This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus gloom O Business Finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Jessa Nice for filling out the finishing out the day with some pretty good moves to the upside here in the after your.
Markets, and then we'll going ahead to tomorrow jobs reports.
Yes, exactly, it is.
Obviously we've talked a lot about the blackout period for FED speakers this week, but we do have the jobs report coming tomorrow, so that will be very much on investors radars. Also, average hourly earnings will be a part of that report, which we know FED shared Jerome Powell and other policy makers are going to watch very closely
ahead of their decision next Wednesday. And also ahead of that decision on Wednesday too, we have CPI next Tuesday fall, so still a number of indicators ahead of the Fed's decisions, so things we need to keep our eyes on.
Yeah, and just taking a look at the nonfarm payrolls, one hundred and eighty five thousand is a consensus tomorrow, and that's up from one hundred and fifty thousand the prior period. So we'll keep that in mind. And average hourly earnings on a year of a year basis four percent increase, be a little bit of a decline from four point one percent last period, but still some pretty solid numbers. A little bit slower than what we had seen.
But you know, I mean the unemployment rate three point nine percent is kind of the forecast there, and that sounds pretty good. But Michael McKee, he looks at it a little bit more, appeels a little bit more of the layers.
That is the best to do it exactly right.
So Michael, what are you going to be looking at tomorrow? And you know, when we get all this data on just kind of the labor market in general.
Well, I think the market is going to focus, assuming we get somewhere near consensus number for job creation, you'll focus on unemployment and whether that goes up and why if it does, or more people coming into the labor force, which is not necessarily a bad thing, or are we starting to let people go.
That'll be the primary question.
And then people will be looking at average hourly earnings because they want to see if earnings growth is slowing down enough that the FED doesn't have to be worried about it continuing to contribute to inflation. We're forecast to hit four percent on a year over year basis, and the Fed thinks sustainable is about to three and a half, So getting close.
Yep. So those are kind of the numbers that most people will be focusing on tomorrow.
Well that report adjust anything for the Fed's decision next week or do you feel like that's pretty much already a done deal and it's more of just the forecast, the quarterly forecast, and obviously the dot plots we're going to come with that decision.
Yeah, it's pretty much a done deal the Fed. It would take something.
Going horribly wrong tomorrow and I'd be back on this show try to explain this time tomorrow the Fed is all but signaled they're done raising rates. It would it would require a lot for them to do something at this meeting, and probably not as much in tomorrow's report.
As it would be the CPI next week.
Right, So I don't think you're gonna have to worry about the Fed right out of tomorrow's report. It'll spur conversations about next year and when the fight might or might not cut rates, but not anything for next week.
So the FED, I'm not sure what the right word is, but I guess they're prepared for the unemployment rate inch a little bit higher. Is there a point where it gets beyond where they're comfortable? Does it like have a five handle? And then they said, oh boy, and then they really need to be maybe a little bit more aggressive here.
Well, they were forecasting four point one percent by the end of the year, so we're sort of in the range and can come in.
Lower than that.
But if it got above, if we had a jump like we did a couple of months ago of about three tenths and we went up to four point one percent from three point nine, or we went up to four point.
Two, that would get their attention.
If we got over four and a half, that would start to raise concerns there. The speed of it and the composition of it would also matter to the FED, and what else is happening with inflation.
They are expecting.
Unemployment to rise because their job is to squish down on demand, as if that, in theory, should lead to fewer employees needed, and so unemployment rises, but the speed would concern them if it was quick, and if it started to get too high, of course, by that time they would probably already be acting.
I'm glad you're here because something I've been thinking about is the rotation for FED voting members each year. So Austin Goolsby, Patrick Harker, Luis Logan, and then Neil Kashkari currently voting members this year, but won't be next year. So then we're going to have Loredemester, Thomas Barkin, Rafael Boston, and then Mary Daily will come back as voting members
for next year. How do you think this when you have those rotations, Because in recent years, especially as inflation was very elevated, it seemed like everybody had to have these unanimous votes as far as trying to tame inflation. But when you're going into a year and in stock investors are betting that they're going to be rate cuts, when you have a rotation changing like this, how do.
You view that?
Are things really going to be that different? Could that potentially change the expectations for how soon or later rate cuts could potentially come.
I think people make too much of that. The people who are coming on are generally centrists, with the exception of Loretta Master, and she's leaving in June.
So I don't know that we'll see a lot of pushback. You're right. We get a more unanimity when it's very obvious what the FED should be doing, which.
For the last year or so has been very obvious that they should be raising rates. And when you get into a situation where it's a close call should we hold or should we cut rates, then you could see a dissenter to from whatever it is the FED decides to do. But I think we're not going to see any major splits among them. They're going to move slowly, even unless we have a recession, they're going to move slowly. So even if they do, it's not going to force a lot of people into an uncomfortable vote.
So the University of Michigan some good football players there.
So they'll tell you yes.
And they also have some good economic data and they put that out and expectations and inflation outlook and things like that. Do economists do they care? Does a market really care about some of this data?
The market doesn't really care about the and the FED doesn't really care about the sentiment indicator.
How people are feeling. Alan Greenspan summed it.
Up very well years ago when he said, we watch what they do, not what they say.
I'm talking about consumers.
The expectations for inflation have become moderately more important because the FED has made a big deal out of inflation expectations, being the anchor for inflation, and they don't want to see expectations rise too much, both on the consumer or market side. Market side right now is looking at two to two and a half percent inflation out four or five years, which is perfect for the Fed.
But Americans are looking at four and a half percent now.
The sentiment indexes people always overrate what inflation is, and if you go ask any American, they'll probably tell you now it's six or seven percent, just because they don't know.
What inflation is.
But even if you allow for that, it's a little bit higher than both the FED would like to see and that you would expect, given the fact that food prices have stabilized, gasoline prices are way down, and yet people are still thinking there's a lot of inflation. They're looking at price level rather than the rate of change, which the FED looks at. So there is kind of
a difference there. But as long as people don't start thinking inflation is going to go so high they have to march into the boss's office and ask for money.
Of course, we would never do no, could never never.
Hey, you know, I was out gallivanting in the city, Midtown yesterday afternoon, yesterday evening.
For your birthday.
Yes, people, I did not know big birth People were out about spending.
Streets were packed.
You couldn't get near the Christmas Tree Rockefeller Center. I mean, people were out. It feels like the consumer this is pretty good shape.
I don't know what people tell pollsters that the economy is lousy, but my situation is good.
People have jobs.
I mean, we have ninety seven percent employment, and so it isn't a terrible time.
And it's kind of there's more and more talk of this as like poor Joe Biden.
I mean, he's presiding over a good economy and people don't believe it for a variety of reasons. But things aren't bad right now. So Americans on their own, individually are quite happy to go out and buy Paula hot chocolate on his birthday exactly.
That's how that's how we roll out there all right, mister McKay, thank you very much. We appreciate Michael McKee, International Economics and Policy correspondent and Jess. I mean again, the restaurants are packed, the bars are packed. The Fifth Avenue you could barely walk down. I mean that's how crazy it was.
You know.
We'll get actually an update on retail sales next Thursday, so the day after the FED decision for the month of November. So this will give us a read, especially on the holiday spinning. We already got a lot of that Cyber Monday and Black Friday data that we're at records, so we know it was really strong last month. But that's going to be interesting to see what that data looks like for the consumer.
Paul.
Yeah, and I'll shout out to the tree folks. Yeah, Rockefeller Center.
It's amazing.
I mean, we just worked by it.
It looks awesome.
We've got a tree, yes, big is that one.
So if you're around the you know, the Bloomberg h you could come check out our tree in our court. Aren't cool? This is Bloomberg.
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 and the Bloomberg Business app, or watch us live on Youtubey Miss space Man, please thank you anything around.
Always the best tunes.
The producer here, I mean pick at the music today.
Always always, they always bring the musical game here. All right, just met Paul Sweeney. We are live here in on our Bloomberg Interactive Broker Studio, streaming live on YouTube, so you can hand over to YouTube dot com and search Bloomberg Radio. We're sitting in for Tim Stenwick and Carol Masser. Uh, let's talk. One of the really cool news items of
the day. SpaceX tender offers said to boost value to one hundred and seven twenty five billion dollars, So I guess they're going to be tendering for some of the shares owned by employees. And the tender value again implies evaluation one hundred and seventy five billion. That's a lot for a space company, which is pretty cool. Katie Roof joins, and she's a VC deals reporter for Bloomberg New She
joins us on zoom from Los Angeles. I know, Katie, you are used to numbers like this out there in Silicon you know, in California and LA and Silicon Valley. Talk to us about what SpaceX is doing here and how this is going to work.
Sure, and so this is actually a record for a US private venture backed company, one hundred and seventy five billion. It's ninety five dollars a share for the tender offer. Just six months ago, they were valued at one hundred and fifty billion. A year ago, they were valued at one hundred and thirty seven billion. So this is a big increase for an already highly valued company. And it really is fucking the trend because as we've seen in Silicon Valley the last couple of years, the companies are
struggling to maintain their billion dollar valuation. But people that I talk to are big believers in SpaceX.
So talk to us about sort of the issues moving forward for SpaceX because they're in a unique situation right now.
Sure, so they have two core businesses. They have their rocket launching business, but they also have Starlink, their internet business that's satellite related, and so they a lot of the investors tell me that the reason that they're investing is because they are really bullish on Starlink. It's our understanding, and we've reported that Starlink is eventually going to be spawn off of SpaceX and go public someday, and so a lot of the investors are trying to get in on that.
Do either of you know where they launched their rockets from? No, Boca Chica, Texas? Wait? Really, yes, it's literally if you.
Go to Boca Chica, it's.
Literally the most southern part of Texas. Is like, right now, I feel.
Like I should have known this.
You shouldn't sell Texas's.
I mean, who figures it's right on the border with Mexico. Apparently they're they're building all this infrastructure and they got rockets down there and it's amazing. Yeah, isn't that cool.
I'm going to be down there this week, I think, going by and.
Just swing Byoka Chica. So, I mean, Katie, how how often does it happen that a company will I guess give liquidity to its employees that you know, through these these tenders.
So SpaceX does it more often than most. They've been doing it roughly every six months recently. But it's it's really a case by case spaces with companies. Uh, some companies don't want to do a lot of this because it makes it harder to have investor demand if they want to raise around for the company, if they've already they're already a lot of shares that have been available
on the market. But what SpaceX is doing here is providing an opportunity for employees to go and buy the house, because if they don't sell these shares in a tender, they have to wait for an eventual IPO, otherwise their net worth is just on paper. So that this is really to help insiders have some liquidity, and they're able to do this because they have tremendous demand. And it goes without saying. Elon Musk, who is the founder of
this business, is a very very controversial figure. He's recently made statements that have hurt advertisers on x formally known as Twitter. But we see still plenty of investor demand for SpaceX.
Hey, Katy, do we know who buys these shares from the employees?
A lot of them are vcs or other high net worth individuals. Accredited investors could be hedge funds, it could be broad groups of institutional investors, but it's a mix.
That's interesting. So what do you think is sort of the timetable kind of moving forward here. As far as how all this ends up playing.
Out, well, our understanding is that they just decided on the price, or they were on the verge of deciding the price when we got a hold of it. So the tender is just getting started. It's just underway. I would imagine that they're going to try to do as much as they can before the holidays, but I'm not sure if it will formally close before the end of the year.
Katie, you're the VC deals reporter. Talk to us about your world these days, our VC companies getting funded. Can I if I have a really cool idea, can I go to Sandhill Road and raise some money? Here gives a sense of what the mornment is like.
Well, if you're doing an AI related company, they're all ears and I'll be writing you checks before you know it. But for everything else, for other than outliers like SpaceX, it's been really slow this year, particularly at the growth stages, which I cover sometimes seeds stages. They're not as concerned about the broader macro environment because vcs tend to invest on a ten year time horizon, so they can be
bullish about the future. But companies that raised in like twenty twenty one are often considered to be overvalued because the market you look at tech stocks, they've gone down for the most part considerably since then, and that's affected valuations throughout the whole ecosystem. So right now it's a tough time to be a startup that raised money, that wants more money. But if you're just getting started sometimes there's a room for opportunities still.
For those who don't know, Katie Roof is one of our star reporters here at Bloomberg, constantly breaking news out of Silicon Valley from your purview being over there and what you were just walking us through, especially on the back of what happened with some of those regional bank issues back in the spring and a lot of those tied to different Silicon Valley banks. What is it like in the mood, in the atmosphere as far as how things have come and gone over the past nine months since then.
So there's fewer holiday parties this year.
Oh, we were talking about that earlier.
Apparently there's a story on the terminal more pickable in glock, Katie.
Yeah, So my understanding and talking to some venture firms, there's still some, but some felt that it was a bad book to throw a holiday party this year. You look at their last two years where there have been very few IPOs. The M and A is often very disappointing prices, so they're not bringing in a lot of money, and so they felt that it looked bad for some of them to be throwing big, splashy events. And Silicon Valley Bank actually used to be the sponsor of a
lot of these events. Interestingly, I still see their name on some parties because they're still alive with their new owner. But I would imagine that it's a different scenario than it was two years ago.
And are the VC funds are they Are they still out there fund of raising or is that also kind of slowed down?
Sure, And so I think again it's a split between the stages. So the earliest stages, a lot of them have had great returns and have continued to raise new
funds for seed stage investing. But what you're seeing is a lot of the crossover funds, the pre IPO investors really got burned in this market, and so what we're seeing is some of them struggling to raise new funds or raising smaller funds or trying to change their strategy to invest in either the earlier stages of VC or just go back to investing in the public markets if that's what they were doing before.
Yeah.
Interesting, it's just a tough time. I think people just uncertain. I'm just looking at the NASDAC, you know, still ten percent off of the high. So if your evaluation sensitive, that kind of number kind of gets your attention here, Katie Roof, thanks so much for joining us. Katy Roof, VC deals reporter for Bloomberg News, joining us on zoom from the awesome office.
For Pemburg in I've heard about. I gotta go visit sometimes soon.
Yeah, looking very cool.
It's out there in Century City, a nice part of town there overlooking Bellair Country Club. I believe is the one kind of splash. It's what you would expect from Bloomberg News in La.
I'm still thinking about what you told me about South Texas where the launch.
Oh, Boka, Chica, we'll go.
So I'm gonna be. I'm gonna be down South Texas this week and officiating a.
Wedding, so I don't know how you get there.
I'll figure it out.
Flying to Houston and then I think you drive. You know, you can just keep driving. All right, We're gonna have more coming up. S and P five hundred ended up the date up eight ten. This is Bloomberg.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern 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.
Charlie, the part is over, They say that, all nice.
I like that.
This Bloomberg Business Week headline really got my attention because I'm all about, you know, flexing the corporate amex card or whatever we're using at the time. Here, era of eight hundred and I got a story about that. Solomon Smith Barney ooh.
Some stories, I'm sure tell us.
Rushing uh, era of eight hundred dollars dinners and luxury car bonuses is over at Salesforce. Joe Webber joins as he's the editor Bloomberg BusinessWeek, joining us here in our Bloomberg Interactive Brokers studio. Drake Bennett, Technology Reporter Bloomberg Business Week on zoom from Bloomberg headquarters in New York and Brodie Ford apparently somewhere enterprise reporter Bloomberg News on the phone somewhere undetermined, keeping a secret location. Serious, great story, Joel.
I mean, first of all, Salesforce dot com. Everybody cares about Salesforce dot com, Benioff, all that kind of stuff, But you know, luxury car bonuses.
It was a great time to be in tech sales. And actually the pandemic even made that.
Even more so.
Yeah, because they just staffed up and kept selling. But then some things started to change. And I've always been really fascinating, fascinated with Salesforce as a business, and it has become expansive and actually really you know, created a whole industry, and that's a big credit to its founder of Mark Bennioff. But this is sort of a new era for Salesforce. Tell us more, Brody.
Yeah, at some point, you got to stop spending like a startup, and that's what investors told Salesforce this year. They pretty much said that, hey, if you can't keep growing sales the same way, you have to start cutting costs. And yeah, like the headline says, I mean somebody's orr eight hundred dollars dinners. And the more mundane stuff is the insane commissions you can get off of selling things.
I Mean, I always say that I picked the wrong industry because I would speak to people who are about my age got into the same at the same time. They're now working in tech sales making four hundred, five hundred thousand dollars without a whole lot of experience, you know. I mean, it was just gangbusters. I mean, Benioff told me that selling software was never easy, except for during COVID. It was just firing on all cylinders.
So what's happened?
What's the change like within the company?
Yeah, they've just had to get more serious. I mean they the obvious one is firing ten thousand people, right, I mean that's the one that most of us read about. But it's even simple stuff like Okay, now, when you sell a piece of software, you can't have ten people all get a commission off of that, right, You can't, as you said, have the eight hundred dollars dinners. And it's really trying to pair back all these expenses that made it such a distinctively fun place to work. In many ways, you.
Know, twenty twenty three has been, even for the technology companies, a year of cutting costs. And I think the greatest example of that, or the one I think investors might know the most is Meta. Yeah, the stock just ripping this year on you know, Zuckerberg saying we're not going to spend like drunken sales on his metaverse, We're going to actually focus on costs. And I guess.
That's it tends to go well with investors when you can bring in that cost and you know, show that there's a return on investment, but it can come at the expense of culture. So Drake, I want to just bring you in here and also just talk about the industry because ultimately what we're we're talking about is something that bending Off pulled out of his brain and then created,
and that's SaaS. And so talk to us about, you know, just the economics of a business, a software sales business where you no longer have to have, you know, the typical kind of infrastructure, and what that kind of can can accomplish for investors.
Yeah, I mean salesforce is I mean, I think for a lot of people, it's not like when people think about Silicon Valley Salesforce isn't necessarily the first company that comes to mind. And you know, there's this idea that Silicon Valley tells about itself to the world, which is that the value of its you know, all of its wealth and its growth comes from these like brilliant ideas
that software engineers have. But there's kind of this other explanation for at least a lot of the recent growth there, which is these armies of UH salespeople that companies have, and Salesforce really pioneered this UH and as you point out, it's linked to this business model that they basically pioneered, which is, you know, rather than selling software you know, on like a CD ROM or a disc, like you
put it on the cloud and then you go sell. Yeah, I mean software as a service is the you know SaaS is this thing that everyone's heard now with maybe without even kind of like fully realizing what nonsaas is. And you know, so there's all these companies that are basically modeled on Salesforce, which is like you sell enterprise software, you sell software to other.
Companies H and you put the other salespeople right.
And so there was this weird dynamic like salesforce grew an enormous amount of the last few years and especially during COVID, and what it was basically doing was selling these software leases to other companies that were using these tools for their growing salesforces. So it was kind of this, uh, I mean, it's yeah, Ponti scheme is an incorrect term, but it's basically like this weird dynamic where like everyone was growing and so salesforce was growing, and then basically
at a certain point that reversed. And so what you saw was that as the as sort of all these other software companies were shrinking, salesforce had to shrink too. And so you know, part of what we were writing I was just this this this aspect of Silicon Valley that people don't really think about that much, and how it sort of shapes the culture of this company and how it shapes the culture of Silicon Valley more broadly, Bertie, I wanted to.
Bring you back into this conversation and speaking of salespeople, y'all were writing about how some sales people were relying on aggression and pressure to close those deals, but also you just need to get people and customers to like you walk us through anecdotally in the reporting whenever you were speaking to people about how sort of this process works.
It's a really funny dynamic that comes back to the business model. Because software it's a recurring contract. Essentially, you
need people to stick around. You think about car sales, door to door sales, it's kind of old thing you're thinking of real hyped off jocks trying to get you to sign the paper, almost like physical coercion, right, but this is more like they just coming on an army of like, for lack of a better term, frat boys, just people with nice smiles that were just kind of show up and like, you know, hey, how's it going the software going good? You need any help? Are right cool? Or here when you need us?
Wow?
You know, And there were just armies of them, you know. They call it the clown car approach because one person had to pull up with sales software, one person had Slack, one person had the data viase software, and they were all getting paid really good. But again, at some point companies, when the interest rates started rising there'd been years of buying software gangbusters, the CFO started saying, well, why do we have all these smiles hanging around selling us millions
of dollars in software. How did this happen? And so they really cut off the spickett of wealth. And that's really why we saw the style of sales here start to break down a little bit. And it's not just Salesforce. This is really an industry wide phenomenon.
But what does it look like and feel like at Salesforce?
Broddy, So our favorite source in this story, we call him Kenny because it's an alias. He still works there. You know, he said when he first joining, it was all parties. It was great. His phrase now kind of sucks. It's just it's hard to than it used to be. You're you're signing less big deals. You're uh, you know, your boss is calling all the time. If you don't make It used to be that you could not make quota for like a year and a half, two years. Maybe then you'd get fired.
You know.
Now if you don't make quota in a quarter or two, you're you're out of there. You've got leader boards. People are more cutthroat because not every baby can share commissions. It just it looks more like that kind of car sales environment, right. It looks more like the old school cutthroat. There's a movie Drakel likes to reference about when sales guitar? What is it?
Glenn Gray, Glenn Roth.
Yes, a yes, always be closing, Alec Baldwood. Yeah.
So business became a little fun with that one. We were playing around with it with the headlines and the cover lines, and it became the headline inside the magazine, always be cost cutting.
There's a new in town.
But but Jake tell us more about what I mean, the Death of the Salesman. We talked about that years ago, decades ago, because Arthur Miller wrote a hell of a play. Had that era come for sales? Software and tech sales now?
I think to a certain extent. I mean, one of the things that I loved getting into in the story was just this whole, like this whole culture of software sales, which you know, they're they're these sort of online influencers who would give you these kind of slightly scammy courses about like everything you need to know about software sales. There was there was just a salesforce sort of offered this whole curriculum about you know this kind of like
Dale Carnegie style, you know, sales education. And I think a lot of that is froth and a lot of those skills probably weren't that useful. As you know. Brody pointed out that this sort of there was a sort of a self perpetuating cycle to this, where like if you hired more people, you needed more salesforce, software leases, and so it kind of didn't matter who was selling
it to you. And so it may be the case that you know, you don't need quite as many people out there selling it, and you don't need to pay them that well.
So, I mean, guys, I don't know what Brody is is this kind of the new normal now? I mean, is the party over over when you talk to these people.
I think that's what we're seeing here. I think we're seeing this is all a big part of big tech losing it shine.
Right.
In the last couple of years, we saw big tech loodons it shine regular sort they said, wait, this might not be good for us psychologically. I think this year we see big tech loods that shine economically that wait a second, these business models are not impervious, they're not bulletproof.
At some point, these jobs that were the golden standard have to become normal, right, I mean, I don't know, like working at GE in nineteen sixty is probably the gold the golden standard, and I think we're starting to see these tech giants become a more standard part of the economy and lose their kind of special edge in terms of being a great job. But they're still you can still make some money. It's still a good place to work, but it's not what it used to be.
Yeah.
One of my favorite details was like they're talking a lot about how they're gonna use AI, you know, and Mark Minneapolis talking about AI, but one of the things they're actually using for right now is basically finding when sales people are kind of like loosing their numbers and cheating. So it seems like, you know, that's the new reality.
So what do we think Mark Binnioff's company looks like a year or two from now, Like, you know, the shed, the the tech sales guys and that cushy tech job Like, what what is that more hardcore sales force looking feel like? Since it's been such a cuddly friendly place up until now.
I'm sure this is weird to hear for a tech company, but they're hiring engineer, you know, that's actually what their main focus is now.
Is.
I think they're really trying to invest in new products and figuring out where that next realm of growth is, right. I mean, the products that got them here are pretty mature at this point, and as Drake mentioned, like all companies, they're looking for AI to really accelerate it. I don't know if you've seen Matthew McConaughey on TV wearing the cowboy at but talking a bit about who's the tariff in town? That's Salesforce. I'm not sure I get what it means either, but that's Salesforce.
Matthew McConaughey.
Yeah, okay, So so just final question, which Drake, I want to bring it back to you. You've written out a lot of companies, different strategies, different sectors, different industries. You know, if you if you could, uh, you know, cast the movie for the Salesforce version of the story, Like do some casting for us.
Who's the salesperson of the year.
The salesperson that you mean, Like, who's Kenny?
Yeah?
Who was that guy? Giovanni Ribisi was like, is that like to obscure from the boiler room?
No, he's awesome, Yeah, yeah, look very quick?
Yeah yeah yeah, just like nice sort of like, you know, almost pathologically upbeat kind of person, just you know, indefatigable spellar.
What about what about Benning Off in your in the in the movie version of your story.
You know he'd probably agreed to do it himself.
Yeah, that's right, that's right for anybody. I mean, how does he feel about the business?
I mean the everything's performances is doing great? You know, like what, so how do you know your interactions with him?
What do you have to say?
I think he is very aware that they had a long stretch of bad headlines this year. His message right now is that, you know, they always say that it's in o'hana over there, that's some big phray. What he gave to me was, look, it's ohann at two point zero, all right there we.
Had all right, brog We can't have to leave it there just for a time. Joe Webber, Drake Bennett, Brody Ford, Bloomberg Business Week. You can check that out on the newsstands. I got that great story cover issue cover, absolutely some good stuff.
Check that out.
This is Bloomberg.
Brother Marco.
A journal.
How about you let me drive?
Oh no, no, no, no, who's going to drive?
Honey, please grat I want to drive.
It's a good question.
This is the drive to the globe.
Don me Well, Bjoern on Bloomberg.
Radio, Jessminton, Paul Sweeny here in the Bloomberg Interactive Broker Studio, filling in for Carol Masser and Tim Stenovik, who do have the day off. Not sure who's who? Who's Carol? Who's Tim? Here?
Paul?
But look at that good as a p five hundred a day, up seven tenths of a percent if you look on a weekly basis a little change, but this does come following a five week winning streak that was its longest since June. But who better to chat with us about their market outlook moving forward? Christoph Gleisch, President and Chief Investment Officer at Harbor Capital Advisors. Who's actually
here in the Bloomberg Interactive Broker Studio. I know Paul always loves more people are here in office with us to discuss his outlook and also his investment strategy. I want to pick your brain now that we are into year end here, what's your take as far as positioning wise going into next week ahead of the FED decision?
Well, thank you so much It's great to be here in person and live. I think this year has surprised a lot of people. It's called a lot of investors off side. If you think back where we were twelve months ago, Supposedly now we should be three or four rate cuts in as the FED is continuing to try and stimulate an economy coming out of a recession. We know how that sort of playbook played out. And I think what surprise investors is how resilient growth has been
this year, how resilient markets have been this year. And you know, at the moment your colleague read out, there's a lot of green on the screens, camps off Landing is winning, and it's very much risk on environments at the moment as it has been in the last five weeks.
How do you think about evaluation here, because I think that I'm just looking at my try to the s and P five hundred. Boy, that was a heck of a November there, and I'm wonderful we've kind of gotten a little bit two over our skis a little bit in terms of valuation. How do you guys think about that?
So I'd say trying to time markets on a short term basis, what's going to happen this week or that is pretty difficult to do. I think valuations here probably say fair, and so we would recommend having a good allocation to equities for investors that are ultimately investing for the long term. Of course, it's a market of many different regions, many different market capitalization. I think there are areas of the market that are looking pretty cheap right now.
You talk about in some of the notes you sent us don't hide out in cash. We've seen the fury into money market funds over the past year, being at a record here. What's your view on as far as what's the catalyst when people argue about, oh, well, we're going to put our money in money market funds for the yield. But then if you have these double digit gains in these major indexes, how do you square that away?
And at what point does that we've only move out of money market funds and then into equities.
So I think if you look at any long term investment chart over any time only over any reasonable time horizon, there's always a squiggly line at the bottom in decay, and that's always cash. Cash is the worst performing asset class over any reasonable time horizon. So what we would say is hold enough liquidity for your immediate liquidity needs as an investor, and what you're comfortable with as it pertains to you know, what's going to create some of
that cash to come out. There's seven trillion dollars. Seven trillion is a huge number sat in money market funds, and I think in certain areas we just we've seen investors wait and wait on the sidelines for this supposed recession that hasn't come. And I think the longer that we continue with this soft landing scenario, at the moment,
it's going to pull more investors. Are they going to begin to start putting money to work, And we're already beginning to see that, and specifically around small cap as well. I think it's pretty attractive entry point right now.
I want to go there, we go that you.
I mean, I hear small caps, mid caps, small caps, but man, that's a tough place to make money historically.
Is it a.
Valuation call that attracts you to the small cap space? Is it just that maybe they haven't performed? Kind of how do you think about that?
So the answer that we hear most often, and we actually asked this, we held our global Market out Look call and the theme was in search of bright spots yesterday, and we asked our clients around small cap and the answer that got the biggest response was waiting for the recession before allocating to the asset class coming out of the other side. Okay, there's a lot to unpack there. You know, recessions are incredibly hard to kind of forecast
and predict exactly, but we get it. We understand that mentality. If you look at small caps, they've effectively been in a recession for the last two years. Some colleagues of yours did some great analysis on the Bloomberg terminal the other day and I saw small caps are currently going through their second longest draw down in history. It's only coming out of the tech bubble, that's you can compare
to this. So if you look at small caps, they are off in the region of thirty to forty percent off their peak, and you've begun to see a broadening of the markets, You've begun to see a bid for small caps, and I think investors are already beginning to come back in.
Yeah, that's really interesting that you brought that up, because it's the worst a three year span relative to the S and P five hundred when you're looking at the Russell since the late nineteen nineties in the turn of the century, what sectors in particular when you're looking at small caps are attractive to you.
So the way that we work at Harbor Capital is we work with boutique money managers across the world that we believe are experts in their own domain, so they do all the day to day stock selection. A couple of things I'd say about small cap is it's an area that we think is ripe for active, for skilled active managers to add value. We think a skilled active manager in small cap can add three or four percent net of fees, and ultimately you're outsourcing that day to
day stock selection to those managers. I think some of our managers at the moment, particularly again, there's a bit of a contrarian call, like biotech has been absolutely hammered in that space, but there is some optimism building. You know, you can't fall too much further from the basement, and potentially what we might see is some more M and A in the healthcare sector that might put a bid
on some of these biotech names. So that was one of the themes that out of our outlook call yesterday, how.
About the ETF space, it's getting a ton of cash. How do you guys get exposure there?
So we have.
We've been in the ETFs now for two years. We launched two years ago. We're now fourteen ETF. We have about one point three billion dollars out of our fifty billion is in our inactively managed ETFs. And we think, you know, a lot of the innovation, a lot of the money flows are going to continue to go to ETFs, especially for taxable clients.
All Right, it's interesting. I mean, that's just kind of where the capital is flowing. So you've got to have an exposure there.
Ring absolutely, and specifically for us, where we've seen money put to work on our ETF lineup. We had one of our flagship strategies, the ticker has win wi NN. It's run by Jennison here in New York. It's a lot it's a large cap growth concentrated, fully active, transparent portfolio and it's look, it's done phenomenally well. It's up forty seven or so percent this year and has outperformed It's respected Benjamall by about a thousand basis points.
Good stop there, good start. Christoph Gleisch, thanks so much for joining us. Christoph is a president chief investment officer of Harbor Capital Advisors. You get about fifty billion dollars in assets under management, and he joined us here in a Bloomberg Interactive Brokers studio, so he gets a special star. Their SP five hundred up three quarters of one percent.
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