Latest / Bloomberg Intelligence / Housing Starts Fall to 3-Month Low: BofA Earnings Recap

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Housing Starts Fall to 3-Month Low: BofA Earnings Recap · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul Swinge. You,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money, Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. Well, the market appears to be
• 0:23
  Speaker 1: pricing in three rate cuts for the remainder of twenty nineteen.
• 0:27
  Speaker 1: I guess the only real question is at the next
• 0:29
  Speaker 1: meeting will it be twenty five basis points or fifty.
• 0:33
  Speaker 1: To get a sense of what to look for when
• 0:34
  Speaker 1: the Fed does meet, we welcome Neil Data from Renaissance
• 0:38
  Speaker 1: macro Research. He is ahead of economics there. Neil, thanks
• 0:41
  Speaker 1: so much for joining us. So what is your sense
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  Speaker 1: that when we when the FED does meet on the
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  Speaker 1: thirty feet will they cut by twenty five or fifty?
• 0:49
  Speaker 1: What is your sense, Neal? My sense is that they
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  Speaker 1: cut by um? I think first, um, you know historically
• 0:58
  Speaker 1: if you look at it, you took sickly get fifty
• 1:00
  Speaker 1: basis point cuts going into recession or we have some
• 1:04
  Speaker 1: sort of um, you know, crisis on our hands. Um,
• 1:09
  Speaker 1: we don't have either of those things at the moment um,
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  Speaker 1: so this looks like a basis point cut. It is probably, um,
• 1:16
  Speaker 1: what's more likely. At the same time, I mean, if
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  Speaker 1: you just sort of read the FED speak that we've seen,
• 1:22
  Speaker 1: I mean, you have the most devish members calling for
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  Speaker 1: twenty five basis point cuts. So if you can't convince
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  Speaker 1: them of a fifty basis point move, um, you know,
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  Speaker 1: I think it's it's it's pretty unlikely. So I think
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  Speaker 1: the first go is probably a twenty five basis point
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  Speaker 1: cut at the end of the month. So, Neil, I'm
• 1:38
  Speaker 1: curious what your impression is just generally of where we
• 1:40
  Speaker 1: are in the economic cycle, because we are getting these
• 1:43
  Speaker 1: bank earnings and they show a very strong consumer yet
• 1:46
  Speaker 1: relatively muted capital markets activity. Is there some kind of
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  Speaker 1: leading indicator that you see in there of businesses perhaps
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  Speaker 1: slowing some of their big moves while the consumers stays
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  Speaker 1: strong right now? Yeah, maybe, I mean I don't I
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  Speaker 1: can't speak Lisa specifically to two bank earnings, but uh,
• 2:06
  Speaker 1: I mean that my my sense is basically that, um,
• 2:10
  Speaker 1: you know, these issues that we've been talking about a
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  Speaker 1: lot in the macro space. You know, trade tensions, um,
• 2:17
  Speaker 1: you know week overseas activity. UM. You know. My sense
• 2:22
  Speaker 1: is that probably impacts um, you know, medium and large
• 2:26
  Speaker 1: sized firms more than it does domestic consumers and so um.
• 2:31
  Speaker 1: And you're seeing that largely reflected in the data. Business
• 2:35
  Speaker 1: fixed investment has been quite sluggish, but consumer spending has
• 2:39
  Speaker 1: been quite good. Now of course, UM, you know, at
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  Speaker 1: some point something's going to have to give. A final
• 2:46
  Speaker 1: demand is holding up reasonably well, um, you know, then
• 2:50
  Speaker 1: businesses are going to have to play catch up and um.
• 2:53
  Speaker 1: And that means that you know, you you may see
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  Speaker 1: sort of a pickup in in investment activity as as
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  Speaker 1: firm sort of real one well but with final demand good.
• 3:02
  Speaker 1: But but Neil, I mean you could go either way here, right,
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  Speaker 1: So businesses may have to play catch up with the
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  Speaker 1: consumer and invest more, or you could say the other
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  Speaker 1: way around. The consumers will have to catch up with
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  Speaker 1: the businesses if the businesses aren't investing and aren't necessarily
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  Speaker 1: hiring more people, are even cutting in the face of
• 3:17
  Speaker 1: some of these trade tensions, right, I mean you could
• 3:19
  Speaker 1: go either way. Lisa had that work in you want
• 3:23
  Speaker 1: to make that mistake again. I mean, I think consumers
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  Speaker 1: ultimately are the sort of main driver, the primary driver
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  Speaker 1: of dynamics, you know, I mean, consumer spending tends to
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  Speaker 1: lead investment. UM, even when you look at you know,
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  Speaker 1: sort of just changes in growth dynamics. So UM. And
• 3:42
  Speaker 1: you know, even when you look at investments spending in
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  Speaker 1: the U S it's it's um. I mean compared now
• 3:48
  Speaker 1: to to how it was that when we actually did
• 3:50
  Speaker 1: have a Capex procession, which was in Capex is holding
• 3:54
  Speaker 1: up reasonably well all things considered. I mean, we were
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  Speaker 1: here talking about, um, you know how terrible things are
• 4:00
  Speaker 1: in the global economy with the stock market at all
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  Speaker 1: time highs and you know, all this trade to trade uncertainty,
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  Speaker 1: and even then, UM, you know, investment spending is still
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  Speaker 1: holding up reasonably well. So you know the fact that
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  Speaker 1: US investment spending is doing so much better than many
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  Speaker 1: other places in the world tells you that there's already
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  Speaker 1: something going on with respect to those companies respond but
• 4:20
  Speaker 1: with respective firms responding to final demands. So um, you know,
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  Speaker 1: you're not seeing big declines and employment. Uh, you're seeing
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  Speaker 1: plum plumbing continue to expand your consumers um, continuing to
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  Speaker 1: spend money, and it's that final demand that firms ultimately
• 4:34
  Speaker 1: have to respond to. So you're one of the things
• 4:36
  Speaker 1: that the FED is looking at is inflation. Where we
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  Speaker 1: right now with the inflation outlooking the US UM, you know,
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  Speaker 1: I mean, I think inflation is running persistently below the
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  Speaker 1: FEDS target. You know, I think if you have like
• 4:51
  Speaker 1: if you look at it, you know, very very near term.
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  Speaker 1: I mean, it's pretty clear that, you know, the FEDS
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  Speaker 1: transitory story that they had been sort of pitching for
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  Speaker 1: a two months there, I mean, that's actually kind of
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  Speaker 1: worked out. I mean, inflation has you know, co inflation
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  Speaker 1: has popped up a bit, but it's not enough to
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  Speaker 1: kind of, you know, change the underlying story about inflation. UM.
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  Speaker 1: Inflation is persistently below two percent, and that means that,
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  Speaker 1: you know, in my view, at least you know, the
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  Speaker 1: benefits of the FED doing something here in terms of
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  Speaker 1: you know, accommodating UM you know, outweighs the cost. So
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  Speaker 1: you're bullish. You're very bullish, it sounds like, and I'm
• 5:26
  Speaker 1: curious when you think that things. Yeah, I mean you're welcome, right,
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  Speaker 1: I mean, you know, yes, you know, I love it,
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  Speaker 1: absolutely love it. UM it's a happy Wednesday, Neale. I
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  Speaker 1: do want to look at it though, and wonder, you know,
• 5:39
  Speaker 1: when you see these credit cycle perhaps aging, because people
• 5:43
  Speaker 1: have been saying we're the ninth Inning for the past
• 5:45
  Speaker 1: six years, and I'm just wondering, from your perspective, what
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  Speaker 1: will it'll what it will actually take to get there?
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  Speaker 1: What in terms of credit I mean for the business cycle,
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  Speaker 1: I mean, when are we actually see a downturn? What
• 5:58
  Speaker 1: is what do I think it's going to be looking
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  Speaker 1: less rosy? Um? Well, I mean I think when you
• 6:03
  Speaker 1: have a sharp upturn in real interest rates, uh, you know,
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  Speaker 1: then I think that would be something that would that
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  Speaker 1: would concern me. Um. But at the moment, I mean,
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  Speaker 1: you still have you know, nominal growth running well above
• 6:16
  Speaker 1: the level of overnight interest rates. I mean that's that's
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  Speaker 1: that's as reasonable and indication as any of the business
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  Speaker 1: cycle still has room to run. Um. You know, you
• 6:26
  Speaker 1: have you know, when you take a look at sort
• 6:28
  Speaker 1: of the kind of classic sort of check boxes that
• 6:31
  Speaker 1: people have when they want to make a recession call
• 6:33
  Speaker 1: um there, no, they're not and um and so it's
• 6:39
  Speaker 1: gonna be a while. Yeah. And I just think that
• 6:41
  Speaker 1: the housing market in the U s is arecovering and
• 6:43
  Speaker 1: it's really unusual to see, you know, some kind of
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  Speaker 1: a big downturn in the economy with residential with residential
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  Speaker 1: investment accelerating. Neil Data, thank you so much, love having
• 6:52
  Speaker 1: you on. Neil Data, head of economics for Renaissance Macro Research,
• 6:56
  Speaker 1: joining us. Seeing positive signs ahead. Well, it has been
• 7:15
  Speaker 1: obvious for sometime the President Trump is not a fan
• 7:19
  Speaker 1: of the US Federal Reserve and its chairman j Pal.
• 7:22
  Speaker 1: The question is whether the President's tweets and other commentary
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  Speaker 1: influences the FED to get some analysis. So this we
• 7:30
  Speaker 1: welcome our next guest, Christopher Condon. Christopher is a reporter
• 7:33
  Speaker 1: for Bloomberg News covering the Federal Reserve. Chris, thanks so
• 7:36
  Speaker 1: much for joining us from Washington. So let's go to
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  Speaker 1: that big question. To what extent, if any, do you
• 7:42
  Speaker 1: think President's Trump's commentary and tweets about j Pal about
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  Speaker 1: the Federal Reserve influences the FED at all? I really
• 7:50
  Speaker 1: don't think it has that much influence. The Fed has
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  Speaker 1: a pretty clear process. It goes through a very rigorous
• 7:58
  Speaker 1: an intense process UH to prepare for each of the
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  Speaker 1: f O m C meetings. They happen eight times a year,
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  Speaker 1: and it's a it's a big deal, and the participants
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  Speaker 1: have to really have their act together, um when they
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  Speaker 1: come and make arguments at that table about what they
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  Speaker 1: should do with policy. And by all accounts, current members,
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  Speaker 1: former members, people who understand this process, staff people, politics
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  Speaker 1: just doesn't have a place in there now. At the
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  Speaker 1: same time, we have to grant that, you know, these
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  Speaker 1: are human beings. They don't sit there talking about the
• 8:35
  Speaker 1: president's pressure, but they must feel it. They really see
• 8:39
  Speaker 1: the tweets, they see the news about it. Uh and
• 8:42
  Speaker 1: if anything, you know, um, former senior staff have told me,
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  Speaker 1: it may actually make it harder for the president to
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  Speaker 1: get what he wants when a decision is a real
• 8:55
  Speaker 1: close call. So let's hold hold one, okay, But before
• 8:58
  Speaker 1: we get into, you know, the idea that they might
• 9:00
  Speaker 1: try to rebel against him and show that their independence
• 9:04
  Speaker 1: by not doing what he wants. In on the margins,
• 9:07
  Speaker 1: I want to talk about moves that President Trump could
• 9:09
  Speaker 1: actually make that economically would create a better picture for
• 9:13
  Speaker 1: a rate cut or further rate cuts. And I'm talking
• 9:15
  Speaker 1: about tariffs because President Trump is cutting out now, coming
• 9:18
  Speaker 1: out now and threatening additional tariffs in China saying he
• 9:20
  Speaker 1: can levy them whenever he wants, and a lot of
• 9:23
  Speaker 1: people are saying, you know, is this perhaps an effort
• 9:27
  Speaker 1: to push the FED into cutting rates even more ahead
• 9:30
  Speaker 1: of the election, In other words, that the FED would
• 9:33
  Speaker 1: be compelled to do so from an economic perspective, even
• 9:36
  Speaker 1: though it's a politically driven economic perspective. Yeah, that it
• 9:40
  Speaker 1: does seem like a bit of a circular. I'm not
• 9:42
  Speaker 1: sure how strategically he thinks about what the he wants
• 9:47
  Speaker 1: the FED to do when he considers imposing tariffs and China.
• 9:50
  Speaker 1: There's a whole other agenda there, obviously, with respect to
• 9:53
  Speaker 1: our trade relations with China, and what's he what he
• 9:55
  Speaker 1: wants to achieve there. Um, that may be putting too
• 9:59
  Speaker 1: many uses in play at once. It certainly is true
• 10:03
  Speaker 1: that the FED has to deal with the reality of
• 10:06
  Speaker 1: those terrorists and the extent to which they hurt the economy.
• 10:10
  Speaker 1: They certainly are hurting business sentiment and the way companies
• 10:15
  Speaker 1: think about investing and hiring. That seems to be showing up.
• 10:19
  Speaker 1: So it is factoring in to their analysis of whether
• 10:23
  Speaker 1: the economy may need a rate cut or not, that's
• 10:26
  Speaker 1: for sure. So Chris one of the issues. I think
• 10:29
  Speaker 1: is probably maybe even more potentially impactful on the Fed
• 10:33
  Speaker 1: um than tweets is you know, kind of an effort
• 10:36
  Speaker 1: on part of the president too, you know, arguably quote
• 10:38
  Speaker 1: unquote pack the Fed with uh not with people that
• 10:43
  Speaker 1: are more amenable to his uh easing of FED policy.
• 10:48
  Speaker 1: So it gives a sense of kind of where that
• 10:50
  Speaker 1: stands within the Fed, how how are they? That is
• 10:53
  Speaker 1: that it represents a big turn of events that happened gradually,
• 10:58
  Speaker 1: and I'm told that has set folks inside the FED
• 11:01
  Speaker 1: much more than the barrage of tweets and comments attacking
• 11:05
  Speaker 1: the Fed over monetary policy. It represents a serious potential
• 11:09
  Speaker 1: threat in a couple of ways. First of all, it
• 11:12
  Speaker 1: could be a direct a way to get political partisans
• 11:17
  Speaker 1: inside uh the f O m C. You know of
• 11:20
  Speaker 1: course that he Trump made a number of nominations some
• 11:23
  Speaker 1: of which they cut through that were entirely conventional and
• 11:25
  Speaker 1: have support helped the Fed. But this year the nominations
• 11:30
  Speaker 1: where the people considered for nominations has changed. Currently we
• 11:35
  Speaker 1: have a couple of people, uh and one and one
• 11:38
  Speaker 1: person in particular represents this kind of change. Her name
• 11:40
  Speaker 1: is Judy Shelton. She has been an economic advisor to
• 11:44
  Speaker 1: Trump during the campaign. Um, she's a she is, uh,
• 11:48
  Speaker 1: I would say, a classic libertarian thinker and author, has
• 11:53
  Speaker 1: been a long standing UM advocate of the gold standard.
• 11:57
  Speaker 1: Now she's been talking despite that at around strangely has
• 12:01
  Speaker 1: been talking about wanting to lower interest rates. So that
• 12:04
  Speaker 1: makes people think she represents just a sort of partisan
• 12:07
  Speaker 1: loyalty to the president, and if confirmed, that puts that
• 12:11
  Speaker 1: partisan political agenda potentially right inside the rate setting meetings.
• 12:16
  Speaker 1: And second, UM, she also uh just really does not
• 12:21
  Speaker 1: seem to agree with the fundamental mission of the Central
• 12:26
  Speaker 1: Bank of the United States. She does not think they
• 12:28
  Speaker 1: should be setting a benchmark interest rate to guide the market.
• 12:34
  Speaker 1: But in fairness, right now, a lot of people in
• 12:37
  Speaker 1: the market are very unclear of what the Fed's mandate
• 12:41
  Speaker 1: actually is because it was on one at one point,
• 12:44
  Speaker 1: inflation at one point, it was employment at one point.
• 12:48
  Speaker 1: People are speculating it's just keep the markets propped up. Well,
• 12:52
  Speaker 1: the law is pretty clear they have a dual mandate
• 12:54
  Speaker 1: to keep prices stable through their inflation target and to
• 12:58
  Speaker 1: maximize employment in a sustainable way. UM. It can't be
• 13:04
  Speaker 1: much clearer than it is in the law. UM, and
• 13:08
  Speaker 1: of course, as as economic and financial conditions change, um,
• 13:14
  Speaker 1: the FED focuses on one area another. If they're meeting
• 13:17
  Speaker 1: one mandate, then they they look at the other and
• 13:19
  Speaker 1: how they can try to guide the the economy back
• 13:22
  Speaker 1: to a point where they're meeting both of those targets. Um.
• 13:27
  Speaker 1: And of course, when it comes to you know, Judy's
• 13:29
  Speaker 1: argument about the market should be setting rights, I don't
• 13:33
  Speaker 1: think it can be reasonably said that the Fed just
• 13:36
  Speaker 1: sets a rate and expects everyone to fall in line.
• 13:39
  Speaker 1: Actual borrowing costs are kind of a result of a
• 13:43
  Speaker 1: dance between the Fed and the markets. They're very much
• 13:46
  Speaker 1: listening to each other. Um. So her her thinking is
• 13:50
  Speaker 1: a bit more fundamentalist. I think and and and does
• 13:53
  Speaker 1: what Whether it's right or wrong, The bottom line is
• 13:57
  Speaker 1: it really disturbs folks at the FED. Christopher Conton, thank
• 14:01
  Speaker 1: you so much as always for joining us, as well
• 14:04
  Speaker 1: as for your Bloomberg Business Week piece about just the
• 14:07
  Speaker 1: political pressure on the Federal Reserve and whether it will
• 14:10
  Speaker 1: actually have any impact on their decision making. It looks
• 14:12
  Speaker 1: like it may not, despite the fact that the pressure
• 14:16
  Speaker 1: is rising from President Trump. Chris Condon of Bloomberg News, Well,
• 14:40
  Speaker 1: we have read on the screen. As Greg reported, let's
• 14:42
  Speaker 1: see where the action is in small caps with Bloomberg
• 14:45
  Speaker 1: stocks that or Dave Wilson, Dave, what are you looking at?
• 14:47
  Speaker 1: I'm looking at more red than I'm seeing with the
• 14:50
  Speaker 1: larger companies, that's for sure. The RUST of two thousand
• 14:53
  Speaker 1: index down seven tenths of a percent, of the SMP
• 14:56
  Speaker 1: five hundreds lower by just three tenths of a percent.
• 15:00
  Speaker 1: One of the Russell's deepest declines belongs to Beyond Spring,
• 15:03
  Speaker 1: who's ticker is b y s I, the cancer drug
• 15:07
  Speaker 1: developer has fallen more than fifteen percent after raising thirty
• 15:11
  Speaker 1: five million dollars in a share sale, representing more than
• 15:14
  Speaker 1: an eight percent steak, and Obio Pharmaceuticals ticker i n
• 15:18
  Speaker 1: O was dropped fourteen percent. The drug developer ended research
• 15:22
  Speaker 1: on a bladder cancer treatment and said its workforce would
• 15:25
  Speaker 1: be reduced by twenty eight percent as part of an
• 15:29
  Speaker 1: effort to cut costs. Malan Krott ticker m n K
• 15:33
  Speaker 1: has lost about nine and a half percent. The drug
• 15:35
  Speaker 1: maker end of the study of its biggest selling product,
• 15:38
  Speaker 1: hp acthar gel as a treatment for Luke Garrig's disease.
• 15:43
  Speaker 1: Now the Russell's biggest game belongs to avro Bio ticker
• 15:46
  Speaker 1: a v r O, the stem cell therapy developer has
• 15:50
  Speaker 1: risen more than sixteen percent. Avro Bio raised twenty million
• 15:55
  Speaker 1: dollars by selling the equivalent of a twenty one percent
• 15:58
  Speaker 1: steak and may Come Technology Solutions to m t s
• 16:02
  Speaker 1: I has added more than eight percent. The chip maker
• 16:05
  Speaker 1: was raised equivalent buy from Neutral and Piper Jeffrey David Wilson,
• 16:09
  Speaker 1: thank you so much for being with us, Steve Wilson,
• 16:11
  Speaker 1: always with those great updates. Bank of America shares up
• 16:14
  Speaker 1: a little bit about four tens of a percent after
• 16:17
  Speaker 1: reporting earnings. UH that had good had bad. You basically
• 16:21
  Speaker 1: could plug in the name of a number of different
• 16:23
  Speaker 1: banks this earning season and have the same story. Told
• 16:27
  Speaker 1: Alison Williams joining us here, she is the hardest working
• 16:29
  Speaker 1: woman at Bloomberg these days of Bloomberg Intelligence senior financial analysts. So, Alison,
• 16:34
  Speaker 1: what's the deal with b of A? So UH net
• 16:37
  Speaker 1: interest margin MS guidance coming down. That's similar to what
• 16:41
  Speaker 1: we saw across the big four banks that that I cover, UM,
• 16:45
  Speaker 1: but the differentiator has been costs and so for Bank
• 16:48
  Speaker 1: of America. Basically they had said Um, they expected cost
• 16:52
  Speaker 1: to be flat this year. Now they're saying there may
• 16:54
  Speaker 1: be some opportunity for those to come down, so offsetting
• 16:58
  Speaker 1: the net interest margin. Pain, Let's back up for a second.
• 17:02
  Speaker 1: When they have opportunity to reduce those costs, is that
• 17:05
  Speaker 1: another way of saying we can cut jobs. Well, it
• 17:10
  Speaker 1: depends where the costs are coming from, right, So to
• 17:12
  Speaker 1: some extent, um, they don't want to be cutting jobs
• 17:16
  Speaker 1: in certain areas, right because there there's a pickup in
• 17:19
  Speaker 1: UM opportunity. So mortgage banking is an area actually where
• 17:23
  Speaker 1: you might be see some additions across uh, some of
• 17:26
  Speaker 1: the companies well as far Ago yesterday also saying that
• 17:28
  Speaker 1: was an area for for higher costs. They're also saying
• 17:31
  Speaker 1: they're not going to cut tech spending. So that's, um,
• 17:34
  Speaker 1: you know, something that you don't want to see banks doing,
• 17:37
  Speaker 1: especially given sort of the battleground in some of the
• 17:39
  Speaker 1: U S companies winning on that front. UM. But you know,
• 17:43
  Speaker 1: in terms of other areas cutting back, you know, uh, Paul,
• 17:47
  Speaker 1: you can remember the days when um, you go through
• 17:50
  Speaker 1: the department and everybody gets a little bit more focused
• 17:53
  Speaker 1: on where no certain expenses are coming from, and everybody
• 17:56
  Speaker 1: just sort of keeps and keeps a closer eye in
• 18:00
  Speaker 1: terms of what you're spending, what travel, you're technical, lunch necessary,
• 18:04
  Speaker 1: where you guys are going out for lunch, the number
• 18:07
  Speaker 1: of black cars that are lined up outside um the
• 18:10
  Speaker 1: investment banks. So you guys have lived a different life
• 18:12
  Speaker 1: than I had. That's like it was a different time.
• 18:14
  Speaker 1: So yeah, So there are some expenses that very very
• 18:17
  Speaker 1: with revenue, and then there are some where you can
• 18:20
  Speaker 1: be a little bit more efficient, and so technologies, uh,
• 18:23
  Speaker 1: you know, we were we've been talking more recently about
• 18:26
  Speaker 1: technology helping on the revenue front, but that's also helping
• 18:29
  Speaker 1: helping on the efficiency front. Right, So mobile deposits are
• 18:34
  Speaker 1: a great experience for the customer, but they're also like
• 18:36
  Speaker 1: three cents on the dollar for some of these. So
• 18:40
  Speaker 1: also when I worked on the street, the big trading
• 18:42
  Speaker 1: desk were really drivers of profitability, whether it's the you know,
• 18:45
  Speaker 1: fixed income trading desk, the equities, the commodities. Are we
• 18:49
  Speaker 1: ever going to get back to a time on the
• 18:51
  Speaker 1: wall street where they can be consistently profitable and really
• 18:53
  Speaker 1: drive some of the returns for these big global banks.
• 18:56
  Speaker 1: I think that, you know, one of the big changes
• 18:59
  Speaker 1: is really the electronification UM and again, and you know,
• 19:03
  Speaker 1: Paul and I have been tortured by this throughout our
• 19:05
  Speaker 1: careers in terms of seeing what's happened on the equities front. Right,
• 19:08
  Speaker 1: So UM a business UM that has really shifted over
• 19:12
  Speaker 1: time to be more UH to be traded a lot
• 19:15
  Speaker 1: more through the electronic venue, and we're seeing a lot
• 19:18
  Speaker 1: more UM progress on that front on the fixed income side.
• 19:21
  Speaker 1: So I think as volumes continue to go electronic, that
• 19:25
  Speaker 1: does UM you know obviously has it has an impact
• 19:28
  Speaker 1: of thing go low touch versus high touch UM. And
• 19:32
  Speaker 1: in general, you know, the volatility there there are some
• 19:35
  Speaker 1: cyclical factors that that may get better in terms of
• 19:38
  Speaker 1: volatility and quantitative easing. But the other big pressure is
• 19:41
  Speaker 1: the pressure on customers, right, so passive versus active. You think,
• 19:45
  Speaker 1: you know, an active customer is doing trades, they're providing
• 19:48
  Speaker 1: flow for desks. A passive customer UM is generally not
• 19:53
  Speaker 1: And so I think that's you know, hedge hedge funds
• 19:55
  Speaker 1: are another area where we've seen a lot of fee pressure.
• 19:58
  Speaker 1: Less fees, broadly for the end stry is less revenue.
• 20:02
  Speaker 1: If your customers have less revenue to pay, you know,
• 20:06
  Speaker 1: that's less opportunity for you. Just real quick here. We
• 20:09
  Speaker 1: talked earlier, perhaps year or two ago, that the banks
• 20:13
  Speaker 1: would have to pass along some of the increase in
• 20:16
  Speaker 1: interest rates to their depositors. Was there any talk about
• 20:20
  Speaker 1: that this time around? The increases that you've seen, so
• 20:24
  Speaker 1: you've seen increases in two businesses, the wealth business and
• 20:29
  Speaker 1: the commercial small business side of things, right, So that's
• 20:33
  Speaker 1: where you get people where sort of the shopping around
• 20:38
  Speaker 1: is going to pay off. So when you have you know,
• 20:41
  Speaker 1: ten customer let's let's say you know, ten customers with
• 20:44
  Speaker 1: a hundred dollars versus one customer a thousand, you know,
• 20:47
  Speaker 1: multiply that, right, So someone with a million dollars is
• 20:49
  Speaker 1: going to shop around, whereas someone with like a thousand
• 20:52
  Speaker 1: dollars isn't likely. So when you look at UM the
• 20:55
  Speaker 1: core franchises, you're still seeing, you know, things pretty sticky there,
• 21:00
  Speaker 1: but you are seeing a pick up in terms of UM.
• 21:03
  Speaker 1: As I said, the wild small business, you know, City
• 21:06
  Speaker 1: Group also had sort of a notable pick up. They're
• 21:08
  Speaker 1: building digital, So when you're gonna go digital again, you're
• 21:11
  Speaker 1: probably paying up for those deposits. Alison William, thank you
• 21:14
  Speaker 1: so much. Allison Covers all Things Banks for Bloomberg Intelligence,
• 21:18
  Speaker 1: joining us on a Bloomberg Interact the Broker Studio. Funds
• 21:37
  Speaker 1: are having a very good year by historical standards, although
• 21:40
  Speaker 1: I will note that equity funds are still lagging the
• 21:43
  Speaker 1: SMP five hundred the broader market. Here to get a
• 21:46
  Speaker 1: sense of which strategies are performing better, we welcome UH
• 21:49
  Speaker 1: Don Steinbruger. Don is the chairman UH and founder and
• 21:54
  Speaker 1: CEO of Agecroft Partners. John Don joins us here in
• 21:58
  Speaker 1: the Bloomberg Interactor Broker Studio. Don, thanks so much for
• 22:00
  Speaker 1: joining us again, just give us a sense, just kind
• 22:03
  Speaker 1: of We're six months into the books for the year.
• 22:06
  Speaker 1: How are the hedge funds, broadly defined doing so? From
• 22:10
  Speaker 1: an absolute standpoint, they're doing the best they've done in
• 22:13
  Speaker 1: ten years. The average hedge fund for the first six
• 22:16
  Speaker 1: months of the year was up seven point five percent
• 22:19
  Speaker 1: based on the h f R I index, and that's
• 22:22
  Speaker 1: significantly better than the acid weighted index. It is dominated
• 22:26
  Speaker 1: by large hedge funds. Smaller hedge funds outperform large hedge
• 22:30
  Speaker 1: funds for the first six months of this year. So
• 22:34
  Speaker 1: here's my question, and this is going to be the
• 22:36
  Speaker 1: question that everyone's wondering which is it's two and twenty
• 22:40
  Speaker 1: worth it. I mean, it's not really two and twenty
• 22:42
  Speaker 1: anymore of the fee structure because it's come down dramatically.
• 22:44
  Speaker 1: But if these hedge funds are performing the best at
• 22:47
  Speaker 1: an absolute level and still under performing the broader market,
• 22:52
  Speaker 1: is it worth it? So when you think of first
• 22:56
  Speaker 1: of all, relative defease, I don't think anyone should pay
• 22:59
  Speaker 1: two in twenty less they find just an absolutely fabulous
• 23:02
  Speaker 1: hedge fund manager, there's no reason to do it. There's
• 23:04
  Speaker 1: a lot of hedge funds that are offering founders share
• 23:07
  Speaker 1: fees at one and ten. Fees matter, and if you're
• 23:10
  Speaker 1: analyzing a hedge fund, you should focus on fees, all
• 23:12
  Speaker 1: things being equal, always go with the manager that has
• 23:15
  Speaker 1: less fees. But looking at hedge fund performance, you know,
• 23:18
  Speaker 1: hedge funds are a fund structure, they're not an asset class.
• 23:21
  Speaker 1: So you really gotta look at what the strategy is
• 23:24
  Speaker 1: and what the underlying benchmark is that specific strategy. And
• 23:28
  Speaker 1: although I think most hedge funds are not very good,
• 23:31
  Speaker 1: there are a lot that have outperformed indicas and I
• 23:34
  Speaker 1: think add values, so yes, I think there is a
• 23:37
  Speaker 1: place for hedge funds in UM sophisticated large institutional investors portfolios.
• 23:43
  Speaker 1: So what are some of the strategies that are particularly
• 23:47
  Speaker 1: performing well here in the first half of the year. Well,
• 23:51
  Speaker 1: you know, obviously, anything to do with the equity markets
• 23:54
  Speaker 1: did very well. The UM average long shot equity manager
• 23:59
  Speaker 1: was a nine in four four percent. But what I
• 24:01
  Speaker 1: think is really interesting is, for the first time in
• 24:04
  Speaker 1: a long time, fundamentally oriented hedge funds did well. UH.
• 24:08
  Speaker 1: The average fundamental manager, and you've got to remember they
• 24:11
  Speaker 1: only have about half the exposure of the of the
• 24:13
  Speaker 1: broad market, were up ten point eight eight percent, and
• 24:16
  Speaker 1: they significantly outperformed systematic UH long shirt equity managers that
• 24:21
  Speaker 1: were only up about six point nine one So fundamental
• 24:24
  Speaker 1: fundamentals for the first time in a long time worked.
• 24:27
  Speaker 1: It'll be interesting to see if they work going forward.
• 24:30
  Speaker 1: You know, some sectors within the long shirt equity area
• 24:33
  Speaker 1: sector managers did pretty well. Those focused on healthcare technology
• 24:37
  Speaker 1: were up over eleven percent, and from a regional perspective,
• 24:41
  Speaker 1: managers have focus on China, We're up thirteen point one percent.
• 24:45
  Speaker 1: I can touch on a couple others if I have time,
• 24:48
  Speaker 1: you know, I want to actually ask something about what
• 24:50
  Speaker 1: you said earlier, which is there are good fund managers
• 24:53
  Speaker 1: out there, and if you find them, they can add
• 24:56
  Speaker 1: some real value to your portfolio. How do you judge?
• 24:59
  Speaker 1: How do you herman whether a fund manager is good
• 25:02
  Speaker 1: or not? Because it's not just past performance. It is
• 25:05
  Speaker 1: definitely not past performance. So I think you've got to
• 25:08
  Speaker 1: use multiple factors and analyzing the hedge fund, I think
• 25:11
  Speaker 1: you need to look at the organization and make sure
• 25:14
  Speaker 1: that it's institutional quality. You've got to go to the office,
• 25:17
  Speaker 1: meet the people there. I think you need to look
• 25:19
  Speaker 1: at the people managing the portfolio. What are their bios
• 25:22
  Speaker 1: look like? You know, what is it? What edge do
• 25:25
  Speaker 1: they have to implement the process? You need to listen
• 25:28
  Speaker 1: to what their investment processes. Can they articulate what inefficiency
• 25:32
  Speaker 1: in the marketplace or trying to take advantage of and
• 25:35
  Speaker 1: clearly explain how they're able to take advantage of that inefficiency.
• 25:39
  Speaker 1: You need to look at risk control. As far as
• 25:42
  Speaker 1: performance goes, you need to decouple it. You need to
• 25:44
  Speaker 1: really understand that was their performance, but why did they
• 25:48
  Speaker 1: do what they did and how is that going to
• 25:51
  Speaker 1: the strategy going to do going forward? For example, you
• 25:54
  Speaker 1: know this year there's been broad rallies of the fixed
• 25:57
  Speaker 1: income marketplace. You've had um the ten year treasury rally
• 26:01
  Speaker 1: by you know, over sixty basis points. You've had high
• 26:05
  Speaker 1: yield spreads come down almost a hundred and fifty basis points.
• 26:08
  Speaker 1: The more risk you took into fixed income portfolio, the
• 26:11
  Speaker 1: betty you did. But that doesn't mean you're gonna do
• 26:13
  Speaker 1: better going forward. So you need to understand why performance
• 26:16
  Speaker 1: was what it was and also have some idea of
• 26:19
  Speaker 1: you know, what you think the markets you're gonna do
• 26:20
  Speaker 1: going forward, and how that strategy in a stress tested
• 26:24
  Speaker 1: environment will do going forward. So it's interesting. So they
• 26:28
  Speaker 1: don't outperform. So the equity hedge funds kind of about
• 26:31
  Speaker 1: half what the SMP has done on the upside this year.
• 26:33
  Speaker 1: How about when we have a down market, did they
• 26:36
  Speaker 1: do better than the market, Because I'm wondering what I'm
• 26:37
  Speaker 1: paying for again, I'm not getting performance on the upside,
• 26:40
  Speaker 1: but I am not gonna are they gonna protect me
• 26:41
  Speaker 1: on the downside? Well, first of all, on the upside,
• 26:44
  Speaker 1: I do think they're When you start looking at niche oriented,
• 26:48
  Speaker 1: long shoot equity strategies that focus on more inefficient markets,
• 26:51
  Speaker 1: I think they've done a better job beating whatever the
• 26:54
  Speaker 1: relevant benchmark is. For example, if you go over to Asia, UH,
• 26:57
  Speaker 1: managers that focus on Asia or China um have some
• 27:01
  Speaker 1: of them have outperformed their indicas by very large margins
• 27:04
  Speaker 1: over long period of time. You know, if you're talking
• 27:06
  Speaker 1: about US equity managers that are focusing on you know,
• 27:09
  Speaker 1: the apples and the very large cap stocks, I mean,
• 27:11
  Speaker 1: it's really hard to get information advantage and most of
• 27:14
  Speaker 1: those have underperformed. But just a real quick here, we
• 27:18
  Speaker 1: just have about thirty seconds and a listener is writing
• 27:20
  Speaker 1: in who does manage a lot of money and isn't
• 27:23
  Speaker 1: in charge of determining what investments there are? And he
• 27:27
  Speaker 1: was asking, how long of a track record do you require?
• 27:31
  Speaker 1: You know, I think the longer the track record the better,
• 27:34
  Speaker 1: And I would want to see a track record at
• 27:36
  Speaker 1: least three years UM. And you know, you just need
• 27:41
  Speaker 1: to make sure that when you analyze the track record,
• 27:43
  Speaker 1: you understand what the track record is. There's a lot
• 27:45
  Speaker 1: of discrepancies as far as showing net performance and what
• 27:48
  Speaker 1: fees people are using to show net performance versus what
• 27:51
  Speaker 1: their normal benchmark is. Don Steinbruger, thank you so much
• 27:54
  Speaker 1: for being with us. Really appreciate it. Don Steinbruger is
• 27:57
  Speaker 1: Agecroft Partners founder and CEO, joining us here in our
• 28:00
  Speaker 1: Bloomberg Interactive Broker's studios. Thanks for listening to the Bloomberg
• 28:04
  Speaker 1: P and L podcast. You can subscribe and listen to
• 28:07
  Speaker 1: interviews at Apple Podcasts or whatever podcast platform you prefer.
• 28:10
  Speaker 1: I'm Paul Sweeney, I'm on Twitter at pt Sweeney. I'm
• 28:13
  Speaker 1: Lisa abram Woits. I'm on Twitter at Lisa A. Bramwoits.
• 28:15
  Speaker 1: One before the podcast, you can always catch us worldwide
• 28:18
  Speaker 1: on Bloomberg Radio