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We do also want to check in on geopolitics. There's a lot going on. You heard certainly Joe and Kelly talking about some of it on the US side, but as we broaden it out, there are a lot of things going on, among them US President Joe Biden criticizing the extent of Israel's military campaign in Gaza as tension builds over Israeli plans to push into Rafa, where more than one million people have sought refuge.
He made.
The President making the comments last night in a wide ranging press conference at the White House.
Here's what he had to say.
The conduct of the response in Gaza, in the Gaza strip has been over the top. I talked to bb to open the gate. On the Israeli side, I've been pushing really hard, really hard to get humanitarian assistants into Gaza.
That was, of course, US President Joe Biden criticizing the extent of Israel's military campaign in Gaza that was last night at the White House. The president's comments marked an escalation in his criticism of Prime Minister Benjamin Netanyahu's prosecution of the war against Tamas. For more, we turn now to Mark Champion. He's a Bloomberg Opinion international affairs columnist. He joins us on Zoom in London. Mark, we want to go around the world with you, but we do
want to start in Israel this afternoon. The significance of President Biden coming out and saying this, it certainly seems like he's continuing on a path of becoming more critical of Israel. What did you make of it?
Yeah, it's you know, he's been on a bit of a trajectory where, you know, he began after October seventh saying, you know, we are with you no matter what. But as the casualties and the destruction in Gaza have increased, you've seen that, you know, an increasing the cautious tone to creep in with a lot of focus on you know, trying first of all to get aid in and then to get you know, focused on getting the hostages out, and increasingly a focus on getting a pause at truce
in the fighting. And you know there are negotiations continuing, although we don't seem to be very close at the moment, certainly nothing imminent. So yes, this is you know, another step up. At the same time, you know, he hasn't said anything about restricting arm seales to Israel or anything of that sort. So nothing really substantive has changed yet.
Right kind of gun speaking louder than words. And I do think about that, right Mark, in terms of whether it's support of Israel or whether it's support of Ukraine. What the US does says a lot about their policy. Is at a fair conclusion.
Yeah, absolutely, and you know it is is critical. Probably The thing is that Israel, the conflict in Gaza is on a different scale, and you know, the opponent is on a totally different scale from what Ukraine faces in Russia. So you know, Israel can get by without a lot of military a being additional a being pumped in from the US. With Ukraine, that's a whole different ballgame.
Well, let's stick with Israel for one more minute and talk more about the future of what happens in the Gaza strip. I mean, with President Biden speaking like this, is there a chance that Israel does scale back what it's doing.
We haven't seen any sign so far that Nyahu is very receptive to these kinds of nudges and hints, and you know, he has done something so that the US wanted he has. You know, he did have a seven day pause earlier on in the conflict. He did get more aid in at a time when there was virtually nothing getting in. So the US has had some impact,
but it's relatively limited. And I think there's a lot of concern now because they're really you know, once you move on Rafa, which is right on the Egyptian border, it is the place where people you know, would be able to get out if the border was opened. Once you move on there, there's really nowhere left for you know, the people of Gaza to go, and I think that
is where the concern is. Egypt's now extremely concerned that this could end up with people just storming the border to get out of Gaza and get to safety on the Egyptian side of the border with it, which they are very very determined and not to have happened.
Hey, Mark, as you just noted a moment ago, the scale and risk of what faces Israel versus what faces Ukraine. It's different, and I want to go there a little bit more deeper in terms of Ukraine versus Russia. Right now, Vladimir Putin Russian Vladimir Putin giving an interview to Tucker Carlson. It's very clear what his intentions are here. Correct, You're right about this in a Bloomberg opinion column.
Yeah.
Absolutely. I mean, this was a great opportunity for Putin, gifted to him by Chucker Carlson. He got to talk for well over two hours and to reach a big audience in the United States, a receptive audience in general, and he was able to set out all of his narrative about you know, why he's in Ukraine, why he did it, what the implications are for the United States, what he thinks the United States should do and the Europeans should do, et cetera. And so this was quite
valuable for him. You know how much impact it will have in the end, I don't know, but you know, he got more than two hours to speak and didn't really get any hard questions or any pushback of any sort.
Did you learn anything about Vladimir Putin or Russia's intentions. In that interview, Mark you followed the conflict and the region very closely for years.
Yeah, no, there was really nothing new here for anybody who follows the conflict closely. What I found interesting was, you know that the way in which put In approached it. So when Tucker carlsm asked him a sort of a very leading question saying, you know, you thought that the United you had to invade Ukraine in February twenty twenty two because you thought the United States might be coming to it attack you in Russia. So why did you
think that? And put In essentially just ignored that question, which you would have thought was a log where he could then, you know, come back and say, yes, we were forced to do this by NATO, et cetera. It's a team that he's you know, would come back to
in the interview, and he's talked about endlessly. But he spent the next half an hour in basically a monologue on Russian Ukrainian history and describing why it is that he, in his view, Ukraine is not a country, and why it is that much of the territory that's current Ukraine he believes is in fact Russia so you know, that to me was quite telling, and I think, you know, for people who don't follow it very closely and hear all this stuff about, you know, how NATO pushed him
to do it, I think that was actually quite worth listening to.
I mean, this is bottom line mark right about territorial conquest for Russian President Vladimir Putin. Again there, I think folks sometimes who are far away from it, they're not over in Europe and think, Okay, how does this impact me? Although we know that there's been some impact, certainly we've talked about it in terms of companies and other issues in terms of the markets. But having said that, you do wonder if ultimately President Putin wins here, then what's next?
Correct?
And just got about thirty forty seconds here.
Yeah.
Absolutely, I mean he was asked by Carson and he came back and said, you know, it's ridiculous.
Why would I you.
Know, trying to go into the Baltic States or anywhere else. You know, this is unique. But unfortunately he has a long, long history of saying I'm not going to do stuff. I'm not going to next crime here, I'm not going to you know, go here or there. I'm not going to invade Ukraine and then he does it, so you know, I think one needs to exercise caution.
Well, as you noted a comment about fact checking, a full fact check of the interview would take several columns. So it's important right that we understand exactly what's going on, you insight, so appreciate it. Mark Champion again with US international affairs columnist at Bloomberg Opinion. Check out his column on The Bloomberg and at Bloomberg dot com slash Opinion.
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This is the season, tax season and a player, big player in the space. H and R Block reported earnings this past week. On Wednesday, shares though did fall nearly eleven percent, their biggest inter day drop since the onset of the pandemic in March of twenty twenty, after the company reported second quarter results. The stock, though I should point out, by the way, gaining thirty two percent last
years all three percent year to date. It's up about three percent today and it did finish off its lows on Wednesday. So we're delighted to actually get into the business with Jeff Jones once again, President CEO. H and R Block on Zoom from Kansas City, Missouri. Or should I say Mazura because it so clear in your red sweatshirt if you will, who you are rooting for. I was going to say that to the end, Jeff, but it's nice to be transparent and get it out there.
I guess you're excited.
About you Friday and Kansas City Carrol understand.
Understand, Hey, listen, how are you talk to us little bit about the business and what you guys saw last quarter and how things are evolving into the current quarter.
Yeah, no, great commentary to open. We had a really strong Q two. We're off to a great start to our fiscal year and we're really seeing growth in all facets of the business, small business tax. We had a really nice extension filing season. Our Emerald Advance product performed very well, which actually speaks to some of the macro economic needs of the consumer, and our spruce product is
performing well. So the stocks kind of made almost a round trip since we announced on Wednesday, But we're feeling really well positioned for for our super Bowl season, which is tax season.
Well get it.
We'll get into some of the products because there might be some folks who are listening, like I'm not familiar with the Emerald Advanced product, but that's where you guys essentially give some loans right in advance of a file. Give us, give us a little bit more on that color and what that tells you about maybe what's going on.
We're broadly among.
Main street consumers, individuals and their financial health.
Absolutely so. Our Emerald Advance product is a short term loan that we offer to consumers in the holiday shopping season. So last fall in our Q two, we saw a twenty five percent increase in loan volume this year. And so you know, we've talked so many times together about recession. Is it happening, is it not? How's the consumer? But when we see the consumer seeking these products, it really speaks to the fact that in a you know, an everyday life kind of way, they are in need of cash.
And that's the role at the Advanced Product place.
Jeff, give us some more insight and color there, because we're right now flirting with records again. On the S and P five hundred, the economic data continues to come in very strong. We know there are more jobs out there than people who are looking for jobs. Right now, the unemployment rate is sub four percent. Does that not match with what you're seeing from your customers.
This is the irony I think we've all been trying to contend with now for several years. I mean, I'm starting to believe that these broad labels we have about inflation or economy, even we see Middle America, they're just too broad to speak to the everyday reality of consumers. And so I don't dispute all of that economic data that we see, But we serve twenty million people a year, hard working Americans. We sit across a desk from them,
or they use our software product. And when we see things like taking an Emerald Advance loan at a substantially higher rate, or we're in the season now for refund advances, or how quickly do people file their tax return, those are all very tangible indications that the consumer needs cash.
Well, lat I think we go ahead, No, Jack, please finish.
I was just going to say, I think you know we're learning that you can look at macro indicators and those certainly provide direction from a company perspective. But every single day, you know how the consumer is needing cash where they're spending it. You know, we we put out this report last fall called the Outlook on American Life, and this gave us really deep insight about Middle America. And the first thing we learned was there isn't one
Middle America. We saw a gen z and a millennial Middle America, and we saw the boomer Middle America very different attitudes and mindsets toward jobs and wage growth and employment. You know, more more millennials than ever getting a second job. So yes, we have to pay attention to the macro, but obviously we see our customer behavior every single day.
It's why we like talking to you, because we dig down. You know, you mentioned the Emerald Advance product, so loans of twenty five percent.
You saw on loan revenue the.
Spruce product, right that allows somebody to get access to their paycheck. Right a couple of days earlier, are you also seeing an uptick in that use?
Spruce is really off to a nice start this year, and you know, there are several things about spruce that I think are what's resonating. Remember this product, it's only its second year in market, and so you know, we're offering the consumer to get their federal tax refund up to six days early when they deposited on Spruce, So timing really matters, very lower no fees on the product, a chance to learn about credit, a chance to build savings.
So we're really positioned Spruce as a way to help the hard working American be better with their money, and we're seeing the early signs of that really starting to resonate.
Jeff, you also serve small business owners small businesses, so you have some good insight there. We like to talk to you about that. Give us an update on what you're seeing, because we know that small businesses account for two out of every three jobs that have been added in the past twenty five years. What can you tell us about the small business community?
Incredibly resilient, incredibly creative. You know, this is the backbone of America. It's why it's so important to us that we serve them the way we do. Our small business tax revenue was up twenty percent in the quarter, and so we're absolutely seeing small businesses. You know, in many ways they are consumers. We're talking specifically at Block small businesses nine employees are smaller and so they've had to make shifts and how they think about selling and digitizing
their business. Obviously they're dealing with regulations about you know, how they deal with their business. But the small business mindset and the small business starts we continue to see very strong.
That's what I wanted to ask you. What you're seeing in terms of small business creation. You're seeing it more more to the upside versus those shutting their doors.
We are absolutely and obviously you know, many small businesses don't make it to their first year. But this is the entrepreneurial spirit of America. And when the labor market changes, we see more people create starts and so we are seeing that. Remember too that from a tax perspective. If you're a consumer, but you have a side hustle, which more and more Americans are doing as a second job, you know that's a small business to h and R
Block because they file what we call the schedule. See, so we're seeing a lot of growth in the schedules.
Net net thirty seconds left here, Jeff, how do you what are the words you use to describe the environment right now. You run a business, are you hiring? How do you describe it? And just real quickly if you could.
We do not see recession. We know we have to get beyond the broad labels and manage the business in a local level. That's what we're focused on. But the consumer is resilient despite some of these pressures. They always find a way.
Are you hiring?
We are hiring, Yes, our business. We feel very good about how we're positioned. We have a lot of great jobs in AI and engineering and cloud. Okay, so absolutely we're hiring.
And are you a fan of Taylor Swift? That's what we need to know.
Who cannot be a fan of Taylor Swift? Definitely achieved?
All right, Jeff Jones, Good to check in with your president CEO of H and R Block on zoom from Kansas City, Missaura, this is Bloomberg.
You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern on applecar Play and Android Auto with the Bloomberg Business And you can also listen live on Amazon Alexa from our flagship New York station, jo Say Alexa playing Bloomberg eleven thirty All.
Right, So we said S and P five thousand, a very round number. Right now we're at fivey twenty two on the S and P Charlie, of course, just breaking down the markets.
It's a very round one.
It's one that we market watchers and market technicians, I would say Tim safe to say, like to keep an eye on.
Yeah, the S and ME five hundred index on track to finish above that number for the first time ever. Today it did it briefly right of the closed touch five thousand, close there, Yeah, it was seven hundred. Okay, So here's some stats that you put together, Carol.
I love this.
It took seven hundred and nineteen sessions for the index to set its latest one thousand a point milestone, much shorter than the one two hundred and twenty seven trading days it needed to get from two thousand back in twenty fourteen to threeenty and twenty nineteen. That's AC data compiled by Bloomberg. It's nothing compared to the four thousand, one hundred and sixty eight sessions yet from one thousand back in nineteen ninety eight to twenty and twenty fourteen.
A lot of that has to do with I mean when you go from one thousand to two thousand, you're doubling. Okay, when you go from four thousand to five thousand, you're increasing by twenty five percent.
No, you're absolutely right.
So with what it means technically, if anything of S and P above five thousand back with us. Is Ryan Dietrich, chief market strategist at the Carson Group on zoom from Cincinnati, as we mentioned earlier, the market technician who nailed last year's rally, so we wanted to know what he thought about this milestone on the S and P five hundred. Ryan, Good to have you back with Tim and myself. So what do you make of this level? Is there something significant in it for you?
Yeah, Carol and Tim, thanks for having me back. But you know one more for you. When it cracked one hundred was in nineteen sixty eight. That took forty years, from nineteen six or thirty years, sorry, yeah, it was forty years. Yeah, so it gets from you know, one hundred to one thousand, So think about that. But nonetheless, let's get into this. What does five thousand mean? On the surface, not a whole lot, we know that, but psychologically is.
Really what matters. I think for investors.
And the big question, of course, is okay, when you look at one thousand, two thousand, three thousand and four thousand, which I did, what happens next when you can cross these psychological levels will listen?
Six months later, SP.
Has never been lower, up like eight percent on average, almost double y at any time, returns of about four percent. So long winded way of saying, hey, making new highs give moment you guys a while last year saying when you're making new highs, it tends to lead to more new highs. Eventually will hit the final new high.
We know that.
We just don't think we're there yet, and we think this is a pretty strong sign that, hey, we're still in a bull market. We've said that for a while, and you know, just get on the ride. It's fun ride.
What's the sign that tells you it is the final new high?
Yeah, well, maybe like when your grandma calls you up and says let's buy something, right. I think that's that's the worry.
But that's so funny.
You know.
Peter Atwater, who we have on the program a lot down at William and Mary, he wrote the Confidence Map. I saw a tweet today where he asked somebody if their grandma had called the nastabout AI, which I think is him sort of saying exactly what you're saying, Ryan, which is like it's starting to feel a little frothy.
Well, I haven't had that call yet. I guess people know what I do for a living. I had a lot more calls October twenty two from concerned friends. But listen, I mean, I think there's a couple of things I like to look at. Advance in client lines for a while, talking about market breadth, and I know small caps in midcaps have struggled to start this year, but look what they've done the last two days.
We're starting to see a little more leadership.
So if we see less participation every ninety nine ninety nine, like tech was the only thing practically going up in ninety nine, we are seeing various groups going higher. I mean, industrials hitting like all time highs, consumer discretionary, the list goes on, and there's a lot of participation.
So, Tim, to answer your question, that is what will worry me.
And I'm just not seeing a lot of breakdowns in the overall stock market here. There is participation. That's a healthy sign that I'm not worried yet. I don't think this is the final all time high yet.
All right, so market valuation.
So bottom line, what you're saying, Ryan, is that because you're seeing it broadening out continuing, that's a healthy sign.
What about the volume behind it?
Broadening out is one thing, but having a market participation and volume behind it is another.
All right, Carol. And again, I mean we haven't had like wild volume.
But would you tend to see at extremes as major spikes, whether it on the peak or you know, the ultimate lows, And we're not seeing that yet. So to me, I mean volume matters. There's a lot more volume in options. There's different futures, there's weekly options, so people can get their volume different ways, and just simply looking at the NYSEE volume, which is what we've also looked at for a long time. So you know, I'm not seeing any
major worries fom signs there one thing. What worries you, right, I mean we are in February, right, Historically February is not that great of a month. February in an election year is actually down on average. Oh and by the way, I mean we'll see where we close. We're gonna have one of the greatest fifteen week rallies in the history of the stock markets when we have a major sell off the next hours, so.
And again that maybe we're just due for a break.
Right back here, we will.
Have one the greatest say that again, we will have one of the greatest.
Fifteen week rallies ever. The fifteen weeks ago is when we bottomed on October twenty seventh, you know, last year, October twenty seventh, last year, And we'll see the final numbers, but we're up significantly obviously since then. And you know, again, that's a stretch, rubber band. I mean, I'm not naive
to that. We're not naive to that. So maybe you could have some of that early and one more for you after twenty percent rally February is historically not all that great in March and all that great, So maybe we can have some consolidations what I'm saying, I'd be open to it.
Okay, let's go back to five thousand and just what five thousand actually means.
Ryan.
For a lot of people, I think it's just a number. But are you arguing that it's more than just a number. It's something psychologically important for and it's something technically important for the market.
I'm not so sure technically is the right word to use, but psychologically, yes, Tim, I mean again, I mean literally, you know what about thirteen months ago what we're hearing recession, recession, bear market. Everybody was talking about it. You know, our
shop wasn't, but a lot of others were. And it's like this reminder that you know, some of the people have been the most successful, for people that every two weeks put money in their four one K every one month has put these things on auto drive and continue to invest in and now likely at all time highs in their portfolios. And this is what we've seen throughout history. So I believe we all have to time the market and talk about this stuff. And we do it for
a living, right, so I'm not minimizing it. But again, I think it's important for more longer term investors to remember that, Hey, you know when the stock market goes up and down, but they say the stock market is the only place every when things go on sale, everyone runs out of the store screaming.
I like to use that, and that's.
What we saw.
Again, We've seen that throughout history. So hopefully investors learn from that. Next time we're gonna have another bear market. It's going to happen.
I don't think it's happened soon, but that's just something people need to remember.
Broaden it out in terms of technically, you mentioned industrials earlier, you talked about I think consumer discretionating talked to U a little bit about too. As you dig deeper into the market internals, what you are seeing on a technical basis where there is obviously some strength signs, some strong signs, some areas for opportunity, maybe some wary signs.
Also, Yeah, I mean we like to look at this relative strength, right, what's a certain sector doing against the overall market? And to keep it simple, I mean financials, which we all know about some of the issues with financials, but they were like one of the strongest groups second half of last year. So far the first half of this year, they've hung in there. Industrials also, I mean Boeing's a big part. Boeing's obviously struggled.
You.
Financials in general have done really well. So there's some clues there that there's a little bit more strength that I'll be very clear. If you look at the number of stocks above their fifty day moving average or two hundred day moving average on the S and P five hundred. It's slowly been trickling lower here, So is that, like, you know, kind of some weakness under the surface.
It very well could be.
Doesn't mean you have to have a major sellof and with seasonality and a little bit of frothy excitement coming, it kind of makes sense maybe for a little bit of a break here. Nothing overly over the top right here, Carol, that has this extra worry, but a gains you some signs after a record fifteen week rally, maybe we just can take a little pause.
Wouldn't be the end of the world.
Yeah, well, there hasn't been really a big pause in the last fifteen weeks. Fran What would you say to somebody who's been waiting for that pause to put a pile of cash in the market.
Yeah, well that's a great question there.
I mean, listen, if you've been waiting, you know, I guess unfortunately you missed a lot of it. But I mean I always say when people ask us, you know, do a third, third, a third, do a third, now a third a month and a third and another month, and maybe you'll feel a little bit better about it. But listen, your average year season ten percent correction on average. When you look at election years, you see double digit
corrections on average. We're probably going to have some volatility here as we get close to the election, and that can be an opportunity for people that they kind of missed a big chunk of Hopefully they didn't miss too much of this rally, but if they did miss some of it, I'm sure there's gonna be a better time to swing the bat coming up here.
Hey, we talked so much about the equity side of things, the technical side of it, and what you are noticing.
Ryan.
Having said that, how do you layer in maybe what we've been seeing in terms of the fixed income side of things the US Treasury curve specifically, and expectations about what the Fed may or may not do, and with that fundamentally or technically will mean ultimately for the equity trade as well.
Absolutely, we've been in the camp for a while. The Fed's first cut will probably be in May. We didn't really agree with March, and probably four cuts because again, yeah, the economy is strong, but inflation is coming back, productivities high. We really don't need rates where they are. It's kind of our base case. But we've been underweight equities. I'm sorry, we've been underweight bonds, fixed income, you know, for over
about a year and a half. Now, to come on with you saying that overweight socks, we're still in that camp. But again, you know, when the FED starts to cutting things, there's still some opportunity in fixed income. But again we've shortened up to duration a little bit. We're not too crazy about you know, longer term treasury still is. Again we think, you know, the FED isn't going to cut as much as the market is expecting, but there's always
a place for fixed income a portfolio. Final comment on this, you know, credit spreads, triple B spreads, in vesprigay, corporate spreads. We simply are still not seeing any stress in the credit markets. My opinion, there are some of the smartest people in the room. Until they're stressed. I'm not going to be stressed. Last March, when we had, you know, the nine percent correction, the regional bank crisis, sixteenth largest bank literally disappeared. We didn't see much stress in the
credit markets. Then they were right. We're still not seeing any stress in the credit markets.
We're going to follow those, all right, We're gonna leave it on that note. Hey, listen, Ryan, thank you so much. Ryan Deetrich, chief market strategist over the Carson Group, joining us on zoom from Cincinnati.
You're listening to the Bloomberg Business Week Podcast. Catch us live weekday afternoons from two to five pm Eastern on Apple car Play and the brout Auto with a Bloomberg Business app or wat us Live on YouTube.
Well, private credit is now the buzziest corner of Wall Street. We know what these are. They are loans that you know, charge floating rates. The FEDS tightening campaign has lenders collecting double digit yields where they used to get seven percent Carol.
By some measures, investors in this kind of credit are earning higher returns than the buyout artists of private equity, and the market is now worth one point six trillion dollars in climbing and black Rock forecasts it could balloon to a three point five trillion dollar market in just five years.
So investors are.
Saying, I'm on a piece of that. It's not so easy to invest in private credit. It's kind of tough if you're not an institutional investor or ultra high net worth individual enter heraon finance. It's a different take on private credit. It's a robo advisor that allows accredited investors. That's important those with the networth over a million dollars
and highest incomes to invest in private credit. We've got two gentlemen who are the co founders of it, Blake West and Mike Saw and they join us on Zoom from San Francisco. Guys, it is great to have you here. There's a crypto element to this. I feel like a lot of moving parts. Blake kick it off for us. Explain how this all works.
Sure, Yeah, So just to talk a little bit about hair and Finance here. And Finance uses the blockchain to provide just really simple and straightforward access to portfolios of private credit deals. It's the easiest way that anyone's been able to access this asset class, which, as you mentioned, has typically been for institutions. So yeah, let's just do
it to be credited. But otherwise it's as simple as signing up for Hair Andfinance dot com, selecting your risk tolerance, and then portfolios got automatically rebalanced and diversified across many individual deals that you know, sourced, underwritten, monitored by an in house credit team that we have.
Okay, so Mike, why does the blockchain need to be part of this? Why do you have to do this on the blockchain? Why include it?
Yeah?
With the blockchain's really helping with here is making this into a system that can be interoperable and way more transparent than traditional kind of loans work. And so by interoperable, it's built on the Golfing protocol, is a system that other businesses can build on as well, and then all of the transactions that happen are visible on chain and transparent, so you can see the loans actually being paid back.
And you guys just kick this off right in December, so it's early on in the going. Mike, talk a little bit about that. I mean, what kind of early uptick have you seen in interest among investors.
Yeah, we're seeing a lot of interest basically from a lot of folks who have been thinking about private credit or learning about it. And maybe you wanted to participate in private credit funds before, but those are really only open to institutions. So this is really the first time in many ways that investors like this can get access to so we've just launched and opened it up for investing, and so now folks can start to sign up for it.
So yeah, at a high level, it's just been a lot of interest so far.
Well wait, wait, so we're Bloomberg. We love hard numbers.
So you launched in December, if I'm correct, and I think it was. I'm just checking my dates here, so it was kind of early December. So it's been up and running a couple lenths.
Well, not quite. We actually opened up for investment only on Tuesday of this week. We announced it in December, okay, and so since December we've been able to have thousands of people signed up on our wait lists and we just you know, I said open it up for investment a couple of days ago. We've already had a number of investors signed up, and you know, the AM is slowly coming in.
Hey, Blake, what private credit funds are you investing in?
Like?
Okay, once you do the allocation, that's that's one thing, But what are the underlying assets? Like if you use a traditional world advisor for for equities, you know they're investing in a lot of index funds from you know, Vanguarden, State Street, what are you guys investing in.
Yeah, people with.
A number of syndicate partners here basically other kind of funds who have focused primarily on low and middle UH middle market companies throughout the US, and the kinds of deals here spend a wide range of industry. The goal here is to make it as diversified as possible, So there are a few real estate elements as well as merchant cash advanced companies as well as an early childhood
education center that is part of it. But the general kind of theme is working with these private credit funds that have in the range of twenty five two hundred fifty million and aum that do deals that range between five to ten million dollars for row and middle market companies primarily in the US but also in small amounts and international geos.
Why do this.
Loans have level and assets back then or income from the companies.
I'm sorry to say that again, Blake.
I'm just saying all the loans you know, are backed in some way with collateral, you know, whether that's income of the company's assets, personal guarantees, et cetera.
That's what I was curious, like, how are you doing kind of the gut check the check that where this money is going investor money ultimately who are on the platform and tapping and making sure that these are kind of smart pe bets.
Blake taking that, Yeah, we have a Yeah, so what our team is doing is working. We have a we have a house credit team that works closely with these
these these syndicate partners to evaluate these different borrowers. And it's understanding how is the deal structured, what is the collateral that the borrowers are providing, what are the operations of these companies, what do their financials look like, how do they approach things, what is their profitability and all of these things to make sure that, like when we're providing, providing, participating in these loans, they are backed by really high
quality companies that have strong business operations across all these industries.
Hey, Mike, what about fees here? Because when you think robo advisor, you also think fees being lower. You know, like I'm talking you know, twenty basis points on top of whatever the index fund that the robo advisor puts you in.
What are your fees?
The fee on Hair and Finance is two percent of AUM and this compares to say a typical private credit fund which will offer in the range of one and a half to two and a half percent fee, as well as kerrie above a hurdle rate typically in the range of six to eight percent hurdle rate, so it's very frequent. I feed can go to two and a half three percent with a typical private credit fund. But what we're trying to do is bring those fees down over time compared to compared to those kind of options.
So is the fee only on AUM, Mike, or is it also is there also carry included?
There's no there's no carry. It's just a straight AUM or two percent fee.
I want to go back to, you know, what is the appeal appeal to investors specifically in bars, I mean a private credit in crypto form? Why why not Blake just use dollars US dollars?
So dollars certainly are possible. People have been doing trillions of dollars of private credit using just dollars. But we see with crypto is Mike's kind of alluding to before a few key benefits here. One is does lower costs has send money around the world, which especially valuable if when we start taking international investors. But also the transparency
is really unprecedented. So as an investor, when we send money back into your portfolio, you can see those payments on chain and you are you can verify that cash is actually sitting there, not just telling you that. And then a little bit more broadly, crypto has the ability to create an interoperable financial system. So you know, we can be building on the Golfinch protocol, but another company could also build on the Goldfinch protocol. Those loans can operate.
We can also, for instance, talking to me, there's other crypto companies who want to be building things like borrow lend protocols against the positions that hair and Finance has, So an investor could, for example, then you know, borrow against their position without having to liquidate that position, and that can all happen in a much more interoperable and seamless way on chain. With that transparency, that really can't be beat.
Mike, I want to bring you back into US.
I mean, there are so many still legal and regulatory questions swirling around crypto, even when you know the spot bitcoin ETF was approved. You know, Gary Gensler still out with a list of risks and still not all in. Are there any regulatory issues that are top of mind for you guys that you know you have to be on top of and worry about.
Well, hir And Finance has registered the SEC as a robo advisor here, and so we've taken a lot of efforts to be highly compliant, fully compliant with all of the requirements that go along with that. That includes involving a qualified custodian as part of what we do, building up a deep compliance function internally, making sure that we're providing appropriate disclosures and helping people understand all of the
risks that go into investing in products like this. And so I view it as we are doing all the things that any kind of registered investment advisor needs to do, and what Crypto is helping us do here is handle all of these kind of payments and the rails under the hood and provide that transparency which has chilled just a net benefit to our investors.
So yeah, I'm sorry, what no, no, no, please finish.
Oh yeah, So compliance is super important and we are we are registered with the SEC, and we have this fiduciary responsibility now to handle our clients objectives.
In the right way.
Blake, you mentioned Aum you guys just started. Is there a thought in terms of AUM by the end of the year. What are you guys hoping for in terms of uptick or your expectations And just got about thirty seconds.
Yeah, I'd say we're hoping to get at least into the twenty five to fifty million dollar range by the end of the year.
All right, Yeah, it's interesting, it's interesting.
The interest that you guys are seeing, is it US investors outside the US? Just quickly, Blake, take that one.
Yeah.
All US investors right now are only open to US are credited, but we plan to open up to international as soon as we can.
Really interesting, guys, come back. Let us know as when you get into this and as the months tick by, I'd love to hear how things are moving along. Blake West, Mike Sahl, co founders of Hero and fan Finance, excuse me, heir and Finance joining us on Zoom from San Francisco.
Probably mac.
Journal.
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Oh no, no, no, no.
Honey, please, how do the riding gravel? Let's wait, I want to drive.
It's a good question, a good time.
This is the drive to the cloth to me.
I think we'll buy around Jada.
Don on Bluebird Radio.
All Right, everybody, we've got just about eighteen minutes left in today's trading session. As we've been saying throughout the day, the S and P five hundred is on track to finish above five thousand for the first time ever today,
briefly breaching that threshold late yesterday. But we as Charlie just Mentionedy twenty three on the S and P five hundred just up about half a percent though, But you've been pointing out to him throughout the day, Nasdak really the our performer, up about one point two percent here.
Yeah, let's get some thoughts from Andrew Slimon, senior portfolio manager at Morgan Stanley Investment Management. He joins us from Chicago for our drive to the close this afternoon. Good to have you with us, Andrew, What do you make of five thousand? Is it just a number? Is it something more more meaningful?
Well, I think it's important to consider that the market traded below it's January twenty twenty two high for two years. We hit forty seven ninety six in January of twenty twenty two, and it took until January of this year to break through that number. So that's a lot of kind of energy that built up. You know, it's kind of holding the beach ball underwater. It finally broke above that, and as you let go of the beach ball underwater,
there's some energy. So it doesn't surprise me that we quickly ran from forty seven ninety six to five thousand, and we're getting followed through because inevitably, and I know this is crazy to believe, but there's once they start readjusting their high water mark on their portfolios, they become more optimistic, not less. So I think this could continue, but the market's clearly overbought short term, and I suspect the next couple of weeks it will it will run out of seat.
Yeah.
I mean, you've got a NASDAK that's already up about what five percent so far this year. You've got a Nasdaq one hundred that was an SMP forgive me up about five percent, six percent, almost seven percent on the Nasdaq one hundred, and I was just going to do We were talking earlier with Ryan Dietrich, who looks at market technicals. If I look at an RSI on the S and P five hundred, no doubt about it we're overbought.
Having said that, I don't know, can you yet get a feel of how this year might play out when you think about earnings fundamentals, maybe what the Fed might ultimately do, or there's still too many questions out there for you to kind of make that longer term bet.
Yeah.
I mean, look, first of all, don't lose I mean not that you have, but don't lose sight of the fact that the.
Earnings reports for the fourth quarter were very strong.
So this is not just a speculative run in the market that some of the bears want you to believe. It is being supported by some excellent earnings reports and positive earnings revisions. And I am a believer that this will be another good year for equities for the simple reason that investors were underweight equities last year, and that is consistent with the first year off of bear market low. Unfortunately, investors looking in the rear view mirror, they don't turn
bullish when things are low, they get more bearish. It's in the second year that you start to see money come back into the market from retail investors, and that's what is now happening. It started in November, took a pause the first couple of weeks in January.
It's coming back.
So I think that is classically the fuel for the second.
Leg of the rally, which will be this year.
However, is unfortunately the second year is more volatile than the first year. Last think about last year, market went up eight out of twelve months. It never gave those who were under invested in the opportunity to get back in second year tends to be more volatile, So I think there's you know, it's it's not going to be as easy this year, but I do think it'll be another good year, which.
Makes me also wonder.
You know, February one, we got to read money market fund assets reached six trillion dollars for the first time. Everybody points to, Okay, all this money that could come rushing in. I am curious when we get to the next reading March first, you know whether or not we start to see some of that money trickling out. What are you guys seeing on your end in terms of where flows are still going or not going?
Well, yeah, I think you're right, the money is still coming into the money market, but we see flow. I'm an equity manager. I see the flows have turned and it's again, it's just so fascinating. Nothing really change. Is if you go back to twenty twenty, the year twenty twenty, the market bottom in March and flows didn't turn positive until February.
Of twenty twenty one.
You go back to the low of two thousand and nine, which was in February two thousand and nine, flows did not turn positive till the spring of twenty ten.
So my point of.
This is is that now that low was October twenty twenty two, it is consistent that that money will start to trickle back into into equities, But I suspect that it won't really accelerate until you start to see FED cuts where the attractiveness of money markets start to weigh. But today the money won't come back. Is to say that people will stay rational and they won't get greedy. And I think, you know, yeah, you get four percent or five percent, but that's a full year, and that's
you know, equities are already up five percent. Where do you you're and it's not a full year yet.
Where andrew do money market rates have to go? How far?
How far?
How low do they have to go in order for people to say, yeah, that's no longer worth it.
That is, you know, please if you could tell me the perfect answer for that, that's the key question. And the data suggests, you know, you really need you know, a few fed cuts where you get rates down into the three to four percent range before the money starts to lot.
That's kind of the history.
And I think so that that that tells me that you know, you're looking at later this year for another surge in flows into agrees.
But there's no there's no doubt.
Now you're starting to see the fun flows have turned positive.
Last week, the numbers were very very positive.
Uh And and I think that's that's why you're seeing as much as everyone's focused on the MAG seven or the for six or whatever the number, that's why you're starting to see more of a broadening out because as money is coming back from the market, people look for things to buy that maybe you know, they can justify the valuation, wrap their.
Head around and not just buy the you know, all.
Time high lists on that MAG seven if you will, used to like Microsoft.
Right, that's right. I mean, look, you know, I know it's done well very well. I know it's not.
Cheap, but if you look at the numbers, the estimates for the for the success of co pilot this year.
There there's a lot.
Of uncertainty and they're relatively low, and I think it's going to end up being absorbed by users much more quickly than you know, the caution with which Wall Street's embracing that, and maybe the stocks start to reflect that.
But I think that's, you know, really going to be the story.
Yeah, it looks like the stock at another record today on an interday basis. I mean, I'm looking at Microsoft upomus twelve percent so far here in twenty twenty four. Hey, Andrew, Thank you so much to Andrew Slimon, Senior portfolio manager at Morgan Stanley Investment Management.
Joining us on zoom from Chicago.
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