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Target Will Benefit Most From Retailer Bankruptcies (Podcast) · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you.
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Speaker 1: Along with my co host Lisa Brahma Waits. Each day
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Speaker 1: we bring you the most noteworthy and useful interviews for
0:10
Speaker 1: you and your money, whether at the grocery store or
0:12
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
0:15
Speaker 1: podcast or wherever you listen to podcasts, as well as
0:17
Speaker 1: at Bloomberg dot com. Well, the death of US retail
0:23
Speaker 1: was grossly exaggerated. Coal shares that climbing more than seven
0:27
Speaker 1: percent almost eight percent now after reporting better than expected earnings.
0:31
Speaker 1: Target also rallying. Joining us here to talk about that
0:33
Speaker 1: in your Bloomberg Interactive Broker Studios is Burt Flickinger, Managing
0:36
Speaker 1: director for Strategic Resource Group, So Bird. It seems like
0:40
Speaker 1: certainly Target and Coals and a number of others have
0:43
Speaker 1: surprised to the upside. Is this a sign that US
0:45
Speaker 1: consumers are in good shape and that retail is coming
0:48
Speaker 1: back in brick and mortar form? Or is this a
0:51
Speaker 1: case of good management in a select number of cases? Lisa,
0:54
Speaker 1: to your point, good management always always wins, particularly for
0:58
Speaker 1: the well capitalized companies that investing in technology, digital, retail
1:03
Speaker 1: and really having what consumers want at the best possible prices.
1:07
Speaker 1: So iss you and Paul have reported off prices winning,
1:10
Speaker 1: UH targets winning, Walmart's winning, while a lot of the
1:13
Speaker 1: rest of the retails losing. So looking through the Coals
1:17
Speaker 1: earning statement, one of the things that was interesting is
1:18
Speaker 1: they they called out there, I guess the partnership with
1:21
Speaker 1: Amazon as being you know, a contributor to growth. What
1:25
Speaker 1: what actually are they doing with Jim? What does that
1:27
Speaker 1: joint venture or that partnership it's a joint venture. Interestingly,
1:30
Speaker 1: Paul's something that Target dot Com tried with Amazon for
1:35
Speaker 1: seven years and it didn't work out, but for because
1:39
Speaker 1: Amazon essentially got the Target Target quote unquote guest database,
1:43
Speaker 1: and UH they migrated a lot of those shoppers over
1:47
Speaker 1: to Amazon. But with Coal's not have invested significantly sufficiently
1:52
Speaker 1: in digital. UH. The Amazon partnership in terms of cross
1:56
Speaker 1: platform similar to what Richard Baker's doing with Huts and
2:00
Speaker 1: Hudson Bay, Sacks and the operating companies to UH. It
2:04
Speaker 1: provides a customer base from combined companies and helps both
2:09
Speaker 1: increase units customer counts, sell through whether it's digital as
2:14
Speaker 1: well as fulfillment and so so if if I have
2:16
Speaker 1: a return from an Amazon, I can bring it to
2:18
Speaker 1: a coal store. You can bring it to a coal store.
2:21
Speaker 1: And his Bran Cornell pointed out with Bloomberg earlier this morning,
2:26
Speaker 1: seventy five cent of all UM targets digital sales are
2:31
Speaker 1: fulfilled in store. So UH to your point, advantage Coals
2:34
Speaker 1: and advantage Target to how much is the rally that
2:38
Speaker 1: we're seeing in the positive forecasts for the year from
2:42
Speaker 1: Coals and Target? How much is that a result of
2:44
Speaker 1: the bankruptcies of a number of retailers that we've seen
2:47
Speaker 1: from Jim Boree, etcetera. Lisa important point in in targets
2:51
Speaker 1: home markets, everything from her Burger's and Carson's division of
2:55
Speaker 1: the Bontan Company, pay Less on Deck, UH and with
3:00
Speaker 1: Boys are us in a number of other key retailers
3:02
Speaker 1: of affecting UH shifting shoppers. The bankruptcies have have been
3:08
Speaker 1: half of targets increase in our estimation, and that makes
3:12
Speaker 1: Cole's one percent same store comparison sales okay, but not
3:17
Speaker 1: not really that good. This is really fascinating to me. This,
3:20
Speaker 1: to me is a really important story. We're finally slowly
3:24
Speaker 1: starting to see the denue mall of some of these
3:26
Speaker 1: struggling retailers going out of business, and this is helping
3:30
Speaker 1: the healthier retailers survive and thrive. Where are we in
3:34
Speaker 1: the cycle of bankruptcies for retailers? Can we finally see
3:37
Speaker 1: the regrowth of this industry? Lisa, We're about three fifths
3:41
Speaker 1: of the way through. So Target will benefit the most
3:44
Speaker 1: from the bankruptcies of a lot of food and drug
3:46
Speaker 1: retailers were hoping for the best, fearing for the worst.
3:49
Speaker 1: With right aid, obviously, Target is going to be the
3:52
Speaker 1: big beneficiary there, and from the mid tier to moderate
3:56
Speaker 1: department stores and sears Kmart which actually had fairly good
4:01
Speaker 1: soft soft goods, uh, Targets still the big beneficiary. So
4:05
Speaker 1: Targets still a little bit further than halftime and benefiting,
4:10
Speaker 1: But targets biggest benefit is really marketing, merchandizing value, branding,
4:15
Speaker 1: own label, and with the political elections taking media costs
4:20
Speaker 1: to unprecedented proportions in nineteen and the year twenty twenty,
4:25
Speaker 1: Target has some of the most effective ads, digital, connective, social, outdoor, radio, TV,
4:33
Speaker 1: as as does Walmart. And the effectiveness and the great
4:36
Speaker 1: copy and the creative with Target as well as Walmart's
4:40
Speaker 1: really helping both win. And it gets to what you
4:42
Speaker 1: guys were saying, management leadership wins every time. Essentially, I
4:46
Speaker 1: like that the concept that three fists of the way
4:49
Speaker 1: through kind of dealing with this consolidation of the industry.
4:51
Speaker 1: Does that also relate to the number of stores the
4:54
Speaker 1: global the US footprint stores? Are we three fists the
4:58
Speaker 1: way through rationalizing just the number of stores and in
5:01
Speaker 1: the footprint we're probably only two fists of the way through,
5:04
Speaker 1: right from about overstored to about But Paul, what you
5:11
Speaker 1: and Tom Keane and Arthur Levitt we're talking about on
5:14
Speaker 1: surveillance and you, Lisa and Carol masser Uh and Jason
5:18
Speaker 1: Sweeney we're talking about later for retail with medical marijuana.
5:23
Speaker 1: Arthur Levitt was saying, the sales tax in Denver was
5:26
Speaker 1: thirty two million, so obviously the sales are a huge
5:28
Speaker 1: multiple of that. So medical marijuana may actually drive customer
5:32
Speaker 1: counts into the pharmacies of the target CVS. Insular pharmacies
5:38
Speaker 1: won't help coals help time. Paul, just can't help yourself
5:42
Speaker 1: when they legalize marijuana. That's just gonna make right age
5:45
Speaker 1: shares surge. Right might not say soon enough. Well, I
5:50
Speaker 1: guess that, you know. I'm just wondering what's taking so long?
5:53
Speaker 1: What will what will hurry the cycle up and allow
5:56
Speaker 1: retail to kind of get its bearings and grow again.
5:59
Speaker 1: The for them to really grow, they have to do
6:02
Speaker 1: what targets doing. Target, to the company's credit, has the
6:06
Speaker 1: greatest gender UH social social diversity across its management groups,
6:13
Speaker 1: so arguably one of the best leadership teams in retail worldwide.
6:17
Speaker 1: And in a declining birth rate, declining family formation, targets
6:21
Speaker 1: getting more of the parents with young children and with
6:25
Speaker 1: a pet population with dogs and cat adoptions growing four
6:29
Speaker 1: times faster than the birth rate for people. Targets getting babies, pets,
6:34
Speaker 1: and lifetime loyalty from consumers of all languages and all
6:39
Speaker 1: United Nations of consumer constituency. I gotta be honest with
6:42
Speaker 1: that with you, Paul. I mean, when I was dealing
6:44
Speaker 1: with babies, Target was amazing because you could get the diapers,
6:48
Speaker 1: you could get clothes that weren't going to cost you
6:49
Speaker 1: a crazy amount, all in the same place, and you
6:52
Speaker 1: could get shampooon conditioner. That was actually a very very
6:55
Speaker 1: positive development. I think Purchase gave us the stat of
6:59
Speaker 1: the day with the pets four times the growth rate
7:01
Speaker 1: of the human population. I didn't know that. Really. Yeah,
7:04
Speaker 1: the people actually are adopting more pets now than than
7:08
Speaker 1: having children year. Well, there's gotta be an investment play there.
7:11
Speaker 1: So you go to the stores that have the biggest
7:13
Speaker 1: pet departments. I guess yeah, And it gets to your
7:16
Speaker 1: your leadership point. Paul is pet Smart is on Moody's
7:20
Speaker 1: list of seventeen retailers that could go bankrupt this year.
7:24
Speaker 1: Uh less capable, undercapitalized, where Target Walmart. Even though they're
7:29
Speaker 1: not category dominant and pet is a soul source destination,
7:34
Speaker 1: they're still winning with pets more than pet smart. Is
7:38
Speaker 1: really interesting to you have a pet uh son, Nick
7:42
Speaker 1: and wife actually have to rescue pets Reggie and Bow.
7:46
Speaker 1: And look at Popper west Siders dot com for Dick's
7:49
Speaker 1: pet blog on rescue pets. I didn't know this was
7:53
Speaker 1: gonna turn into a discussion of pets, but you never know.
7:56
Speaker 1: We're retails, retail retail increasingly. This is actually a sign
7:59
Speaker 1: of the times. Take this too heart. This has been
8:02
Speaker 1: the transformation. People would rather have a dog than a kid.
8:05
Speaker 1: Three point four million pet adoptions every year. Oh that's
8:08
Speaker 1: all right, another Saturday, Bert flicking sure, thank you so much.
8:11
Speaker 1: Bert is the managing director Strategic Resource Resource Group. He
8:14
Speaker 1: joined us here in our Bloomberg Interactive Broker Studio. This
8:33
Speaker 1: maybe the year of Unicorn initial public offerings. We are
8:36
Speaker 1: expecting Lift to start their road show and get their
8:40
Speaker 1: initial public offering off, the off off off, and get
8:44
Speaker 1: this on track. A question here is how active will
8:47
Speaker 1: this year be and how much will these companies be
8:50
Speaker 1: valued at? Joining us now to answer some of those
8:51
Speaker 1: questions at Data, chief executive officer of equity Zen based
8:56
Speaker 1: in New York. Equity Zen is a fascinating company that
8:59
Speaker 1: basicly enables from getting this right, enables individuals to transact
9:04
Speaker 1: in private shares ahead of these i p o s.
9:07
Speaker 1: Is that correct? Yeah, that's that's right. Look, we're not
9:10
Speaker 1: inventing anything that didn't exist a hundred years ago. Effectively,
9:13
Speaker 1: what we're doing is taking something that was only available
9:17
Speaker 1: for people that could write a ten million dollar check.
9:19
Speaker 1: It's a private company. I know the company. I wanna
9:21
Speaker 1: you know everyone. I know us as this company. I'd
9:23
Speaker 1: like to invest before the I p o. Uh. If
9:26
Speaker 1: you don't have ten million bucks, it's really hard for
9:28
Speaker 1: you to get a seat at the table. Uh. Through
9:31
Speaker 1: Equisence platform, qualified investors can purchase the shares before the
9:35
Speaker 1: company goes public. So is this basically a price discovery
9:39
Speaker 1: mechanism whereby companies can figure out, huh, now might be
9:42
Speaker 1: the time to go public. That's definitely a very you know,
9:46
Speaker 1: big value offering that companies get. The other thing that
9:49
Speaker 1: a lot of companies benefit from by using a platform
9:51
Speaker 1: like equities and is Hey, look, you know, we thought
9:54
Speaker 1: Q four was going to be a great time to
9:56
Speaker 1: go public, but guess what, the markets turn volatile, So
9:58
Speaker 1: we're gonna wait another or six twelve months to go public.
10:02
Speaker 1: But I told all my employees that we're gonna go
10:04
Speaker 1: public in twenty eighteen. So let me allow the secondary
10:07
Speaker 1: platform to give them a little bit of liquidity and
10:09
Speaker 1: basically fine tune exactly when I'm going to go public,
10:12
Speaker 1: keep the employees happy, get outside shareholder shareholders excited. Uh,
10:17
Speaker 1: and me as a company, I didn't have to take
10:18
Speaker 1: any delusion in order to conduct a secondary Trains is
10:22
Speaker 1: going to be presumably a huge year for tech I
10:25
Speaker 1: p O S and for you know your company as well.
10:28
Speaker 1: We've got Lift, We've got Uber, we've got Airbnb. Presumably,
10:31
Speaker 1: let's focus on Lift. You know, we saw the prospectives
10:34
Speaker 1: come out last week. I think they had trailing revs
10:36
Speaker 1: of about two point two billion. Yet they want to
10:38
Speaker 1: raise twenty to twenty five billion dollars. Is that kind
10:42
Speaker 1: of evaluation? Ten times revenue or twelve times revenue? Is
10:45
Speaker 1: that reasonable in this market? Well, you know, if you
10:47
Speaker 1: take a look at lifts only competitor, which is a
10:50
Speaker 1: private company Uber, Uh, It's it's not even uh you know,
10:54
Speaker 1: a fair comparison. Uber is this goliath, you know, eleven
10:56
Speaker 1: billion dollars in revenue, It's in over half the country
11:00
Speaker 1: is out there, It's it's got Uber Eats, It's got
11:02
Speaker 1: five other business lines. Lift is a pure play ride
11:05
Speaker 1: hill company focused on US and Canada. There's got a
11:09
Speaker 1: lot of growth that Lift is able to demonstrate a
11:12
Speaker 1: year every year. Uh. It's got shrinking net lost margins,
11:15
Speaker 1: which is always nice to see for tech company to
11:17
Speaker 1: go public. I think it's got a pretty exciting valuation
11:20
Speaker 1: for a company that many of us, especially here in
11:22
Speaker 1: the US and Canada, um have on our phones, if
11:26
Speaker 1: not of at least seen friends use it teach. There
11:29
Speaker 1: has been an argument made that fewer companies in the
11:32
Speaker 1: US are filing for initial public offerings. They're waiting longer
11:37
Speaker 1: to do so. That's sort of the idea of US
11:40
Speaker 1: public equities is being a way to access the dynamism
11:44
Speaker 1: of the U S economy is sort of fading as
11:46
Speaker 1: a promise. And I'm just wondering if these if these
11:50
Speaker 1: unicorns can access private capital and can even offer their
11:53
Speaker 1: employees liquidity on a secondary market for their shares before
11:57
Speaker 1: an I p O. Why go public? Why public? That's
12:00
Speaker 1: a great question. Look, I think there's still the vast
12:04
Speaker 1: majority of the world that cannot access these private markets.
12:07
Speaker 1: You know, you have to be an accredited investor, the
12:09
Speaker 1: secs some guidelines. These are risky investments at the end
12:12
Speaker 1: of the day. So still the vast majority of the
12:14
Speaker 1: world can access it. And LIFT and many other consumer companies.
12:18
Speaker 1: Spotify is a great example last year where you know
12:20
Speaker 1: it's got tens of millions of people using it, but
12:22
Speaker 1: if the vast majority of its client base can't even
12:24
Speaker 1: buy its own stock, well, then there's a little bit
12:27
Speaker 1: of a disconnect, right And a lot of these companies,
12:29
Speaker 1: LIFT included our mission driven companies, decent amount of its s.
12:32
Speaker 1: One is talking about how the founder's letter and the
12:35
Speaker 1: founders mission. Uh, they really want to be able to
12:38
Speaker 1: maintain that brand image. Not only is it a rite
12:41
Speaker 1: of passage to go public these days, but guess what
12:44
Speaker 1: you as a public company can qualify for a lot
12:46
Speaker 1: of these institutional long term investors, these pension funds and
12:50
Speaker 1: mutual funds, anchor investors that look at ten year horizons,
12:53
Speaker 1: not you know, Monday through Thursday. Well, the big issue
12:57
Speaker 1: I think that both right hailing companies might have love
13:00
Speaker 1: to get your opinion, is they're not even remotely close
13:03
Speaker 1: to profitable. List I mean, Lift lost almost I guess
13:05
Speaker 1: nine million dollars on two point to million of revenues.
13:08
Speaker 1: Uber is not profitable. And I think one of the
13:10
Speaker 1: big issues that investors have not had to deal with before,
13:12
Speaker 1: whether it's Facebook or Google, is the subsidies that they're
13:16
Speaker 1: paying to these drivers for market share. Do you have
13:18
Speaker 1: a sense of when when these companies think they will
13:21
Speaker 1: be a profit, Well, they are driving closer and closer
13:25
Speaker 1: towards profitability. I think in this day and age, a
13:28
Speaker 1: lot of folks are almost accepting of high growth companies
13:33
Speaker 1: who are willing to lose capital in order to grow
13:35
Speaker 1: market share um. What they're going to have to continue
13:38
Speaker 1: showing these companies is a path to sustainable profitability. Like
13:42
Speaker 1: Lift had a two income margin two years ago, senetic
13:46
Speaker 1: margin with the negative sixty last year, it's down to
13:49
Speaker 1: forty and change forty three percent this year, uh uber
13:53
Speaker 1: has gone down to thirty. So I think they are
13:56
Speaker 1: moving towards profitability. But look, there's only one you know,
14:00
Speaker 1: I think the Lifts Perspectives said only one percent of
14:03
Speaker 1: all miles driven in the US are actually using one
14:06
Speaker 1: of these ride hill services, So there's clearly a long
14:08
Speaker 1: way to go, and I think there are no hurry
14:10
Speaker 1: to try and capture the share. Twenty seconds, what's your
14:13
Speaker 1: estimate for I p o s this year? We think
14:15
Speaker 1: there's going to be uh five blockbuster I p o
14:19
Speaker 1: s and they're all available on you know, equities and
14:22
Speaker 1: I p oh outlook, but we're not going to see
14:26
Speaker 1: the record number of I p o s. They're gonna
14:28
Speaker 1: be the names that everyone's been waiting for for the
14:30
Speaker 1: last ten years and they're gonna be huge. They're gonna
14:32
Speaker 1: be this It's gonna be a great year I think
14:34
Speaker 1: for I p O. Bankers on Wall Street, a Dove
14:37
Speaker 1: dot chief executive officer of Equities and joining us in
14:40
Speaker 1: our Bloomberg eleven three O studios. Thank you so much
14:42
Speaker 1: for joining us again. You know, I think it's uh
14:45
Speaker 1: this lift. The deal is going to be very important
14:47
Speaker 1: um for the tech markets to start off the year
14:49
Speaker 1: right and to get a good trade going. So we'll
14:52
Speaker 1: have to see how it goes, and then of course
14:54
Speaker 1: Uber will follow it up, and then Airbnb and some
14:56
Speaker 1: others well equity investors, what to do? We've had about
15:15
Speaker 1: a thirty seven percent round trip from that December decline
15:19
Speaker 1: back up to the our performance we've had here in
15:22
Speaker 1: nineteen with the SMP up about eleven year to date.
15:26
Speaker 1: The question is what to do. So to help us
15:28
Speaker 1: answer some of those questions is Sean Matthews, chief executive
15:30
Speaker 1: officer from Hondia's Capital Management. Sean is also the former
15:33
Speaker 1: CEO of Cantor Fitzgerald. Shawn, thanks for being in our
15:36
Speaker 1: studios once again. He's in our Bloomberg eleven three O
15:39
Speaker 1: studios here in New York with us. So is it
15:41
Speaker 1: time to take money off the table? So, okay, okay,
15:46
Speaker 1: if you're if you have a shorter term view, so
15:49
Speaker 1: if you've got a twenty year view stocks make sense,
15:52
Speaker 1: and it's perfectly fine. But if you have a year
15:54
Speaker 1: or less view, certainly taking trips off the table make
15:56
Speaker 1: a lot of sense. Here right now. We came into
15:58
Speaker 1: the year long risk ass us and thought it was
16:00
Speaker 1: a great opportunity. But once you got to a deal
16:05
Speaker 1: or a quasideal that's coming out right now with China,
16:09
Speaker 1: it makes sense just a de risk. Sean, can we
16:12
Speaker 1: talk about Hondia's capital management because I've known you for years,
16:15
Speaker 1: um really as the CEO of Cancer to fitz Geralds,
16:18
Speaker 1: and you've been at brokerages for years and then you
16:20
Speaker 1: went off in last year to start your own hedge
16:24
Speaker 1: fund has been going, it's going well. Look, the markets
16:28
Speaker 1: are interesting opportunities. So if you look at the opportunity
16:31
Speaker 1: sets for the typical hedge fund with zero interest rates
16:34
Speaker 1: and correlated assets, they were very low. And going forward
16:37
Speaker 1: the next five years, you're going to see the coupling
16:40
Speaker 1: of assets. You're gonna see central banks changing their stances
16:43
Speaker 1: certainly going back and forth, which creates interesting opportunity. So
16:46
Speaker 1: you're going from two opportunities a year to kind of
16:48
Speaker 1: six or seven or eight opportunities a year. But we
16:50
Speaker 1: were listening to Bill Gross who was speaking on Bloomberg
16:53
Speaker 1: Television earlier. He was retiring, of course from Janice and
16:56
Speaker 1: the famed bond investor for Pimco. He was saying he
17:00
Speaker 1: thinks that the era of generating alpha, true alpha is
17:04
Speaker 1: kind of coming to an end, which I think that's
17:07
Speaker 1: a misnomer. So there's always gonna be alpha out there.
17:10
Speaker 1: The machines have taken some of that away, but you
17:13
Speaker 1: have to understand how to trade against the machines as well,
17:15
Speaker 1: so there will be interesting opportunities. So the last five
17:18
Speaker 1: years there was no alpha. Certainly next five years, I
17:22
Speaker 1: think there's gonna be interesting opportunity in real alpha that's
17:24
Speaker 1: out there. That's gonna be generated because pricing, and look
17:28
Speaker 1: we look at typical assets. Pricing has been very benigns
17:32
Speaker 1: because volatility has been low. As volatility picks up, you're
17:35
Speaker 1: gonna have large discrepancies in pricing. You don't have enough
17:38
Speaker 1: capital sitting in the middle. So the typical Wall Street
17:41
Speaker 1: firms had plenty of capital to be a true middleman
17:44
Speaker 1: and create orderly markets. That's gone. So there's gonna be
17:48
Speaker 1: less capital there because the return of equity for those
17:51
Speaker 1: firms has gone down substantially over the last five to
17:54
Speaker 1: ten years, So someone's gonna have to step in and
17:56
Speaker 1: take advantage. So where do you think you're gonna be
17:58
Speaker 1: playing in the next two or three years in terms
18:00
Speaker 1: of the fixing coming equity markets? Maybe pushing out on
18:02
Speaker 1: the risk curve to e M or something like that. Yeah,
18:04
Speaker 1: I think you have to be opportunistic. And if we
18:07
Speaker 1: look at the global macro picture, you're starting to see
18:10
Speaker 1: some clear delineation of what's going on out there. So
18:14
Speaker 1: Europe's in a funk. I think the next thirty years
18:16
Speaker 1: that it's gonna be in a funk that's got real problems.
18:18
Speaker 1: But you start to look at Asia, especially after the
18:21
Speaker 1: tariff deal, is gonna be interesting opportunities there. You look
18:23
Speaker 1: at the US as well. I mean, I think if
18:26
Speaker 1: as a trader you look at the marketplace right now,
18:29
Speaker 1: you'd probably want to be short equities here at some
18:31
Speaker 1: point in time for a short term trade, not a
18:33
Speaker 1: long term trade, but short term. Okay, So if you
18:35
Speaker 1: go short equities, are you going short individual names? Are
18:38
Speaker 1: you're going short broad indexes? So you look at broad INDEXUS, right,
18:41
Speaker 1: because you know, getting down to that level of each
18:43
Speaker 1: individual stock. That takes a lot of analysis and understanding.
18:48
Speaker 1: You really understand what are liquidity going on thirty feet,
18:52
Speaker 1: what's going on in the marketplace from a high level,
18:54
Speaker 1: and then working your way down. All right, So Sean Matthews,
18:57
Speaker 1: what are you looking for as the sort of the
19:00
Speaker 1: trigger time to short stocks here? And then what are
19:03
Speaker 1: you looking for to say, okay, there we go again?
19:07
Speaker 1: I think the market is right now going to look
19:11
Speaker 1: at earnings going forward and look at global growth. And
19:14
Speaker 1: right now no one knows really what's going on. So earnings,
19:17
Speaker 1: if you talk to any particular person, you can range
19:20
Speaker 1: from zero to ten percent this year. Right, That's an
19:23
Speaker 1: amazing number if you think about it. How why the
19:25
Speaker 1: distribution is of that? So I think you have to
19:29
Speaker 1: get to a point of looking at where the market is,
19:32
Speaker 1: where global growth is going to be, and then make
19:34
Speaker 1: that determination. Right now, we've run up twelve percent in
19:37
Speaker 1: the SMP so far this year. I mean you look
19:40
Speaker 1: at European stocks, they're up huge. Why so going into
19:44
Speaker 1: they're going to in a recession. Half of Europe is
19:46
Speaker 1: going to be in a recession, you know in two
19:48
Speaker 1: thousand twenty. So what happened in December was that just
19:50
Speaker 1: a bad dream for the marketplaces or there's should we
19:54
Speaker 1: be pulling out some nuggets of real truth out of that?
19:56
Speaker 1: December Swim, I think you have the algorithms actually, kid right.
20:00
Speaker 1: So again, when we look at liquidity characteristics of the market,
20:05
Speaker 1: they have changed because the market is not going to
20:08
Speaker 1: be as orderly as it has been in the past.
20:10
Speaker 1: And when there's zero interest rates and everyone is looking
20:13
Speaker 1: at it saying, okay, we can stay long risk assets
20:15
Speaker 1: for as long as possible, it makes a lot of
20:17
Speaker 1: sense to continue to stay long. Once you get to
20:20
Speaker 1: a point where there's fear in the marketplace, you're going
20:22
Speaker 1: to see large price discrepancies. And Wall Street used to
20:26
Speaker 1: be great as a as a middleman and really an
20:29
Speaker 1: orderly market participant. And once that leaves, the whole marketplace
20:35
Speaker 1: starts to look very different. And I think the next
20:37
Speaker 1: five years will look very different than the last five.
20:39
Speaker 1: How how has fundraising ben for you? We can't talk
20:43
Speaker 1: about that, no, no no, no, But in terms of when
20:45
Speaker 1: you go to clients, are they looking for alternatives? Are
20:48
Speaker 1: they're looking for you know, what are they looking for
20:51
Speaker 1: from hedge funds? I think they're looking for people who
20:53
Speaker 1: are going to drive alpha, right, So there's been so
20:56
Speaker 1: little alpha out there that they're now looking at opportunities
21:01
Speaker 1: to not just be a market participant. And let's face it,
21:04
Speaker 1: if you look at the hedge fund community, they've probably
21:07
Speaker 1: steered more towards trying to keep their management fee in
21:09
Speaker 1: place then actually drive alpha. So that that change, I
21:13
Speaker 1: think it's going to happen as well. The reason why
21:15
Speaker 1: I ask is because we're actually getting some indications that
21:18
Speaker 1: flows have stabilized after years of outflows from hedge funds,
21:22
Speaker 1: and that you're actually starting to see some inflows again
21:24
Speaker 1: and certainly redemptions have stopped, and that was sort of
21:26
Speaker 1: I'm just wondering if that drives with your experience that
21:28
Speaker 1: the people who are still looking for alternatives, uh, you
21:32
Speaker 1: know what what the ups and downs are absolutely Uh,
21:36
Speaker 1: everyone is right now trying to figure out we probably
21:39
Speaker 1: live in a mid single digit equity world going forward
21:43
Speaker 1: the next five or ten years. That's drastically different than
21:45
Speaker 1: the last ten. So in a low return environment, everyone
21:49
Speaker 1: is looking for ways to drive higher returns. So I
21:53
Speaker 1: know Bill Gross was mentioning that he thinks, you know,
21:55
Speaker 1: the hedge funds will have to really be creative in
21:56
Speaker 1: terms of maybe infrastructure infrastructure, investing hard commodities, buying timber,
22:02
Speaker 1: for example. Do you share the view that you're gonna
22:04
Speaker 1: need more tools in a toolbox for the average hedge
22:06
Speaker 1: fund manager, I think, depending on what your mission is,
22:11
Speaker 1: certainly more tools are better than less. Um. I think
22:14
Speaker 1: the markets have always looked for opportunities, and hedge funds
22:17
Speaker 1: have always looked for opportunities. You know, they may come
22:19
Speaker 1: in different forms, but it's not just about buying queue
22:23
Speaker 1: SIPs at some point in time. It's also about looking
22:25
Speaker 1: for other things. Sean twenty seconds, what's the next move
22:27
Speaker 1: for a treasury yields? Up or down? Big move? I
22:30
Speaker 1: think the long end of the curve actually goes up
22:33
Speaker 1: um not not big. I mean it's probably fifty basis points.
22:36
Speaker 1: Uh So you can see a three sixty seventy long
22:39
Speaker 1: bond um, which in the grand scheme of things isn't
22:42
Speaker 1: a big move at all. And and I think the
22:45
Speaker 1: fixed income market, and certainly the guvy space, has been
22:49
Speaker 1: really cautious about what's going on in the world and
22:51
Speaker 1: looking at global growth and saying this is a tough environment.
22:54
Speaker 1: So I think you'll start to see steeping the yolkurbs interesting.
22:57
Speaker 1: Sean Matthews, Thank you so much for being here. Sean Matthews,
22:59
Speaker 1: see Yo of Hondya's Capital Management, former chief executive officer
23:03
Speaker 1: of Cantor Fitzgerald joining us here in our Bloomberg Interactive
23:06
Speaker 1: Broker's studios. Well trying to remains aggressive in trying to
23:24
Speaker 1: support its economy via fiscal stimulus, while at the same
23:28
Speaker 1: time also lowering its outlook for growth to six six
23:32
Speaker 1: to six and a half percent range. The question is
23:34
Speaker 1: can they do both? To answer that question, we bring
23:37
Speaker 1: in Brendan Ahearn, chief investment officer for Crane Shares based
23:41
Speaker 1: in New York City, joins us on the phone. Brendan,
23:44
Speaker 1: thanks so much for joining us. So China clearly is
23:47
Speaker 1: remaining aggressive using the fiscal fiscal stimulus tool in its toolbox.
23:51
Speaker 1: How successful do you think they will be? Well point
23:55
Speaker 1: I did you believe that things are thus far as
23:57
Speaker 1: showing we're seeing those green shoots. We're seeing the stimulus
24:01
Speaker 1: solely trickled down into some of the economic releases. We've
24:04
Speaker 1: probably not completely bottomed on from an economic or corporate
24:08
Speaker 1: earnings perspective. At the same time, equity markets are forward
24:11
Speaker 1: looking and I think the market is anticipating that the
24:16
Speaker 1: positive effect is stimulus, both fiscal and monetary, will be
24:20
Speaker 1: a good thing for the economy over for the for
24:22
Speaker 1: the economy over the course of this year, and markets
24:25
Speaker 1: are rallying on that news. Brendon, does no one care
24:28
Speaker 1: about leverage anymore? I think they still do care about leverage.
24:32
Speaker 1: I think the Chinese, particularly you know, had pivoted to
24:36
Speaker 1: a domestic agenda in seventeen that was focused on deleveraging. However,
24:42
Speaker 1: the trade war they've had to backburner that effort. Going forward,
24:46
Speaker 1: we're going to see more targeted credit growth, trying to
24:50
Speaker 1: get credit to small medium enterprises, private companies as opposed
24:55
Speaker 1: to the big est state owned enterprises. So how important,
24:58
Speaker 1: Brendan are success full trade negotiations with the US to
25:02
Speaker 1: supporting what the Chinese government wants for its economy. I
25:06
Speaker 1: think for from an economic perspective, you know, China, there's
25:09
Speaker 1: parts of China that are a going through a boom
25:12
Speaker 1: time right now. Um, you know, like shen Zen. Um,
25:17
Speaker 1: no different than you know, I was just out in
25:18
Speaker 1: San Francisco last week. Uh, there's parts of China that
25:21
Speaker 1: are are doing poorly. Uh, No different than here in
25:25
Speaker 1: the United States. So so, I think export driven manufacturers
25:29
Speaker 1: are facing a very very difficult, challenging environment. UM. So
25:33
Speaker 1: they need to do support that really addresses the big,
25:38
Speaker 1: big geography, big economy that they have. Well, how about that,
25:41
Speaker 1: you know one of the things when you I was
25:43
Speaker 1: just looking at the Ali Baba's recent results and boy,
25:46
Speaker 1: the consumer, the Chinese consumer seems quite strong, and it's
25:50
Speaker 1: maybe stronger than one would expect. What is your sense
25:52
Speaker 1: about the Chinese consumer and consumer buying power? I think
25:55
Speaker 1: the rumors on the death of the Chinese consumer have
25:58
Speaker 1: been greatly exaggerated. Um. If one looks at the say
26:03
Speaker 1: service p M I UM, we see it's an expansion.
26:06
Speaker 1: We see this from the company themselves. Ce Trip reported
26:11
Speaker 1: um after the market closes, having a very very large
26:14
Speaker 1: rally today. Right this is uh Um online travel company
26:18
Speaker 1: in China. So so, I think where where where we
26:21
Speaker 1: want as investors be focused on this domestic consumption. That's
26:25
Speaker 1: where a lot of the stimulus and support for the
26:27
Speaker 1: economy has taken place. They want to raise domestic consumption,
26:30
Speaker 1: push on that gas pedal. At the same time, if
26:33
Speaker 1: you look at multinationals such as like a Caterpillar that's
26:36
Speaker 1: geared to the element of China's economy that's slowing, and
26:39
Speaker 1: I think investors want to avoid that aspect. How much
26:42
Speaker 1: has the trade skirmish or trade disagreement, trade war, whatever
26:46
Speaker 1: you wanna call it, how much has that affected the
26:48
Speaker 1: Chinese economy. So it's certainly affected an element of China's economy.
26:54
Speaker 1: Remember China's economy UHI is the service sector today about
27:00
Speaker 1: ten agriculture. So you do have a big element of
27:03
Speaker 1: China that is geared to export driven manufacturing UM. Aggregate
27:09
Speaker 1: exports the United States is less than twenty percent of
27:11
Speaker 1: China's overall exports, but obviously that that's a very big
27:14
Speaker 1: percentage and that has been very much hampered. At the
27:18
Speaker 1: same time, China is trying to support domestic consumption to
27:23
Speaker 1: offset the weakness in one element of the economy, and
27:26
Speaker 1: so it has had an effect on specific geographic areas
27:31
Speaker 1: an element of China's economy UM, but not not the
27:35
Speaker 1: whole economy. And that's what something investors missed. So I'm
27:38
Speaker 1: just wondering from the p m I perspective and manufacturing data,
27:41
Speaker 1: the slowdown that we've seen there, which has been disproportionate uh,
27:44
Speaker 1: for well, hasn't been disproportionate because of the trade issues.
27:47
Speaker 1: So so, certainly manufacturing p m I s are um
27:51
Speaker 1: Both the you know, the the official as well as
27:54
Speaker 1: the cash in a are are in negative terror territory
27:56
Speaker 1: there below fifty, which is the acceleration. At the same time,
28:00
Speaker 1: the non manufacturing or the service p m I s
28:02
Speaker 1: are still in expansion territory. What's interesting, Lisa's using Google trends.
28:08
Speaker 1: If you type China manufacturing p m I, you get
28:11
Speaker 1: a whole slew of results. You type China service p
28:15
Speaker 1: m I no results. That literally it says there's no
28:18
Speaker 1: data to input that. So I think in general investors
28:21
Speaker 1: still view China's this export driven manufacturing engine. That's not
28:25
Speaker 1: that's not necessarily the reality today. Brenden Ahern, thank you
28:30
Speaker 1: so much for being with us. Brennan is chief investment
28:32
Speaker 1: officer at Crane Shares in New York talking to us
28:35
Speaker 1: about China. Thanks for listening to the Bloomberg pm L podcast.
28:39
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
28:42
Speaker 1: or whatever podcast platform you prefer. I'm Paul Sweeney, I'm
28:45
Speaker 1: on Twitter at pt Sweeney. I'm Lisa Bramwo. It's I'm
28:48
Speaker 1: on Twitter at Lisa Bramwoit's one before the podcast. You
28:51
Speaker 1: can always catch us worldwide on Bloomberg Radio