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Lilly’s Zepbound Cuts Risk of Diabetes · Bloomberg Intelligence

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Speaker 3: Alex Delaul Sweeney live here in our Bloomberg Interactive Brokers
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Speaker 3: Ahead over to YouTube dot com and search Bloomberg Podcast
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Speaker 3: and that's where you'll find this. Eli Lilly stock's hitting
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Speaker 3: it up four percent today, all time high stocks up
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Speaker 3: like fifty eight percent year to date. Patients taking Eli
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Speaker 3: Lilli's blockbuster weight loss shot We're ninety four percent less
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Speaker 3: likely to develop diabetes in a three year study that
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Speaker 3: illuminates the long term health benefits of treating obesity and Alex.
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Speaker 3: As you mentioned, these are just like wonder drugs.
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Speaker 5: I mean, it definitely feels like they're all magical.
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Speaker 3: They're magical thing. Yeah, they cure everything. So I need
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Speaker 3: to figure out what's going on here. Sam Fazzelli he
1:03
Speaker 3: joined to SEE as the director of Research for Global Industries.
1:05
Speaker 3: He's a senior pharmaceutical analyst. That that's his day job
1:08
Speaker 3: for Bloomberg Intelligence. And believe it or not, he's actually
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Speaker 3: at his desk in the London.
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Speaker 5: He was in Bordeaux on Friday, and I was gonna.
1:15
Speaker 3: Say I expected him to be in some dialing from
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Speaker 3: some exotic locale in Europe somewhere, but he's actually this
1:22
Speaker 3: is exotic.
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Speaker 4: Look yeah, exactly.
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Speaker 5: The ceiling looks pretty cool, all right.
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Speaker 3: So Sam, I mean, well, thank you for coming into
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Speaker 3: work as opposed to your peers there Bi Sam talk
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Speaker 3: to us about Eli Lilly, their drugs here and obese.
1:35
Speaker 4: These numbers just jump out at you, don't.
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Speaker 6: They They do, they do.
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Speaker 7: But let me take you back a little bit where
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Speaker 7: we not always told we went to the doctor and
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Speaker 7: we started glucose was going up. Not not you guys,
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Speaker 7: obviously you're a fascinatingly amazingly healthy and fit, but those
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Speaker 7: who weren't and told you need to lose some weight
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Speaker 7: to my friend, because you have risk of developing diabetes.
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Speaker 7: So where is the if you reduce weight and manage
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Speaker 7: the obesity, you lose all these you know, I'll be
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Speaker 7: suppeating this thing, sleep APNA, risk of developing diabetes, everything
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Speaker 7: that we're talking about here. You eat less, you lose
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Speaker 7: weight less risk of developing diabetes, So not exactly a shock. Nevertheless,
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Speaker 7: it's great to see that it actually does what it
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Speaker 7: says under tin that by reducing weight you do manage
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Speaker 7: all these side effects. But before we get too excited,
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Speaker 7: I want to highlight one little wrinkle here. It's no
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Speaker 7: wrinkle with the data if you read the press release,
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Speaker 7: and I've got it right up here on my terminal
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Speaker 7: eli Leui coming announced today positive top line results from
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Speaker 7: this amount one a three year study, one hundred and
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Speaker 7: seventy six week treatment period. Find me somebody who stayed
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Speaker 7: in the real world on this drug for one hundred
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Speaker 7: and seventy six weeks, so we survey physicians. But if
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Speaker 7: we find forty weeks, I'm sure it's going to go up.
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Speaker 7: But that very different setting. So how much of a
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Speaker 7: real world will this actually translate into in terms of
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Speaker 7: preventing diabetes.
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Speaker 6: Time will tell.
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Speaker 8: So you're not saying that the study was bogus. You're
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Speaker 8: saying the study was real. But in reality, people don't
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Speaker 8: stay that long on the drug. Therefore the results won't
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Speaker 8: be as magical for them.
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Speaker 7: Right in clinical trials, you get the best possible data
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Speaker 7: basically because it's highly controlled.
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Speaker 6: People are followed, you make sure that they stay on.
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Speaker 7: There would probably have been people who have dropped off here,
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Speaker 7: so maybe the actual average treatment period wasn't exactly one
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Speaker 7: hundred and seventy six weeks for everybody, because people do
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Speaker 7: drop off. And I'm assuming in this trial the data
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Speaker 7: they're reporting to us is what's called intent to treat,
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Speaker 7: i e.
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Speaker 6: You've intended to treat that patience.
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Speaker 7: Whatever happens to them, you still count them, even if
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Speaker 7: they've fallen off the drug. Nevertheless, we need to see
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Speaker 7: the detail. But in a trial setting things always look
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Speaker 7: better than in real world. So here we have to remember.
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Speaker 7: Average stay time according to our is that Mike show
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Speaker 7: My colleague runs every six months. It's about forty weeks,
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Speaker 7: similar to what we get for we go VI and people,
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Speaker 7: and even the press release they say as soon as
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Speaker 7: they came off, weight went back up and the risks
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Speaker 7: started going up again of developing diabetes. So this is
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Speaker 7: not something that you've cleaned it all up. I can
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Speaker 7: stop now at one hundred and seventy six and I'm done.
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Speaker 7: It's the same story over again.
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Speaker 4: Right, exactly.
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Speaker 3: So I mean, so look at the stock for Eli
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Speaker 3: literly Sam, I say, it's up sixty four percent year
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Speaker 3: to date, all time high.
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Speaker 4: How much of this stock performance is these glps?
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Speaker 7: Oh gosh, if you know, if you look at the
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Speaker 7: chart and look at the flow of information and news
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Speaker 7: and the upgrades et cetera that are coming to quarterlies,
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Speaker 7: every quarterly result et cetera, to sales, I would say
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Speaker 7: a meaningful chunk of this. I can't quantify it exactly
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Speaker 7: because this is a company that's got other stuff going
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Speaker 7: on Alzheimer's disease, oncology, you know, the skin diseases, et cetera.
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Speaker 7: So this is not a one trick pony, but a
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Speaker 7: large amount of this story. And you can tell by
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Speaker 7: when somebody reports a positive result in a competitor setting.
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Speaker 6: These stocks sell off four or five percent.
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Speaker 7: Right, You remember the days with rash only three or
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Speaker 7: four weeks ago, I think, right, And let's not forget
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Speaker 7: in a few weeks time, we have the European Association
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Speaker 7: for the Study of Diabetes Russia's data is coming out.
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Speaker 7: Somebody is going to be up three or four percent
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Speaker 7: that day, and somebody's going to be down three or
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Speaker 7: four percent who it is.
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Speaker 6: We'll see what the data says.
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Speaker 8: So the point that you made that if people come
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Speaker 8: off it and they gain the weight back, so in
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Speaker 8: that sense, it's not like everlastingly magical. Will there be
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Speaker 8: iterations though where that won't be the case.
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Speaker 6: There's two ways of doing dealing with this.
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Speaker 7: So you go on the drug, you come off the drug,
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Speaker 7: you go back on the drug, you come off the drug,
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Speaker 7: and you just do your cycling every few years after
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Speaker 7: you've got to a point where you think, I don't
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Speaker 7: know why people come off the drug necessarily on an
5:55
Speaker 7: average is it side effect tends to get a lot
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Speaker 7: better over time, and.
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Speaker 6: Maybe it's cost.
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Speaker 7: Maybe it's because they're fed up begin taking an injection
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Speaker 7: every week. So if you put all those things together,
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Speaker 7: as they get cheaper and injections become once a month,
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Speaker 7: maybe or they become oral for the maintenance phase of
6:12
Speaker 7: the dose, and that oral doesn't make you feel ill,
6:15
Speaker 7: feel ill every time you take it in terms of
6:18
Speaker 7: gastric intestinal maybe that's the future. Maybe there are other modalities.
6:23
Speaker 7: Amlin is one that Nova Notice and Zealand Farm are
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Speaker 7: developing as a target that seems to have less side
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Speaker 7: effect issues. Maybe you can maintain your weight loss by
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Speaker 7: those drugs which don't have the same side effect issue.
6:39
Speaker 7: So that has to be the way that you see it.
6:42
Speaker 7: But nobody ever complies with the drug forever.
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Speaker 3: Right When do the pharmaceutical companies SAM have a timetable
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Speaker 3: for when they will have a pill format as opposed
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Speaker 3: to an injection.
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Speaker 7: Yeah, so they're all trying to develop them. There are
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Speaker 7: a couple of companies Russia and Astros and a Covich.
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Speaker 7: I've got what we would call traditional potentially small molecules
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Speaker 7: that comes in a pill, so it's not the same
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Speaker 7: biologic that you're currently seeing. The folks who are developing
7:10
Speaker 7: these same glpe GPS, et cetera. Are also trying to
7:14
Speaker 7: formulate them so that they can be taken orally. The
7:16
Speaker 7: trick there is if it starts releasing in the stomach,
7:19
Speaker 7: you need to take them on an empty stomach so
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Speaker 7: that you get absorption.
7:22
Speaker 6: If you take them on a full stomach, then they
7:24
Speaker 6: have a problem.
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Speaker 7: So that becomes a bit of a headache for somebody
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Speaker 7: who gets up in the morning decides to eat or
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Speaker 7: not eat, and then they also get side effects. So
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Speaker 7: I would say three or four years there is already
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Speaker 7: a diabetes version, Robeltsi's on the market as an oral.
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Speaker 6: But let's say three or four years.
7:42
Speaker 5: What about heart disease? Does it actually cure heart or
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Speaker 5: reduced death? I should say, and heart disease?
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Speaker 6: Yeah, yeah, we know that already. We do we do,
7:50
Speaker 6: we do, we do that.
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Speaker 7: We know that already from the cardiovascular outcomes trials, the
7:54
Speaker 7: sea VOTs that they've done, at least for Novo, I'd
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Speaker 7: be very shocked if, if, if Lily doesn't get the
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Speaker 7: same result.
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Speaker 3: So for those on YouTube, there is literally no one.
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Speaker 5: I tak two people, two people.
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Speaker 6: In Sam's guys. It's it's five, it's three thirty here,
8:11
Speaker 6: it's tea time. We're in England. It's they're all up
8:14
Speaker 6: there having their tea.
8:15
Speaker 5: Tree thirty in the afternoon. Man pauls on the beach
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Speaker 5: at that. Yeah, you're on the beach at b there
8:22
Speaker 5: you go.
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Speaker 6: All right, Hey, Sam, I turned my camera that way.
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Speaker 6: You see a lot more people.
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Speaker 4: Okay, give me, we got like thirty seconds left here.
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Speaker 3: What what's the exciting thing that you and your team
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Speaker 3: are working on in terms of, you know what some
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Speaker 3: of these treatments are out there that people need to
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Speaker 3: be paying attention to.
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Speaker 6: Yeah in general, I mean or we see the diabetes general.
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Speaker 7: Okay, So we've got three three conferences coming up that
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Speaker 7: we're all excited to buy. And as I said, the
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Speaker 7: European Diabetes Conference. There RASH will get the data and
8:49
Speaker 7: we'll get some cuts of other data that would be
8:51
Speaker 7: an interesting one to look at. For ASMO European Oncology Conference,
8:56
Speaker 7: new data coming out, some press releases today for potentially
8:59
Speaker 7: surprising data. And then the World Lung Conference where we
9:03
Speaker 7: have some new modalities being presented. All of them will
9:06
Speaker 7: have something funky going on. And for the cancer ones,
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Speaker 7: we have a webinar coming up hopefully for our clients.
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Speaker 4: Very good. Sam Fazzelli, thank you so much.
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Speaker 3: As always, director of Research for Global Industries. I'm not
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Speaker 3: sure what that means. You should just be head of
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Speaker 3: European Research when I was part of this thing, but
9:20
Speaker 3: they've changed it all up here. Most importantly, he's one
9:24
Speaker 3: of the top pharmaceutical and biotech analysts a city of London,
9:28
Speaker 3: and we got him at Bloomberg Intelligence and Bordeaux, France
9:31
Speaker 3: and Bordeaux friends exactly. I mean, you know again, I'm
9:34
Speaker 3: waiting for the invite for us to go over there,
9:36
Speaker 3: and I.
9:36
Speaker 5: Got a picture.
9:37
Speaker 4: You got pictures?
9:38
Speaker 8: Yeah, I got a picture from Friday. Okay, it's an
9:40
Speaker 8: old pick, but still it was something.
9:42
Speaker 4: Yeah, he's got like a horse farm there or something.
9:44
Speaker 5: I don't know whatever. Sam's just really cool, Okay, and
9:46
Speaker 5: we just totally love him.
9:48
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10:06
Speaker 4: Let's go to Tesla.
10:08
Speaker 3: The stock's pretty much unchanged today. It's down about ten
10:11
Speaker 3: percent year to date. It's flat over trailing twelve months.
10:14
Speaker 3: Looks like the EU is looking to slap some terraffs
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Speaker 3: on some of these Tesla vehicles that are coming that
10:20
Speaker 3: are made in China.
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Speaker 4: Is this a big deal? The market doesn't seem to
10:24
Speaker 4: think so. The stock's not doing a whole lot.
10:26
Speaker 6: Here.
10:26
Speaker 3: Craig Trudell joins US Global Autos editor for Bloomberg News,
10:29
Speaker 3: joining us from London via zoom.
10:31
Speaker 4: Craig, what's the latest coming out of the EU.
10:34
Speaker 6: Here?
10:34
Speaker 4: As it relates to Tesla.
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Speaker 9: Yeah, this is a case of Tesla having a bit
10:39
Speaker 9: of a special situation where other manufacturers are subject to
10:44
Speaker 9: terraffs on the basis and part of whether or not
10:48
Speaker 9: they cooperated with the EU's investigation of just how much
10:51
Speaker 9: they were subsidized by the Chinese government. And what the
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Speaker 9: EU did here was they sampled a few companies and
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Speaker 9: sort of, you know, took a specific look at a
11:02
Speaker 9: few manufacturers and made decisions based on what they found
11:05
Speaker 9: and on whether or not those companies complied with those investigations.
11:09
Speaker 9: And you know, some separate rates were going to be
11:12
Speaker 9: applied to companies that were not sampled. What Tesla did
11:17
Speaker 9: was go to Brussels and say, look, we don't think
11:21
Speaker 9: that we were subsidized as much as some of the
11:23
Speaker 9: other guys, so subject us to a lower duty rate.
11:27
Speaker 9: And that's what happened here. So they're subject to a
11:29
Speaker 9: nine percent tariff byd on the other hand, an additional
11:34
Speaker 9: seventeen percent. All of these rates are on top of
11:37
Speaker 9: the existing ten percent that cars coming in from China
11:40
Speaker 9: face when they are shipped into the EU. And so
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Speaker 9: I guess, you know, if I'm an investor, I sort
11:46
Speaker 9: of knew that this was coming, had a sense that Tesla,
11:50
Speaker 9: you know, there was a potential for you know, a
11:54
Speaker 9: slightly more lenient treatment. But in the end, am I
11:57
Speaker 9: happy about Model three is being subject to nineteen duties
12:02
Speaker 9: you know coming in from Shanghai?
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Speaker 6: Probably not.
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Speaker 8: Does this mean that Elon Musk will want to manufacture
12:07
Speaker 8: more Tesla's in Germany then? Or is he just going
12:10
Speaker 8: to cut bait?
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Speaker 9: I think it's a really interesting question. I mean, the
12:15
Speaker 9: model why is far and away, you know, the model
12:19
Speaker 9: for Tesla globally, and I think increasingly so. Even as
12:23
Speaker 9: as the company has you know, given a little bit
12:25
Speaker 9: of a facelift to the Model three, the why is
12:29
Speaker 9: really you know, the volume play for them, and they
12:31
Speaker 9: make those in Germany. It wouldn't be a cinch to
12:35
Speaker 9: add Model three to the to the plant in Germany.
12:38
Speaker 9: But you know, does it does it make a lot
12:40
Speaker 9: more sense to build that vehicle there as opposed to
12:44
Speaker 9: shipping it in from China. It may, you know, be
12:47
Speaker 9: in their best interest to do so. The nineteen percent
12:51
Speaker 9: duty is substantial enough to where it certainly has to
12:55
Speaker 9: make the math much more interesting in terms of whether
12:58
Speaker 9: or not they decide to pull that trigger.
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Speaker 3: So from the EU's perspective here, is this a Tesla
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Speaker 3: issue or is this just a China issue because I
13:07
Speaker 3: know they've got tarifs on other Chinese manufacturers as well.
13:11
Speaker 6: Yeah.
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Speaker 9: I think the reason that that you know, Tesla is
13:14
Speaker 9: sort of being led with today and how this is
13:16
Speaker 9: getting covered is is Tesla, you know, was was sort
13:20
Speaker 9: of separate from everybody else looking to be assessed on
13:23
Speaker 9: its own.
13:24
Speaker 6: Uh.
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Speaker 9: Whereas all the other manufacturers, uh, you know, the duty
13:28
Speaker 9: rates were known, Tesla was was still a little bit
13:31
Speaker 9: of a mystery. So this is you know, sort of
13:34
Speaker 9: one one more sort of checked box in terms of,
13:36
Speaker 9: you know, what the particulars are going to be for
13:39
Speaker 9: these duties that go into effect later this year. And
13:41
Speaker 9: you know, I think this is very sort of par
13:43
Speaker 9: for the course for anything that gets you know, decided
13:46
Speaker 9: by the European Commission. Uh, it gets decided over and
13:49
Speaker 9: over and over again. And so this is very much
13:52
Speaker 9: a broader China story. Uh. And and not Tesla specific.
13:55
Speaker 8: Did Tesla evs that are manufactured in China even make
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Speaker 8: it into the EU and that point into the US
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Speaker 8: or no?
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Speaker 9: Yeah, the model all the Model three's that that are
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Speaker 9: sold in Europe are coming from Shanghai at the moment,
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Speaker 9: and uh, you know, so whether or not the company
14:12
Speaker 9: maybe uh perhaps they would potentially look at, you know,
14:17
Speaker 9: exporting from the US. I don't think we have a
14:19
Speaker 9: good enough sense of, you know, the particulars of their
14:22
Speaker 9: cost base to really sort of you know, be able
14:25
Speaker 9: to say what makes the most sense for them, uh,
14:28
Speaker 9: you know, sort of immediately as a result of this
14:31
Speaker 9: change in tariffs that will go into place. But it
14:34
Speaker 9: has been interesting that we have seen the company, even
14:37
Speaker 9: before these tariffs actually take effect, bump up their prices
14:40
Speaker 9: in Europe a little bit, and you've maybe seen that
14:43
Speaker 9: result in in some some challenges for them sales wise,
14:46
Speaker 9: where they've not had a very good start to the year,
14:50
Speaker 9: and that's even carried in into the second half where
14:53
Speaker 9: you know, the initial sales results that we've seen for
14:56
Speaker 9: Tesla have not been particularly good. I think the fact
14:59
Speaker 9: that they've not and able to continue to bring prices
15:02
Speaker 9: down and have sort of you know, been unsure whether
15:06
Speaker 9: or not all of the model threes that they're they're
15:08
Speaker 9: shipping into into the EU from China maybe subject to
15:13
Speaker 9: these tariffs. It has been absolutely a headwind.
15:17
Speaker 4: For them all right, Greig, thanks so much for joining us.
15:19
Speaker 4: Really appreciate it.
15:20
Speaker 3: Craig Trudell, a Global autos editor for Bloomberg News, joining
15:23
Speaker 3: us from London Q headquarters.
15:26
Speaker 4: There in London, you're listening.
15:29
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15:44
Speaker 8: Well, Alex you alongside Paul Sweeney, is a Bloomberg Intelligence Radio.
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Speaker 8: We are broadcasting to live from Interactive Broker Studio right
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Speaker 8: here in New York City. You can also check us
15:53
Speaker 8: out on YouTube as well. So back to the markets. Yeah,
15:56
Speaker 8: I appreciate nothing's really happening in the broader equity market.
15:59
Speaker 8: You are seeing little bit buying coming into the bond market,
16:01
Speaker 8: particularly in the front end. We all look towards Jackson Hole.
16:04
Speaker 8: I'm really into that revision of the labor data that
16:06
Speaker 8: we're going to get tomorrow. Is the FED going to
16:09
Speaker 8: be particularly behind the curb, But we wanted to get
16:11
Speaker 8: a professional to weigh in on all of this, and
16:13
Speaker 8: Dryden Pence is Chief Investment Officer at Pence Wealth Management
16:16
Speaker 8: and he joined us now in the studio Dryden.
16:19
Speaker 5: What do you think, what do you think we're going
16:20
Speaker 5: to learn this week.
16:22
Speaker 10: I think we're going to learn this week that the
16:23
Speaker 10: much predicted, you know, September rate cut is on the table,
16:29
Speaker 10: that labor data is probably going to be revised a
16:32
Speaker 10: little bit. I think people forgot that a lot of
16:34
Speaker 10: the labor data was affected by weather, and so you
16:37
Speaker 10: had people that were temporary or layoffs or things like that,
16:39
Speaker 10: so you get these anomalies that are when we've all
16:41
Speaker 10: witnessed weather here lately in New York City, so those
16:45
Speaker 10: things have caused it to.
16:46
Speaker 4: Change a little bit.
16:47
Speaker 10: I think we'll find September's on the table. I think
16:49
Speaker 10: that we'll find that the economy is still robust and
16:53
Speaker 10: not as I mean, while it's slowing, it's not slowing
16:56
Speaker 10: to the level that others were talking about. So I
16:57
Speaker 10: think we're going to find a benign move to a
17:01
Speaker 10: quarter cut in September, and then we're data dependent to
17:04
Speaker 10: see what happens in December.
17:06
Speaker 3: We're just finishing up I guess this week kind of
17:08
Speaker 3: earnings here. We've got some retailers coming in as well
17:10
Speaker 3: as in Nvidia coming up to kind of put a
17:13
Speaker 3: punctuation mark on it next next week, What did you
17:15
Speaker 3: make of the earnings season we just had.
17:17
Speaker 4: I think it's been a robust earning season.
17:18
Speaker 10: I mean, the point of the matter is is is
17:20
Speaker 10: you know, you had this growth scare that freaked everybody
17:22
Speaker 10: out a couple weeks ago. But I mean the point
17:24
Speaker 10: of matter is is that we're seeing the broadening out
17:28
Speaker 10: of earnings. The earning situation is that we've you know,
17:31
Speaker 10: earning recessions, you know, rolling recessions turned into rolling recoveries,
17:35
Speaker 10: and so you're seeing the earnings of the rest of
17:37
Speaker 10: the four ninety three of the S and P five
17:39
Speaker 10: hundred begin to move forward and come out. You're seeing
17:42
Speaker 10: about seven eight percent to thirteen percent earnings growth there,
17:46
Speaker 10: and that bodes well for the whole broader part of
17:48
Speaker 10: the market. So we're moving from magnificent seven, where Nvidia
17:52
Speaker 10: accounts for all the earnings growth, to the rest of
17:55
Speaker 10: the market moving forward. So that does one of two things.
17:58
Speaker 10: It either puts a floor on it by making it
18:00
Speaker 10: stronger and stable, or it moves the market forward as
18:05
Speaker 10: we go through the rest of the.
18:07
Speaker 8: Year, but only for those that actually had that earnings growth,
18:10
Speaker 8: So where did you see it? For example, like Bank
18:13
Speaker 8: of America's had all their clients bought everything last week except.
18:15
Speaker 5: For energy and industrials, Like, where do you see that growth?
18:18
Speaker 5: Where do you not?
18:19
Speaker 6: Well?
18:19
Speaker 10: I think the issue is I begin to see as
18:22
Speaker 10: we look at this later part of the cycle, we're
18:25
Speaker 10: going to see industrials begin to do better. And we
18:28
Speaker 10: think we're going to see industrials and small caps, and
18:31
Speaker 10: you're beginning to see pieces of that. I mean, most
18:34
Speaker 10: companies are beating their earnings growth estimates. As that's all
18:37
Speaker 10: come out, we're almost all the way through earning the season.
18:39
Speaker 10: But I think as you get into late third quarter
18:42
Speaker 10: and fourth quarters, we're moving through this and you're going
18:44
Speaker 10: to see companies begin to publish and begin to show
18:48
Speaker 10: even better earnings going forward. So it's again it's the
18:50
Speaker 10: broadening out of the S and P five hundred and
18:53
Speaker 10: also small caps and industrials. We think that are going
18:56
Speaker 10: to continue to see a regular cad of improvement.
19:02
Speaker 3: One of the companies on your list was actually in
19:04
Speaker 3: the news this week. A m D is a company
19:06
Speaker 3: that's on your list. They made an acquisition of ZT Systems,
19:09
Speaker 3: which is technology company based in the bustling technology hub
19:13
Speaker 3: of Secaucus, New Jersey.
19:15
Speaker 4: I know, what's your AMD call.
19:18
Speaker 10: We have been We've liked a m D for a
19:20
Speaker 10: very long time, and we've owned it from the when
19:24
Speaker 10: it was in some of our portfolios since it was
19:26
Speaker 10: a you know, a small cap and just out there.
19:29
Speaker 10: Now it's all the way, it's you know, moved up tremendously.
19:31
Speaker 10: So we liked it for a very long time. We
19:34
Speaker 10: like a m D here too, in terms of what
19:37
Speaker 10: they're doing with their company. You know, there's sort of
19:39
Speaker 10: the number two in a lot of spaces, not only
19:41
Speaker 10: the advanced stuff but just kind of the everyday chips.
19:44
Speaker 10: We've always said by chips on dips uh. And so
19:48
Speaker 10: we think that with with AI, with everything going on,
19:51
Speaker 10: this is a this acquisition is a MD kind of
19:54
Speaker 10: you know, getting really serious about going after Nvidiah and
19:58
Speaker 10: so I like companies that are number two and hungry.
20:01
Speaker 5: Okay, So it's like an AMD not and video story
20:04
Speaker 5: for you, right, gotcha? You also like Chipotle?
20:08
Speaker 6: I do?
20:09
Speaker 5: And do you like it without the CEO Brian Nikol, Well.
20:12
Speaker 10: The point that makes a big difference in Starbucks needed
20:16
Speaker 10: to make a change. There's probably a good move there.
20:18
Speaker 4: But when you think.
20:19
Speaker 10: About the consumer, consumers are what we call it, have
20:23
Speaker 10: now become more conscious. You know, at one point, coming
20:26
Speaker 10: out of the pandemic, it was going to buy anything
20:28
Speaker 10: at any price because everybody who had to all this liquidity.
20:31
Speaker 10: Now we're seeing that the consumers being pickier.
20:34
Speaker 4: They want value.
20:35
Speaker 10: This is why if you contrast Chipotle and McDonald's, I mean,
20:39
Speaker 10: fast food is supposed to be fast and cheap, and
20:41
Speaker 10: one becomes neither, right, then people move away from it.
20:44
Speaker 4: And you saw that with McDonald's.
20:45
Speaker 10: With Chipotle, people are seeing value in what they're spending.
20:49
Speaker 10: So you're continuing to see, Okay, it's worth the extra
20:52
Speaker 10: money for what I'm getting, and I'm paying for that,
20:54
Speaker 10: and so that becomes a more stable, stable move. So
20:57
Speaker 10: we think that the whole story here is about a
21:00
Speaker 10: conscious consumer. They're still spending money, more people are making
21:04
Speaker 10: more money than ever before, and they're spending it, but
21:07
Speaker 10: they're being more discerning about it and they're being a
21:10
Speaker 10: little pickier.
21:11
Speaker 3: What do you think about the consumer here? Does that
21:14
Speaker 3: a lot of folks are saying there's really at least
21:16
Speaker 3: two consumers out there, the ones I own risk assets,
21:19
Speaker 3: whether stocks, bonds, real estate, and they're doing fine and
21:22
Speaker 3: maybe even more fine if the indust rates come down,
21:24
Speaker 3: and then there's everybody else who really feels the brunt
21:28
Speaker 3: of inflation in their pocketbook.
21:31
Speaker 4: Does that impact kind of the stocks you look at
21:33
Speaker 4: it does?
21:34
Speaker 10: I mean, we really do focus on We look for big,
21:36
Speaker 10: noble themes driving consumer activity. We look for choke points
21:40
Speaker 10: or companies that really you don't have a kind of
21:42
Speaker 10: either monopolistic power. They're a key into that consumer behavior.
21:46
Speaker 10: So what we're again, we're seeing this trend of consumers
21:49
Speaker 10: being pickier. You have people at the lower end of
21:52
Speaker 10: the economic spectrum are certainly becoming stretched. Inflation is changing
21:57
Speaker 10: their behavior a little bit. But it's very interesting. Inflation
22:00
Speaker 10: expectations have come down now people are beginning to make
22:03
Speaker 10: some changes in that and you and you and you.
22:05
Speaker 4: Did see some real wage growth.
22:07
Speaker 10: So I think the big thing that the agenda, and
22:10
Speaker 10: whether it's politicians or anybody else, it takes a little
22:13
Speaker 10: time for these things to work their way through the economy,
22:17
Speaker 10: and I think that we're seeing some stabilization of it.
22:19
Speaker 10: Consumer confidence is probably beginning to get a little bit better,
22:22
Speaker 10: not a little bit worse. So I think this is
22:24
Speaker 10: an adjustment period that we're moving from a torrid pace
22:27
Speaker 10: of economic growth to a sustainable one, right, like.
22:30
Speaker 5: Just slowing, not slumping basically.
22:32
Speaker 8: But you know, back to Chipotle for a second. So
22:34
Speaker 8: this is what I've heard from Paul. You said three tacos.
22:37
Speaker 3: Okay, there, we got caught out on social media for
22:40
Speaker 3: under you know, skipping on some of the ingredients. So
22:42
Speaker 3: they went overboard and now overstuff your orders to the
22:46
Speaker 3: point now that I only get two tacos instead of three.
22:49
Speaker 5: So how is that good for Chippotle?
22:50
Speaker 8: Because it's good for Paul, it's good for but like
22:52
Speaker 8: it is it good for them? Like their top line
22:54
Speaker 8: doesn't grow as much and they have to put out
22:56
Speaker 8: more in the food.
22:57
Speaker 5: I think they have done.
22:59
Speaker 10: This is where chip has a competitive advantage in that
23:03
Speaker 10: they really do pay attention to their consumers and their customers,
23:07
Speaker 10: and they really focus throughout their entire history as how
23:11
Speaker 10: do I put these families, these people that are coming
23:14
Speaker 10: into these stores. These people are that they have a
23:16
Speaker 10: reliable product at a reasonable price, and they consumers see
23:21
Speaker 10: value and if they see value, they show up. And
23:23
Speaker 10: I think that that's what that's a that's a competitive
23:25
Speaker 10: advantage that Chappotle has, uh maybe against some of the competitors.
23:29
Speaker 10: And that's what you're saying, right, they listen, they react,
23:32
Speaker 10: they really react, and everybody feels it. So that's that's
23:35
Speaker 10: a good consumer products company and we like those.
23:39
Speaker 4: Yep, it's good stuff.
23:40
Speaker 6: All.
23:41
Speaker 3: So much for journey us Dryden Pen's chief investment officer
23:43
Speaker 3: Pence Wealth Management, based in Newport Beach, California.
23:46
Speaker 4: We've covered that territory before. I'm not buying. I'm not
23:49
Speaker 4: buying the whole Pimpco thing out there.
23:51
Speaker 8: It's pretty out there, beautiful. That's something as long as
23:55
Speaker 8: it lasts, right, mudslines.
23:59
Speaker 4: Nice, someone's got it there. I'm glad I do exactly exactly.
24:03
Speaker 8: All right, Well, coming up, I'm going to talk to
24:05
Speaker 8: Paul about what he can expect at his next luxury
24:07
Speaker 8: hotel trip.
24:08
Speaker 4: Nice.
24:08
Speaker 5: Uh huh okay, bunk beds. Oh no, yeah, yeah, he's
24:12
Speaker 5: going to be into it.
24:14
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
24:18
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24:22
Speaker 2: Auto with the Bloomberg Business app. You can also listen
24:24
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24:28
Speaker 2: Just say Alexa playing Bloomberg eleven thirty.
24:32
Speaker 8: Alex, you' here alongside Paul sw We need. This is
24:34
Speaker 8: Bloomberg Intelligence Radio. We cover all the top news and business,
24:36
Speaker 8: economic and finance. There are lens of our Bloomberg Intelligence folks.
24:39
Speaker 8: They cover two thousand companies and one hundred and thirty
24:42
Speaker 8: industries all around the world. For now that we're going
24:45
Speaker 8: to go to Miami, Florida, because you know, why not,
24:49
Speaker 8: We're going to speak to Henri Pierre Jacques. He's co
24:50
Speaker 8: founder and managing partner at Harlem Capital Partners. He joins
24:54
Speaker 8: us from Miami, Florida.
24:55
Speaker 5: Now.
24:56
Speaker 8: Harlem Capital Partners was founded back in twenty fifteen. Is
24:59
Speaker 8: a venture cap firm based in New York, and it
25:01
Speaker 8: prefers to make investments and things like AI, consumer technology,
25:05
Speaker 8: E commerce, enterprise, human resource technology, all the stuff that
25:09
Speaker 8: we talk about every single day. Henri Pierre walk me
25:14
Speaker 8: through kind of how you guys think of the AI
25:16
Speaker 8: landscape right now, the good investments and the risky investments.
25:22
Speaker 11: Yeah, I mean, obviously there's a lot of hype around AI.
25:24
Speaker 11: I mean, I think the way that we think about
25:25
Speaker 11: it generally, as we want to invest in AI companies
25:29
Speaker 11: that don't touch anything close to the large incumbents such
25:31
Speaker 11: as Apple, Apple, Microsoft, Chat, TBT, and so we're really
25:36
Speaker 11: focused on vertical AI applications, and so some of our
25:39
Speaker 11: investments have been in super niche fields like accounting AI services,
25:44
Speaker 11: insurance broker AI services, and so we're really trying to
25:47
Speaker 11: not touch the consumer AI marketplace. So we think distribution
25:51
Speaker 11: largely will win there for the large players.
25:53
Speaker 3: So, Henri, how do you We're such in the early
25:56
Speaker 3: innings of AI, A lot of people don't even know
25:59
Speaker 3: what it is, can't really articulate what it is, how
26:02
Speaker 3: it's used, what the applications are. Yeah, I'm thinking me,
26:05
Speaker 3: I'm speaking my own book here. How do you guys?
26:09
Speaker 3: How are you guys approaching AI right here? Because it
26:11
Speaker 3: feels to me like AI today is what we were
26:14
Speaker 3: calling big data five years ago and ten years ago
26:17
Speaker 3: we're just calling tech. So I'm not sure what it is.
26:21
Speaker 3: How are you guys approaching if from an investment perspective?
26:24
Speaker 11: Yeah, I mean, ultimately, AI has been around for decade plus.
26:27
Speaker 11: I think what this wave has seen as generitive AI,
26:30
Speaker 11: which is more of the image and tool and video creation,
26:33
Speaker 11: and people are kind of bucketing that for all of AI.
26:36
Speaker 11: I mean largely for a lot of the companies we
26:37
Speaker 11: invest in, like they're really just enterprise software companies that
26:41
Speaker 11: are using AI in the background. Ultimately, you know, right
26:44
Speaker 11: now there are more CFOs and CTOs who are getting
26:47
Speaker 11: AI budget spinds, and so if the company says AI,
26:50
Speaker 11: then their company will allow them to spend more. But
26:53
Speaker 11: the end of the day and the next three to
26:54
Speaker 11: five years, like the customer only cares about how you're
26:57
Speaker 11: solving their problem, right, We've gone through the similar way
26:59
Speaker 11: for what in blockchain. If you're solving my problem on
27:02
Speaker 11: web two versus blockchain versus AI, autesome I don't really care, right,
27:06
Speaker 11: But there are these cycles where you'll see spend get budgeted,
27:09
Speaker 11: and that's why you're seeing a big pullback for a
27:11
Speaker 11: lot of the SaaS public companies because the software spins
27:14
Speaker 11: getting drive to the AI spin. But in three to
27:17
Speaker 11: five years, you know, maybe even shorter, that word won't
27:19
Speaker 11: be where spin is going. It's ultimately, are you solving
27:22
Speaker 11: the problem that the customer has? And so we're less
27:24
Speaker 11: focused on the technology and more about what problem are
27:27
Speaker 11: you solving? If you're using I versus software doesn't really
27:30
Speaker 11: matter in the day, but you will get these short
27:32
Speaker 11: term cycles where people will have spin for certain you know,
27:35
Speaker 11: technologies because it's hot in the market.
27:37
Speaker 8: Can you give me some examples of some of your
27:38
Speaker 8: recent investments in AI, like the companies and sort of
27:42
Speaker 8: why them, but dumb it down for me for sure.
27:45
Speaker 11: Yeah. So one that I did, it's called test Party.
27:48
Speaker 11: So basically what they do is they help websites be
27:51
Speaker 11: eighty A compliant. And so a lot of people are
27:54
Speaker 11: either deaf or blind or have blurry vision. And there's
27:57
Speaker 11: actually like betteral laws that require companies to have what
28:00
Speaker 11: sites that are accessible to them, right, and traditionally speaking,
28:04
Speaker 11: people are going through this you know, either you're paying
28:05
Speaker 11: somebody in India or it's very manual. Right, And now
28:08
Speaker 11: we can use AI to actually go through and scrub
28:10
Speaker 11: these sites and tell you, hey, these parts of your
28:13
Speaker 11: sites are broken. Here's the code that can do to
28:15
Speaker 11: fix it until you're eighty eight complyiant and you know,
28:18
Speaker 11: billions of dollars a year. You'll see lawsuits where people
28:21
Speaker 11: are getting sued because their websites aren't compliant. And so
28:24
Speaker 11: this is a tool. This has been like, these companies
28:27
Speaker 11: have been around, but they largely were consulting services before,
28:30
Speaker 11: but now it's instead of having to pay people to
28:32
Speaker 11: do this, you can actually use technology to help, particularly
28:34
Speaker 11: e commerce websites, be more accessible to people who maybe
28:39
Speaker 11: not have you know, perfect vision or perfect hearing.
28:41
Speaker 3: Henri, what's a what's a typical deal side? I guess
28:45
Speaker 3: what's a typical investment look like for you guys? Maybe
28:47
Speaker 3: in terms of size? How early do you guys like
28:50
Speaker 3: to get into these companies? What's a what's something in
28:53
Speaker 3: use Spot?
28:53
Speaker 11: I mean we're super early, so I mean our bread
28:56
Speaker 11: and butter is kind of pre seed seed, So I
28:58
Speaker 11: would say typically these companies are between zero and a
29:01
Speaker 11: million of revenue. Our sweet Spot check is a one
29:04
Speaker 11: point five to three million dollar check usually for ten
29:07
Speaker 11: to fifteen percent ownership. So we're really early. I would
29:10
Speaker 11: say half our companies we're pre revenue. Half our companies
29:13
Speaker 11: we're post revenue. But ultimately, you know the stage that
29:16
Speaker 11: we're at. We're backing the founders, but like sometimes there
29:19
Speaker 11: are our businesses and customers, but sometimes there's no product
29:22
Speaker 11: or no customers yet, and we're really just making a
29:24
Speaker 11: bet on the founder to kind of you know, go
29:27
Speaker 11: and tackle their vision again.
29:28
Speaker 5: That gives me so much anxiety just hearing about that.
29:30
Speaker 4: What's a success ratio?
29:32
Speaker 11: My wife says the same for.
29:34
Speaker 3: Someone like you at Harlem Capital Partners, what's a typical
29:38
Speaker 3: success ratio? Like you've started this in twenty fifteen, we're
29:41
Speaker 3: nine ten years into it, So how's that run for
29:44
Speaker 3: you guys?
29:45
Speaker 11: Yeah, I mean so for context, we started as an
29:47
Speaker 11: angel syndikit, so for three to four years we were
29:50
Speaker 11: investing our own money into companies, and then we actually
29:53
Speaker 11: raise a fund for our capital five years ago. So
29:56
Speaker 11: we're on our second fund now, so really like five
29:58
Speaker 11: years into the journey of like having a stitutional capital,
30:02
Speaker 11: you know, typical like I can give you, like we're
30:04
Speaker 11: early in the cycle, but we have kind of like
30:06
Speaker 11: a forty percent Series A conversion. I would say that's
30:08
Speaker 11: like really the target for seed stage funn is how
30:11
Speaker 11: many of your companies get to the Series A because
30:13
Speaker 11: from there you typically see a sixty percent conversion to
30:15
Speaker 11: the Series B seriously et cetera, and beyond. So that's
30:18
Speaker 11: like the near term measurement that we're focused on, but
30:21
Speaker 11: like long term, yeah, it's really hard. Obviously early stage venture,
30:24
Speaker 11: you know, three percent or startups become unicorns, and it's
30:27
Speaker 11: a law of outliers, right, and so typically, you know,
30:29
Speaker 11: if you invest in thirty companies, one to two companies
30:32
Speaker 11: will drive your returns and like that's ultimately what you're
30:34
Speaker 11: fighting for, and the other twenty eight will be you know,
30:37
Speaker 11: call it zero to five exes. But the one winner
30:40
Speaker 11: is the one that kind of drives your returns. So
30:42
Speaker 11: it's not it's stressful.
30:45
Speaker 5: Yeah, I mean, hey, it's not hard. No, No, this
30:48
Speaker 5: is definitely not my risk profile. I needs steady job,
30:50
Speaker 5: I need the whole thing before I let you go.
30:52
Speaker 8: We have like a minute left here. Talk about some
30:54
Speaker 8: recent investments in say, vertical software.
30:58
Speaker 11: Yeah, so a company called Finterry. So it's a reconciliation
31:03
Speaker 11: platform for insurance brokers. So oftentimes insurance companies are kind
31:07
Speaker 11: of outsourcing who they're using for the sales process. You
31:10
Speaker 11: have like ten different brokers, they're getting paid differently, different timetables.
31:14
Speaker 11: And so now you can use AI to actually, like
31:16
Speaker 11: it's vertical software, but you can use vertical software or
31:19
Speaker 11: AI help those companies actually manage the process of paying
31:23
Speaker 11: all those brokers. Traditionally speaking, those have been done in
31:26
Speaker 11: excel files, word documents, and so we invest in this
31:29
Speaker 11: company pre revenue. They've grown ten x in the last
31:32
Speaker 11: nine months. They're going really quickly. And so what we're
31:34
Speaker 11: seeing vertical software is a lot of these companies are
31:37
Speaker 11: looking for very specific problems because everybody who has been
31:40
Speaker 11: buying software for the past ten to twelve years, so like,
31:43
Speaker 11: nobody really no longer needs this broad solution because Microsoft
31:47
Speaker 11: or Salesforce or whoever is kind of solving that. But
31:49
Speaker 11: if you have a very specific problem, I'm willing to
31:52
Speaker 11: pay for the software. But people aren't generally buying horizontal
31:54
Speaker 11: software anymore because that's kind of been done. There's already
31:57
Speaker 11: a lot of incumbent who are solving massive problems, like
32:00
Speaker 11: it's a very specific problem that a company has.
32:02
Speaker 5: Hey, Henri, this has been a real pleasure.
32:04
Speaker 8: I definitely want to hear more about how all of
32:05
Speaker 8: this continues to unfold for you. On RePr, Jack co
32:08
Speaker 8: founder and managing partner at Harlem Capital Partners, joining us
32:12
Speaker 8: from Miami, Florida.
32:14
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
32:18
Speaker 2: weekdays at ten am Eastern on applecar Play and Android
32:22
Speaker 2: Auto with the Bloomberg Business. You can also listen live
32:25
Speaker 2: on Amazon Alexa from our flagship New York station, Just
32:28
Speaker 2: say Alexa play Bloomberg eleven thirty.
32:32
Speaker 3: We are live here in our Bloomberg Interactive Brokers studio.
32:35
Speaker 3: We're streaming live on YouTube as well, so they head
32:37
Speaker 3: over to YouTube dot com and search Bloomberg Podcast and
32:39
Speaker 3: that's where you can find us. Talk about some volatility.
32:43
Speaker 3: You know, two weeks ago Monday, we had a VIX
32:45
Speaker 3: that surged above sixty. I think I got about sixty
32:48
Speaker 3: five intra day. The VIX right now for Tom Keen
32:51
Speaker 3: is at fifteen spot for what a move there?
32:55
Speaker 4: What's a money manager?
32:56
Speaker 3: What's an investor to do with that kind of volatility?
32:59
Speaker 3: Katarina Simi and then she joins us. She's a senior
33:01
Speaker 3: vice president private wealth advisor for Morgan Stanley Private Wealth Management. So,
33:06
Speaker 3: KATHERINEA talk to us. What kind of conversations have you
33:09
Speaker 3: had with your clients over the last couple of weeks
33:12
Speaker 3: as they dealt with that volatility From a couple of
33:15
Speaker 3: weeks ago to weoiver right back where we started.
33:17
Speaker 4: It seems like, well, and.
33:20
Speaker 1: Alex, thank you for having me on. You are one
33:22
Speaker 1: hundred percent right. This definitely is not a lazy summer
33:26
Speaker 1: investors are concerned.
33:28
Speaker 6: You know.
33:28
Speaker 1: The questions that we get ranged from how sustainable is
33:32
Speaker 1: this rally or how long the market decline is going
33:35
Speaker 1: to last? Because we see these fluctuations that are making
33:38
Speaker 1: investors very nervous. And one thing we know for sure
33:42
Speaker 1: is this volatility is here to stay. If we look
33:45
Speaker 1: back historically at these stretches eating two presidential elections, they
33:50
Speaker 1: usually are known for this heightened volatility. And what we
33:54
Speaker 1: tell our clients is really to expect it, to be
33:58
Speaker 1: prepared for it, to take take advantage of the dips
34:01
Speaker 1: in the market when it makes sense, to rebalance portfolio
34:05
Speaker 1: to stay on the quality side, and definitely avoid making
34:09
Speaker 1: any type portfolio changes based on what they think the
34:13
Speaker 1: outcome of the election might be, because you know, as
34:16
Speaker 1: we all know, there might be surprises, you know. So
34:19
Speaker 1: we have the roadmap for either outcome, but we are
34:22
Speaker 1: going to start implementing it after we have clarity on
34:25
Speaker 1: the outcome.
34:26
Speaker 8: Where would you buy market on dips right now and
34:29
Speaker 8: where would you be selling any rip alex.
34:32
Speaker 1: What we see right now is disproportionate over exposure to
34:37
Speaker 1: technology in many portfolios, and we love technology. It is
34:42
Speaker 1: definitely here to stay. But this is where you know,
34:44
Speaker 1: sometimes it's skewed and off balance, and what we recommend
34:48
Speaker 1: to do is go back and rebalance and buy on
34:51
Speaker 1: dips into the sectors like financials, industrials, consumer staples, healthcare, energy,
34:59
Speaker 1: and just to make sure that you know, we have
35:01
Speaker 1: this strategically positioned portfolio, especially if we add the stocks
35:06
Speaker 1: or emphasize the stocks that pay dividends. Now, in addition
35:10
Speaker 1: to growth, we also have that income component that is
35:13
Speaker 1: going to help investors get through this turbulent, highly volatile time.
35:18
Speaker 3: How about in the bond market, Katerina, how are you
35:21
Speaker 3: telling your clients to be positioned here? Should they just
35:23
Speaker 3: go take it to your treasury and get four percent
35:25
Speaker 3: or maybe take some credit risk.
35:28
Speaker 1: Well, Paul, you know, this is where we have to
35:30
Speaker 1: make some tough decisions. You know, we know that the
35:32
Speaker 1: interest rate cuts on the horizon, and whether we are
35:35
Speaker 1: going to get a quarter point cut or a half
35:38
Speaker 1: point cut. We know rates are coming down and towards
35:41
Speaker 1: the end of the year they're going to get most
35:43
Speaker 1: likely lower than where they are today. So investor sav
35:47
Speaker 1: a choice. They still have picks of the higher rates.
35:49
Speaker 1: When we look back, you know, at last twenty twenty
35:52
Speaker 1: five years. You know, I became financial advisor in ninety nine,
35:56
Speaker 1: and this is the first time in my entire career
35:59
Speaker 1: I'm seeing rates at these levels. So take your pick.
36:02
Speaker 1: There are opportunities in high yield. There are opportunities in
36:05
Speaker 1: high quality investment grade corporates. You know, there are still
36:08
Speaker 1: you know, some buys that we can find in municipals.
36:11
Speaker 1: We don't recommend going out on the far side of
36:14
Speaker 1: the yield curf, you know, we are you know, really
36:17
Speaker 1: trying to stay moderate in the middle. But we don't
36:20
Speaker 1: want to go too short either because we're going to
36:22
Speaker 1: run out of rates and then you know, most likely
36:24
Speaker 1: default in default into much lower yields.
36:27
Speaker 8: But in the corporate credit market, I was reading an
36:29
Speaker 8: article today that talked about how there is so much
36:32
Speaker 8: demand for precisely the scenario that you lay it out,
36:35
Speaker 8: that you have to just go down the credit quality
36:37
Speaker 8: to get yields even at five percent. So that kind
36:40
Speaker 8: of upside that you're used to getting from the corporate
36:42
Speaker 8: bond market really isn't there. So how much risk do
36:45
Speaker 8: you want to be taking on right now?
36:47
Speaker 1: Well, Alex, there are two sides to look at it.
36:50
Speaker 1: You might need to take on a little bit more risk,
36:52
Speaker 1: but still stay in the investment grade. The other side
36:55
Speaker 1: of it is to look at patting somewhat higher premium.
36:58
Speaker 1: And we're not talking, you know, like ten years ago
37:01
Speaker 1: when we're paying ten ten percent over par. You know, yes,
37:04
Speaker 1: prices or wants have moved, but there are still some
37:07
Speaker 1: buying opportunities and there's still dips, just like in the
37:10
Speaker 1: equity markets. You know, somebody is looking into building their
37:13
Speaker 1: fixed income portfolio, you know, there has to be diversification,
37:17
Speaker 1: exposure to various asset classes like high yield, investment grade,
37:21
Speaker 1: municipal preferreds, you know, and just putting together this well
37:25
Speaker 1: balanced portfolio and buying it gradually and strategically. But I
37:29
Speaker 1: probably would not wait too long because once the rangers
37:32
Speaker 1: are going to start coming down, you know that moved
37:34
Speaker 1: to higher prices and lower quality is going to continue.
37:38
Speaker 3: Katerina, how do you position alternative investments for your clients?
37:42
Speaker 3: You know, I'm I'm always surprised that retail investors have
37:46
Speaker 3: an appetite for alternative investments, whether it's hedge funds or
37:48
Speaker 3: private equity or private debt. How do you guys position
37:52
Speaker 3: that well?
37:53
Speaker 1: Alternative investments definitely give us an opportunity to access parts
37:57
Speaker 1: of the market with that we otherwise can not, and
38:01
Speaker 1: we by doing that, we give ourselves, you know, the
38:04
Speaker 1: access to potentially higher returns. But also alternatives can be
38:09
Speaker 1: used as very effective hedge against the market risks where
38:12
Speaker 1: we're looking to attain the market like returns with lower
38:16
Speaker 1: than the market risks.
38:17
Speaker 6: You know.
38:18
Speaker 1: The trade of here, of course, the lack of liquidity,
38:21
Speaker 1: and not all of them created equals. Some alternatives have
38:24
Speaker 1: there are a little bit more liquid private equity investments,
38:28
Speaker 1: for example, are not you know, so that's the trade
38:30
Speaker 1: of for investors when they're making a decision to go
38:33
Speaker 1: into this alternative space. We absolutely see opportunities distressed creddit,
38:38
Speaker 1: you know, real estate. There are some you know, pockets
38:41
Speaker 1: of the market that can be access there. But lack
38:44
Speaker 1: of liquidity is something that is a very big consideration
38:47
Speaker 1: for a lot of investors.
38:48
Speaker 8: Oh yeah, I mean just check out the last couple weeks.
38:51
Speaker 8: What about small caps? Can you give me the spiel
38:54
Speaker 8: on small caps? It feels like these guys are definitely
38:56
Speaker 8: hitting a binary world, like you either love them or
38:58
Speaker 8: you hate them.
39:00
Speaker 1: Well, absolutely, and Alex not that the history always repeats itself.
39:03
Speaker 1: But when we look back at the past cycles, once
39:05
Speaker 1: the rates are starting to come down, usually we first
39:08
Speaker 1: see the optic in large cabs, but then it's followed
39:11
Speaker 1: by the optics in small cabs and broader. On the
39:14
Speaker 1: economic level, you know, we have the higher interest rate
39:18
Speaker 1: environment which is affecting consumer confidence and also it is
39:21
Speaker 1: effective expecting profitability of the companies and you know, on
39:26
Speaker 1: one side, we're happy, then inflation is coming down. On
39:29
Speaker 1: the other side, this is where you know, the profit
39:31
Speaker 1: margins are being squeezed as well, more so for the
39:34
Speaker 1: small caps than for the large cabs. But at the
39:37
Speaker 1: same time, it might be a delayed reaction, but we
39:40
Speaker 1: absolutely are positioning small caps in the portfolio. The returns
39:44
Speaker 1: that we have seen recently is somewhat of a surprise
39:47
Speaker 1: because for us is more of a long play, you know,
39:49
Speaker 1: we're looking at the longer time horizon for that position.
39:53
Speaker 3: Hey, Keterinea, we're just finishing up on earning seasons. What's
39:57
Speaker 3: you been your takeaway for earning so far?
40:00
Speaker 1: Well, we've seen you know, pretty good earnings so far
40:03
Speaker 1: in the year, which was almost a pleasant surprise, you know,
40:07
Speaker 1: they were better than expected. Our outlook for the remainder
40:10
Speaker 1: of the year is not quite as optimistic, as we
40:13
Speaker 1: see earnings being affected by consumer confidence, by higher rate,
40:17
Speaker 1: by lack of liquidity, and also by just general economic slowdown.
40:24
Speaker 1: And our base scenario is still that soft lending scenario
40:28
Speaker 1: that is going to affect some parts of the market
40:31
Speaker 1: and some parts of the economy. But we see the
40:34
Speaker 1: earnings being not quite as good as we saw earlier
40:38
Speaker 1: in the year. And the most important piece of data
40:41
Speaker 1: for us are these forward looking estimates as companies are
40:44
Speaker 1: posting their earnings, you know, for us to really see
40:47
Speaker 1: how well they're positioned in the market. And that's why
40:50
Speaker 1: in this particular time, we favor individual stock investing versus
40:54
Speaker 1: index investing, where we can specifically focus on valuations, on
40:59
Speaker 1: market position, and on the forward cooking out cooking earnings.
41:03
Speaker 5: Before we let you go, Jackson Hall, what are you
41:05
Speaker 5: looking for?
41:07
Speaker 1: Who knows?
41:08
Speaker 5: You know, that's a great answer.
41:11
Speaker 7: Is it is really just.
41:13
Speaker 1: So so difficult to you know, pinpoint and exactly you know,
41:17
Speaker 1: exact data that should come out of it, you know,
41:20
Speaker 1: for us to you know, to build the roadmap. But
41:22
Speaker 1: we're looking for, you know, just just a little bit
41:25
Speaker 1: of positivity to you know, give give investors some good news,
41:29
Speaker 1: you know, during this time of market volatility prior to
41:32
Speaker 1: the election.
41:33
Speaker 8: Right, so like slowing economy, but not like a slump
41:35
Speaker 8: economy like that kind of idea.
41:37
Speaker 1: That's exactly right. Anything that leads us to soft lending,
41:40
Speaker 1: you know, is good is good enough for us.
41:43
Speaker 5: All Right, Well, I appreciate it, Thank you so much.
41:45
Speaker 8: Katerina Semonetti joining US Senior vice president, private wealth advisor
41:48
Speaker 8: of Morgan Stanley Private Wealth Management.
41:50
Speaker 5: I feel like the Jacksonville conversation.
41:51
Speaker 8: Would be really different like three weeks ago, like it
41:54
Speaker 8: was right after that job's number, And I wonder if
41:57
Speaker 8: Powell winds up changing or talk about the market action
42:00
Speaker 8: in relation to jobs, like I wonder how he talks.
42:03
Speaker 3: About that, because again, two weeks ago Monday, there was
42:05
Speaker 3: particularly in the morning session, a real so weekenic exactly
42:09
Speaker 3: in the marketplace, we stabilized kind of midday, kind of
42:12
Speaker 3: rallied a little bit towards end of that day, and
42:14
Speaker 3: then ever since then they're kind of moving up into
42:17
Speaker 3: the right.
42:17
Speaker 5: So you forgot that Friday because you're on the beach.
42:19
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42:27
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