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Nike's CEO Switch, Beverage M&A, and the Markets · Bloomberg Intelligence

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Speaker 2: Let's go to put them Boyle.
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Speaker 3: She's a Bloomberg Intelligence senior US retail analyst. She covers
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Speaker 3: all this stuff. Put what's going on at Nike? That's
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Speaker 3: still my brand? I mean, aren't Aren't they still the
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Speaker 3: dominant player here? What's going on?
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Speaker 4: I'm going to say, you're not the target audience.
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Speaker 3: Some think I'm the target. I mean, just catch the
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Speaker 3: target demo for like anybody anymore? All right? Put them?
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Speaker 3: What's going on in Nike?
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Speaker 5: So so, Paul. Nike definitely is still the largest death
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Speaker 5: leisure brand in the world, with over fifty billion dollars
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Speaker 5: in sales, but in the last few years it has
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Speaker 5: lost a share to Hoka, to On and even to Adita's,
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Speaker 5: if you want to say. And part of that is
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Speaker 5: because it pulled out a wholesale it pulled out of
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Speaker 5: where people shop, and also it focused a little too
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Speaker 5: much on the digital space. Giving product really little focus,
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Speaker 5: and that's why we're seeing a change today. We need
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Speaker 5: someone who can come back, go back to the Nike DNA,
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Speaker 5: and really focus on product performance to deliver what Nike
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Speaker 5: has delivered for the last thirty plus years.
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Speaker 4: When you said they pulled out of retail, what do
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Speaker 4: you mean they tried to sell it themselves online and
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Speaker 4: their website.
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Speaker 5: Well, it's not that they pulled out of all retail,
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Speaker 5: but they definitely curbed their exposure into retail, whether it
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Speaker 5: was through foot locker, Macy's, etc. They had materially pulled
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Speaker 5: back what they were selling into those stores and now
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Speaker 5: they're back in. So they did come back. But what
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Speaker 5: happened is if you went to a foot locker prior
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Speaker 5: to twenty twenty, twenty, nineteen, twenty eighteen, you'd see a
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Speaker 5: lot of Nike there. Right, Nike was the predominant brand,
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Speaker 5: And had you walked in yesterday, even what you'll see
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Speaker 5: is Nike, you'll see Adidas, the Hoka you'll see on
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Speaker 5: So now people are being exposed to more brands and
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Speaker 5: that's part of the reason. But also those brands are
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Speaker 5: good brands, right. They have performance Hoka for running on
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Speaker 5: for running for lifestyle, they've really gained traction, and that's
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Speaker 5: because Nike let them.
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Speaker 3: I guess it was a week or so ago we
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Speaker 3: had Derek Jeter in here with the founder of Untucket,
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Speaker 3: Chris Riccobano, and they were talking about their introducing a
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Speaker 3: new brand of performance athletic leisure, and I heard their story,
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Speaker 3: I heard their pitch, but I'm like, what in the hill?
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Speaker 3: There's so much competition in there? How competitive is that market?
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Speaker 3: At leisure? Nobody's wearing the suits anymore, Plum, that thing's gone,
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Speaker 3: So I guess everybody is kind of into ath leisure.
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Speaker 3: How competitive is that part?
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Speaker 5: That's very competitive, But Nike's still the dominant player at
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Speaker 5: fifty billion dollars plus in sales. It is definitely winning
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Speaker 5: in the shoe category. In apparel, I'd say the gap
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Speaker 5: is much narrower to other players, including Adidas and others.
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Speaker 5: But it's also a space that's growing, right, So as
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Speaker 5: we hear more competition encroaching on the space, it's because
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Speaker 5: more people want more at leisure in their wardrobe. So
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Speaker 5: I'd say it's a category where it's not necessary that
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Speaker 5: one has to lose for another to win the category itself.
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Speaker 5: Is growing globally.
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Speaker 4: How long does it take to bring a new product, sneaker,
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Speaker 4: whatever to market?
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Speaker 5: It takes more than six months, depending on whether it's
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Speaker 5: just another color wave or depending on if it's a
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Speaker 5: new performance based product. But the pipeline is long. And
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Speaker 5: remember most of these sneakers are made in Vietnam. Vietnam
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Speaker 5: is a sneaker hub for manufacturing sneakers. Therefore, there is
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Speaker 5: a transit time involved as well. Now you can argue
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Speaker 5: that AI is going to cut some of that because
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Speaker 5: the design can happen faster and you can pre secure fabrics, etc.
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Speaker 5: But still it's still a long window.
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Speaker 4: The CEO who's getting canned, I don't know who's outgoing?
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Speaker 4: Was Was he a bean counter? I mean, what was
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Speaker 4: the problem with this guy?
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Speaker 5: It's not that there was a problem. He was not
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Speaker 5: a merchant. So John Donaho came in with DTC exposure.
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Speaker 5: So he is the one who led the digital first strategy,
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Speaker 5: wanting to lean more into digital, and well, that's great,
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Speaker 5: it is great to lean forward into digital, but at
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Speaker 5: the end of the day, retail is about product, especially
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Speaker 5: when it comes to a brand. Nike is not a marketplace.
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Speaker 5: It's not Amazon, so product matters most and he just
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Speaker 5: didn't have that product expertise behind him.
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Speaker 3: John, You and I know the fellow who runs this place.
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Speaker 3: But if I were running this place here, here's how
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Speaker 3: we go. No shorts in the workplace and no sandals.
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Speaker 4: That is a just did you know Puonhum that Paul
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Speaker 4: is the fashion police here at Bloomberg World headquarters and
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Speaker 4: he's driving.
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Speaker 5: Every He's always in Shortthills malls for us right checking
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Speaker 5: out the story.
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Speaker 3: I am, I do, I do some product as some
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Speaker 3: channel checks for Punham in the Short Hills mall. All right,
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Speaker 3: put him, thanks so much for joining us, appreciate it.
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Speaker 3: Put them Gil. She covers all the retail stuff for
5:01
Speaker 3: Bloomberg Intelligence. She was Bloomerg Intelligence just celebrated his fifteenth
5:06
Speaker 3: year anniversary. She was my first hire here and I've
5:10
Speaker 3: hired one thirty analysts and she was number one, So
5:14
Speaker 3: that was a good one for us.
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5:36
Speaker 3: All right, what do you do here? The Fed cuts rates?
5:39
Speaker 3: You're a financial advisor? What do you do with your clients?
5:42
Speaker 3: What do you tell your clients in world work? Finally
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Speaker 3: rates are coming down. Let's check in with somebody who
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Speaker 3: does that stuff for a living. Sarah Ponzek, financial advisor
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Speaker 3: for UBS Private Wealth Management.
5:52
Speaker 4: Full disclosure.
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Speaker 3: I am a client of UBS Private Wealth Management here
5:56
Speaker 3: in New York. They take care of me. She's done
5:58
Speaker 3: a Boca raton Florida. That's not a bad place to be. Sarah,
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Speaker 3: Thanks so much for joining us. Here are the FED
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Speaker 3: cuts rates. What kind of phone calls were you feeling
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Speaker 3: from your clients after that news, which was for some
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Speaker 3: people's surprise.
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Speaker 6: Yeah, it's great to be with you, Paul and John.
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Speaker 6: It didn't really come as a surprise. I would say,
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Speaker 6: we've all been talking about this since last year, it feels,
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Speaker 6: but finally the first rate cut since twenty twenty, and
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Speaker 6: the Fed came out swinging with a fifty basis point
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Speaker 6: rate cut. So the conversations that we've been having with clients,
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Speaker 6: even though it should not have come as a surprise.
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Speaker 7: You know, we've been talking all year long.
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Speaker 6: About locking in interest rates, extending out duration, slowly moving
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Speaker 6: out of high savings accounts and money markets with cash
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Speaker 6: that you do have.
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Speaker 7: You know, it's been difficult for some people to do that.
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Speaker 6: So finally this week, now that we actually saw the
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Speaker 6: fifty basis point cut, the question is okay, am I
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Speaker 6: too late? If I still have a lot of money
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Speaker 6: in cash, what do I do with that cash? So
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Speaker 6: those are the conversations, the types of conversations that we've
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Speaker 6: been having this week.
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Speaker 4: Ball So, Sarah, what do I do with my cash? Sarah?
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Speaker 7: Great question, John.
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Speaker 6: So you know what's interesting is, yes, we're continually and
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Speaker 6: repeatedly saying, all right, if you haven't already locked in
7:19
Speaker 6: yields through fixed income and extended duration, now's the time
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Speaker 6: to do so. And what's interesting is sometimes we do
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Speaker 6: get pushedback. There's this this gap or this misunderstanding where
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Speaker 6: someone might say, well, well, why would I lock in
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Speaker 6: you know, a three, a five, a ten year bond
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Speaker 6: that's yielding four or five percent when my money market
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Speaker 6: is still yielding you know, four point eight or five percent.
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Speaker 6: You know, there's this trade off that some people feel
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Speaker 6: as though they're making in the short term and what
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Speaker 6: you really need to be aware of is the fact that, yes,
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Speaker 6: your money market might still be paying you, you know,
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Speaker 6: close to five percent today, but if you look at
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Speaker 6: the expectations of where you know, short term interest rates
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Speaker 6: are going to be a year from now, at the
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Speaker 6: end of twenty twenty five, we're looking at short term
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Speaker 6: yields being close to three percent most likely. So if
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Speaker 6: you can lock in a four percent Treasury bill, you know,
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Speaker 6: years out into the future, yeah, you know, you might
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Speaker 6: have a trade off for the next couple of months,
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Speaker 6: but you're going to set yourself up for success over
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Speaker 6: a longer period of time, which is really the name
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Speaker 6: of the game. So that's on the fixed income side,
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Speaker 6: extending out duration, we're talking about you know, maybe three
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Speaker 6: to seven years in maturity, looking at that intermediate duration
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Speaker 6: in the curve, and also staying up in quality, so
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Speaker 6: looking at treasuries, also looking at investment grade corporates. Now,
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Speaker 6: on the equity side, we still believe that the risk
8:42
Speaker 6: reward for equities is pretty strong here. And yes, we've
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Speaker 6: seen a twenty percent return in the S and P
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Speaker 6: five hundred this year. Stocks are trading at records. That's great,
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Speaker 6: but we're seeing this broadening out. You know, if you
8:55
Speaker 6: look at an equal weighted version of the S and
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Speaker 6: P five hundred, it also traded out a record high yesterday.
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Speaker 6: If you look at the sector breakdown of the S
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Speaker 6: and P five hundred, all but two sectors are trading
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Speaker 6: at fifty two week highs. So we've seen this broadening
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Speaker 6: in the stock market and that's really encouraging as an investor.
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Speaker 3: Sir, ETFs, how do you position them for your clients?
9:16
Speaker 3: How much incoming calls do you get from your clients
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Speaker 3: about ETFs?
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Speaker 7: Great question, Paul.
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Speaker 6: You know, obviously we can talk about investing and where
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Speaker 6: to invest, but then there's a question of structure and
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Speaker 6: how you invest. You know, how do you what products
9:31
Speaker 6: do you use to invest your money? So I would say,
9:35
Speaker 6: you know, we use we do use ETFs and portfolios,
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Speaker 6: but we use this them and more so in a
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Speaker 6: supplementary way. When we think about the core portion of
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Speaker 6: our client's equity portfolios. A lot of what we do
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Speaker 6: is actually what's called direct indexing, which we would describe
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Speaker 6: as being a step above ets. It's like, as an investor,
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Speaker 6: you have your own index that's catered to you.
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Speaker 7: And why is that important?
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Speaker 6: You know, there's a couple of things that you can
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Speaker 6: do with the direct index that you cannot do with
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Speaker 6: an ETF. You know, when you have an ETF, let's
10:05
Speaker 6: say an S and P five hundred ETF, that's one
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Speaker 6: line item in your portfolio. So if the market's up,
10:10
Speaker 6: your ETF's up in value, there's not much tax planning
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Speaker 6: you can do there. You really can't do tax loss harvesting, which,
10:15
Speaker 6: especially as we're getting towards the end of the year,
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Speaker 6: this is the time of year that we're gonna start
10:19
Speaker 6: seeing tax planning really come to the forefront of portfolios.
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Speaker 6: So within a direct index, you actually own a couple
10:25
Speaker 6: hundred positions within the portfolio. We all know that even
10:29
Speaker 6: in a year in which the broader stock market is up,
10:32
Speaker 6: there's a lot of individual stocks that trade at losses
10:35
Speaker 6: and pretty hefty losses throughout the year. So what that
10:37
Speaker 6: allows you to do is continue to get market performance
10:40
Speaker 6: in your portfolio, but do plenty of tax planning on
10:44
Speaker 6: the bottom side. And really, what a lot of research
10:46
Speaker 6: has shown is that can add you know, an extra
10:49
Speaker 6: two percentage of performance per year on an after tax basis.
10:52
Speaker 7: So usually for US large cap stocks.
10:54
Speaker 6: We're pretty big believers and passive indexing there, we'll use
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Speaker 6: direct indexing and then we'll use eat is to supplement that.
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Speaker 6: So that's where we you know, right now, for example,
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Speaker 6: small caps might perform pretty well with the expectation of
11:07
Speaker 6: interest rates coming down, So adding to small caps, adding
11:10
Speaker 6: to size exposure there, diversifying internationally there, maybe adding a
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Speaker 6: little bit of international exposure.
11:15
Speaker 7: And then also playing industries and sector tilts.
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Speaker 6: You know, we've had some exposure to some etss that
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Speaker 6: really more so focused on artificial intelligence and cybersecurity this year,
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Speaker 6: for example, So using ETS as a supplementary play to
11:29
Speaker 6: say your large cap core indexed portfolio.
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Speaker 4: Okay, so if with risk assets, Sarah, it's as easy
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Speaker 4: as just finding stocks that do well in a lower
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Speaker 4: rate environment, i e. Tech.
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Speaker 6: So yes, look, I think there's a couple of reasons
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Speaker 6: that we're still there.
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Speaker 4: I'm not saying your job as in hard, Sarah.
11:51
Speaker 6: It's very U I would say it's pretty difficult, and
11:54
Speaker 6: you're dealing with a lot of interesting personalities sometimes who
11:57
Speaker 6: you know who.
11:58
Speaker 4: Are and you're in BOCO, which all the retirees.
12:01
Speaker 7: Right, lower retirees.
12:03
Speaker 6: But it's been raining a lot here, so I honestly,
12:06
Speaker 6: envy you up in New York right now, but we're
12:08
Speaker 6: about to get to.
12:09
Speaker 7: The nice time to be to be in Florida.
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Speaker 6: But no, I think what's interesting about tech is it's
12:14
Speaker 6: not just an interest story play. Look, tech has been
12:16
Speaker 6: the leading sector in the leading industry for the past
12:18
Speaker 6: couple of years when interest rates were high.
12:21
Speaker 7: You know, nowadays tech is quality. Tech is also you know, megacap.
12:25
Speaker 6: Tech is a play on the artificial intelligence trade and
12:29
Speaker 6: growth that we.
12:30
Speaker 7: Expect to see.
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Speaker 6: And yes, you know growth is an area of the
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Speaker 6: market that's interest rate sensitive because essentially, at the end
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Speaker 6: of the day, when you look at tech, you know,
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Speaker 6: we have to think about the net present value of
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Speaker 6: future earnings, and the lower interest rates are, the more
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Speaker 6: attractive that future stream of earnings looks. So yes, we've
12:52
Speaker 6: been optimistic on tech in the past, and that wasn't
12:55
Speaker 6: an interest rate reason, and now I would say interest
12:57
Speaker 6: rates are coming down is even more so a reason
12:59
Speaker 6: to be a com optimistic on tech. With that said,
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Speaker 6: though you don't want tech to make up your whole portfolio, yes,
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Speaker 6: we do think it makes up a very significant portion
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Speaker 6: of a portfolio. But I mentioned earlier on we're seeing
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Speaker 6: a broadening out in the market. We're seeing some cyclical
13:11
Speaker 6: sectors of the market, you know, start to play catch up,
13:14
Speaker 6: so you want to make sure that you're well diversified.
13:16
Speaker 6: But absolutely tech has you know, been a predominant role
13:19
Speaker 6: player in portfolios for the past few years, and we
13:22
Speaker 6: really don't see that changing.
13:24
Speaker 3: Sar to what extent to your clients ask you about
13:28
Speaker 3: getting exposure to alternative investments, whether it's hedge funds or
13:31
Speaker 3: private equity, private credit, how does that play.
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Speaker 6: So it's becoming more of a common theme. I would
13:37
Speaker 6: say it's still a conversation that we're bringing up rather
13:40
Speaker 6: than a lot of clients coming to us and asking
13:42
Speaker 6: about it. Because alternatives are so important when we think
13:45
Speaker 6: about the universe of public companies, you know, think about
13:48
Speaker 6: the universe of companies nowadays that go through an IPO
13:52
Speaker 6: to list on a public stock exchange. I mean, it's
13:55
Speaker 6: a very different world than it was, you know, ten
13:57
Speaker 6: years ago, twenty years ago. Few were companies are going
14:01
Speaker 6: public nowadays, and many of the largest companies in our
14:05
Speaker 6: global economy, especially in the US economy, are actually still
14:08
Speaker 6: private companies.
14:08
Speaker 7: They haven't gone public.
14:10
Speaker 6: So now more than ever, it's important to get exposure
14:13
Speaker 6: to private markets, because it's a whole area, a whole
14:15
Speaker 6: universe of the economy that you just don't have exposure
14:18
Speaker 6: to you in your portfolio if you don't have exposure
14:21
Speaker 6: to private markets. So where within private markets, you know,
14:24
Speaker 6: do we look? We do still like private credit. You know,
14:27
Speaker 6: private credit has been paying an annualized distribution yield of
14:30
Speaker 6: around ten percent. Yes, a lot of these loans are
14:33
Speaker 6: floating right, so we are going to start to see
14:35
Speaker 6: that come down, but we still see that as an
14:37
Speaker 6: attractive place to be, especially as.
14:38
Speaker 7: An alternative to just traditional fixed income. Also, private equity.
14:42
Speaker 6: Private equity is you know, we see as a very
14:45
Speaker 6: important piece of portfolios.
14:47
Speaker 7: Talk about lowering volatility.
14:49
Speaker 6: You don't have the day to day swings of what
14:50
Speaker 6: you see on public stock exchanges, but still getting those
14:54
Speaker 6: strong double digit returns in private equity. And what's also
14:57
Speaker 6: been really interesting in the private equity space is we've
15:00
Speaker 6: seen more, you know, investor friendly structures where you're not
15:04
Speaker 6: locked up for seven to ten years, you're not dealing
15:06
Speaker 6: with capital calls. There's these evergreen structures that have been
15:09
Speaker 6: produced where you can actually get out on a quarterly basis.
15:12
Speaker 7: You have more liquidity.
15:13
Speaker 6: So the environment for private privates, I would say, has
15:17
Speaker 6: become much more investor friendly over the past year or
15:19
Speaker 6: two years.
15:20
Speaker 4: Even speaking of volatility, have you seen the volumes today?
15:23
Speaker 4: Triple witching day? Oh real quick, Sarah, just a minute.
15:28
Speaker 4: Can you use how do you use volatility to your
15:30
Speaker 4: advantage as an investor for your quer Absolutely so.
15:34
Speaker 6: Especially Look, we've seen some volatility over the past couple
15:37
Speaker 6: of months in a year in which volatility really hasn't existed.
15:40
Speaker 6: So look on the equity side, if you're someone who
15:42
Speaker 6: sells a business, if you are sitting on a hoard
15:45
Speaker 6: of cash, no, you have emotional ties to the money.
15:47
Speaker 6: You don't want to invest at all at once, So
15:49
Speaker 6: use volatility to your advantage. Yes, have a set plan.
15:52
Speaker 6: You want a slowly dollar cost average into the market.
15:54
Speaker 6: But if you have a week or a day in
15:57
Speaker 6: which you see more volatility, may be speed that dollar
16:01
Speaker 6: costs averaging up. Maybe you pull your investments forwards and
16:04
Speaker 6: you use those doundies to slowly get yourself invested, because
16:07
Speaker 6: at the end of the day, you know, the longer
16:08
Speaker 6: you're sitting on the sidelines, the longer it is to
16:11
Speaker 6: get in.
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Speaker 3: All right, Sarah, Thank you so much. We always appreciate
16:13
Speaker 3: getting a few minutes of your time from South Florida.
16:15
Speaker 3: Sarah Ponsek, Financial Advisor, UBS Private Wealth Management. Here again,
16:20
Speaker 3: investing in a world where, for the first time in
16:22
Speaker 3: a little bit more than four years, we actually have
16:24
Speaker 3: rates coming down for a lot of folks. That's kind
16:27
Speaker 3: of a new environment to invest in.
16:31
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16:46
Speaker 3: How about this ready mixed drink? Things you see like
16:50
Speaker 3: vodkn iced, you see the little banish.
16:52
Speaker 4: I have my favorite what is it is a my
16:55
Speaker 4: tie and it's just like out of this world at Curison,
16:59
Speaker 4: uh top shelf liquor. I can't remember who makes it,
17:03
Speaker 4: but it is out of this world and you can
17:06
Speaker 4: only have one because more than that, you're like you're
17:08
Speaker 4: in a coma.
17:09
Speaker 3: Really, I mean, that's what the kids are doing these days.
17:12
Speaker 4: I don't know what's going on out there, not that
17:14
Speaker 4: I'm a kid, but I'll.
17:16
Speaker 3: Tell you someone who knows this stuff. He knows his booze.
17:18
Speaker 3: He knows his weed. That is Ken senior consumer products
17:22
Speaker 3: analysts hopefully is.
17:26
Speaker 4: And he's sitting upright.
17:27
Speaker 3: He's sitting upright. But he's been covering all these beverage
17:30
Speaker 3: companies and he's seen every fad come and go. Can
17:33
Speaker 3: what's the latest kind of strategy there for you know,
17:36
Speaker 3: the Coca Colas of the world. The pepsis, where do
17:39
Speaker 3: they see growth these days in new products?
17:42
Speaker 8: YEAHI guys. So for Coca Cola, you know, they feel
17:48
Speaker 8: themselves as a total beverage company. That's their aspiration. They
17:51
Speaker 8: want to beat all beverages. Having said that, it's also
17:54
Speaker 8: a company that is very image and reputational conscious, so
17:59
Speaker 8: it's moving at a very measured pace to get into
18:02
Speaker 8: the two trillion dollars global alcoholic beverage space. So they're
18:06
Speaker 8: doing so by partnerships and alliances. Uh so, you just
18:11
Speaker 8: heard the other day they've entered into a partnership with Bacarty,
18:16
Speaker 8: the big drum company, to make bricardy and coke a product.
18:19
Speaker 8: And we all kind of know, and so it's a
18:22
Speaker 8: ready to drink It saves people time, you know, that
18:25
Speaker 8: kind of thing. They've entered similar kind of arrangements with
18:29
Speaker 8: Brown Foreman, with Jack and Coke. You know, Jack Daniels
18:32
Speaker 8: and Coke.
18:34
Speaker 4: With how lazy did he have to be to not
18:37
Speaker 4: be able to figure out you can pour one and
18:39
Speaker 4: pour the other.
18:41
Speaker 8: Well, you know you have a point. You have a
18:44
Speaker 8: point there, John. But think about it. If you want
18:45
Speaker 8: to go to the beach, right if if if you
18:47
Speaker 8: want to if you want to go somewhere to have
18:49
Speaker 8: a picnic, you don't want to carry all these bottles
18:52
Speaker 8: around and work about ice and you know whatever. Uh
18:55
Speaker 8: So it's just it's a convenience and consumers are willing
18:58
Speaker 8: to pay for that convenient It's all right, explain.
19:01
Speaker 3: To me, Ken, because this is not John Tucker's demo
19:06
Speaker 3: White Claw? What is this stuff? Why are all the
19:09
Speaker 3: kids drinking it down the Jersey Shore?
19:11
Speaker 8: Well, you know White Claw that's produced by E. J. Gallow.
19:15
Speaker 8: They know the wine market really well, they know their demographics. Well. Uh,
19:19
Speaker 8: they sense that there was an opportunity for a arguably
19:25
Speaker 8: arguably a better tasting, more modern version of a low
19:28
Speaker 8: alcohol refresher. And they've really hit a home run with
19:33
Speaker 8: that product. I think it was really a game changer
19:35
Speaker 8: in the whole heart Seltzer area, and it's still a
19:38
Speaker 8: very strong, uh you know entrant that said and that
19:42
Speaker 8: they go off topic too much. But the trend now
19:44
Speaker 8: is to have vodka based drinks, So high New and
19:48
Speaker 8: vodka and tequila tequila base and vodka based High News
19:51
Speaker 8: are all the rage right now.
19:55
Speaker 4: What about from PepsiCo.
19:59
Speaker 8: That's not being quite as well, But you know, there's
20:01
Speaker 8: a there's there's a niche market for these types of products.
20:04
Speaker 8: I mean, you know, this is five or six percent
20:09
Speaker 8: alcohol by volume, you know, so you see a hard product.
20:12
Speaker 8: Most of these are malt based, about the same alcohol
20:16
Speaker 8: level as beer, but it's for someone who maybe tiring
20:20
Speaker 8: of beer the beer you know, taste is giving way
20:25
Speaker 8: to things that are a little more flavorful. I think
20:29
Speaker 8: are some of our data from our surveys bear ound
20:32
Speaker 8: that consumers are looking for something new and exciting and
20:36
Speaker 8: you know, looking for new flavor experiences beyond beer, and
20:39
Speaker 8: so there's an itch here for that.
20:40
Speaker 4: Brings me back to my college trip with my buddies
20:43
Speaker 4: to Paris. We're in the hotel room. All we had
20:45
Speaker 4: were little vodka bottles. I was like, well, we're not
20:48
Speaker 4: going to drink vodka straight? What can we get. So
20:51
Speaker 4: we went down to the soda machine. It was about midnight,
20:53
Speaker 4: and what they had was Fanta orange soda. You can
20:56
Speaker 4: mix those two. There's my idea.
21:00
Speaker 2: Thank you.
21:00
Speaker 3: All all you need for me is a glass ice
21:02
Speaker 3: in Tito's and we're good to go. All right, So
21:04
Speaker 3: let's switch gears. Let's let's go to the weed business.
21:07
Speaker 3: That can give us the update on just kind of
21:09
Speaker 3: the development of that business here in the US.
21:13
Speaker 8: Well, in the US, as you know, it's still federally
21:16
Speaker 8: illegal prohibited, So the revenue growth for cannabis in the
21:20
Speaker 8: US is really state by state. And so all eyes
21:24
Speaker 8: right now are on November fifth, Florida. The referendum to
21:30
Speaker 8: legalize is on the ballot. You need sixty percent of
21:33
Speaker 8: the vote. All the goals that I've seen strongly imply
21:37
Speaker 8: it's going to pass. Think about Florida. Yeah, the third
21:41
Speaker 8: largest state in the country, one hundred million visitors annually
21:45
Speaker 8: could be open for business for legal marijuana. So all
21:49
Speaker 8: eyes are on that market right now.
21:50
Speaker 3: Here's my experience with it. And I buy a shop
21:53
Speaker 3: for a friend, not for me. Is the dispensary in Neptune,
21:58
Speaker 3: New Jersey is quite a nice expertperience. By the way,
22:01
Speaker 3: there's and I tell you the the weed bartenders are
22:04
Speaker 3: the friendliest, most knowledgeable people I've.
22:06
Speaker 4: Ever dealt with because they're all high.
22:08
Speaker 3: I guess, but I mean it's it's actually a good
22:10
Speaker 3: exp So what's it been like in New Jersey? Ken,
22:12
Speaker 3: the cannabis business.
22:14
Speaker 8: It's booming, absolutely, it's absolutely booming. More and more cropping
22:19
Speaker 8: up across the state. And it's been a big success
22:23
Speaker 8: so far. And I'll tell you, ah, no, I was
22:28
Speaker 8: gonna say, but, but it's also inviting competition. New York
22:31
Speaker 8: legalized shortly thereafter. Now Pennsylvania is looking to do so,
22:35
Speaker 8: so you know other states are watching closely.
22:37
Speaker 3: Also, I can tell you in New York City they
22:40
Speaker 3: used to have all these random kind of they cracked
22:43
Speaker 3: out big time. They are all gone, literally in a snap,
22:46
Speaker 3: in a blinkban eye. And now there's only just a
22:48
Speaker 3: handful of ones.
22:49
Speaker 2: That are approved.
22:50
Speaker 3: And there's one like on my walk to pen station,
22:52
Speaker 3: I see it there, but there's not many. It was
22:53
Speaker 3: out of hand there for a while, but they cracked down,
22:55
Speaker 3: all right. Ken Shay, he is our guy all things
22:58
Speaker 3: booze and weed. He's a senior consumer Products onals. He
23:01
Speaker 3: covers everything, folks, from cocoa cola to the cannabis business
23:04
Speaker 3: to everything. And it is a huge, huge business, huge companies,
23:08
Speaker 3: huge free cash flow, nice dividend yields too for folks
23:11
Speaker 3: looking for dividend neils. Those consumer products companies have always
23:15
Speaker 3: been a place to hide and kind a little bit
23:17
Speaker 3: of recession proof, by and large for those names.
23:21
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23:40
Speaker 3: All right, we've got a FED that's cutting it straight.
23:41
Speaker 3: So we just came out of a really pretty strong
23:44
Speaker 3: second quarter earning season. Expectations are for some pretty decent
23:47
Speaker 3: earnings coming up this quarter. That seems pretty constructive to me.
23:50
Speaker 3: Let's check in with somebody who gets paid to do
23:52
Speaker 3: this stuff. James about toay. He's managing director and chief
23:54
Speaker 3: investment officer at Center Asset Management in New York City. James,
23:59
Speaker 3: thanks so much for joining us here. Did we see
24:03
Speaker 3: did the FED move yesterday, did that change or Wednesday?
24:05
Speaker 3: Did that change your outlook at all?
24:07
Speaker 8: Here?
24:09
Speaker 2: It's too early to tell, you know. Really, if you
24:13
Speaker 2: look at what the Fed did yesterday, and frankly, if
24:16
Speaker 2: you read the headlines about yesterday's stock market reaction, you know,
24:22
Speaker 2: the FED talking about the fact that they're taking out
24:24
Speaker 2: an insurance policy so as not to risk a recession.
24:29
Speaker 2: It's almost, you know, verbatim to what the newspaper headlines
24:33
Speaker 2: and the commentary read, you know, back way back on,
24:36
Speaker 2: you know, January of two thousand and one, when the
24:38
Speaker 2: Fed you know, similarly surprised with a fifty basis point
24:42
Speaker 2: cut in the FED funds rate. Obviously, you know, no
24:46
Speaker 2: parallel is exactly the same, you know, even if it rhymes.
24:49
Speaker 2: But you know, clearly there's this very big dichotomy at
24:52
Speaker 2: this stage between economic data which the FED is relying upon,
24:57
Speaker 2: you know, versus what we're seeing in terms of expectations
25:00
Speaker 2: for corporate profits.
25:01
Speaker 4: Okay, the Fed, as you put it, is taking out
25:04
Speaker 4: the insurance policies. Should I be investing in some sort
25:07
Speaker 4: of insurance in a portfolio as an investor?
25:12
Speaker 2: Yes, you should, absolutely, I think you know, from our take,
25:15
Speaker 2: you know, we think global economic growth stays like in
25:18
Speaker 2: this low gear. We're not in a technical recession, but
25:21
Speaker 2: we're very much vulnerable to a demand shock in the
25:25
Speaker 2: United States, you know, much like the economy was I
25:28
Speaker 2: hate to say it back in two thousand and one,
25:30
Speaker 2: prior to nine to eleven. So you know, from our perspective,
25:33
Speaker 2: you know, the winners are going to be, you know, treasuries,
25:36
Speaker 2: defensive growth stocks, infrastructure, utility stocks. You know, the key
25:42
Speaker 2: for US is going to be if companies can somehow,
25:45
Speaker 2: you know, maintain they're very lofty earnings expectations that are
25:50
Speaker 2: embedded in stock prices today and not disappoint like Federal
25:55
Speaker 2: Express did today. And if the Fed can somehow, you know,
26:00
Speaker 2: move policy rates towards what two year note is that is,
26:04
Speaker 2: you know, down toward about four percent, which would equate
26:07
Speaker 2: to about a two percent real yield two percent inflation.
26:12
Speaker 2: You know, I'll be the first person to vote that.
26:14
Speaker 2: They renamed the Equities Building down in d C for
26:18
Speaker 2: Chairman Powell.
26:20
Speaker 3: So, James, what are some of the sectors I guess
26:23
Speaker 3: that screen well for you, And how do you select
26:26
Speaker 3: equities generally speaking? In what's looking good these days?
26:30
Speaker 2: Yeah, that's the thing I mean, we're pure bottom up investors,
26:32
Speaker 2: and we always try to reconcile what's going on bottoms
26:36
Speaker 2: up to the top down information. And you know, the
26:39
Speaker 2: story that I talk about today is, you know, if
26:42
Speaker 2: Rip fan Winkle was asleep right and he woke up
26:45
Speaker 2: and you only showed him bottom up, I mean, excuse me.
26:48
Speaker 2: You know, top down economic data. You know, you look
26:51
Speaker 2: at you six unemployment, you know, moving sharply higher, trucking, construction,
26:56
Speaker 2: steel production, softening, ism, manufacturing and contraction, inverted yield curves,
27:02
Speaker 2: collapse in global commodity prices except gold China, European economic
27:08
Speaker 2: stress getting worse, and you saw, you know, anecdotally new
27:12
Speaker 2: car registrations in Europe down eighteen percent year of a
27:16
Speaker 2: year in August, disastrous profit warning from Mercedes Benz Auto,
27:22
Speaker 2: and credit card delinquency spiking higher. You know, Rip and
27:25
Speaker 2: Winkle would say, we're already in a recession, if not,
27:29
Speaker 2: you know, getting into moving into a shallow one. But
27:31
Speaker 2: you know, if you look at if you showed Rip,
27:34
Speaker 2: you know, price charts of the S and P five
27:36
Speaker 2: hundred concerning consensus earnings expectations, it'd see a pe of
27:40
Speaker 2: twenty two margins. You know, at all time highs and
27:44
Speaker 2: you know, standard deviation above twenty year averages and sell
27:49
Speaker 2: side expectations of six percent top line growth in twenty
27:52
Speaker 2: five excuse me, fifteen percent earnings growth for twenty twenty five.
27:56
Speaker 2: So RIP would say that we're on the cusp of
27:59
Speaker 2: a boom in profit growth without having ever entered a recession.
28:03
Speaker 2: You know, we're more leaning from a bottoms up perspective
28:06
Speaker 2: towards what the economic data saying, which is back to
28:09
Speaker 2: the point of defensive equities, the fact that treasuries will
28:13
Speaker 2: probably outperform credit and maybe even equities at this point
28:17
Speaker 2: in time, and a cautious stance towards profits. And I
28:23
Speaker 2: think this earning season coming up is probably going to
28:26
Speaker 2: be the most important season that will dictate the future
28:30
Speaker 2: direction of what stock prices will do for the next
28:32
Speaker 2: six months to twelve months, more so than what the
28:34
Speaker 2: Fed does, more so than what the presidential election results are.
28:39
Speaker 4: Broadly, what's your allocation right now? In a percentage break
28:43
Speaker 4: it down that way.
28:45
Speaker 2: Well, if you look at you know, we run one
28:47
Speaker 2: dedicated infrastructure fund, which is actually having a spectacular year
28:51
Speaker 2: because we're recognizing that you know, utilities have gone from
28:54
Speaker 2: being bond proxies to an essence growth proxies with the
28:59
Speaker 2: power generation needs of AI and other things. But in
29:02
Speaker 2: an our American Select equity strategy, we've introduced long duration
29:07
Speaker 2: treasury bonds. That's the first time I've done that in
29:10
Speaker 2: inequity portfolio since early two thousand. So maybe that tells
29:14
Speaker 2: you something when you look at our sector overweights within
29:17
Speaker 2: our American Select, our biggest overweights are in consumer staples, healthcare,
29:22
Speaker 2: and we're dramatically underweight all cyclicals. But we do have
29:26
Speaker 2: some exposure within the Magnificent seven because you continue to
29:30
Speaker 2: see those stocks being very driven by the fundamental momentum
29:35
Speaker 2: towards this AI craze and we're not sure when that
29:38
Speaker 2: is actually going to end, and these companies are demonstrating
29:41
Speaker 2: some degree of excellence.
29:43
Speaker 3: All right, James, thanks so much for joining us. Always
29:45
Speaker 3: appreciate getting a few minutes of your time. James Abatte.
29:48
Speaker 3: He's a managing director the chief investment officer at Center
29:51
Speaker 3: Asset Management, located in Lower Manhattan.
29:55
Speaker 4: Here.
29:55
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