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Markets, Digital Assets, and Goldilocks · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller.
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Speaker 2: Every business day, we bring you interviews from CEOs, market pros,
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Speaker 2: and Bloomberg experts, along with essential market moving news.
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Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
0:20
Speaker 1: Let's go to our next guest, get right back to
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Speaker 1: these markets. John Hurdle joins US executive chairman at Hurdle,
0:25
Speaker 1: Callahan and Company. Hey, John, we have a risk one
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Speaker 1: day today, but there's still a lot of concern out there.
0:31
Speaker 1: September was a tough month for risk assets, stocks down.
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Speaker 1: How do you guys think about the rest of this year.
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Speaker 1: You know it's still driven in large part by this
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Speaker 1: federal Reserve. How are you guys thinking about it?
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Speaker 3: Well, we'd like to have a real yield in the
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Speaker 3: bond portfolio for the first time in a long time.
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Speaker 3: You know, I the first thirty years I was in
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Speaker 3: the business, bonds were such a critical dimension of a diverse,
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Speaker 3: fied portfolio, and then we got this place where we
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Speaker 3: had no real yield and we needed the bonds to
1:00
Speaker 3: stabilize the portfolios, but the price of that stabilization was
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Speaker 3: huge because we've got no real yield. So as an investor,
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Speaker 3: I like having real yield back in the bond market.
1:10
Speaker 3: I also feel like this is more of a stock
1:12
Speaker 3: picker's market. It's not just risk on risk off. That's
1:15
Speaker 3: a term that has really become popular in the last
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Speaker 3: ten years. It's more of a trading term than an
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Speaker 3: investing term. We're always risk on because we think to
1:23
Speaker 3: fulfill our client's missions, we've got to be in growth assets,
1:27
Speaker 3: which are stocks and private equity and so forth. So
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Speaker 3: it's really a question we're not you know, we're investors,
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Speaker 3: not traders, and so this market actually feels a little
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Speaker 3: more normal than what we've gone through for the last
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Speaker 3: ten years.
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Speaker 2: So what do you think in terms of the sixty
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Speaker 2: forty split, Is that still the way to go for
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Speaker 2: the average investor?
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Speaker 4: Or?
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Speaker 2: Would you allocate more to bonds right now at these yields?
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Speaker 3: We wouldn't really allocate. We're not allocating more to bonds yet,
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Speaker 3: and we've been about seventy thirty so for a long
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Speaker 3: time we've been more growth oriented than fixed income than
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Speaker 3: income oriented. But we are adding duration. So we feel
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Speaker 3: like if we can move up duration and we're still
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Speaker 3: underweight relative to the Investment Great Index, but we're you know,
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Speaker 3: closer to matching it. We're adding duration, so we field
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Speaker 3: with a ten year to four sixty. We're getting closer.
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Speaker 3: You know, could it get to a five percent? Interesting?
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Speaker 3: But at this point we can increase yield, so get
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Speaker 3: current yield. The yield curve is steepening a little bit,
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Speaker 3: and if we do slip into a recession and interest
2:35
Speaker 3: rate strop again, then we get capital appreciation out of
2:37
Speaker 3: those bonds. So we're adding duration.
2:40
Speaker 1: John On on the equity side here, you know, some
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Speaker 1: of the performance are most of the vast majority, if
2:45
Speaker 1: not all, of the performance in the S and P.
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Speaker 1: Five hundred has been from a handful of names to
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Speaker 1: magnificent seven. Do you chase those here or do you
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Speaker 1: try to look for some of the names that have
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Speaker 1: not participated.
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Speaker 3: Well, you know, Mark Andresen wrote years ago that sawfwar
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Speaker 3: is eating the world, and so that is a secular change.
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Speaker 3: It's kind of like the industrial revolution. On the other hand,
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Speaker 3: Howard Mark says beautifully that there is no asset in
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Speaker 3: the world. It's a good investment at any price. It
3:13
Speaker 3: depends on the name. We've got to go name by name.
3:15
Speaker 3: And by the way, there are other companies that we
3:17
Speaker 3: like that are We do like the tech set. We
3:19
Speaker 3: like the US relative to the world because of our
3:23
Speaker 3: exposure to technology. But really, when we think about the
3:26
Speaker 3: great technology companies like Microsoft, they have strong balance sheets,
3:30
Speaker 3: they have an installed base, and they have a moat
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Speaker 3: around their business. There are other businesses like Thermo Fisher
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Speaker 3: and Canadian Pacific Rail that aren't tech companies. Well, Canadian
3:40
Speaker 3: Pacific isn't a tech company per se, but it also
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Speaker 3: has a strong balance sheet, installed base, and moat around
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Speaker 3: its business. So you know, it's not just tech companies,
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Speaker 3: but we think it's companies that have that kind of
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Speaker 3: a strong position and can manage through these uncertain times.
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Speaker 2: Are you concerned about you know, we talk so much
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Speaker 2: about the fact that inflation was helpful to earnings and
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Speaker 2: now we're in a disinflationary environment withouthurt earnings.
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Speaker 3: Maybe you know, markets are always priced at equilibriate, So
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Speaker 3: every time I sell something, someone's buying it from me,
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Speaker 3: and every time I buy something, someone's selling it from
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Speaker 3: to me. So if there's this notion that there's always
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Speaker 3: a positive and negative story and interest rates. You know,
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Speaker 3: five years ago we were desperate to get interest rates
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Speaker 3: higher and the Fed just couldn't get it done. And
4:30
Speaker 3: then you know, we had this COVID situation and probably
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Speaker 3: the six trillion dollars.
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Speaker 1: Hey, John, we're gonna have to I'm sorry, We're going
4:36
Speaker 1: to leave it there just because of the time, but
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Speaker 1: we appreciate getting your thoughts. John Hurdle, Executive chairman at Hurdle,
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Speaker 1: Callahan and Company.
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Speaker 5: You're listening to the team Ken's are online program Bloomberg
4:46
Speaker 5: Markets weekdays at ten am eastering on Bloomberg dot com,
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4:52
Speaker 5: on demand wherever you get your podcasts.
4:56
Speaker 1: All right, Tom Farley joins us here. He's the chief
4:58
Speaker 1: executive officer a Bullish, former president of the New York
5:02
Speaker 1: Stock Exchange, here to chat with this. Hey Tom, First
5:06
Speaker 1: of all, thanks for joining us. Tell us about what
5:09
Speaker 1: you guys are doing at Bullish.
5:13
Speaker 6: Great to be on with you. I am soaked by
5:16
Speaker 6: the way I heard you talking about the rain. I
5:19
Speaker 6: just I just walked into the office from a meeting
5:23
Speaker 6: and completely drenched.
5:25
Speaker 7: There you go, I'm glad this. I'm glad this is radio.
5:29
Speaker 2: But you're on Zoom as well.
5:30
Speaker 1: We got you on YouTube, we got you out on YouTube.
5:33
Speaker 2: There you go, my man.
5:35
Speaker 7: Great to be with you, guys. Yeah, bullish.
5:37
Speaker 6: Look from the outset, we're taking an approach of being
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Speaker 6: a compliant adult digital assets exchange, and that didn't really
5:45
Speaker 6: benefit us, to be honest with you, eighteen nineteen twenty,
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Speaker 6: it felt like the exchanges that were winning in many
5:52
Speaker 6: in many cases were kind of cutting corners and doing
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Speaker 6: things differently than we were doing. But in the long run,
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Speaker 6: it'll it'll, you know, it'll work out in many ways, Paul.
6:01
Speaker 6: Guys like you and I. You know that people might
6:04
Speaker 6: look at and say our granddads. But we've been in
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Speaker 6: markets for all this time. We've seen the future, and
6:09
Speaker 6: the professional financial services businesses will win in the digital
6:14
Speaker 6: asset space. There will be two to four global exchanges,
6:18
Speaker 6: not five, not one, and they will be well run businesses.
6:23
Speaker 6: And so we've just focused on institutions, only fully regulated
6:27
Speaker 6: did coins that actually make sense. You know, everybody loves
6:31
Speaker 6: a frog coin or or digital animal drawing or what
6:34
Speaker 6: have you. But what I'm really looking for are the
6:37
Speaker 6: projects that are adding real value in the world that
6:39
Speaker 6: are benefiting from blockchain technology to do good things, to
6:43
Speaker 6: make for a more efficient financial market. And so those
6:46
Speaker 6: are the areas we've been focusing on Bullish and it's
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Speaker 6: it's working. We're gaining market share. Where the number two
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Speaker 6: exchange in the world for ether, where on any given
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Speaker 6: day three, four or five for bitcoin, which are you know,
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Speaker 6: obviously two of the big the big ones out Well, I.
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Speaker 2: Definitely not a granddad. I want to point out that
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Speaker 2: Tom Farley was born after the Beatles broke up.
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Speaker 4: So.
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Speaker 6: You did, though, Tom, which, by the way, in crypto
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Speaker 6: and crypto, it makes me a great grand dad exactly.
7:13
Speaker 7: Honestly.
7:14
Speaker 6: You know, when I first I got into this back
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Speaker 6: in twenty twelve, but it was it was through an
7:19
Speaker 6: investment in coinbase pre revenue. I got lucky, to be honest,
7:25
Speaker 6: but kind of learned the space and then immerse myself
7:27
Speaker 6: in Night twenty twenty and it was like the jargon,
7:32
Speaker 6: the inscrutable jargon, and I would say like that doesn't
7:36
Speaker 6: make any sense, and people would look at me like
7:38
Speaker 6: literally like I was one thousand years old, like oh,
7:40
Speaker 6: you'll just never get it.
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Speaker 2: That's why they make up that kind of jargon. By
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Speaker 2: the way, I've been following crypto for about the exact
7:48
Speaker 2: same time. I bought my first bitcoin in December of
7:52
Speaker 2: I guess twenty thirteen. December of twenty thirteen was when
7:55
Speaker 2: I got nice trade for six hundred dollars.
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Speaker 1: Well, he lost it the key though, I did lose
8:01
Speaker 1: my password.
8:02
Speaker 2: But Tom, you were pretty busy at the time running
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Speaker 2: the New York Stock Exchange, which is arguably, you know,
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Speaker 2: the most important exchange in the world, certainly historically it is.
8:13
Speaker 2: How have you used what you learned at ICE and
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Speaker 2: at NYC in the world of crypto.
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Speaker 6: Oh, my gosh, like a million ways, especially now, you know,
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Speaker 6: coming out of all the Shenanigans of twenty twenty one
8:30
Speaker 6: and twenty twenty two and people being hurt and you know,
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Speaker 6: deception outright fraud in some cases, people now care about
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Speaker 6: credit worthy counter parties, they care about.
8:42
Speaker 7: Businesses being run the right way.
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Speaker 6: And look, I'd love to tell you what we're doing
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Speaker 6: at Bullish is like, you know, solving differential equations, but
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Speaker 6: it's not. It's connecting buyers and sellers and ensuring that
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Speaker 6: you have a lot of bids and offers tightly tightly
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Speaker 6: wrapped around the market price. And that's what I've done
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Speaker 6: since I was twenty eight years old, twenty nine years
9:08
Speaker 6: old when I when I went into the New York
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Speaker 6: Board of Trade, which is could be a whole nother
9:14
Speaker 6: radio hour to talk about a twenty nine year old
9:17
Speaker 6: kid trying to break up floor trading, but let's leave
9:20
Speaker 6: that aside. Hey, Tom, it's really it's really the same,
9:22
Speaker 6: it's really the same thing.
9:23
Speaker 7: In fact, in some ways it's easier.
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Speaker 6: You know, in New York soalcing change, we were processing
9:27
Speaker 6: one hundred million messages a second in our options feed,
9:31
Speaker 6: one hundred million messages second. In crypto, if you're doing
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Speaker 6: five thousand a second, you get a gold medal. So
9:37
Speaker 6: in some ways it's it's easier. Some ways it's it's
9:40
Speaker 6: more difficult. But every day, all day, I'm benefiting from
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Speaker 6: the great people that I learned from in exchange world
9:47
Speaker 6: my whole career.
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Speaker 1: Tom, How frustrating is it to you? And maybe just
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Speaker 1: a crypto market in general, when it still feels like
9:54
Speaker 1: traditional financial Wall Street, if you will, Global banking, if
9:57
Speaker 1: you will, still does not really recognize or appreciate crypto.
10:02
Speaker 1: I mean, Jamie Diamond's still not on board. Just for
10:04
Speaker 1: an example, how do you put that in context?
10:08
Speaker 4: Uh?
10:09
Speaker 6: I mean, you know, it's interesting, it's a good question.
10:11
Speaker 6: And you know, Warren Buffett I would add to that.
10:15
Speaker 6: I mean, these are these are people I think highly of,
10:20
Speaker 6: but when you drill into their message, I actually share
10:23
Speaker 6: a lot of their concern. You know, they were especially
10:27
Speaker 6: Jamie was talking at the height of the mania and
10:30
Speaker 6: kind of saying, hey, I've seen this movie before, ye
10:34
Speaker 6: and and look at to some extent he was right.
10:38
Speaker 6: And and we as an industry have brought the uncertainty
10:40
Speaker 6: that we're in right now upon us. It was, as
10:42
Speaker 6: I said, it was too much jargon, there's too much deception.
10:44
Speaker 6: There are too many frog coins. So so it was
10:47
Speaker 6: right on the At the same time, JP Morgan, uh,
10:52
Speaker 6: is you is doing projects to benefit from the interesting
10:55
Speaker 6: technological facets of blockchain, you know, the finality, the instant
10:59
Speaker 6: finale to your instant settlement, the transparency that goes along
11:02
Speaker 6: with blockchain, the incremental security that goes along with blockchain.
11:06
Speaker 6: JP Morgan engages in brokerage for and and and and
11:12
Speaker 6: prime brokerage or futures kind of commissioned business for bitcoin
11:16
Speaker 6: or bitcoin futures on the CMME. So I think really
11:19
Speaker 6: what you were seeing from some smarter look. There were
11:21
Speaker 6: some people that just don't get it. They think Bitcoin's
11:24
Speaker 6: going to go away tomorrow. Bitcoin ain't going away anytime.
11:26
Speaker 6: But there were some people, I think who just sensed
11:29
Speaker 6: something wasn't right, and there was some merit to that.
11:33
Speaker 6: And this is a time of retrenchment, and I have
11:35
Speaker 6: a lot of hope, maybe even optimism that we've bumped
11:38
Speaker 6: along along the bottom and things are getting a lot
11:41
Speaker 6: better quickly.
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Speaker 1: Hey, Tom, thanks so much for joining us. Really appreciate
11:44
Speaker 1: you taking the time there. Tom Farley, CEO of Bullish,
11:49
Speaker 1: former president at the n y S talking about the
11:52
Speaker 1: crypto space and the exchanges that support the crypto space,
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Speaker 1: as Thomas suggesting, they've got some work to do. Arguably
11:59
Speaker 1: as an industry, it's kind of short a lot of
12:03
Speaker 1: aspects of that market.
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Speaker 2: Man ten years ago. If you had the choice tween
12:05
Speaker 2: JP Morgan, Stock and bitcoin boom oh.
12:09
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12:19
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12:26
Speaker 5: thirty Again.
12:28
Speaker 1: I'm looking at the two year here. I can just
12:30
Speaker 1: jump into a two year treasury five point zero three percent.
12:33
Speaker 1: I think on a rainy day like today, that's just fine.
12:35
Speaker 2: Dude, you're all in on the two years.
12:36
Speaker 7: I'm all in.
12:37
Speaker 2: And keep telling you there's reinvestment risk there.
12:39
Speaker 1: I'll deal with that when it happens. And I'm all
12:41
Speaker 1: about today.
12:42
Speaker 2: Get the stick from a money market. You know that
12:45
Speaker 2: that rolls over for you. I am your daughter's Marcus account.
12:49
Speaker 1: I'm in that one with her. You're in that so
12:51
Speaker 1: I matched her. So we bubbled up on this.
12:53
Speaker 2: My wife gets in it, and then she recommends all
12:55
Speaker 2: our friends, and every time she recommends somebody, she gets
12:58
Speaker 2: a bump on her rate.
13:00
Speaker 1: That's a nice incentive there. I guess that's how my
13:02
Speaker 1: daughter did it. Anyway, Ben Emmage joints is because he's
13:06
Speaker 1: a professional. He's had a fixed income with New Edge Wealth. Ben,
13:09
Speaker 1: do I buy the two year here? Or you got
13:11
Speaker 1: something better for me?
13:13
Speaker 8: So I would agree with you, Paul that if you
13:14
Speaker 8: take the two yields and he will subtract any of
13:17
Speaker 8: the core measures that we saw today. Yep, it's actually
13:19
Speaker 8: positive real return.
13:20
Speaker 1: That's why we're getting really illed these days, right right.
13:22
Speaker 8: So that for that reason, I say, yes you should
13:24
Speaker 8: because you don't have the duration risk. You may have
13:28
Speaker 8: to have a investment risk, but you certainly get compensated
13:30
Speaker 8: for inflation. So that's good, okay, And out the you curve,
13:34
Speaker 8: I still remain relatively skeptical. I think at ten years
13:37
Speaker 8: and thirtyth Bondh's is not enough compensation there.
13:40
Speaker 5: Yet.
13:41
Speaker 8: We may get there, you know, if we hit that
13:42
Speaker 8: five percent level, which I think we're going. But I
13:45
Speaker 8: think your best bet is on the front of the curve.
13:48
Speaker 2: We see almost that on the twenty year, don't we.
13:50
Speaker 2: I mean, I feel like, do you see yields going
13:54
Speaker 2: much higher out out the curve?
13:57
Speaker 8: So that depends on a few things, Matt, that it
13:59
Speaker 8: depends one on obviously, the message of the FAT coming
14:02
Speaker 8: out of all those data we're getting now is what's
14:04
Speaker 8: higher for longer? Is it still higher and then longer
14:07
Speaker 8: or are we at the high I think there's a
14:09
Speaker 8: mixed message on this from the fat currny or as.
14:12
Speaker 2: In there is because Powell says, on one hand in
14:15
Speaker 2: a press press conference, he'll say, we're not going to
14:17
Speaker 2: cut rate for years. Any there's an X on the
14:20
Speaker 2: end of that year, So I mean it's multiple, not
14:22
Speaker 2: just one year. We're not going to cut rates for years.
14:25
Speaker 2: Then I look at the dot plot and I see
14:28
Speaker 2: two rate cuts scheduled for next year. Not scheduled. I
14:32
Speaker 2: realized they're just prognoses. But the majority of the Federal
14:37
Speaker 2: Reserve expects to cut twice next year. Were they not
14:40
Speaker 2: listening to Powell or are they not on the same
14:42
Speaker 2: page as Powell?
14:44
Speaker 8: So actually that forecast changed the last meeting because there
14:48
Speaker 8: were people predicting a Hanna based points cuts, so they
14:50
Speaker 8: took some of that back, which I think, by the way,
14:53
Speaker 8: explains a lot of the yield movement we have seen
14:55
Speaker 8: of last period. It's just a fat has acknowledged this.
14:58
Speaker 8: This is a stronger economy. So it depends on that too.
15:01
Speaker 8: Where the economy conditions showed is resilience, including today's data.
15:05
Speaker 8: You can you know it's softening, is cooling, but it's
15:07
Speaker 8: not collapsing in any sort of way. Lastly, we do
15:10
Speaker 8: have a I think is supply demand imbalance so to speak,
15:13
Speaker 8: in the treasury markets. Then we've got tons of supply
15:17
Speaker 8: and we're seeing this change in demand. Maybe you call
15:20
Speaker 8: like I read Jersey as some interesting specific analis on
15:23
Speaker 8: that I would echo more that that that you know,
15:26
Speaker 8: the supply is large, and it looks like that they
15:29
Speaker 8: want to continue to issue more long term bonds. So
15:31
Speaker 8: I think all those factors drive you to that that
15:34
Speaker 8: five percent barrier. Now how high from there, who knows,
15:38
Speaker 8: but I think five percent of the psychological number.
15:41
Speaker 1: What you know, I've just been fascinated with energy, global
15:45
Speaker 1: energy price at WTI crude oil here we're off about
15:48
Speaker 1: a half a percent today, but still above ninety one
15:50
Speaker 1: dollars or barrows at a just a real big move
15:52
Speaker 1: off that high sixties we had just several months ago,
15:56
Speaker 1: and that's inflation area. How do you think about energy
16:00
Speaker 1: prices and how does that kind of factor into I
16:02
Speaker 1: guess the economy.
16:04
Speaker 8: It certainly is well because you know the data today
16:07
Speaker 8: in PC Basker too showed an increase of energy there,
16:11
Speaker 8: just like in CPI. So at some point people are
16:14
Speaker 8: going to take notice of it and factor that again
16:16
Speaker 8: in their expectations. So that's one issue you know Googlesby
16:19
Speaker 8: in the speech yesterday made a real point about that, saying,
16:22
Speaker 8: if you know, if we could TATA have this inflation
16:25
Speaker 8: on the right path, if people expect differently from inflation
16:28
Speaker 8: in the future, we may have to adjust policy. Right,
16:30
Speaker 8: So there's that issue. Then I think it's about how
16:34
Speaker 8: high will oil prices go before we getting real impact
16:37
Speaker 8: on the economy because the past is I think a
16:40
Speaker 8: good guy there. If high oil prices were the search
16:43
Speaker 8: and spike high, then it's going to slow down activity.
16:46
Speaker 8: People are going to pair back. It just seems to
16:48
Speaker 8: be always a factor for slow down. Nonetheless, it will
16:52
Speaker 8: be inflationary because we're still in a very high inflation.
16:55
Speaker 2: Environment we have seen or we haven't seen. I should
16:59
Speaker 2: say gas prices keep up with oil prices. And I'm
17:03
Speaker 2: not talking about at the pump, you know, I'm talking
17:06
Speaker 2: about the R BOB futures contract. It's not taken off
17:09
Speaker 2: at the same rate. Do you think that means that
17:12
Speaker 2: oil prices. Is this just a spike and they're going
17:15
Speaker 2: to come back down or are they holding at this level?
17:18
Speaker 8: I think it's the spike because of the little specific
17:22
Speaker 8: technical features in the oil market currently. I think what's
17:25
Speaker 8: happening there is that people recognize that the oil production
17:29
Speaker 8: costs cuts are really filtering through the global system.
17:32
Speaker 2: So how to watch the crack spreads? Right, I'm just
17:35
Speaker 2: learning our bob.
17:35
Speaker 1: That's a new one for me.
17:36
Speaker 8: Yeah.
17:37
Speaker 1: Really that's gasoline futures. Yes, why so again just to
17:42
Speaker 1: ask this question again, why is.
17:43
Speaker 2: It going down?
17:45
Speaker 7: So?
17:45
Speaker 8: I think that is a supply issue there, okay, And
17:47
Speaker 8: it was reported yesterday there was some additional supply there,
17:51
Speaker 8: so it is very much sensitive to that. Whereas with
17:53
Speaker 8: oil is the opposite situation. You know, John Ferrell on
17:57
Speaker 8: Saveant has me at this point this morning, we actually
17:59
Speaker 8: have high oil production United States. We just got low inventories,
18:04
Speaker 8: a cushing for all kinds of reasons. So the draw
18:08
Speaker 8: on that inventory pushes up the price. But once it
18:11
Speaker 8: gets back flooded in with all those oil production.
18:13
Speaker 1: Cushion that's in Oklahoma, right, and they have like the
18:16
Speaker 1: tanks that's where the pipelines go in and.
18:18
Speaker 2: Out Central I gotta get the Have you been the cushion?
18:21
Speaker 6: No?
18:21
Speaker 7: I haven't.
18:22
Speaker 1: Alex Steel goes all the time. The alyxis are. I
18:26
Speaker 1: want to go there because that seems like the pretty
18:28
Speaker 1: you want to see how the sausage is made in
18:30
Speaker 1: global energy. That's that's where we good. So so energy
18:35
Speaker 1: inflationary impact is it something that's more temporary from your perspective.
18:39
Speaker 8: So, I mean you have to watch headline inflation because eventually,
18:43
Speaker 8: if it gets higher headline, then it will spill over
18:46
Speaker 8: to an extending core. You know, Bloomberg has a very
18:48
Speaker 8: nice tracking of headline real time, and it has moved
18:52
Speaker 8: up again. It's sticked higher after a whole period of
18:55
Speaker 8: the cline. So I think we just have to watch
18:57
Speaker 8: this where this is going. They said, like, I think
19:00
Speaker 8: that if you're getting it little spike and oil prices
19:02
Speaker 8: they would go well over one hundreds. That it has
19:04
Speaker 8: a psychological effect on consumers.
19:06
Speaker 2: I don't understand why more people aren't worried about the
19:09
Speaker 2: strike dragging on because Okay, there's inventory now, but because
19:15
Speaker 2: they built up before the strike car of cars. But
19:19
Speaker 2: if they strike for longer, that inventory is gonna get
19:22
Speaker 2: whittled away. And we're already at a pretty high level
19:25
Speaker 2: in terms of car prices. New car prices, used car
19:27
Speaker 2: prices have been heading down, but that's going to turn
19:30
Speaker 2: around for sure. And then you get one hundred and
19:32
Speaker 2: fifty thousand people who are going to get a thirty
19:34
Speaker 2: percent raise. If this works out right, then other people
19:39
Speaker 2: are gonna want that kind of raise too, or something close.
19:42
Speaker 2: So you've got both the cost of goods, which to
19:46
Speaker 2: me are the most important goods, cars and.
19:49
Speaker 1: Wages as opposed to bread and water rising.
19:52
Speaker 2: That's got to be inflationary, hasn't it.
19:55
Speaker 8: Yeah, it echoes a bit to the Chepanese idea, right
19:58
Speaker 8: of Then you have unions, I think, successful in negotiating
20:02
Speaker 8: higher wages, so other unions are going to try that too,
20:05
Speaker 8: or seen some evidence of it. Now we have higher
20:07
Speaker 8: energy prices and people reacting to those energy prices with
20:11
Speaker 8: unions demanding wages part of it. So I won't say
20:15
Speaker 8: there's a spiral here yet, but there's some of that
20:18
Speaker 8: element happening. And I think overall strike should not disrupt
20:23
Speaker 8: the economy too much. That the California strike was five
20:26
Speaker 8: billion to the California economy but nothing to the US economy.
20:30
Speaker 2: So what's your base case for next year?
20:33
Speaker 3: Ben?
20:33
Speaker 2: Are we going to have a recession?
20:35
Speaker 8: I'm not in that camp. I think the economy is
20:37
Speaker 8: holding up. So soft landing still so still that software landing,
20:41
Speaker 8: that idea that we have too much of investment pushed
20:44
Speaker 8: in the economy from the Inflation Reduction Act and the
20:47
Speaker 8: Chips Act and the Infrastructure Act. That's just really coming true.
20:52
Speaker 2: But in that case you don't probably see FED cuts.
20:54
Speaker 2: Why would the FED cut if we have a soft.
20:56
Speaker 8: Landing, No, I think it's I think that is where
20:59
Speaker 8: I'm coming in my five percent yield scenario. So at
21:01
Speaker 8: a four and a half current at the ten year,
21:03
Speaker 8: the fifty base points forecasted in fat in the fat
21:06
Speaker 8: by the fat, it's probably going to be taken back too.
21:09
Speaker 8: If anything, if you look at that top lock currently
21:11
Speaker 8: the market is fifty base points away from the fat median,
21:14
Speaker 8: it's probably going to be again pulled up to the
21:16
Speaker 8: FETs media and that will bring you to the ten
21:19
Speaker 8: year five percent. And even at that level, which is high,
21:23
Speaker 8: I wouldn't think that that would necessarily bring the economy
21:26
Speaker 8: to a recession. I want to make one final point,
21:29
Speaker 8: which is always the Yu curve discussion on the recession. Yep,
21:33
Speaker 8: you know we have been in an inverted Yu curve
21:34
Speaker 8: now for a bit. It has been historically the harbing
21:37
Speaker 8: Geroff recession. At least a lot of studies but I've
21:40
Speaker 8: noted that each time the YU curve gets inverted and
21:43
Speaker 8: then becomes initially flat, like every old treasure huels are
21:46
Speaker 8: the same. That's when things become very uncertain. It's basically
21:49
Speaker 8: the bomb market saying I get paid the same yield
21:51
Speaker 8: for two years or for thirty years, but I don't
21:53
Speaker 8: know where it's going. Right, pretty uncertain, and it historically
21:57
Speaker 8: has shown that after that moment, the economy a lot
22:00
Speaker 8: of weaknesses slow down. All right, so you know we
22:03
Speaker 8: have to watch it.
22:03
Speaker 1: Keep and I only yield curb as we like to do.
22:05
Speaker 1: Ben Emon's head of Fixed Income with New Edge Wealth.
22:08
Speaker 1: Thanks so much for joining us.
22:10
Speaker 5: You're listening to the team Ken's are Live program Bloomberg
22:14
Speaker 5: Markets weekdays at ten am eastering on Bloomberg dot com,
22:17
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22:20
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22:24
Speaker 1: All right, let's talk about risk here. I look at
22:27
Speaker 1: the VIX. Matt doesn't like the VIX, but I look
22:29
Speaker 1: at the VIX because.
22:30
Speaker 2: It's on screen, watching it a lot lately.
22:32
Speaker 1: Sixteen point four to six. That is by no means
22:34
Speaker 1: in an area where people are freaked out. About anything here.
22:37
Speaker 1: But you know, the question is is the market properly
22:39
Speaker 1: pricing in risk?
22:40
Speaker 2: No, it's not the twelve to fourteen that it had
22:42
Speaker 2: been over.
22:42
Speaker 1: The No, which is amazing. Yeah. Nimrit Kang joins us
22:46
Speaker 1: co CIO and senior portfolio manager at north Star Asset Management.
22:51
Speaker 1: Nimert I wonder thanks so much for joining us. First
22:53
Speaker 1: of all, wonder how you guys think about risk manage
22:57
Speaker 1: risk in your portfolio here, because it's been a crazy
23:00
Speaker 1: few years here.
23:03
Speaker 4: Yeah, thank you for having me, Paul. And it's really
23:06
Speaker 4: interesting actually that you ask about risk because at Northstar.
23:11
Speaker 4: You know, the last time I was on the radio
23:14
Speaker 4: here with you, we were talking about how it's a
23:16
Speaker 4: Goldilock's economy. The markets are at all time highs. Just
23:20
Speaker 4: a month later the market's down seven percent from its highes.
23:23
Speaker 4: The we all know what's happened in the bond market
23:26
Speaker 4: with the rise in the ten year yields. So when
23:30
Speaker 4: we at northstart think about risk, we think about risk
23:33
Speaker 4: as our clients not being able to beat their financial
23:36
Speaker 4: goals and also not having their portfolios be in alignment
23:40
Speaker 4: with their values. The way we have approached risk is
23:43
Speaker 4: really think about what are the long term trends that
23:46
Speaker 4: are in place, and that's where we think about some
23:49
Speaker 4: of this. You know, the big change in the monetary
23:52
Speaker 4: cycle that we have seen from the cost of money
23:55
Speaker 4: being free to actually having a price on money. How
23:58
Speaker 4: does that change things everywhere? Right? And in juxtaposed to that,
24:04
Speaker 4: there's also some major secular trends in place that have
24:08
Speaker 4: been in place for decades, if not longer, and those
24:11
Speaker 4: are related to ecological reckoning. You know, we all know
24:14
Speaker 4: the extreme weather conditions we've been seeing. That's just the
24:18
Speaker 4: symptomatic of some of those trends that have been placed.
24:20
Speaker 4: The other one is related to aging demographics. Again been
24:24
Speaker 4: in place, but a big chunk of the population is
24:28
Speaker 4: entering the retirement age in the developed markets and we're
24:32
Speaker 4: starting to see all that manifestation come through in the
24:36
Speaker 4: you know, in the labor numbers and so forth. So
24:39
Speaker 4: for us, risk is really trying to understand what are
24:42
Speaker 4: we trying to do for the long term to achieve
24:45
Speaker 4: those goals pet for our clients, but then also thinking
24:49
Speaker 4: about how do we boil it down to portfolio construction.
24:53
Speaker 2: And you what do you come up with there? I mean,
24:55
Speaker 2: we've been talking for the last well, we had talked
24:58
Speaker 2: last year about the death of the sixty forty portfolio,
25:01
Speaker 2: but I guess this year it's been a pretty good deal.
25:06
Speaker 4: Yeah, you know, it's it's interesting you say that because we,
25:11
Speaker 4: especially on the fixed income side, we're looking at yields
25:15
Speaker 4: in agencies and so forth in the six percent range,
25:18
Speaker 4: right going out ten years, five, ten years, And if
25:21
Speaker 4: you really want to just hold those bonds to that
25:24
Speaker 4: point to the maturity and collect that six percent yield,
25:26
Speaker 4: that sounds pretty good and for a lot of our
25:29
Speaker 4: clients that make sense in terms of meeting their objectives.
25:32
Speaker 4: And then when we think about equities, for us, it's
25:36
Speaker 4: about having a very high quality equity portfolio consisting of
25:41
Speaker 4: companies that are just great, you know, high quality, low debt,
25:46
Speaker 4: you know, very good capital deployment, run by capable management teams,
25:50
Speaker 4: that are good stewards of capital and labor, and that
25:53
Speaker 4: are providing those essential products and solutions which we think
25:56
Speaker 4: there's going to be demand for, you know, going out
26:00
Speaker 4: ten years. And that's really how we think about constructing
26:04
Speaker 4: those portfolios and thinking about risk.
26:07
Speaker 1: One of the things that we talked about a lot,
26:09
Speaker 1: or or is talked about a lot in financial services
26:13
Speaker 1: over the last really four or five six years has
26:15
Speaker 1: been EESG and the development of that as a factor.
26:20
Speaker 1: I guess, how do you guys think about that, because
26:22
Speaker 1: it seems like in the US at least it's kind
26:25
Speaker 1: of lost some momentum here has come a little politicized.
26:27
Speaker 1: I guess.
26:28
Speaker 2: Yes.
26:29
Speaker 9: So Northstar has been doing socially responsible investing since nineteen ninety, right, okay,
26:35
Speaker 9: And the way that we think about socially responsible investing
26:39
Speaker 9: is coming from a different perspective where we think.
26:42
Speaker 4: That there is no company that is going to be
26:45
Speaker 4: socially responsible because the environment is evolving, our sense of
26:50
Speaker 4: what's appropriate, what was appropriate thirty years ago is no
26:53
Speaker 4: longer acceptable. Right, There's more and more things that are
26:56
Speaker 4: being demanded. The society is changing. We can use our
27:00
Speaker 4: shareholder rights on behalf of our clients to advocate for
27:04
Speaker 4: positive change at these companies or for them to act
27:08
Speaker 4: in better ways, behave more responsibility, as we would like
27:12
Speaker 4: to call it. So, you know, in some ways, Paul,
27:17
Speaker 4: if you think about in nineteen thirties, the Financial Standards
27:20
Speaker 4: Accounting Board put in place that you know, you have
27:23
Speaker 4: to report financials a certain way. ESG is a similar
27:26
Speaker 4: there's the metrics. We don't think that you can look
27:30
Speaker 4: at you can really understand how a company is shaping
27:35
Speaker 4: its environment or what it's doing by just looking at metrics. Right,
27:38
Speaker 4: that's a starting point. We fully support that their standardization
27:43
Speaker 4: in the industry to that or to that account, But
27:46
Speaker 4: for us, it's really about making sure that the companies
27:50
Speaker 4: are upholding what we call our five pillar framework, that
27:54
Speaker 4: they are in alignment with this view that we have
27:58
Speaker 4: in terms of what they are doing to bridge the
28:01
Speaker 4: economic inequity, gender and racial equity, what are they doing
28:05
Speaker 4: in terms of human rights, what are they doing for
28:08
Speaker 4: environmental all the different environmental aspects that we're looking at,
28:13
Speaker 4: and then what does that all say about their corporate governance?
28:17
Speaker 4: So it's not about ESG being in and out of fashion.
28:20
Speaker 4: It's about making sure that there are material risks out
28:24
Speaker 4: there and how do we incorporate that in our analysis? Right, So,
28:28
Speaker 4: if we fast forward, there's this huge we noticed this
28:31
Speaker 4: this summer in itself was where we had extreme temperatures
28:34
Speaker 4: and all those different parts. Water is an area where
28:37
Speaker 4: there's more and more stress. Water stress. How do we
28:41
Speaker 4: think about all those trends. It's not about a metric
28:44
Speaker 4: that's in fashion or not. It's the long term sustainability
28:48
Speaker 4: and to ensure that we do get those financial returns
28:52
Speaker 4: over long terms. They're not going to be there if
28:54
Speaker 4: the companies that we're investing in their business models are
28:57
Speaker 4: threatened and they're no longer can do business right. So
29:00
Speaker 4: that's how we approach it here at north Star.
29:04
Speaker 1: Hey, Nimber, thanks so much for joining us and sharing
29:06
Speaker 1: your thoughts. You always appreciate that. Nimerck Kang, co CIO
29:10
Speaker 1: and Senior portfolio manager at north Star Asset Management.
29:14
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
29:17
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
29:21
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
29:25
Speaker 2: at Matt Miller nineteen seventy three.
29:27
Speaker 1: And I'm fall Sweeney. I'm on Twitter at pt Sweeney.
29:30
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29:32
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