 3: the card loan growth continues to be strong. It's normalizing,
4:01
Speaker 3: and this tends to be the seasonally.
4:04
Speaker 4: Higher quarter for card losses.
4:05
Speaker 3: So I think that we could get more resilient and
4:08
Speaker 3: interesting income up, also higher provisions.
4:10
Speaker 2: Yeah, let's talk about that, because last week Marcus Golden
4:13
Speaker 2: Sax's Marcus lowered the rate on its savings account high
4:17
Speaker 2: yield savings account. It was just ten basis points, but
4:20
Speaker 2: and I obviously use it, and I was like, dude,
4:22
Speaker 2: we haven't even had a rate cut. What are we doing?
4:24
Speaker 2: But that's clearly going to be good for these guys,
4:27
Speaker 2: but bad for me.
4:29
Speaker 4: Yeah.
4:30
Speaker 3: So, I mean on the deposit front, you know, really
4:35
Speaker 3: a year ago, I think it became a big news
4:39
Speaker 3: with all the bank turmoil that deposit prices were going up,
4:45
Speaker 3: and consumers I think that saw those headlines if they
4:48
Speaker 3: hadn't already been getting the yield, they were going after it,
4:52
Speaker 3: and so the yields have gone up.
4:54
Speaker 4: We saw the yields on loans go up, and then
4:57
Speaker 4: we saw the yields.
4:58
Speaker 3: On deposits go up and now are out of place
5:01
Speaker 3: where you know, the question is will that will those
5:04
Speaker 3: deposit prices continue to go up and sort of eat
5:07
Speaker 3: away at the yield. The reason why banks are or
5:11
Speaker 3: one benefit of banks of if the rate cuts come
5:15
Speaker 3: is that those prices will come down, as you said,
5:18
Speaker 3: But then you know, there for all of these banks,
5:21
Speaker 3: there is a question of you know, the deposits and
5:23
Speaker 3: what they can do with those deposits, excuse me, And
5:26
Speaker 3: there is a competitive aspect to it, and so there
5:30
Speaker 3: are times when banks are more aggressively pricing, and there
5:34
Speaker 3: are times when you know, as you said, for Goldman Sachs,
5:37
Speaker 3: maybe they're less aggressively pricing. Maybe they see, you know,
5:40
Speaker 3: less of a need of what they can do with
5:43
Speaker 3: that money, or balance sheet management because as we know,
5:47
Speaker 3: there is a cost to capital to fund that balance sheet,
5:51
Speaker 3: that there are higher capital requirements, there are other things
5:53
Speaker 3: you can do with your capital, and so I think these.
5:56
Speaker 4: All kind of go into the mix of what banks
5:58
Speaker 4: are thinking.
5:59
Speaker 5: Hey, Allison, going to hear anything this quarter from the
6:02
Speaker 5: banks about commercial real estate and the problems that may
6:04
Speaker 5: pose for the US I guess economy and maybe the
6:08
Speaker 5: banking system. Or is that just a regional bank thing.
6:13
Speaker 4: I think, you know, it will continue to tick up.
6:16
Speaker 4: I think it's it is a.
6:17
Speaker 3: Broad I guess bank thing, But the commercial the regional
6:21
Speaker 3: banks is just more important to their earnings.
6:24
Speaker 4: So I was speaking.
6:25
Speaker 3: Before about card If you look at card that the
6:27
Speaker 3: banks that I cover, you know, especially JP Morgan, City, Wells,
6:34
Speaker 3: and Bank of America are tend to be over indexed to.
6:38
Speaker 4: Card less so to commercial real estate.
6:40
Speaker 3: Of those four banks, Wells Fargo is really the one
6:43
Speaker 3: that that sort of has a commercial real estate exposure
6:47
Speaker 3: similar to the regional piers. They have the largest US
6:50
Speaker 3: office exposure across the banks I cover, But they also
6:53
Speaker 3: have an eight percent reserve already against those loans, so
6:57
Speaker 3: they've been very conservative.
6:59
Speaker 4: On that book. I think the newer worry, if you will,
7:02
Speaker 4: is the excuse me multifamily lending business.
7:07
Speaker 3: New York Community really sort of brought that to Like
7:10
Speaker 3: JP Morgan has the closest business to that, but they've
7:13
Speaker 3: talked about some underwriting protections they have there just in
7:17
Speaker 3: terms of how they look at rents and the way
7:20
Speaker 3: they underwrite being much more conservative. And so they've had
7:23
Speaker 3: you know, very good performance in that book over a
7:26
Speaker 3: long period of time. Still, you know people are going
7:29
Speaker 3: to look at it, but it's just it's more of
7:32
Speaker 3: sort of a very long term story for the.
7:34
Speaker 2: Banks and having a hard time getting excited about JP
7:38
Speaker 2: Morgan kicking off earnings on Friday. What's going to be
7:41
Speaker 2: for me? Sort of and for you the biggest surprise,
7:43
Speaker 2: like what are you most jazzed about watching when it
7:45
Speaker 2: comes to all the big banks, all the asset managers,
7:48
Speaker 2: all the private all the guys.
7:51
Speaker 3: I mean, I think the biggest surprise will be that
7:53
Speaker 3: interest income resilience and just the fact that it does
7:57
Speaker 3: come in better than expected. You know, it was interesting
8:00
Speaker 3: last quarter all the banks generally beat on net interest
8:03
Speaker 3: income but guided down and so the stocks were acted,
8:06
Speaker 3: you know, very negatively towards that.
8:09
Speaker 4: This quarter, I think there.
8:10
Speaker 3: Will be the resilience in the net interest income that
8:13
Speaker 3: could surprise to the upside. They will adjust the outlooks
8:16
Speaker 3: the ladder is expected. I think the other thing that
8:20
Speaker 3: that I'll be focusing on investors are going to be
8:22
Speaker 3: focusing on is those investment banking fees. So there's been
8:25
Speaker 3: a lot of talk about bullishness for those fees. You know,
8:31
Speaker 3: we also think that we could see a big jump
8:34
Speaker 3: in the fees, but we're still you know, nowhere near
8:38
Speaker 3: compared to where we were at the twenty twenty one, So,
8:42
Speaker 3: you know, you could see a big jump in fees,
8:44
Speaker 3: but the questions are going to be you know, how
8:46
Speaker 3: are things trending. I pos the volumes have been good,
8:51
Speaker 3: but you know, there's still a lot of questions from
8:54
Speaker 3: investors around some of the performance. We've had some good performers,
8:58
Speaker 3: there have been some not so good performer We still
9:01
Speaker 3: have some valuations that you know, investors are waiting to
9:06
Speaker 3: get better. They don't want to go public and have
9:09
Speaker 3: to mark down those investments. So I think the pipelines
9:13
Speaker 3: and the investment banking fees are going to be right.
9:16
Speaker 3: I guess one of the more exciting things this quarter, Alex,
9:18
Speaker 3: you know, maybe not as exciting as we had hoped
9:22
Speaker 3: for earlier in the year.
9:25
Speaker 6: Yeah, we'll see, all right. Alison Williams, thanks so much
9:28
Speaker 6: for joining us.
9:28
Speaker 5: Alson Williams. She's a senior animal. She covers all the
9:30
Speaker 5: big banks on a global basis. She does that for
9:33
Speaker 5: Bloomberg Intelligence. Before that, she alluded to she was at
9:36
Speaker 5: Morgan Stanley Investment Management on the buy side and where
9:40
Speaker 5: she covered the banks. And of course, when a couple
9:43
Speaker 5: of big banks get together, they need to court their
9:46
Speaker 5: large shareholders, and Morgan Stanley Investment Management is certainly one
9:49
Speaker 5: of those. So that's why Allison was on the front lines.
9:52
Speaker 5: And when those two JP Morgan Chase with the predecessor
9:56
Speaker 5: and the bank from Ohio.
9:58
Speaker 6: I can't think of the name one one.
10:00
Speaker 2: I bet she's not watching the eclipse because it's hard
10:02
Speaker 2: at work. So I mean, I'm just saying, but I'm
10:04
Speaker 2: also looking at multiple countdown clocks now are counting down
10:07
Speaker 2: to the eclipse special orre we counting down to the
10:08
Speaker 2: actual eclipse. See, I'm just saying, this is a lot happening.
10:14
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
10:18
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
10:21
Speaker 1: Auto with the Bloomberg Business app. You can also listen
10:24
Speaker 1: live on Amazon Alexa from our flagship New York station,
10:28
Speaker 1: Just say Alexa Play Bloomberg eleven thirty.
10:32
Speaker 2: This is Bloomberg Intelligence Radio. We bring you all the
10:34
Speaker 2: top analysts from all our great coverage. We cover about
10:37
Speaker 2: two thousand companies one hundred and thirty industries worldwide. We
10:40
Speaker 2: are broadcasting too, live from Interactive Broker's studio right here
10:43
Speaker 2: in Midtown Manhattan. You can also check us on YouTube.
10:46
Speaker 2: So Bloomberg Intelligence has an amazing arm of analysts cover
10:49
Speaker 2: companies and themes. We also have something here at Bloomberg
10:52
Speaker 2: called Bloomberg New Energy Finance, and the idea behind it
10:55
Speaker 2: is to provide data on commodities, power, transport, industry, buildings,
11:00
Speaker 2: and agriculture as well as new technology as we kind
11:05
Speaker 2: of build a more sustainable world. Right we know we're transitioning,
11:09
Speaker 2: and we know we have to get there, and how
11:10
Speaker 2: you finance it is the huge question, and there's a
11:13
Speaker 2: big gap between like the VC things and then the
11:16
Speaker 2: scalable stuff, and helping to finance that gap is very tricky.
11:19
Speaker 2: So we thought every Monday we would bring you an
11:22
Speaker 2: amazing analyst from BNF and sort of talk through some
11:25
Speaker 2: of these issues that we're confronting. So this time we're
11:28
Speaker 2: going to talk about ev charging. So Ryan Fisher is
11:32
Speaker 2: Bloomberg BNF EV charging team leader and he joins us
11:36
Speaker 2: now from London. So I guess, just to start off,
11:40
Speaker 2: who are the big players in EV charging?
11:45
Speaker 7: Yeah, so some of them maybe not quite household Thames yet,
11:48
Speaker 7: but you've got charge Point in the US certainly people
11:51
Speaker 7: may have heard of, and the sentiment was pretty positive
11:55
Speaker 7: a few years ago. Stock prices up and then everything
11:57
Speaker 7: is kind of crashed down, sentiment not so great. Some
12:00
Speaker 7: of these companies have not met the targets that they
12:03
Speaker 7: might have done. But what we're starting to see the
12:05
Speaker 7: few companies that you definitely won't have heard of actually
12:09
Speaker 7: have started to post some positive profit margins. So there's
12:12
Speaker 7: like fast charging manufacturers in Europe call Ken Power making
12:16
Speaker 7: that the kind of units that concern big power to
12:19
Speaker 7: evs and charge it fast. And then you've got some
12:21
Speaker 7: of the ones who do the slower power units as well.
12:24
Speaker 7: And then also you've got a couple of these companies
12:26
Speaker 7: that you may have heard of, like ABB, producing chargers
12:29
Speaker 7: as part of a portfolio. So they're selling transformers and
12:32
Speaker 7: they're sort of using that as somewhat of a way
12:35
Speaker 7: to get into companies and sell some of their other
12:37
Speaker 7: products that they've got and added on as an additional
12:39
Speaker 7: so lots going on on the hardware side, and then
12:43
Speaker 7: you've got operators. So these are like the companies who
12:45
Speaker 7: basically will sell the electricity to charge a vehicle. You
12:48
Speaker 7: kind of think of it like filling up with petrol.
12:51
Speaker 7: And none of those so far are profitable, but we
12:54
Speaker 7: have seen some good signs, so some of those being
12:57
Speaker 7: EBITDAR positive now fast ned posted that which is a
13:00
Speaker 7: Dutch one the other day in the US. Unprofitable so far,
13:03
Speaker 7: but there's a company called EVgo you may have heard of,
13:06
Speaker 7: who has these fast charges and they actually basically delivered
13:10
Speaker 7: one hundred and ninety one percent more energy in twenty
13:12
Speaker 7: twenty three than they had in twenty twenty two, so
13:15
Speaker 7: good progress there.
13:17
Speaker 5: So Ryan, where are we kind of, I guess on
13:20
Speaker 5: a timeline of kind of getting enough charging capabilities into
13:25
Speaker 5: the system that can really support, you know, a wide
13:28
Speaker 5: adoption of evs. It feels like what we're hit We've
13:32
Speaker 5: hit a speed bump here. What's the timeline do you think?
13:35
Speaker 5: When you talk to folks in the industry.
13:37
Speaker 7: Yeah, it's an interesting one because we cover the global markets.
13:40
Speaker 7: So you look at China and they installed about a
13:43
Speaker 7: million of these public charges last year, and the US
13:47
Speaker 7: did sort of low tens of thousands. So there's a
13:50
Speaker 7: big difference depending on where you are in the world.
13:53
Speaker 7: I think the US and Europe are more similar in
13:55
Speaker 7: how they'll play out, and Europe is maybe just five
13:57
Speaker 7: years ahead. So Europe has got actually loads of competition
14:01
Speaker 7: at the moment, and the story a little bit when
14:03
Speaker 7: we look at this is some of the companies looking
14:06
Speaker 7: like competition is starting to weigh on the demand that
14:09
Speaker 7: they're delivering because it's a bit monopolistic. So I want
14:13
Speaker 7: the best land as a company, and I want the
14:15
Speaker 7: best grid connection, and I want that to be somewhere
14:17
Speaker 7: that people are going and somewhere where people can buy things.
14:20
Speaker 7: And they're realizing that, well, the demand isn't quite there yet.
14:23
Speaker 7: But if we believe in the long term trajectory of evs,
14:26
Speaker 7: let's get in this business. Let's get those spots. So
14:28
Speaker 7: we've seen that in Europe, and I think the US
14:30
Speaker 7: is just starting to tick over. The US has been
14:32
Speaker 7: hugely dominated by Tesla. So if you look at Tesla
14:36
Speaker 7: on the vehicle side, kind of eighty percent of these
14:38
Speaker 7: pure battery electric vehicles five years ago, kind of Tesla's
14:43
Speaker 7: and then they also provide the supercharging, and that's kind
14:45
Speaker 7: of pushed all the competition out. But what we saw
14:48
Speaker 7: last year was some of these other auto makers really
14:50
Speaker 7: producing the evs and therefore providing a market for other
14:54
Speaker 7: people to come into, but the US slightly behind basically
14:58
Speaker 7: the global maybe just because Tesla has this dominance in
15:02
Speaker 7: the market.
15:04
Speaker 2: This is a super dumb question. Where does a charging
15:07
Speaker 2: operator get the power to then enable me to put
15:11
Speaker 2: a Tesla into that network?
15:14
Speaker 7: Yeah, it's an interesting one. So there has been a
15:18
Speaker 7: lot of these companies that are going out and they're saying,
15:20
Speaker 7: you know what, instead of putting two charges in at
15:22
Speaker 7: my petrol station where the power exists, I actually now
15:24
Speaker 7: need kind of twelve chargers. And in some cases, when
15:28
Speaker 7: you look at, for example, the Tesla stations, they've got
15:30
Speaker 7: like one hundred chargers in one spot. Now that becomes
15:32
Speaker 7: a big grid connection. The next thing is charging the trucks.
15:35
Speaker 7: So this could be like the same amount of power
15:37
Speaker 7: as a town, and a lot of the utilities are
15:41
Speaker 7: taking too long to do it. So it's like that
15:42
Speaker 7: how long does it take to get a permit? How
15:44
Speaker 7: long does it take to actually get energized, can you
15:47
Speaker 7: make the agreements with the land, Lisa, All of this
15:50
Speaker 7: has kind of slowed it down, but clearly industries trying
15:53
Speaker 7: to work together, and this has become a big topic
15:56
Speaker 7: for the automakers and the utilities as well, some of
16:00
Speaker 7: them trying to sign contracts on site. So if you
16:02
Speaker 7: imagine these companies small fry, like several small meters across
16:07
Speaker 7: multiple places, the utility is maybe not so interested in that,
16:11
Speaker 7: but now they're actually delivering a lot of demand. So
16:15
Speaker 7: as I say, looking to other markets in the US
16:17
Speaker 7: and China being a good example, the public chargers in
16:20
Speaker 7: China now deliver more energy than the whole of Ireland,
16:23
Speaker 7: so a lot of energy. And therefore that becomes interesting
16:27
Speaker 7: because if you're an energy developer and you're doing like
16:30
Speaker 7: solar on site next to it with a battery, and
16:33
Speaker 7: we've seen what TV, which is one of these truck
16:36
Speaker 7: charging companies, basically build a station that's not connected to
16:39
Speaker 7: the grid at all. It's just got straight to the
16:42
Speaker 7: solar and a battery. So cool innovations going on there.
16:45
Speaker 5: Hey, Ryan, Here in the US, EV sales have slowed
16:49
Speaker 5: materially and a lot of people are trying to think
16:51
Speaker 5: there's a combination of reasons, price being a big big one,
16:54
Speaker 5: but one of those drivers is just the lack of
16:57
Speaker 5: a fully ubiquitous charging in structure. When you talk to
17:01
Speaker 5: your EV companies, how did they think about it? Are
17:05
Speaker 5: they concerned about the long term demand of EV's in general,
17:08
Speaker 5: and if so, do they feel like they could be
17:10
Speaker 5: part of the solution there?
17:12
Speaker 7: Yeah, and there's definitely kind of differences in opinions. The
17:16
Speaker 7: US hionde CEO saying something along the lines of today,
17:21
Speaker 7: why buy an EV from an automaker who's lobbying against EV's,
17:25
Speaker 7: And obviously he's talking about the US there. But you
17:29
Speaker 7: do see a difference in those that are kind of
17:31
Speaker 7: in on it and those that aren't. And I think
17:32
Speaker 7: some who aren't have previously been so they've they've committed billions,
17:37
Speaker 7: they've talked about targets, and then they're starting to row
17:40
Speaker 7: it back. And some of that is maybe because the
17:42
Speaker 7: technology is behind they can't do it as cheap as
17:45
Speaker 7: everyone else. So there's different reasons. And I think when
17:50
Speaker 7: you look at liabilities, I don't think that's talked about enough. Actually,
17:54
Speaker 7: some of these companies have put cars out there and
17:57
Speaker 7: then the batteries had a problem and they've got to
17:59
Speaker 7: recall it, and that could be multi billions. So I
18:01
Speaker 7: think there's some caution as well in saying, why don't
18:03
Speaker 7: we put a few less casts out because then we
18:06
Speaker 7: can learn from them and we can do it later.
18:08
Speaker 7: Some of the narrative has been they're not putting the
18:10
Speaker 7: cars out because quite physibly, like the battery operations are
18:14
Speaker 7: up and running. But I think there was other reasons.
18:16
Speaker 2: Ryan, Hey, look, this was great. We really appreciated Ryan Fisher,
18:20
Speaker 2: Bloomberg BNF EV charging head, and we'll be doing this
18:24
Speaker 2: every Monday, talking about different areas within the energy transition.
18:28
Speaker 2: This is why Paul stuck with me, because somehow I'm
18:30
Speaker 2: going to make him talk about all this stuff. But
18:33
Speaker 2: interesting you might have, like what little power centers around
18:35
Speaker 2: EV charging networks.
18:39
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
18:43
Speaker 1: weekdays at ten am Eastern on Effle car Playing and
18:46
Speaker 1: broud Otto with the Bloomberg Business App. Listen on demand
18:49
Speaker 1: wherever you get your podcasts, or watch us live on YouTube.
18:54
Speaker 2: And Barry, founder and managing partner at the Red Needle,
18:56
Speaker 2: is joining us. Equity is doing nothing A body yelds
18:59
Speaker 2: up a little bit. But before we get to all
19:00
Speaker 2: that fun stuff, an, are you watching the eclipse?
19:05
Speaker 8: Absolutely would have missed it. I remember the last one
19:07
Speaker 8: seven years ago, Alex and just standing out in Central
19:09
Speaker 8: Park with armies full of people. So I'm hoping to
19:12
Speaker 8: repeat the experience again. Today's look of fun.
19:14
Speaker 2: All right, So she's not a clip stow, fine, are
19:17
Speaker 2: you bon yield out at this point? That's my way
19:20
Speaker 2: of asking, like, hey, how much higher can yield go
19:22
Speaker 2: at this point?
19:24
Speaker 9: Yeah?
19:24
Speaker 8: I got to tell you, Alex, I for a while
19:26
Speaker 8: now stopped looking at bon yields as an indicator of
19:29
Speaker 8: where I should be putting capital to work. Just these
19:32
Speaker 8: usual indicators haven't been as consistent over the last couple
19:35
Speaker 8: of years, and so I've just really gone back to
19:37
Speaker 8: good old fashioned fundamentals, esoteric signs, looking specifically at what
19:41
Speaker 8: might be a catalyst for the stocks individually, to try
19:44
Speaker 8: and see you out of play right now?
19:46
Speaker 5: All right, So where you guys, as you think about
19:48
Speaker 5: just kind of M and A in general, what's kind
19:51
Speaker 5: of your outlook here for the remainder of twenty twenty
19:53
Speaker 5: four Because we've got, you know, equity markets higher, but
19:57
Speaker 5: rates are still higher as well.
20:00
Speaker 8: They are, but I do think that the actual backdrop
20:01
Speaker 8: for M and A this year has gotten a lot
20:03
Speaker 8: more interesting. If you think back over the last two
20:05
Speaker 8: years and you put yourself in the position of the
20:07
Speaker 8: boards of public companies, and I've been there, it's been
20:10
Speaker 8: a really difficult place to say yay or nay to
20:13
Speaker 8: getting deals done. We've seen a bit of an exception
20:15
Speaker 8: in the oil and gas based alex that I know
20:16
Speaker 8: is your forte And the reason for that lack of
20:20
Speaker 8: activity has been. Yes, partly, financing has obviously been a
20:23
Speaker 8: lot more expensive, whether it's been in cash deals or
20:26
Speaker 8: stock deals, but also because you just didn't want to
20:28
Speaker 8: be the board member who looked like a bit of
20:30
Speaker 8: a schmuck if you've got the care wrong. Because the
20:32
Speaker 8: macro is just so volatile and a lot of the
20:34
Speaker 8: key factors you want, you know, you didn't want to
20:36
Speaker 8: be selling too cheap, you're buying too expensively. I think
20:39
Speaker 8: things all settled down a little bit now, which gives
20:41
Speaker 8: people more confidence to go out and buy. And I
20:43
Speaker 8: do think that we're going to see some names forced
20:46
Speaker 8: to do some M and A activity, and specifically they're
20:50
Speaker 8: all like all these fallen angels from that twenty twenty
20:53
Speaker 8: twenty twenty one pandemic irradarling period where I think some
20:58
Speaker 8: of these names are going to have to diversify or die,
21:00
Speaker 8: and it's going to force them to go and do
21:01
Speaker 8: some M and A.
21:02
Speaker 2: So how do you play all of that? So, Okay,
21:04
Speaker 2: if you're buying yielded out, so you're looking less at that,
21:07
Speaker 2: you're looking at the fundamentals, you do think M and
21:09
Speaker 2: A could be it sounds like a catalyst. Yeah, talk
21:12
Speaker 2: to me about the sectors first and that that you
21:14
Speaker 2: want to play.
21:16
Speaker 8: Well, let's take a look at consumer, for example, alex
21:18
Speaker 8: and you know that's one where you've got a history
21:20
Speaker 8: if you go back in time where deals tended to be.
21:23
Speaker 8: First of all, they were a lot bigger, so you
21:25
Speaker 8: saw lots of mass consolidation and sort of murders of equals.
21:27
Speaker 8: And then you have the shift towards consumer brands and
21:30
Speaker 8: food and beauty and apparel trying to buy these high
21:33
Speaker 8: growth challenger brands with really fast top plane growth but
21:36
Speaker 8: lesser a focus and profitability. We look at what happened
21:39
Speaker 8: last year. We still Campbell's go and buy sobos brands.
21:43
Speaker 8: That's a two point eight billion dollar deal. And I
21:44
Speaker 8: think that's because in food, for example, you're going to
21:47
Speaker 8: see the fact that inflation's not gone completely the consumers,
21:50
Speaker 8: they are not going to keep putting up a price
21:52
Speaker 8: increases in the cost space of seeing a step function up.
21:55
Speaker 8: Organic growth on the margin level and on the top
21:57
Speaker 8: light level has slowed down. So I think that's going
21:59
Speaker 8: to force more m and A the lights of which
22:01
Speaker 8: we started to see last year again with Campbell one
22:03
Speaker 8: specific company. I'm going to go out on a limb
22:05
Speaker 8: here and sort of testing the thesis. I look at
22:07
Speaker 8: something alex like Olipleaux. Do you remember when that went public?
22:11
Speaker 8: You know, when we're all sitting at home, the valuation
22:13
Speaker 8: on that hair company and shampoo company was absolutely astronomical.
22:17
Speaker 8: It's now trading at a fraction single digit fraction of
22:20
Speaker 8: where it was. But it's a good cash flow business.
22:22
Speaker 8: It's got a smart backer advent, a private equity firm
22:25
Speaker 8: that knows what it's doing. That business, in my opinion,
22:28
Speaker 8: is going to have to go and buy other brands
22:31
Speaker 8: to regain the trust of the public market again, so
22:33
Speaker 8: I would look at that as a potential acquire It's
22:35
Speaker 8: got the means to do it, And that's the kind
22:37
Speaker 8: of thesis I find a little bit contrarian and interesting.
22:39
Speaker 5: Right now, and talk to us about the private equity
22:43
Speaker 5: and the private credit business.
22:44
Speaker 6: How ready are those two folks willing to commit to
22:49
Speaker 6: M and A. Here, it would.
22:50
Speaker 5: Seem like the private equity folks, they've been holding on
22:53
Speaker 5: to a lot of assets a lot longer they probably
22:54
Speaker 5: would like to, so they have some incentive to get
22:57
Speaker 5: deals done.
22:58
Speaker 6: Are they going to be a player?
22:59
Speaker 8: Yeah, that's a great point. That's a terrific point. They've
23:01
Speaker 8: got an incentive to get deals done because a lot
23:03
Speaker 8: of deals were done six or seven years ago, so
23:06
Speaker 8: traditional private equity is now a little bit past the
23:09
Speaker 8: horizon to get out of those investments. The other piece
23:12
Speaker 8: of this is too, if you think about when a
23:14
Speaker 8: deal is done and inception, a lot of leverages often
23:17
Speaker 8: put on these private companies, and a lot of those
23:19
Speaker 8: debt maturities are coming up. Private equity firms don't necessarily
23:23
Speaker 8: want to recapitalize them with much more expensive debt, and
23:26
Speaker 8: we start holding them for longer, I think they'd rather
23:28
Speaker 8: sell than deal with that maturity wall. So I think
23:31
Speaker 8: you're going to have a lot of willing sellers, And
23:33
Speaker 8: I do think this again is going to be an
23:35
Speaker 8: opportunity where buyers, now that the macro has died down,
23:38
Speaker 8: will start sharpening their pencils, look at the cash balances
23:40
Speaker 8: they've accumulated, and I think we'll start seeing strategics perhaps
23:44
Speaker 8: being a lot more active in buying private equity assets
23:47
Speaker 8: than they were before.
23:48
Speaker 2: Okay, so I get all of this, But at what point, though,
23:51
Speaker 2: do you need to start looking at yields again? Like
23:53
Speaker 2: if we get a stronger CPI your thesis is sound,
23:58
Speaker 2: what if raids hit five percent?
24:01
Speaker 8: Yeah? I think that rates have been expected to be
24:03
Speaker 8: higher for longer, and I think the street's actually been
24:05
Speaker 8: reunderwriting that thesis are its for quite a long time,
24:08
Speaker 8: and I think they've sort of got the past the
24:09
Speaker 8: point of the sticker shock. I think the other piece
24:12
Speaker 8: that I would say when it comes to bond yields
24:14
Speaker 8: and looking at treasuries as the PEG is one of
24:17
Speaker 8: my thesis coming into this year is the importance of
24:19
Speaker 8: fiscal policy form really dictating what appetite was going to
24:22
Speaker 8: be around a lot of these debt plays. And one
24:25
Speaker 8: thing that's been interesting to me in watching the election,
24:27
Speaker 8: which if anything is going to be one of the
24:29
Speaker 8: big influences in terms of shocks to that thesis. None
24:32
Speaker 8: of the key presidential candidates are coming out right now
24:34
Speaker 8: with March daylight between them when the fiscal policy front
24:38
Speaker 8: at least nothing concrete, although no shots or surprises. So
24:40
Speaker 8: I'm just still continuing to think that BONN yields. Yes,
24:42
Speaker 8: they're important, Yes that cost of financing is critical, but
24:45
Speaker 8: in terms of catalysts to move markets, I just don't
24:48
Speaker 8: see them at this particular moment.
24:50
Speaker 5: So, and just as it relates to financing deals here,
24:55
Speaker 5: you know, these rates, they're still by historical standards, these
24:57
Speaker 5: rates are not terribly high, but for the average CEO,
25:00
Speaker 5: CFO and board member they feel really high relative in
25:03
Speaker 5: the past decade or here. So how much of a
25:06
Speaker 5: hindrance is that to just getting deals done.
25:09
Speaker 8: I think it has been a hindrance, but I don't
25:11
Speaker 8: think that it's going to continue to be a hindrance
25:13
Speaker 8: because one thing that has changed in this narrative is
25:17
Speaker 8: a level of confidence that at some point, yes, inflation
25:20
Speaker 8: will come down and yes interest rates will come down. Now,
25:23
Speaker 8: what obviously has changed is the pace at which that
25:25
Speaker 8: is going to take place. You remember the six rate
25:28
Speaker 8: cuts that some of the most aggressive analysts had on
25:30
Speaker 8: the docket for this year. It's now gone to maybe two, right,
25:33
Speaker 8: So the pace of decline is coming down. But if
25:36
Speaker 8: we look forward not to twenty twenty five, but we
25:38
Speaker 8: look to twenty twenty six, you know, you can see
25:41
Speaker 8: a deal being negotiated at some point towards the second
25:44
Speaker 8: half of this year. It probably won't close until twenty
25:47
Speaker 8: twenty five, by which time we hope the rate action
25:49
Speaker 8: will have taken place, and you can see corporates being
25:51
Speaker 8: a little bit more confident that there'll be a slightly
25:53
Speaker 8: lower interest rate environment when it comes to actually executing
25:57
Speaker 8: against a plan to deliver deliver synergies against. So again
26:00
Speaker 8: you're absolutely right, higher than recent history, but manageable.
26:04
Speaker 2: So you mentioned consumers can consumer stocks in terms of
26:07
Speaker 2: m and a other areas that we've seen, right, We've
26:09
Speaker 2: seen a ton in the biotech space, which we tend
26:12
Speaker 2: to see normally. Right, we see energy. We also hear
26:15
Speaker 2: a lot about potential software deals because there's just so
26:17
Speaker 2: many software players and regional banks. Where do you think
26:20
Speaker 2: is the most likely.
26:23
Speaker 8: In terms of like activity. I think we'll continue to
26:25
Speaker 8: see contolidate consolidation alex in you the permia and in
26:28
Speaker 8: the boiling gas space where scale really is critical and
26:31
Speaker 8: where you've got these absolutely act intensive companies, you need
26:35
Speaker 8: to get those benefits of scale. So that's one space
26:38
Speaker 8: I think will continue to spend activity. I don't spend
26:40
Speaker 8: a ton of time that I have in the past,
26:42
Speaker 8: but I do think we'll see activity there. When it
26:44
Speaker 8: comes to software, I think that this is an interesting space.
26:48
Speaker 8: It's still very expensive. But one area that I do
26:51
Speaker 8: think the strategics will start to go shopping a little
26:54
Speaker 8: bit more aggressively is buying some of these private companies
26:57
Speaker 8: backed by venture capital, backed by growth stage equity, where
27:00
Speaker 8: valuations are now a bit more sensible and there are
27:03
Speaker 8: some real buyers of choice out there where you know,
27:05
Speaker 8: when I talk to the private side community in tech,
27:07
Speaker 8: salesforce is where people want to sell their businesses too.
27:10
Speaker 8: How auto networks, if you're in cyber very healthy balance sheet,
27:13
Speaker 8: it's lots of free cash flow. And if you look
27:15
Speaker 8: back in history, and McKinsey had a very interesting piece
27:17
Speaker 8: out on the so in recent weeks, Programmatic m and A,
27:21
Speaker 8: which has lots of acquisitions behind a thesis rather than
27:24
Speaker 8: a really one really big mega merger has tended to
27:29
Speaker 8: actually generate quite good incremental shareholder returns above the average
27:32
Speaker 8: by about two hundred basis points. And so I do
27:34
Speaker 8: think looking at some of those historical m ANDA machines
27:37
Speaker 8: who know what they're doing on integration will be interesting.
27:40
Speaker 2: Interesting and thanks a lot, really great stuff. Really enjoyed,
27:43
Speaker 2: have fun at the eclipse today and very founder and
27:46
Speaker 2: managing partner at thread Needle, Paul and John and jam
27:50
Speaker 2: again John Tucker.
27:51
Speaker 6: I'll join you there with his with his welding helmet.
27:56
Speaker 2: Yeah, he's a welding helmet, apparently not glasses. You're a good,
27:59
Speaker 2: good work out, but I kept the helmet because you
28:02
Speaker 2: never know, you never know, you never know what you're
28:04
Speaker 2: going to need that welding health. I want to see
28:06
Speaker 2: what your garage looks like. I actually don't fation the garage.
28:10
Speaker 4: I have a shed, large shed, and with the basement.
28:15
Speaker 2: You can't even move in there. Somebody with old welding gear.
28:20
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
28:24
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
28:28
Speaker 1: Auto with a Bloomberg Business app. You can also listen
28:31
Speaker 1: live on Amazon Alexa from our flagship New York station.
28:34
Speaker 1: Just say Alexa playing Bloomberg eleven thirty.
28:38
Speaker 2: All right, well, let's go to someone who's probably not
28:40
Speaker 2: eclipsed out yet, and that is Julie Fine. She's Bloomberg
28:43
Speaker 2: Texas Bureau chief and she's standing by. I mean, it's
28:45
Speaker 2: not that I don't think it's cool. It just it's
28:48
Speaker 2: a lot. It's a lot. Are you eclipsed out?
28:51
Speaker 10: I'm getting eclipse stot Yesterday I was in Target and
28:54
Speaker 10: I was like in the line for self checkout for
28:58
Speaker 10: like twenty minutes. It's just so crowded here. I think
29:02
Speaker 10: you think about a Super Bowl when you know a
29:06
Speaker 10: stadium holds roughly one hundred thousand people, so you probably
29:09
Speaker 10: have two hundred thousand people in town right now in
29:11
Speaker 10: the Dallas area. The mayor estimates four hundred thousand.
29:15
Speaker 5: So people are coming there because Dallas is in the
29:17
Speaker 5: totality area.
29:19
Speaker 6: Is that is that the story?
29:20
Speaker 2: Dallas is totality.
29:21
Speaker 10: We get totality for three minutes and fifty one seconds,
29:25
Speaker 10: to be exact, So Dallas is in totality. So we
29:30
Speaker 10: have a lot of people in town, and you can
29:32
Speaker 10: certainly feel it.
29:34
Speaker 2: I mean, okay, to be fair, I mean I made joke,
29:37
Speaker 2: but this is there's a definite economic reasons here, Like
29:40
Speaker 2: how much could Texas make on this thing?
29:43
Speaker 10: A leading economists estimate estimates over four hundred million dollars
29:47
Speaker 10: for the entire state. Because there's areas that are in
29:51
Speaker 10: almost totality, like Austin and Houston. You got the Hill Country.
29:55
Speaker 10: I mean, hotels are jammed. My family said to me
29:58
Speaker 10: on Friday, we should try to come in for the eclipse.
30:01
Speaker 10: And you're looking at you know, to even get here
30:04
Speaker 10: was twelve hundred dollars on Sunday.
30:06
Speaker 2: Oh my god.
30:07
Speaker 10: Well and this is a little late to think about
30:09
Speaker 10: that exactly.
30:10
Speaker 6: Well, Governor Hoche, the Governor Hoche.
30:12
Speaker 5: For the state of New York is telling people like
30:14
Speaker 5: because another one is up in Buffalo and Niagara Falls.
30:18
Speaker 10: Well, fun fact, that's where I'm from.
30:20
Speaker 4: Oh, I'm all eclipse.
30:22
Speaker 10: Today, and in Buffalo it's supposed to be better forecast
30:27
Speaker 10: actually than here in Dallas. We're a little overcast here.
30:30
Speaker 10: But Buffalo apparently is jammed with people as well.
30:34
Speaker 2: It is actually quite interesting if you look at like
30:36
Speaker 2: an Airbnb map. This came out on on X like
30:38
Speaker 2: a few weeks ago. I guess, and you just saw
30:41
Speaker 2: exactly where the line was where the eclipse was going
30:44
Speaker 2: to go sold out airbnbs, So to your point, all right, Julie, well,
30:49
Speaker 2: what what else are you going to be watching? Kind
30:50
Speaker 2: of what are some of the highlights here?
30:53
Speaker 10: Well, I think there was some questions about the power
30:56
Speaker 10: grid because solar will be affected for a short period
30:59
Speaker 10: of time, but the power grid in Texas seems very
31:02
Speaker 10: prepared to handle that. So we'll be watching that.
31:05
Speaker 9: You know.
31:06
Speaker 10: We our office is smack in the middle of downtown,
31:09
Speaker 10: so they're actually blocking entrances and exits for an hour
31:13
Speaker 10: or so. What's really interesting is we're supposed to have
31:16
Speaker 10: severe weather this evening, so obviously everybody will be paying
31:20
Speaker 10: attention to that. It'll be really interesting and actually, you know,
31:23
Speaker 10: hopefully people are smart about when they choose.
31:25
Speaker 2: To travel and come in and out of town.
31:27
Speaker 10: If there's a horrible rainstorm and everybody's kind of trying
31:30
Speaker 10: to get out of Dallas.
31:32
Speaker 6: Big dings, big in Texas.
31:34
Speaker 2: That sounds fun.
31:35
Speaker 10: Everything's bigger here and better.
31:38
Speaker 2: Yeah, I do think that the solar thing is also
31:39
Speaker 2: kind of interesting, but again, if you're prep for it,
31:41
Speaker 2: maybe it's not that big.
31:42
Speaker 4: Of a deal.
31:42
Speaker 2: All right, Julie, thank you so much. Have fun, Be safe,
31:44
Speaker 2: Julie Fine Blueberg, Texas Beera chief joining us.
31:47
Speaker 4: There.
31:50
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
31:54
Speaker 1: weekdays at ten am Eastern on Apple car Play and
31:57
Speaker 1: Android Auto with the Bloomberg Business at You can also
32:00
Speaker 1: listen live on Amazon Alexa from our flagship New York
32:03
Speaker 1: station Just Say Alexa playing Bloomberg eleven.
32:08
Speaker 5: Again, we think about where we are, where we were
32:11
Speaker 5: back in October, to where we are now SP five
32:14
Speaker 5: hundred up over twenty five percent.
32:16
Speaker 6: Just a big, big move, big first quarter as.
32:19
Speaker 5: Well to kind of finish that off, and we got
32:21
Speaker 5: a little bit more green here today.
32:22
Speaker 6: So the question for a lot of folks is, boy,
32:25
Speaker 6: that was quick.
32:25
Speaker 5: And did I miss that move in the market. Let's
32:28
Speaker 5: check in with Walter Todd. He does his stuff for living.
32:30
Speaker 5: He's a president, chief investment officer, managing director of Greenwood Capital.
32:35
Speaker 6: And Walter, I'm guessing you're in South Carolina.
32:39
Speaker 9: I am.
32:40
Speaker 11: I've got my clips glasses ready for the viewing later today, and.
32:45
Speaker 5: I'm guessing you're pretty happy after your lady game Cocks
32:47
Speaker 5: last night put on a heck of a show.
32:50
Speaker 9: Yeah, congratulates.
32:51
Speaker 11: I gave a shout out to dawns Daley and the
32:53
Speaker 11: team for a great win, undefeated season.
32:56
Speaker 9: Pretty incredible, Yes, amazing.
32:58
Speaker 5: All right, Walter, what are you telling your clients? You're
33:00
Speaker 5: about kind of these markets where they've moved, where the
33:04
Speaker 5: opportunities are.
33:05
Speaker 6: What are you talking? What do you saying to your
33:07
Speaker 6: clans these days?
33:09
Speaker 11: Yeah, Well, as you kind of alluded to in the
33:10
Speaker 11: lead in here, it's been quite a move off the lows,
33:13
Speaker 11: and you know, it's this year has been a little
33:16
Speaker 11: bit hard to figure out, quite honestly for me. I mean,
33:18
Speaker 11: the move off the loads in October and rates peaked
33:21
Speaker 11: at five and the SMB started to rise as rates fell.
33:23
Speaker 9: That made a lot of sense.
33:24
Speaker 11: But as we see here today, you know, up almost
33:27
Speaker 11: ten percent for the first quarter for the SMP. You know,
33:30
Speaker 11: rates have risen, the expectation for fed cuts has gone
33:33
Speaker 11: from seven to less than three. So it's a little
33:35
Speaker 11: bit puzzling to see the market kind of screaming in that.
33:38
Speaker 11: With that backdrop, having said that, you know, the reason
33:41
Speaker 11: for the rate cut push out is because economic data
33:44
Speaker 11: has been better and that should be good for earnings.
33:46
Speaker 11: I think, you know, depending on your time horizon. In
33:48
Speaker 11: the very short term, it feels like this market's a
33:50
Speaker 11: little bit tired, kind of churning here.
33:52
Speaker 9: We're seeing some rotation underneath the surface.
33:54
Speaker 11: So I think you can kind of bide your time
33:57
Speaker 11: a little bit here and look for opportunities in the
34:00
Speaker 11: volatility that we think will come. But again, it's it's
34:04
Speaker 11: it's It reminds me of the quote from Mark Twain.
34:07
Speaker 11: It ain't once you don't know that gets you into trouble.
34:09
Speaker 11: It's what you know for sure that just ain't.
34:10
Speaker 2: So yeah, and Walter, that really depends on the volatility
34:15
Speaker 2: actually materializing. What what does that volatility look like, and
34:19
Speaker 2: what do you think finally causes that.
34:22
Speaker 11: Yeah, well, I think we got a little bit of
34:23
Speaker 11: a peek at that last week. If you look at
34:25
Speaker 11: the action on Thursday from the you know, the comments
34:28
Speaker 11: from Kashkari Thursday afternoon and then the you know, geopolitical issues.
34:33
Speaker 9: Going on in the Middle East.
34:34
Speaker 11: You saw the market drop you two percent, basically from
34:36
Speaker 11: high to low in a couple of hours. So that's
34:39
Speaker 11: I think a little snapshot of what could happen. I mean,
34:41
Speaker 11: we'll see what happens with the CPI report on Wednesday,
34:45
Speaker 11: and if that were to come out a little bit high,
34:46
Speaker 11: we could see some more volatility. But you're right, I mean,
34:49
Speaker 11: it's been incredibly low volatility backdrop for markets really off
34:54
Speaker 11: the lows from last October. So there's no guarantee that
34:56
Speaker 11: it will emerge, but I think the odds are that
34:59
Speaker 11: it likely will as a function of probably higher rates
35:04
Speaker 11: being the catalyst there.
35:06
Speaker 5: Walter, Walter, what are you guys doing in the fixed
35:09
Speaker 5: income space here? Man, I can just park myself for
35:11
Speaker 5: to your treasure and get four point seven eight percent.
35:14
Speaker 6: That's a lot too bad.
35:17
Speaker 9: Yeah, absolutely.
35:18
Speaker 11: I mean I think on the fixed income side, when
35:20
Speaker 11: we have managed you know, a good number of fixed
35:22
Speaker 11: income assets, I mean we take a Barbelle approach on that,
35:25
Speaker 11: you know, as you say, you know, taking advantage of
35:27
Speaker 11: the short end, but also you know, taking advantage of
35:30
Speaker 11: rates moving higher and starting to step out a little
35:32
Speaker 11: bit on the duration spectrum, but still staying you know,
35:35
Speaker 11: shorter than the index. The other aspect of fixed income
35:38
Speaker 11: is corporate spreads. Those are extremely tight right now. And
35:41
Speaker 11: kind of back to the previous point about where where's
35:43
Speaker 11: the volatility and it come from? You really haven't seen
35:46
Speaker 11: anytime you've seen volatility in the equity market, the little
35:49
Speaker 11: that we've seen, you really haven't seen spreads react, and
35:52
Speaker 11: so we're kind of watching that to see it kind
35:54
Speaker 11: of as a coincident indicator to validate any type of
35:57
Speaker 11: sell off maybe has some legs on the corporate bond markets.
36:00
Speaker 11: So we were actually transitioning a little bit of weight
36:03
Speaker 11: out of corporates into treasuries as a result of those
36:06
Speaker 11: tight spreads.
36:07
Speaker 2: Yeah, yeah, you know, you and everybody else have been
36:09
Speaker 2: waiting for those spreads to change. It's really fascinating. Do
36:12
Speaker 2: you think we see for the tenure three percent or
36:14
Speaker 2: five percent?
36:15
Speaker 9: First, that's a great question. I think we I think
36:21
Speaker 9: we can. Uh.
36:22
Speaker 11: I think we could see a push back towards five percent,
36:25
Speaker 11: you know, in that direction. Whether we whether we clip
36:28
Speaker 11: it or not and get back to those highs from October,
36:31
Speaker 11: IM not sure, but I think directionally we're gonna move
36:33
Speaker 11: towards five percent before we head back below four and
36:37
Speaker 11: and maybe head towards three as we moved through this year.
36:39
Speaker 11: Because the other dynamic here is the federal government just
36:42
Speaker 11: continues to run deficits and spend, you know, have deficit spending,
36:46
Speaker 11: which has really kind of been the support for financial
36:49
Speaker 11: markets in the economy. If you look over the past
36:51
Speaker 11: several years, we've been running you know, five percent deficits
36:54
Speaker 11: a year after year, which is you know, certainly helpful
36:57
Speaker 11: to uh, the economic environment, financial conditions.
37:00
Speaker 5: So on the equity side here, where are you seeing
37:03
Speaker 5: opportunities here? Are you kind of all in with some
37:05
Speaker 5: of those big growth stocks that have been powering the
37:07
Speaker 5: market really for the last eighteen months, you know, the
37:10
Speaker 5: nvd's of the world, or are you looking for maybe
37:12
Speaker 5: some value in other spots.
37:15
Speaker 9: Yeah, for us, it's kind of a bar bell.
37:17
Speaker 11: So we certainly have exposure to you know, technology, not
37:20
Speaker 11: in Nvidia specifically, but other technology names within the index
37:24
Speaker 11: because that is I think a multi year kind of
37:26
Speaker 11: growth dynamic with AI, but probably getting a little bit
37:30
Speaker 11: stretched here in the short term. On the flip side,
37:32
Speaker 11: we also see opportunities and want to have some exposure
37:36
Speaker 11: to the value side of the equation, so think energy, materials, industrials,
37:41
Speaker 11: And that's something we've really seen over the past month
37:42
Speaker 11: is kind of this emerging inflation trade where you've seen
37:46
Speaker 11: the commodities kind of catch a bid here. Industrials have
37:51
Speaker 11: been consistently good, particularly down the cap scale. So we
37:55
Speaker 11: believe you want to have a balance within the portfolio
37:57
Speaker 11: between the growth and the value engine energy.
38:00
Speaker 2: Thank you very much. So how do you want to
38:02
Speaker 2: play that? Like, what's the best way to play the
38:04
Speaker 2: recent our performance?
38:07
Speaker 11: Yeah, Alex, I know you're a big energy energy fan
38:10
Speaker 11: there and follower and expert.
38:12
Speaker 9: Yeah.
38:13
Speaker 11: So within the portfolio we have, you know, a variety of.
38:17
Speaker 9: Different exposures there.
38:18
Speaker 11: So certainly on the EMP front, I think this m
38:20
Speaker 11: and A that we've seen over the past year is
38:22
Speaker 11: going to continue as we move through the rest of
38:24
Speaker 11: this year and into twenty twenty five. We also have
38:27
Speaker 11: exposures to some of the big integrated names like Exxon
38:29
Speaker 11: and Chevron and different strategies. We don't have a ton
38:33
Speaker 11: of exposure to the equipment and service space right now,
38:36
Speaker 11: but I know that's been catching, you know, catching up
38:38
Speaker 11: a little bit to the to the broader energy space.
38:41
Speaker 11: So we think having a you know, a broad exposure
38:44
Speaker 11: within energy and quite frankly, you know, it's just four
38:46
Speaker 11: percent of the S and P, so you can have
38:49
Speaker 11: you know, a pretty good overweight with just six to
38:51
Speaker 11: seven percent of the portfolio in there. And we still
38:54
Speaker 11: think this dynamic of you know, Nvidia, for example, being
38:57
Speaker 11: larger than the entire energy space just make a whole
39:00
Speaker 11: lot of common sense to us.
39:01
Speaker 9: So we think there are opportunities in the energy space.
39:04
Speaker 6: How about in healthcare?
39:05
Speaker 5: A lot of folks are suggesting that could be a
39:07
Speaker 5: defense area, but still some some growth, I guess.
39:11
Speaker 11: Yeah, healthcare has been been disappointing, certainly disappointing. You know,
39:15
Speaker 11: it was great in twenty twenty two when the market
39:17
Speaker 11: was off, it was you know, lagged last year, started
39:20
Speaker 11: to kind of emerge early this year, but it's falling
39:22
Speaker 11: back off.
39:23
Speaker 9: We see a lot of value within healthcare.
39:26
Speaker 11: You know, whether that be pharmaceuticals, biotech, healthcare equipment, but
39:31
Speaker 11: certainly has lagged the overall market. But we definitely have
39:34
Speaker 11: a healthy weight within that sector and see opportunities. One
39:37
Speaker 11: of the challenges for healthcare is an election year, which
39:40
Speaker 11: tends to be a little bit of a headwind for
39:42
Speaker 11: those names.
39:44
Speaker 2: What don't you like right now, like what's like Forbotten
39:46
Speaker 2: where you are?
39:48
Speaker 11: Yeah, so we're we're underweight consumer discretionary right now. We're
39:53
Speaker 11: underweight you know, real estate and utilities as interest rates
39:57
Speaker 11: sensitive sectors and we're actually slightly underweight technology, which I
40:03
Speaker 11: know is it seems like a crazy thing right now,
40:06
Speaker 11: but again we think a little bit stretched here in
40:08
Speaker 11: the short term given the move that we've seen, you know,
40:11
Speaker 11: over the past eighteen months in that sector.
40:13
Speaker 2: Yeah, that's so funny. It's like you don't want it,
40:16
Speaker 2: but you have to have it, but it's stretched. That's
40:18
Speaker 2: a tricky spot, definitely.
40:19
Speaker 6: To be That's why people get absolutely this stuff matter's
40:22
Speaker 6: tr true.
40:22
Speaker 2: That's why I don't do that.
40:24
Speaker 5: Walter Todd, thank you so much for joinings our president,
40:26
Speaker 5: chie investment officer, Managing director Greenwood Capital. Coming to us
40:30
Speaker 5: from the great state of South Carolina. Greenwood, South Carolina,
40:33
Speaker 5: or I guess the whole state's going nuts.
40:34
Speaker 6: I know. Amy mars is at Bloomberg News down in Washington.
40:38
Speaker 6: We chatter with her this morning. She was overcome with
40:40
Speaker 6: emotion talking about her University of South Carolina sports lady
40:44
Speaker 6: game piks, when's basketball?
40:45
Speaker 2: Yeah, no, I you know, puzz looking at me like,
40:48
Speaker 2: come on, Alex, I get it a little bit together.
40:50
Speaker 2: I got a little bit together.
40:52
Speaker 6: For that, got a little bit together.
40:53
Speaker 1: Yeah.
40:53
Speaker 6: So that was a lot of fun for those folks
40:55
Speaker 6: down there.
40:55
Speaker 2: So We're done with that. Now we're moving on to
40:56
Speaker 2: the men's match. Right, when's that.
40:58
Speaker 6: Nine T tonight? So I'm not even nice exactly.
41:02
Speaker 2: Wait, we got on the clips and the final four
41:04
Speaker 2: in one day.
41:05
Speaker 5: And you got coach cal Pari leaving Kentucky for Arkansas.
41:09
Speaker 5: Perhaps the biggest news of the day.
41:11
Speaker 2: Wow.
41:12
Speaker 6: See she has no idea.
41:13
Speaker 2: I don't, I really don't.
41:15
Speaker 1: This is the Bloomberg Intelligence Podcast, available on apples, Spotify,
41:19
Speaker 1: and anywhere else you get your podcasts. Listen live each
41:23
Speaker 1: weekday ten am to noon Eastern on Bloomberg dot com,
41:26
Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app.
41:30
Speaker 1: You can also watch us live every weekday on YouTube
41:33
Speaker 1: and always on the Bloomberg terminal