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The Health of the Middle Markets and U.S. Economy · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you
0:05
Speaker 1: along with my co host Lisa Brahma Waits. Each day
0:07
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. One of the big news items
0:23
Speaker 1: of the day is Pinterest and the fact that it's
0:26
Speaker 1: seeking a valuation of nine billion dollars with its i
0:29
Speaker 1: p O that it's currently marketing, which is significantly below
0:33
Speaker 1: the valuation of the company back in two thousand seventeen,
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Speaker 1: its last private funding round. And without delving into this
0:41
Speaker 1: specific company, it is a interesting question what does this
0:45
Speaker 1: say about the private financing market? Joining us now Randy Swimmer,
0:49
Speaker 1: head of Capital Markets and Originations at Churchill Asset Management,
0:52
Speaker 1: UH and I want to start here because it does
0:54
Speaker 1: raise questions about whether things are getting a little frothy
0:58
Speaker 1: in private capital market. Well, you're at least it's a
1:01
Speaker 1: great question. It's the question and a lot of investors
1:03
Speaker 1: are asking. It's been difficult when you look at the
1:07
Speaker 1: environment that we've been in from an economic perspective and
1:10
Speaker 1: a rates perspective since October? Which market are we looking at?
1:13
Speaker 1: Are we looking at the economy in October when everyone
1:17
Speaker 1: was thinking about rate hikes. Are we looking at December
1:19
Speaker 1: when we had correction in the public markets? We're looking
1:23
Speaker 1: at January where rates and prices we're on, prices recovering
1:27
Speaker 1: and rates on hold. Or are we looking at April
1:29
Speaker 1: where we see record dow, we see you know, hundred
1:33
Speaker 1: ninety thousand jobs created on Friday, and every all of
1:36
Speaker 1: a sudden, the recession is gone. The problem with what
1:40
Speaker 1: the public markets are showing us is there's no conviction,
1:43
Speaker 1: there's no confidence in the direction of the economy and
1:45
Speaker 1: where the markets are going, which is why private credit
1:48
Speaker 1: is really focused on companies that don't trade in our business.
1:51
Speaker 1: None of the businesses that were investing in our public
1:54
Speaker 1: they're all private capital created and supported businesses. And the
1:59
Speaker 1: beauty of that is that the volatility is taken away,
2:02
Speaker 1: and the worry about the day to day moves of
2:05
Speaker 1: the markets and so forth is taken away. So it's
2:07
Speaker 1: it's actually a good place to be right now. So, Randy,
2:09
Speaker 1: I've noticed that private equity firms. Really, over the last
2:12
Speaker 1: several years, I've noticed some raising funds and allocating funds
2:15
Speaker 1: to direct lending businesses, kind of bypassing the banks a
2:19
Speaker 1: little bit, or helping the lenders that bypass the banks,
2:22
Speaker 1: particularly for some middle market companies. What do you think
2:25
Speaker 1: about that direct lending to middle markets, That's someplace investors
2:27
Speaker 1: should be looking. And that's exactly what we do, Paul.
2:30
Speaker 1: Are all of our business is really investing in senior
2:33
Speaker 1: debt with middle market companies, all of which are backed
2:36
Speaker 1: by private equity firms. The beauty of that is that
2:39
Speaker 1: these private equity firms, particularly the ones we're dealing with,
2:42
Speaker 1: have experienced in investing equity directly below the senior debt
2:46
Speaker 1: that we're investing, and so you've got a cushion there.
2:48
Speaker 1: You've also got expertise. These are businesses firms that have
2:51
Speaker 1: been investing in these companies and equity over decades, and
2:56
Speaker 1: so we have experience over those same decades with these firms.
2:58
Speaker 1: I think it's it's a right now again, given what's
3:01
Speaker 1: going on in the economy, which is actually pretty constructive
3:03
Speaker 1: for credit. I think about where we are, two rates,
3:07
Speaker 1: two percent inflation, a less than four percent unemployment rate.
3:12
Speaker 1: This is very constructive or credit, and I think in
3:14
Speaker 1: general people are feeling that right now. So there has
3:17
Speaker 1: been a lot of money that has gone into private
3:19
Speaker 1: credit for exactly the proposition that you just put out there,
3:22
Speaker 1: the idea that you're not going to have the day
3:24
Speaker 1: to day volatility you can invest long term. Often there
3:27
Speaker 1: is a cushion if you're investing in the debt of
3:29
Speaker 1: some kind of private equity underneath it. All of that said,
3:33
Speaker 1: I have to wonder whether this time, at the very least,
3:37
Speaker 1: returns are going to be much lower than they have
3:39
Speaker 1: been historically, given how much money has been coming in,
3:42
Speaker 1: given how much liquidity is slashing around. So what's your
3:46
Speaker 1: view that are you telling investors to lower their expectations
3:49
Speaker 1: for returns. No, Actually, what what we're saying is that returns,
3:54
Speaker 1: particularly for our business, have been very steady over the
3:57
Speaker 1: last you know, fifteen years that we've been invest in
4:00
Speaker 1: capital um. And yes, you're absolutely rightly. So there's a
4:03
Speaker 1: lot of capital coming into private credit as a asset class,
4:06
Speaker 1: as a generalistic class um hundred billion dollars according to
4:10
Speaker 1: some figures, But the vast majority that is going to
4:13
Speaker 1: higher yield strategies, more opportunistic credit, junior capital, and so forth.
4:19
Speaker 1: We're at the senior debt level, and that's kind of
4:21
Speaker 1: a if you look at the industry as as an
4:23
Speaker 1: overall matter, it's kind of in that seven to nine
4:26
Speaker 1: percent unlevered yield. That's a very conservative, low risk proposition,
4:31
Speaker 1: and there's plenty of investors who like that. Given where
4:35
Speaker 1: going on the rest of the market. What kind of
4:36
Speaker 1: companies are you lending to? It's a great question. So
4:38
Speaker 1: most of the businesses we're lending to our business to
4:41
Speaker 1: business companies. Very few of them have direct exposure to
4:46
Speaker 1: the consumer. And that's a good thing as far as
4:48
Speaker 1: we're concerned, because sometimes consumer taste come and go. But
4:51
Speaker 1: businesses are really focused right now on revenue cycle and
4:54
Speaker 1: cost cycle. So what's going on if revenues are generally
4:57
Speaker 1: flat and then this is a sort of a flattish GDP.
5:00
Speaker 1: How do I make money more money, improve my cash flows,
5:03
Speaker 1: I cut costs. And a lot of the companies that
5:06
Speaker 1: were lending to our businesses that are servicing those businesses
5:09
Speaker 1: who were trying to cut costs. So it's actually in
5:11
Speaker 1: any economic cycle, it's actually a good place to be
5:14
Speaker 1: so we are ten years into this economic expansion. Um
5:19
Speaker 1: how much more so as you think about your position,
5:21
Speaker 1: your portfolio, how do you put new money to work today?
5:25
Speaker 1: And people are worried about that. Yeah, Paul, it's a
5:27
Speaker 1: great question. And what what Since you don't know when
5:29
Speaker 1: the recession is going to be and if you ask
5:31
Speaker 1: twenty people, they'll give you twenty different answers. We assume
5:33
Speaker 1: it's going to be next year. We model into every
5:36
Speaker 1: investment that we do recession, and we look at these
5:39
Speaker 1: business and say, Okay, if we were lending to this business,
5:42
Speaker 1: what would it look like next year if we hit
5:45
Speaker 1: a recession and this company's revenues go down by how
5:50
Speaker 1: does it manage? And the ones that we don't get
5:52
Speaker 1: excited about at leasta to your question, our businesses that
5:55
Speaker 1: have high cap acts, that are more cyclical and less
5:58
Speaker 1: defensive and that would suffer for significantly in a downturn.
6:02
Speaker 1: Twenty seconds. Do you think that there are pockets of
6:04
Speaker 1: the middle market and private lending market that are overheated
6:08
Speaker 1: and you just avoid them. Well, we're not focused on
6:12
Speaker 1: the broadly syndicated market as one example, and that's an
6:14
Speaker 1: area that tends to be more volatile because as capital
6:18
Speaker 1: comes and goes, and we've seen it actually going over
6:21
Speaker 1: the last six months because when rates were going down,
6:24
Speaker 1: people were looking for fixed income. So we tend to
6:26
Speaker 1: stay away from the larger companies that are more liquid
6:29
Speaker 1: and focus on again what we talked about, which is
6:31
Speaker 1: the non correlated, less volatile middle market. Randy Schrember, thank
6:35
Speaker 1: you so much. Randy is senior managing director and head
6:38
Speaker 1: of origination in Capital markets and the Churchill Asset Management.
6:40
Speaker 1: He joined us here live in our Bloomberg Interactive Broker studio.
6:44
Speaker 1: Thank you so much. This week may still be the
6:57
Speaker 1: week when the United Kingdom leaves the EU, but for
7:00
Speaker 1: the time being, everything is the same as it ever was,
7:03
Speaker 1: and it is hard to avoid the sense that the
7:06
Speaker 1: country is on our road to nowhere. Words written by
7:08
Speaker 1: our very own John Author's Bloomberg Senior editor from Markets
7:11
Speaker 1: and a Bloomberg Opinion calumnist, joining us here in our
7:14
Speaker 1: Interactive Broker studios. John, thank you so much for being
7:17
Speaker 1: with us. So let's start there, especially given the fact
7:21
Speaker 1: that you just came back from the UK. Yes, well,
7:23
Speaker 1: I was in UK for what we thought was going
7:25
Speaker 1: to be the week that Britain would actually leave, which
7:28
Speaker 1: was obviously all set up to be a very exciting
7:31
Speaker 1: week in British history. It just turned out to be
7:33
Speaker 1: rather an aggravated damp squib, plenty of drama, sound and
7:38
Speaker 1: fury signifying nothing, and then this last week just gone.
7:42
Speaker 1: I've been in Italy, another country the country in Europe
7:45
Speaker 1: very interestingly where the EU is least popular if you
7:50
Speaker 1: don't include the UK. A lot of Italians have fed
7:53
Speaker 1: up with the EU, and there's sort of good reasons
7:55
Speaker 1: why that might be the case. But if you look
7:57
Speaker 1: at the opinion polls, the number who actually he wants
8:00
Speaker 1: to leave the EU is declining, probably because they're seeing
8:04
Speaker 1: what a pathetic mess the British are making of it.
8:08
Speaker 1: So it's interesting, John. One of the things I read
8:10
Speaker 1: all the time is that the European Union is having
8:13
Speaker 1: its elections there. They're coming up and apparently the UK
8:17
Speaker 1: does not want to be involved, and maybe the EU
8:19
Speaker 1: does not want the UK involved. Why. Okay, this is
8:23
Speaker 1: the elections for the European Parliament, which many people argue
8:26
Speaker 1: needs to have more power than it does, but it
8:28
Speaker 1: still has considerable power within the frame the institutional framework
8:32
Speaker 1: of the EU. The elections are at the end of May.
8:36
Speaker 1: And it's broadly similar to Congress. Every country gets a
8:42
Speaker 1: certain number of representatives, broadly in relation to its population. Now,
8:47
Speaker 1: the UK announced via the Article fifty process more than
8:52
Speaker 1: two years ago now that it was going to be
8:53
Speaker 1: out in time for these elections. So in American terms,
8:59
Speaker 1: it's like Texas or some really big state has succeeded
9:04
Speaker 1: and the remaining seats have been reapportioned between all the
9:09
Speaker 1: other countries of the EU. So if Britain now decides,
9:14
Speaker 1: after all, to be in an election in the in
9:17
Speaker 1: the election, and it's difficult to see how they can
9:20
Speaker 1: not be in the be represented in the European Parliament.
9:24
Speaker 1: If they're going to be a member of the European
9:25
Speaker 1: Union after ma, then that means for everywhere else in Europe.
9:31
Speaker 1: Suddenly all the party bosses and all the people running
9:35
Speaker 1: elections will have to re draw their maps and choose
9:40
Speaker 1: which candidates aren't going to be candidates after all. It's
9:43
Speaker 1: like Vermont thinking he had two representatives in Congress and
9:46
Speaker 1: then suddenly discovering the last minute that Texas was going
9:48
Speaker 1: to take part after all, and it was only gonna
9:49
Speaker 1: have one. How do you sort that one? Out and
9:52
Speaker 1: then in the case of Britain, none of the parties
9:54
Speaker 1: are ready for this. Obviously there's a risk that something
9:57
Speaker 1: strange could happen, which particularly the MO it means far
10:01
Speaker 1: right people could get in, far left people could get in.
10:04
Speaker 1: This could be a real horrible mess within Britain. This
10:08
Speaker 1: is fascinating to me because it highlights just how improbable
10:12
Speaker 1: another referendum is. Because if there is a someone in
10:18
Speaker 1: leadership in Britain, if it's not Theresa May, whoever follows her,
10:22
Speaker 1: who is practical and pragmatic, sees this scenario, They're not
10:26
Speaker 1: going to call for another referendum. One would would certainly
10:30
Speaker 1: think not. The one thing I would say very clearly
10:32
Speaker 1: is another election, given that we like it's somewhat different
10:38
Speaker 1: from the American system. But broadly speaking, we have two
10:40
Speaker 1: major parties and neither of those parties coheres at all
10:45
Speaker 1: with the one critical issue at the moment, which is
10:47
Speaker 1: should we stay or stay in the EU will leave it?
10:50
Speaker 1: There were Therefore, a general election is the last way
10:54
Speaker 1: to actually decide that question. A number of the most
10:58
Speaker 1: prominent people on either side of the of the issue
11:02
Speaker 1: represent constituencies where the majority was against them in the referendum,
11:06
Speaker 1: so using a real election isn't going to work. That said, yes,
11:12
Speaker 1: you can see why people including those including full disclosure myself,
11:17
Speaker 1: who would like the UK to remain. After all, you
11:20
Speaker 1: can't realistically see how we would remain unless there is
11:23
Speaker 1: some democratic mandate for that. I would never suggest that
11:28
Speaker 1: we could change our minds without making being clear that
11:31
Speaker 1: the country's wholly changed his mind. But how on earth
11:34
Speaker 1: do we How on earth do we get I've been
11:37
Speaker 1: falling for this since the day Brexit was announced, which
11:40
Speaker 1: is okay, let's do it do over here a second referendum.
11:44
Speaker 1: This has got to be getting some momentum back because
11:47
Speaker 1: nothing else appears to have any kind of support. At
11:51
Speaker 1: Leasta's shaking her head. No. So we go back and
11:53
Speaker 1: forth and we're not I mean, but no, but but
11:56
Speaker 1: I think that to to to John's point, you can't
12:00
Speaker 1: go back at this point. There is no going back, right,
12:02
Speaker 1: you can't undo what has been done. And my question
12:05
Speaker 1: is just what's the least bad option right now, given
12:10
Speaker 1: the fact that another referendum is looking increasingly unlikely because
12:13
Speaker 1: of this political backdrop in the u U, among many
12:16
Speaker 1: other issues. Well, it's exactly it's a. It's a horrible
12:19
Speaker 1: mess what Terisa May is looking for. And this I
12:24
Speaker 1: hope that gives some perspective on why the issue at
12:26
Speaker 1: the moment is how big another extension the British get.
12:30
Speaker 1: She's looking for the shortest extensions she can get away
12:34
Speaker 1: with to try to bodge something in the time available,
12:36
Speaker 1: which therefore means without a general election or a referendum,
12:39
Speaker 1: you can't organize one that quickly. We've now worked out
12:43
Speaker 1: that the European Parliament doesn't get seated until it's not
12:47
Speaker 1: as big a delay as you get here in the States,
12:48
Speaker 1: but it's another week or two after the election, so
12:50
Speaker 1: maybe we could stay until the day before they get seated,
12:53
Speaker 1: before before formerly extinct. That's why she wants a short break.
12:59
Speaker 1: If we don't have anything other than that short break. Basically,
13:03
Speaker 1: there's no sense in it being much less than about
13:06
Speaker 1: two years and the europe Europe just tells the whole
13:09
Speaker 1: of the once proud nation of Britain to go away
13:12
Speaker 1: and sort itself out again from scratch because it doesn't
13:15
Speaker 1: know what it's doing. To some extent, and I've seen analogies.
13:18
Speaker 1: It's interesting, one or two quite famous pro brexity as
13:22
Speaker 1: are beginning to say this. It's similar to the kind
13:25
Speaker 1: of advice you would give to somebody who's going through
13:28
Speaker 1: a relationship breakup. Just don't make any big life decisions
13:33
Speaker 1: while you're this disturbed, while you're this upset, And in
13:37
Speaker 1: the same way, because the whole country is politically coming
13:40
Speaker 1: to something approaching, you know, a nervous breakdown, a marital breakdown,
13:45
Speaker 1: this is just not the time to make big decisions
13:47
Speaker 1: about the future of the country. So therefore take a
13:50
Speaker 1: two year break. Well, I don't know, John, you were
13:53
Speaker 1: in London last week. Tom Keene was in London last week.
13:55
Speaker 1: I can't believe the two of you couldn't have fixed
13:56
Speaker 1: this while you already. I thought that was the plan
13:58
Speaker 1: a long. The marital problem, Tom King is just what
14:02
Speaker 1: we need. We can elect him, elect him Prime Minister,
14:05
Speaker 1: and then then we'll be where you get Certainly, certainly
14:09
Speaker 1: the misunderstanding of the Irish question would never have happened anyway. Yes,
14:13
Speaker 1: so just real quick twenty seconds. Does Teresa May's government
14:17
Speaker 1: survive this? It survives the next few weeks because there's
14:21
Speaker 1: no other alternative. To the extent that Terisu May has
14:25
Speaker 1: a government, I'm not sure it's even survived. At this point,
14:28
Speaker 1: it's almost purely one it's going to say, one man
14:32
Speaker 1: for himself from at least at least we've at least
14:34
Speaker 1: we've got broader, broader gender representation in British politics, right,
14:39
Speaker 1: but one person at this point is almost one person
14:42
Speaker 1: for themselves. Well, the good thing about the Brexit, it's
14:45
Speaker 1: like the Full Employment Act for for for John here,
14:47
Speaker 1: John Arthur's I mean, we always need him to explain
14:50
Speaker 1: things to us. What's going on the best at it,
14:53
Speaker 1: I've got to say, yes, you explain the whole European
14:56
Speaker 1: Parliament election things. So now I get that. So John
14:59
Speaker 1: Arthur's senior editor their Bloomberg Markets, joining us here in
15:01
Speaker 1: a Bloomberg interactor broker's studio, trying to bring us up
15:05
Speaker 1: to date on all things Brexit, which is just never
15:08
Speaker 1: ending and that must be very difficult for the folks
15:10
Speaker 1: in the UK. Well, April is Autism Awareness Month and
15:24
Speaker 1: help us deal explain and discuss this issue. We're very
15:28
Speaker 1: fortunate to welcome our next guest, Charles Massimo, CEO of
15:31
Speaker 1: c j M Wealth Management, also founder of Autism Communities. Charles,
15:36
Speaker 1: thank you so much for joining us on the phone.
15:39
Speaker 1: Can just first just tell us a little bit about
15:41
Speaker 1: your involvement with autism and why it's so important to you. Sure, well,
15:45
Speaker 1: thanks for having me um. I have two nineteen year
15:48
Speaker 1: old boys that were diagnosed with autism when they were
15:52
Speaker 1: around a year and a half, and very early on
15:55
Speaker 1: I started wondering what's going to happen um for them
15:57
Speaker 1: in their future and where they're going to live. So
16:00
Speaker 1: that's what that's where autism community started, is providing an
16:05
Speaker 1: opportunity for adults with autism to live independently outside outside
16:09
Speaker 1: of their parents homes. Just for people who may not
16:12
Speaker 1: be familiar with it. Can you give us a sense
16:14
Speaker 1: of the scope of autism just sort of increase in
16:19
Speaker 1: diagnoses and the degree to which there is assistance for
16:24
Speaker 1: people when they are younger, but at a certain point
16:27
Speaker 1: it gets more challenging to find that help. Yah. That's
16:31
Speaker 1: that's a great point. When when you factor this and
16:34
Speaker 1: that every eleven minutes child is born who will be
16:37
Speaker 1: diagnosed with autism. That's the number that is astonishing. And
16:41
Speaker 1: right now there's over five million people in this country
16:45
Speaker 1: with intellectual disabilities such such as autism. And to your point,
16:49
Speaker 1: up until twenty one the support is really good, Um
16:53
Speaker 1: the most specially New York State has gotten very good
16:55
Speaker 1: in providing supports. But at the twenty one those supports
16:58
Speaker 1: drop off a cliff and there's probably not one parent
17:02
Speaker 1: that you'll speak to that won't tell you that the
17:04
Speaker 1: number one concern is is where is my son and
17:06
Speaker 1: daughter going to live when we can no longer care
17:09
Speaker 1: for them? And that's a major epidemic that this country
17:13
Speaker 1: needs to address. Charles tell us, how so there's autism communities.
17:17
Speaker 1: What is the solution or part of the solution that
17:19
Speaker 1: you think you have, Well, what we're trying, what we
17:23
Speaker 1: are doing our mission, Our mission really is to provide
17:25
Speaker 1: support and opportunities for adults with autism to live outside
17:30
Speaker 1: their homes in a really an integrated community. So we're
17:34
Speaker 1: teaming up with developers currently throughout Long Island where within
17:37
Speaker 1: each development we're going to have a number of residents
17:40
Speaker 1: tend to twelve residents live in the truly integrated community
17:45
Speaker 1: with the opportunity to really enhance every part of their life.
17:49
Speaker 1: Instead of living in a group home that's isolated from
17:52
Speaker 1: a community. We want to provide them an opportunity to
17:55
Speaker 1: truly be integrated into a community, Charles. It raises a
17:59
Speaker 1: question when you see you're working with developers and you
18:01
Speaker 1: are a wealth manager right for your day job, and
18:05
Speaker 1: so I want to sort of, uh talk about just
18:09
Speaker 1: the fact that there is actually an opportunity here for
18:12
Speaker 1: people to basically you know, make a difference and also
18:16
Speaker 1: invested something that's that's necessary and and in demand, right,
18:20
Speaker 1: I mean, there's there's sort of a cross purpose here now. Well, well, absolutely, Again,
18:26
Speaker 1: the demand is huge when you factor over fifty five
18:30
Speaker 1: percent of adults with autism live with their parents until
18:32
Speaker 1: their parents die, and then it becomes a crisis situation.
18:37
Speaker 1: And if you think about the cost of housing, especially
18:40
Speaker 1: where we are in Long Island, New York, in all
18:42
Speaker 1: of New York State, the cost of providing housing for
18:45
Speaker 1: a family with a child with autism is about a
18:48
Speaker 1: hundred and fifty to two hundred thousand dollars a year.
18:52
Speaker 1: And that's the crisis. And that's why we're trying to
18:54
Speaker 1: provide an affordable solution, teaming up with developers that recognize
18:58
Speaker 1: that this is in the with affordable housing and some
19:02
Speaker 1: other creative programs that we're working and partnering with local developers.
19:06
Speaker 1: The goal is not only provide housing, but to provide
19:09
Speaker 1: affordable housing to every family. So, Charles, you mentioned that
19:14
Speaker 1: the costa which is just staggering. Um, talk to us
19:16
Speaker 1: about the fundraiser you have coming up and how you
19:18
Speaker 1: hope that will will help the process. Yeah. Well, as
19:21
Speaker 1: a grassroots organization, you know, we we rely on on
19:24
Speaker 1: donations from individuals and we're having a great fundraiser on
19:28
Speaker 1: Friday this Friday, April twelve at Chateaubriyan in called place.
19:33
Speaker 1: We did it last year was called um Um Boogie Nights,
19:36
Speaker 1: and we it was so successful that people said, hey,
19:38
Speaker 1: you need to do it again. So we're doing Boogie
19:40
Speaker 1: Nights the Remix again this Friday, April twelve, from seven
19:44
Speaker 1: pm to eleven thirty. And it's gonna be a band
19:47
Speaker 1: that seventies band of full dinner, some raffles and really
19:51
Speaker 1: a night to come out and support an organization and
19:55
Speaker 1: a mission that is so needed, not just in Long Island,
19:57
Speaker 1: but really throughout this country. Thank you so much for
20:01
Speaker 1: being with us. Charles Masimo is the chief executive officer
20:04
Speaker 1: of c JM Wealth Manager, founder of Autism Communities. They
20:09
Speaker 1: do have the fund raiser this Friday night, Boogie night, uh,
20:13
Speaker 1: and it's going to be held at Chateau Briand in
20:16
Speaker 1: Carl Place. For more information, Autism Communities dot org. Autism
20:22
Speaker 1: Communities dot org for more information, and just to give
20:25
Speaker 1: you a sense of the scope of the problem. Uh,
20:27
Speaker 1: the direct and indirect services as well as productivity costs
20:31
Speaker 1: of autism were pegged a price tag of up to
20:34
Speaker 1: three hundred and sixty seven billion dollars for this according
20:38
Speaker 1: to one study, at least so a huge cost issue
20:42
Speaker 1: here in addition to just the human issue of how
20:45
Speaker 1: to make people uh integrate into society as as easily
20:49
Speaker 1: and and wonderfully as possible in a way that does
20:53
Speaker 1: allow them to be productive members of the society. Yeah,
20:56
Speaker 1: I'm so glad we had Charles on today because it
20:58
Speaker 1: just highlights an issue that maybe we don't think about,
21:00
Speaker 1: which is the adult life of the folks um with
21:03
Speaker 1: autism and and and how they are cared for, and
21:06
Speaker 1: how they are integrated and to what extent into society.
21:09
Speaker 1: And that boy, that cost you mentioned annual cost of
21:11
Speaker 1: a hundred two dollars a year is just staggering. So
21:14
Speaker 1: you can see the need for these types of fundraisers
21:17
Speaker 1: and this type of support ten years into this cycle
21:30
Speaker 1: of economic expansion has investors wondering how much is left.
21:34
Speaker 1: Help us get an answer to that. We welcome our
21:37
Speaker 1: next guest, Joe Bruce Weellis. Joe's a senior economists at RSM.
21:41
Speaker 1: He joins us live here on our interactive broker studio
21:43
Speaker 1: in New York. Joe, welcome, thanks for coming here. So again,
21:47
Speaker 1: a couple of weeks ago, we had the yield curve invert,
21:50
Speaker 1: however briefly, and that obviously race concerns among a lot
21:54
Speaker 1: of investors about a significant economic slowdown. Do you see that? Okay,
21:58
Speaker 1: so the economy is definitely disselled ratted, but our recession
22:01
Speaker 1: is just not in the cards this year unless the
22:03
Speaker 1: Trump administration or the Fed makes a major mistake. So
22:06
Speaker 1: there are two ways to look at this. One is
22:08
Speaker 1: if you want to look at the policy sensitive curve
22:10
Speaker 1: ten ten year less three months, al right, what you
22:13
Speaker 1: need to do if you're a Bloomberg terminal subscriber, though,
22:16
Speaker 1: strip that out, look at those risk neutral yields. If
22:19
Speaker 1: you look at the ten year less one year, stripping
22:22
Speaker 1: out the risk premiums, the yeld curves still still positive.
22:25
Speaker 1: We're just not there yet in terms of a recession. Okay,
22:28
Speaker 1: so this is something JP Morgan eliminated it today as well,
22:31
Speaker 1: where they're basically saying people are looking at the wrong
22:34
Speaker 1: yield curve when they look at that gap between ten
22:37
Speaker 1: year and three month yields. What is the yield curve
22:39
Speaker 1: you should be looking at determine whether there really is
22:43
Speaker 1: some sort of warning sign being flashed by the If
22:46
Speaker 1: you're gonna hold a gun in my head and say, hey,
22:48
Speaker 1: you have to choose right now, I'm not going to
22:49
Speaker 1: hold a gun to her Hopelese. You're on live radio.
22:53
Speaker 1: I am not holding a gun to Joe's head right now.
22:56
Speaker 1: Go on, all right, So what you want to do
22:57
Speaker 1: again is you're gonna look at the ten year less
22:59
Speaker 1: one year, stripping out the term premium risk. That's going
23:02
Speaker 1: to give you a pure look at the yield curve
23:05
Speaker 1: and what it tells you is, yeah, growth slowed, recession today. No. Now,
23:10
Speaker 1: if we start throwing tariffs on all auto imports, if
23:13
Speaker 1: we tear up NAFTA, we can have a very different discussion.
23:16
Speaker 1: So let's go to go there a little bit geopolitical
23:18
Speaker 1: risk to what extent is you know, the economic slowdown
23:22
Speaker 1: in Europe which is probably being exacerbated clearly by Brexit,
23:26
Speaker 1: um the trade issues with China, slowing growth in China.
23:30
Speaker 1: How much of some of those geopolitical issues inform your
23:32
Speaker 1: view of the U S. Economy. I just spent two
23:34
Speaker 1: weeks in London. We've got a pretty big exposure there
23:36
Speaker 1: in terms of our firm in the UK and in Europe.
23:39
Speaker 1: It's as serious as a heart attack. Okay. Germany was
23:43
Speaker 1: the collateral damage from the U S. China trade spat.
23:48
Speaker 1: Their industrial production turned over last year and it's just negative.
23:51
Speaker 1: Their manufacturing sectors going through contraction right now. Are they
23:54
Speaker 1: at an intercession? No, but their recessions doorstep. Clearly things
23:59
Speaker 1: in the UK have deteriorated. No one's in charge there
24:02
Speaker 1: right now. They're just meandering from day to day. The
24:06
Speaker 1: uncertainty tax levied on that economy from Brexit is significant.
24:10
Speaker 1: You know, fixed business investment was down three point seven
24:13
Speaker 1: and the fourth quarter of last year you have that happened,
24:15
Speaker 1: You're going to see that economy slow bub below one percent.
24:18
Speaker 1: It's exactly what's happened. There's a question, though, especially with
24:21
Speaker 1: respect to Germany, how much is this due to China
24:23
Speaker 1: slow down? Right? Because that's a huge export destination. And
24:29
Speaker 1: how much does that escapegoat though? Well, so here's what
24:32
Speaker 1: I think. You know, if you're gonna take, you're gonna
24:33
Speaker 1: run your aggression. Right, you're an economist. What are you
24:35
Speaker 1: gonna get? You're gonna get two things you're gonna get. Well,
24:39
Speaker 1: you should be, Lisa, you've been here long enough. All right,
24:42
Speaker 1: thank you? Alright, alright, alright, alright, alright. So look, what
24:48
Speaker 1: you're gonna see is is definitely a decrease in demand
24:50
Speaker 1: from China. But what you're also going to see is
24:53
Speaker 1: an endogenous result due to the problems at Folkswagen and
24:57
Speaker 1: the shifting two more emissions friendly environmental target. So you
25:01
Speaker 1: get you get both external and external, and then they're
25:04
Speaker 1: both fair. If you're really sort of an optimist, you say, well,
25:06
Speaker 1: it's not the Chinese, They're not really the cause of it. Um,
25:09
Speaker 1: it's what we did here. And the truth is it's
25:12
Speaker 1: a little bit of both. But don't discount the disruption
25:14
Speaker 1: of those global supply chains due to the tradespat between
25:17
Speaker 1: the U S and China. We spent trillions of dollars
25:20
Speaker 1: building them over twenty five years ago, and no one
25:22
Speaker 1: has an actor accurate and predictive model of what the
25:25
Speaker 1: global economy looks like if you being to unwind those
25:28
Speaker 1: supply chains. So I was gonna ask you, what are
25:30
Speaker 1: we not, what are we missing? What are we in
25:32
Speaker 1: terms of our economics soft landing in the US to
25:35
Speaker 1: two GDP? What could come out of left field and
25:38
Speaker 1: just kind of shock the system and maybe push us
25:40
Speaker 1: into that recession. Well, it's the national populism wave that's
25:43
Speaker 1: sweeping the world. This is in the economies are doing
25:45
Speaker 1: fine if you leave them alone. It's policy that's causing
25:48
Speaker 1: the problem. And right now, the deglobalization in some cases,
25:52
Speaker 1: the definancialization is the endogenous shock that you're going to
25:55
Speaker 1: see hit some of these economies if the leaders choose
25:59
Speaker 1: to pull push forward on them. And that's a big
26:01
Speaker 1: gift right now. But here's the thing. People have been
26:03
Speaker 1: saying this since President Trump was elected. Frankly, they've been
26:06
Speaker 1: saying this since the Brexit vote. They've been saying this
26:08
Speaker 1: for a while. And I'm struck by the fact that
26:11
Speaker 1: the economic data isn't necessarily so clear cut. It's not
26:15
Speaker 1: necessarily bearing out that you're seeing the direct correlation between
26:18
Speaker 1: some of the populist movements and a severe decline in
26:22
Speaker 1: economic growth. So so what do you say to people
26:24
Speaker 1: who say, show me, shall prove it to me? Eighteen
26:29
Speaker 1: at the end of the second quarters were in early June.
26:31
Speaker 1: The economy is at a four point two percent growth trend.
26:34
Speaker 1: We finished the year to two percent growth trend, and
26:36
Speaker 1: if things sort of don't change, we're gonna be at
26:38
Speaker 1: one percent here in the quarter with downside risk. So clearly,
26:42
Speaker 1: once those trade measures which impacted the economy with the
26:45
Speaker 1: six to nine month lag started to show up, what happened.
26:49
Speaker 1: The economy slowed. And what are you hearing out of
26:51
Speaker 1: the White House right now? What did you hear from
26:53
Speaker 1: Mr cudlo on on the you know the Sunday shows
26:56
Speaker 1: they want at fifty basis got Really, you're gonna do
27:00
Speaker 1: that with two fifty basis points left? If there's a
27:03
Speaker 1: recession anytime on your watch and your second administration, you're
27:06
Speaker 1: gonna blow your AMMO now okay, So yeah, yeah, there
27:10
Speaker 1: there's something there. So in other words, the slowdown that
27:13
Speaker 1: we're seeing in the US momentum you're saying is very
27:16
Speaker 1: much due to the trade policies. Uh and and sort
27:19
Speaker 1: of the populist and Anti two. Look, we're going to
27:23
Speaker 1: shift off a long term regime. You're gonna have that
27:26
Speaker 1: sort of regime change. You're gonna have some disruption. You're
27:28
Speaker 1: seeing a play out in real time. Joe bra Sellis,
27:31
Speaker 1: thank you so much for being with us anytime. Thank
27:32
Speaker 1: you guys, fabulous having you on. Joe Grascellus is senior
27:35
Speaker 1: economist at R s M, joining us here in our
27:38
Speaker 1: Bloomberg Interactive Brokers studios. Thanks for listening to the Bloomberg
27:42
Speaker 1: P and L podcast. You can subscribe and listen to
27:44
Speaker 1: interviews at Apple Podcasts or whatever podcast platform you prefer.
27:48
Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa
27:51
Speaker 1: abram Woyds. I'm on Twitter at Lisa A. Bramwoit's one
27:54
Speaker 1: before the podcast. You can always catch us worldwide on
27:56
Speaker 1: Bloomberg Radio.