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Wall Street Awaits Fed, Multiple Mergers Get Green Light in Court · Bloomberg Intelligence

0:02
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0:23
Speaker 1: It is FED Day, of course, and the question for
0:25
Speaker 1: a lot of investors today, obviously is what does the
0:28
Speaker 1: FED do here? Did they go twenty five, do they
0:30
Speaker 1: go fifty? What kind of rationale does the FED give
0:34
Speaker 1: for whatever decision they do make, and what does it
0:36
Speaker 1: mean for this economy? Dennis Lockhart joins us. He's a
0:38
Speaker 1: former Atlanta FED president, and he joins us via zoom. Dennis,
0:44
Speaker 1: thanks so much for joining us here. How do you
0:47
Speaker 1: think your Federal Reserve will kind of act later this afternoon?
0:50
Speaker 1: What do you think we're going to hear from the Fed?
0:53
Speaker 3: Well, my expectation is that they will opt for a
0:57
Speaker 3: twenty five basis point to cut, but it could go
1:00
Speaker 3: either way. I do think it's a close call, and
1:04
Speaker 3: I could very much be wrong. I have to laugh.
1:07
Speaker 3: Usually I have more time for people to forget, but
1:11
Speaker 3: it's less than four hours until we'll find out, So
1:15
Speaker 3: I could be proven wrong very very quickly. I think
1:18
Speaker 3: a case can be made for either move, and if
1:23
Speaker 3: the committee is sort of ambivalent, often the leadership of
1:29
Speaker 3: the chair is asserted, and in this case, Chairman Powell
1:34
Speaker 3: may state his preference and I think then the Committee
1:37
Speaker 3: will go along with that.
1:39
Speaker 4: Why do you think, Dennis, it is such a close call.
1:43
Speaker 3: Because I think you can make a legitimate case and
1:47
Speaker 3: neither case is panicky, or is emergency based or whatever
1:54
Speaker 3: that twenty five basis points is appropriate or fifty with
2:00
Speaker 3: a little bit of catch up in it and perhaps
2:04
Speaker 3: a bit more of an insurance angle to it. So
2:08
Speaker 3: I think you can make a serious case for either decision.
2:13
Speaker 3: A fifty basis point move, of course, is not that
2:17
Speaker 3: the normal increment that the Fed typically cuts or raises,
2:23
Speaker 3: and it does have a little bit of a hint
2:25
Speaker 3: of panic, and I don't see any basis for that.
2:31
Speaker 3: That's why I'm opting for twenty five Dennis.
2:35
Speaker 1: If we were to see a dissenting vote today, would
2:38
Speaker 1: that be news? Would that mean anything to you? Should
2:40
Speaker 1: the market read anything into that?
2:43
Speaker 3: I don't think so. At first. I doubt that we
2:47
Speaker 3: will see a descending vote. If we see a descending vote.
2:50
Speaker 3: It might come from an inflation hawk who's still concerned
2:56
Speaker 3: about the level of inflation and the distance to two percent.
3:02
Speaker 3: The chair, I think, has welcomed adversity of opinion on
3:06
Speaker 3: the committee. You've heard him say that in his press conferences.
3:11
Speaker 3: I don't think one or two descents would mean that much.
3:15
Speaker 3: Having said that, at a momentous event like today, where
3:20
Speaker 3: they're pivoting policy in the first cut in what four years,
3:25
Speaker 3: they would, I think like to present a unified face.
3:29
Speaker 3: But it's not going to be a big deal if
3:31
Speaker 3: someone disagrees.
3:33
Speaker 4: So I was in Canada in Toronto yesterday and I
3:35
Speaker 4: had the pleasure of interviewing Carolyn Rodgers. She's the Deputy
3:38
Speaker 4: Governor of the Bank of Canada, and many times I
3:41
Speaker 4: tried to get her to tell me whether or not
3:42
Speaker 4: they were going to go another twenty five in October.
3:45
Speaker 4: The conversation eventually came into the transmission EFFECTI of monetary policy,
3:48
Speaker 4: and how it took a long time for the hikes
3:50
Speaker 4: to be felt, and then how it's going to take
3:52
Speaker 4: a long time for the cuts to be felt. How
3:55
Speaker 4: do we know what that transmission mechanism is when you
3:58
Speaker 4: have something like housing which seems to be a structural shift.
4:04
Speaker 3: Well, we don't know with any precision exactly what that
4:08
Speaker 3: mechanism is. It's estimated as short as a few months,
4:13
Speaker 3: maybe six months to eighteen months. What is generally accepted,
4:18
Speaker 3: of course, is the idea that monetary policy has its
4:22
Speaker 3: effect with a lag, and I think there's plenty of
4:26
Speaker 3: evidence if that's the case. Therefore, the decision that the
4:31
Speaker 3: FED makes today is not going to immediately have an
4:36
Speaker 3: enormous effect on the economy. It will take some time
4:40
Speaker 3: and it will accumulate over the coming months.
4:45
Speaker 1: Dennis, can you give us a sense of how this
4:47
Speaker 1: FED may proceed over the coming meetings over the next
4:51
Speaker 1: several quarters. Is this something in terms of the cadence
4:54
Speaker 1: of the cuts that they make. Is it's something they
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Speaker 1: want to do in a chunky style? Do they do
4:58
Speaker 1: twenty five basis points every meeting? How do you envision
5:01
Speaker 1: that taking place?
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Speaker 3: What I would expect to be a methodical, deliberate approach
5:09
Speaker 3: that doesn't bring a lot of surprises to the financial markets.
5:14
Speaker 3: The communications challenge around chunkiness to use your order or
5:22
Speaker 3: pauses and then a resumption and fifty versus twenty five.
5:27
Speaker 3: That requires some very very skillful communication and in order
5:32
Speaker 3: not to create unnecessary volatility. So I think once they've
5:38
Speaker 3: started this, they'll stay with a base case of twenty
5:41
Speaker 3: five basis points at each meeting until they feel it's
5:44
Speaker 3: time to pause.
5:46
Speaker 4: So based on that, the futures market is really out
5:50
Speaker 4: priced for that. So we're still looking at over one
5:53
Speaker 4: hundred basis point cut so far for this year if
5:55
Speaker 4: you take a look at work. So if it's a
5:57
Speaker 4: twenty five to twenty five kind of scenario, we still
5:59
Speaker 4: to price out as much as like, I don't know,
6:03
Speaker 4: thirty five forty basis points of cuts. How do you
6:06
Speaker 4: think that J. Powell does that or is it the dots?
6:11
Speaker 3: Well, he's not going to commit to much in the
6:14
Speaker 3: way of a path of policy, other than perhaps saying
6:17
Speaker 3: something general. Is it that the expectation of the committee
6:21
Speaker 3: is that there will be further reductions in the policy rate,
6:26
Speaker 3: and certainly beyond the end of the year. I think
6:28
Speaker 3: you'd be very careful about committing to anything. But I
6:34
Speaker 3: think in speeches and in FED speak in general, you'll
6:37
Speaker 3: get some sense that, and of course in the Summary
6:41
Speaker 3: of Economic Projections which will be published today, you'll get
6:45
Speaker 3: some sense of what they're thinking, and I suspect what
6:48
Speaker 3: you're going to see is that they're thinking of seventy
6:52
Speaker 3: five basis points by year end, So the markets are
6:55
Speaker 3: going to have to adjust that thinking, or the markets
7:00
Speaker 3: often have their own point of view.
7:02
Speaker 1: Do you think the timing of these FED cuts is
7:05
Speaker 1: appropriate here at datish or do you think perhaps this
7:07
Speaker 1: FED might have been at least a meeting maybe too
7:10
Speaker 1: late in terms of starting this process.
7:14
Speaker 3: Well, according to the minutes, there was a pretty serious
7:16
Speaker 3: discussion of the first cut being in July. They decided
7:21
Speaker 3: to defer that. One reason they did is because the
7:25
Speaker 3: interval between the July meeting the September meeting is the
7:29
Speaker 3: longest on the calendar, and they get quite a bit
7:32
Speaker 3: more information in that eight week period than they get
7:35
Speaker 3: in a six week period, for example. So I think
7:40
Speaker 3: they decided to hold off for more information. So what
7:46
Speaker 3: Jay Palse said at Jackson Hole that the time had come, Boy,
7:51
Speaker 3: you really can't be very more definitive than that. He
7:55
Speaker 3: had to be. He had to be very confident that
7:59
Speaker 3: he could lead his committee to this decision today. And
8:02
Speaker 3: that's probably because of how seriously they took the idea
8:06
Speaker 3: in July of making a cut in July. So to
8:09
Speaker 3: answer your question, maybe they're a meeting behind, But in
8:14
Speaker 3: the greater scheme of things, I don't think there is
8:18
Speaker 3: great danger associated with maybe being a little bit behind.
8:25
Speaker 4: All Right, Dennis, thanks a lot. We truly appreciate it.
8:27
Speaker 4: We appreciate all your insight on FED Day. Dennis Lockhart,
8:30
Speaker 4: former Atlanta FED President.
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8:51
Speaker 4: Joining us now. Also in the studio is Alo Lua Ganga,
8:55
Speaker 4: a US chief investment officer over at Mercer. So, okay,
8:59
Speaker 4: do you care about twenty five or fifty today? Or
9:01
Speaker 4: how are you looking at this monumental decision at too?
9:04
Speaker 5: She's laughing at me, you know, I'm laugh because there
9:06
Speaker 5: are two things. Personally, it's monumental because it's the first
9:08
Speaker 5: rate cut in years, so that's the big thing. But
9:12
Speaker 5: is twenty five basis point going to move the need? Unlikely?
9:16
Speaker 3: Right?
9:16
Speaker 5: Is just the direction that we're happy about we're finally moving.
9:20
Speaker 1: All right, So you got your MBA from Stanford. I'm
9:24
Speaker 1: not sure if you're aware, but yesterday Bloomberg business Week
9:26
Speaker 1: magazine came out with the rankings of MBA programs for
9:29
Speaker 1: the six year in a row. Stanford was number one,
9:31
Speaker 1: who Woo Duke was twelve. I don't know what they're
9:34
Speaker 1: doing down there, business Week, but I have to go
9:35
Speaker 1: have a talk with those people. But all right, so
9:38
Speaker 1: talk to us about the business at Mercier. What are
9:40
Speaker 1: your institutional clients, what are they what's changing these days
9:44
Speaker 1: or maybe in the last twelve to eighteen months back
9:46
Speaker 1: where they're allocating capital these days?
9:48
Speaker 5: So you know, we're talking about the rate cut. Is
9:51
Speaker 5: it a big deal? It could be, and it could
9:53
Speaker 5: be for defined benefit pension plans because those out there,
9:57
Speaker 5: they are still those out there. I mean a lot
9:59
Speaker 5: of them have benefited from the equity markets, right, so,
10:02
Speaker 5: like that's been great, but in a lower rate environment,
10:05
Speaker 5: the liabilities could become more valuable. So that's what we're watching, right,
10:08
Speaker 5: is that are you appropriately hedged? But then they have
10:12
Speaker 5: great equity portfolios. They have private equity portfolios that have
10:15
Speaker 5: done well and they've moved into private markets across the board.
10:19
Speaker 4: So what is that like rate threshold, right, because we're
10:22
Speaker 4: not going back to zero. So if it goes to
10:26
Speaker 4: like four, is that where allocations start to change or
10:29
Speaker 4: is it three? Like? How do you look at that?
10:31
Speaker 5: So I'll give an example of just the real estate
10:34
Speaker 5: capital markets, right, So, like financing has almost ground to
10:37
Speaker 5: a halt. It's really hard to finance things. Developers are
10:41
Speaker 5: having a hard time. They had one year interest rate
10:43
Speaker 5: type hedges and they're not moving. So an indication there
10:46
Speaker 5: of when things start working is rates low enough to
10:49
Speaker 5: get that to unfreeze the real estate capital markets. So
10:53
Speaker 5: it's great for mortgages, it's great for lending, it's great
10:56
Speaker 5: for borrowing, all of that stuff. So we start looking
10:58
Speaker 5: at activity and some those other areas private credit.
11:02
Speaker 1: Alex and I were just fascinated by the growth of
11:04
Speaker 1: private credit. How does that impact your institutional investor clients?
11:08
Speaker 1: Are they asking you to get more exposure to private credit?
11:11
Speaker 1: How do you do so?
11:12
Speaker 5: Private credit definitely has been one of the areas that's
11:14
Speaker 5: benefited from the higher rate environment. It's floating rate, so
11:18
Speaker 5: the debt covenants and the negotiations that happen there, mean
11:20
Speaker 5: that even though it's not syndicated loan, it's not publicly traded,
11:25
Speaker 5: there was more protections there, so lots of capital that
11:28
Speaker 5: was flowing into just senior direct lending. So clearly, as
11:32
Speaker 5: you're moving into a lower interest rate environment, could that
11:35
Speaker 5: be impactful. Yes, But on the senior direct lending side,
11:37
Speaker 5: there are other aspects of private credit that are attractive.
11:41
Speaker 4: So what are their areas also in private credit? And
11:44
Speaker 4: then also side note in terms of say commercial office,
11:47
Speaker 4: commercial real estate. I know that's not private credit, but
11:50
Speaker 4: like in terms of an asset class that's been really
11:52
Speaker 4: messed up.
11:53
Speaker 5: So I'll say, from a private credit standpoint, opportunistic credits.
11:58
Speaker 5: So some of the more distressed opportunities we're senior direct
12:00
Speaker 5: lending or you know, it's still relatively good. So the
12:03
Speaker 5: opportunistic credit space is great. They have more equity like properties.
12:09
Speaker 5: But to your point, if you go to something like
12:10
Speaker 5: real estate, real estate valuations, especially core real estate has
12:14
Speaker 5: been stabilizing outside of office and you know, offices is
12:19
Speaker 5: a different category in and of itself, because if you
12:21
Speaker 5: start looking at newer office buildings, older office buildings, what
12:24
Speaker 5: kind of rehab is there The rental everything. So office
12:28
Speaker 5: is still a little challenged, but for the most part,
12:30
Speaker 5: core real estate valuations outside of office has been stabilizing.
12:34
Speaker 1: I guess one of the challenges there for real estate
12:35
Speaker 1: we've heard from other folks in the real estate business,
12:37
Speaker 1: because Alex and I like to talk to as many
12:39
Speaker 1: people in that commercial real estate business as we can,
12:42
Speaker 1: is just the banks aren't quite as constructive on real
12:45
Speaker 1: estate commercial real estate as maybe people would like, So
12:47
Speaker 1: it's tough to find financing. Maybe you can get it
12:49
Speaker 1: to the private credit market, but you can't just go
12:52
Speaker 1: to your relationship bank and you know, necessarily get a
12:55
Speaker 1: mortgage on a big piece of commercial.
12:56
Speaker 5: Yeah, real estate is definitely the area that's taken one
12:59
Speaker 5: of the the hardest hits with the rise in the
13:02
Speaker 5: raid environment. To be frank again, it's painted almost with
13:06
Speaker 5: a broad brush. It truly is office that's having the
13:10
Speaker 5: toughest time. Valuations in other areas has been challenged as well,
13:14
Speaker 5: but it does look like it's starting to stabilize.
13:17
Speaker 4: What other trends are you seeing right now in terms
13:20
Speaker 4: of interest, money flow, questions, worry spots.
13:25
Speaker 5: So there's been a big focus with regards to infrastructure
13:30
Speaker 5: and this started some time ago when we started seeing
13:32
Speaker 5: the capital flows from the Inflation Reduction Act and finally
13:37
Speaker 5: dollars going to work there. So that's a focus as
13:40
Speaker 5: we're going into the election. It's also a focus to
13:42
Speaker 5: see if some of those trends stay. So that's one
13:45
Speaker 5: Private equity has always been an area of focus. However,
13:50
Speaker 5: venture capital, that a lot of clients were very focused
13:53
Speaker 5: on the new innovative types of areas, had slowed somewhat
13:57
Speaker 5: because from a capital standpoint, that's the law, guest, time
14:01
Speaker 5: to get your money back. So venture has been real
14:06
Speaker 5: estate has taken ahead. Venture has taken a little bit
14:08
Speaker 5: of a hit as well.
14:10
Speaker 1: How about just the big tech trade, the Magnificent seven
14:12
Speaker 1: trade that John Tucker's been in for the past two years.
14:14
Speaker 1: She's just clipping coupons on the way to the bank.
14:17
Speaker 1: Is that still a thing or do we have to
14:19
Speaker 1: go look for other areas of opportunity in the marketplace.
14:22
Speaker 5: It's the talk about the magnificent seven, it becomes six
14:27
Speaker 5: or what have you. I keep saying it is really
14:29
Speaker 5: because of the index construction, right, So like the weight
14:32
Speaker 5: in the index is what makes it the big focus.
14:35
Speaker 5: It lifts up everything. But if you remove them and
14:37
Speaker 5: look at the rest of the index, like like we've
14:40
Speaker 5: seen some decent returns. Of course, earnings growth coming out
14:44
Speaker 5: of the earning season was good, but the focus on
14:47
Speaker 5: the seven was because of the weight in the index.
14:49
Speaker 5: So these types of rotations happened.
14:52
Speaker 4: But the theme of it in terms of AI, which
14:54
Speaker 4: also goes back to your infrastructure play too, how do
14:57
Speaker 4: your clients then, not straight up in video or the
15:01
Speaker 4: equity market, how can they invest in that trend?
15:05
Speaker 5: I mean, right now, from a publicly traded standpoint, right,
15:08
Speaker 5: there are only a few limited options. However, from a
15:12
Speaker 5: private market standpoint, there are lots of capital that's going
15:14
Speaker 5: into new and innovative companies. It still is venture. It's
15:18
Speaker 5: a longer term type of trend. What we are seeing
15:21
Speaker 5: is investigating from an AI perspective, there is efficiencies, right,
15:26
Speaker 5: so from redundant type of task, but like what are
15:28
Speaker 5: we really going to get from a benefit standpoint? There's
15:30
Speaker 5: a lot of work going into and seeing how you
15:32
Speaker 5: can integrate it into your day to day, but more
15:35
Speaker 5: private equity and venture investments to get into AI, and
15:39
Speaker 5: then there are only very few from a publicly traded
15:42
Speaker 5: company standpoint, did.
15:43
Speaker 4: We see Microsoft yesterday unveiling that AI infrastructure fund with yeah,
15:49
Speaker 4: I mean huge amount of money. So speaking of that
15:51
Speaker 4: non public opportunity.
15:52
Speaker 1: Yeah, I thought the biggest tech trend was me upgrading
15:54
Speaker 1: my iPhone.
15:55
Speaker 4: Okay, can we just say so, I put my phone
15:57
Speaker 4: down next to Paul. I've had my phone the entire
15:59
Speaker 4: time known me, and because he ordered this new iPhone
16:02
Speaker 4: sixteen pro, he looks at it and starts judging it
16:04
Speaker 4: because he has a chip. So now we've become an
16:06
Speaker 4: iPhone sixteen pros.
16:08
Speaker 5: No, I'll say, my husband does the same thing. Really,
16:10
Speaker 5: He's like he judges my phone and then I'll get
16:13
Speaker 5: a new one and like a hint to change my exactly.
16:17
Speaker 1: So that's that's a tech cycle that you can use.
16:19
Speaker 1: Replacement cycle all right in a fixed income space, I
16:22
Speaker 1: don't know. I mean to your treasure's three point sixty
16:25
Speaker 1: five percent, it's not the five percent I had a
16:27
Speaker 1: few months ago, but it's still for like no risk,
16:29
Speaker 1: that's a pretty good return. Do I do that or
16:31
Speaker 1: do I take credit risk?
16:33
Speaker 5: So to your point, it's not the five percent that
16:34
Speaker 5: it was before. Right now, here's you know we're at
16:38
Speaker 5: current levels, but we know the direction is lower right,
16:41
Speaker 5: So it's how long are you going to be able
16:42
Speaker 5: to sit on that? For as long as you can,
16:45
Speaker 5: that's great. But for our investors that are more institutional
16:48
Speaker 5: in nature longer term, they don't typically turn over their
16:51
Speaker 5: portfolios as much. So if you're focusing on the long term,
16:54
Speaker 5: you go to the spaces that have a little bit
16:57
Speaker 5: more longevity and where you can get raded. So they
17:00
Speaker 5: were shorter duration at first, you know, maybe a few
17:02
Speaker 5: years ago, and that's moved. They're now investing in equities,
17:04
Speaker 5: private credit to your point, and looking at areas where
17:08
Speaker 5: valuations were depressed. So real estate is an area now
17:11
Speaker 5: that we are looking closely at.
17:13
Speaker 4: So when you mentioned the areas that have growth, a
17:16
Speaker 4: lot of it does tie into fiscal policy and then
17:19
Speaker 4: obviously that becomes like an election risk, et cetera. But
17:23
Speaker 4: is this time different? Oh God, I hate that I
17:25
Speaker 4: just said that. There's like so much fiscal coming out
17:29
Speaker 4: of DC regardless of who wins in November, and no
17:32
Speaker 4: matter who wins, the will be fiscal spend on stuff.
17:35
Speaker 4: And this is in comparison to say Europe or even Canada, Like,
17:39
Speaker 4: how do you look at that divergence?
17:41
Speaker 5: So we spend a lot of time looking at the
17:43
Speaker 5: policy or potential policy that's being discussed because the elections
17:47
Speaker 5: are important, of course they're important, but the more important
17:50
Speaker 5: thing is can you get anything through? So what's the
17:54
Speaker 5: makeup of the House, what's the makeup of Senate that
17:57
Speaker 5: will truly drive and determine what we can do on
17:59
Speaker 5: to go ward basis. So we're watching some of those,
18:02
Speaker 5: you know, more local type elections as well.
18:04
Speaker 1: It's funny they'd be interviewing somebody from BNP Power Boss
18:07
Speaker 1: Strategists there this morning and they had a great flow
18:10
Speaker 1: chart in their piece of research. It's basically if then
18:12
Speaker 1: kind of thing. So if the you know, if it's
18:16
Speaker 1: you know, the economy is good, the economy's bed, if
18:20
Speaker 1: it's the Democrat, if it's Republican, here all the possible outcomes,
18:22
Speaker 1: and they kind of had to play it there and
18:24
Speaker 1: it just kind of made it very clear so again
18:27
Speaker 1: again that you can't really hedge politically, can you. So
18:30
Speaker 1: it's just yeah, and so I guess the question becomes,
18:32
Speaker 1: you know, can anything actually get done once whoever is
18:35
Speaker 1: in the White House is in the White House.
18:37
Speaker 5: That's the point. So whoever is in the White House
18:39
Speaker 5: and then can they get anything done.
18:41
Speaker 1: Right in the interim, we wait for the FED at
18:43
Speaker 1: two o'clock.
18:44
Speaker 4: And then after that, then what you're going to talk
18:46
Speaker 4: about tomorrow morning?
18:47
Speaker 1: What did what did that? It was twenty four hours.
18:50
Speaker 1: I don't know. It's just economic data coming up.
18:52
Speaker 5: But you can drag it out for the week.
18:53
Speaker 1: There'll be some earnings. Ganga Chief US Interest investment Officer
18:58
Speaker 1: for Mercer Joining is here in our Bloomberg Interactive Broker studio.
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Speaker 1: looks like Alaska Airlines, the Jerry Garcia Airline and Hawaiian
19:25
Speaker 1: the merger looks like it's going to be cleared to close.
19:28
Speaker 1: It's an apartment of camp, it's an innuit. Please, now,
19:32
Speaker 1: I understand that George Ferguson, he knows all this stuff.
19:34
Speaker 1: Senior Airspace and Airlines zanols for Bloomberg Intelligence. So George,
19:37
Speaker 1: what's it meaning for Alaska and Hawaiian to get approval
19:40
Speaker 1: here where where does this combined dentity go? How competitive
19:44
Speaker 1: can it be? Is this a good deal?
19:46
Speaker 6: Yeah?
19:46
Speaker 1: So I think it's.
19:47
Speaker 3: Uh.
19:49
Speaker 7: I think it's a good deal for the US consumer
19:51
Speaker 7: because I think there was a risk that potentially Hawaiian
19:56
Speaker 7: could have gone out of business, and so I think,
19:58
Speaker 7: really what this whole thing adds up to is Hawaiian was,
20:02
Speaker 7: you know, was a bit distressed. They've had some problems
20:05
Speaker 7: in their core businesses, especially from you know, wildfires, Japanese travel,
20:11
Speaker 7: things like that. It just hurt their their core business,
20:14
Speaker 7: their their balance sheet was stressed. And so Alaska coming
20:18
Speaker 7: in and taking them over, you know, shure as that
20:20
Speaker 7: they continue to exist. The combinity had you know, has
20:23
Speaker 7: a footprint that looks like or route network that looks
20:27
Speaker 7: like West Coast US into Alaska, and then Alaska has
20:31
Speaker 7: some long haul into Asia. So it makes Alaska's operations
20:36
Speaker 7: a little more complex with some long haul wide body aircraft.
20:40
Speaker 7: For most US consumers, it's not They're not going to
20:43
Speaker 7: really be able to tell. But I think the US
20:46
Speaker 7: Department of Transportation, Department of Justice figured out that, you know,
20:49
Speaker 7: like the Spirit in the Spirit Jet Blue merger purchased
20:53
Speaker 7: by Jet Blue, whatever you want to call it. You know,
20:56
Speaker 7: I think letting that fail means it's Spirits in difficult straits.
21:01
Speaker 7: Alaska would have been sorry, Hawaiian had been in a
21:03
Speaker 7: similar place, and I think they've decided let's just let
21:06
Speaker 7: this go.
21:07
Speaker 4: Does this mean that the Spirit deal could get on
21:09
Speaker 4: the lookthrough or that's definitely dead.
21:12
Speaker 7: I think that's definitely dead from a Jet Blue perspective.
21:16
Speaker 7: I'm not sure if Justice would think differently about it now,
21:19
Speaker 7: but I think it's dead.
21:22
Speaker 1: George, what's the current status of just demand for air
21:25
Speaker 1: travel these days? What are the airlines saying these days?
21:29
Speaker 7: I mean, you know, what we saw in two Q
21:31
Speaker 7: was that budget travel definitely looked like it was taking
21:37
Speaker 7: more of the of a demand. Although you know, it
21:43
Speaker 7: looks like some of those travelers are fading a little bit.
21:46
Speaker 7: And I say, although, because we saw a bunch of
21:49
Speaker 7: capacity come to that marketplace, right, I think, really what
21:53
Speaker 7: we're started to see in two Q this year was
21:57
Speaker 7: a fading of this bounce back travel boom where you know,
22:02
Speaker 7: people were paying anything it took to go on vacation.
22:05
Speaker 7: And so I suspect we're going to continue to see
22:08
Speaker 7: that as we get into three Q. We're actually working
22:10
Speaker 7: through schedules right now for the US airlines as we
22:15
Speaker 7: do kind of as we close the quarters down, and
22:18
Speaker 7: you know, we're still seeing a decent amount of capacity
22:22
Speaker 7: coming to the marketplace. So to say decent, you know,
22:24
Speaker 7: we're looking at domestic the other day five six percent
22:27
Speaker 7: growth in seak capacity and you really can't do that
22:32
Speaker 7: in a market that you know, the US economies grow
22:35
Speaker 7: in a couple percent and you don't have this bounce
22:38
Speaker 7: back travel. So we still think three Q looks soft ish.
22:42
Speaker 7: It's not as bad as two Q. Some of the
22:44
Speaker 7: capacity growth isn't there. We're interestingly, we're seeing more capacity
22:49
Speaker 7: growth come in from the big full service carriers than
22:52
Speaker 7: we're seeing for the budget low cost and notable our
22:55
Speaker 7: carriers like Southwestern, Jet Blue literally pulling back in capacity
23:00
Speaker 7: city as they go into the end of the year.
23:01
Speaker 4: Right, So you have the big guys are able to
23:03
Speaker 4: compete a little more in capacity and then price, and
23:06
Speaker 4: then the other guys can and that gets confusing. So
23:08
Speaker 4: this is a dumb question. But if I take a
23:10
Speaker 4: look at the big guys, like can you rank these
23:12
Speaker 4: for me here? So you get the Delta American United,
23:14
Speaker 4: They're gonna be the top three, right, what comes after that?
23:16
Speaker 7: Now Southwest Southwest is the number four, okay, one of
23:20
Speaker 7: the biggest carriers in the country. And then you go
23:22
Speaker 7: into the Alaska's Jet Blues those folks, sorry, so.
23:26
Speaker 4: Did Alaska and Hawaiian airlines like help them get a
23:28
Speaker 4: big boost?
23:29
Speaker 3: Like?
23:29
Speaker 4: Are they in the top five? Now?
23:33
Speaker 7: Well, Alaska is going to be four or five and
23:37
Speaker 7: Jet Blue is going to be at four or five.
23:40
Speaker 7: So well, Alaska Hawaiian combination probably jumps them a bit
23:44
Speaker 7: above Jet Blue. I haven't looked at this recently. Jet
23:46
Speaker 7: Blue is going to be number five if they got
23:48
Speaker 7: spirit and those two are kind of neck and necks,
23:51
Speaker 7: and I guess they're slightly ahead now Alaska.
23:53
Speaker 1: All right, George, what we got in your phone? We
23:55
Speaker 1: need our periodic update of Boeing. I know the most
23:59
Speaker 1: recent news was bowing freezing hiring to preserve cash, and
24:03
Speaker 1: you know, what's the update on the strike and kind
24:06
Speaker 1: of where we are with Boeing.
24:08
Speaker 7: So it goes on. Obviously, you know, folks are talking.
24:12
Speaker 7: I understand that there's a supplier discussion going on today
24:16
Speaker 7: out in the Pacific Northwest. I because Boeing starts to
24:19
Speaker 7: brief suppliers. If it continues, I suspect that, you know,
24:25
Speaker 7: Boeing's draw off suppliers, their off take of the components
24:29
Speaker 7: they're building, is going to have to slow to continue
24:31
Speaker 7: to preserve cash. I just don't see Hiring doing you know,
24:34
Speaker 7: that much for the cash flow of Boeing, because again,
24:38
Speaker 7: as it drags on, they have to start to really
24:40
Speaker 7: worry about how much cash they're they're burning. They would
24:45
Speaker 7: prefer not to go back to capital markets to show
24:47
Speaker 7: up their balances. We think they're probably going to be
24:50
Speaker 7: close to nine billion in balances as they end three
24:54
Speaker 7: Q and that's going to be pretty tight because that's
24:57
Speaker 7: roughly around what they say they need to run the company.
25:00
Speaker 7: I'm sure everybody can tighten their belt, every company can
25:02
Speaker 7: tighten their belt and get lower, but they need to
25:05
Speaker 7: be very very mindful of cash burn here.
25:07
Speaker 4: Yeah. I was like, oh, that's treading the line there.
25:09
Speaker 4: We was talking to the guy over at Moody's who
25:13
Speaker 4: is putting the company a risk on downgrade. If they
25:15
Speaker 4: get a downgrade from like fish S and P and
25:17
Speaker 4: Moody's like, what would that mean? That would be huge,
25:22
Speaker 4: a huge fallen angel.
25:23
Speaker 7: Right, yeah, it's a big fallen angel. I mean, it's
25:26
Speaker 7: the not the end of the world, right, Companies managed
25:29
Speaker 7: through this.
25:30
Speaker 1: No, No, I mean it means.
25:32
Speaker 7: You're going to go to capital markets. If you go
25:35
Speaker 7: to debt markets, it's just going to cost you more
25:37
Speaker 7: to raise write your debt. And a company like Bowing
25:41
Speaker 7: needs this good mix of debt and equity to make
25:44
Speaker 7: the returns work for the equity, and so you kind
25:46
Speaker 7: of hate to be paying higher interest rates. You're going
25:50
Speaker 7: to see you know, some funds that are debt funds
25:53
Speaker 7: can't hold less investment grade paper. They'll end up having
25:57
Speaker 7: this discorged some of that Boeing paper. That means that
26:00
Speaker 7: you'll see prices gap out in it. Again, it's not.
26:04
Speaker 1: The end of the world.
26:05
Speaker 7: You prefer be prefer to be raising money cheaper than
26:09
Speaker 7: what they will be in the high yield markets. But
26:11
Speaker 7: you know, customers, I don't think go away because of it.
26:16
Speaker 7: Nobody can break their commitments for airplanes because of it.
26:19
Speaker 7: Suppliers don't really have other places to go for aerospace business. Right,
26:24
Speaker 7: they could go to Airbus, which is investment grade, and
26:27
Speaker 7: Boeing has to continue to rebuild that balance sheet as
26:30
Speaker 7: they get things like this strike past them.
26:32
Speaker 4: All right, George, we appreciate you. Thank you very much.
26:34
Speaker 4: George Ferguson Bloomberg Intelligence and your aerospace, defense and airlines
26:38
Speaker 4: analysts are joining us. There.
26:40
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
26:44
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26:48
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26:51
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26:54
Speaker 2: Just say Alexa play Bloomberg eleven thirty.
26:58
Speaker 1: John Kapples Joints. He's the CEO for Pivotal Path joint us.
27:03
Speaker 1: Hearn Bloombergate Active Broker Studio. John Real quickly just tell
27:05
Speaker 1: us what you guys are doing over a Pivotal Path
27:07
Speaker 1: as released to the Hedge Fund Business.
27:09
Speaker 8: Sure, thank you, Paul So. We are a hedge fund
27:11
Speaker 8: research firm and we work with some of the world's
27:14
Speaker 8: largest hedge fund investors and Dowmance pensions, sovereign wealth funds
27:18
Speaker 8: to provide them with the most comprehensive set of data,
27:21
Speaker 8: information and analysis so they can source hedge funds, evaluate them,
27:24
Speaker 8: monitor them, and benchmark them.
27:26
Speaker 1: Where is the money going to within the hedge fund
27:29
Speaker 1: asset class, where's the money been going to most recently?
27:33
Speaker 8: Sure so, hedge fund as an asset class is a
27:35
Speaker 8: bit difficult because they trade all asset classes. So if
27:37
Speaker 8: we were to focus on the equity strategies in particular,
27:41
Speaker 8: just like the markets, they have made a significant amount
27:44
Speaker 8: of their returns on the heels of magnificent seven and
27:47
Speaker 8: a lot of big tech. Going into this FED rate cut,
27:50
Speaker 8: they certainly are more bullish than they have been over
27:54
Speaker 8: the last couple of years, and that means that a
27:56
Speaker 8: larger than expected rate cut is probably going to benefit
27:59
Speaker 8: them in general.
28:00
Speaker 1: Ok So I mean the as an asset class, how
28:05
Speaker 1: do you frame out for your clients how they should
28:07
Speaker 1: use hedge funds, how wou should be part of a
28:09
Speaker 1: diversified portfolio.
28:12
Speaker 8: Sure so, again that's kind of the difficulty of calling
28:14
Speaker 8: it an asset class. It can be, but in reality
28:18
Speaker 8: it's a better way to well, it's trading strategies across
28:21
Speaker 8: many assetsses. Right, So, when you look at long short equity,
28:24
Speaker 8: many of our clients large pension funds, they consider it
28:27
Speaker 8: an extension of their equity portfolio. When they look at
28:30
Speaker 8: fixed income relative value or long short credit, it's off
28:32
Speaker 8: an extension of their fixed income portfolio. For other diversifying
28:36
Speaker 8: strategies like global macro and managed futures and multistrats, it's
28:41
Speaker 8: going to have a different type of role in the
28:43
Speaker 8: portfolio to maybe minimize downsides, provide uncorrelated sources of returns,
28:48
Speaker 8: and hopefully alpha.
28:49
Speaker 1: Is one of the things I've noticed being on wall
28:51
Speaker 1: streets since the mid eighties is just a the growth
28:53
Speaker 1: of hedge funds, but b the seems like the consolidation
28:57
Speaker 1: that if you're a big like Millennium or City or
29:01
Speaker 1: zero point seventy two, you can get money, tons of money.
29:04
Speaker 1: It flows there. But if you're like the hot shot
29:06
Speaker 1: trader Morgan Sanley has had three or four years and
29:08
Speaker 1: once a go ahead raise a billion dollars, that doesn't
29:10
Speaker 1: seem to be as available today as maybe it was
29:13
Speaker 1: twenty years ago. Are we seeing too much concentration, do
29:16
Speaker 1: you think in a hedge fund business?
29:17
Speaker 8: So, I think it's a great question, and I think
29:18
Speaker 8: the answer was yes. Up until about a year and
29:22
Speaker 8: a half ago, we saw the new launches for hedge
29:25
Speaker 8: funds significantly down. We saw new capital for emerging managers
29:29
Speaker 8: significantly down. That has all actually changed. We're seeing a
29:33
Speaker 8: huge trend this year where we're tracking almost one hundred
29:36
Speaker 8: and fifty new launches in twenty twenty four into the
29:39
Speaker 8: second quarter of twenty five. But more importantly than that,
29:42
Speaker 8: these new launches come from hedge funds that are above
29:44
Speaker 8: a billion dollars in assets, So in terms of pedigree,
29:47
Speaker 8: we're seeing significant amount of quality launches. But in addition
29:51
Speaker 8: to that, a lot of the capital that they're receiving
29:54
Speaker 8: is actually from the multi straps themselves. Yep.
29:56
Speaker 1: And we actually have a Bloomberg exclusive story out on
29:59
Speaker 1: the Bloomerg terminal today Millennium Citadel breed a fourteen billion
30:03
Speaker 1: dollar pack of hedge fund cubs. So it was just
30:06
Speaker 1: like Julian Robertson from Tiger seated all his cubs. Now
30:09
Speaker 1: it's Ken Griffin and i Isy Englander from the leading.
30:12
Speaker 4: All the cubs. Wait, so is that just because there's
30:15
Speaker 4: just more money out there? Or like, why is that
30:19
Speaker 4: so you basically have the big guys and investing in
30:22
Speaker 4: the little guys and the whole thing, Like, why are
30:24
Speaker 4: we seeing it like that? And what kind of strategies?
30:26
Speaker 8: Yeah, I mean there's a number of reasons. I'd say
30:29
Speaker 8: one of the primary reasons is that the institutional investors
30:32
Speaker 8: themselves are starting to based on multistrap performance that actually
30:38
Speaker 8: has been slightly down, not very much, but slightly down,
30:41
Speaker 8: and also relative to a higher risk free rate, they've
30:44
Speaker 8: been looking to create more transparency and doing that through
30:47
Speaker 8: single strategies. It's a lot easier to understand along short
30:50
Speaker 8: equity strategy focused on technology than a multistrat that may
30:53
Speaker 8: have three hundred different pms in it. So part of
30:56
Speaker 8: it's the investor base that's pushing that. The other part
30:58
Speaker 8: of it is that the investors are also wanting reduced fees,
31:02
Speaker 8: and running these large multistrats is extremely expensive. Part of
31:06
Speaker 8: that's for signing bonuses, retention bonuses, and things like that.
31:09
Speaker 8: That's part of the biggest amount of overhead that has
31:11
Speaker 8: often passed through to the investors themselves. And so a
31:15
Speaker 8: lot of these pms who have done extremely well inside
31:18
Speaker 8: of these pod shops or multistrats are now seeing an
31:21
Speaker 8: opportunity to spin out, maybe change their quality of life
31:23
Speaker 8: a little bit, and the multistrats themselves are saying, you
31:26
Speaker 8: know what, we should actually fund that and be a
31:28
Speaker 8: part of that, as opposed to losing that talent and
31:31
Speaker 8: in fact they can do so and win in the
31:32
Speaker 8: same time because they can invest in a separate account
31:35
Speaker 8: and they can still have control but also reduce their
31:38
Speaker 8: overhead costs and the fees that a lot of their
31:40
Speaker 8: investor clients are not happy with.
31:42
Speaker 1: I don't know for me. One of the biggest piece
31:43
Speaker 1: of news in the hedgewind business rulers just over the
31:45
Speaker 1: last couple of days was Steve Cohen announcing that he
31:48
Speaker 1: was gonna step away some active management of his funds.
31:52
Speaker 1: That must have been a buzz within your industry. What
31:55
Speaker 1: are people saying about that? Absolutely?
31:57
Speaker 8: I mean, he's definitely one of the pioneers in the industry.
32:00
Speaker 8: He's one of the most well respected investors for sure.
32:04
Speaker 8: One of the issues in the hedge fund industry has
32:06
Speaker 8: always been succession, Right can you get past the founder
32:11
Speaker 8: and get to the next generation of talent and continue
32:14
Speaker 8: to build a high quality institutional business. And that's something
32:18
Speaker 8: that we still haven't seen that many examples of. So,
32:22
Speaker 8: you know, he says he's going to obviously stay in
32:25
Speaker 8: involved in the business, and that's public information, but we're
32:28
Speaker 8: always looking to see can that next generation of talent
32:31
Speaker 8: manage the business continue to grow assets and continue beyond
32:35
Speaker 8: their founder.
32:36
Speaker 4: What kind of strategies right now are doing well? Like,
32:39
Speaker 4: what are hedge funds broadly doing, how are they positioned?
32:42
Speaker 4: Like what what are some of your big takeaways on that?
32:44
Speaker 8: Yeah, I mean there are a number of hedge fund
32:46
Speaker 8: strategies doing well this year, and VIDA well, the TMT
32:51
Speaker 8: or technology, media and telecom managers absolutely, that's been a
32:54
Speaker 8: big part, and companies in similar you know AI exposure.
32:59
Speaker 8: But beyond that, we've also seen financials come back, you know,
33:03
Speaker 8: as we've seen in the market with the market goes,
33:06
Speaker 8: a lot of the hedge funds because they are often
33:08
Speaker 8: long biased, especially in sector focused strategies. So financials is
33:13
Speaker 8: leading the way. Healthcare is also a very strong performer
33:17
Speaker 8: this year, and these are sector focus managers in biotech,
33:21
Speaker 8: in pharmaceuticals, but especially biotech. And then outside of that,
33:25
Speaker 8: the multistrats continue to do well. They're you know, up
33:28
Speaker 8: about seven percent year to date. That's well ahead of
33:31
Speaker 8: the risk free rate and it's all uncorrelated. Lastly, it's
33:34
Speaker 8: the equity quant managers that had been kind of left
33:37
Speaker 8: for dead after twenty twenty, where they had a five
33:40
Speaker 8: year period of generating almost no returns. Over the last
33:44
Speaker 8: three plus years, they've been annualizing over nine and a
33:46
Speaker 8: half percent, again uncorrelated, purely in the form of alpha,
33:50
Speaker 8: and so investors are turning back to systematic and quantitative
33:53
Speaker 8: managers as well.
33:54
Speaker 1: And just broadly defined money still going to hedge funds right,
34:00
Speaker 1: still a net inflow.
34:01
Speaker 8: Year after year, so this year not really, but it's
34:04
Speaker 8: not for a lack of interest. It's actually much more
34:07
Speaker 8: related to the lack of distributions.
34:09
Speaker 1: In private equity.
34:10
Speaker 8: All of the clients that we speak to are actually
34:12
Speaker 8: more interested in hedge funds because they performed so well
34:15
Speaker 8: since COVID and because of the greater liquidity that they offer.
34:21
Speaker 8: And so we're seeing even from private credit, we're seeing
34:23
Speaker 8: for the first time surveys are now telling and our
34:25
Speaker 8: clients are saying the same thing that they're more interested
34:28
Speaker 8: in the liquid side of credit than in private credit.
34:31
Speaker 8: Same thing in private equity. They're starting the pendulum swinging
34:34
Speaker 8: back towards public equities. The problem is a lot of
34:37
Speaker 8: these investors lack of the liquidity to do so, so
34:40
Speaker 8: assets are not really growing that much beyond organic returns.
34:44
Speaker 8: And in addition to that, even though I've talked about
34:46
Speaker 8: all these new launches. The capital is oftentimes being recycled
34:50
Speaker 8: from those multi stratchs themselves as opposed to new capital
34:52
Speaker 8: flowing in. But the interest is there, all.
34:54
Speaker 1: Right, John, Really interesting stuff. Really appreciate chatting with you.
34:57
Speaker 1: I noticed that your firm, You and your firm were
34:58
Speaker 1: represented in this Bloomberg are citing your research. John Kaplis's
35:03
Speaker 1: CEO of Pivotal Path, give us an update on what's
35:06
Speaker 1: happening in the world of hedge funds.
35:10
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
35:14
Speaker 2: weekdays at ten am Eastern on applecard Play and Android
35:17
Speaker 2: Auto with the Bloomberg Business app. You can also listen
35:20
Speaker 2: live on Amazon Alexa from our flagship New York station
35:23
Speaker 2: Just say Alexa playing Bloomberg eleven thirty.
35:28
Speaker 4: It's been dank because you haven't heard you yields a
35:30
Speaker 4: little bit higher, stocks going a whole lot of nowhere.
35:33
Speaker 4: Joining us now for his day is Jeffrey Cleveland, chief
35:35
Speaker 4: economist over at paid An a Regal. All right, Jeffrey,
35:38
Speaker 4: twenty five or fifty place your bets twenty five?
35:41
Speaker 9: Why I don't see the urgency to cut by fifty?
35:46
Speaker 9: I think you know stocks are at all time highs
35:50
Speaker 9: layoffs are quite low. We had a decent retail sales
35:54
Speaker 9: report yesterday. So usually if the FED goes faster, it's
35:58
Speaker 9: because we're in an obvious financial crime or we're in
36:00
Speaker 9: a recession. And I don't think you can make either
36:03
Speaker 9: of those cases or of those arguments. So it seems
36:06
Speaker 9: like twenty five would be the best path here. But
36:10
Speaker 9: I don't want to protest too much. I mean, I
36:11
Speaker 9: think we're gonna go middle of next year will be
36:15
Speaker 9: you know, four percent on FED funds. End of next year,
36:18
Speaker 9: end of twenty five will be at three and a
36:19
Speaker 9: half percent. So they want to go faster. I want protest.
36:23
Speaker 10: It's good for stocks, good for bonds.
36:25
Speaker 1: I like it. Jeffrey, what do you think, aside from
36:29
Speaker 1: the actual you know, move on the rates, what are
36:31
Speaker 1: you gonna be looking for from the messaging, from the
36:33
Speaker 1: body language and all that kind of parlor game that
36:35
Speaker 1: folks play. What are you gonna be looking for in
36:36
Speaker 1: this meeting?
36:37
Speaker 10: Well, probably first the dots.
36:39
Speaker 9: You know, as of June, we had one cut for
36:42
Speaker 9: this year and then we had about four next year.
36:45
Speaker 9: So look for the change in the median dot where
36:48
Speaker 9: they see the policy rate this year and next year.
36:52
Speaker 9: That's some that's possibly some disappointment for the market because
36:56
Speaker 9: market already expects a lot of cutting out over the
36:59
Speaker 9: next eight teen months. I don't even know where that's
37:02
Speaker 9: whether that's going to be confirmed by the dots so
37:04
Speaker 9: well exactly.
37:05
Speaker 4: So are we just looking at like a bond sell
37:07
Speaker 4: off if they go twenty five and don't confirm almost
37:10
Speaker 4: you know, five cuts this year?
37:13
Speaker 9: Yeah, potentially potentially because the bond market, It's like at
37:17
Speaker 9: the beginning of the year, Alex, the bond market was
37:19
Speaker 9: expecting seven rate cuts I think at some point in January.
37:24
Speaker 9: So far we haven't had any rate cuts, so the
37:26
Speaker 9: bond market was wrong about that. So in this short run, yeah,
37:29
Speaker 9: that could cause some volatility, you know, So that's an
37:33
Speaker 9: issue today.
37:33
Speaker 10: I think also the messaging.
37:35
Speaker 9: I think one, you know, if I was going to
37:37
Speaker 9: build the case to cut more quickly, I would just say, hey,
37:41
Speaker 9: the inflation threat is gone and the real threat now
37:44
Speaker 9: is you know, economic downturn or late further labor market leakness.
37:49
Speaker 9: And then I would say to everyone, hey, we don't
37:51
Speaker 9: need to be at five thirty on the funds rate
37:53
Speaker 9: if inflation is not a risk we need to get
37:56
Speaker 9: back to neutral.
37:56
Speaker 10: And we want to get there more quickly.
37:58
Speaker 9: That would be the argument, would say, So how the
38:00
Speaker 9: FED chair tells the story today and the press conference
38:03
Speaker 9: will also be important to take in.
38:05
Speaker 1: So, Jeffery, is it your belief at this point in
38:08
Speaker 1: time that the economy is in fact in decent shape. Yes,
38:11
Speaker 1: maybe slowing certain parts, but in decent shape.
38:15
Speaker 5: Yeah.
38:15
Speaker 9: Absolutely, I mean layoffs are low. I think GDP in
38:18
Speaker 9: the current quarter is tracking two two and a half percent.
38:22
Speaker 9: We think for the full year will be will be
38:24
Speaker 9: almost two and a half percent on GDP.
38:26
Speaker 2: Paul.
38:26
Speaker 9: The unemployment rates at four point one four point two
38:29
Speaker 9: percent we think at year end, So that is still
38:32
Speaker 9: a great environment. Now you've got the FED cutting, So
38:35
Speaker 9: this is very bullish for risk assets. I think over
38:37
Speaker 9: the over the medium term, great for bonds, great for stocks.
38:42
Speaker 4: Where in stocks though I think it was Bank of America,
38:44
Speaker 4: but saying this is a great point for mid cap
38:46
Speaker 4: stocks because you get the valuation boosts from small caps
38:49
Speaker 4: without kind of the risk and the slowing sales growth,
38:53
Speaker 4: but you don't have sort of the top line like
38:55
Speaker 4: you would for large.
38:56
Speaker 9: Cap Yeah, I mean, I think that's a decent argument
38:59
Speaker 9: I just think that really for me, and if the
39:03
Speaker 9: business cycle has more room to go, then stocks will
39:05
Speaker 9: continue to make new highs, especially if.
39:08
Speaker 10: You have now a supportive FED.
39:09
Speaker 9: So that's the lesson of history and all the different
39:11
Speaker 9: business cycles. When you get to the end of the
39:13
Speaker 9: business cycles when you really want to get worried about
39:15
Speaker 9: equities and maybe get more defensive.
39:18
Speaker 10: I don't think we're there yet. In the next six
39:20
Speaker 10: to twelve months. I think the economy will continue to.
39:22
Speaker 9: Grow so more like I guess the nineteen ninety style
39:25
Speaker 9: soft landing, that would be what I envisioned for the economy.
39:29
Speaker 1: Hey, Jeffrey, how about the US labor market. That's obviously
39:32
Speaker 1: something that the FED looks carefully at here. What's your
39:35
Speaker 1: kind of take on where we are with the labor market?
39:38
Speaker 9: You know, well, everyone's been talking about the unemployment rate rising,
39:40
Speaker 9: so in our view, that has you know, that has happened,
39:43
Speaker 9: but it's due to a you know, perhaps good reason
39:46
Speaker 9: expansion and labor supply that has helped the FED actually
39:50
Speaker 9: because that has eased some of the labor supply demand
39:53
Speaker 9: mismatch wages have cooled a little bit. I think from
39:56
Speaker 9: a central bank perspective, they like to see that the
39:58
Speaker 9: labor market is in balance, but it has pushed up
40:02
Speaker 9: the unemployment rate a little bit. I don't think we
40:06
Speaker 9: uh the labor market is. It's definitely job growth has slowed,
40:09
Speaker 9: but we're still seeing a decent enough job growth when
40:12
Speaker 9: you look at the three month moving average of non
40:15
Speaker 9: farm payrolls to keep I think downward pressure on the
40:18
Speaker 9: unemployment rate. So when you look at our forecast out
40:20
Speaker 9: into the middle of next year, still have a pretty
40:22
Speaker 9: low unemployment rate, right around four point one four point
40:25
Speaker 9: two percent.
40:26
Speaker 4: Okay, but that's the case, then why do we need
40:27
Speaker 4: like nine rate cuts?
40:29
Speaker 10: Yeah?
40:30
Speaker 9: I mean I don't think you need nine. May I
40:31
Speaker 9: think you could build you know, in our in our
40:33
Speaker 9: model of it, you could build a case for let's
40:36
Speaker 9: say three twenty five basis point cuts this year Alex,
40:40
Speaker 9: and then two in the first half of next year.
40:42
Speaker 9: So more like five not nine. Why Because you don't
40:46
Speaker 9: need to be at five thirty on the funds rate.
40:48
Speaker 9: If inflation is continuing to moderate, you can you can
40:51
Speaker 9: take your foot off the brake a little bit if
40:53
Speaker 9: you will, so, but nine. I can't get on board
40:56
Speaker 9: with nine rate cuts at this point. That's much more
41:00
Speaker 9: calamitous situation. I think that some investors have in mind.
41:03
Speaker 1: Yeah, that sounds about right. Jeffrey Cleveland, Chief Economist, Peyton
41:06
Speaker 1: and Regal.
41:08
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41:18
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41:22
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41:26
Speaker 1: Let's take a look at some of the regulatory aspects
41:28
Speaker 1: for m and A. Jenriy, senior litigation analysts for Bloomberg Intelligence.
41:32
Speaker 1: It joins us here Tapestry Capri. What's going on with
41:37
Speaker 1: that big deal?
41:39
Speaker 6: Yeah, you know, I deal to it. A lot of
41:40
Speaker 6: people were surprised at the FTC sew to try to
41:43
Speaker 6: block this wrapped trial. Yesterday was about an eight day
41:47
Speaker 6: trial and closing arguments are coming up on September thirty.
41:50
Speaker 6: I think the judge wanted a little time in between
41:52
Speaker 6: to look at the evidence.
41:54
Speaker 1: And this is.
41:54
Speaker 6: All about two companies that would bring together handbags of
41:58
Speaker 6: the brand's coach Kate's and Michael Cores of course, and
42:02
Speaker 6: yes exactly, and the FTC is concerned that means they
42:05
Speaker 6: would have too much market share in an overly concentrated
42:09
Speaker 6: market for what they call affordable luxury or accessible luxury handbag.
42:15
Speaker 4: I mean whatever Capri has westatchemed on me too. I
42:17
Speaker 4: appreciate they're not handbags, but come on now, so what
42:20
Speaker 4: do you think is going to happen?
42:22
Speaker 6: You know, it's funny. I went into this thinking that
42:24
Speaker 6: the FTC would win, and I came out after trial.
42:27
Speaker 6: I sat through most of it now thinking that the
42:29
Speaker 6: companies will win. They did a really good job defending
42:32
Speaker 6: the market. And you know, the reason that initially I
42:35
Speaker 6: thought it could go to the FTC is because it appeared,
42:37
Speaker 6: at least superficially that they had a lot of documents
42:40
Speaker 6: that showed that these companies really only considered each other
42:43
Speaker 6: when it came to pricing and promotions and innovation with
42:47
Speaker 6: the bags and changes in the bags. They suggested they
42:50
Speaker 6: had a lot of data and evidence. You know, it
42:52
Speaker 6: seemed that they would, but it just didn't really come
42:54
Speaker 6: out in trial. And what we heard from witnesses was
42:57
Speaker 6: really compelling testimony about how dynamic and changing the market is,
43:02
Speaker 6: how how much competition there is out there, fairly easy
43:06
Speaker 6: entry for mom and pops or for somebody who has
43:08
Speaker 6: a bag that's held by a celebrity on TikTok and
43:11
Speaker 6: now you blow up, and that they really don't think
43:14
Speaker 6: that there would be any ability to raise the price
43:17
Speaker 6: of the Michael Core's bag post acquisition.
43:21
Speaker 4: Definitely not. But that's can you buy that?
43:24
Speaker 1: I mean, you can't buy these bags on sale ever?
43:26
Speaker 1: Can you again? You can?
43:27
Speaker 9: Yeah?
43:27
Speaker 6: Oh yes, I mean that's part of the issue. The
43:29
Speaker 6: Cores bags have been on sale for a couple of
43:32
Speaker 6: years now because the Core's brand is lost what they
43:34
Speaker 6: call brand heat. In other words, the consumers don't think
43:37
Speaker 6: it's that hip anymore or that cool anymore, and so
43:40
Speaker 6: they've had to reduce the prices for those bags in
43:42
Speaker 6: order to get them to sell their product.
43:44
Speaker 4: It's made same thing, like coach, same thing.
43:48
Speaker 1: Yeah, and you can buy all these bags on Canal Street,
43:50
Speaker 1: by the way.
43:51
Speaker 6: I know exactly. And you know what that's the points
43:54
Speaker 6: here is that when they calculated what the market shares
43:57
Speaker 6: would be and what the concentration would be, they completely
44:00
Speaker 6: left out any sales of pre owned handbags, which is
44:03
Speaker 6: kind of a really burgeoning market right now. I mean
44:05
Speaker 6: even Dillard's has a section for pre owned handbags.
44:08
Speaker 4: Dillard's has a section for pre owned handbags.
44:10
Speaker 6: Yes they do, and Alex, if you believe it, what
44:13
Speaker 6: we heard in trial is that those sales outstripped the
44:16
Speaker 6: sales of the new handbags.
44:18
Speaker 1: Wow o, yeah, learn something new. She's going to the.
44:22
Speaker 4: Well, I'm just I never thought of. You know, Dillards
44:24
Speaker 4: is like a high end fashion place, so the fact
44:26
Speaker 4: that they have sort of, you know, recycled handbags is something.
44:31
Speaker 2: I was talking about.
44:32
Speaker 4: Fakes.
44:32
Speaker 1: By the way, No, we know, we.
44:33
Speaker 4: Know, we just ignored you, all right, Jen, thanks a lot.
44:37
Speaker 4: We appreciate that genery of a Bloomberg Intelligence. She is
44:40
Speaker 4: our antitrust expert joining us on that. Also, we got
44:43
Speaker 4: to take a look at Kroger and Alberson at some
44:44
Speaker 4: point as well.
44:45
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45:00
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