Day One from Schwab Impact in Philadelphia

This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.

Let's actually though about Kibe, Jim King, did you know that?

I did not know that?

All right, we'll talk about that. We know that today. It's a gift go to Schwab because this is where we find ourselves at Impact twenty twenty three. There's so much going on, a good reason why investors are made that something hasn't broken in the economy yet. Because the last time US government bond yields climb so far, so fast, the nation plunged into back to back recessions. So that is part of kind of our backdrop. Let's get to

We thank you for having me on.

It's so delightful to be here it's great to have you here in a day where I kind of laugh with you. It's a shame nothing is going on, but

Sure, well, Sutinly, when we think about the global events, the first thing I think about is the human suffering and the difficulties that a lot of people have had to endure recently. From a market standpoint, we want that volatility can be challenging to clients, and one of the things that we say in an environment like this is seek out an advisor. And we're sitting here, of course, at our thirty third annual Impact Conference for advisors, and

What are you hearing from advisors right now about the questions that their clients have. I mean, we're not only in a challenging world for financial markets, but we're in a challenging world for advisors. They're robo advisors. I mean, Schwab has its own robo advisor, its rob intelligence portfolio. What are you hearing from these people whose businesses are being challenged right now?

Well, the thing I would say about the advisor market is that there's a bull market for advice more and more clients because of everything that's going on in the world, because of what's happening in markets, because people are trying to integrate markets into taxes and their trusts or states passing wealth along.

There is a bull market for help and guidance.

And so it's a market in which advisors are thriving and the area is really growing.

Rick, what's the most interesting demographic in terms of the investing public right now for you guys, Well, to me.

It's got to be the base boomers. The baby boomers have amassed a lot of wealth and more and more retiring every day, and they want that help and guidance to help them get through retirement and navigate all the things in front of them. So to me, that's the most interesting demographic. But at SCHWAB, we want to meet the needs of every demographic, whether it's a young investor, a baby boomer. We need to be exceptional at meeting the needs of all of those different demographics.

Yeah, it's kind of interesting, right for like a younger investor. We talk a lot about. We had a guest on this past week of just you know, trying to assess are we in a recession? And you know, while technically the numbers that we've got growth in the US, you know, strong consumer spending numbers, still, retail sales.

Numbers, employment is strong.

Employment is strong. Having said that, she said, you know, I'm coming from Wisconsin again, somebody who manages money. She said, Yep, they're working, but folks can't buy a home because they can't afford it with the mortgage rates. They've got one thousand dollars a month car payments, So they in essence

Well, first, the first part of the question, there's no question this environment has been difficult for investors and difficult for people trying to live in the world. There's been a lot of inflation the uh you know, the FED has raised interest rates dramatically and quickly, but that was after letting inflation run a little bit, and so it has squeezed individuals. At the same time, markets are not that far away, particularly the S and P or the

But do they want to be more conservative in this invironment? Like, I'm just curious in an environment where we talk. You know, a money market pays you, you know what everybody keeps.

Saying more than five percent?

Why not put it there right without the risk. I'm just curious what you're seeing in terms of those trends.

I would say that the call volumes on our fixed income line have gone up ten times what they were about eighteen months ago. So there's no question that there's a lot of interest in yield right now. And why not you get a two and a half percent real yield on the twenty year now on I think you have to go back quite a while before that was the case.

Kind of folts perfectly into my next question, which is about the business and about cash in the business. Schwab recently reported earnings deposits down twenty eight percent in the third quarter, was better than analysts forecast, still though a drop of more than two hundred and eighty four billion dollars. How much money do you see staying in the schwap ecosystem right now, even if you know cash sleep is occurring, but people can get you know, more than five percent in money markets.

Well, what I would say is we want clients to do the right thing for them and their situation. We bring all you know, the clients leave cash in their accounts, We leave it there until we know what they want to do with it, and so they make a decision that they want more yield, they should go and do that. So the money leaving our bank, it's staying at Schwab, it's going and buying government bonds, or it's going into

Then why were deposits down so much if it's staying at Schwab.

Because it's coming out of our bank and finding its way into higher yielding money market funds or fixingcome investments. And that's exactly what we would want for clients. It's not the best thing for our profits, but we want the best thing that's for our clients. And so that money movement is healthy for our clients.

Right, banking key to revenue. Right, we know that right from the last earnings report, is money still continuing to come out of that unit?

Well, what I would say is that if you think about what's happening clients are looking at. You know, if you went back to when interest rates were quite low, they would have a lot of cash in their portfolios and they would say, there's no need to move this cash. I'm just going to leave it here. It's going to earn zero here, It's going to earn zer anywhere else.

So it's still coming out, but at a slower pace, much slower pace.

And in fact, last month was the first month where in our bank sweep we saw a positive growth in bank some more money coming into the bank than leaving the bank for the first time in a while. So from a business standpoint, that's positive. But again, what we want is clients to find the right investment for them.

Does it make you nervous though? As we get ready for a GDP report, that's backward looking. Mind you another read on inflation that in terms of what that could mean for monetary policy, we do think we're getting close to our peeking rates. But nonetheless, whether again and if we see signs of inflation, if we see more signs of growth, whether or not that that means ultimately you're going to see more money coming out because the money markets just kind of get more and more attractive.

Yeah, it could be we're back in one of these cycles where where bad news is good news. You know, I feel like we might be back in that because good news may lead to the higher rate environment. That could be you know, it could hurt the economy certainly.

Okay, So what about creating new products that help people keep their cash at SCHWAB. I'm wondering, if there are so many high yield accounts available at other financial institutions right now, what are the conversations happening behind the scenes about creating those sorts of products at Schwab.

Now, what I would say is, we have all kinds of cash products for clients, and we're not having an issue with cash leaving the firm. We've we've brought in over two hundred billion dollars of net new assets to the firm, and a lot of it has found its way into fixed income or money funds. The issue is just where they're saving it, but it's not leaving the firm. So I think there's no better place and no broader array of fixed income and money fund ones than we

Impacts the top line growth.

We've been happy when.

This five percent rate environment is over.

Well, I don't have two and a half percent.

Really, I feel like, you know that's not a bad deal for savers and investors.

I want to ask you about your tenures so far. Right, you came in around twenty seventeen, twenty eighteen. I'm just thinking about kind of where the world was at that point. Not too shabby, right, and then all of a sudden, we move into a FED starts to raise rates, the pandemic hits. It's a whole other world, right, the FED cuts dramatically, we have the economy, everything just shuts down, and then we see markets bounce back in a big way. I mean, how do you think about kind of our

Well, we've certainly seen a lot in the last five or six years, haven't we. Yeah, you know, a pandemic timing was good, Yeah, all kinds of different market environments.

You know.

Our advice to clients at Schwab is to is to come up with a plan, stick to that plan, and if you need to help, seek the help of an advisor who can help guide you through it.

But it's we believe it's.

Hard to time the markets and and outthink you know what's going to happen.

Are we going to be in a recession? Not in recession?

Of course, we have an opinion on those things, but we're not always right, and we want investors to stay the course, have a plan, stick to it, and work with an advisor if that makes sense for them.

What's your opinion on where we're going on the on the markets?

Yeah, I mean I think at some point monetary policy has to lead to a more restrictive economy.

But US recession or soft landing.

I am not an economist. I'm not going to make that call. But you know, listen to Liz Anne Saunders or Jeff clientob they do a really nice job of calling the markets and and and the economy.

As someone who manages though it is very part of the c suite right here, who covers you know and runs this company. What's top of mind for you guys, whether it's employees, whether it's cost cutting, what is it to me?

It's opportunity. We have so much opportunity to delight our clients and make them better off in their financial life. But what I worry about at night is are we doing enough? And are we doing it fast enough? I just think we are blessed to have thirty five million clients that we serve on a daily basis, and I want to make sure we do everything in our power to make them as well off.

As they can be.

Can you talk a little bit about customer service? I have full disclosure. I'm a Schwab client, so I've.

Experienced thank you for your business.

And one thing that is notable it's like to me, it's like Carol, when we talk about American Express, you call Schwab in the person answers, you call American Express and a person answers. Can you talk about the investments that you make in customer service so people have those interactions just in the last minute that we have.

Yeah, client service is critical to us.

It's one of the things that really differentiates Schwab from some of our Vermar competitors. We've answered the phone this year, on average in less than thirty seconds. I can't get anyone to pick up my phone call in thirty seconds, certainly not my teenage daughter, so we ext her.

Yeah, we make it.

Yeah, it's really important to us that we answer the phones, that we're there for the clients and that we're delivering what they need. We are a client focused business. We only succeed when our clients.

Succeed, So no worry about AI taking over.

Hey, it's going to be really helpful to all those people answering the phones. I think they're going to make them more efficient. They're going to help them get an answer to the exist as an assist. They're going to help you get an answer more quickly. They're going to help you get a better answer, but they'll be in the background, supporting that person you're.

Talking to, all right, love to hear that rather than taking over. Rick, thank you so much, really appreciate it.

Thanks for having me on.

Thank you for having us, Rick Wurster. He's a president of course of Charles Schwab onside EDH Schwab Impact. We're just getting started though. On this Wednesday, Carol Master along with Tim Stenewick, and you're listening and watching Bloomberg Business Week.

You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, hard radio app and the Bloomberg Business app, or one just live on YouTube.

Well. One of the most read on the Bloomberg Terminal over earlier this week all about the challenges that active asset managers are facing Carol even Matt Levine wrote about this in his column on Monday. Across the one hundred trillion dollar asset management industry, money managers have been confronted by a tectonic shift when it comes to investor appetite. They're looking for cheaper, passive strategies at least heard this before right over the last decade.

Absolutely, and now they're facing something even more dire. The unprecedented run of bull markets may be a thing of the past. We've got a good guest to get into all of this, who actually is going to talk about how maybe people want simple investing, which I find really fascinating. Joe Grogan. He has head of distribution over at Wisdom Tree. He works with some of the largest custodial platforms that are out there. He's here on site with us in Philadelphia.

We'll spend the whole We'll spend the whole interview talking about bitcoin.

You know how many people come up to you and be like, let's talk about that bitcoiny TAF.

Well, first of all, thank you very much for having You're welcome. It happens quite a bit. It happens at the booth, that happens pretty much everywhere we go. And the same answer right now, we really can't speak to.

That, is there is there interest a little bit?

Is there a well, talk to me about interest around the product. Speak about that. I mean, have you ever launched a product that has had this much attention, this much interest.

It's certainly overwhelming, for sure, the amount of interest that gets for whatever reason that may be, it's out there. It's it's pretty amazing. It's a lot of interest. Maybe not that much of an appetite that we've seen in the US, but there's certainly appetite in Europe and Canada. We've seen it. You know, we have a few in Europe. But as far as the launching the one in the US goes, I leave that with our lawyers and our church General Council until we get through the SEC.

Can we just say, though, is it going to be like cannabis? And they overseight like, is it going to be every like? Is it something? Or do you feel like there's a lot of attention now to try and kind of figure this one out.

You've seen a lot of attention, especially with the rise in the last you know, week or two. I mean, it's been amazing to see a meteoric rise in crypto and what does that mean for the average investor. I mean to your original comment about simplicity, how do you make that simple?

Well, that's why I'm trying to get my head around those two things.

Absolutely.

And you know, we talked to a lot of folks in the digital world, if you will, Bitcoin world, crypto world, and they're like, you know, it's so pure in all those things, but it's complicated.

It's extremely complicated.

You don't have your cold storage all set up.

I do not.

So that's so tell me this, you know, interest and desire for things more simplistic. Yeah, and then you have this.

Well, let's put crypto aside and talk about simplicity and what that means. I mean, we're seeing this huge shift towards simplicity away from the real complex type of investment strategies. And I think the biggest reason behind that is the average consumer or the investor. They can't understand these products, they can't manage them, So how are they going to actually try to understand them, work with them and put

Well, that's what I want to ask what do you mean? They want a simpler like, what is it? Are you talking about the process itself or the investment itself?

You know, it's more the investment itself, okay, right. They want to understand the underlying investment, how it works. You know, back in the days, over the last few years, we've seen a lot of option based strategies, a lot of derivative tape strategies, very complicated, very tough to understand. If the market goes up, these go down. How does that work? Now it's really well, what about the traditional stock and bond portfolios? What about these portfolios that we can better understand?

That's what people want.

Well, they're looking for that. They're looking for the quality type investments. We're seeing a big shift of quality in our in our business. That's what they're looking for.

If people don't understand something, does it belong in their portfolio?

That's a great question.

I know what Warren Buffet would say, Yeah, it's a.

Great Lynch would have said it right decades ago.

Absolutely, Peter Lynch, I used to work in fidelity for quite a while, and yeah, you know he always said, if you can go into a store and you see buyers buying those products. That's problem be the investment you want. That's simple of a philosophy.

All right, So where does that go then? If we get a little bit more simpler, plain vanilla, what does it mean?

Well, I think you're going to see people, you know, having the core part of their portfolio really based around a real simpler type investment style, and then they'll take a smaller percentage and maybe go to the alternative side, or go to the crypto side or something of that nature.

Well, this is what's interesting too, because I think about you know, Tim and I've been at Milk in the last couple of years, and it's just it's all about private markets.

Absolutely, private markets and private chats.

Private eat That's okay, that's really well said. But I mean, I guess it's simpler. It's just lending right outside the kind of traditional infrastructure. Is that part of the simpler investing demand?

Well, you're also talking about a very high net worth you know demographic over there, yep, So they do have access to those portfolios. Your general population generally doesn't have access.

But should they and their demand?

Do you think this should be a democracy democratization of certain products and I think should brought down to the lower level, of course, and I think that's what wisdom Tree is very good at is trying to provide access to different types of asset classes, benchmarks, et cetera in a simplified way.

So talk to us about model portfolios getting a ton of attention right now, yep. Well, first of all, explain what they are to people who might not be familiar with model portfolios.

Model portfolios are there's not an advisor out there that doesn't run a model portfolio for the clients. You know, a person may be invested with an advisor and they're going to be in a model portfolio. It's scalable, it's efficient,

I do wonder about, like how much you know in a zero rate environment for so long, everybody got a little bit lazy, right, And also, you know this idea of you know, principal preservation kind of went away because you just didn't need to think about it. It's a different environment.

Anybody could have made money in the last ten years. If you didn't make money in the market in the last ten years, you did something wrong, real wrong, right Right nowadays where you've seen fixed actually fixed income actually provide a return. I saw a study today that said cash has the best return of the last twelve to

What's the biggest question you're hearing from your clients right now?

What do I do?

What are you saying? What do you like? What do I do, or like, what do you what do you actually do?

Exactly?

It is?

What are you doing listen the investment? Like our advisors, I mean, you know, they have limited access to certain things.

What's the time that you refer to though in past history that's similar to this cycle? Or is there nothing to go back to? Because I feel like anybody who's seen a lot of cycles is a lot more sanguine about kind of where we are today?

Are you saying that I.

Have?

But I do think it gives you some perspective. We've got about thirty seconds back. But I do think about how you lean on anything that we've gone through.

The you know, the last three to five years is much different than anything we've ever seen. Everything went up and much different. You really have to take a lot on the term perspective to understand what the market cycles go through, because this has it's been a fictitious market cycle last five eight years. So if you go back further the night, you'll get a better understanding of what market cycles should look like. What's normal.

Is there one that you refer back to?

Not really. It depends on the ass healthful, It depends on the asset class. If it's pixing, come but it's it, go back ten years. If it's growth, go back five.

More optimistic, more pessimistic. Right now in terms of the investment, Alec just got about.

Fifteen cautiously optimistic.

That's not a ques. That's not an answer. This was fun. Thank you very much, really yeah so much.

Thank you so good to see you. Thank you so much. Joe Grogan is head of distribution at wisterm Tree. He's with us here at Schwab Impact in Philadelphia.

You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg Radio, the Bloomberg Business app and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, just Say Alexa playing Bloomberg eleven thirty.

We are in Philadelphia. It's SHWAB Inpact twenty twenty three, and got to say, I feel like we have the perfect guest because we have talked so much about the fixed income world and it's a tricky one with us. Is Kathy Jones, Managing director and chief Fixed in comestrateg just at Schwab Center for Financial Research on site with us here at the SHWAB Impact Conference. Are you really popular at that conference?

She's like, finally my time has come. It's been ten years of zero interest rates and now everyone wants to talk about yields.

Everyone wants to talk about yields.

I don't know if that makes me popular, but yeah, there's a renewed interest in fixed income these days, which is pretty you know, it's pretty fun.

Is that an understatement of renewed interest?

Yeah?

I mean, at least in our own programming, Carol, it's like much more than a reneude interest. Every day on our planning call, WET, we're saying our first guests needs to be about ra We need to have someone on to talk about rates. And there's a reason.

Yeah, you know, we've had huge volatility, not only in the rate of change, in the increase in rates, but the level has gone up to you know, a level we haven't seen in well over a decade. And I think it has taken most people by surprise in both ways, that the rate of change was so rapid and that the level is so high and staying so high. So it's really just sort of changed the landscape very very quickly.

Kathy, I feel like people are also increasingly talking about it. It's not just about yield, it's also about price, and I just wonder how that's kind of making it a little bit more interesting.

Well, you know, I think that that's a little bit misplaced. So when you look at bonds, if you know, if you hold a maturity, you're going to get your principle back at power plus your interest.

Yeah, it might take twenty eight years, but.

Well, you know, you shouldn't probably worry about price, probably shouldn't buy thirty year bonds, right, and most people don't. I mean, let's face it, that's not usually the time horizon most people invest in. So I think what you need to look at when you look at bonds is a total return, and that's the income that you receive plus or minus the price change over a period of time.

Decline or something. Right, you know, the AAG is down two and a half percent this year. It was down thirteen last year, which was a terrible year, but.

Down two and a half percent. I mean stocks do that in ten minutes sometimes, right, So you know, it's a whole different asset class that way. And I think focusing on the price decline unless your mark to market, you're some institution that you know for whom that's leveraged, and that's important, right, It's not really something you should probably spend a lot of time on.

You said, last year was it bad year for bonds. So is this year, and so was the year before last year. So this could be the third year in a row that bonds have just performed very poorly. What does twenty four look like for you?

Well, you know, we're starting to work on our twenty twenty four outlook and it's challenging.

It is always challenging, but this year is particularly challenging, and I think so our base case is that the economy does slow down.

We have a bump here in the third quarter, but the relation continues to fall, which it has been falling, that the FED is pretty much done in hiking rates because of those factors slower growth, less inflation, and that bond deals start to come down. Maybe the FED cuts a couple of times in mid to late twenty twenty four.

You know, longer term yealds start to fall.

We're not looking for a return to very low yields, but certainly a positive retail next year. And you know, we've seen a lot of opportunity.

In in that now.

We've been running scenarios, so part of what I'm doing here at Impact is showing different scenarios so that advisors can kind of plan around that. But the good news is, you know, a one to five year bond ladder, even one to ten year bond letter under most circumstances, should have a positive return.

It's interesting you talk about scenarios because I feel like I hear that increasingly that there's I think even J. Powell can see that there's a lot of different scenarios ahead of us, which makes it very hard for anyone who has to make calls or make projections or outlooks at this point. What's you think the riskiest kind of outlook from here? Is it recession? Hard recession?

Well for the bond market, no, right, that's right. If you're in high quality bonds, your fire session will be fine, will be a place to hide. I think the riskiest would be if we were to see you know, more inflation, some sort of inflation shock, whether it's oil prices or something that happens, you know, exogynous to the underlying economy that the FED can't handle. Then you know, you could you could have real dispersion in terms of performance, and it'd be easy to be in the wrong place.

At the wrong time.

You know. There was a guest on Bloomberg TV a little early today who referenced the lack of foreign buyers when it comes to US treasuries, How concerning should we how concerned should we be about that?

I will push back on that notion. You know, I follow the data pretty closely. It's not the data is not smooth, and you have to look in very different places. But on the Bloomberg terminal, when you look at the TICK data, say, for.

China, they are buying bonds.

When you look at the total holdings foreign investors, it's still it's still very steady. So some of the decline in so called purchasing is because it's marked to market. The price is as you mentioned, the price is down. It's looking like they're selling or they're not buying, but actually they're just holding. So I will push back against that idea.

But what is it more problematic that the VET isn't buying and that we're also a lot of new issuance coming into the market, probably more coming.

That's a bigger dynamic, right, because we've lost the price incentive buyer and we have a lot more issuance. Again, on supply historically not a big concern when I have spent many decades trying to find a correlation statistically between supply and yield, and I can tell you there's nothing reable.

No, seriously, seriously.

I mean that's important.

I've been doing this since the late seventies. Yeah, and I have tried to do this.

I've been sitting on trading desks where you know, it's always like, oh, we auction's coming.

We got to back up. This has got to happen, that's gonna happen. It's kind of fifty to fifty.

That's interesting because it's such a big part of the narrative right now, I know, so what is the important narrative? I listen. Our last guest was kind of laughing at me because I said something about having lived through many different market cycles. It's like, are you telling me I'm old? I'm like no, but I just feel like there is something to having seen none. Every market cycle is the same,

Yeah, Well, you know, part of what I'm talking about tomorrow my session is how.

Different this cycle is from most.

It reminds me a little bit more, you know, in some ways of the nineties when green Span doubled the FED funds rate in a year from three to six percent, but inflation was pretty quiet at that stage.

Of the game. That wasn't as volatile as it is now.

So this is more like a combination of other cycles, but it's not the same.

I'm still trying to get out from you what twenty four looks like in what longer term looks.

Like, because you know you've started like working.

Yeah, like what are the things, what are the things that you're taking into account right now? What are you what's going into that worksheet that that you're working up right now for your outlook.

So the three major drivers of bond yields tend to be FED policy, economic growth, and inflation. I feel like all those are working in a positive direction. Next year a FED policy it's either higher for longer from here or it's you know, down a little bit, So that should work, like someone, thank you, been a lot of talking. And then the second one, inflation is coming down. When you look at the core PCE, it's down quite a bit on a three month rate of change basis, and all the inflation.

Charts are you know, turning over.

And then you know we have economic growth and that's been the surprise. The third quarter bomp of growth has been I think the thing that threw everybody off.

So that given what you just said, would you say that yields have peaked the cycle?

Give her a longer questions, so she can here, would.

You, well, why don't why don't we talk a little bit about that everyone everyone's always told me to ask shorter questions. Everything that Kathy just told us. You know, things are moving in the right direction. Would you say that yields have peaked in this cycle?

You know, I.

Believed it before and they went back up. So I'm a little I'm a little gun shy to make that call. The way the market's behaving, it doesn't act like the peak is in okay, And that's more and more sort of a technical not a fundamental point of view. There's just it goes up too easily. There's like an air pocket whenever yields go up.

So have you ruled out six percent?

Yes?

I don't have well, I have six percent of the I oh no, I have six percent FED funds in one of my scenarios. But the tenure doesn't get there because then you reinvert, you know, really invert.

The curve if the FED goes to six percent.

So I want to make sure I heard that right. You don't you don't see this cycle six percent on the tenure?

Yeah, I don't.

I don't have it built in because you think about all the tightening that has happened, not here alone.

But all over the world.

We have, you know, Germany's in recession, we have a slow down, China is still struggling with this debt overload. You ask yourself, where is the growth and inflation going to come from with all the tightening and financial conditions that's taken place.

That would get us to six percent.

We'd have to have a pretty robust kind of surprise or some external shock that was so huge, and.

I just see price it.

Yeah, but even oil price, I mean, it's a tax, right, so even an oil price shock probably wouldn't do it.

I think us getting into military conflicts increasingly.

Yeah, I me.

Or you could you can construct the nineteen forties fifties kind of scenario if you want to.

That's the second time, yeah, in a week that we've had people make references.

Yeah, yeah, I mean that would be the scenario I think, But that also involved the treasury owning, you know, owning bond, buying bonds, and holding down yields to finance the expenditures. So I'm not sure that would get us a six percent. So it's it's hard. It's hard to really construct that scenario, but it's in kind of our our worst cases. The FED gets to six percent, but the yield curve inverts.

More when that happens.

What about a recession.

Call, Yeah, you know, it's it's a it's a tough again. Another one of those tough calls is the cycles so strange compared to what we've seen in the past. But you know, there's a there's certainly a risk of recession, particularly the tighter things are for the longer and you know.

You are steeing stress.

You know.

One of the things I like to do is read the comments in the regional FED reports. Yah, yeah, yeah, yeah, just amazing Bige Book and the Beige Book. But the regional comments in the regionals are just in Dallas particularly, they're very spicy.

Yeah.

You get a lot of great comments out.

Of there, Kathy. Yeah, this is what I do in my free times. I we love it.

Yeah. But but what what you're well, what do you get?

Yeah? Yeah.

Instead of inflation being the big concern, which it was six to twelve months ago, well now it's a slowdown. It's commercial real estate, it's the auto sector and the difficulty of borrowers to get financing it's companies worrying about small companies worrying about their finance costs. So there's been a real shift in tone, and I think that that's telling you that the rate hikes are fighting.

But we're not seeing that play out yet in the labor market.

No, we're not.

Which again, very strange cycle that way. Normally you would by now have seen more softness in the labor market.

This cycle has been different.

You can go anywhere in the fixed income world. What do you like where in the world, Well, that's you know, from when we're off air, No, but I mean municipals, corporates. But we talk so much, of course about the treasury curve, as we should, But where would you go or where do you see the best opportunities?

So we like a mix of high credit quality bonds. It's treasuries, government backed security, some mbs, investment grade corporates, investment grade communis. And you're talking about putting the other portfolio with the duration of maybe five or six that you're getting five and a half six percent returns.

That's not a bad thing.

Where don't you want to be?

Right now?

High yield I'm bang loans.

Interesting bank loans to smaller credit risks, too much credit risk. All right, we gotta leave it there.

What hey, we're getting some breaking news.

Meta earning me.

Meta earnings are.

Out, Sharing Jones, Thank you so much.

Thank you, Kathy, Meta platform seeing shares of fourth quarter revenue coming in within estimates thirty six point five billion to forty billion dollars. Meta shares down as much as four percent ahead of earnings, but going up now, Carol, about three person two and a half percent.

Yeah, and this is all you know already after our four percent decline in today's regular session. So we're seeing definitely what medicines higher infrastructure related costs next year twenty twenty four total expenses of about ninety four to ninety nine billion. The estimate was for ninety six point five to three.

You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg, the Bloomberg Business app, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa playing Bloomberg eleven thirty.

We are at Schwab Impact twenty twenty three, and you just look around us and there are just lots of exhibits, lots of booths.

Lots of advisors.

Lots of advisors, that's what I would say, who are figuring out how to maybe do what they do in a smarter way, more efficient way.

I've never been around more advisors in my life.

Here.

Do you feel well advised?

I was advised on the way to the bathroom, and I was advised on the way back from the bathroom.

And what were you told?

Oh, you know they have solutions for where you to put your money.

Well, listen, we have a great guest with us right now, Jelina Kursh, she's managing director, head of Client Experience for Schwab Advisor Services here with us on site at the Schwab Impact Conference. You know, for those folks, first of all, welcome, welcome, thank you, and thank you because, as we said earlier, thank you for having us. You know, people might not be familiar with this side of the business. Just for those who are listening and watching right now, what this is all about.

Yeah, this premiere event for us is just it's like a homecoming because we have fifteen thousand independent advisors who are all about being fiduciaries to their clients. So they've got the best interests of their clients in heart. It's not about conflict with product and placement and how much they can make. It's really about how they can support their clients and their goals. And it's really well aligned with us as a company and our corporate values.

But I think what might be challenging for somebody who doesn't follow the industry or follow Schwab closely, as they say to themselves, wait a second, I can go into a Charles Schwab anywhere in the US, or I can call Charles Schwab and I can have an advisor available to me. Yet you also support advisors who ostensibly look like competitors to your own advisors.

You're nodding, Yeah, it's definitely true.

There is a wide spectrum of needs from across the entire client base. So for a lot of clients, they want to be able to go into a local branch as you cite, but sometimes they also want to have a deep relationship with somebody that's local in their community that is also independent business owner.

So how does that person who's an independent business owner who is local in someone's community use Charles Schwab services so we act.

As their custodian, so they place their assets with us to create a safe, secure haven for their business to transact. So any kind of operational needs that they have, product needs that they might have, we can support those seamlessly for them, which allows them to run a much more scalable practice.

So tap into what they are wanting more and more in terms of being able to do their business maybe more efficiently, more productively. A number one and best in terms of for their clients.

Yeah, absolutely, so the number one thing we hear each year we do a benchmarking study. Perhaps you heard about it or read about it, but we have thousands of

Back office not super sexy, but it's got to get done. No, I know, I think about it like all the times, but it's got to get done. And if you can spend so much money, so much time on it, and then you're kind of distracted, if you will, from really the core of the business is what you're supposed to be doing.

It's got to get done accurately.

And really, I think the safety and security of our brand is a halo for advisors. They trust the brand and so therefore their clients feel good about placing their assets and custody. They know we're going to look out for both the advisor and their clients.

How sticky is the custodial business.

It's very sticky.

I would imagine big piles of money do not like to be moved from place to place well and.

Back to the back office stuff, which isn't sexy. It's hard.

It's hard to lift an entire piece of your business and shift to a different custodian our business model. We're working though, really try to make that more seamless in terms of digital onboarding, digital account all of those things so that it's easy.

But it is a double edged sword for you, because you know you want people to choose you as a custodian, but you want the people who have you to stick with you as a custodian. So how do you make it easy to have somebody who might use a different custodian right now come over and say, okay, we want to use Schwab.

Yeah, so we have an entire onboarding department, if you will, that will actually be hands on feeds on the ground, like lifting out the business for you.

So that it's a lot more easy. It still is a lot of work.

I mean, certainly we're hearing from a lot of advisors who were part of the integration, the TDA integration.

That's a move right and it represents some.

Additional work for them, But I think the resources we can bring to bear actually help make that smoother when you're trying to lift out more well.

Speaking of that of that integration with td Marriagtreate late the back office, like, is all of that done? Yeah, and you guys are.

Like one hundred percent on good accuracy all the assets case they were supposed to do.

So that's a win for us.

What about on the on the consumer facing side, is that transition totally done?

Not one hundred percent of the way they are probably about seventy five eighty percent. There are some of their active trader population who are big users of Think or Swim that'll be migrating in the first quarter of next year.

What was the trickiest part from your perspective of that integration.

I think the trickiest part for us was just making sure that all of these things were going to flow over. There's a lot of technical data that you have to think about implementation lights, and when you think about the advisors, they're using third parts. They have a data ecosystem that has to be maintained. So it wasn't just about books

That advisors are doing.

A few hiccups, sure, a few hiccups.

Definitely a few hiccups. And I think a lot of it is experience. People get used to using a certain platform, and when you move that and shift that, it's changed management.

I wonder too, And I was thinking about our earlier conversation when we took with Rick Rick Wurster, and we brought it up with a couple of our different guests about AI. How does that help with the back office?

Does it?

It? Does? It does.

Although I would say it's early days for us. I think it.

We're being very careful just because there's a lot of regulatory scrutiny on how we as a broker dealer are implementing that, and we have to be careful and walk before.

We run there.

What are some I mean, we have thirty seconds left, but give us some ideas of give me an idea though, how you can implementn AI.

Yeah, so we're actually going to start internally knowledge management, really putting knowledge in the hands of our service professionals who have to know a lot about a lot.

I was just curious about, you know, our audience. It's a smarting audience, an investor audience. What do you think in twenty five seconds what they should know about what you're doing.

I think they should know that we're here to support the way that they want to personalize for their clients. At scale, it's the balance between digital and people one or the other alone.

It's not going to get it done.

You've got to harness it and you've got to deliver on that and still make it feel personal.

All right. We've always talked about like individualized service, right and understanding them. Juliana, thank you so much, Really appreciate it. Juliana Kuerr. She's managing director, head of Client Experience. I bet that keeps her pretty busy at Schwab Advisor Services. Right on site with us at Schwab Impact twenty twenty three. This is Blueberg Radio. I'm brother Mark, a.

Journal radio. How about you let me drive?

Oh no, no, no, no, please, Dug, honey please, I'll do the riding gravel.

Let's mate, I want to try it.

It's a good question.

This is the drive to the Globe dot com for me. I think we'll buy around yell it.

On on Bloomberg Radio.

All right, everybody, we've got just under a teen minutes left in today's trading session, and we've got a day another day where we've got stocks down, yields up, and with us here on site at Schwab Impact twenty twenty three is Ben Kirby in the Flesh, co head of investments and portfolio manager at Thornberg Investment Management. They've got some forty one billion in assets under management. And as we said here, how are you welcome?

Welcome great. It's a great event, meeting lots of clients, lots of great presentations.

What do you get when you come to an event like this, You know, mostly it's.

A chance to talk to our clients to sort of hear what they're thinking. It's interesting. A lot of people are pretty bearish, pretty cautious we see in the market today. But you know, cash is yielding five and so people are pretty interested in putting money in cash.

Pretty bariss to the point where you say, oh, maybe it's a contrarian call, or is it pretty barss that maybe things are turning for the worst.

I just think, yeah, I think I think we see we see the economy slowing. A lot of people see the economy slowing. But also just cash at five percent is attractive to people, you know, maybe more than being bearish. It's it's hey, if I can if I can clip five percent for a medium term, Uh, you know, maybe that's the thing to do.

What is the term that people are are bearish on? Is it the near term?

So recession risk?

I think I mean increasingly people are thinking, you know, odds of recession are are are falling, so you know, soft landing is still is still sort of something that

Ben Kirby, when you're back home in Santa Fe, what do people most often talk about and do you see signs of recession around you?

Probably Hatch Chilis's people.

I always ask him about Julia Roberts. But we're not going to go there.

Yeah, one percent.

So look, uh, Santa Fe is a bit of an unusual microcosm. This is you know, it is not a financial hub. The restaurants are still busy.

People are still you know, buying art. People are buying art.

People are buying art like crazy, right, so, you know we is it tourism or regular.

It is it is mostly tourism. So you know, Santa Fe is seventy five thousand people, but we get a million tourists a year, so that's an interesting microcosm.

People are still traveling, right, So I.

Think we've seen that people spent on goods in COVID, and they're spending on experiences after COVID. Santa Fe is a beneficiary of people traveling to a unique city, spending some money, eating some great food, and then flying back home.

Do you see that? Does it? Anecdotally and based on the people you speak to, the people who you live with, I mean, are is this happening to the same extent that it happened a year ago? Are people still spending money like they were?

I think the high end consumer is still doing great.

I hear that a lot, Yeah, we do hear that a lot. Yeah.

No, no, right, it's not everybody's enjoying.

And but you know, all one million people who visit Santa Fe are not high end consumers.

I think the ones who are spending the most are pretty high in consumers. I mean, if you've ever gone our shopping in Santa Fe, it's it's pretty significantly price.

You don't have to buy something if you go our toppy you can just look as well, which is what I've done in Santa Fe.

But you know, on the other side, what we're seeing is delinquencies or increasing among you know, lower income cohorts, those that excess savings that we got from the from the fiscal stimulus in COVID, there's still excess savings at the high end. At the low end, it's pretty much been spent and now people are trying to rack up more depth.

You know, looking at some of your funds that you are involved in managing, Thornberg Investment Income Builder Fund consistently one of the top performing funds in its category. You've got Thornberg Summit Fund also a now performer. I am curious in terms of strategy, what's working. So I know, different funds different I got it, but give us some ideas of some of the strategies that are working.

So overall Thornberg we have we have eighty percent of our assets through in four and five star funds, which is really phenomenal. Sort of overall, you know, contribution front from those portfolios. What's working this year? Income Builder is working really well because even though we've we've talked about the Magnificent seven and you know, those seven stocks driving the entire market, actually our portfolio is up for the year. You know, many DIFFERENTI paying stocks are down. Our portfolio

For the market right now.

Were you not seeing flows.

We're not seeing nearly as many flows in active US equities. I think that's true for the industry. You know that's turned significantly passive.

Is that a mistake though, because we I'm trying to think who was on, whether it was one of our in house analysts or somebody who just again the focus is so much on the outperformers, but so much whether it's of the S and P five hundred or below one hundred day two hundred day moving averages that haven't really performed. And is that a mistake that if you are actively managing you could really find some great opportunities.

I think it's a great opportunity.

So that was an assist, say thank you, that was a setup.

It wasn't.

It wasn't.

So Look, the equal weight SMP is much more reasonably value than the market CAPU weighted SMP. And also, if you want to look at the evaluation of growth versus value, that's at kind of all time historically interesting levels today. So you know, if you do have an active portfolio. You can pick individual securities. You don't have to be crowding into the same seven to ten or twenty names. There are a lot of a lot of stones turnover.

Where would you crowd into within that name sector spaces that you think are interesting?

So I would, I would expand outside the US. Honestly, I think I think the US market is expensive, even on an equal weighted basis versus Europe, for example, where you can buy a lot of really great companies at seven times earnings, eight times earnings, you know, to ten times joinings, and in the US it's twenty. So Europe it's been a discount for a long time, it's a bigger discount today. We think it's a really attractive opportunity.

Sorry, I cut you.

That's okay, that's okay, Ben Kirby, great to catch up with you. Co head of Investments in portfolio manager at Thurnburg Investment Management. You're listening to Bloomberg Business Week. This is Bloomberg Radio.

This is the Bloomberg Business Week Podcast. I'll a little Apple, Spotify and anywhere else you can get your podcast. Listen live weekday afternoons from three to six Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.