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.
Yeah, how long has this been going on? And then the question is we just talked about with our TV colleagues, this whole idea that the FED is no longer you know, talking about how high. It's more about how long? So how long do we stay at those higher rates? And you know, you look at something like the retail sales report that's out there and folks are shopping on stuff.
The question I have, Carol, is is this because the long and variable lag of raid hikes have not yet hit the consumer in certain areas?
So much for joining us this afternoon, or is it.
Because the consumer is just so resilient having built up a cash cushion?
And J Powell again, thank you so much for I could see the presco are the comments coming out of Jackson Hole next week?
Those are real questions though, like why why are consumers so resilient?
Still?
I don't know, balance, I don't know why.
Are housing price is not coming down?
What are you? A two year old?
Just have questions?
Well, we have somebody to help us with some answers, Bloomberg News Economics editor Molly Smith. She's here in our Bloomberg Interactive Broker studio.
Molly.
So, let's start with the retail sales data. Since it came out this morning, we all knew that there was going to be at least initially some upside pressure on yields, and it definitely played out that way.
Yeah, And I mean, really, Tim, you just I think you just stole the cake from Jay and Jackson Hole right here. So these are well I think you perfectly scripted so that only had grateful to you know, sweat shirt on.
I'm going to be I am not going to be fly fishing in Jackson Hole anytime soon. I'm going to be here working all right.
Jo, just like the rest of us. But you know, yeah, I mean I think it really is. It still is a question that we would all love the answer to of, like is this because like the policy lags haven't hit the consumer yet or they really just are that strong? And I think there's reasons to believe, but it could be true.
Well, take a step back. How strong was the retail sales data give us some perspective because there were also some revisions right to previous reads.
I think that was probably what gave me the most you know, upbeat read on this report, because you know, we always say you shouldn't look too much into one month's worth of data, but when you see that there's big upward revisions the prior to months, and it's like, okay, wait, maybe that kind of boosts some of the optimism around this and gives you some more confidence. And a big number like today's was okay.
But these are goods, not services. That's another thing to keep in mind.
Mostly goods. Yes, there is one services spending category here, and it's also not inflation adjusted. But the reason why that actually in this case makes it look almost better is because in the last CPI report for this month, we saw more disinflation and goods as in prices price growth being lower. So you would think, then if you see this bigger retail sales number, then that has to be also greater actual spending to combat lower prices or lesser price growth. I should say, all.
Right, so I want to bring Ara Jersey into the conversation. He's Bloomberg Intelligence chief US interest rates strategist on the phone in New Jersey. So Ira, you know, Molly setting the tone in terms of what we got from the retail sales data, including those revisions, which is largely the reason why we got that kick in yields. Hired talked to us about the trade today, specifically the significance of one day's trade in the trade. We've been seeing the
US government dead. I feel like I keep asking me the same question.
Yeah, yeah, So we you know, started the day actually with higher yields, primarily because of better data in Europe. So we had a big sell off in Europe, and Treasury followed that, and it was you know, there was a continuation of that weakness right after the retail sales report. But then I think, you know, the market kind of woke up and said, you know, does this really change the forward outlook of what we were thinking where we're going to have a soft landing or at least a
delayed recession. The Fed might not cut as aggressively as we thought, but at the same time, they're going to cut at some point, So then you wind up having a bit of a reversal and people taking advantage of four and a quarter percent ten year yields and five percent two year yields. So and the market's very over sold right now as well. So I think it was just kind of an opportunity that people took to cover some shorts, you know, at somewhat higher yields.
How high do you think we'll see on the short.
End, Yeah, so we could get up towards five point one percent, five point one five percent. It really depends on the scenario for the Fed and how long and if they're good, well, firstly if they're going to hike again this year, and then secondly, how long they're going to hold the gist rates at at the current level. You know, when when the market wakes up. I think eventually the market will wake up to the idea that the Fed might not be cutting interest rates until the
fourth quarter of twenty twenty four. And if that's the case, you could easily get another you know, fifteen twenty twenty five base points to sell off up to around five point one percent. We put that in a note actually last week about different scenarios that could occur depending on
you know, what the Fed could do. But that being said, I think at some point in the next three to six months will start to get a pretty significant rally in two year yields, and you'll see two year yields much lower on the idea that at some point in the in the future will start the price for very aggressive Federal reserve.
I don't know if you got this story, but with Carolyn, I interviewed Katherin Kaminski yesterday over at Alpha Simplex and she saw ten years. She sees ten years going to six percent. What do you make of that?
There's so Molly just past.
Molly just passed out.
Sorry, I think that I don't know if that was audible to that.
That was it's all live, everybody, all right, Yeah, well go ahead.
I think that's an amazing tail risk. And the only real realistic way that you get to ten year yields at six percent, firstly, is that the Federal Reserve increases interest rates more in the front end and at number one, or the FED doesn't do anything and inflation accelerates, which is, you know, not a realistic possibility in my view, at least not not with this FED or reserve. So so to get to six percent is really a hard nut.
You remember, what the reason why ten year yields are so much lower than two year yields right now is just on the anticipation that even if the Fed hikes another twenty five or fifty basis points, at some point, they're going to be cutting interest rates, you know, even if it's not until twenty twenty six. So that's again, that's another scenario that we put out, like what if the Fed doesn't cut for two years, you know what,
what then would the ten year be pricing? And it turns out the tenure would be pricing around three point eight five percent if they cut down to three percent in twenty twenty five, So you know, you still have you know, unless the Fed hiking ten year yields aren't going to probably break much higher than four and a half percent.
Well, why we get Molly's smelling, sal smelling Molly. I'm going to continue and just at one thing I do want to ask you Ira, when the Fed you know, puts their you know, makes their rate moves and obviously what we're now at a five and a quarter to five and a half, I mean, is there something that the treasury if you take a look at the two year that it won't normally go x amount above that range.
So well, yes, the correlation that we.
Can assume that it can't go to that six percent, right, So well.
If the Fed hikes the six percent and then two year yields will probably go a bit higher, you know, five and a half percent and something like that. So that really depends on how the market prices for the future. If you think about what the two year yield is, it's the average of the overnight rate for the next
two years. So if the markets at five percent and the Fed fund rates at five and a half, then the market's telling you that at some point the market's mainly going to be pricing for at some point the Fed cutting interest rates in the future. And you know the reverse is true too, right, Like, let's imagine a scenario where the economy is falling out of bed, we see some jobs, inflation still high, and the Fed doesn't cut well, then maybe you could see two years yields
above the Fed fund rate. You saw that for example in twenty twenty one when the market was preparing for the Fed to increase interest rates to so two year yields go much higher, right in anticipation of the fat actually hiking rates.
All right, so let's go to the fundamentals. Molly, that's your game in terms of what we're seeing on the economic backdrop. I mean, this economy continues to surprise us in terms of its sustainability.
Yeah, and I think that's you know, still feeding into a lot of this soft landing argument. And you know, people definitely saw a bit of reason to keep being optimistic on that today. But of course there is the risk on the other side of that that if this is like proving to be an economy that's too hot, that is feeding into inflationary pressures again, then the FED certainly is not going to let off and let that six percent treasury come to fruition.
Doesn't the stickiness of like wages and rents or home costs, that's gonna that's what's weighing a little bit on inflation right now.
Yeah, all these things, and this is why people been saying that last mile, you know, of getting from three to two is going to be the hardest and the longest. So I think that's that could be taking some of this euphoria out of this what some people are calling the immaculate disinflation story.
Okay, well, speaking of euphoria being removed, US home builder sentiment declining for the first time this year. Molly, please explain.
Yeah, so there's, uh, you know, the mortgage rates are still really high, and I think it's finally catching up to you know, affordability as well. That you know, we had seen some months of home prices coming down, but that seemed to be you know, not didn't really provide a whole lot of help on the affordability side. And especially since mortgage rates are now you know, staying above seven percent for a bit longer here and more talk of like the FED that it could very well hike
rates again. And this discussion you guys were having as well, if not how high, but how long that that's really putting some damp or into the housing market activity. So uh, yeah, builds sentiment came down because of current sales, because future expectations, perspective, buyer traffic, all those main indices that builders look.
For a right, just real quickly, thirty seconds left here next week at Jackson Hall. You think the FED is just going to work overtime to kind of get some of the volatility out of the markets or what you taking, just quickly I.
Don't think volatility. I think that they'll probably focus on the how long question that we've been talking about at Bloomberg all day today. You know, we've been talking about that really since since May of this year. You know, will you know, how can they jawbone taking some of the cuffs that are priced out of the market.
Any last thoughts here, Molly Jackson Hall next week.
You know, I'm thinking about the US Open.
Right, I know.
That's okay.
It's why we done one of the reasons, many of the reasons I always have to sneak it in. Mollie Smith, Economics editor at Bloomberg News. The US Open is a great indicator of the economy. I got to tell you our Jersey chief US Interest Rate Strategies at Bloomberg Intelligence on the phone in New Jersey.
It is.
It is a kind of ish.
You're listening to the Bloomberg Business Week podcast just live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app or wants us Live on YouTube.
So back in early twenty twenty one, Spacks, we're really having a moment, to say, the least, but today we had a bit of a different story and environment. Of the roughly four hundred d SPACs on US exchanges, those are companies that have merged with a SPAC like we work wheels up in a few more. The median performance here to date is down fifty percent. That's according to data compiled by Bloomberg.
Tim Yeah, and about fifteen percent have gone bankrupt since the peak in early twenty twenty one. So let's get a spack update and Tuck Moore, We've got Isabelle Freedheim with a CEO and founder of Athena Consumer Acquisition Corporates, an all women let's spack platform. You have recall we've talked with members of the Athena team in the last few months. Isabelle is on zoom from Aspen, Colorado. Isabelle, how are you good? Thank you well, it's good to
have you with us. Carolyn and I were talking about this as we prepared for the segment, and we thought, you know, it's so interesting, becase it would make sense to be talking so much with SPACs in twenty twenty one, maybe early twenty twenty two. But today's news of the ev SPAC, notwithstanding SPACs aren't really happening much anymore.
Why is that, Well, actually they are. There have been nine SPACs announcements in the last couple of weeks. That's ninety four up to ninety four now year to date. The prior year we saw about three hundred closed SPAC transaction.
So big decline from even last year.
So far, year to date we're at ninety four. I expect that we will see tremendous activity in the fall as well. There's no question that the IPO window remains shut for now and spacks continue to provide access to public markets. It's unquestionably challenging. That being said, for companies that want to go public, we are proving that there is a viable path through spas.
Tell us what that viable path is, because, as you know, SPACs you know, in general, have been around for a long time, but they definitely have very distinct up and down cycles, up extremes and down extremes. So where are the opportunities that are actually going to create companies that are with us for the long haul and that actually you know, will ultimately provide good liquidity events for those founders and their companies.
I think the supply and demand forces of the market have created a new equilibrium such that now investors are interested in companies that are generating revenues that are close enough to profitability. And that's just a result of demand on the investor side, and that is what created this abundance of SPACs in twenty twenty and twenty twenty one
was really demand from investors. We saw a lot of institutional investors who were starting to invest in pre IPO companies because they wanted access to these kinds of yields that were at the time not elsewhere. So SPAX created an answer to this demand from investors. And it wasn't just institutional investors, it was also retail investors. The demand was there for earlier stage high growth.
Do you think that do you think that demand comes back though from retail investors.
Retail investors tend to shy away from highly volatile products, right, and what we see here we continue to see some volatility. There may be interests, and I think there are companies that continue to answer that demand, but that demand has changed. And the poor performance that we saw as a result of combinations that close in twenty twenty and twenty twenty one is really the result of investors pulling it out
and going into a risk off mode. So you continue to see now transactions that are performing much better than they were in the past because the valuations have adjusted to the new reality of the market. They're often benchmarked to commps publicly traded comps, and in the companies that we see that have closed recently actually perform much better.
And there's no question that SPACs are going to continue to be in the current form or in variation of SPACs, but they will continue to be an answer for companies that do want to access the public equity market because we're clearly not there with the IPO market yet and not that we compete directly with IPOs, but it continues to offer a number of advantages.
So talk to us about deals that you guys have completed where you found opportunities.
Yes, So, for example, we closed a combination last year or eighteen months ago with a company called Heliogen in artificial intelligence company for the solar industry. We continue to announce combinations with announcer combination with an electric vehicle company
based in Germany called Ego. We have recently announced another transaction with a company based in Abu Dhabi that makes water from humidity, and we continue to see very exciting companies that are attractive, well valued, both in the US and Lebron.
Do you think the spec because SPACs weren't new in twenty twenty twenty twenty one, SPACs had been around, but they've gone through cycles. Do you think this cycle is different in the sense of, like SPACs are here to stay.
It's not a cycle. So what you need is to ride sponsor what happened?
How is it not a cycle if you have them, you know, spike in one year and almost completely disappear in another year.
They well, it was a cycle, but I wouldn't say that now we're in a cycle. I think we're in more steady states with regards to spas. And what happened is that many SPACs were launched simply because they could, and that's not a sustainable formula nor a sustainable business model. In the surviving SPAC sponsors will be platforms of true value creation for the partner companies, and that is how we have positioned ourselves with our platform of multiple SPACs
as well as our fund. It's being able to provide long term assistance to the company and provide a service. So we position ourselves as service providers. Many SPACs were launched by sponsors who we're doing this part time on the side, and that doesn't work when you hire someone to do a job. When you hire an investment banker to take a company public, they don't do it part time. So it has to be that we have full time
management teams and dedicated members. So in our SPACs we've had, for example, among various boards, we've had board members of Fortune one hundred companies like City Group, Comcast at now Blackrock, American Airlines, and we bring all of these resources along with a number of CEOs, operators and as well as founders of companies who have gone through the journey themselves. So the service that we can provide is completely different than what you may have seen in twenty twenty one.
Isabel so like and the exit strategies are so important. Just got about twenty five seconds left here. So for something like air Water, does it go public soon or is it a twenty twenty four story?
Just very quickly we've announced the transaction. I would expect it to close in twenty twenty four, but there are deals that are closing in twenty twenty three. You're a number in the pipeline and I think we will see exciting performance.
Okay, well, we'll be definitely looking out for them. So good to get some time with you. Isabel Freedom. She's founder and CEO at Athena from Aspen.
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 play Bloomberg eleven thirty.
Today, in a statement from China's Taiwan Affairs Office, China called him a complete trouble maker making also because of his seeking Taiwan independence. The hymn, of course, is Lya chingd, Taiwan's vice president and a leading presidential candidate who sat down with Joel Weber, the editor of Bloomberg BusinessWeek, in an exclusive interview that is actually Business Week's international cover stories, also Today's Bloomberg Big Take, and a most read on the Bloomberg terminal.
Yeah, that exclusive conversation is why China is commenting today. After the interview became public, also saying Live's comments on so called maintaining the peaceful status quo are totally a lie. The statement says such a person will only bring risk of fierce war. With more on the conversation and on Taiwan, which is one of the most prosperous places in the world, we should note is Joel Weber. Joel, good to have you with us this afternoon. Congratulations on this incredible piece.
I mean, it wasn't that long ago that you were actually there doing this. Talk to us a little bit about how this came together and take us behind the scenes.
So I've got amazing colleagues, We have amazing colleagues in Taipei, and they kind of had just reached out to tell me more about the overall election, which isn't until January, but in the turbulent Taiwanese politics, you kind of want to get in on this stuff early.
The last time the.
Presidential election happened, it was, you know, a pretty big flip actually, so we wanted to kind of establish the presence for our reporting and our bureau in the region there, and so I said, well, what do we want to talk about, and they said, well, Elai Chung Doa is the front runner, and he's the current vice president, and he's really the person that we should talk about. And I often think when there's a really chaotic or turbulent
thing in the world. In this case, I think it's probably the most complicated geopolitical situation that you can imagine, and dropping into it as as I did, revealed how complicated it is. It helps to have like a little bit of a rock that you can kind of tell that story through, and that's what we were able to do with Light and I had a series of exclusive interviews with him. It's all tied to his transit, which gets to a thing that's part of the geopolitical complexity.
That I mentioned.
If you're a Taiwan ees official or elected official, you can't just do a round trip flight from Taiwan to anywhere in the US. You have to transit, which means that you have a stopover, which is effectively an extended layover. So he did that last weekend through New York en
route to Paraguay. Paraguay happens to be one of the dwindling number of one of a dwindling number of official sort of diplomatic countries that the country that Taiwan has formal alliances with the other ones China has strategically managed to flip in recent years. So Hondura, Squadmalodes are countries that were once on Taiwan's side and have flipped to Beijing's corner. So Beijing is in Taiwan. Is really what
this story is about. And you know, for a long time that prosperity that you mentioned that was because there is this really effective triangle where Taiwan would have manufacturing in China, export to the US. Everybody prospered for decades.
That worked until China started to reassert itself, and that's where we come into this upcoming election because as China's asserted itself, Taiwan, which is a self governing island democratic Beijing, looks at that and says, you know, you're part of China, and Taiwan says, no, we're not.
Which begs the question about war, which is something.
They actually should clarify. They would say, we're the Republic of China Taiwan, which also did I mention now complicated. The geopolitical part.
Of this was I can only imagine the conversation that you had with him, how careful you were in terms of how you phrase things, because.
We know watch the video, you can see me checking my notes.
No, you're but I mean the question of war, the potential if China invades, and that is certainly, you know, something that was obviously top of mind here big time.
And and look like the stakes for this election actually couldn't be higher. I think the global economy is absolutely dependent on Taiwan, and that is large part because of the semiconductor industry. Something like ninety percent of chips come
from Taiwan. We learned how important that was during the pandemic when we had the supply chain carnage, and and you know, Taiwan is just instrumental and if you if you don't have those chips, I think we look at living would be living in a version of the world that would be like nineteen eighty seven or something like that, right, like total reset. So Taiwan incredibly important to that.
You're going to ask me something, No, now, can we share a little bit of your interview?
Yes, let's do it.
Okay, we have some of Joel's exclusive interview with Taiwan's vice president, and they talk specifically about the importance of support from the West and keeping peace with China. Check it out. Everybody us.
Also way theo.
We must abide by the truth, which is what I mean by pragmatism. It is that Taiwan is already a sovereign independent country called the Republic of China. It's not part of the People's Republic of China. The ROC and PRC are not subordinate to one another. It is not necessary to declare independence in Weshimbu.
What is your roadmap to formal independence.
Anyway? Well, it's just where is the.
Tai My responsibility is to maintain the status quo in the Taiwan Strait while protecting Taiwan and maintaining democracy, peace and prosperity. So no such framework exists. We must work to maintain the peaceful status quo because Taiwan is already a sovereign country.
China keeps pushing on the status quo, and it keeps pushing. It's fired and missile over Taiwan's cross the median line in the Taiwan Strait, and it's simulated a naval blockhead.
What is your red line?
Taii Shinzwong The Chinsu Jinzan increased tensions impacting the status quo in the Taiwan Strait have not originated from Taiwan. They are due to China's growing assertiveness. China not only seeks to annex Taiwan, it also hopes to change the international rules based order. Under these circumstances, we must be clear Taiwan's security is of international concern. Peace and stability in the Taiwan Strait is aligne with the international interest.
So because challenges in the Taiwan Strait are a global concern, a global red line will also be Taiwan's red line and my personal red line.
In Ukraine, President Zelenski rose to meet the challenge when Russia invaded. What did you personally learn from his leadership?
Minzus?
Democracy is a universal value, irrespective of borders. President Zelenski rallied his people to resist Russia's invasion. They are protecting not only their country, their land, and their people. They are also fighting on behalf of our democratic values.
I'd also say, how.
Will colladse Russia's unprovoked invasion of Ukraine has led us to see that dictatorships are inherently unpredictable. We must make the best preparations for a worst case scenario and inn way to We also see that President Zelenski's courage, as well as the support they sought internationally, all contributed to Ukraine's resistance against the Russian invasion. We have a deep understanding that we must avoid war in the Taiwan Strait.
There are no winners in war. Peace is priceless. From the war in Ukraine, we see that we must do all we can to avoid war in the Taiwan Straits.
You've said provocative things in the past that will be of interest in Washington. How have you changed?
And I have been part of Presidentai's national security team. Together with the US government, we have responsible and clear channels of communication. We are able to share information effectively, understand where the issues are, and cooperate in resolving them. This election is about choosing between two roads. One way is to continue engaging and cooperating closely with the international
community while deepening our democracy. The other choice is to accept the one China principle and stand together with China. I believe the US will continue to support us on the first path. One means.
How confident are you that the US will have Taiwan's back should the situation with China escalate, I mean well.
So Taiwanda haupong Il. The US is a close friend of Taiwan. We are partners in a number of areas, from politics, the economy, human rights, to our society.
In with Taiwan, the ANJANGUNTI.
Because Taiwan's security challenges are a global concern. The upkeep of peace and stability in both the Taiwan Straight and the Indo Pacific region fulfills the common interests of the international community. I believe that all democracies in the world, including the US, would be aware of how to respond if such a scenario were to take place.
If the US wants TSMC to build more chip babs in the US, would you stop it.
In we ban Baldi tany The semiconductor industry is not just made up of one or two fabs. There is an entire ecosystem. TSMC's advanced processes are located here in Taiwan. Their base is here in Taiwan, so if they choose to set up operations in the US or other countries, this is an expansion of Taiwan's economic power. This is also part of the restructuring of global supply chains. I would take these developments positively.
What do you want the world to know about you as a person, so waziger ni Jing.
I am a rational and steady leader. I know how we can respond to the challenges we face as a country. I also understand that the serious and complex nature of issues in the Taiwan Strait call for rational and steady leadership. This will enable our country to move forward amid changing geopolitical circumstances.
Wango and that, of course was Taiwan's Vice President Laichingong leading presidential candidate. As we've said, for the upcoming election in Taiwan elections, I should say, of course, talking in an exclusive interview with the editor of Bloomberg Business Week, Jill Weber.
Jill, one thing that I was struck with, struck by in the piece is the changing view Taiwanese people have about themselves, about their own identity in the piece and what they consider themselves. Talk to me a little bit about how that's evolved in recent years.
Complicated question, But you know, Taiwan actually views itself as the Republic of China Taiwan, and that is rooted in the history of Taiwan, which basically was this military standoff and the Taiwanese left mainland China and basically have never been under Beijing's authority.
Right.
So the longer that this has gone on, the more that the Taiwanese identify as Taiwanese and less as Chinese. And that sort of reflected in some of the pulling that you're referring to.
What struck you the most about doing this.
The food is fabulous, and I just got to tell you, like, just if you ever end up there, just eat, eat, you know, this is a I expected just to feel like this cloud of war would just sort of be kind of looming over everything and that China wood factory and everything. And honestly, that is such an outsider perspective because once you get there, you realize it's been like this for decades, right, and they are prospered and made it all work. But then you'd have like this piercing
reminder of like, oh, yeah, those are the stakes. And one version of that was on one of the one of the afternoons that we were there, there was an air raid drill. And this is just a fact of life. Every year they practice for it, and that tension is below the surface because it's like every everybody will ask about it eventually, So it is the predominant theme in this election. There's other things that are concern like housing, which is in demographics like those are things that are
true every wellwhere else too. It's just that when you have the Taiwan straight right next to your border, you sort of are obsessed with it because that is the prevailing thing that everybody wants to talk about.
Well, God of Astrol, what it was like to get the attention of China with this piece, I want to repeat for people who are just joining us now. We learned overnight that China called Taiwanese presidential front runner a quote troublemaker and says Taiwang's le Chingda brings risks of war.
So to some extent it's expected they just, you know, we knew going into this that how they really felt about him, and this story goes into why that's so, and a lot of that is rooted in the DPP, which is his political party.
The what what.
What this particular reveals though, is that there's some some things that he said in his interview that and are in the story that reflects you know, he's he's willing to say that the door will be open for a dialogue, and and Beijing, as we say in the story, really does not believe that because it's all rooted in some
sort of some of these geopolitical complexities. So to some extent, it's kind of like not a surprise that they would say that, but they said it, and it does speak to in general, uh, just how complex and why this election in January will be something that will be continuing to watch and revisit, I think in the month ahead, because the stakes of this election could not be higher.
That's why he's such a great editor, because he's a reporter at heart. Editor Bloomberg Business Week, til Weber.
Check it out, folks, a journal you let me drive novel I want to try.
It's a good question.
This is good drive to the Globe form Well da Don on Bluebird Radio.
All right, everybody just.
Got about seventeen and a half minutes left in today's trading session, getting ready shortly to head over to our TV colleagues and talk about a little bit about the trade. But in the meantime we've got a great guest to do that as well. Tim.
Yeah, very pleased right now to be joined by Lisa Erickson, senior vice president and head of Public Markets Group at US Bank Wealth Management. She joined us on Zoom from Minneapolis, Minnesota. Lisa, how are you?
I'm great? Thank you?
Okay. So I don't even know if we should start with the bond market or the equity market today, Carol. I think I'm gonna start with the equity market here, because that's certainly what I'm interested in. We just heard from Charlie and from Bailey that the selling that we're seeing has increased. We're at the S and P five hundred down one point three percent right now, the nasdack down one point two in the dowddown more than one percent. Is is this just should say it's on very low volume, Lisa?
But is this just a minor setback. We've seen such incredible growth in the S and P five hundred so far this year. August not looking so good.
Well.
We're really neutral on the US equity market right now, and the reason why is when you look at the puts in the takes, we really find them fairly balanced.
So our expectation in the near term is really for more of what we would call a chop period where investors are just going to be swung a little bit more by the news flow because bottom line, really what it's looking for is some resolution on the inflation front and the policy front with where the Fed may be headed with its continued monetary tightening policy, and as of course,
continued information on earnings and guidance. And while there's still uncertainty about where those three figures lie, you're just going to see stocks really move up and down both ways as again we get incremental news. So I am.
Curious you guys deal with a lot of wealthy investors and what's top of mind for them because they end up, you know, I would assume make an investment, kind of sit in it for a long time, Lisa, So is that what they're doing or they're saying, listen, I'm a little nervous. There's a lot of optimism. People have backed off receession. What can we do? So give us an idea of what kind of conversations you're having with your clients.
You know, really the main conversation is around again looking forward into twenty twenty four and twenty twenty five, really what the prospects are. And again, you know, our best thinking right now is for our clients to stay strategically typically where they would be in equities in fixed income, and really at this time not going big on either
overweighting or underweighting those main asset classes. And again the reason why is there's still lack of clarity about again the forward growth potential, which would of course then influence both equity and fixed income returns, and with again that level of uncertainty, again, just staying more at those long term waits we think really makes the most sense.
Okay, so I guess my next question really is about your outlook for the economy, separating it, of course from the stock market. We talked a lot today about retail sales that came in stronger than expected. I'm wondering, Lisa, how if you're still making a call for recession.
Our base case, really based on our work with the USC Bank Economics team, is that we're going to continue to have some slowing growth, but hopefully avoid a recession, and if we do get one, it'll be of a more moderate garden variety as opposed to a very severe recession.
And that economic forecast is really on the back of the fact that we've seen the consumers stay relatively resilient and companies as well be able to so far manage both their top and the bottom lines, to really manage again a more tough interest rate and potential consumer spending environment, to actually have both those top and bottom lines turn
out okay. And so on the back of that, and even though we see some slowing, we see so far those engines continuing to be able to hold in there, which again gives us more of a soft landing type of outlook.
So one thing I want to ask you. You are head of the Public Markets Group, Lisa, and I'm just curious. We just came off what is the most red story on the Bloomberg has to do with Blackstone obviously big and private equity, private credit, growth equity, private everything. Your investors are they more interested increasingly what's going on in the private markets?
Is they?
I mean, it's interesting you can get yield, like Tim you said earlier, in a simple two year treasury exactly.
You're a thirty day exactly.
So I'm just curious, are your investors more interested in private markets or public markets?
Well, certainly we've seen an uptick of interest in the private markets over the last few years, and that is actually on the back of our advice that clients where they have the ability to handle some more I liquidity in their portfolio and longer time horizons to look at those private types of vehicles for their portfolios. Certainly when you look over time, just the fact that again you get an extra risk premium for investing out with a longer time horizon and for not being able to make
flows in and out as quickly. Plus some of the additional economics sectors that are accessible via some of those vehicles, we think really make for an interesting case again for clients where that's an appropriate fit for their portfolios.
I'm going to ask you the question I ask everybody, Lisa, if somebody comes to you with a big old pile of money, how are you deploying it right now?
So, of course, once we do the initial financial planning work, in the initial asset allocation work, we would really again advise.
Going for those strategic targets at.
The time, and then again looking how policy and inflation particularly continue to play out over the next few quarters, to look at where there may be more opportunities to over and underweight on a big asset class basis. Now, within asset classes, we do have some specific interesting recommendations, uh, to deviate from just really what would be the broad index recommendation. So for example, and fixed income again for
clients with the right kind of risk tolerance. We do see some extended sectors as interesting, those sectors just beyond you know, playing sort of investment grade bonds as well as non agency mortgages, and so there are some areas based on part gratulations as well as fundamental underpinning those nicer gilds that we see as at these times.
All right, we're gonna leave it on that note, Helisa, Thank you so much. Lisa Ericson, Senior VP and head of Public Markets Group over at US Bank Wealth Management with the san Zoo from Minneapolis.
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