Latest / Bloomberg Intelligence / Goldman, the Fed, Ontario, and Companies to Watch (Podcast)

Transcript

Goldman, the Fed, Ontario, and Companies to Watch (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller. Every business day we bring
0:06
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
0:11
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
0:15
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. All right, today, we
0:22
Speaker 1: woke up today and you looked at the tape. There
0:24
Speaker 1: was a lot of news about the big Wall Street banks.
0:26
Speaker 1: We had Goldman cutting jobs, a little bit muted though,
0:29
Speaker 1: right because Goldman was supposed to cut like over four
0:31
Speaker 1: thousands exactly, but you know, nonetheless of number Morgan Stanley,
0:37
Speaker 1: John Bruz on their CEO stepping down. Uh. And then
0:41
Speaker 1: Credit Swiss and Michael Klein negotiating for Chris Swiss to
0:45
Speaker 1: buy Michael Klein's firm as part of this new Credit
0:47
Speaker 1: Swiss First Boston. So let's break it down. Plus we
0:49
Speaker 1: got earning coming up for these big banks at dinner
0:51
Speaker 1: the week, so let's get a nice little round table
0:53
Speaker 1: going force. Alison Williams, Sr Banks, analyst for Bloomberg Intelligence,
0:58
Speaker 1: joins via the phone and Bloomberg News Alster reporter Shanale
1:01
Speaker 1: bassik uh It joins us here in our Bloomberg in
1:04
Speaker 1: Actor Broker studio. Allison, of the three news items we got,
1:07
Speaker 1: the Goldman news, the Credit Swiss news, the Morgan Stanley,
1:10
Speaker 1: which one is most important to you? Should we be
1:13
Speaker 1: paying attention to these things? I mean, I think, uh,
1:17
Speaker 1: Goldman confirming the head count cuts, I think is probably
1:21
Speaker 1: the most important in terms of thinking about the environment. UM.
1:26
Speaker 1: A couple of things I point out on the thirty
1:28
Speaker 1: two hundred number, UM, only about a third of that
1:32
Speaker 1: investment banking and trading, and a lot of those cuts
1:34
Speaker 1: really going towards the consumer business, which was UM an
1:40
Speaker 1: effort that they initiative they did several years ago. I
1:45
Speaker 1: would say that, UM, you know, there was a lot
1:47
Speaker 1: of skepticism, including myself, around the offering and the competitive um,
1:52
Speaker 1: you know, the company's competitive advantage there really didn't seem
1:56
Speaker 1: to make sense. That I think they are pulling back
1:58
Speaker 1: and just refocusing that effort. Keep in mind, a lot
2:01
Speaker 1: of the head count increases they've seen this year have
2:04
Speaker 1: come from acquisitions, so scaling back and right sizing some businesses.
2:08
Speaker 1: But on the investment banking side, this is something that UM,
2:13
Speaker 1: you know, we're closely watching in the first quarter. The
2:15
Speaker 1: pipelines were good all last year, UM, but we feel
2:19
Speaker 1: like they're becoming a bit scale and across the industry Union, yes,
2:24
Speaker 1: across the industry, UM and for Goldman SAX as well well.
2:27
Speaker 1: But this is the thing, Alison, because so most of
2:30
Speaker 1: the job cuts are going to be at basically Marcus,
2:33
Speaker 1: the consumer facing division that they seem to have decided
2:36
Speaker 1: that wasn't a great idea and now they're scaling back, UM,
2:39
Speaker 1: and the other cuts that are coming and trading investment banking, Okay,
2:44
Speaker 1: they haven't done that for a few years, right, And
2:46
Speaker 1: they hired they've hired so many people. So this to
2:50
Speaker 1: me isn't a sign that Wall Street is massively right sizing.
2:55
Speaker 1: More like Goldman SACS is just getting back to business
2:57
Speaker 1: as usual and taking care of some stuff they had
2:59
Speaker 1: to do last year and didn't get around too well.
3:02
Speaker 1: I do think, I mean, I don't think it's a
3:03
Speaker 1: massive right sizing. I think that you know, as they said,
3:07
Speaker 1: they haven't done their sort of typical five percent and
3:09
Speaker 1: so that's coming back. And so if you you know,
3:12
Speaker 1: look at the maths and you x out the market stuff.
3:15
Speaker 1: It is the typical and so I think what's going
3:18
Speaker 1: to be interesting is what's going to happen with compensation
3:22
Speaker 1: at at Goldman and the firms, as well as head count.
3:25
Speaker 1: Because what we had heard from Solomon UM, you know,
3:29
Speaker 1: even just a month ago, I believe UM, is that
3:33
Speaker 1: the cost to compete had not come down as much
3:36
Speaker 1: as they would have thought. Daniel Pinto, who runs the
3:39
Speaker 1: JP Morgan's Corporate and Investment bank, also said that they
3:44
Speaker 1: were going to use comp as a lover rather than
3:47
Speaker 1: so we will see UM, you know what the interplay
3:51
Speaker 1: is between those two things. We do think that cost
3:54
Speaker 1: pressure continues into next year, and that's the big variable
3:58
Speaker 1: that we're here about during earnings because we can track
4:01
Speaker 1: a lot of things. UM. We can track that equity
4:05
Speaker 1: underwritings are down significantly, we can track that pick is
4:07
Speaker 1: good and equities UM less so UM, but expenses really
4:12
Speaker 1: involved management judgment in terms of the level of investments
4:16
Speaker 1: that they're making, and that's really going to determine give
4:20
Speaker 1: us a signal in terms of what they think about
4:23
Speaker 1: ahead and also the profitability for the coming year. So
4:27
Speaker 1: I want to switch gears a little bit. Shinali Um
4:30
Speaker 1: John Pruzen, CEO of Morgan Stanley, one of the leaders,
4:34
Speaker 1: one of the potential successors to Mr Gorman as CEO.
4:38
Speaker 1: How being given piece of news is for Morgan Stanley.
4:41
Speaker 1: Listen for Morgan Stanley and a standalone person story. It
4:44
Speaker 1: is a huge story. On one hand, Jonathan Pruzin was
4:48
Speaker 1: a CFO typically a spot of Morgan Stanley that has
4:50
Speaker 1: gone on to great heights in corporate America. I think
4:53
Speaker 1: roots pour at over an alphabet now formerly that same
4:56
Speaker 1: spot as Jonathan Pruzenn. But also you know this is
5:00
Speaker 1: a deputy to James Gorman for decades. Really he was
5:03
Speaker 1: a key figure in two and eight. He was a
5:05
Speaker 1: key figure when you think about the last couple of
5:07
Speaker 1: years and the massive deals they've done. There, Uh, new
5:11
Speaker 1: things for him ahead, I'm certain, But I would also
5:13
Speaker 1: say I'm kind of a bigger macro picture here. Executive
5:17
Speaker 1: comp not just comp at every level of the bank.
5:20
Speaker 1: These banks, the CEO has made thirty or thirty five
5:22
Speaker 1: million dollars last year in terms of their total compensation package.
5:26
Speaker 1: It was sweet for them. There was some record, seriously
5:31
Speaker 1: record record numbers here. So then do you start to
5:34
Speaker 1: have that come down and then does the pay for
5:36
Speaker 1: talent at the top ends of all these banks start
5:38
Speaker 1: to get into a tougher space. There's some jobs that
5:41
Speaker 1: are open when you think about the buy side president rolls,
5:44
Speaker 1: CEO roles, when you think about even some of the
5:46
Speaker 1: largest private equity friends in the world, and so there's
5:49
Speaker 1: a lot of opportunities still out there for the talent
5:51
Speaker 1: at the top. If you think about folks like Jonathan Bruzian,
5:56
Speaker 1: I wonder what the remember the stories we had and
5:58
Speaker 1: Alsie you might know this. Are they still have a
6:02
Speaker 1: war for talent out there? Do you think are those
6:04
Speaker 1: days over? I think there is still competition for talent
6:09
Speaker 1: um as I said, I think Daniel Pinto, who runs
6:13
Speaker 1: JP workins i'd be um you said that they're taking
6:16
Speaker 1: the opportunity to pick up some talent. A lot of
6:19
Speaker 1: the M and A boutiques are also still hiring. So
6:24
Speaker 1: I think within certain businesses and for certain areas, it
6:29
Speaker 1: still is competitive. And so again we're going to look
6:34
Speaker 1: to see what the extents are of this cuts where
6:37
Speaker 1: they're coming from. It does seem like with today's number
6:40
Speaker 1: there perhaps less than um initially appeared. I think the
6:44
Speaker 1: initial reporting was four thousand jobs and then even to
6:48
Speaker 1: produce thirty two hundred of that a fair amount relates
6:53
Speaker 1: to the consumer business. All right, guys, thanks so much
6:56
Speaker 1: breaking that down. Good stuff and assignment do tell me
7:01
Speaker 1: so citadel Is building apparently a gigantic new tower. Here,
7:05
Speaker 1: get a tent and sleep outside. Who's gonna work there?
7:09
Speaker 1: Like people kind of work for Cann Griffin maybe the
7:11
Speaker 1: last year or two. But from home, right, don't or
7:15
Speaker 1: from Palm Beach or from Miami wherever. Alison Williams, senior
7:17
Speaker 1: bank analyst for Bloomberg Intelligence, joining us on the phone.
7:20
Speaker 1: And Chinaldi Bastak, she's our Wall Street reporter joining us
7:22
Speaker 1: here in a Bloomberg Interactive broker studio. Lots of news
7:25
Speaker 1: crossing the tape regarding some of the Wall Street giants
7:32
Speaker 1: cement Bloomberg Business Week. This week they highlight the fifty
7:38
Speaker 1: stocks to watch in twenty fifty companies to watch in
7:43
Speaker 1: three and this is a list of stocks selected by
7:46
Speaker 1: the annalysts and Bloomberg Intelligence. Uh So, some really interesting
7:49
Speaker 1: names across a variety of industries on a global scale.
7:53
Speaker 1: So why don't we start off taking a look at
7:54
Speaker 1: the tech sector with some of the names that they
7:57
Speaker 1: put on the list that we can do that with
7:59
Speaker 1: Bloomberg Intelligence senior tech analysts on a rock Rana and
8:03
Speaker 1: Man Deep Sync Men Deep Singh is here in our
8:06
Speaker 1: Bloomberg Naractor broker studio via zoom from somewhere. I'm calling
8:11
Speaker 1: it in. Yeah, because it's Monday. You don't come to
8:14
Speaker 1: the office on Monday. There's got a special thing going on.
8:16
Speaker 1: He's got a special thing. Um Man Deep, Let's start
8:19
Speaker 1: with you, you know, I know you and ONORAG and
8:21
Speaker 1: the tech team of Blueberg Intelligence kind of look at
8:24
Speaker 1: tech holistically. Let's start right there. How is tech looking
8:28
Speaker 1: in terms of spending, in terms of trends in three
8:32
Speaker 1: and what maybe somewhat of a recession year. Look, I
8:36
Speaker 1: think the high level trends are cloud is still a
8:39
Speaker 1: secular driver and more so on the infrastructure side. Thinks,
8:43
Speaker 1: uh still look pretty good. Although a lot of the
8:46
Speaker 1: cybersecurity companies, which so far as a segment that did
8:50
Speaker 1: particularly well. I mean, everyone is concerned about cybertites. They
8:54
Speaker 1: called longer sales cycles. So this is the first time
8:58
Speaker 1: they started talking about it. That just goes to show
9:01
Speaker 1: that I T spending will likely decelerate this year. It's
9:04
Speaker 1: a given question is by how much, and we think
9:07
Speaker 1: it will be more. The effects will be more pronounced
9:10
Speaker 1: on the application side than the infrastructure side. So that's
9:13
Speaker 1: one trend on the decelerating tech spend. It's so fascinating,
9:18
Speaker 1: especially in the wake of the Southwest Um what we
9:22
Speaker 1: what do we even call that fiasco? Right? They canceled
9:26
Speaker 1: tens of thousands of flights because they didn't invest enough
9:29
Speaker 1: in i T. They regret it and now have to
9:32
Speaker 1: ramp up spending. Is everyone else going to be in
9:34
Speaker 1: the same situation at the end of yes? And look,
9:37
Speaker 1: there are certain sectors that are doing very well. I
9:40
Speaker 1: mean energy sector prime example. They are at peak profitability,
9:44
Speaker 1: they can afford to spend on a lot of these
9:46
Speaker 1: digital transformation initiatives. And the other one being AD sector
9:50
Speaker 1: on the other end of the spectrum. Right, all the
9:53
Speaker 1: digital AD companies right now are cutting costs, their link
9:57
Speaker 1: of employees and so it just goes to show that
10:00
Speaker 1: every sector and market is different right now, and there
10:03
Speaker 1: are some end markets that will continue to spend on
10:07
Speaker 1: i T transformation and others have to pull back because
10:10
Speaker 1: their core business isn't doing well. The one other trend
10:13
Speaker 1: I would call out is digital ad spending will remain
10:16
Speaker 1: weak and and that's where the likes of Meta and Alphabet.
10:19
Speaker 1: There is no easy way out because companies find SILS
10:23
Speaker 1: and marketing spend to be the easy one to pull
10:25
Speaker 1: back on in times like these, and and that will
10:27
Speaker 1: continue to hurt these companies. I know you spent you know,
10:31
Speaker 1: most of your career focusing on software. What are some
10:34
Speaker 1: what's the software named that we should be paying attention
10:36
Speaker 1: to going forward? But I actually cheated and I went
10:39
Speaker 1: ahead and looked in you did the Business Week? So
10:42
Speaker 1: I know that Honora is writing about Microsoft, and what
10:44
Speaker 1: he's saying runs pretty much counter what man Deep just
10:48
Speaker 1: told us. Right, he starts out a recovery and spending
10:51
Speaker 1: on cloud computing after a slowdown could spur surprises to
10:54
Speaker 1: the upside. So while we're worried about, for man Deep's perspective,
10:59
Speaker 1: crowd strike and it was a worry in two right
11:02
Speaker 1: at the end of the year as well, you think
11:03
Speaker 1: that there's going to be a recovery for a company
11:05
Speaker 1: like Microsoft and the cloud operators. Yeah, I know I
11:09
Speaker 1: did not have to go opposite DIP. I actually agree
11:12
Speaker 1: with him heartedly that within technology, within software infrastructure area
11:18
Speaker 1: is going to be far better than the application area.
11:22
Speaker 1: And as far as Microsoft is concerned, you know, I
11:25
Speaker 1: think over the next few quarters, I would say in
11:27
Speaker 1: the next two to three quarters, they will see a
11:30
Speaker 1: slow down in their club growth UM. But by the
11:34
Speaker 1: end of this year, we do expect a rebound, partially
11:37
Speaker 1: because of under investing in some of these areas, a
11:41
Speaker 1: lower capex going into this year, as well as the
11:45
Speaker 1: easier comparison. You know, cloud is one trend that is
11:48
Speaker 1: not going anywhere. It's just a matter of respective growth rates.
11:52
Speaker 1: For so for something that was growing in this case
11:54
Speaker 1: for Microsoft as I was growing in the low forty
11:57
Speaker 1: percent range, No, there is no logical there's a reason
12:00
Speaker 1: why it shouldn't grow in the range next year, um,
12:04
Speaker 1: even after accounting for the slowdown. I mean, I totally
12:07
Speaker 1: get that, and I understand why more businesses would want
12:12
Speaker 1: to move to the cloud or move more of their
12:14
Speaker 1: business to the cloud. But if I'm moving more stuff
12:17
Speaker 1: to the cloud, then I'm calling up crowd strike. I
12:20
Speaker 1: need more security in that in that case, right, you
12:24
Speaker 1: certainly go ahead, and right, I mean it's it's man
12:28
Speaker 1: deep stock, So man deep, what do you I mean
12:31
Speaker 1: is cybersecurity spending not gonna lift back up in three
12:35
Speaker 1: or do you just think crowd Strike takes a bigger
12:37
Speaker 1: piece of a smaller pie. Yes, And there is a
12:41
Speaker 1: definite trend towards consolidation because cyber security is one market
12:45
Speaker 1: that's extremely fragmented. You have hundreds of vendors and you
12:49
Speaker 1: can take a look at how many vendors have revenue
12:51
Speaker 1: over ten billion dollars in cybersecurity none pal Alto is
12:55
Speaker 1: the largest vendor close to eight billions. So it just
12:58
Speaker 1: goes to show that there aren't need pure play cybersecurity
13:01
Speaker 1: companies with scale, and that is where there will be
13:04
Speaker 1: a trend towards consolidation. We think CrowdStrike is a name
13:08
Speaker 1: that will be a consolidator and whether it's through M
13:11
Speaker 1: and A or them expanding uh, you know, organically their
13:14
Speaker 1: product suite, which they are. Companies don't want to deal
13:17
Speaker 1: with fifty hundreds of vendors when it comes to managing
13:20
Speaker 1: cybersecurity because who do you pinpoint too if you get hacked,
13:24
Speaker 1: and so that is the risk they want to um,
13:27
Speaker 1: you know, deal with in terms of just dealing with
13:29
Speaker 1: let's say five or ten vendors on the cybersecurity side,
13:32
Speaker 1: and that's where scale matters, and we think cybersecurity CrowdStrike
13:36
Speaker 1: is a good place. And you think they're looking at
13:38
Speaker 1: thirty eight percent increase in revenue this year two billion
13:44
Speaker 1: estimates have come down now it's more close to low thirties.
13:47
Speaker 1: So since the time you wrote it, I mean, things
13:51
Speaker 1: have come And that's what I mean by I t
13:53
Speaker 1: spending will slow down. It's a given every company is
13:57
Speaker 1: pulling back. But it's interesting to put this in context.
14:00
Speaker 1: Even if they grow thirty percent to just under two
14:02
Speaker 1: billion dollars um, Microsoft is only going to grow ten
14:07
Speaker 1: percent on a rag to just over two hundred billion
14:10
Speaker 1: dollars in sales. It's a gigantic I mean, that's the
14:14
Speaker 1: difference when you talk about it, uh market, a market
14:17
Speaker 1: with without anybody having scale, and then a market where
14:20
Speaker 1: you've got like a duopoly basic and let me let
14:22
Speaker 1: me tie in guys On and Mandy. We've been talking
14:25
Speaker 1: dividends all morning, So on AAG, I'm looking at Microsoft.
14:29
Speaker 1: It's got a one point one eight percent dividend yield.
14:33
Speaker 1: Can you tell them to set that up a little
14:35
Speaker 1: bit um? I think, Paul, I'm going to say the
14:39
Speaker 1: same exact thing I said about Apple. I would rather
14:41
Speaker 1: be buy back more shares at this point, because you
14:44
Speaker 1: know that really does help the bottom line far more
14:47
Speaker 1: than the dividend area. Um, they have it as a
14:50
Speaker 1: token and that's fine, but but I really want to
14:53
Speaker 1: see some far more buybacks going into this year by
14:56
Speaker 1: all tech company. These tech guys, they just they're just
15:00
Speaker 1: they just can't stand dividends. Dudend is sacred. Once you
15:03
Speaker 1: start getting dividends, you can't look it back. So you know,
15:07
Speaker 1: you look at BP, right, they cut their dividend. Another despise,
15:11
Speaker 1: Man Deep, thirty seconds. Meta you mentioned it's kind of
15:14
Speaker 1: a negative caveat, but it's one of the names you've got. Yes,
15:17
Speaker 1: so gross margin pressure. Look, if you're growing at low
15:21
Speaker 1: single digit and inflation is six seven, you've got a problem.
15:24
Speaker 1: And that is where Meta has a growth problem. Also,
15:27
Speaker 1: Apple's privacy issues and you know they have to pay,
15:30
Speaker 1: so you think there's more risk to the Meta store.
15:32
Speaker 1: There is more, alright, good stuff. Men Deep singh uh
15:35
Speaker 1: he and Anorack Randa. They are senior technology analysts for
15:38
Speaker 1: Bloomberg Intelligence. Men Deep joining us here in a Bloomberg
15:41
Speaker 1: Interactive Broker studio and on a rock villa zoom talking
15:44
Speaker 1: about some of the tech names to pay attention to
15:47
Speaker 1: uh in And it's all part of the fifty companies
15:50
Speaker 1: to watch Peace in Bloomberg Business Week that is on
15:54
Speaker 1: stands right now, and it's on the dot com think
15:57
Speaker 1: the intro web. You can get that. There be those
16:01
Speaker 1: we all know. Now there's nowhere to hide. Stocks down,
16:06
Speaker 1: bonds down double digits. Now it's a question, I guess three,
16:10
Speaker 1: what's the FED do? Of course, how much earnings risk
16:13
Speaker 1: is they're out there? How do you play this market
16:16
Speaker 1: here early in the year. Let's check in with a professional,
16:20
Speaker 1: David Boonson. He's a c I O at the Bonson Group.
16:23
Speaker 1: So David, I mean and the dividends guy also, and
16:26
Speaker 1: the dividends guy. We love the dividend story. David, how
16:29
Speaker 1: do you how are you positioning yourself here? Your clients here.
16:35
Speaker 1: You'll be shocked to know we're positioning them in dividend
16:38
Speaker 1: growth equities, which is the same same place they were
16:41
Speaker 1: positioned in two And I will say when we say
16:44
Speaker 1: there was no place to hide last year. Our dividend
16:47
Speaker 1: equity portfolio was up five percent last year, about twenty
16:50
Speaker 1: five points better than SMP. Now, look, energy was gonna
16:54
Speaker 1: say how much energy did you hold? There? We were
16:57
Speaker 1: at fourteen percent and the index started off the year
16:59
Speaker 1: at three percent, so it would have been pretty impossible
17:02
Speaker 1: not to outperform. And you know, a bigger factor than
17:04
Speaker 1: owning energy was not owning thing. And and when you're
17:08
Speaker 1: in a cap weighted index like the SEP and five
17:11
Speaker 1: stocks make up about of the index, that you're going
17:15
Speaker 1: to um, sink or swim on those five stocks oftentimes.
17:19
Speaker 1: But I just think philosophically that dividend growth represents a
17:24
Speaker 1: really good risk adjusted solution to the problems people are
17:27
Speaker 1: most concerned about, and the change David, I mean, M
17:31
Speaker 1: Paul and Tom were just talking to Jeremy Schwartz and
17:34
Speaker 1: Wisdom Tree and also talking about Jeremy Siegel's call that
17:38
Speaker 1: this decade, in their opinion, is going to be the
17:41
Speaker 1: dividend decade of the dividend. Do you agree that that
17:44
Speaker 1: that investors are moving to that? Yes, I do, And
17:48
Speaker 1: I think that the reasoning for that is both the
17:52
Speaker 1: primacy of cash flow that people desperately need, the growth
17:56
Speaker 1: of that cash flow outperforming inflation, but all the higher
18:00
Speaker 1: quality of the underlying companies. If a company is able
18:03
Speaker 1: to sustainably grow its dividend, it means it has the
18:07
Speaker 1: free cash flow to do it. It means it has
18:09
Speaker 1: a business model that is less cyclical and less lumpy,
18:13
Speaker 1: less dependent on future technological innovation. So we kind of
18:17
Speaker 1: refer to it as shorter duration stocks to use a
18:20
Speaker 1: bond analogy. Do you miss out though, on the kind
18:24
Speaker 1: of fan growth Because even though last year was horrible
18:27
Speaker 1: for those big Tex stocks, Um, you know, if you'd
18:30
Speaker 1: invested in them in two thousand ten, two thousand eleven,
18:33
Speaker 1: two thousand twelve, you would be You wouldn't really regret it,
18:36
Speaker 1: would you. Well, here's the thing, Um, we believe that
18:41
Speaker 1: in twenty you had the golden era of those growth
18:47
Speaker 1: type stocks saying etcetera. And in that decade there were
18:51
Speaker 1: five years that we outperformed the SMP with dividend growth,
18:54
Speaker 1: in five years we didn't. And when all was said
18:56
Speaker 1: and done, for the decade it was neck and neck
18:58
Speaker 1: with much less volatility and quadruple the cash flow. So
19:03
Speaker 1: even in a golden era of thing, I think divin
19:05
Speaker 1: growth is done very well. But I don't think the
19:07
Speaker 1: last decade is a great example, because yes, Netflix at
19:11
Speaker 1: one point went up ten times, and we know about
19:13
Speaker 1: Apple and Facebook, but the reality is that you have
19:16
Speaker 1: the FED at the zero bound the entire decade. Basically,
19:19
Speaker 1: that's not going to happen again. That pushed multiple expansion
19:22
Speaker 1: up and it created seven of the return. You're not
19:27
Speaker 1: going to get that multiple expansion again. David, you said
19:31
Speaker 1: your long overweight energy, it had a great two years.
19:34
Speaker 1: I guess did I miss that trade? Where do you
19:38
Speaker 1: have about twenty three? You know what I would really
19:40
Speaker 1: recommend people look at as the mid stream side where um,
19:44
Speaker 1: you know, look, Exon and Chevron are not going to
19:46
Speaker 1: repeat the same returns they had last year. We're not
19:48
Speaker 1: selling those type of names that we've trimmed them down
19:50
Speaker 1: to target weight, made extraordinary profits, and we just keep
19:54
Speaker 1: them at the way we want in the portfolio as
19:56
Speaker 1: a risk management. But the mid stream, the pipeline, those
20:00
Speaker 1: terminals that have to export l en G to UH
20:03
Speaker 1: continents overseas that desperately need it. We like that story.
20:08
Speaker 1: It's great capital discipline. Right now they finally have wonderful
20:12
Speaker 1: debt ratios that are more responsible, and so I look
20:15
Speaker 1: at mid stream energy is a really good spot right now.
20:18
Speaker 1: What are the other names that you like. I mean,
20:21
Speaker 1: what what gets you pumped when you wake up in
20:23
Speaker 1: the morning in terms in terms of an actual you
20:26
Speaker 1: know stock pitch. Well, look right now black Stone as
20:30
Speaker 1: an asset manager, and I want to be queer because
20:32
Speaker 1: it comes up all the time. We're talking about black Stone,
20:34
Speaker 1: not black Rock, but black Stone UM was really hit
20:38
Speaker 1: hard near the end of last year. We've owned it
20:41
Speaker 1: for over ten years and we believe that they have
20:44
Speaker 1: very repeatable dividend growth UM. But you get to enter
20:48
Speaker 1: right now over a six percent yield and there's not
20:52
Speaker 1: balance sheet risk. They're investing other investors money, real estate,
20:56
Speaker 1: credit and with great free cash flow. As a management
20:59
Speaker 1: in to t so UM, we think the story is
21:02
Speaker 1: to why Blackstone came down last year near the end
21:05
Speaker 1: of the year is very very wrong. And in the meantime,
21:08
Speaker 1: there's so much dry powder that if you do get
21:10
Speaker 1: a deeper recession than some anticipate, it will actually end
21:13
Speaker 1: up benefiting returns over time. So we like Blackstone, and
21:17
Speaker 1: then I do get very excited when I waked up
21:20
Speaker 1: about the mid stream energy story. We use u m I,
21:23
Speaker 1: which is an actively managed e t F that is
21:26
Speaker 1: buying just certain high quality pipeline type companies. Hey, David
21:30
Speaker 1: is someone who focuses on dividends. Are you frustrated that
21:35
Speaker 1: Apple only has a dividend like point seven percent? Yet
21:40
Speaker 1: they've got jillions of dollars of cash on the balance sheet.
21:43
Speaker 1: They throw off a billion dollars a year in free
21:45
Speaker 1: cash flow. Are you disappointed or frustrated that they don't
21:47
Speaker 1: pay a two or three or four percent dividend? All
21:50
Speaker 1: is mad and he's trying to get a group together
21:52
Speaker 1: for a letter writing campaign. Exactly, Well, a bunch of
21:56
Speaker 1: us tried that. You know, sometime back after Mr Mr
22:00
Speaker 1: passed away. There was a big effort and and iron
22:02
Speaker 1: Horn and others were behind it. They did end up
22:04
Speaker 1: starting to pay a dividend um. But the fact of
22:07
Speaker 1: the matter is that it's why we can't own it.
22:10
Speaker 1: We sold the stock near its highs um. And the
22:14
Speaker 1: entire reason had nothing to do with we believe it's
22:16
Speaker 1: going to come down in two thousand twenty two, or
22:18
Speaker 1: we think the p is gonna end up contracting. It
22:21
Speaker 1: was just simply that they were not, in our opinion,
22:23
Speaker 1: respecting the shareholder enough by sharing that cash flow. And
22:26
Speaker 1: people say, well, look, Apple was making more money with
22:28
Speaker 1: your money than you were making with your money. And
22:30
Speaker 1: that's very true, but it's always true until it isn't,
22:33
Speaker 1: and then you end up buying Dr Dre's headphones company
22:36
Speaker 1: for three billion dollars and setting money on you set
22:39
Speaker 1: money on fire is what you do over time. And
22:42
Speaker 1: so I think it's fine that Apple has continued with
22:46
Speaker 1: a high priority innovation and it's a well run company,
22:49
Speaker 1: but it grew through the trees and they didn't keep
22:51
Speaker 1: the dividend up with it, and we want dividend growth
22:54
Speaker 1: to match the growth of the company. What are some
22:57
Speaker 1: of the other big dividend players that you like? I
22:59
Speaker 1: mean six percent Blackstone is pretty juicy. That that's the
23:03
Speaker 1: juicy one. And you know a lot of the consumer
23:04
Speaker 1: staples companies last year, which are traditionally great dividend growers,
23:09
Speaker 1: you had those that were up on the year. In
23:11
Speaker 1: the food and beverage business. We own Pepsi and did
23:13
Speaker 1: very well there. We don't own General Mills, but we
23:16
Speaker 1: wish we had. But then you have companies that weren't
23:19
Speaker 1: just pure food and beverage consumer staples that were more
23:22
Speaker 1: into household products and hygiene as well. And company we
23:26
Speaker 1: entered Core Rox we think at a really good entry
23:28
Speaker 1: point after a dip last year, and proper Gamble, which
23:31
Speaker 1: we've owned, I think for twenty years now, um is
23:34
Speaker 1: one of the great dividend growers in American history. These
23:37
Speaker 1: companies have a really good ability for stickiness with prices.
23:43
Speaker 1: The inputs come down as inflation is clearly headed grower,
23:47
Speaker 1: but the consumer and the pricing power of the company
23:50
Speaker 1: is more than willing to still pay ten cents more
23:52
Speaker 1: in twenty cents more for diapers and laundry detergent and
23:56
Speaker 1: these types of products. So generally, we think you're gonna
23:59
Speaker 1: get margin expand ampsin in consumer staples that you're not
24:02
Speaker 1: going to get in a lot of other sectors. What's
24:04
Speaker 1: a good growth number that you like. I'm looking across
24:08
Speaker 1: you know, Procter and Gamble and Clorox are like six seven,
24:12
Speaker 1: five year net growth. Black Stone is five year net growth.
24:18
Speaker 1: Is that an incredibly impressive number? Are you referring to
24:21
Speaker 1: the growth of the dividend itself? Yes, yo, yeah, no,
24:25
Speaker 1: we want to see somewhere from six to ten. So
24:27
Speaker 1: it's funny it's exactly those numbers, and you get double
24:29
Speaker 1: digit growers sometimes like black Stone and am Gin, and
24:33
Speaker 1: that's because we bought them when they began paying a
24:36
Speaker 1: dividend a decade ago, and so that growth rate may
24:40
Speaker 1: slow down, um just because of the law. Big numbers.
24:44
Speaker 1: But yeah, we want to see high single digit dividend growth.
24:47
Speaker 1: And the only thing I would say is we want
24:48
Speaker 1: to see it in bad periods too. Okay, we kicked
24:52
Speaker 1: off more money to our clients in two thousand twenty
24:54
Speaker 1: than we did in two thousand nineteen, and yet we
24:58
Speaker 1: were not having a great year. In tw we were up,
25:00
Speaker 1: but energy was killed and we didn't own fang. The
25:04
Speaker 1: thing is, the dividends were still growing, and yet there
25:07
Speaker 1: were seventy dividend cuts in the SMP five hundred and
25:10
Speaker 1: nobody was buying back stock. And yet really good, reliable
25:15
Speaker 1: dividend growers continue to do what they've done by Exxon
25:18
Speaker 1: and Chevron grew their dividend. So that's the type of
25:21
Speaker 1: stuff we look for, Alright, great stuff. Then the decade
25:24
Speaker 1: of the dividend, and this is the morning of the dividends.
25:26
Speaker 1: It's exciting, it's good stuff. We don't talk about dividends
25:29
Speaker 1: that much. David Bonson, ce IO at the Bonson Group,
25:32
Speaker 1: joins us here talking stocks and black Rocker box Stone, Blackstone,
25:38
Speaker 1: black Stone, And that's a growth over the last five years.
25:41
Speaker 1: And dividend dividends. What a great business. Private equity is, right,
25:45
Speaker 1: even if you have a bad year, you still take
25:46
Speaker 1: your take your fees. Yeah, I mean, I mean, you know,
25:49
Speaker 1: and look who are the big owners of that stock.
25:51
Speaker 1: You know. Mr Schwartzman likes to have his dividend income.
25:55
Speaker 1: He'd rather have the capital gains income, I'm sure, but
25:57
Speaker 1: he does quite well. There. Let's stop Canada. Let's well
26:04
Speaker 1: and New York and New York because we are lucky
26:07
Speaker 1: enough to have the Finance Minister of Ontario and here
26:09
Speaker 1: Peter bethlen Falvey joining us in studio in New York.
26:13
Speaker 1: And I note that you were also the former president
26:16
Speaker 1: of the Canadian Society of New York. Wow, you do
26:19
Speaker 1: your homework absolutely well. I'm just by that, I surmise
26:22
Speaker 1: that you must know also a thing or two about
26:25
Speaker 1: the glory of the old school cabs. You know, they
26:28
Speaker 1: used to be like a really cool thing, a trademark.
26:31
Speaker 1: They used to be, you know, uh, an icon of
26:34
Speaker 1: New York City. And I don't think that's the case anymore.
26:36
Speaker 1: I lived here for fifteen years. So from two tho
26:40
Speaker 1: eight roughly, I was here for nine eleven, lived in Manhattan,
26:43
Speaker 1: and uh, I struggled with everyone else to get a cab,
26:46
Speaker 1: particularly when it was raining and snowing, because I lived
26:49
Speaker 1: above ground. And then I figured out New York has
26:51
Speaker 1: a subway, and then that's changed. All right. Well, my
26:54
Speaker 1: thing that jumps out of a former president CEO of
26:56
Speaker 1: t D Security is a great firm up there in Toronto.
27:00
Speaker 1: Talked to us about the economics the finance for our
27:04
Speaker 1: good friends in Ontario, Ontario. How are things going up there?
27:06
Speaker 1: Because I know that I've learned recently in the last
27:09
Speaker 1: year two how important the housing market is to the
27:12
Speaker 1: Canadian economy relative to the U. S economy. But just
27:14
Speaker 1: give us a sense how things are in Ontario. Well,
27:17
Speaker 1: things are. You know, we're not immune. We're not an
27:19
Speaker 1: island in Ontario. So in terms of global global supply chain,
27:23
Speaker 1: geo political risks, uh, you know, COVID, I think we
27:26
Speaker 1: fared better than most jurisdictions around the world and COVID. Uh.
27:30
Speaker 1: The good news is that we've got a robust plan
27:33
Speaker 1: to build Ontario. We're very focused on rebuilding the economy.
27:37
Speaker 1: We're attracting investments into the auto sector, a battery manufacturing,
27:42
Speaker 1: advanced manufacturing technology. We're considered the Silicon North, up and
27:46
Speaker 1: up in Ontario. We've got a huge infrastructure plan to
27:51
Speaker 1: build Ontario as well, public transit, subways, infrastructure, roads, hospitals.
27:57
Speaker 1: Ontario has everything. It's got Ottawa, it'scot Toronto and Scott
28:01
Speaker 1: Hamilton's we got. We got everything except for a Stanley Cup.
28:04
Speaker 1: So we have to get the Stanley Cup. But I
28:06
Speaker 1: Get'll tell you. The other thing is we've got people.
28:09
Speaker 1: So last week the government can announced that four d
28:13
Speaker 1: people had come into permanent residency in Canada. So people
28:17
Speaker 1: around the world with great skills, great diversity of backgrounds
28:21
Speaker 1: are coming to Canada and six of them come to Ontario.
28:24
Speaker 1: So the federal government's target is five hundred thousand people
28:27
Speaker 1: by come to Ontario. And where do they come? The
28:34
Speaker 1: West coast of Canada's always had a big Asian presence
28:36
Speaker 1: just geography, I guess, plus some other things. But where
28:39
Speaker 1: are these people coming from? The Ton, from Asia, ton
28:42
Speaker 1: from all over the world. They bring great skills, diversity
28:45
Speaker 1: of background, but they helped build our economy and that's
28:47
Speaker 1: why we're so focused on bringing people to Canada and
28:50
Speaker 1: Ontario having the infrastructure, building, the healthcare, the schools, the
28:54
Speaker 1: public transit, and it's a great place to invest. We've
28:57
Speaker 1: been cutting red tape. And by the way, the other
29:00
Speaker 1: thing is of Ontario's electricity is zero carbon emissions. We
29:06
Speaker 1: is nuclear and we're doubling down on investing in nuclear.
29:09
Speaker 1: So small modular reactors say interesting to tell us about
29:12
Speaker 1: the technology there because Matt and I we've had people
29:14
Speaker 1: in talking to us about some of the smaller modular
29:17
Speaker 1: nuclear options. And then we know that Bill Gates has
29:21
Speaker 1: worked for diy AIDS on developing nuclear technology that's clean,
29:24
Speaker 1: that's safe, it sounds, uses spent fuel rods. So so
29:28
Speaker 1: my writing in in in Ontario has a nuclear facility
29:32
Speaker 1: and pickering of on Terra's electricity comes from there. And
29:36
Speaker 1: just down the road we're building the first small modular
29:38
Speaker 1: reactor already have shovels in the ground. Gem Us company
29:42
Speaker 1: along with Attache. We're using their technology and this is
29:45
Speaker 1: first of many that we're going to build in Ontario.
29:48
Speaker 1: This one can can power three thousand homes. Now. Look,
29:51
Speaker 1: small modular rectors have been on submarines and the aircraft
29:55
Speaker 1: carriers for a while, very safe, good jobs, good technology,
29:58
Speaker 1: and very clean. I will say I've been to Canada
30:01
Speaker 1: probably ten times in my life, and every time now
30:05
Speaker 1: I think about it was to Ontario. Whether whether I'm
30:07
Speaker 1: going to Toronto to do some shopping and I love
30:10
Speaker 1: the Hudson Bay they have these point blankets that are phenomenal,
30:15
Speaker 1: or if I'm going, uh, you know, out into the wilderness.
30:18
Speaker 1: I love the Algonquin uh Park up there, which I
30:20
Speaker 1: spent a few weeks portaging my canoe around. UM. And
30:24
Speaker 1: my very favorite car is built in Ontario. Oh that's
30:28
Speaker 1: a Dodge Challenger, the hell Cat, which actually leads me
30:32
Speaker 1: to ask a question about a sort of a shift
30:34
Speaker 1: in the industry, because this is the last year that
30:37
Speaker 1: the Dodge is going to build those big muscle cars
30:39
Speaker 1: and a lot of um, internal combustion engines are going
30:41
Speaker 1: to be phased out right, A lot of them are
30:43
Speaker 1: built in Canada. Um, how are you prepared for the
30:47
Speaker 1: shift to electric vehicles? It's a great question. Uh. And
30:50
Speaker 1: what we're doing is we're attracting investments from all the
30:53
Speaker 1: car companies the last two years over sixteen billion to
30:56
Speaker 1: build electric vehicles in Ontario. Why are they're coming to
31:00
Speaker 1: Ontario because we have a history of manufacturing in Ontario.
31:05
Speaker 1: We also have some of the best talent in the
31:08
Speaker 1: world in Ontario and education system that is providing skilled
31:12
Speaker 1: trades and people with the skills to build these cars.
31:15
Speaker 1: We're also attracting battery manufacturing. So the biggest investment in
31:20
Speaker 1: Canada's history five billion into Windsor Ontario through STI Atlantists
31:24
Speaker 1: and UH and l G out of South Korea to
31:27
Speaker 1: build a five billion battery manufacturing plant. But we also
31:31
Speaker 1: have the critical minerals, so your president doesn't have to
31:35
Speaker 1: call China or Rush. I'd say, how about those critical
31:39
Speaker 1: minerals that have to go into the battery. So we've
31:41
Speaker 1: got it all in Ontario. Those minerals are there. It's
31:44
Speaker 1: not we're gonna We're gonna be a big player. It's
31:46
Speaker 1: not just minerals. You know. Last week Paul and I
31:47
Speaker 1: were talking to some UH, some executives who are concerned
31:53
Speaker 1: about the fact that the US isn't fast enough in
31:56
Speaker 1: terms of granting workers visas to people who are highly
32:01
Speaker 1: educated but just come from different countries. Right, A lot
32:04
Speaker 1: of the a lot of the times they are educated here,
32:06
Speaker 1: and then we won't let them work here. So some
32:08
Speaker 1: businesses are moving to Canada because you're better at expediting
32:12
Speaker 1: that kind of visa. Is that is that a priority?
32:14
Speaker 1: Is that part of a plan, part of the priority,
32:17
Speaker 1: part of the plan. I mean, you know, it's great
32:19
Speaker 1: to have all this investment government money, private sector money
32:22
Speaker 1: to build things, but if you don't have the labor
32:24
Speaker 1: and the skilled labor. And by the way, these are
32:26
Speaker 1: all high tech, really good paying job and sustainable jobs
32:29
Speaker 1: for the future, They're not going away. So so you
32:32
Speaker 1: have to you have to have a strategy for talent,
32:35
Speaker 1: just like a private sector. I spent thirty plus years
32:37
Speaker 1: in the private sector. You gotta have the same strategy
32:40
Speaker 1: in government. One of the big problems with that kind
32:42
Speaker 1: of growth. I'm from a small town in Ohio, Ohio,
32:45
Speaker 1: and Intel is putting in a big new facility um
32:49
Speaker 1: down the highway from US. So of course property prices
32:51
Speaker 1: have doubled. Right in Toronto, I know, you've had a
32:55
Speaker 1: huge boom and now is it a bust? I mean,
32:57
Speaker 1: what's what's the story with the real estate pick You're
33:00
Speaker 1: in Ontario and Toronto. The big challenge is that so
33:03
Speaker 1: many people are coming to Ontario and we have young families. Uh,
33:07
Speaker 1: there's no supply. So we've got a plan to build
33:09
Speaker 1: a million and a half homes over the next ten years.
33:12
Speaker 1: And and we're doing that with the private sector by
33:14
Speaker 1: cutting red tape, by putting in incentives to build, making
33:18
Speaker 1: it easier to build, the zoning and what those sort
33:21
Speaker 1: of things. Because you know, my my I'm my first generation.
33:25
Speaker 1: I'm my parents from Hungary. I was going to ask
33:28
Speaker 1: you the we were challenged with your last name pronounced
33:31
Speaker 1: We think we got it off your talking. Well, you're
33:35
Speaker 1: smarter than I am, because it took me a couple
33:36
Speaker 1: of years to figure out my name. Uh, but you
33:39
Speaker 1: know my parents, Uh they made it. Bombs and bullets overhead.
33:42
Speaker 1: Two are their their parents and uh and three of
33:45
Speaker 1: their great grand great my great grandparents. Seven people in
33:48
Speaker 1: a home. So you know, you've got to have housing.
33:50
Speaker 1: And so the plan to build a lot of housing
33:53
Speaker 1: because there's a supply issue. The price will keep going
33:55
Speaker 1: up if we don't build. What's the status of the
33:57
Speaker 1: health care system in Canada right now? Because I know
34:00
Speaker 1: during the pandemic, everybody kind of was looking at every
34:02
Speaker 1: other country saying how are they doing? How are they
34:04
Speaker 1: dealing with It? Was one system working better than the other.
34:07
Speaker 1: What's the status of the Canadian healthcare system. Well, like
34:10
Speaker 1: any healthcare system around the world, it's the COVID really
34:14
Speaker 1: exposed that, you know, both the complexity and the volume
34:17
Speaker 1: of cases are fixed. Infrastructure was pushed through the brink um.
34:22
Speaker 1: So we're we're investing heavily, not only on the infrastructure
34:26
Speaker 1: long term care, homes, hospitals, home and community care, but
34:29
Speaker 1: also the labor, the nurses, social It's one pair when
34:34
Speaker 1: one taxpayer paid, so it doesn't matter if you make
34:37
Speaker 1: no money or if you make ten billion dollars, you
34:40
Speaker 1: can go into a hospital and get equal service. And
34:43
Speaker 1: that has worked really well. Now a lot of the
34:45
Speaker 1: healthcare system is delivered privately, meaning that the private sector
34:49
Speaker 1: delivers it, but the taxpayer it's one credit card. It's
34:51
Speaker 1: the taxpayer credit card, and that, by the way, reduces
34:55
Speaker 1: the overall cost because we're basically pooling the risk of
34:58
Speaker 1: who needs healthcare. Yeah, I've noted us actually after having
35:01
Speaker 1: lived in Germany for the past six years that the
35:03
Speaker 1: US our system, what we do is essentially pay the
35:06
Speaker 1: highest prices in the world, and we fund we we
35:10
Speaker 1: we make it possible for the rest of the world
35:11
Speaker 1: to have cheaper drugs and cheaper services. Yeah, I'm not
35:14
Speaker 1: gonna go to unwrap. But what are you doing here
35:16
Speaker 1: in New York this week? Well, I'm here because you know,
35:18
Speaker 1: I want to. I want to make sure people are
35:20
Speaker 1: aware of the great things going on in Ontario. As
35:22
Speaker 1: we talked about the economy, you know, we had our
35:25
Speaker 1: payroll numbers like you did last week. We had forty
35:29
Speaker 1: thousand new jobs created last week. Uh, full time jobs.
35:34
Speaker 1: Forty three forty four thousand were full time jobs just
35:37
Speaker 1: in Ontario. Um, we're building the infrastructure that I mentioned,
35:41
Speaker 1: We're working with labor. I stand up on podiums with
35:44
Speaker 1: the labor unions. You know when it was the last
35:46
Speaker 1: time you saw a conservative in a labor union standing
35:49
Speaker 1: on the same poem potium. Why Because we're investing and
35:52
Speaker 1: trading them skilled trades, building things. And so I'm here
35:56
Speaker 1: to talk about Ontario and how Ontario, the investment is
35:59
Speaker 1: going in Ontario and our growth prospects, notwithstanding the risks
36:02
Speaker 1: geopolitical and economic are out there, that Ontario is is
36:06
Speaker 1: a place to invest in. Well, we're glad you could
36:08
Speaker 1: come in here. Thanks so much for joining us. Peter
36:10
Speaker 1: bethlen Falvey, the Finance Minister of Ontario. I will say
36:13
Speaker 1: my goal, one of my goals for is to get
36:16
Speaker 1: up to Brompton and pick up my Dodge Challenger before
36:19
Speaker 1: they stopped. Maybe yeah, you're gonna have to yeah, and
36:21
Speaker 1: then just come flying over the border. What is our
36:27
Speaker 1: federal reserve going to do? Uh? That continues to be
36:30
Speaker 1: a driver for this market. So what we like to
36:33
Speaker 1: talk rates and one of the folks would love to
36:35
Speaker 1: touch base with is Preamer, Managing director and head of
36:38
Speaker 1: Global Rates Strategy at t D Securities. UM, I'm sure
36:42
Speaker 1: you guys at t D wrote a very nice year
36:45
Speaker 1: ahead outlook for rates. What was kind of the takeaway
36:49
Speaker 1: that you want your clients to take? Thanks for having
36:53
Speaker 1: me on. Um. So it was about uncertainty and I
36:56
Speaker 1: mean the start of this year, does you we almost
36:58
Speaker 1: reach focus and now we're almost a three fifty the tenure.
37:02
Speaker 1: So we were highlighting how the market is going to
37:04
Speaker 1: be really torn, just as central banks will be in
37:06
Speaker 1: terms of the conflicting which you know could be conflicting
37:10
Speaker 1: goals in terms of trying to get inflation back down
37:12
Speaker 1: and uh, you know, maintain the unemployment picture. So our
37:17
Speaker 1: view is that the economy is going to slow, but
37:19
Speaker 1: the FED, I think will be unable to respond quickly
37:24
Speaker 1: or preemptively, and so that's why I think the long
37:26
Speaker 1: end is where we have rates much lower than consensus,
37:30
Speaker 1: because I think that long duration risk is gonna look
37:32
Speaker 1: attractive if the FED is unable to cut rate soon.
37:35
Speaker 1: So we have the FED hiking to five and a
37:36
Speaker 1: half by the middle of this year and then actually
37:40
Speaker 1: staying put through the course of the economy heading into
37:44
Speaker 1: a recession, but that still helps the longer and outperformed
37:48
Speaker 1: because then the recession is longer deeper if you don't
37:51
Speaker 1: have any policy support, and we don't think any physical
37:53
Speaker 1: support either, So it's it's the outlook was one of
37:57
Speaker 1: lower rates and the long end through the course of
37:59
Speaker 1: the year, but keeping in the back of our mind
38:01
Speaker 1: it is less conviction, lots of um I think cross
38:05
Speaker 1: currents will make the market volatile, and I think the
38:08
Speaker 1: first week show that it is a very volatile market.
38:12
Speaker 1: And final point I'll stay is the global rate pictures
38:15
Speaker 1: also extremely important. The BOJ moved, the CB is doing QT,
38:19
Speaker 1: so I think it's important for us not only to
38:21
Speaker 1: look at the FED in the US, but also keep
38:24
Speaker 1: an eye out for what global rates are doing, because
38:26
Speaker 1: that tends to have a big impact on the on
38:28
Speaker 1: the treasury market. Let's bring in Daniel D. Martino Booth
38:32
Speaker 1: see on Chief Strategistic Quill Intelligence to give us her
38:36
Speaker 1: take as well, and you know, before we get to
38:39
Speaker 1: just the basic calls danielle Um, because I'd love to
38:42
Speaker 1: know both of your takes on doesn't the Fed have
38:44
Speaker 1: to go fifty in February? Um, what do you think
38:46
Speaker 1: about the global picture? How does that influence, if at all,
38:49
Speaker 1: Jerome Powell and Co. Well, I don't know that it
38:53
Speaker 1: influences Jerome Powell and Co. As much as it should
38:56
Speaker 1: definitely play into investors thinking we forget that in in
39:01
Speaker 1: two thousand seventeen there was two point one trillion dollars
39:04
Speaker 1: of quantitative using globally injected into markets, and that two
39:09
Speaker 1: eighteen really started to get hairy towards the end of
39:13
Speaker 1: that year as other central banks we're jumping onto the
39:16
Speaker 1: quantitative tightening bandwagon or shrinking their balance sheets. So it's
39:20
Speaker 1: the cumulative effect regardless of how j. Powell reacts or
39:23
Speaker 1: doesn't react, given he is, unlike his predecessors, much more
39:28
Speaker 1: focused just on the domestic US income and inflation here
39:31
Speaker 1: at home. So but but that doesn't change the calculus
39:35
Speaker 1: for investors. And it's with good reason that we've never
39:38
Speaker 1: seen a global yield curve as we're seeing it today inverted.
39:42
Speaker 1: I mean, we've never seen M two growth back to
39:46
Speaker 1: here in the United States at zero as of the
39:49
Speaker 1: end of November. It's clear that liquidity flows matter to
39:53
Speaker 1: the markets, and I think investors would be unwise to, uh,
39:57
Speaker 1: really to dismiss them off hand. And I agree with
40:00
Speaker 1: Prea that throughout the rest of this year, your long
40:04
Speaker 1: maturity treasurers are just going to keep getting more attractive. Well,
40:08
Speaker 1: I mean, I'm in the campus says, I think the
40:10
Speaker 1: Fed has already done a pretty good job. They were aggressive. Um,
40:15
Speaker 1: I don't think we're behind the curve anymore, and it's
40:18
Speaker 1: actually working. To see the housing market rolling over, their
40:20
Speaker 1: inflation coming down, clearly, peeking has peaked. Why can't they
40:26
Speaker 1: pause some point earlier rather than later this year. I
40:30
Speaker 1: think they have to be concerned about inflation expectations and
40:34
Speaker 1: the service sector, you know, so I think they they
40:37
Speaker 1: as you said, the intersensitive sectors are slowing. Like Daniel's
40:41
Speaker 1: point on QT, I think the FED actually doesn't talk
40:44
Speaker 1: much about QT, but that's doing a lot of the
40:46
Speaker 1: tightening and conditions. So to your point, can they stop?
40:49
Speaker 1: They can, but they're nervous about on what they call
40:51
Speaker 1: unwarranted easing and financial conditions or the market misinterpretting their
40:57
Speaker 1: action as an easier reaction function. I think they want
41:00
Speaker 1: to say we will stop once we were convinced that
41:04
Speaker 1: inflations heading back to two. And that's the thing we
41:07
Speaker 1: struggle the most with. How do you get inflation in
41:09
Speaker 1: the near term? Service inflation close to two percent with
41:12
Speaker 1: such a tight labor market. Also, do they say, is
41:15
Speaker 1: it heading back to two like around four or is
41:17
Speaker 1: it heading back to two like around two and a half.
41:20
Speaker 1: I can never really understand exactly what they're gonna do there.
41:23
Speaker 1: Don't they have to do fifty by the way, at
41:25
Speaker 1: the next meeting, I mean, if they run a real
41:28
Speaker 1: risk if they do twenty five and inflation comes rowing back.
41:31
Speaker 1: I think so? I think. I mean they've been very
41:34
Speaker 1: noncommittal on this, and I think they're waiting for CPI.
41:37
Speaker 1: Their labor markets ted. But we just did t clore
41:40
Speaker 1: and then you have that is M services. We're calling
41:42
Speaker 1: for fifty because we're also looking for course services CPI
41:45
Speaker 1: to stay strong. But if you get a miss in
41:48
Speaker 1: c p I, you know, even if it's a small miss,
41:50
Speaker 1: I think the market is going to run with twenty
41:52
Speaker 1: five and they'll need to really communicate that they can
41:55
Speaker 1: go fifty. But we are calling for fifty and then
41:57
Speaker 1: a shot a downship or the next two meetings. Danielle,
42:03
Speaker 1: am I it's just I mean, am I just obsessed
42:07
Speaker 1: with NEHRU because I can sometimes remember what the acronym
42:10
Speaker 1: stands for or doesn't have any meaning in today's economics,
42:13
Speaker 1: because it doesn't seem like anybody else cares at all.
42:16
Speaker 1: We we all loved the FED number, are the jobs
42:19
Speaker 1: number on Friday? And no one really gave two hoots
42:22
Speaker 1: for the three point five percent unemployment rate. Well, but
42:26
Speaker 1: I think you're mistaken in disregarding the unemployment rate because
42:30
Speaker 1: Powell himself, who has excuse me, he has the most
42:34
Speaker 1: power among everybody in the ECHOS building and throughout the
42:38
Speaker 1: twelve districts, Powell himself continues to sight the unemployment rate.
42:43
Speaker 1: And if they're saying that four point six is kind
42:47
Speaker 1: of a theoretical trigger their target for this year and
42:50
Speaker 1: the unemployment rate is being as sticky as it is
42:53
Speaker 1: on the way up, then it matters, and it matters
42:55
Speaker 1: a lot. And there are so many conflicting signal. Again,
43:00
Speaker 1: You've got continuing claims thirty one north of their may
43:04
Speaker 1: NAT here that matters. It matters that that that company
43:08
Speaker 1: closings are already at a hundred more only a few
43:12
Speaker 1: days into January for the month of January. So far,
43:14
Speaker 1: all of these things matter. But what what market participant
43:17
Speaker 1: should be paying attention to? Because I think Powell's focus
43:20
Speaker 1: is on financial conditions and investors completely disregarding his his
43:27
Speaker 1: his resoluteness to push forward. I think they have to
43:30
Speaker 1: focus on what he's talking about. Despite the fact that
43:34
Speaker 1: you had a ten percent excuse me, a ten point
43:36
Speaker 1: decline in I S M services new orders that's never
43:38
Speaker 1: occurred outside of recession. That's not what he's talking about.
43:41
Speaker 1: So that's what investors should if they're looking for where
43:44
Speaker 1: that policy is going. If if j PAL is going
43:47
Speaker 1: to be dismissive of it, they should be as well.
43:49
Speaker 1: Even though you always have to take the full picture
43:52
Speaker 1: in the way I think you curve will tell you.
43:54
Speaker 1: I think it's important to keep reminding people that we
43:57
Speaker 1: had that I s M Services new orders to client
44:00
Speaker 1: on on Friday because a lot of people kind of
44:03
Speaker 1: overlooked it. ME included yes, um, but we were told
44:07
Speaker 1: that if it gets to forty eight, you need to
44:09
Speaker 1: start worrying. And it came in at forty and change right, true,
44:11
Speaker 1: And we did point that, No, it came in at
44:14
Speaker 1: forty five point to forty that's right, And I know, uh,
44:20
Speaker 1: we did talk about it for a moment, but we
44:22
Speaker 1: were all kind of carried away, I think by the
44:24
Speaker 1: non farms payroll number and the fact that average hourly
44:28
Speaker 1: earnings growth had slowed. But it's still growth, right, um.
44:32
Speaker 1: And I you know, as a as a consumer, I
44:35
Speaker 1: hope to always see that grow for everybody. But you
44:38
Speaker 1: can understand why the Fed doesn't want it wanted to
44:40
Speaker 1: continue growing, Daniel, real quick, just here on Thursday, the
44:44
Speaker 1: CPI we're gonna consensus is six six point five, still high,
44:47
Speaker 1: but it's below the seven point one percent less month.
44:51
Speaker 1: How do you what's the number that you think J
44:53
Speaker 1: pals we're really looking at realistically, Well, I do think
44:57
Speaker 1: he's looking at what we call the core court quill intelligence,
44:59
Speaker 1: and that's that the core neetive energy net of shelter
45:02
Speaker 1: on a three month basis, that's south of five now
45:05
Speaker 1: on a twelve month year over your basis, it used
45:07
Speaker 1: to be north, but it's still much higher than what
45:10
Speaker 1: he wants Swift to be. And if that's the metric
45:12
Speaker 1: he's focused on them, we have to be focused on
45:14
Speaker 1: It's good. That's good good advice. I think Danielle di Martino,
45:17
Speaker 1: Booth CEO and Chief Strategist at Quill Intelligence UH also
45:21
Speaker 1: pre a miserable mountaging director and head of Global rate
45:24
Speaker 1: Strategy at TV Security, serving a little round table. Basically,
45:28
Speaker 1: don't fight the Fed, and that is the absolute first
45:32
Speaker 1: rule I learned on the job in June. Thanks for
45:38
Speaker 1: listening to the Bloomberg Markets podcast. You can subscribe and
45:42
Speaker 1: listen to interviews of Apple Podcasts or whatever podcast platform
45:46
Speaker 1: you prefer. I'm Matt Miller. I'm on Twitter at Matt
45:49
Speaker 1: Miller three. On False Sweeney, I'm on Twitter at pt Sweeney.
45:54
Speaker 1: Before the podcast, you can always catch us worldwide at
45:56
Speaker 1: Bloomberg Radio