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GOP Charges, CPI, and Ukraine (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
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Speaker 1: my co host Matt Miller.
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Speaker 2: Every business day we bring you interviews from CEOs, market pros,
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Speaker 2: and Bloomberg experts, along with essential market moving news.
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Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
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Speaker 3: Interesting news here this morning.
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Speaker 1: To start out the day on the political side, on
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Speaker 1: the local New York side of things, George Santos, the
0:27
Speaker 1: embattled Republican congressman from New York, was charged by US
0:30
Speaker 1: prosecutors with fraud and money laundering critty.
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Speaker 3: This is an interesting story on.
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Speaker 1: The local side, but it also goes to just you know,
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Speaker 1: Congress and various pieces of legislation, including the debt ceiling,
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Speaker 1: and how this may impact some of that. So we
0:44
Speaker 1: want to break down kind of what the legal side
0:46
Speaker 1: of this is for mister Santos. We welcome Nick Ackerman,
0:50
Speaker 1: former assistant special Watergate prosecutor Michael Zelden, former federal prosecutor
0:54
Speaker 1: the US Department of Justice. Nick, I want to start
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Speaker 1: with you just give us a sense of how this
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Speaker 1: is going to play out today for mister Santos.
1:03
Speaker 4: Well, he's going to show up before a federal district
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Speaker 4: court judge in the Eastern District in New York, and
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Speaker 4: he's going to be arraigned. He's going to be fingerprinted
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Speaker 4: first and photographed. He'll go in and he'll plead not guilty,
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Speaker 4: I assume, and that will be it. Bail will be set,
1:21
Speaker 4: and I would assume that he'll be released on his
1:23
Speaker 4: own recognisance. But that really is just the start of
1:28
Speaker 4: the process. I mean, from that point on, he's going
1:31
Speaker 4: to have to decide whether he makes a deal with
1:34
Speaker 4: the US Attorney's office or he fights it. And I'm
1:38
Speaker 4: just starting to look at this indictment right now, and
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Speaker 4: I mean, there is it just seems like overwhelming evidence
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Speaker 4: of fraud and deceit here, starting with his campaign and
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Speaker 4: raising money and using those funds basically for his own
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Speaker 4: personal use, you know, including luxury designer clothing and personal
2:01
Speaker 4: credit card payments. And it goes on from there with
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Speaker 4: him basically taking money out with respect to funds from
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Speaker 4: the pandemic program that would have allowed him to get
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Speaker 4: money if he had been unemployed, when in fact, the
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Speaker 4: indictment charges he was employed. And it goes on from there.
2:20
Speaker 4: So I think he's got really no choice here but
2:23
Speaker 4: to try and make a deal, all of which I
2:26
Speaker 4: think will probably wind up with him resigning from this
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Speaker 4: House seat.
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Speaker 5: Would bring this into some perspective for us when it
2:34
Speaker 5: comes to timing here, because we do have a presidential
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Speaker 5: election coming up, not to mention the debt ceiling debate
2:40
Speaker 5: in that will go on for the next two weeks
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Speaker 5: or so. How long are these legal proceedings expected to take.
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Speaker 4: Well, this could take anywhere up to a year if
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Speaker 4: he decides to fight it. I mean, if he goes
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Speaker 4: through the process of getting discovery, making motions, pre trial motions,
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Speaker 4: and then going to trial, this could take up to year.
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Speaker 4: On the other hand, if you read this indictment and
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Speaker 4: you look at the evidence that's laid out in the
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Speaker 4: indictment itself, that would be a pretty futile effort in
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Speaker 4: the sense that any effort to really fight this would
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Speaker 4: be nothing more than entering into a long term guilty
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Speaker 4: plea basically because it sounds like the government has really
3:21
Speaker 4: got him solid on this case.
3:23
Speaker 1: And you know, the political political ramifications here are very
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Speaker 1: important here. You know, the dead ceiling passed two seventeen
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Speaker 1: to two fifteen with Santos voting, and so without Santos,
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Speaker 1: the fate of that bill will become much less clear
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Speaker 1: it might have been, you know, two sixteen to two sixteen.
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Speaker 1: So this is the math really is important here as
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Speaker 1: it related to mister Santo's seat. Michael Zelden, if you
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Speaker 1: were resented, if you were representing an advised or advising
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Speaker 1: mister Santos, what would you advise him to do today
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Speaker 1: and over the next several.
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Speaker 6: Days work out the best plea deal he can.
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Speaker 3: Yeah, it seems to be the play.
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Speaker 6: Yes, well, I was the chief of the money laundering
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Speaker 6: and as a forfeiture office in the Justice Department, and
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Speaker 6: these money laundering charges look pretty solid. What he is
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Speaker 6: accused of doing is acquiring money under false pretenses and
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Speaker 6: then having that what they call specified on lawful activity,
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Speaker 6: the money derived from crime. He then engaged in additional
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Speaker 6: financial transactions over ten thousand dollars. Those are almost impossible
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Speaker 6: charges to win on if the source of the money
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Speaker 6: was in fact fraud, And it seems pretty clear in
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Speaker 6: the first five counts of this indictment that he did
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Speaker 6: in fact solicit money under false pretenses. So he's also
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Speaker 6: being charged with false statements to the House of Representatives.
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Speaker 6: Also again a very straightforward paper case that you either
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Speaker 6: made a statement that's true or you didn't make a
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Speaker 6: statement that's true. There's not a lot of movement in
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Speaker 6: there from a defense motions standpoint, and then they're asking
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Speaker 6: for forfeiture of all the proceeds of his ill gotten gains.
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Speaker 6: So I think the play is workout of plea and
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Speaker 6: resign from Congress. But he's not that sort of person.
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Speaker 3: Yeah, Michael, how he does it?
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Speaker 1: Yeah, what type of plea would be reasonable? Do you
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Speaker 1: think at this point, given what you know about the indictment.
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Speaker 6: Something that caps his exposure to five years? The money
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Speaker 6: laundering statute is a twenty year maximum penalty, and the
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Speaker 6: way the sentencing around money laundering works is it depends
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Speaker 6: on the value of the monies that you laundered. And
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Speaker 6: he's probably facing eightish years of actual time on this
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Speaker 6: indictment where he convicted of all the charges, and I
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Speaker 6: think that he'd like to try to stick within a
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Speaker 6: five year period of time. The prosecutors, I don't think,
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Speaker 6: are going to treat him softly because of his public position.
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Speaker 6: I think that in these public eruption types of cases.
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Speaker 6: The government likes to make statements about this because as
6:04
Speaker 6: a not only crime, but a breach of public trust.
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Speaker 6: So I think he's got a difficult road ahead of him.
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Speaker 5: Nick hopping in here, because George Santas isn't the only
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Speaker 5: one in legal hot water right now. President Trump is
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Speaker 5: as well yet again, this time with the case that
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Speaker 5: he's lost against Egene Carroll. Walk us through the consequences there.
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Speaker 4: Well, the consequences aren't good because basically he's been labeled
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Speaker 4: now as sex predator. And if you're running for president
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Speaker 4: and you're trying to get votes from half of the constituents,
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Speaker 4: which are women, it's not really helpful in that term.
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Speaker 4: It's also not helpful in the suburban areas where he
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Speaker 4: needs to get votes that he didn't get the last time,
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Speaker 4: where it was really women that made the difference in
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Speaker 4: giving the presidency to Joe Biden. So from a political
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Speaker 4: standpoint point, this is a complete horror show for the Republicans.
7:04
Speaker 4: It couldn't be any worse. It's also I think a
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Speaker 4: harbinger of things to come with respect to the New
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Speaker 4: York DA's indictment. If you look at what happened here, Basically,
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Speaker 4: Donald Trump lost this case right after his lawyer cross
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Speaker 4: examined Gene Carroll for two and a half days. There
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Speaker 4: was absolutely no reason, you know, from a defense standpoint,
7:28
Speaker 4: if what you're trying to prove is that she was
7:31
Speaker 4: incredible to actually bolster her credibility by asking you questions
7:37
Speaker 4: that let her explain things, let her give her full statements,
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Speaker 4: allowed her to show how the alleged assault actually took place.
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Speaker 4: And you know, by the time you got through her
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Speaker 4: cross examination, I mean, you could see the same thing
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Speaker 4: happening with the New York indictment in the sense that
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Speaker 4: you've got two cooperating witnesses, both Michael Cohen, who was
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Speaker 4: Trump's former lawyer, and David Tecker, who was the head
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Speaker 4: of the National Inquirer, that are going to be cross examined.
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Speaker 4: And if this case is any kind of sort of
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Speaker 4: preview of what's going to happen in the criminal case,
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Speaker 4: it's going to be the same thing. They're going to
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Speaker 4: do the same kind of cross examination of Michael Cohen
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Speaker 4: and David Pecker and will essentially enhance their credibility in
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Speaker 4: the situation where both of these individuals are corroborated by
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Speaker 4: documents with Gene Carroll. There were no witnesses, nobody saw
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Speaker 4: what happened. It was simply her testimony. This case is
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Speaker 4: much more solid and a cross examination like that is
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Speaker 4: not going to be helpful to Donald Trump.
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Speaker 1: All Right, a busy, busy morning for legal issues. It's
8:50
Speaker 1: not necessarily what we thought we were going to do
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Speaker 1: waking up this morning, but there's a lot to cover,
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Speaker 1: and I think we did an admiral job thanks to
8:55
Speaker 1: our guest Nick Ackerman, former assistant Special Watergate prosecutor, and
9:00
Speaker 1: Michael Zelden, former federal prosecutor US Department of Justice.
9:05
Speaker 7: You're listening to the Team Ken's are Live program Bloomberg
9:08
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9:15
Speaker 7: on demand wherever you get your podcast.
9:20
Speaker 1: We did get that inflation print this morning. The CPI
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Speaker 1: kind of came right in line with expectations. Maybe if
9:26
Speaker 1: you dig dig deep, like Michael McKee and the other
9:29
Speaker 1: economists tend to do, you get a little sense of
9:31
Speaker 1: maybe it's softening a little bit. Let's chicken with professional
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Speaker 1: Anaka Treon, chief economist for Van launschat Kempen Anka. What
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Speaker 1: did you take away from this CPI print this morning?
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Speaker 8: Hi, Well, it looks like, you know, we're sort of
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Speaker 8: in this neither here nor their zone where it's not
9:50
Speaker 8: clear enough in the data that inflation is abating, but
9:54
Speaker 8: it's also not clear enough that it's accelerating. And I
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Speaker 8: think that's what makes this whole monetary policy the climate
10:01
Speaker 8: really confusing, because I think the main thing that's important
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Speaker 8: is central banks, to Fared, the ECB, all of them
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Speaker 8: have been quite outspoken about their information target. We're still
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Speaker 8: nowhere near their target, and you still see also again
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Speaker 8: in the latest data, evidence of stickiness, especially around services inflation,
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Speaker 8: especially around wages.
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Speaker 5: Well, top, was that again about shelter costs here, because
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Speaker 5: something that is so striking to me is that the
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Speaker 5: shelter costs piece of this report. You're not seeing the
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Speaker 5: same deceleration that I think a lot of people would
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Speaker 5: expect one year after the FED started hiking rates, even
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Speaker 5: with the lag baked in. Shouldn't shelter have taken a
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Speaker 5: bigger hit by now?
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Speaker 4: Yeah?
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Speaker 8: And I think it's just a function of figuring out
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Speaker 8: how long the time lags are, and obviously the time
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Speaker 8: lag between the purchase prices of houses versus the rental pricing.
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Speaker 8: And I think that's just what makes this whole thing
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Speaker 8: so computing, because it's not just about a single source
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Speaker 8: of pricing pressure with an inflation you know, it's not
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Speaker 8: just about the energy costs. We've moved away from that.
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Speaker 8: The baton is being passed from one source of price
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Speaker 8: pressure to another, and they all have their respective time lags,
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Speaker 8: which just makes it quite complicated.
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Speaker 1: And anaka, I'm looking at the CPI X Food and
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Speaker 1: Energy year of year of five point five percent that
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Speaker 1: came in line with expectations. It's down from five point
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Speaker 1: six percent last month, but boy, that number feels sticky
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Speaker 1: to me. How do you expect that number to trend
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Speaker 1: over the you know, the next six months or so.
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Speaker 8: Well, we think it's quite sticky too, and we've been
11:42
Speaker 8: saying it for a while, but we're amazed at how
11:46
Speaker 8: output the markets are and expecting a u turn in
11:49
Speaker 8: policy rates by the Fed. And the only way the
11:52
Speaker 8: Fed is going to u turn and actually start cutting
11:54
Speaker 8: rates in about four months time, which is what markets expect,
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Speaker 8: is if there's really tangible proof of consistent declines in
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Speaker 8: core inflation, and to your point, it still looks pretty sticky.
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Speaker 8: So that's the biggest risk that we see for markets
12:10
Speaker 8: when you talk.
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Speaker 5: About risks we're seeing for markets, though inflation is just
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Speaker 5: part of the story, I would argue a bigger part
12:16
Speaker 5: of the story. But then you have all this kind
12:17
Speaker 5: of debt ceiling. I don't want to call it drama,
12:21
Speaker 5: but drama. What is the trade there? I mean, in
12:26
Speaker 5: this circumstance that no one really thinks is going to
12:29
Speaker 5: finally come to fruition, It's going to be an eleventh
12:31
Speaker 5: hour development, what is the trade if we do indeed
12:36
Speaker 5: see the clock strike twelve and there's no agreement.
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Speaker 8: Yeah, I mean, I think the likelihood of the debt
12:43
Speaker 8: ceiling not being written the way we're all looking for
12:46
Speaker 8: me we think is rather low, because I mean, the
12:49
Speaker 8: US government simply cannot afford to go into default. And
12:52
Speaker 8: I mean, just look how proactive policymakers were around you know,
12:55
Speaker 8: the SVBS as First Republic. As soon as you see
12:58
Speaker 8: signs of crisis, they're there to fix, they're there to rescue.
13:02
Speaker 8: And I think the same will apply this time. I
13:04
Speaker 8: think the trade is I mean, it's basically adding to
13:07
Speaker 8: the backdrop of complexity, volatility. And it's ironic because you know,
13:13
Speaker 8: the volatility that we're seeing is much more in the
13:15
Speaker 8: bond market than the top markets. Look at the VIXSUS
13:18
Speaker 8: moving dex and that's the sort of inherent volatility and
13:23
Speaker 8: you know, well one of the most important parts of
13:26
Speaker 8: capital markets. Actually, it just depicts the picture we're.
13:30
Speaker 1: In and like it real quickly. Thirty seconds give us
13:33
Speaker 1: a sense of how inflation is in Europe.
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Speaker 8: So inflation in Europe it's very similar to the US.
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Speaker 8: It's the stickiness and I think the most try thinking
13:42
Speaker 8: about Europe what I mentioned about the energy crisis. All
13:45
Speaker 8: the tension was on energy prices in Europe because of
13:48
Speaker 8: this energy crisis, Ukraine war and you know, energy shortages,
13:52
Speaker 8: et cetera. I mean, gas prices in Europe have fallen
13:55
Speaker 8: all the way back right pre Ukraine, pre everything. Wow,
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Speaker 8: yet plation is still really high, really sticky, and we
14:02
Speaker 8: really have a wage inflation problem.
14:05
Speaker 3: Interesting.
14:05
Speaker 1: Interesting, All right, Anica, We could go on and on
14:08
Speaker 1: a lot more questions.
14:08
Speaker 3: We'll talk to you soon.
14:09
Speaker 1: Anica Treon, chief economist for Van Loonshot Kempen.
14:13
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14:33
Speaker 3: Your work A talk preferred Stock. I sold some preferred
14:36
Speaker 3: stock back in the day.
14:37
Speaker 1: Every once in a while it comes into fashion, and
14:39
Speaker 1: I would sling a lot of that stuff.
14:40
Speaker 5: It definitely himitt in fashion today, right, No dental Warren Buffett, Yep.
14:44
Speaker 1: Absolutely, he gets He always gets the high yielding stock.
14:48
Speaker 1: He gets people when they're down, they're desperate, Golden Sacks,
14:51
Speaker 1: Occidental Patrol. I mean he gets that preferred stock. He's
14:54
Speaker 1: very smart about that stuff. All right, let's talk about
14:56
Speaker 1: the van K Preferred Securities Ex Financials et pf XF
15:01
Speaker 1: for the kids out there with the Bloomberg terminal.
15:03
Speaker 3: Brandon Zoski, did I get that? Awesome?
15:06
Speaker 1: Brandon Rakzoski, VP and Director of Product Management at Vanek,
15:10
Speaker 1: joins us live here in our Bloomberg Interactive Broker studio.
15:13
Speaker 1: So Brandon, talk to us about your preferred stock. Etf
15:17
Speaker 1: EX Financials talked to why ex financials and kind of
15:21
Speaker 1: what are you guys looking to do?
15:22
Speaker 9: Yeah, yeah, yeah, it's it's a little bit ironic that
15:25
Speaker 9: we're talking about our ETF now, you know, it sounds
15:27
Speaker 9: like it was made for the.
15:29
Speaker 3: Last two months exactly. I don't want anything to do
15:31
Speaker 3: with financials.
15:31
Speaker 9: We actually launched the CTF. We listed it back in
15:34
Speaker 9: twenty twelve, over another years ago. Okay, right, So we
15:36
Speaker 9: launched this when the preferred market was heating up. It
15:39
Speaker 9: was post global financial crisis. Rates we're at zero. Investors
15:43
Speaker 9: were looking for income, but the global financial crisis was
15:46
Speaker 9: fresh in everybody's mind. And you know, fast forward a
15:50
Speaker 9: decade and the US banking system was by and large stable.
15:54
Speaker 9: So pretty much the reason we launched the CTF the
15:56
Speaker 9: diversification away from financials preferred secure curities. You know, it
16:02
Speaker 9: didn't really come into play until two months ago. And
16:06
Speaker 9: what I think a lot of investors don't know about
16:08
Speaker 9: the preferred market is it's dominated by banks, insurance companies,
16:12
Speaker 9: and financials. So anybody, any investor that's looking to a fund,
16:16
Speaker 9: you know, mutual fund ETF and looking at the broad
16:18
Speaker 9: preferred security space, they're getting very heavy financials exposure and
16:22
Speaker 9: they've they've if they didn't know that already, they've they've
16:24
Speaker 9: certainly woken up to that over the last two months.
16:26
Speaker 9: So so we like this ETF within the space. It's
16:29
Speaker 9: it's a way for investors to diversify away from that
16:32
Speaker 9: heavy financials exposure they get elsewhere.
16:34
Speaker 5: So Brandon, let's brown this out a little bit.
16:36
Speaker 3: We're talking about financials.
16:37
Speaker 5: We've got to talk about the banking crisis. Is it
16:39
Speaker 5: still a crisis or are we kind of passed that?
16:42
Speaker 7: Yeah?
16:42
Speaker 9: I mean, I don't know that anyone can tell you
16:45
Speaker 9: that definitively in that and that that's why why, that's
16:48
Speaker 9: why investors have to be aware of their risks, right,
16:50
Speaker 9: I mean we see, you know, you hear about a
16:51
Speaker 9: new bank every every day, so you know, it's it
16:54
Speaker 9: all started two months ago. It's been two months and
16:56
Speaker 9: we're hearing about you know, name the Pack, the West,
17:00
Speaker 9: whatever it might be. You've got these banks, and you
17:04
Speaker 9: look at the preferred securities market, you look at broad indexes,
17:07
Speaker 9: and regional banks are still despite the selloff, regional banks
17:10
Speaker 9: are still accounting for ten to fifteen percent of these
17:13
Speaker 9: broad indexes. So there's risk and exposure that are in
17:18
Speaker 9: these ETFs and investors should be aware of them because
17:21
Speaker 9: these are the shares that are getting hurt the most.
17:22
Speaker 5: Well, is that a part of the market that's just
17:24
Speaker 5: going to get wiped out? I mean, this isn't an
17:26
Speaker 5: equal comparison, but when I'm thinking wiped out, I'm thinking
17:29
Speaker 5: that's kind of the eighty one bond story from Credit SUITEZ,
17:31
Speaker 5: where just a class of investors just got wiped out.
17:34
Speaker 5: Is that something that could happen if you continue to
17:36
Speaker 5: see these bank failures.
17:39
Speaker 9: We lived through this in the global financial crisis and
17:41
Speaker 9: it didn't get wiped out. I don't think it will
17:43
Speaker 9: get wiped out. I think there's a lot of investors
17:44
Speaker 9: right now that are actually looking to that space as
17:46
Speaker 9: a value opportunity. These are just so well so over
17:49
Speaker 9: sold at the moment. So if you can be opportunistic
17:52
Speaker 9: and you can look to some of these regional banks
17:54
Speaker 9: and some of their preferred shares, if you're willing to
17:56
Speaker 9: take on that risk, there could be reward. But if
17:59
Speaker 9: you're a buy and holding investor that's just looking for
18:01
Speaker 9: that monthly income check and you're not willing to to
18:04
Speaker 9: to to weather that volatility in your portfolio, then then
18:07
Speaker 9: you should really think twice about about initiating exposure in
18:11
Speaker 9: some of these these broad indexed products.
18:13
Speaker 1: All right, so when your ETF pf XF is the ticker,
18:18
Speaker 1: what do you guys own there?
18:19
Speaker 9: Yeah, so okay, so you're you're you're cutting out a
18:21
Speaker 9: big chunk of the market. When you exclude financial banks, insurance,
18:25
Speaker 9: that's seventy to seventy five percent assisted market.
18:27
Speaker 3: Yet yeah, the.
18:28
Speaker 9: Whole financial sectors, it's it's dominant. So what you're left with,
18:31
Speaker 9: You've got utilities, You've got which.
18:33
Speaker 3: I pitched prefers to in telecom companies back again, Yeah.
18:36
Speaker 9: It's a it's a big portion of p effects. You know,
18:38
Speaker 9: that's twenty percent of the portfolio sold a few and
18:41
Speaker 9: then you've got.
18:42
Speaker 3: Wait, how many telecom companies are there?
18:44
Speaker 1: There's a lot, there's tower companies, there's all kinds of stuff.
18:46
Speaker 1: Well back in the day, I mean, is celling your telephone,
18:49
Speaker 1: fixed line, wireless?
18:50
Speaker 3: This is back in the day.
18:51
Speaker 9: So yeah, no, you still you got AT and T
18:53
Speaker 9: as a portion of the portfolio.
18:55
Speaker 5: Quest you know, you haves AT and T and Hoverizon
18:58
Speaker 5: like what else is there?
18:59
Speaker 10: But fair enough?
19:00
Speaker 9: Continue but nonetheless, and then in real estate, that's of
19:03
Speaker 9: course on top of everyone's mind. So you are going
19:05
Speaker 9: to get some read exposure through this through this preferred ETF.
19:07
Speaker 9: So that's something to be aware of. But you know,
19:09
Speaker 9: the wonderful thing about this ETF we lived, as I mentioned,
19:14
Speaker 9: we lived through this period where systemic risk in the
19:16
Speaker 9: US banking system just wasn't top of mind for investors.
19:20
Speaker 9: So what else did this CTF give you? It gives
19:22
Speaker 9: you a bit of a yield pickup. So X financials
19:25
Speaker 9: prefers tend to have a little bit of a higher yield.
19:27
Speaker 9: They've got a lower duration profile because these bank and
19:30
Speaker 9: financial institution prefers they're perpetual, they're you know, they're very
19:33
Speaker 9: long dated. So you're getting this yield pick up with
19:35
Speaker 9: lower duration, lower call risk, and that all comes in
19:39
Speaker 9: this this X financials wrapper.
19:41
Speaker 5: So when I think lower duration an X financial rapper,
19:44
Speaker 5: I mean immediately think tech stocks. From from my perspective,
19:49
Speaker 5: it doesn't feel like there's a ton of exposure to
19:51
Speaker 5: that here.
19:51
Speaker 9: No, that, yeah, you don't see that from the tech sector,
19:54
Speaker 9: the traditional high flying growth stocks. They're just not heavy
19:56
Speaker 9: issues with preferred securities.
19:58
Speaker 1: So as you think about putting stuff into this ETF,
20:03
Speaker 1: what are some of the characteristics that you rule.
20:05
Speaker 3: Is there a certain minimum.
20:06
Speaker 1: Yield you want to see, is a certain credit profile
20:09
Speaker 1: you want to see? How do you guys screen for
20:11
Speaker 1: some names to get into the CTF.
20:13
Speaker 9: We, you know, we work within a rule book, a
20:17
Speaker 9: framework that applies to the index. It's a nice ice
20:19
Speaker 9: index and it's basically built to be very broad and
20:22
Speaker 9: inclusive when you know, the simple exclusion of course is
20:26
Speaker 9: financials issuers and their underlying issues. But you know, we
20:29
Speaker 9: look to fixed rate, floating rate. You know, these can
20:33
Speaker 9: be investment grade, non investment grade, they can actually be
20:36
Speaker 9: not not rated. There's a lot of you know, rates
20:38
Speaker 9: out there that they don't go through the step of
20:40
Speaker 9: obtaining a rating. So there's a very broad profile to this,
20:44
Speaker 9: to this CTF, and it's a complicated space. And I
20:47
Speaker 9: think that's why investors have looked to mutual funds and
20:49
Speaker 9: ETFs because there are calls, there are mandatory converts applicable
20:54
Speaker 9: to some of these preferred shairs. So so it's it's
20:56
Speaker 9: pretty broad, it's pretty inclusive. But by market cap waiting
21:00
Speaker 9: the sex financials market, you are getting that you know,
21:02
Speaker 9: attractive yield, pick up, lower duration profile and and you're
21:05
Speaker 9: avoiding to some degree because you know, the whole market
21:09
Speaker 9: gets impacted by these sell offs, but you're avoiding quite
21:11
Speaker 9: a bit of the sell off that we've that we've
21:13
Speaker 9: experienced the last two to three months.
21:15
Speaker 5: When just looking at the fun flows on this ticker,
21:17
Speaker 5: folks p FXF. You can look up the fun flows
21:19
Speaker 5: on new Bloomberg terminal as well. You were getting it's
21:22
Speaker 5: been two months of just straight inflows for this ETTF.
21:28
Speaker 5: What do you think might turn that around?
21:29
Speaker 9: Well, so what we've seen so far as you see
21:31
Speaker 9: the broad preferred ETFs and some of the financial specific
21:35
Speaker 9: they bled assets. Of course, there's some people coming, you know,
21:37
Speaker 9: getting out of the out of the game, at least temporarily,
21:40
Speaker 9: so that some of that has, it seems, has come
21:42
Speaker 9: to r E TF where they want to maintain that
21:43
Speaker 9: preferred exposure that yield right now it's like seven percent
21:46
Speaker 9: yield to the to the asset class, but they don't
21:49
Speaker 9: want to get that that banking exposure. So we've seen
21:51
Speaker 9: some inflows and when you look at the trailing periods
21:54
Speaker 9: year to date, even over the one year period, it's
21:56
Speaker 9: it's one of the leading flow getters within the preferred space.
21:59
Speaker 9: So I think there's going to be continued interest there
22:02
Speaker 9: and then you know we're talking about rates and what
22:04
Speaker 9: the federal do next, and within preferreds, that call risk
22:08
Speaker 9: is a big deal. So as as we reach a
22:10
Speaker 9: point where we can start to you know, expect cuts
22:14
Speaker 9: whenever that may be a lot of these preferred preferred
22:18
Speaker 9: issues will will be possibly called and then you know,
22:21
Speaker 9: reinvesting at lower rates. So lower call profile in our
22:25
Speaker 9: ETF has made it attractive historically when rates are actually declining.
22:29
Speaker 9: So I think there is a lot of you know,
22:30
Speaker 9: tail end and and and prospects moving forward for this
22:34
Speaker 9: ex financials slice of the preferred market.
22:37
Speaker 3: Is Vannik primarily or totally an ETF shop?
22:40
Speaker 9: No, no, no, We've got a yeah, I know, we've
22:42
Speaker 9: got a history back to nineteen fifty five. We started
22:44
Speaker 9: as a as a you know, traditional actively managed mutual
22:47
Speaker 9: fund company.
22:48
Speaker 1: So what percentage of your business today is ETFs because
22:50
Speaker 1: it seems like that is just one of the great
22:51
Speaker 1: growth stories I've seen in my yeah, thirty some odd
22:53
Speaker 1: years in the street.
22:55
Speaker 9: The majority, so you know, sixty seventy percent of our
22:58
Speaker 9: assets are tied to ETFs. We got in the ETF
23:00
Speaker 9: industry in the two thousand and six, so ahead of
23:03
Speaker 9: head of the curve, not not not the in the
23:05
Speaker 9: first wave.
23:05
Speaker 3: But and you folks, and you focus on this this preferred.
23:08
Speaker 9: Yeah, yeah, a wide set of our ETF offerings.
23:11
Speaker 1: Okay, and what else? What else is seeing big inflows
23:14
Speaker 1: into vannik.
23:15
Speaker 9: Oh, you know, we've got interest across the across we offer,
23:19
Speaker 9: you know, exposure to a lot of different asset classes.
23:21
Speaker 9: One that we are particularly focused on, and we have
23:23
Speaker 9: been for quite some time is within the US equity market.
23:26
Speaker 9: You know, risks are abound, so we think that with
23:29
Speaker 9: uncertain markets, you should really concentrate on quality companies, high
23:33
Speaker 9: quality companies. And we've offered for for greater than ten
23:35
Speaker 9: years in ETF M A T which is near and
23:38
Speaker 9: dear to my heart, which leverages morning Star and morning
23:41
Speaker 9: Stars equity research analysts input to identify these high quality
23:45
Speaker 9: companies that are that are attractively priced. So we've seen
23:47
Speaker 9: you know, seven hundred and fifty million come in this
23:49
Speaker 9: year end of that ETF.
23:50
Speaker 1: Good stuff, but that is just such a great growth business.
23:52
Speaker 1: You picked a good place to be brand at rec Zoski.
23:56
Speaker 1: He is a VP and and director of Product Management
23:59
Speaker 1: at Vann proud graduate of Slippery Rock University, which I'm
24:03
Speaker 1: familiar with.
24:03
Speaker 3: It's just north of Pittsburgh, right, got that? Yeah there, Yes,
24:06
Speaker 3: I love that, you know it? Yeah? Absolutely, it's good
24:08
Speaker 3: stuffy people. Oh, it's good stuff, good people coming out
24:11
Speaker 3: of there.
24:12
Speaker 7: You're listening to the Team ken'sar Live program Bloomberg Markets
24:16
Speaker 7: weekdays at ten am Eastern on Bloomberg dot Com, the
24:19
Speaker 7: iHeartRadio app, and the Bloomberg Business App, or listen on
24:23
Speaker 7: demand wherever you get your podcasts.
24:27
Speaker 1: Let's talk a little bit about what is an extraordinarily
24:30
Speaker 1: serious topic, and it looks like there's really no end
24:33
Speaker 1: in sight. But the question now is is here we
24:35
Speaker 1: are in May, we start hearing a lot of news
24:37
Speaker 1: out of Ukraine and Russia about perhaps a spring counter
24:40
Speaker 1: offensive by the Ukrainians. We want to get the latest
24:44
Speaker 1: on that. Angela Stent joins us. She is a senior
24:47
Speaker 1: fellow at the Brooking Institute and author of the book
24:50
Speaker 1: Putin's World.
24:51
Speaker 3: Russia against the West and with the Rest.
24:54
Speaker 1: Angela, potentially a critical time in this war in Ukraine.
25:00
Speaker 1: What do you think are the next steps that we
25:02
Speaker 1: may see from the Ukrainians.
25:04
Speaker 11: Well, we are waiting as you said, for this counter offensive,
25:08
Speaker 11: it's been talked about really for weeks now, and the
25:12
Speaker 11: Ukrainians of course aren't going to say when it's going
25:14
Speaker 11: to happen and how they're going to do it, but
25:17
Speaker 11: we are waiting for them to push back against where
25:21
Speaker 11: the Russian troops are in the southeast of the country particularly,
25:25
Speaker 11: and they I think have been waiting for the American
25:28
Speaker 11: and also on the NATO country's equipment to arrive, the planes,
25:34
Speaker 11: the tanks and everything else. But it really will be
25:37
Speaker 11: quite decisive because if they're not able to push back
25:41
Speaker 11: the Russian troops substantially, then we really will continue to
25:44
Speaker 11: be in the stalemate going forward.
25:46
Speaker 12: To what extent Angela, do you see the win in
25:49
Speaker 12: Bakmu as an indicator of Ukrainian success moving forward in
25:53
Speaker 12: the offensive?
25:55
Speaker 11: So the Ukrainians have held out there all the time
25:58
Speaker 11: because they didn't they wanted to engage the Russians there.
26:02
Speaker 11: It's not crucial to their ability to succeed there, but
26:05
Speaker 11: it would help them that they were able to take it.
26:08
Speaker 1: So my question, I have many questions, but one of
26:10
Speaker 1: my big big questions is the support that mister Putin
26:15
Speaker 1: has or believes he has with the Russian people. Aren't
26:19
Speaker 1: the Russian people smartened to know that this is just
26:21
Speaker 1: a com colossal mistake on so many levels. Does he
26:25
Speaker 1: really enjoy the support of the Russian people?
26:28
Speaker 11: Well, you know, the only independent remaining pulling out sit
26:33
Speaker 11: there still is showing that about seventy percent of the
26:37
Speaker 11: population support the war, some of them actively and a
26:40
Speaker 11: lot of them just passively, although fifty percent of them
26:43
Speaker 11: say there should be negotiations. So if they're only listening
26:47
Speaker 11: to state controlled media, they don't really know how disastrous
26:50
Speaker 11: the amilitary aspect of this has been. And of course
26:54
Speaker 11: a million Russians have left since the war began. Those
26:57
Speaker 11: are the people, of course who don't support the war
26:59
Speaker 11: or who don't want to be drafted. But he does.
27:03
Speaker 11: Putin still appear to enjoy the support.
27:07
Speaker 12: To Paul's point, though, I wonder to what extent the
27:10
Speaker 12: Russian military is still continuing to buy in on Putin's narrative.
27:15
Speaker 12: Has that changed at all?
27:18
Speaker 11: As far as we can see, it hasn't. But you
27:19
Speaker 11: have this battle going on between Yevgeny Progossion, who's the
27:23
Speaker 11: head of the mercenary group that's been doing Wagner, which
27:26
Speaker 11: has been doing a lot of the fighting and then
27:28
Speaker 11: the actual regular military, and he has been accusing them
27:33
Speaker 11: of being incompetent, and they, of course have been pushing back.
27:38
Speaker 11: So I'm sure that there are people in the Russian
27:41
Speaker 11: military to understand that this is who know that this
27:44
Speaker 11: is going badly, and Progussion himself has been very very
27:47
Speaker 11: critical and saying it's going badly, and so I think
27:50
Speaker 11: the Russian people are going to be hearing much more
27:53
Speaker 11: of that going forward. It's pretty amazing that yesterday at
27:56
Speaker 11: the May nine Victory Day Parade there was just one
27:59
Speaker 11: tank on display, and that was a Soviet hero from
28:03
Speaker 11: the nineteen forties, right where they normally have hundreds of them.
28:06
Speaker 11: So people must be questioning that, Angela.
28:10
Speaker 1: You know, the scenario that I keep coming back to,
28:13
Speaker 1: and I think a lot of folks do, is it's
28:14
Speaker 1: just there's just no end insight and this is going
28:18
Speaker 1: to be a stalemate, and boy, and nobody wants to
28:20
Speaker 1: see that. I mean, is Putin prepared for that type
28:25
Speaker 1: of situation where this could be a multi year stalemate.
28:30
Speaker 11: So I think Putin understands that this will be a
28:33
Speaker 11: long war, but what he still believes that Russia can
28:36
Speaker 11: win because he believes that as time goes by, the
28:40
Speaker 11: Western resolve to support Ukraine will weaken. He's looking to
28:44
Speaker 11: our elections next year to see who's elected president, what
28:48
Speaker 11: happens to both Houses of Congress and to a number
28:51
Speaker 11: of European countries. Are people going to be willing still
28:55
Speaker 11: to pay so much to support Ukraine. We're all running
28:58
Speaker 11: out of ammunition, even we the United States, and tags
29:02
Speaker 11: and things like that. So that's just calculus that in
29:05
Speaker 11: the end Russia will prevail because the West one continues
29:08
Speaker 11: supporting Ukraine.
29:09
Speaker 12: Well, speaking of exactly what you're talking about Western support waning,
29:13
Speaker 12: the big discussion in Washington right now is about the
29:15
Speaker 12: debt ceiling. Angel I wonder how a debate like that
29:18
Speaker 12: sits with you, given that it obviously takes resources and
29:22
Speaker 12: attention away from what's going on in the ground on
29:25
Speaker 12: the ground in Ukraine.
29:27
Speaker 11: Well, I mean, it's a very important domestic issue for us,
29:30
Speaker 11: you know, determining our future. So it's clear that, you know,
29:34
Speaker 11: I think it's it's commendable that Ukraine had disappeared, you know,
29:39
Speaker 11: from the media, with all these other things going on,
29:42
Speaker 11: and so I think it's just important to keep as
29:44
Speaker 11: much focus on that as you can, given all the
29:46
Speaker 11: domestic priorities that we have.
29:49
Speaker 1: Andrew from your sources and the folks you speak with.
29:52
Speaker 1: Is there any scenario or what are the odds that
29:56
Speaker 1: Ukraine and this counter offensive could have a just a
29:59
Speaker 1: breakout per performance and really push Russia back and you know,
30:03
Speaker 1: if not completely defeat them, make it all but certain.
30:06
Speaker 1: Is there any realistic chance that they could have that
30:09
Speaker 1: kind of success.
30:10
Speaker 11: I mean, it is possible. We don't know exactly how
30:13
Speaker 11: they're going to conduct this counter offensive. You know, their
30:17
Speaker 11: military has performed surprisingly well really since the beginning of
30:21
Speaker 11: the war, So it's possible. I don't think people in
30:26
Speaker 11: this country think that it's very likely, but it's possible, Angela.
30:30
Speaker 1: You know, I know the next big shoot to drop
30:33
Speaker 1: as it relates to armaments would be aircraft, most notably
30:37
Speaker 1: fixed wing aircraft. Is there any scenario or is there
30:42
Speaker 1: a scenario where you think.
30:43
Speaker 3: The US would would go that route, make that step.
30:47
Speaker 11: Well, so far that Biden administration and President Biden has
30:50
Speaker 11: said that we're not going to supply the Ukrainians with
30:53
Speaker 11: these spider aircraft. On the other hand, the British are
30:57
Speaker 11: going to There is a debate going on in this country.
31:00
Speaker 11: And if you look at the pattern of what we've
31:02
Speaker 11: done for Ukraine since the war began, often we've been
31:05
Speaker 11: slow saying yes, but then in the end we've done it.
31:07
Speaker 11: So I wouldn't rule out but we will supply the
31:10
Speaker 11: Ukrainians with this air with just these aircraft. But at
31:13
Speaker 11: the moment it's not on the cards.
31:16
Speaker 12: And Angela, give us your six months Outlook, what do
31:19
Speaker 12: you think the headline is going to be when we
31:22
Speaker 12: bring you on six months.
31:23
Speaker 11: From now, Well, hopefully the headline would be the Russians
31:27
Speaker 11: have had to retreat under the Ukrainians have taken back
31:31
Speaker 11: some more territory.
31:32
Speaker 1: And Angela, mister Putin, before we let go, just what
31:36
Speaker 1: do you think you know, you've done so much work
31:39
Speaker 1: with with your book on mister Putin, what do you
31:41
Speaker 1: think his mindset is these days?
31:46
Speaker 11: Well? I do believe that he believes he's a war
31:49
Speaker 11: with NATO and the United States and that Ukraine is
31:52
Speaker 11: just a porn in this and he thinks that the
31:55
Speaker 11: US and NATO is our out to get Russia. He's
31:58
Speaker 11: now saying that you know, the war was begun by NATA,
32:01
Speaker 11: which of course is completely not true. And so it's
32:04
Speaker 11: you know, it's a besiege fortress for him, but it's
32:07
Speaker 11: still one where apparently he believes that Russia will prevail.
32:11
Speaker 1: Just amazing. All right, Angela, thank you so much for
32:13
Speaker 1: joining us. Angela Stentz, she's a senior fellow at the
32:15
Speaker 1: Brookings Institute.
32:17
Speaker 3: Really a good.
32:18
Speaker 1: View on what's going on over there in Ukraine. She's
32:20
Speaker 1: the author of the book Putin's World, Russia against the
32:23
Speaker 1: West and with the Rest, and that certainly seems to
32:25
Speaker 1: be what's playing out.
32:26
Speaker 7: You're listening to the tape catch aur live program Bloomberg
32:29
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
32:33
Speaker 7: tune in app, Bloomberg dot Com.
32:35
Speaker 13: And the Bloomberg Business App.
32:36
Speaker 7: You can also listen live on Amazon Alexa from our
32:39
Speaker 7: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
32:45
Speaker 3: Let's talk about the Ito market.
32:47
Speaker 1: Brian Lynch Joints, and she says of market insight at
32:50
Speaker 1: Equity Zen Brand, thanks for joining us in our Bloomberg
32:52
Speaker 1: Interactive Brokers studio. You get a gold star for coming in,
32:55
Speaker 1: not phoning it in like a lot of people want
32:57
Speaker 1: to do.
32:58
Speaker 3: Brand. Just tell us what you guys, do it equities
33:00
Speaker 3: in here, sure.
33:01
Speaker 14: So thanks for having me and Equity Zen. We're pre
33:04
Speaker 14: IPO investment platform, so we help both accredited investors and
33:09
Speaker 14: institutions invest in private companies while they're still in their
33:13
Speaker 14: late stages. And we also help shareholders sell their shares
33:16
Speaker 14: and get liquidity while their companies are still private.
33:19
Speaker 12: So how's the IPO market look in particularly after some
33:22
Speaker 12: of the banking stuff we just went through.
33:24
Speaker 14: Yeah, I would say the IPO window is not wide open,
33:28
Speaker 14: but we're starting to see it crack open a bit.
33:31
Speaker 14: As you'd mentioned, ken View, is this successful IPO that
33:35
Speaker 14: we had last week that was the largest IPO we've
33:37
Speaker 14: had in the US since Rivian in twenty twenty one.
33:41
Speaker 14: Traded up twenty two percent on its first day. So
33:43
Speaker 14: that's a good indicator for some of these companies who
33:46
Speaker 14: are sitting on the sidelines. We've got the VIS trading
33:50
Speaker 14: or measuring more at seventeen or so. The NAZAC had
33:54
Speaker 14: a bit of a rally this year, so there are
33:56
Speaker 14: some positive indicators, but there's still a lot of uncertainty
33:58
Speaker 14: in the market even where rates are given the state
34:02
Speaker 14: of inflation and the fact that there just haven't been
34:05
Speaker 14: a lot of IPOs.
34:06
Speaker 1: Yeah, and it's interesting, I gotta think and just listening
34:10
Speaker 1: from the conference calls for a lot of big investment banks,
34:12
Speaker 1: the pipeline is just bulging. I mean there's a lot
34:15
Speaker 1: of company because a lot of companies have they've been
34:17
Speaker 1: waiting for twelve eighteen months for this market to open up.
34:21
Speaker 1: So what are you what's your activity been as you
34:24
Speaker 1: talk to companies, as you're talking to employees about I
34:27
Speaker 1: need to get some liquidity in my investments. Are you
34:30
Speaker 1: seeing a pickup and activity in your business because they
34:33
Speaker 1: can't get liquid in the public markets.
34:35
Speaker 14: Absolutely, so there is huge pens up demand for liquidity.
34:39
Speaker 14: You think about it. There are over twelve hundred unicorn companies,
34:43
Speaker 14: so these companies valued at over a billion dollars three
34:46
Speaker 14: trillion in value amongst these companies, and many, as you said,
34:50
Speaker 14: expected to have an exit twelve eighteen months ago and
34:53
Speaker 14: that just hasn't happened. So in the meantime, we are
34:56
Speaker 14: talking to a lot of companies who realize that they
34:59
Speaker 14: are only early shareholders who need liquidity, and then the
35:03
Speaker 14: shareholders directly themselves, who on an individual level are maybe
35:08
Speaker 14: trying to put a down payment on a house or
35:09
Speaker 14: payoff student loans. And on a more institutional level, you've
35:13
Speaker 14: got early stage investors who are looking to recycle capital
35:17
Speaker 14: into new investments. So there's a huge need for liquidity
35:20
Speaker 14: and an equity zene. We're really addressing that by brokering
35:24
Speaker 14: these secondary transactions in the private markets.
35:27
Speaker 12: Have any of those liquidity challenges though, sort of changed
35:30
Speaker 12: the calculation for folks who are considering an IPO but
35:33
Speaker 12: that are not sure yet. Have you seen a change
35:36
Speaker 12: in that sort of thinking?
35:38
Speaker 14: Yeah, I would say the IPO market didn't seem so
35:42
Speaker 14: welcoming for companies, and most companies have been sitting on
35:46
Speaker 14: the sidelines. But I think some of the positive indicators
35:49
Speaker 14: we've seen are giving companies more food for thought. Maybe
35:55
Speaker 14: this is something that we could do in late Q three,
35:57
Speaker 14: early Q four. So we see a lot of companies
36:00
Speaker 14: putting the pieces in places in preparation for an IPO,
36:03
Speaker 14: understanding both that they have capital needs and liquidity needs.
36:07
Speaker 14: And as we hear more of these companies confidentially filing,
36:10
Speaker 14: I think we'll start to see more of those stories happen.
36:13
Speaker 1: Silicon Valley Bank, What did the mise of Silicon Valley
36:16
Speaker 1: Bank The trouble's there. What did that mean for your company,
36:20
Speaker 1: your market, this pre IPO trading market.
36:23
Speaker 14: Yeah, I think one of the main things we've seen
36:26
Speaker 14: is that there's just less funding options because of this,
36:30
Speaker 14: available to private companies. So Silicon Valley Bank was the
36:34
Speaker 14: lender of choice for private companies. They really owned that market,
36:39
Speaker 14: and in their absence, there hasn't been another player who's
36:42
Speaker 14: stepped up to help these private companies who are looking
36:46
Speaker 14: to raise debt capital. That, coupled with the fact that
36:49
Speaker 14: rates are up so capital isn't cheap anymore, has made
36:52
Speaker 14: that a harder avenue for companies to pursue that are
36:56
Speaker 14: trying to raise funding. So they can choose to raise
36:59
Speaker 14: funding in the prime imry private market most of the time,
37:03
Speaker 14: given where they probably last raised, that will be with
37:07
Speaker 14: a down round versus these twenty twenty one valuations. But
37:11
Speaker 14: then the other option is to IPO. So there's it's
37:15
Speaker 14: a tricky decision and there's difficulties amongst the different routes,
37:19
Speaker 14: but pros and cons depending on the needs of a
37:21
Speaker 14: given company.
37:22
Speaker 12: Well, you make a really good point though about nobody
37:25
Speaker 12: really stepping up in the loss of an SVB, and
37:29
Speaker 12: I wonder to what extent something like that. You know
37:32
Speaker 12: the fact that we continue to talk about we're not
37:35
Speaker 12: in a banking crisis, it's totally over. But given that
37:38
Speaker 12: we haven't seen a kind of another SVB pop up,
37:43
Speaker 12: does that make you question the idea that the banking
37:46
Speaker 12: crisis is totally well and done.
37:48
Speaker 14: Yeah, I'd say it's too soon to say that things are.
37:52
Speaker 14: You know that it's completely in the rear view mirror.
37:55
Speaker 14: We're seeing that with the First Republic. You know, it
37:57
Speaker 14: seems like there was less coverage of that or you know,
38:00
Speaker 14: didn't have the same you know, wow factor as svb's
38:03
Speaker 14: collapse did. But a lot of these private companies, I
38:07
Speaker 14: think it was a good lesson in you know, how
38:10
Speaker 14: you diversify your banking partners, how do you make sure
38:13
Speaker 14: that you have the right risk measures in place to
38:16
Speaker 14: survive these types of events, and how do you sustain
38:20
Speaker 14: your capital for periods of volatility.
38:22
Speaker 1: You Know what I noticed during my career is my
38:25
Speaker 1: friends on the West coast in Silicon Valley, it's much
38:27
Speaker 1: more of an equity culture. They're much more comfortable with
38:31
Speaker 1: taking equity risk and form of stock options, all that
38:34
Speaker 1: type of stuff, whereas here on the East coast, my
38:35
Speaker 1: Wall Street buddies just give us the cash.
38:37
Speaker 3: I don't need any stock. I got enough exposure.
38:40
Speaker 1: So but on the West coast, I mean, they're given
38:43
Speaker 1: all these options and restricted stock units and.
38:45
Speaker 3: All this stuff. I don't know what it is, but
38:47
Speaker 3: that stuff expires.
38:49
Speaker 1: What do I go back to my employer and say, hey,
38:51
Speaker 1: this IPO windows closed. I got all these options and
38:54
Speaker 1: RSUs and things.
38:55
Speaker 3: Do you re up them? What happens or did they
38:57
Speaker 3: just come to you and say, find me a bit
38:59
Speaker 3: for these things.
39:01
Speaker 14: It's a big problem that we're seeing a lot of
39:03
Speaker 14: these companies that are still private, to your point, have
39:06
Speaker 14: options that expire after ten years, and some of these
39:09
Speaker 14: companies have been private for ten fifteen years, however long
39:13
Speaker 14: it's been. So we're talking to both private companies who
39:16
Speaker 14: are looking to put better programs in place to facilitate liquidity,
39:20
Speaker 14: and then the employees themselves, who are taking it under
39:23
Speaker 14: their own portion to go out and find a liquidity solution.
39:27
Speaker 14: And I think, to your point, there's a need for
39:31
Speaker 14: liquidity so that employees can actually feel the value of
39:34
Speaker 14: these shares and realize, Okay, these are worth something. So
39:38
Speaker 14: maybe I'm not getting the cash up front, but these
39:40
Speaker 14: shares actually have value and there's a reason behind this
39:44
Speaker 14: sweat equity. So I think that's a really big important
39:47
Speaker 14: consideration where the secondary market is helping.
39:50
Speaker 1: People still want I mean, are you sensing a change
39:53
Speaker 1: in I don't know, people maybe want more cash less
39:57
Speaker 1: stock or do we still have that Particularly with some
39:59
Speaker 1: of the you know, the technology companies, they really do
40:02
Speaker 1: have that equity culture. If you will, that stock option culture,
40:06
Speaker 1: I can get really hit it big. What are your
40:08
Speaker 1: sense that people, maybe even after the pandemic, are saying,
40:10
Speaker 1: I like a little bit more certainty in my life.
40:13
Speaker 9: Yeah.
40:13
Speaker 14: I would say that this current market environment has decreased
40:17
Speaker 14: risk aversion generally speaking. So if that's for employees, for investors,
40:22
Speaker 14: for the broader population, and I think.
40:26
Speaker 12: It's not it used to be.
40:27
Speaker 14: Maybe this thought of you join a startup, you're going
40:29
Speaker 14: to get equity, it's going to be worth millions, and
40:32
Speaker 14: you know that's the story that was sold and that's
40:35
Speaker 14: not going to be the case for all companies. So
40:37
Speaker 14: even as an employee, similar to what investors are doing,
40:41
Speaker 14: you maybe have to do a bit more due diligence
40:43
Speaker 14: and what is the runway for this company, what is
40:46
Speaker 14: the growth potential, what do their financials look like? And
40:49
Speaker 14: is this where I want to invest my time and
40:51
Speaker 14: my sweat equity with the hope that that's worth something
40:54
Speaker 14: one day.
40:55
Speaker 12: Right, Like if you look at a BuzzFeed, for example,
40:57
Speaker 12: I think a lot of people were excited about the IPO,
40:59
Speaker 12: but then oh, we have to cut costs, so the
41:01
Speaker 12: news division is over.
41:03
Speaker 1: Right, exactly, So is there liquidity? How is the liquidity
41:06
Speaker 1: in your market? Which is kind of this pre market
41:08
Speaker 1: trading of some of these stocks.
41:10
Speaker 14: Yeah, So what we saw a lot of last year
41:13
Speaker 14: was that the bid ask spread was just really wide
41:16
Speaker 14: because sellers were still holding on to these twenty twenty
41:19
Speaker 14: one valuations and saying I'm not selling, you know, my
41:22
Speaker 14: shares at a discount, where investors were saying, look, it's
41:25
Speaker 14: what's happened in the public markets. Companies are trading down
41:29
Speaker 14: thirty forty percent. I'm not buying at these prices. So
41:33
Speaker 14: it was a bit of, you know, a back and
41:36
Speaker 14: forth between the two. And we're at a place now
41:39
Speaker 14: where markets are being made more and trades are happening
41:43
Speaker 14: on average out of forty one percent discount to a
41:46
Speaker 14: company's last funding round, on our platform. So that's a
41:49
Speaker 14: bit of where the market is as sellers capitulate a
41:52
Speaker 14: bit and understand that the market has certainly changed.
41:55
Speaker 1: That's what you call a down round. Brian Lynch, thank
41:58
Speaker 1: you so much for joining us. Really preciate it, Brion Lynch.
42:01
Speaker 1: She's head of market insight at equity Zen kind of
42:03
Speaker 1: dealing in that kind of pre ipo marketplace for a
42:06
Speaker 1: lot of these companies and a lot of individuals looking
42:09
Speaker 1: for some liquidity with their stockholding, so always good to
42:12
Speaker 1: get an update on that market.
42:14
Speaker 7: You're listening to the tape Cat's are live program Bloomberg
42:17
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
42:21
Speaker 7: tune in app, Bloomberg dot com, and.
42:23
Speaker 13: The Bloomberg Business App.
42:24
Speaker 7: You can also listen live on Amazon Alexa from our
42:27
Speaker 7: flagship New York station, Just say Alexa, play Bloomberg eleven thirty.
42:34
Speaker 1: Let's talk commodities. So when you want to talk commodities,
42:37
Speaker 1: you got.
42:37
Speaker 3: To do a couple of things.
42:38
Speaker 1: GLCO go for those of you playing in front of
42:42
Speaker 1: a Bloomberg terminal, that gives you the global commodities prices
42:44
Speaker 1: for energy, metals, ags, all that kind of stuff. It
42:47
Speaker 1: just puts it up on one screen and very helpful
42:49
Speaker 1: to me. And then the second thing you got to
42:50
Speaker 1: do is you got to get a couple of experts
42:52
Speaker 1: from Bloomberg Intelligence, and we got them in studio, both
42:55
Speaker 1: of them. Mike McLoone senior macro strategist for Bloomberg Intelligence
42:59
Speaker 1: based in my maybe. We got them up here for
43:01
Speaker 1: a week, so we pull them in this studio whatever
43:03
Speaker 1: we can. Fernando Valle, he covers all the energy stuff
43:06
Speaker 1: for Bloomberg Intelligence. So we got YouTube gentlemen here with us.
43:11
Speaker 1: Let's start with oil. I don't know, let's go with you, Fernando.
43:15
Speaker 1: I got WTI crude oil seventy two bucks a barrel.
43:18
Speaker 1: It wasn't eighty when your friends at OPEC cut production,
43:21
Speaker 1: but we're.
43:21
Speaker 3: Back down to seventy two.
43:23
Speaker 1: What's the outlook for kind of crude and across the
43:26
Speaker 1: energy space.
43:27
Speaker 15: Well, today we got some really positive numbers on the
43:30
Speaker 15: gasoline and diesel side that can probably give it some
43:33
Speaker 15: give it a little bit of respite from the pain
43:36
Speaker 15: that it suffered since the OPEC cut, and especially because
43:40
Speaker 15: there's the highest net short position in derivatives for both
43:45
Speaker 15: WTI and diesel in over three years. So we see
43:47
Speaker 15: a real coiled technical situation that could generate some short
43:51
Speaker 15: term positive momentum. But you know, as Mike has talked
43:54
Speaker 15: a lot and myself as well, longer term is really
43:58
Speaker 15: about the economy. In the economy is showing signs that
44:01
Speaker 15: it's slowing, we still don't see the FED pivoting to
44:04
Speaker 15: cutting rates. They may slow down their hikes and ultimately
44:08
Speaker 15: that will impact consumption and that will lead to oil
44:11
Speaker 15: prices to struggle to break over eighty through the remainder
44:15
Speaker 15: of the year.
44:16
Speaker 1: And Maddie, here's the Mike McLoone call. As I remember
44:19
Speaker 1: now may have changed long gold, short oil.
44:22
Speaker 10: Still and copper too. Long gold, short oil, short copper.
44:26
Speaker 10: It's basically long gold, short hour commodities.
44:28
Speaker 3: Long gold short commodities. Why am I doing that?
44:32
Speaker 10: The bent towards recession, so let's liquid.
44:35
Speaker 3: It tells us.
44:35
Speaker 10: From commodities right now, Copper is basically on the cust
44:39
Speaker 10: of dropping on the year. It's about unchanged and gold's
44:43
Speaker 10: up eleven percent. Now some of that is because we
44:45
Speaker 10: have this budget impass coming out, but it's the current
44:47
Speaker 10: trajectory and the Fed is still tightening, has been tightening
44:50
Speaker 10: typically for this to reverse, it's an indicase of going
44:54
Speaker 10: to this recession. We need massive amount of liquidity from
44:57
Speaker 10: the FED long and variable lags from easing, and they
45:00
Speaker 10: haven't even started that. So from a commoditis standpoint, I
45:03
Speaker 10: look at crude oil down ten percent on this year,
45:05
Speaker 10: could actually drop another twenty or thirty percent only if
45:08
Speaker 10: we don't head for recession and our colleague on along
45:11
Speaker 10: from Blueberg intelligences, that starts in July, and then I
45:16
Speaker 10: look at it is what stops that, and I'm afraid
45:19
Speaker 10: with this credit crisis, it's just going.
45:20
Speaker 3: To get worse.
45:21
Speaker 12: Can I ask the dumb question here? Gas up three
45:24
Speaker 12: percent in the CPI print today, But based on what
45:27
Speaker 12: you're saying, I think, yay, maybe my gas is going
45:29
Speaker 12: to get cheaper now.
45:30
Speaker 10: So let's go to PPI tomorrow when you want to
45:32
Speaker 10: talk commodities. Fernando smiling. If we can't see him, I
45:34
Speaker 10: can't here, can't see him on radio, but producer pricing
45:38
Speaker 10: is going to come tomorrow. That's a high beta version
45:41
Speaker 10: of PPI. It's basically about two beta. It means two
45:44
Speaker 10: times of CPI and it's dropping at the fastest pace
45:47
Speaker 10: in history. It's highly correlated the commodities. Commodities are collapsing.
45:51
Speaker 10: I think it's going to mimic. The lowest ever, which
45:53
Speaker 10: was from July year over year measure was July two
45:56
Speaker 10: thousand and nine PPI that month that for that year
46:00
Speaker 10: measures down six point nine percent. We're heading towards zech
46:03
Speaker 10: is when we get to July thirteenth this year, it'll
46:05
Speaker 10: measure from the peak it'll be for June PPI. That's
46:08
Speaker 10: when crudeill peaked and commodities peak last year. So what
46:11
Speaker 10: we're seeing is a major flush and indication of a
46:14
Speaker 10: lack of demand pull for nano mention. It might have
46:17
Speaker 10: supply issues, but that lack of the world's tilting towards
46:20
Speaker 10: that recession. Commodities are reflecting it. So I think you're
46:22
Speaker 10: fully going to see more that deflationary trends.
46:24
Speaker 1: All right, against my better judgment, But I'm hearing that
46:28
Speaker 1: you two guys are working on some joint research together.
46:30
Speaker 1: I got an energy analyst who actually covers companies for
46:33
Speaker 1: living commodity strategist.
46:35
Speaker 3: What kind of trouble you guys getting into.
46:37
Speaker 15: Well, we're really discussing the outlook for commodities based on
46:41
Speaker 15: both you know, Mike's top down in my bottoms up analysis,
46:46
Speaker 15: and you know, speaking on the supply side, you're also
46:49
Speaker 15: because of the lower energy prices in Europe, you've had
46:51
Speaker 15: an increase in refinery throughput in Europe. What that means
46:55
Speaker 15: is we're going to get more imports into the East Coast. Remember,
46:59
Speaker 15: we can't really ship a lot of products from the
47:01
Speaker 15: Gulf Coast.
47:01
Speaker 3: And I get like the President, I'm fixing that we have.
47:05
Speaker 15: My vote, okay, and so we get it a lot
47:08
Speaker 15: from Europe. And with that utilization going up, uh, then
47:11
Speaker 15: chances are that we are going to see lower gasoline
47:14
Speaker 15: prices in the East Coast. But again, the biggest driver
47:17
Speaker 15: of gasoling prices is really oil price. And then the
47:20
Speaker 15: only caveat that I say is that we have the
47:24
Speaker 15: biggest net short position in three years. When we get
47:27
Speaker 15: positive numbers like we did today, that could lead to
47:30
Speaker 15: a temporary unwind because everyone's expecting negative numbers and then
47:34
Speaker 15: when they don't come, they have to cover their shorts
47:37
Speaker 15: and that can create a short squeeze in higher prices.
47:39
Speaker 13: But that's temporary.
47:40
Speaker 15: The fundamentals are really not there right now. As Mike
47:42
Speaker 15: was mentioning on the demand poll, and then higher supply.
47:45
Speaker 10: So I can fill up on that. And we're going
47:47
Speaker 10: to probably be calling President Biden a crudel trading maestro,
47:52
Speaker 10: because when he released the SPR last year, a strategic
47:56
Speaker 10: got it, thank you?
47:58
Speaker 1: Which are I just found out our bunch of k
48:00
Speaker 1: under underground in like Oklahoma and Texas or Louisiana or something.
48:04
Speaker 10: Good place to store cruel and sold is salt salt caverns.
48:09
Speaker 3: No idea about that. It's a commodity thing.
48:13
Speaker 10: But the key thing that we were published on is Fernando.
48:15
Speaker 10: His bottom up always helps me with the data I
48:17
Speaker 10: get into the macro. And I like to point out
48:19
Speaker 10: if I've been focused on the massive over production of
48:23
Speaker 10: North America, US and Canada crude oil liquid fields, member,
48:26
Speaker 10: I come from the farm. I have to take ethanol
48:28
Speaker 10: versus consumption that right now on an annual basis is
48:32
Speaker 10: running about one point seven billion barrels. That's about five
48:36
Speaker 10: times a current SPR. That's not an annual one year
48:39
Speaker 10: so back at the the crisis, remember when we had
48:43
Speaker 10: the financial crisis, it.
48:44
Speaker 3: Was the opposite.
48:45
Speaker 10: It was about deficit of four billion barrels. So we
48:48
Speaker 10: have a massive oversupply in the US now Fernando points out,
48:51
Speaker 10: that's the macro. There's issues with with you know, with
48:55
Speaker 10: exports and imports, and you know it's a big country
48:57
Speaker 10: in Canada. Crude ol comes exports to the Gulf. But
49:00
Speaker 10: the fact is the SPR is not eating anymore except
49:03
Speaker 10: for things like hurricanes, because we are no longer in
49:05
Speaker 10: net we're net exporter.
49:06
Speaker 1: So all right, how does the government restock this spr?
49:11
Speaker 1: Did they send some guy downe in the pits and
49:13
Speaker 1: he starts buying oil.
49:14
Speaker 3: Well, here's the way I suggested.
49:16
Speaker 10: That's why he's a maestro. When kamandis aren't backwardation, which
49:19
Speaker 10: means the current price is higher than the further out price,
49:23
Speaker 10: it's best to sell that. And that's what President Biden did. Enough,
49:27
Speaker 10: if you're a trader, you can on paper by those
49:29
Speaker 10: futures and reload on paper and just take the livery.
49:33
Speaker 10: But he basically sold an average price last year of
49:35
Speaker 10: Crudell's ninety three dollars of barrel. So it implies a
49:38
Speaker 10: rough math that we brought in twenty billion dollars of revenue. Now,
49:42
Speaker 10: if he buys back, if we buy back all those barrels,
49:45
Speaker 10: which is about two hundred and twenty million barrels. I
49:47
Speaker 10: think Fernano can confirm that that and be a net
49:50
Speaker 10: cost of about fifteen billion dollars. So net net, the
49:53
Speaker 10: president would have made five billion dollars if we do
49:55
Speaker 10: that soon.
49:57
Speaker 3: Wow.
49:58
Speaker 1: I'd never thought about it that way, So I guess
50:01
Speaker 1: we'll see that.
50:01
Speaker 3: The only thing I do on energy, I mean, you
50:03
Speaker 3: guys do all this stuff.
50:04
Speaker 1: I just look at the daily national average gasoline price
50:07
Speaker 1: for America comes from American Automobile Association. It's three dollars
50:10
Speaker 1: and fifty three cents, starting to trend down a little bit.
50:12
Speaker 1: That's my energy call. But you guys are the experts.
50:14
Speaker 1: We appreciate you coming in. Fernando Valley and Mike mcglohan,
50:17
Speaker 1: they cover all this energy stuff, all the commodity stuff.
50:19
Speaker 1: For Bloomberg Intelligence, they do some great joint research b
50:23
Speaker 1: I COOMD for the commodity stuff, and BIGNTOG that gets
50:31
Speaker 1: you all the integrated oil stuff. So you get that
50:33
Speaker 1: on Bloomberg Intelligence.
50:35
Speaker 7: You're listening to the tape cats are live program Bloomberg
50:38
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
50:42
Speaker 7: tune in app, Bloomberg dot Com.
50:43
Speaker 13: And the Bloomberg Business app.
50:45
Speaker 7: You can also listen live on Amazon Alexa from our
50:48
Speaker 7: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
50:54
Speaker 1: Let's talk about the hotel business kicking into the summer
50:56
Speaker 1: travel season.
50:58
Speaker 3: See what's happening there.
50:58
Speaker 1: We can do that with Patrick Pacious, CEO of Choice Hotels.
51:02
Speaker 1: That's a New York Stock Exchange listed company. CHH is
51:06
Speaker 1: a ticker to put into your Bloomberg terminal. I'm taking
51:08
Speaker 1: a look at it right now. It's done about three
51:10
Speaker 1: point six percent today, up about eight percent year to date.
51:13
Speaker 1: It's got a market cap of about six point two
51:16
Speaker 1: billion dollars. Patrick is the CEO, former Navy officer, so
51:20
Speaker 1: we thank him for service. But for me, the highlight
51:24
Speaker 1: of his resume is he is an undergraduate of the
51:26
Speaker 1: Duke University. Okay, so he can stay. Patrick, thanks so
51:30
Speaker 1: much for joining us here. I know you guys just
51:31
Speaker 1: reported some results here. What were the highlights.
51:35
Speaker 16: Yeah, so we had a very strong first quarter. Actually
51:38
Speaker 16: record revenue and record earnings. RevPAR which is revenue per
51:43
Speaker 16: available room, that's the earnings metric we use at the
51:47
Speaker 16: hotel space was up six percent in the first quarter,
51:51
Speaker 16: and that's pretty remarkable when you look at last year,
51:54
Speaker 16: our first quarter numbers were up ten percent over the
51:57
Speaker 16: pre pandemic levels. So we really see a significant pickup
52:02
Speaker 16: in both demand and in rate in our business, and
52:05
Speaker 16: it's flowing through to our hotels like comfort in and
52:08
Speaker 16: quality in Patrick.
52:11
Speaker 12: Just to ask the Bloomberg question, you guys are struggling
52:13
Speaker 12: a bit down the most in seven weeks here. What's
52:16
Speaker 12: the market getting wrong in its reaction to your earnings?
52:19
Speaker 16: Yeah, I think the market is probably trading a little
52:21
Speaker 16: bit more on macro than it is on looking at
52:25
Speaker 16: the bicro and so of what's going on. You know,
52:27
Speaker 16: when we talk about our long term fundamentals in the
52:30
Speaker 16: travel business right now, there are I call them the
52:34
Speaker 16: four rs. They're rising wages, retirements, remote work, and the
52:38
Speaker 16: rebuilding of America that is going to bring more room
52:41
Speaker 16: nights and more customers to the mid scale hotels, the
52:45
Speaker 16: economy hotels, the extent is stay hotels that we have.
52:48
Speaker 16: You look at rising wages. You know, in February, the
52:53
Speaker 16: Atlanta Fed Tracker shows the average median American salary is
52:57
Speaker 16: six and a half percent higher. Security costs of living
53:01
Speaker 16: adjustment was up eight point seven percent, so consumers have
53:05
Speaker 16: more money. People are retiring more. There's three and a
53:09
Speaker 16: half million people every year who are arriving at retirement age.
53:13
Speaker 16: They want their dollar to stretch further, So staying at
53:15
Speaker 16: a comfort in or a quality in when they get
53:18
Speaker 16: out on the road is important. And then you look
53:21
Speaker 16: at remote work, which has really been pretty interesting. It's
53:25
Speaker 16: spreading out, particularly leisure travel demand as well as business
53:30
Speaker 16: travel into the shoulder days of the weekend. So we
53:33
Speaker 16: have seen occupancy gains on Thursday night and Sunday night,
53:37
Speaker 16: which have traditionally not been part of the weekend of business.
53:41
Speaker 16: And then the rebuilding of America, whether it's the Infrastructure Bill,
53:44
Speaker 16: the Chips Act, the incredible amount of manufacturing construction that's
53:48
Speaker 16: going on across our country as companies are looking to
53:53
Speaker 16: bring the supply chain back home. We're really seeing all
53:56
Speaker 16: of that create demand in the long term hotels that
54:01
Speaker 16: are in our portfolio.
54:02
Speaker 1: So looking at your portfolio more, I guess on the
54:05
Speaker 1: affordable side, I guess you guys would characterize it, but
54:07
Speaker 1: I know you've had some plans to kind of lean
54:09
Speaker 1: in a little bit into this extended stay side of
54:11
Speaker 1: the business. Talk to us about that strategy and what
54:13
Speaker 1: the competitive landscape looks there.
54:15
Speaker 16: Yeah, it's really a fortunate mismatch between supply and demand.
54:20
Speaker 16: So demand for extended stay product, meaning a hotel room
54:25
Speaker 16: that has a kitchen to it, has a living area
54:27
Speaker 16: to it, is really double what the purpose built supply
54:31
Speaker 16: is in the United States, and so we have really
54:35
Speaker 16: leaned in, particularly in the last five years. We're the
54:37
Speaker 16: growth leader in that segment brands like Woodspring Suites, Everholme Suites,
54:41
Speaker 16: Mainstad Suburban and it's really for people who are staying
54:45
Speaker 16: twenty to thirty nights in a location, and the demand
54:49
Speaker 16: drivers for that are things like traveling nurses, folks who
54:52
Speaker 16: need to be on site in a particular location for
54:56
Speaker 16: more than a week's time and really having that mid
54:59
Speaker 16: mid price product for them is something consumers are looking
55:02
Speaker 16: for and businesses are looking for. And we've got some
55:04
Speaker 16: great brands to meet that need.
55:06
Speaker 1: But I mean, you've got some competition there, Marriott, Hilton, Hyatt,
55:10
Speaker 1: they're there too.
55:10
Speaker 3: How do you position yourself.
55:12
Speaker 16: Well, we really position it with we have a proven
55:14
Speaker 16: operating model. So it's one thing to say you're an
55:17
Speaker 16: extended stay hotel, but for us, five nights is not
55:19
Speaker 16: an extended stay. We're talking twenty nights, and that's really
55:23
Speaker 16: the base of business that we have in our hotels.
55:26
Speaker 16: We have a bit of a first mover advantage. We
55:28
Speaker 16: have a pretty effective install base of over four hundred hotels,
55:33
Speaker 16: and we've been growing the number of hotels in that
55:35
Speaker 16: segment at double digit compound annual growth rates and we
55:39
Speaker 16: expect that to last for the next five years.
55:42
Speaker 12: Paul brings up a great point about competition though, and
55:44
Speaker 12: the long term stay piece makes me think about Airbnb.
55:48
Speaker 12: Not a great outlook from them today. Is that good
55:51
Speaker 12: or bad news for you?
55:52
Speaker 16: You know, they really don't compete where we do, so
55:55
Speaker 16: there I think their average daily rate from a year
55:58
Speaker 16: ago was like one hundred and fifty dollars. Ours system
56:01
Speaker 16: wide is more like ninety eight dollars, so we're playing
56:04
Speaker 16: in a lower price point. We also play in a
56:06
Speaker 16: lot of secondary and tertiary travel markets where there's just
56:10
Speaker 16: less Airbnb inventory. Airbnb tends to be more urban, more
56:14
Speaker 16: destination type driven. And then our length of stay for
56:19
Speaker 16: our transient hotels is usually one to two nights, not
56:22
Speaker 16: where Airbnb is more like a week. And then extended
56:25
Speaker 16: stay is on the other side of the spectrum. As
56:27
Speaker 16: I said in that twenty night range, so we're not
56:29
Speaker 16: really a direct in competition for them at that same
56:33
Speaker 16: price point, so it gives us a real opportunity I think,
56:35
Speaker 16: to go after those consumers who are looking to stretch
56:38
Speaker 16: their dollars.
56:39
Speaker 12: That makes a lot of sense, and thanks for explaining that.
56:41
Speaker 12: But I do wonder Airbnb's saying, yikes, we're expecting a
56:45
Speaker 12: decrease in travel. Are you concerned about that broader outlook
56:49
Speaker 12: impacting you at all.
56:51
Speaker 16: We're not looking at long term decrease in travel. In fact,
56:54
Speaker 16: we just had two weeks ago now about five thousand
56:58
Speaker 16: of our owners and general managers to together at our
57:00
Speaker 16: annual convention. They come from all over the country and
57:03
Speaker 16: actually all over the world. They're pretty optimistic and as
57:06
Speaker 16: an industry, because supply growth has been fairly muted over
57:10
Speaker 16: the last two years, demand is going to hit record
57:13
Speaker 16: levels in twenty twenty four and twenty twenty five, So
57:16
Speaker 16: we feel really confident about the long term health of
57:19
Speaker 16: the consumer traveling, particularly in the in the midpoint mid
57:23
Speaker 16: price range where our hotels compete.
57:25
Speaker 1: Hey, Patrick, I'd love to get your thoughts on kind
57:27
Speaker 1: of for your brands, your customer, whether it give us
57:31
Speaker 1: a sense of you know, vacation traveler, leisure traveler versus
57:34
Speaker 1: maybe a business traveler. What's your makeup now and what
57:37
Speaker 1: trends are you seeing with those two?
57:39
Speaker 16: Yeah, our traditional mix is about seventy percent leisure travel,
57:42
Speaker 16: about thirty percent business travel. As I said, the size
57:47
Speaker 16: of the pie of leisure travel is getting larger. It's
57:49
Speaker 16: driven by those factors I talked about, you know, remote
57:53
Speaker 16: work and retirements and the like. But what we're seeing
57:56
Speaker 16: also on the business travel side. Our industry verticals are
57:59
Speaker 16: what we call well, we play in both suits and boots,
58:02
Speaker 16: but it's really the boots side of the business, the construction, logistics,
58:06
Speaker 16: transportation verticals that are really expanding right now with a
58:11
Speaker 16: lot of those trends I talked about earlier.
58:13
Speaker 12: I wonder about the business travel side because when we
58:16
Speaker 12: talk to some of the airlines, they've said it's tough
58:19
Speaker 12: when business travel decreases because those are the big spenders.
58:23
Speaker 12: Employees are able to spend a little more when it's
58:26
Speaker 12: not their money being The idea is the decrease in
58:29
Speaker 12: business travel hitting you guys at.
58:31
Speaker 16: All, it's not. It's really we're not back to the
58:35
Speaker 16: twenty nineteen levels yet, but we still are fairly close.
58:39
Speaker 16: We seem to inch closer and closer to it each
58:41
Speaker 16: each quarter. You know, when you look at the airline
58:43
Speaker 16: business versus ours, we're primarily in drive two locations. We
58:47
Speaker 16: have six thousand hotels in the United States. Four thousand
58:50
Speaker 16: of those are within one mile of an interstate exit.
58:53
Speaker 3: Cracker that's a cracker bottle.
58:55
Speaker 16: Just travel gets tougher, consumers are more willing to get
58:58
Speaker 16: on the road, and we're in all the destinations you
59:00
Speaker 16: want to go to, and we're everywhere along the way.
59:02
Speaker 16: That's the way we think about it. So it really
59:05
Speaker 16: gives us an opportunity, I think as people might turn
59:07
Speaker 16: away from air travel and more into drive to locations,
59:11
Speaker 16: for us to pick up business along the way.
59:13
Speaker 3: Patrick, you mentioned kind of a limited supply.
59:15
Speaker 1: Does that lead you to build morete motels around the country.
59:20
Speaker 16: Certainly that limited supply in that extended stay segment, that's
59:23
Speaker 16: exactly what we're seeing. It is probably the highest demand
59:27
Speaker 16: for hotel development right now is in that segment. It's
59:30
Speaker 16: as you mentioned, there's a lot of other competitors who
59:33
Speaker 16: are trying to get into the space, but it is
59:34
Speaker 16: something that we are continuing to see a lot of
59:37
Speaker 16: interest where we play. The price point we play out
59:41
Speaker 16: to build a mid scale extended stay hotel is probably
59:44
Speaker 16: about a twenty million dollar all in project, and so
59:48
Speaker 16: our franchisees generally tend to put about fifty percent of
59:51
Speaker 16: the equity in, so the amount of debt that they
59:55
Speaker 16: have to take on is not as significant as is
59:57
Speaker 16: if you're building a luxury hotel. So we are seeing
1:00:00
Speaker 16: our pipeline about nine hundred and twenty five hotels today
1:00:04
Speaker 16: and our pipeline, and about fifty percent of that is
1:00:06
Speaker 16: already financed, either because it's an extended stay hotel that's
1:00:11
Speaker 16: already about to open, or we do a lot of
1:00:14
Speaker 16: conversions from other brands and independent hotels into our brands,
1:00:17
Speaker 16: and generally that dollar amount to convert from another brand
1:00:21
Speaker 16: into our hotels is a much smaller check to write
1:00:23
Speaker 16: and usually self financed by the asset itself.
1:00:25
Speaker 3: Gotcha all right, Patrick, thank you so much for joining us.
1:00:27
Speaker 1: Really appreciate getting the update on your company and on
1:00:30
Speaker 1: the hotel motel space. Patrick Pacious, CEO of Choice Hotels.
1:00:37
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1:00:46
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1:00:47
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