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.
So about a week ago, Bloomberg News was that with a story. It was about how airlines first class makeovers are giving the rich hotel rooms in the sky. That means carriers are investing billions of dollars to upgrade cabins. They've got sofas, double beds, TVs, desks, wardrobes, mini bars, and in some cases, Matt Maller walking showers.
That's awesome. I know, I think that rung sign.
It's like your flight. You're gonna take it at over the weekend, right.
Yeah, No, I'm flying to Detroit over the weekend. It'll probably be on an incredibly uncomfortable narrow body jet in coach. Okay, sorry about that.
Well listen. If that doesn't cut it, though, these upgrades that some are enjoying in first class, you can always buy your own private jet, including you, Matt Miller. So let's get into that with our next guest. Janine Janarelli. She is founder and president of par Avion. It's an international business aircraft sales and a marketing firm, and she joins us once again on zoom in Houston, Texas. Janine, nice to have you back here on Bloomberg. It's been
a little while. Tell us about the market and what you're seeing right now and how everything is really kind of settled in post pandemic, Aha.
Settled in? Well. The term that you're hearing oft used among the trade is a return and normalization, and it certainly feels that way now that we're through Q one and well into Q two, as compared to the last two years, Whereas in late twenty one and all of twenty two we were saying, who knew a pandemic could
be good for business aviation? But it was. And now that we're on the backside of that, we see I personally see and I hear it echoed by my peers, a pronounced slowdown in the number of inquiries, the level of activity, and you know, prices are starting to correct.
So is that because I mean, I guess during the pandemic, if you had enough money to fly, not just privately, but more importantly, separately from everyone else. You did that so that you wouldn't get sick. Now maybe people are less worried about that and willing to you know, as Carol said, you know airlines. Commercial airlines are putting your own room on the flight, so you might as well just take that instead of buying a G five point fifty or whatever it is.
Well, there's still a huge difference between commercial airline travel and that of flying on your own aircraft. I mean, let's just talk about the convenience. First of all, there's not necessarily a deadline by which time they're going to close the door and you've missed your flight. Secondly, it's not the restrictive sort of feel with business or private
aviation as it has with commercial commercial. You're sharing the space still with dozens, if not hundreds of fellow passengers that are trampling down the same aisle, using the same restrooms, taking advantage of all the well limited open space that you have, Whereas when people gravitated towards private aircraft during the pandemic, it was exactly that, creating a health corridor, so they knew who they were mingling with, what they were touching from the moment they left their home till
they reached their destination. You are correct there is a slide back towards commercial travel, but I would say most of the draw Sorry.
No, well you don't even want to jump in because I am curious. You said normalization pronounced slow down. I am curious what that means in your business? Is it down fifty percent? Is it down forty percent? I mean, I'm looking at your website.
You know.
What have I got here? Assessna citation, a Bombardier Global seventy five hundred. You're talking about Planesecho for at tens of millions of dollars, hundreds of millions of dollars. These are not an expensive items. And I'm just curious, what's a slowdown in this space look like?
Well, you know, slow down is probably let's talk activity. Whereas before you could even get the airplane the market, you had a ready buyer for it. It was gone. The advertising was just done to sort of serve as a means by which to get other people to call in. Today we are now seeing lead times where I should say, bring the aircraft to market, and you're going to sit on the market ninety one hundred and twenty days on average.
With most of the aircraft, I would say the flight or the decline in activity is being felt at the top end for sure, as well as at the entry level. The two to seven million dollar business jet that people jumped on a in a panic, in a frenzied buying, I would say through late twenty right up until Q three twenty two.
Right, that's all gone away, by the way.
Uh.
In terms of you know, owning a private jet and using it, how many people actually fly their own? Do you have clients like that?
A few, but very few? That is the small percentage of the entire let's say ownership pool that actually pilot their own aircraft. So at least in the category airplane I work with.
What So, what are the hottest ones that you sell? What's the private jet? If I, you know, have some liquidity event and I'm all of a sudden holding a billion cash, I come to you and say, can you sell your bitcoin? Yeah, Jennine, give me the hottest it jet that you've got. What's the one that everybody wants?
OK?
Got Global seventy five hundred that you're taking a good look at. If you come into a billion dollars, that is the aircraft for you, you can go anywhere in the world quite comfortably. But the other side of the it jet, let's call it an IT sector, is the mid size, super mid sized popular airplane, perfect size, ideally suited for continental US travel, and the charter operators love it.
You know what I'm curious too about I think the last time we talked, and again it was a few years ago, I think cross border was a big thing for you, and so were entrepreneurs. Who is buying today, And I'm curious entrepreneurs maybe think Silicon Valley Bank or slow down if that's had an impact.
Well, X sector certainly has seen a slow down and a decline of inquiries coming from that particular industry. But entrepreneurs are still my sweet spot. And remember there are entrepreneurs doing many different things, and one market declines, another one rises, one industry declines, and other rises. In the aircraft sales world, we make money coming and going in economic cycles. As far as the cross border that's starting to pick up, but still lagging behind demand within the United States.
If I only have, like I don't know, fifty sixty million bucks, but I have a few friends with fifty or sixty million bucks. Do you recommend people going in on a jet or where do you steer someone away from that idea? I mean, does it really make sense to buy your own jet? Isn't it better to be able to lease it out occasionally?
Well, what you buy is driven by your need. For sure, how many hours per month you anticipate you'll be flying, what's the distances you're going to be traveling. While partnership in aircraft is not uncommon, it doesn't always work because you have conflicting needs or conflicting schedules. So if you had three friends and each of you had fifty million apiece, sure pull and buy one jet. That might facilitate some of the trips. But ultimately I think you'll find you each need to your own.
You know, I do wonder too, Jinny, like there are weird, kind of weird things that we sometimes look at for global economic indicators, And I'm curious about what you are seeing in your business as it says to you that a recession is on the horizon, or how would you describe kind of the economic outlook the.
Big R word. So that's obviously been something that's been discussed within the trade for oh since the Middle of last year, because we know it's looming. An economic cycle is inevitable, and we've been through a boom period in our business, and I would say that business checks historically have been a pretty good leading indicator of things to come. I think the waters are a bit muddied at this
time that we're not predicting what's coming next. The slowdown that we're feeling, I think was inevitable as a result of several things. One the one hundred percent bonus appreciation going away at the end of last year. The pandemic frenzied buying is pretty much over. Most everyone made their selections, got their deals done. And now that's why we call it a return to normalization, a normal turn time on
the aircraft. The number of inquiries are equalizing, and you know, as prices slide, it's going to stimulate demand once again. And I have to say that I'm not sure prices are going to slide dramatically. They're going to correct slightly. And one of the questions I have on a panel that I'm going to host next week at the European Business Aviation Conference is if this prices slid to twenty nineteen level, is that still a win for everybody.
I hear you. I think about that all the time myself. Actually, what's that you know, if we drop just back to twenty nineteen levels, is that bad? Or is that a win? We've gone through this incredible pandemic. You know, it's it doesn't seem like it's such a horrible stat anyway, Janine, great having you on. I always love to get a check on the private jet industry, Janine Ganarelli. They are founder and president of par Avion.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, been the Bloomberg Business app, or wants just live on YouTube?
All right?
Chairs in Morgan Stanley Charlie talking certainly about the top stories, including Morgan Stanley which is the stockdown about two and a half percent. It is, I believe still the most read story on the Bloomberg about James Gorman, who transformed the company, who has been CEO. He's now in his fourteenth year. He's getting ready to leave in the next
twelve months at least as CEO. So what you need to know from Bloomberg News Finance reporter Shrinaajen in studio with us our Bloomberg Interactive Broker Studio along with Bloomberg News Wall Street reporter Shinali Bosik. First of all, I'm going to count down from three and you have to say yes or no whether you were surprised that he made this announcement. Wait, wait, three to one. Okay, nicely done, nicely done. Okay, Why were you not surprised?
Although I would, She said yes, she was surprised.
Oh, you know, I don't think I'm surprised about the announcement. I'm surprised that he said it at the annual meeting this morning in this fashion. Morgan Stanley kind of has a weird way of it.
Agree. I mean, it was like, of course, he's been there for thirteen years, he's done a bang of he's ready to go.
He's twenty sixty five in July.
How many How many years has Jamie been there?
Fifty five years?
Okay, but see since two thousand and five. All right, it's still it's still was a headline where when I saw it, I went, wow, well, because it's good news, so it's not like it's unexpected but it still was kind of a surprise.
Okay, Well, and investors are a little bummed out, So what do we need to know?
Which is the nicest compliment? Right, If you've been a CEO for fourteen years and you say you're going to.
Step down rallies, you really have to get worse.
I mean, they're not that bummed out in a down market? What's Morgan Stanley shares off two percent?
Yeah?
Percent? Not for bank stock going to say in a down market? You know, I mean I'm a lot of that day. If I were leaving, I would want it to be at least decimated.
Stop jap mortgage just down.
For he's decimated. Yes, that will speak for your legacy.
Okay, So our parents are calling in and saying, Okay, what do we need to know about this? So what do we need to know?
It's an important move.
But James Gorman has been one of the longest tenure on Wall Street leaders. You know, you would put him in the same club as Brian Moynen, who took over as CEO at Bank of America around the same time in twenty ten. And the only other longer term veteran out there is Jamie Diamond. Who will always be the CEO of JP Morgan into twenty one hundred, but almost fourteen years at the top. For the last three years, he's been very public about executing this succession plan. It
started up, started off with the leadership overall. In twenty twenty one, you got a firm timeline. Then that's when we found out that James Gorman told the Morgan Stanley board that he plans to be around for about three more years in twenty twenty three. Today he says another year. So it's all pretty much going a long plan. But it still is the momentous occasion because he took on a bank that almost collapsed during the previous global financial crisis.
All of them did right well, Morgan Stanley in particular.
The check the check.
Yeah, they had to bring in a big infusion of capital from FFGP.
No.
It was a real mess, and a lot of his first few years was tackling with that because they were in deep trouble for the first few years of James Gorman's leadership. But what we've also seen over the past decade is a real transformation. Now you have a bank that has a dual engine of the investment bank that seems to be working just fine. The top three Goldman JP Morgan Stanley. That's how we think about the investment
banking space. They are far ahead of everyone else. And then this giant wealth management juggernaut, four point five trillion dollar manager in the wealth space, bigger than anyone else out there. Even after the UBSCS merger, even after the UBS Credit Swie merger, Morgan Stanley will still be the largest wealth manager in the world. And that tells you something. And now that they've set it up that way, it seems like this is about the right time for James Gorman to step aside.
So that leads us to the people.
So who comes in? So who?
So there's a story that our former boss, Mike Moore, who is now our boss's boss's boss, he had broke back in twenty fifteen, and it was this moment where Goldman Morgan Stanley planned to cut fixed income jobs across all regions. It was a big moment on Wall Street, and it came a month after this fellow named Ted Pick had taken over. And Ted Pick is someone who rose under colmb Kalaher who is now the chairman of UBS,
and he had really tough positions. He had really had surgically had to fix some division that Morgan family, to Tree's point, that had not done very well after the financial crisis. So he's one of the people that is in line. But then you also and by the way, that division is loyal to each other. The question is if he does not become the CEO, does that cause an attrition problem underneath those ranks. Then to Sheree's point.
Wait, so they have a good bench.
Huge. Yeah, they have a bench of three people, two that are particularly watched, Ted Pick being one of them, and the other being Andy Sapperstein, who she has written about really recently in the Markets magazine story who is the wealth boss? And this man brings in or is expected to bring in a trillion dollars of net new assets that the wealth manager every three years. He is just raking in money.
And two interesting things I'd like to point out. Anytime you have you know, you identify the likely successes, and you go out and survey the analyst. Generally you have some level of consensus. They might still say it's a
close race, but everyone probably leans towards one candidate. But when we have heard from analysts today about half of them are like, yeah, it's a very close race, but we think Andy Seperstein's more likely wealth management has been their growth engine that's responsible for two thirds of their valuation, and the other half are saying, no, it's probably Ted Pick. The wealth management success is priced in more growth. Isn't
necessarily expected that growth trajectory might be the same. But if you had to see real upshot, which is if you wanted a tequila shot on your smoothie, that's going to come from your investment back and that's where Ted piggrain and.
Where the growth will come right is is what.
Some of the analysts are saying. Not everyone agrees, but to me, it's just interesting that there is this neat little divide in the analyst universe. And the other thing I'd like to point out, and I think it's underappreciated when we think about James Gorman's tenure, and there will be more and more reflection and discussion on this. The Morgan Stanley that James Gorman joined was rife with political infighting.
He joined Morgan Stanley from Merrill Lynch right after the former CEO of Morgan Stanley, Phil Purcell, was ousted in a coup people hated each other, divisions hated each other. True that he doesn't seem to be very much the case these things.
Remember you know Morgan Stanley is the white shoe shop, right, I mean they don't fight publicly there, and.
So it doesn't mean they don't fight, right, Well, No.
What is interesting is they fight in a way. Well, it's not that they compete, and they set it up to compete. So if you think about how amazing the succession story has been since Gorman has taken over, think about how many high profile presidents of Paul Tauman went off and founded his own firm. Her now the chairman of UBS. And I remember colmbe was probably at that point not going to take over a CEO of Morgan Stanley anymore, leading the you know the baton here to
Ted pick and Andy and all that. But uh, you know Rockefeller, Greg Fleming, right, I mean, this is a history of talent.
Come, I don't hear any women A great question.
And you know we've in the commercial break we were talking about this as well, and they've been criticized on the Hill for this as well. It's not just women. Morgan Stilly has lost a lot of high profile women in recent years. I think Shelley O'Connor, she was once on that succession list as well. She yes, I think I think Carla Harris, who is not necessarily in a line of succession, but one of the most senior black
women on Wall Street. So not only talent drain here, but also the lack of a pipeline high enough you're welcome anytime.
Does this put any pressure on Superstar bank CEO the king himself, Jamie Diamond. I mean, he's been at JP Morgan forever. I know that over the same period they've outperformed in terms of the stock. But he's sixty seven years old, He's had his own health issues. Why doesn't he at some point say like, okay, I'm done too.
You know what, I have a question for Shree. Do you think that they have to take someone from inside of JP Morgan or do you think they could bring back on that James or Charlie Sharp at this point do you think they've telegraphed to interesting.
You know that that makes this massive supposition that there will be a day when Jamie Diamond.
It may never happen, guys.
It has to happen one day.
He really loves his job with.
JP Morgan's Monday, he will be asked.
Wait, Carroll, you're saying, do you think AI could be the new CEO of JP Morgan?
They could be a Jamie and get to this point right metaverse. Who knows what could happen?
Do you think Jamie is sitting there recording his sayings and what he would do so even when he's not.
There, because he uploaded his consciousness.
That's exactly what I was thinking.
All right, great you, great conversation, Happy Friday, More to come. I know I thought Fridays were supposed to be quiet? What's up with this? Shinettarrojen, thank you so much, senior financial porter of a Bloomberg News here in our studio, Shineli bask Wall Street Reporter, Bloomberg News.
Guys, 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.
It's a story that is being also read by a lot of folks on the Bloomberg we're talking about.
It's among the most.
Cloning the quand strategy. I love this story. Yes, absolutely, Not that.
He isn't interested, he's just not focused right now. But that's okay.
He's focused. I'm just not organized, So yeah, you know it.
To me, seventy billion dollar business on Wall Street cloning quad trades.
To me, there were a couple of really big kind of bank innovation slash trading stories. Yes, that I was excited to talk about this morning. So yeah, I'm focused on this all right. I know, I just didn't know this was coming in. We're doing cookies right later, so I thought maybe you were.
Yea.
Sam Potter has stayed up really late to do the story with us, so let's get to it. He is the editor on The story was written by Justina Lee, Bloomberg News Senior editor and ETF. Sam Potter with his on zoom in London. Sim I'm so sorry. We'll get Matt focused for you. So glad you would do this because we did really want to talk about it. We think it's really important in terms of the innovation that's going on. So tell us about this story and what exactly Wall Street is up.
To Yeah, no problem. So this is a really interesting one. It's a story that I know that Justine has been trying to put together for a while. But essentially it's about these products that the big Wall Street banks have been hawking to their major institutional clients, so pension funds, insurers, endowments, family offices. They're called QIS. It stands for quantitive investment strategies, and that's terribly dry and terribly boring and probably designed
to be. But what they really is is kind of knock off quant strategies. So the kind of the kind of clever quant strategies, think trend following, think momentum, think value, these things that have a real basis in academia and that are pioneered by the likes of h u R Capital Management. Essentially, what the banks are doing is taking that idea, taking that trading strategy, and turning it into a swap or a structured product, and that is something
that they can package and sell very easily. It's something that those big investors they can pick and choose the ones they want. They're not stuck with, you know, whatever the hedge fund is pursuing. They can pick with strategies they want to take. And yeah, it's it's turned into a kind of huge and largely unnoticed business in Wall Street because it's taking place between these big you know a few of the big banks and their big clients.
It doesn't really hit the hit the headlines in the same way that that you know, normal quant business does.
I mean, I think it's so cool. It's kind of like the the trade that Steve Carell was trying to negotiate with Ryan Gosling in The Big Short if you remember so. And one thing I was wondering when I read the story is does Cliff Asnaz get mad about this? I mean, if these banks are like taking his ip essentially and then packaging it up and selling it off.
You know, the people who invented these quant trades, or the professors that dreamt up these ideas and figured out how to you know, put them into action, how do you how do you just take their trades and sell them?
Well, yeah, it's a it's an interesting one. You mentioned, Cliff. We didn't We didn't speak to a QR for this one, and I'm not sure they would have commented had we approached them. Obviously, QR is one of the most famous hedge funds pursuing these quant strategies. But of course, as noted, the strategies didn't originate with these hedge funds. You know, they were dreamt up in the classroom, and famously that's actually where cliff assnests started off in Chicago Booth School.
I think for that reason, because it did originate in academia, the big hot hedge funds, they can't get too upset about it, But I think what they we do have a hedge fund voice in the story, and what they object to, perhaps more than anything, it's not so much the strategy being used, but any suggestion that these qis are comparable to what they deliver. The qis are essentially simplified versions, and by turning it into a swap or a structured product, you can't make changes to it, right,
It's going to be a fixed thing. And the big thing that hedge funds would say is that they're a bit more so mistigated than that that they're constantly evolving these things. And the main objection and actually that they have is pointing out that banks don't have a fiduciary duty to the client in the same way that a hedge fund would and that means that cost of execution and things like that are not necessarily going to be contained in the same way.
Well, you can see why hedgephones don't like it. They've got to justify their fees right in what they charge. But having said that, sam do these strategies Ultimately, these cloning strategies pay off for investors.
I mean, there's such a ranger that there are more than four thousand according to the estimates in the story, more than a thousand added last year, So it really is a bit of a boom last year that those who what the industry say about sixty one percent of strategies actually made money, which is not bad in the
sort of sophisticated trading space. But you know, as with all of these quant strategies risk premiere as they are known, a big question mark always does hang over them over how effective they really are, because of course many of them are based on historic data on looking back, the
question is whether that work's going forward. And we do mention one study from twenty twenty one in the story that actually suggested that these strategies don't provide the diversification that investors are looking for, at least not when the markets go wrong. So yeah, I guess it depends on
your specialty as an investor. And it is worth noting that it's big institutions, people who really know their sort of risk management and their allocations, who are using these things, presumably as part of a wider clever strategy, as who.
Are using these incredibly sophisticated products. But it is innovative on the part of the banks. And I noticed another story that I thought jibed well. JP Morgan is expanding its algorithmic trading offering to US Treasury investors, betting that computer powered strategies can make further headway there into the world's biggest bond market. So there's just a couple of stories, and I should note both of them out of London, Sam,
with your name on them. That that just further this narrative that banks are finding new ways and more more interesting ways to make money, right, They're just coming up with these new products, and I guess that means investors must need them.
Well, you know, every one of those products has got some sort of edge. You know, it's gonna be cheaper, it's gonna be faster, it's gonna reduce your your bit off spread in the case of the algoes. In the treasury market, they are always, especially the big banks guys like JP Morgan and their peers, they are always pushing the envelope. They're always trying to stay ahead of what client demand is going to be. In the case of
the in the case of the algoes. In the treasury market, what we've seen in treasuries has been a slow kind of evolution at the treasury market and trading platforms, and it's giving investor's different options, different ways to access them. And so this is a question of JP Morgan trying to stay at at the sort of leading edge of that, if you like. The question for me really is, and what I'm hoping to dig into the in the sort of year ahead is what the impact, the sort of
secondary impact of some of this stuff is. So with the algos, for instance, ostensibly they're supposed to help with liquidity, right they reduced a bit are spread, they make it easier and quicker to execute, But there are also worries that they create an illusion of liquidity that's not going to be there in a sell off, or that they could accelerate a sell off and make things worse. So right, we're pushing very hard. Yeah, it's pushing very hard to be at the front, but the consequences.
We got to wrap up. Sam, But it does feel like the test is still yet to be had, right, like when everything starts to come undone Ultimately does this help institutional investors or hurt or hurt them?
Hurt?
Exactly? Remember after the Great Financial Crisis, everybody was like, why are we dealing with these incredibly complicated derivatives? Exactly?
It wasn't like a savior, Sam Potter, your gem. Thank you so much for staying up because we really wanted to do this story. Have an incredible weekend. Sam Potter is senior editor in ETFSR at Bloomberg News, joining us on Zoom from London. You know, we don't make a lot of people's ours around here.
True, it's awesome to be a czar and we love Sam's work on the etf IQ show as well. I should note, right, but staying up until what time is it there? It's like nine to thirty. That's beyond the pale.
It's not too bad.
You need to get off to the pub. It's going to be last call in an hour and a half.
Have an incredible weekend.
Bromuck on.
A journal.
Now about you let me drive?
Oh no, no, no, no, who's gone to drive? Honey?
Please the gravels.
Let's wait, I want to drive.
It's a question.
This is the drive to the globe dot com. Think we'll buy a round yelled it on Bluebirg Radio.
All right, everybody, we've got about eighteen minutes left in the trading session, getting ready to wrap up the day and the week overall. And we've got stocks just off their lows, little changes down about zero point three percent, point three percent of both the down the NAZAC as you heard from Charlie, down about two ten percent in the S and P. But it's really been the yield trade, the treasury trade in particular, that's been bouncing around right now.
That two year note Matt four point three? Who yes, and we were above that?
Yes, uh it was. There were very serious moves in the two year we saw the Republicans walk out of that debt ceiling negotiation. The first thing I did, actually, when I saw that headline cross my screen was type WB and pull up the two year and put a g ip of it up. Because you can see the huge spike in yields. You know, if people are worried that the government is going to default on its debt, the first thing they do is sell off the shortest term bonds, and that drives the yield obviously high.
It want to be holding because I'm going to get defaulted on, all right, So let's do what John Porter has to say. He's chief investment officer of equities at Newton Investment Management, a global investment firm. On he joins us on the phone in Boston. John, Hey, good to have you here with Matt and myself. It's been a little bit of a wacky week again. Debt ceiling certainly on front and center for everyone. How are you factoring it in at all when it comes to strategies right now?
Great to be here. Yes, I think that the debt ceiling is something that I've honestly been surprised at how complacent equity market has been towards it. Sort of two minds. On one hand, short term, this is a massive obstacle for the market to try and clear over the next few weeks, and if there's any kind of setbacks as you see in just about glimpse of today, I think there could be a significant rise and volatility in the markets, and I don't think equity investors are positioned for that.
On the other hand, if I take a two three four month time horizon, I'm confident that you know, minds will prevail in Washington, and they'll do the right thing. They'll find a compromise, they'll set their agendas aside, and we'll clear this and we'll move on to other issues. There's an awful lot of issues, I think for equity markets to digest, but the debt ceiling is the one that's foremost in our mind right now.
I mean, I'll take the other side of that trade because and I wouldn't have until a couple of days ago, and I was reminded that we just suspend the debt ceiling all the time. If you look back over the past five years, we've been above it more than we've been below it because of the COVID pandemic. But you've
had people on both sides of the eye. I'll say, we're not going to default, from Kevin McCarthy to Mitch McConnell to President Biden himself, which makes which leads me to believe that if they really do run into an impass that pushes us too close, They'll just suspend it for a period.
It's a reasonable scenario, Matt, I would I would caution you not to believe everything that you read. And you know, I take all of the headlines that we hear from both sides with with the DOSA skepticism, and I would say if the debt ceiling was only the only obstacle for the market, I would completely share your view. We've dealt with this time and again for years, for decades, and it will be in the rearview mirror at some
point and we'll move on to other things. I think the challenge is there's so many other things that I think the market has to digest. Business momentum is slowing. The bank stress that reared to Tugley headed mark, I think is leading to reduce credit availability. Consumer savings is about to be exhausted, you know, on and on. Inflation is a concern. I think the expectations of FED rate
cuts are premature. So I think that with all of those other issues beyond the debt feeling, I think it's a challenging set up for equity markets right now.
You know, to me, one of the biggest worries is going to be liquidity, right, and John authors or to column about how liquidity, the fact that the Fed has provided so much in the BTLP program is what's driven this rally. But we've seen stories the past couple of days about expectations for treasury bill issuance that could be as high as a trillion dollars in the short span of a short few months after the debt ceiling negotiations
are done, and that could mop up liquidity. Does that worry you at all?
It worries me a tremendous amount. Matt. It sounds like you've been in some of our internal research meetings at Newton this week, because we're literally just talking about this flood of liquidity that's come into the mark market over the past few weeks and months, in part to offset the banking relaid stress with the bank failures, in part
in anticipation of the debt ceiling showdown. But that liquidity is going to come out of the markets, and if you want to know what moves markets in the short term, it's hard to find a factor that's more important than liquidity. And that's due to be drawn out of the market sooner rather than later.
So are you positioning ahead of that yet?
We're trying to Look, there's a fear of missing out trade in the market right now that you have to respect, and no more so than in the technology area. And look at Newton, we're long term investors. We're investing with a two three year time horizon, but we also make marginal investment decisions every day. And speaking for myself, in addition to my CIO responsibilities, I manage all of our guest growth strategies. I have cash a little bit higher.
I'm trying to trade my portfolio is a little bit more to take take advantage of some tactical opportunities I see. I definitely think that investors should be pruven and have a little dry powder in the face. So what I expect will be a minimum rising volatility, but potentially a bit of a downward movement inequities. I just see the risk award for equities to being pretty unattractive right now.
What are the tactical opportunities you've seen.
I've been trimming tech as an example. Look, this has been a perfect storm for technology this year. You had low expectations coming into the year, you had cost disciplined by some of the biggest market cap companies. That's led to strong earnings growth. The cyclical business, the recession fears that have been so prevalent in the market is they continue to subside. Texts benefited from that interest rate expectations falling. It's a group that benefits from that. You know, AI Heights.
I probably Sulo's did that first. There's been a lot of things that have come together to make tech a great investment so far. Year to date really probably the thing that's that's held up equity markets. But I see that trade is getting long in the tooth.
I do wonder. Yeah, it's funny. I was looking at I think there was a column too in the Bloomberg about different technical indicators, and if you look at the relative strength index on the Nasdaq one hundred, we definitely are seeing an over bought indicator in a big way. But we've seen that for several months only for uh the names in the Nasdaq and tech names in particular. Some of the big ones just continue to fuel higher.
But you think it's time for a little bit of a break here, and just got about thirty seconds.
I think, so I mean to get you know, the Nasacs up twenty one percent your day, the Russell two thousands up one percent your day, the narrow narrowness in the market that the chase for performance in those megacap tech stocks, you know, I think is you know, running on fumes at this point.
All right, we got it one. Hey, listen, John, have a great weekend.
Thank you so much, right talking to you, John.
So appreciate it.
John Porter's chief investment officer of Equities at Newton Investment Management, joining us on the phone from Boston. This is the.
Bloomberg Business Week podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from three to six Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.