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Markets, Ukraine, and the Economy · 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. Every business day we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. Let's go over to
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Speaker 1: Michael Weiss. He is the founder and president of Yield Street. Michael,
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Speaker 1: thanks so much for joining us here. It's it's FED day.
0:28
Speaker 1: You know, here Bloomberg we make a big big deal
0:31
Speaker 1: about it because the markets really care. What are you
0:34
Speaker 1: thinking about? What do you expect to hear from this Fed?
0:36
Speaker 1: It's good to be back in good morning. I expect
0:38
Speaker 1: to see a little bit of the same when it
0:40
Speaker 1: comes to the FED. I think the market continues to
0:44
Speaker 1: think that we have it all figured out, and the
0:45
Speaker 1: FED enjoys showing us that we don't. I expect us
0:48
Speaker 1: to see another raid hike. I think the markets are
0:51
Speaker 1: going to see a choppy day today. I think we're
0:53
Speaker 1: going to see some more volatility. I don't think the
0:55
Speaker 1: FED is done yet. I think they have resilience that
0:58
Speaker 1: we have yet to experience. Well, they share better not
1:02
Speaker 1: be done because they have five and a quarter percent
1:04
Speaker 1: as the terminal rate on the dot plot. So if
1:06
Speaker 1: they finish at four, that's a big miss. I could
1:09
Speaker 1: imagine though, that they don't go much higher than five,
1:12
Speaker 1: because I think they're a little more hawkish on the
1:14
Speaker 1: dot plot than they expect to be in real life. Plus,
1:17
Speaker 1: to be fair, a lot has changed, right Michael. I mean,
1:21
Speaker 1: we've seen inflation come down pretty substantially. We are seeing
1:25
Speaker 1: inflation come down. We are seeing the American consumers pocket dinner.
1:30
Speaker 1: We're seeing people pulling out of we we saw Vanguard
1:34
Speaker 1: published a report that the people are having hardship withdrawals
1:38
Speaker 1: out of their personal retirement accounts at a level that
1:40
Speaker 1: we haven't seen before. And so the consumer is different.
1:45
Speaker 1: Their ability to spend has dramatically decreased, and they don't
1:49
Speaker 1: have the same deposits they used to the way how
1:52
Speaker 1: does that affect How does that affect your investments at
1:55
Speaker 1: Yield Street, because you have I think a very unique
1:58
Speaker 1: situation in that UM, if I understand it correctly, you're
2:03
Speaker 1: you allow UM kind of retail investors to get in
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Speaker 1: on something that until now had been really the revere
2:13
Speaker 1: of institutional clients or the ultra wealthy. Right you you
2:17
Speaker 1: let people into private credit. Correct, the old Street has
2:21
Speaker 1: been making access to alternative investments available for retail investors
2:27
Speaker 1: and credit investors. And what we have been a big
2:30
Speaker 1: proponent of is helping people build a better and more
2:33
Speaker 1: modern portfolio that includes private assets, so private credit, private equity,
2:39
Speaker 1: real estate, and a host of other investments that were
2:42
Speaker 1: usually and historically reserved for the ultra wealthy and the
2:45
Speaker 1: institutional investor and had been incredibly popular. I mean, everybody
2:50
Speaker 1: Paul and I talked to in two was like, Man,
2:53
Speaker 1: these markets are are too crazy. We're going to run
2:58
Speaker 1: for the hills. The only thing we like is either credit.
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Speaker 1: So how's that turning out? How does that look this year?
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Speaker 1: It still continues to look really great. I'll talk to
3:08
Speaker 1: you a little bit about some of the challenges you
3:10
Speaker 1: could expect in private markets. But for the most part,
3:13
Speaker 1: the private markets are holding their own and people continue
3:16
Speaker 1: to invest in and continue to see net inflows month
3:19
Speaker 1: over month. People want more stability, They want to get
3:22
Speaker 1: away from the volatility in the public markets. They trust
3:25
Speaker 1: the public markets for life, and it has to deliver
3:27
Speaker 1: the returns for them that they want it or the stability,
3:30
Speaker 1: whereas in the private market, for example, in private credit
3:33
Speaker 1: or in real estate debt, you are often able to
3:37
Speaker 1: invest in a sofa based or in a floater I
3:40
Speaker 1: know that's a trigger word for you your last time,
3:43
Speaker 1: I think you pulled the Caddy shock reference. But um,
3:47
Speaker 1: if if you're invested in a floating rate product, then
3:51
Speaker 1: you're going to continue to earn more as the ft
3:54
Speaker 1: increases the rate. And so for the most part, the
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Speaker 1: alternative investment lands it has held its own and people
4:02
Speaker 1: continue to invest more nuanced. Where you're seeing a shift
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Speaker 1: over the last twelve months is historically people were really
4:11
Speaker 1: excited over the last number of years about private equity,
4:14
Speaker 1: about venture about being growth opportunities, so I think of
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Speaker 1: longer duration and limited cash flow but a bigger return
4:21
Speaker 1: in the future. Over the last number of months, investors
4:25
Speaker 1: have shifted that appetite into shorter duration, cash flowing assets,
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Speaker 1: more credit based, less long term equity, and they were
4:32
Speaker 1: able to distill access those investments through our platform. And
4:38
Speaker 1: so we've shifted some of the demand as to where
4:41
Speaker 1: we're investing more heavily to cater to what people really want. Hey, Matt,
4:45
Speaker 1: you know, to the extent we do get a recession
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Speaker 1: in how concerning you about the private credit business as
4:54
Speaker 1: you think about credit quality, how does that change maybe
4:57
Speaker 1: how you think about that business. I'm very bullish on
5:01
Speaker 1: the private credit business as it relates to credit quality. Obviously,
5:04
Speaker 1: that's much more specific to the strategy. Within private credit.
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Speaker 1: We've mostly been focused on teen year secured or on
5:12
Speaker 1: bridge lending UM that's imagining, but on a lower loan
5:15
Speaker 1: to value basis. So when you look at our portfolio
5:18
Speaker 1: or when you look at the partners that we do
5:20
Speaker 1: business with, we feel really good about it. I think
5:22
Speaker 1: where the recession starts to hit UM in a more
5:26
Speaker 1: impactful way. Some of the private investments, for example, take
5:30
Speaker 1: of real estate equity. So a lot of the investments
5:33
Speaker 1: they have senior debt that could be on a floating rate.
5:37
Speaker 1: And so for folks that don't have recaps, that becomes
5:41
Speaker 1: a real issue because their cost of debt just skyrocketed.
5:45
Speaker 1: Our portfolio has recaps, but they're gonna roll in twenty four,
5:49
Speaker 1: l twenty three or early twenty four. And so if
5:52
Speaker 1: you look at the forward curve today, you feel comfortable
5:55
Speaker 1: saying Hey, by that time, you're going to be in
5:57
Speaker 1: a better place and you'll be fine. People who are
5:59
Speaker 1: dealing with expiring recaps now are going to have a
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Speaker 1: lot of trouble because the cost of that dead is
6:05
Speaker 1: going to be way too expensive. All right, Michael, great stuff.
6:08
Speaker 1: Always appreciate checking in with you. Michael Weiss's founder and
6:11
Speaker 1: president of Yield Street talking about the credit markets. Lots
6:17
Speaker 1: of eco data, lots of earnings, but also geopolitical issues
6:21
Speaker 1: out there for the markets to take into accouncil. Let's
6:23
Speaker 1: bring on Angela Stent, she's a senior fellow at the
6:26
Speaker 1: Brookings Institute in Angela. Before we get to kind of
6:29
Speaker 1: Russia Ukraine and what that means for just geopolitical tensions,
6:34
Speaker 1: you know. The kind of the story that's just kind
6:35
Speaker 1: of hitting the tape right now is the Justice Department
6:38
Speaker 1: at President Biden's home in Rohoboth Beach, Delaware looking for
6:41
Speaker 1: more documents. What's going on with these documents for a
6:45
Speaker 1: lot of these senior level folks, Well, I think it
6:49
Speaker 1: shows that we need a better system. When people leave
6:52
Speaker 1: office and I guess it's the last days and everyone's
6:55
Speaker 1: hwying around and packing things up, that clearly mistakes were
6:59
Speaker 1: made us. So I think as a result of all
7:01
Speaker 1: of this, and I guess, uh, they've now asked the
7:04
Speaker 1: Justice Department has asked the you know, all of the
7:07
Speaker 1: former presidents and vice presidents to make sure that they
7:10
Speaker 1: don't have classified documents, that they'll have to have a
7:12
Speaker 1: better way of dealing with it, because clearly the system
7:16
Speaker 1: hasn't worked. How is the system working now? I mean,
7:20
Speaker 1: the first documents were found November two, just before an election.
7:24
Speaker 1: Fortunately for the Democrats, they didn't tell anybody until after
7:27
Speaker 1: the mid terms. But it's been quite a while. They're
7:31
Speaker 1: just searching his beach house now. Why, well, I guess
7:35
Speaker 1: you know, it takes time for them, you know, their
7:38
Speaker 1: procedures to uh, you know, to to get to all
7:42
Speaker 1: the different places you know, where the presidents life is happening. Yeah,
7:49
Speaker 1: they were scheduled. Yeah, I mean, everything's you know, it
7:53
Speaker 1: takes time. But clearly, as I said, the system isn't
7:56
Speaker 1: working properly and we need a better system. It's been
7:58
Speaker 1: three months, by the way, three months. It's I think,
8:01
Speaker 1: I don't know what's going on there. I guess the
8:02
Speaker 1: government is busy, busy, busy, And let's switch gears and
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Speaker 1: get to the big issue that we want to discuss
8:07
Speaker 1: with you, that's just kind of Ukraine and Russia. Can
8:10
Speaker 1: you give us your thoughts. I mean, we're a year
8:13
Speaker 1: into this, so much suffering by the folks of Ukraine.
8:16
Speaker 1: Can you tell us kind of where we are and
8:18
Speaker 1: how this might play out? So we're really, i would say,
8:22
Speaker 1: at the moment, in a stalemate. The Ukrainians had made
8:26
Speaker 1: some games in September and October, the Russians have pushedback.
8:29
Speaker 1: There's fierce fighting going on still in the town called
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Speaker 1: bah Mood. If you look at pictures of it, it's
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Speaker 1: completely destroyed Um and we expect a new Russian offensive
8:40
Speaker 1: sometime in the spring. We don't know when it's going
8:42
Speaker 1: to be um And therefore, you know, the Ukrainians have
8:45
Speaker 1: really been asking for more military assistance from the West.
8:49
Speaker 1: So now you have the Germans, after a long debate,
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Speaker 1: saying that they will supply them with Leopard tanks, and
8:54
Speaker 1: other European countries that have these German tanks, which top
8:58
Speaker 1: of the line, will also supply by Ukraine. The Biden
9:01
Speaker 1: and Registration has said we will send Abram's thanks to Ukraine,
9:05
Speaker 1: but they may not get there. Till at least the
9:08
Speaker 1: end of this year, um so. And now, of course
9:10
Speaker 1: the Ukrainians are asking for more fighter jets, so there's
9:14
Speaker 1: a big debate going on. So I think at this
9:18
Speaker 1: point the Ukrainians need all the military assistance they can
9:22
Speaker 1: get to push back against this new Russian offenses coming
9:25
Speaker 1: along sometime in the next few months. But this could
9:29
Speaker 1: go on, you know, for a very long time. There
9:31
Speaker 1: is no uh sign at the moment that either side
9:35
Speaker 1: is ready to sit down and talk about a peace negotiation.
9:39
Speaker 1: I mean it could be if you look at what's
9:41
Speaker 1: happened in Afghanistan and Vietnam, this could be something they're
9:45
Speaker 1: engaged in for years, if not decades. Um is it
9:50
Speaker 1: risky with a leader like Putin? I mean, he seems
9:53
Speaker 1: like he has nothing to lose, either wins or he dies.
9:58
Speaker 1: So this what's the concern about esca lation. And of
10:01
Speaker 1: course the minute that the announcement was made about the
10:03
Speaker 1: tanks for Russians threatened counter moves. On the other hand,
10:07
Speaker 1: what they're trying to do is just intimidate everybody, the
10:10
Speaker 1: Ukrainians and on all of their supporters to doing nothing
10:14
Speaker 1: so that Russia can continue this war and essentially change
10:17
Speaker 1: the government in Key of which they still want to
10:19
Speaker 1: do and take over Ukraine. So I think we shouldn't
10:22
Speaker 1: allow ourselves to be too intimidated by Putin, but I
10:25
Speaker 1: think we have to recognize our risks there um, and
10:28
Speaker 1: we have to warn the Russians as we're doing, of
10:31
Speaker 1: the consequences of escalating this any further. Angela, do you
10:36
Speaker 1: have a sense of the level of support that Mr.
10:39
Speaker 1: Putin has within Russia itself of the people for this war. Sure? So.
10:46
Speaker 1: The public opinion data that we have from the only
10:48
Speaker 1: independent polling place is that about seventy of the people
10:55
Speaker 1: who are in Russia support this war. Let's keep decent
10:58
Speaker 1: of them, uh, support it more enthusiastically, the other maybe
11:03
Speaker 1: less so. So the supporter is still there. As many
11:06
Speaker 1: as a million Russians have left Russia, including a couple
11:10
Speaker 1: of hundred thousands of young men who didn't want to
11:12
Speaker 1: be mobilized. So those people don't support the war, but
11:15
Speaker 1: they're ones who remained they do, or they're indifferent to it.
11:19
Speaker 1: On the other hand, of the Russians also say that
11:22
Speaker 1: there should be negotiations, but Putin has managed to persuade people,
11:26
Speaker 1: particularly those people who only have access to state run
11:30
Speaker 1: media that this is you know, the United States is
11:32
Speaker 1: threatening Russia. This is a Russia a war of Russia
11:35
Speaker 1: against the West, and Russia is going to defeat them. Angela.
11:39
Speaker 1: You know, we see stories of Putin letting inmates out
11:45
Speaker 1: of prison and putting them on the front lines. I mean,
11:48
Speaker 1: it looks like they're just they have nothing left. How
11:52
Speaker 1: long can they continue to go here? Well, I mean
11:55
Speaker 1: the Russians can still continue to go on for some time.
11:59
Speaker 1: So the the Mercenary Group Wagner, which isn't the regular
12:03
Speaker 1: Ministry of Defense troops, they've been recruiting prisoners, murderers, rapists, etcetera,
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Speaker 1: and sending them to the front and many of those
12:10
Speaker 1: people are getting killed, but they are you know, they
12:13
Speaker 1: still have quite a lot of people that they can mobilize. Um,
12:17
Speaker 1: they do have ammunition. They're getting stuff from the North Koreans,
12:21
Speaker 1: They're getting drones from the Iranians. So the Russians can
12:24
Speaker 1: continue going. They have a history of enduring uh these things.
12:29
Speaker 1: And I think Putent's calculation is that in the end
12:33
Speaker 1: the West will cave, that we will we won't have
12:35
Speaker 1: the enthusiasm anymore for supporting Ukraine and that Russia will
12:39
Speaker 1: be able to prevail Angela. I mean, I mean we're
12:42
Speaker 1: speaking with Angela's a Stent, a senior fellow at the
12:44
Speaker 1: Brooklyn Institute. Andrew you literally wrote the book on Mr.
12:47
Speaker 1: Putin entitled Putin's World, Russia against the West and with
12:51
Speaker 1: the Rest, and that want to Fletcher School of Law
12:54
Speaker 1: and Diplomacy Prize for the best book on US Russian relations.
12:57
Speaker 1: So how you know Mr Putin's well as anyone? How
13:01
Speaker 1: did he miscalculate so badly? So? I think he was
13:06
Speaker 1: only being given information that his intelligence services knew he
13:11
Speaker 1: wanted to hear. So he was misinformed about the situation
13:14
Speaker 1: in Ukraine. He thought the Ukrainians wouldn't fight back. He
13:17
Speaker 1: was misinformed about the state of the Russian armed forces,
13:21
Speaker 1: which of course have performed much worse than he thought
13:24
Speaker 1: they would. And he was misinformed about the West. He
13:28
Speaker 1: thought that the US wouldn't react. He looked at what
13:30
Speaker 1: happened at the withdrawal from Afghanistan um and I think
13:34
Speaker 1: he had two years of COVID isolation where he really
13:39
Speaker 1: didn't meet any foreign leaders. And you know, he just
13:41
Speaker 1: talked to a small group of people who reinforced all
13:44
Speaker 1: of his ideas, all of his beliefs in paranoia. So
13:48
Speaker 1: it's been a huge miscalculation. Um, and I think it's
13:52
Speaker 1: just that he really wasn't given the information that he needed.
13:55
Speaker 1: I mean, you're also a national intelligence officer for Russia
13:59
Speaker 1: and your Asia at the National Intelligence Council. You were
14:03
Speaker 1: a member of the senior advisory panel for James Traviti's
14:06
Speaker 1: Admiral Astrivities, the Supreme Allied Commander in Europe UM, as
14:12
Speaker 1: well as others. What's your take on the relationship between
14:16
Speaker 1: Russia and especially Germany. You know, I lived in Berlin
14:19
Speaker 1: for the last five years. You've written a book about
14:22
Speaker 1: the West German relationship with Russia with the Soviet Union
14:24
Speaker 1: before the fall um angela miracle, and the Germans decided
14:29
Speaker 1: to put all their eggs in Vladimir Putin's basket, even
14:33
Speaker 1: though the US administration asked them time and time again
14:37
Speaker 1: to reconsider their reliance on that natural guess why do
14:40
Speaker 1: you think they did that? And? Um, you know, what's
14:45
Speaker 1: what's the relationship going to look like now? So they
14:48
Speaker 1: had a strong belief for about fifty years that you know,
14:51
Speaker 1: if you traded, if you had better economic relations with
14:55
Speaker 1: first of all the Soviet Union and then post Soviet Russia.
14:58
Speaker 1: If you imported that gass, that would somehow translate into
15:03
Speaker 1: better political relationships too. And in fact, you know, fifty
15:07
Speaker 1: years ago the Germans used this kind of economic relationship
15:11
Speaker 1: incentives with the Soviet Union because you know, to try
15:14
Speaker 1: and improve the situation with the East Germans. So that
15:17
Speaker 1: was their belief. And then there's all of this historical
15:20
Speaker 1: baggage that comes with it, the feelings of responsibility and
15:24
Speaker 1: guilt for what happened in World War Two. Twenty seven
15:27
Speaker 1: million Soviet citizens died, but of course those are Ukrainians
15:31
Speaker 1: as well as Russians. Um. And there was a lot
15:34
Speaker 1: of pressure from the business community on Angela Merkel for instance,
15:38
Speaker 1: to continue these natural gas deals. Um. And they have
15:42
Speaker 1: finally woke up on every four last year and realized
15:46
Speaker 1: that all of these assumptions were wrong. And that's why
15:49
Speaker 1: you had the speech from Chancellor Soaultz just a couple
15:52
Speaker 1: of days after the invasion. UM. And I think German
15:56
Speaker 1: policy has changed, you can see that of the provision
15:59
Speaker 1: of the but there's still a lot of debate in
16:02
Speaker 1: Germany about this. There's still a lot of Germans, all
16:05
Speaker 1: the Germans who still think that Germany has this responsible
16:09
Speaker 1: ability towards Russia. All right, Angela, great stuff. We wish
16:12
Speaker 1: we had more time with you, but will certainly have
16:13
Speaker 1: you back as the news warrants. Angela Stent, senior Fellow
16:16
Speaker 1: of the Brookings Institute, giving us the latest on geopolitical issues. Matt,
16:22
Speaker 1: we're talking about the FED. It's FED Day. But you
16:24
Speaker 1: know what, you and I we don't know anything. So
16:26
Speaker 1: sometimes we try to talk to smart people like Vince
16:29
Speaker 1: Signarella because he talks to traders and things like that,
16:32
Speaker 1: and that is very, very helpful. Well, let's just go
16:34
Speaker 1: right to the Vince talk to traders about what they
16:36
Speaker 1: want the FED to do. Yes, a lot, but let's
16:39
Speaker 1: talk maybe more than what they think the FED is
16:40
Speaker 1: actually going to do. But let's talk to somebody who
16:42
Speaker 1: actually does it. Who actually is in the market. Georgia
16:47
Speaker 1: joining us here in Bloomberg Interactive Broker Studios. Kat Trombone Trombone,
16:51
Speaker 1: ka Bone, ketrim Bone. He's a CEO and head of
16:54
Speaker 1: America's Trading at DWS Group. So George, you're in the market,
16:57
Speaker 1: You're in the front lines. What do you here? What
17:00
Speaker 1: are your traders telling you. What are your clients telling
17:02
Speaker 1: you about what this FEDER reserve is going to do? Well?
17:04
Speaker 1: I think they need to speak hawkish today. Quite frankly,
17:07
Speaker 1: it needs to be some sort of a power of
17:09
Speaker 1: pushback because the broader market is not believing what the
17:12
Speaker 1: Fed is saying. Nuts, right, I mean, look at financial
17:15
Speaker 1: conditions easing, your own financial conditions index and there's a
17:19
Speaker 1: plug yourself, go on. The Bloomberg terminal is actually showing easing.
17:24
Speaker 1: I mean, look at dollar weakness, look at multiples extending
17:28
Speaker 1: towards eighteen and beyond, so that those easy conditions POW
17:32
Speaker 1: is going to need to push back against. I can't
17:33
Speaker 1: believe that the market is actually talking about our pricing
17:36
Speaker 1: and two rate cuts this year, and I think that
17:38
Speaker 1: that's that has to be a concern. He told you
17:41
Speaker 1: are the market. I mean, I look at you, and
17:44
Speaker 1: you are the market. You're out there, you're buying and
17:46
Speaker 1: selling all day on behalf of your your clients. What
17:48
Speaker 1: do you think that a trillion dollars and assets under
17:51
Speaker 1: management that ws that's a lot of that's a lot
17:53
Speaker 1: of money. That's a lot of money that that's more
17:55
Speaker 1: than like the lotto. That's a lot of money. What
17:57
Speaker 1: do you do? Like, so, what do you think the FED?
17:59
Speaker 1: What's disconnect between the Fed we're gonna be hawkish and
18:02
Speaker 1: the market that you trade in every day. That's saying
18:04
Speaker 1: maybe some rate cuts momentum is hard to fight, is
18:07
Speaker 1: what it tells you. And it's also painful, uh, staying
18:10
Speaker 1: in cash and watching the market begrudgingly participate. I mean,
18:13
Speaker 1: I think the early part of this year, especially in
18:15
Speaker 1: fixed income, there's not been the amount of new issuance
18:18
Speaker 1: that you've seen before. That's keeping or forcing spreads to
18:21
Speaker 1: sort of stay in there and get reinvested again. And
18:24
Speaker 1: I think that's gonna be a difficult balancing act for
18:26
Speaker 1: the for the FED and for PAL. This is not
18:28
Speaker 1: the time, you know, to support easy. You talk about
18:31
Speaker 1: this at Jackson Hole especially, and this is the moment
18:33
Speaker 1: he's going to have to building it in and have
18:35
Speaker 1: a backbone. You know, we haven't talked about for a
18:38
Speaker 1: while now. We're so focused on the terminal rate because
18:41
Speaker 1: the market is pricing less, far less than the feds
18:44
Speaker 1: um dot plot shows, and like you said, the markets
18:48
Speaker 1: pricing and cuts in three. We haven't talked about QT
18:51
Speaker 1: for a long time, and it feels like there's already
18:53
Speaker 1: a liquidity issue out there. Is QT working. I mean,
18:57
Speaker 1: we do see inflation coming down. It's working, but at
19:01
Speaker 1: a at a I think where you're coming from, what
19:04
Speaker 1: eight or nine trillions on the balance sheet itself, So
19:07
Speaker 1: it's working, it's working at a lag. They're not actively
19:10
Speaker 1: selling either, They're letting the balance sheet roll off. So
19:13
Speaker 1: until I see mortgages actually being sold, I think it
19:17
Speaker 1: continues to exist in the background, and maybe as financial
19:20
Speaker 1: conditions do get tighter, or at least we hope or
19:23
Speaker 1: this Powell hopes from here, how could they possibly get
19:25
Speaker 1: tighter there one year? I guess high is the right
19:28
Speaker 1: word to put it. You know, they haven't been this
19:30
Speaker 1: loose and over twelve months. Correct, They're gonna need to
19:33
Speaker 1: get higher otherwise we're going to have a problem. And
19:35
Speaker 1: I'm not sure that the market is actually ready for
19:37
Speaker 1: that CPI to either plateau and or creep up a
19:40
Speaker 1: little bit. And I think that's when you start to
19:42
Speaker 1: get back to the narrative a few months ago about
19:44
Speaker 1: a terminal rate existing you know, well into five, call
19:47
Speaker 1: it five and a half, or some economists even calling
19:50
Speaker 1: for six. And I think that that will be something
19:52
Speaker 1: to watch. By the way, we've already called out basically
19:55
Speaker 1: three Bloomberg functions, right worp w I, r P go
20:00
Speaker 1: and then fed space ball go, which shows you the
20:03
Speaker 1: balance sheet. It's really cool. What do you screen for?
20:06
Speaker 1: What do you look when you get to work in
20:07
Speaker 1: the morning at DWS and you log in your name,
20:10
Speaker 1: absolutely what you have to what do you what do
20:14
Speaker 1: you look at? What's your dashboard look like? Well, I
20:17
Speaker 1: can export my jump pad to you, I think my
20:19
Speaker 1: launch pad and you're welcome to take a look at it.
20:21
Speaker 1: But yeah, I mean it's those and it's it's a
20:23
Speaker 1: bunch of other functions around currency. I mean the dollar
20:26
Speaker 1: weakness that you've seen recently is meaningful and also adding
20:28
Speaker 1: to that, we need some financial conditions, and obviously we're
20:31
Speaker 1: a global asset manager, so certainly where European markets are,
20:35
Speaker 1: it's crazy to see the foot see not one not
20:37
Speaker 1: too far off of all time highs when you think
20:39
Speaker 1: about where we were just six months ago and potentially
20:42
Speaker 1: a cold winter and shortages and things alike, and that
20:45
Speaker 1: to see those equity markets off is surprising. So it's
20:49
Speaker 1: try to call them outperforming. I mean the CAC and
20:51
Speaker 1: the decks, are up nine percent, the IBEX in Madrid
20:55
Speaker 1: is up ten and a half percent. Those are NASDAC
20:57
Speaker 1: numbers correct, and one wonders if there's that much more
21:01
Speaker 1: room to go there, um from here, But you know,
21:04
Speaker 1: it's a long year, and I would definitely exercise patient.
21:07
Speaker 1: It does seem like everything that everyone forecast to happen
21:09
Speaker 1: in three has already happened. By FED first, I think
21:12
Speaker 1: we're already at your retargets. So what do you think
21:14
Speaker 1: I mean these this first month of the year. Is
21:16
Speaker 1: that a is this a technical snap back in some
21:19
Speaker 1: of these asset classes, or is this the beginning of
21:21
Speaker 1: a turnaround. I've been wondering the same thing about equities
21:24
Speaker 1: because we've seen um, you know tech, we've seen consumer discretionary,
21:30
Speaker 1: we've seen telecoms. They've been the best performers. Meanwhile, the
21:34
Speaker 1: defensive UH industries, utilities and real estate, UM, they've been
21:40
Speaker 1: the worst performers. So either this market has some real
21:45
Speaker 1: UH bullish conviction or there's a lot of short covering
21:49
Speaker 1: going on from all the tax haven selling that happened
21:52
Speaker 1: at the end of last year. And you know a
21:53
Speaker 1: lot about that, right um, And then get back in
21:56
Speaker 1: this year, UM, I think it's a combination of, like
21:59
Speaker 1: you said, tax law selling, r S I s being
22:02
Speaker 1: incredibly stretched and technical levels being oversold. You look at
22:05
Speaker 1: any indicator, bull bear indices, you could look lame half
22:08
Speaker 1: a dozen. Everything was just incredibly barish and negative. And
22:12
Speaker 1: you know, coming in this this year to start, um,
22:14
Speaker 1: you know you're seeing systematic ct A demand. For sure,
22:17
Speaker 1: you're seeing short covering, a declining VIX, lower than expecting
22:21
Speaker 1: new issue activity and credit and all, and and quite frankly,
22:24
Speaker 1: the move index or the rates index, there's another Bloomberg
22:27
Speaker 1: function for you, um, you know, easing quite a bit
22:31
Speaker 1: and also not helpful to the FED by the way.
22:33
Speaker 1: And you know within that that narrative, it is creating
22:36
Speaker 1: a good updraft here. And I believe very much on
22:38
Speaker 1: a technical basis, as you start where you're going to
22:40
Speaker 1: condext in equities eighteen x nineteen x. And this is
22:43
Speaker 1: in a year where you know, earning his estimates earning
22:46
Speaker 1: his growth are flat, quite frankly, from from here out,
22:49
Speaker 1: and that's not even you know, that's including energy take
22:51
Speaker 1: energy out. The picture gets much more oblique. So you're
22:53
Speaker 1: really paying a premium right now. So we have three
22:54
Speaker 1: more hours right until the Fed. Um, let's wrap it up.
22:59
Speaker 1: What are expect from Jerome Powell today? To walk a
23:03
Speaker 1: tight rope but still after lean hawkish? If you're the Fed,
23:07
Speaker 1: this is not what you want to see right now,
23:09
Speaker 1: um at all? And easing of financial conditions with more
23:12
Speaker 1: more room to go as far as disinflation, so they
23:16
Speaker 1: have more work to do. They cannot afford to give
23:19
Speaker 1: show any weakness right now. So what are your traders
23:22
Speaker 1: on your desk at DWS. You're down at fifty second Street,
23:25
Speaker 1: third Avenue. Come visit us? Yeah? Absolutely, well you can
23:28
Speaker 1: come visit us because you're so close. What do they
23:29
Speaker 1: do on a day like today? They? What did they
23:31
Speaker 1: just calm down until two o'clock? The positioning is light
23:35
Speaker 1: going into this, yeah, right, So you don't want to
23:37
Speaker 1: front run this too much because of expected surprises or
23:40
Speaker 1: or something that can come out of left fields. Get
23:42
Speaker 1: some more coffee, throwing a fat lip, and just chill
23:44
Speaker 1: until two. It's almost as if you have cameras on
23:47
Speaker 1: our desk. That's exactly. Hey, you guys are our global firm,
23:50
Speaker 1: as you mentioned thirty seconds, what do you mean what
23:53
Speaker 1: do you take away from China reopening? How does that
23:55
Speaker 1: play into what what you guys are looking at. Sure
23:58
Speaker 1: it's gonna be net positive to both em and global growth,
24:01
Speaker 1: and i'd expect pent up demand at least initially to
24:04
Speaker 1: really come to the four. So it is an opportunity.
24:06
Speaker 1: I think everyone's underweight this country. If you look back
24:09
Speaker 1: six months ago to what we're discussing earlier, everyone said
24:12
Speaker 1: get out right now you're seeing a kind of rush
24:14
Speaker 1: back in, and I would just sort of be careful.
24:17
Speaker 1: The property sector is still an issue there as well,
24:19
Speaker 1: so you you want to you want to certainly consider it,
24:22
Speaker 1: but not push all in. Yep, alright, good stuff. George
24:25
Speaker 1: countrom Bone, catrom Bone CEO. That did pretty well. Then
24:28
Speaker 1: catrom Bone, you just say it like it's spelled bone
24:33
Speaker 1: CEO and head of America's trading at DWS, which stands
24:36
Speaker 1: for Deutsche Very Papiers Bettylisten, all right, it's the asset
24:40
Speaker 1: management business of Deutsche Bank. They got like almost a
24:43
Speaker 1: trillion dollars assets under management. Georgia's it's a few blocks
24:46
Speaker 1: away from us here on Third Avenue in midtown Manhattan.
24:52
Speaker 1: Here's a really really interesting conversation. It's something it's a
24:56
Speaker 1: topic I think about a lot which is water. You
24:58
Speaker 1: think there's a lot of it around, but there really
25:01
Speaker 1: isn't and so I love thinking about it, talking about
25:03
Speaker 1: the the concept of water, the as an asset or
25:06
Speaker 1: resource and as a business opportunity. Alexander Leukopolis he has
25:11
Speaker 1: a partner a Science Water and Science Capital Management. He
25:14
Speaker 1: joins us here in a Bloomberg Interactive Brooker Studio. Alexander
25:17
Speaker 1: talked to us about water. How do you guys look
25:20
Speaker 1: at water? What is it? What? What are you? What
25:23
Speaker 1: are you doing? Sir, well, thank you for having me
25:25
Speaker 1: in a great question And I get asked that all
25:26
Speaker 1: the time because water, in my view is literally everywhere
25:29
Speaker 1: but nowhere. Right. You can talk about water from the drought,
25:33
Speaker 1: from too much water to little water, to blue water
25:36
Speaker 1: to greenwater to yellow water. So it's literally very confusing
25:40
Speaker 1: to make sense of it. Um. And on top of that,
25:43
Speaker 1: water fits into everything that we do, from the clothes
25:46
Speaker 1: we wear, to what we eat, to what we drink,
25:47
Speaker 1: to the fact that we're s water, we're surrounded by it.
25:50
Speaker 1: So um, the way we view water is uh to
25:54
Speaker 1: be focused on it and to frankly be focused on
25:56
Speaker 1: it and try to actually solve some of the problems
25:58
Speaker 1: because when something seen is to be so confusing, it's
26:01
Speaker 1: oftentimes very hard to actually solve it. And we currently
26:04
Speaker 1: no water is a big problem. Certainly no water is
26:05
Speaker 1: a big problem in the US. So the way we
26:08
Speaker 1: view it is, let's focus on trying to solve some
26:10
Speaker 1: of the big water issues in the US today, starting
26:13
Speaker 1: with the infrastructure. How can you do that as a
26:17
Speaker 1: you want to make money at the same time, Right,
26:19
Speaker 1: you're not a charity or an NGO uh in in
26:24
Speaker 1: the sense that you don't want to profit. How do
26:26
Speaker 1: you invest in a way that I mean, you want
26:29
Speaker 1: to do good for the world, but you want to
26:32
Speaker 1: make money for your clients absolutely, And I think that's
26:35
Speaker 1: what's interesting about what we do is that we are
26:37
Speaker 1: a private sector needs to play a more important role
26:40
Speaker 1: in infrastructure, needs to play a more important role in
26:43
Speaker 1: industries like water that are very confusing for UH most
26:46
Speaker 1: for many shareholders to solve on their own, And I
26:48
Speaker 1: think private equity in particularly what we do actually brings
26:51
Speaker 1: a lot of that together, a lot of those different
26:52
Speaker 1: constituents and actually is a very big problem solver. So
26:56
Speaker 1: we're able to make UH strong returns for our investors
26:59
Speaker 1: and at the same time have impact in a sector
27:02
Speaker 1: that is so desperately needed for that to happen. What
27:04
Speaker 1: are the big businesses in that sector? Are we talking
27:06
Speaker 1: about waste management? Um? Are we talking about sewage? Are
27:10
Speaker 1: we talking about purification? What's so in our case, we're
27:15
Speaker 1: talking a few of those. Number one is utilities. In
27:17
Speaker 1: the US, we have eighty five thousand plus utilities. Many
27:20
Speaker 1: of them are actually private and small, which many people
27:23
Speaker 1: don't understand, and it's a staggering statistics. In the UK,
27:25
Speaker 1: as an example, you have close to thirty and most
27:27
Speaker 1: of European countries, you have less than a hundred in
27:30
Speaker 1: each of those countries. In the US and I repeat,
27:32
Speaker 1: more than eighty five thousand, most of which are private.
27:35
Speaker 1: So one of our strategies is rolling up small consolidated
27:38
Speaker 1: water systems and giving these individuals better, cleaner water at
27:42
Speaker 1: the right price, um. And that is both profitable and
27:45
Speaker 1: impactful at the same time. So you're using scale to
27:48
Speaker 1: improve the businesses of this incredibly fragmented industry. Right. So,
27:52
Speaker 1: fragmentation and scale and operationally excellence across the board and
27:57
Speaker 1: impact alright. So as a so that's kind of like
27:59
Speaker 1: a business ownership framework. Market structure issue. Are there more fundamental?
28:04
Speaker 1: What what is kind of the fundamental water problem in
28:06
Speaker 1: the US? Don't have enough of it, don't have it
28:08
Speaker 1: in the right places? Great question, and that's not one
28:11
Speaker 1: you can answer because water is a very local issue.
28:13
Speaker 1: Right We we sit here in New York City. We
28:14
Speaker 1: have one of the oldest water treatment plants. It's municipally run,
28:17
Speaker 1: it's probably got one of the largest tax spaces in
28:20
Speaker 1: the world for a water system, and people in New
28:22
Speaker 1: York get could clean water. The problem in New York,
28:24
Speaker 1: as an example, is the is delicious. Is the aging infrastructure? Right?
28:28
Speaker 1: The pipes. There's a pipe that how many pipes have
28:30
Speaker 1: broken on les and fifty nine Street in the last year? Right?
28:33
Speaker 1: That causes destruction. The piping infrastructure is old and degraded.
28:37
Speaker 1: When you go and talk to our friends in l A,
28:39
Speaker 1: they have a very different issue. They don't have enough
28:40
Speaker 1: water because the water is not coming from like meat,
28:43
Speaker 1: and it's dropping every day. So the issues with water
28:46
Speaker 1: are very much local and made up of different markets,
28:48
Speaker 1: so is oftentimes very hard to generalize, which again leads
28:51
Speaker 1: me to the thing, which is it's very hard to
28:53
Speaker 1: actually focus on problem. All right. Let me ask a, really,
28:56
Speaker 1: as I've owned real estate in California for a long time,
28:58
Speaker 1: and you sit there and talk about the drought every day.
29:01
Speaker 1: In my twenty some odd years, there's only been a
29:03
Speaker 1: couple of years when it hasn't been an official drought. UM.
29:06
Speaker 1: And you stand there and I look out at the ocean,
29:08
Speaker 1: I'm like, can't we isn't there a solution there somewhere?
29:11
Speaker 1: Desalination is too hard and costly. Well, desalination in the US,
29:15
Speaker 1: and it's specifically in California, is very costly. People have
29:18
Speaker 1: done it, they've tried to do it, but it's not desalination.
29:21
Speaker 1: I mean the reality is recycled water. UM. In the
29:23
Speaker 1: US we recycle close to ten percent of our water UM.
29:27
Speaker 1: Many many parts that need it desperately. Singapore, as an example,
29:30
Speaker 1: is toilet to tap recycled water. They recycle Israel close
29:34
Speaker 1: to ninety plus horc. That is, that is an expression
29:38
Speaker 1: that in Singapore is sort of utilized. So recycling your
29:42
Speaker 1: water UM, maybe not for consumption sort of drinking, but
29:45
Speaker 1: for irrigation, for otherwise not I mean it sounds bad,
29:49
Speaker 1: but at the end of the day, you just need
29:51
Speaker 1: H two oh right, so you can pull that out
29:53
Speaker 1: of whatever you have and you clean it and you
29:55
Speaker 1: clean it better. And now with new technologies have been
29:57
Speaker 1: around for a while. This isn't a technology game. We
29:59
Speaker 1: don't need somebody to you know, it's not like sending
30:02
Speaker 1: somebody to Mars here. These are solutions that have existed technologically.
30:05
Speaker 1: It's really putting the puzzle together. Um. And this is
30:08
Speaker 1: a great example in California. Yes, you can look at
30:10
Speaker 1: the desalination didn't work. Too expensive. You know, you need
30:13
Speaker 1: something that's more uh meaningful. Recycled reuse is another one
30:18
Speaker 1: of those, which is why one of other platforms is
30:20
Speaker 1: focusing on recycled reuse, mostly on the West Coast, where
30:23
Speaker 1: the issue is the degrading infrastructure. It's the lack of water.
30:27
Speaker 1: But recycled reuse helped solve that. When when when you
30:30
Speaker 1: look at a city like I don't know, Phoenix for example,
30:33
Speaker 1: Vegas in the middle of a desert, does that frustrate
30:37
Speaker 1: you to see so much building infrastructure going into places
30:41
Speaker 1: where there is no water and it just makes the
30:43
Speaker 1: maybe the situation worse in general for the country. Frustrate you.
30:48
Speaker 1: That's an opportunity for you money. Maybe at this point
30:52
Speaker 1: everything excites me in water because there's so many there's
30:54
Speaker 1: so many pockets of inefficiency. You mentioned another one. So
30:57
Speaker 1: when you look at something like Phoenix, that's why you
30:59
Speaker 1: need to up great systems. You need more infrastructure, you
31:02
Speaker 1: need better infrastructure, you need more digital infrastructure, you need
31:05
Speaker 1: more recycled reuse infrastructure. So I think um situations like
31:09
Speaker 1: that present opportunities, and they present opportunities for people they
31:12
Speaker 1: can put the puzzle pieces together. And again, starting with
31:15
Speaker 1: your first conversation, why are we as a private capital
31:18
Speaker 1: firm investing this is because we see our value add
31:20
Speaker 1: in being able to pull that all together. It's not
31:22
Speaker 1: going to be one technology that solves all the water issues.
31:25
Speaker 1: It's not going to be one politician that waves a
31:27
Speaker 1: trillion dollars into it, which they don't have, nor would
31:30
Speaker 1: that even begin to solve it. Nor is it an
31:32
Speaker 1: academic engineer. It's going to be a combination of all
31:34
Speaker 1: of the above. And as a private participant, what's exciting
31:38
Speaker 1: is to be able to bring all that together, but
31:40
Speaker 1: do it actionably at a local level. So in the
31:42
Speaker 1: U S, So, how has your performance been. I mean
31:44
Speaker 1: you went to George and went to M I. T. H.
31:48
Speaker 1: Then took that to JP Morgan where you learned M
31:51
Speaker 1: and A the M and A business. Now you're putting
31:53
Speaker 1: it to use to make money. How have you done so? Yeah,
31:56
Speaker 1: it wasn't certainly not a straight line. UM. Put it's
31:59
Speaker 1: a good use. Because we started at Science Capital, we've
32:01
Speaker 1: been doing mid market investing for a long time UM,
32:04
Speaker 1: so we learned sort of how to work with middle
32:06
Speaker 1: market companies, which in the water space, as we know,
32:09
Speaker 1: it's mostly middle market companies UM, including the recent merger
32:12
Speaker 1: of the two of the largest players UM just last week.
32:15
Speaker 1: But it's made up of middle market players. So utilize
32:17
Speaker 1: that skill set plus the skill set of real asset investing,
32:20
Speaker 1: where we invest sort of in between infrastructure and private equity, utilities,
32:25
Speaker 1: recycled reuse plants. So utilize that framework to then apply
32:28
Speaker 1: it to one singular sector, which was water. And the
32:31
Speaker 1: interesting thing about water was it took us many years
32:33
Speaker 1: of research to begin to make actionable investments. And I
32:37
Speaker 1: think once you have a combination of all that UM,
32:39
Speaker 1: I think the opportunity set and the returns are there.
32:41
Speaker 1: Because the market is so inefficient and fragmented, and our
32:44
Speaker 1: value add becomes your local you're just a couple bucks away.
32:47
Speaker 1: That means we're getting this guy back, because I got
32:49
Speaker 1: him a million more questions here, both on just kind
32:52
Speaker 1: of the water issue, how to make money, who are
32:54
Speaker 1: investors are? All that kind of good stuff. Alexander Locopolis,
32:57
Speaker 1: he's a partner at Science Water and Science its capital management. Uh,
33:01
Speaker 1: talking about a topic that you know, we don't talk
33:03
Speaker 1: about a lot, but water issues in this country and
33:06
Speaker 1: in a global basis really really big issues going forward.
33:10
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
33:13
Speaker 1: subscribe and listen to interviews of Apple Podcasts or whatever
33:17
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
33:21
Speaker 1: at Matt Miller three. On Fall Sweeney, I'm on Twitter
33:25
Speaker 1: at pt Sweeney. Before the podcast. You can always catch
33:28
Speaker 1: us worldwide at Bloomberg Radio