Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside my co host Matt Miller.
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Our great friends of Goldman Sachs kind of a tough quarter.
You know, I don't feel sorry for them because they win a lot more than they don't. I competed against them for many, many years, with some success, but always always tough competitors everywhere you go. Somebody's also followed this company for a long long time. Allison Williams Bloomberg Intelligence. She's her senior banks analyst, and you know she's also a suit. She's now management. She runs the US Bloomberg Intelligence. So it's like, you know, now she's a suit, she's a boss.
You're a boss now exactly you were a boss before because I have tough.
So, you know, Allison, I don't know talk to us about Goldman Sachs here. It feels like they kind of got a little off track with that retail push and maybe that took some attention away from some of their businesses. Yes, it is a tough environment, but Goldman Sacks is still Goldman Sacks.
Right they are, and you know you're seeing the other side of holatility to some extent, right, So, I mean the ro is very tough. This quarter includes a lot of one timers, there's some charges, there's you know, they're working towards a longer term strategy and I think they're
doing the right things. The alternative strategy. You're really showing this quarter why that they're implementing that in terms of moving to a model that's more focused on fees and managing assets for clients versus taking the risks directly on their balance sheet, which is something that regulators have wanted them to move away from for a long time. So they had that charge. They also had the charge related to Green Sky offset by a little small gain related
to some sale Marcus Loans. I think, you know, moving away from those businesses also strategically the right thing for Goldman focused on want what you're good at. Unfortunately, it's a tough quarter for the business. But equities trading up one percent, I mean that's oppressive in this quarter, and that's you know, that's a prime brokerage business, and that shows that they're executing on what they do well.
So when it comes to the consumer business in Green Sky, like you mentioned, is part of what we're seeing right now with Goldman, just some pain that they have to go through to kind of have this transition out of and away from those two things.
Yeah, I mean general, when you shift strategy and do some kind of restructuring, you know, first of all, it's never in a straight line, and there's always charges before you sort of move on to the better stuff. Because they were performing well, you probably are were not businesses that you're getting rid of, and so it's tough for them to take the impairment and shows that that was not an asset purchase. Well, but I think that on the cost side of things, if we strip out these costs,
there's stills a little bit more work to do. So they do you know, they want to get to a sixty percent cost ratio over the cycle. They're at about seventy percent once you make all the adjustments. So part of that is the tougher part of the cycle. So I talked about equity trading which was a real positive fix. Trading was weak as expected. You know, Goldman and Morgan Stanley especially you're seeing big declines because they had such
good quarters a year ago due to commodities. And on the banking side, Goldman is the m and a revenue leader, as you know Paul from competing with them in the past. That so they you know, the league tables move around, but that's a big chunk for them, and that's just
going the wrong way right now for the industry. We're hearing a lot of constructive comments about the pick up there, and you know you've also mentioned from some folks, you know, hearing some positive comments, but those are really not going to play out in the second half. That's a twenty twenty four story.
All right.
Let's step back and just talk regulation, not so much for for Goldman per se, but just for the banks, all right. Post financial crisis, a lot of new regulations came on in the industry.
Fine, we get it.
There had to be some response and probably well deserved regulations, I would have thought, and over time a lot of those regulations would just kind of fall to the wayside, peel back. But now the discussion is actually even for more regulations. What is driving that that need for more regulation of the banks? I know Jamie Diamond's been a big spokesperson kind of against that with along with Brian morning Hand.
So there's two things, you know, first, which is on you know the quote smaller banks, but you know, not the not the biggest banks that I cover. Right, So we had the issues in March that did raise a lot of questions of you know, some of the things that were rolled back, Okay, should they have been? And so I think that sort of, you know, to your point, things started to roll back, but now the question was
like was that the right thing to do. The second part that's more germane to the banks that I cover, which is Basil three endgame, which we hope is finally the end. So again we've had all these regulations over the years. You know, there's some some still finalization that we're expecting any day now for the last few weeks.
And I think that why you're hearing the bank management's complain is that you know, first of all, the way that the basil works, because you hear this term a lot, right, So Basil is really an entity that sort of sets the guidelines and then the jurisdictions go out and implement those. So the US has a lot of other very strict regulations that other countries don't have. Right, so we have
the stress test every year. That adds a lot of volatility, and that really is very punitive to the trading books of banks. This buzzle three endgame, again supposedly from what we've heard from the proposal outlines, is also going to be tough on the trading books of banks. So do you really need to have this sort of double whammy and these different types of conflicting regulations that you know,
really make it very difficult. And I think you know what the bank managements will say is you might make the banks safer, but the risks will still be there and they'll be outside of the system.
Ye.
And is that really what you want?
Unintended consequence, because that goes too just to the business at Maddie and I talked to talk about a lot, which is the private credit business.
And these private creditors come in with almost these Cheshire smiles.
You know, they're like, I can't believe how good it is for us now because the banks have so much regulation that they're reluctant to put some of these loans on their books, and so the barers, big private equity shops are coming to us and we're making money handover faced here.
And if you look at if you looked at a very long term chart of banks, you know since the crisis, you will see the huge growth of credit in the non bank center, shadow bank, whatever you want to call it, private credit is that is certainly a huge player there. And then the decrease on banks balance sheets. But again
like these private credit firms are getting there. You know, they're raising capital, you know, from someone, And if you think about it, the private private credit is really sort of the talk of the entire asset management industry, even the traditional managers buying into private credit, the private equity managers building up their private credit businesses. So you have all this money going there.
There's more talk.
About getting this into pension portfolios and other portfolios. So you can think about, you know, sort of wear the risks and who's going to bear those risks and how that's all shaping up.
Thinking about going into the private credit.
See I went through thesemen bank, the Chase Manhattan Bank credit training, which is the best on Wall Street. Back back in the day, I can take those skills and go to private credit.
There you go.
I should have done it. I mean, there's still time for me, you guys, I can get an MBA tomorrow. Allison. I want to ask you a weird one in our final minute and a half with you. A lot of my friends got the Apple savings card with the Goldman. What do I need to tell them? Are they gonna get ditched by Goldman any day?
Now?
What's going on with I mean, they they probably don't even know that Goldman's evolved, and except that you probably told them that, and that's why those cards are those cards are generally.
Called private label.
So what Goldman had said right was that they were getting away from Marcus. They did keep the GM relationship, the Apple relationship, where there's some kind of a relationship, but in general, when those relationships fall apart, it's it tends to be because the economics just aren't working for one or someone else is coming in and willing to accept lower economics. So, you know, and of course we never know that, We never know that. Most of us
never know exactly what happens. But you know, that could be the case that someone's coming in and just you know, more interested in the credit card business, and now that it's not so strategically important for Goldman, you know, will
they be willing to sort of give that away? And it's it's also been interesting, right So the other side of it is the deposit gathering business, and you see Apples introducing this new product, but then you have the Marcus product and you see the yields on both of those and kind of competing, and you know where we're you know, Goldman liked those. They obviously would like to get one hundred percent of the economics where they.
Can, right, Okay, all right, Alison, thanks so much for joining us. I know there's a busy, busy few days for you.
Alison Williams.
She covers all the banks on a global basis for Bloomberg Intelligence. She's also the director of research for the US business for Bloomberg Intelligence, so we appreciate getting some of her time here in the Bloomberg Interactive Brokers Studio.
You're listening to the Team Ken's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app, or listen on demand wherever you get your podcasts, Madison.
When I bought the Jersey Shore Compound earlier this year, my mortgage had a six handle on it, and I was not happy.
Just got rooked at because I know Matt.
Millers is I think sub three on his estate up in Westchester. But I'm looking at the bankrate dot com US home mortgage thirty year fixed national average today seven point, So maybe I'm not that dumb of a buyer. But any who, where are mortgage rates going? What's going on in that market? I have no idea other than we'd call Erica Adelberg. She's an MBS strategist that's mortgage backed securities for you out there for Bloomberg Intelligence. She joins
us here in our Bloomberg Interactive Brokers studio. So, Erica, how are mortgage backed securities? How's the market in twenty twenty three so far you're to date?
Hi, thanks for having me on. The market is actually just barely up, I think on an excess return basis, and it's we actually have great rates are up one hundred as you pointed out, they're up about one hundred basis points in terms of primary mortgage rates year every year. But they are off their recent peaks, so at least you didn't take out a seven point three five percent
mortgage last week or so. As you know, they ratesed, you know, fled higher once again when non fine pay rolls came in a little stronger than some people had hoped her expected. But there has been some retreat in that again with CPI coming in a little bit lower. So you know, we're still closer to the hives than the lows, but you know, we are off the tippy top.
But anytime you have mortgage rates around or above seven percent, it probably is restrictive on an affordability basis for quite a few people.
Yeah, well, it's really interesting. I know that you know all about this, but this Redfin report was fascinating to me showing that just one percent of the nation's homes have changed hands this year. And they also have data showing the ninety percent of Americans do have a mortgage under six percent. So why would anyone ever be incentivized to let that go when, like you said, Paul, now
we're at the seven handle. What could be the catalyst for people to start to say it's time to leave behind my home and get a new mortgage.
I mean to state the obvious. Life happens. You know, people have kids, you know, there's divorces, there's you know, so over time and and I mean, if you look at the very long range average, it's not like seven percent is it's it's high, but you know, we've had rates a lot higher. It seems like all of our you know, older siblings or parents, depending on what generation we're in, you know, at one point probably had rates that were seven seven to ten percent or you know,
even higher. And of course all those people have now refinanced two and a half percent if they still have mortgages.
But is that the move then for people listening? Just if you are waiting to buy a home, don't wait, just do it now in refinance.
That's that's certainly what a new homebuilder would tell you.
Yeah, and new.
Home builders are you know that That's that's really the game in town right now, because as you just mentioned, except for the people who do have to move for one reason or another, very few people are listing their their homes. You know, the numbers on listenings are extremely low. So the resale market as they call it is, or existing home market, is very slow. But new home builders, as just alluded to, permits and starts, are up new
home sales. New home inventories are about a third of existing homes of homes listed for sale these days, and the new home builders are finding ways to incentivize first time home buyers and you know, even some move up buyers by offering them slightly lower rates. What's interesting, I was reading just the other day that some of these buydowns,
as they call it, were relatively temporary. They offered like a three two one buy down, where it's basically only good for three years the first year they buy down the rate for three years, then two, then one. They have to qualify them at the higher mortgage rate, so you know, unlikely to be another subprime teaser mortgage rate, but it might become as a rate shock. Maybe some people had expected, as you mentioned, rates to fall sooner and to be able to refinance in that time, and
that's what the home builders are selling. They're like, you know, for right now, we'll give you a lower rate because surely you'll be able to refin in a year or two. Some of those people certainly haven't been able to.
Yeah, I kind of thought I gave myself twelve months, which I still plenty plan of time that i'd refinance with a FOE handle, and I'm not sure that's going to happen, but we'll see, but I will refinance a low I'm not too concerned about that, all right, So talk to us about Uh yeah, I think about office space, and in some of the biggest cities there's so much office space, and people are telling us that's going to be a real problem for the lenders and so on and so forth.
How does that impact your market, the mortgage backed securities market, I.
Think the actual office space. There's two ways that could impact it. For one thing, as we've just mentioned, there is a bit of a lack of availability of homes for sale for those who do want to get into the market. You know, the new home builders are picking up, but actually if you look at the charts of permits and starts, we're a lot higher than we were in pre pandemic levels. But that's because there had been ten
years post financial crisis of underbuilding. So there's a big troth after two thousand and nine two thousand and eight, and it was just creeping slowly up and then shot up during the pandemic. So we're about twenty percent below pandemic levels. We're well above that we were in the ten years beforehand. But what that means, that's the other
reason there are so few homes being listed. Not only are people locked into their mortgages, but honestly, there was probably a structural underbuilding of new homes to begin So some of the people have talked about converting some of this office space into residential loans, residential homes, which could
offer more opportunities. But you know, from a macro perspective, loans that were made to office spaces that are now falling a price, maybe even underwater, those have to be refinanced, re constructed, you know, on a more regular basis, and that could be a drag for lenders, which, whenever you have a drag in the banking industry, can be a drag generally for the economy.
Is the decreasing construction costs and kind of the alleviation of some of the deeper supply chain issues of the pandemic having an impact on home builders that will ever gets passed on to home buyers.
Yeah, actually, in some ways it already is. If you look at the difference between the median new home price and the median existing home price, because existing home prices haven't fallen maybe as quickly as some would have expected given the lack of listing, the difference between those is almost a record type, like new homes are normally more expensive right but right now they're just very marginally more expensive.
So I think some of that, whether it's you know, through price concessions which actually builders say they're not really offering as much anymore, or just costs coming down relative to what they had been, I think that already is manifesting itself, and some people have I've read some people even calling for new homes to be priced below existing homes. And again this is all median prices, so this is not adjusted for square footage or anything. But it's an interesting you know, potential.
Eesg Environmental social governance is that kind of a part of the mortgage lending market as well.
It is interestingly I put out a note yesterday that you may have seen that you're referring to, And first of all, in terms of Ginny made mortgages, those back by FHA, for instance, in some ways those were already fundamentally ESG loans because they're targeted towards trying to improved affordability for lower income and higher LTV borrowers. Now Fanny and Freddie have also started to highlight their efforts. They've always they've always had a little bit of a mandate
there anyway, and their duty to serve. But they have these new social criteria scores and social density scores that they're publishing that are available here on the terminal that tell you just how many of these socially responsible criteria
they're fitting. And in the research that we put out yesterday, we pointed out that some of these highest social responsibility loans and Somebody's offer the best risk award characteristics because a lot of these homeowners are a little more restricted from refinancing, but at the same time they may have more more incentive to be move up borrowers, for instance, so they tend to have less extension risk too.
All right, interesting stuff.
Always talking about the housing market, the mortgage market. Everybody has their thoughts and opinions. Eric Adelberg, we get pay her to have for those opinions in that analysis. Eric Aidelberg, she's a mortgage backed security strategist for Bloomberg Intelligence. Joining us here in our Bloomberg Interactive Broker Studio again that you know, the bankrate dot com average mortgage rate for
thirty year mortgage seven point. It's off the highs, as Erico was just mentioning, but certainly a lot higher than a lot of people want to deal with.
That question is to what extent? When will that come down?
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You know.
Every once in a while, we'd like to get a sense of kind of where high net worth investors are putting their capital these days, and to do that we check in with Michael Sonefeld. He's a chairman and founder of Tiger twenty one. Tiger twenty one is a network of learning groups for high net worth investors. We usually
get some really interesting perspective from Michael. So Michael, again, the first half of the year was a lot better for most investors in twenty twenty two, where you really had nowhere to hide last year, whether it's equities or fixed income. Maybe some of your alternative investments did better. What are your members saying today? How did they feel here in mid July after what was a pretty good first half of the year.
Nice to see you guys, And you know, our members are mixed, like the reports that you've been sharing all morning. On the one hand, inflation is coming down, the business climate is good, unemployment is low, but everybody thinks that we're sort of at the crest, or many people think we're at the crest, and at least half of our
members think we're going into recession. And when you have this kind of diversity, our members try and create something like an all weather portfolio where they have some bets on the upside and protection on the downside. And that's sort of been the magic quest that they're looking for in preserving their wealth.
Part of the flows into the SMP, obviously related to the Magnificent Seven, are related to the AI rally. I wonder to what extent your clients experience FOMO when something like an AI rally is happening, or are they kind of immune to that?
So I just have to say we don't have clients, We only have members. These are all entrepreneurs who have no problem. These are alleople who built great businesses and now we're preserving wealth. But I don't think it's so much bomo because our members have been playing AI. Over fifty six percent of our members either have or intend
to make AI investment plays. And one of the things that's really different about AI if you think about recent fads, either in crypto or the web, twenty years ago, when you had these technology plays, you didn't have the equivalent of a Microsoft, which is already a cash flowing company, also be the technology play if you want to play AI.
Of course, there's lots of small venture capital opportunities, but the best opportunities, many of our members think, are in like the Microsoft and the Googles that have the largest AI treasure troves, and yet they're really solid businesses. So it's very it's a unique moment in AI that this kind of fad. I don't mean that it's unimportant. I
mean this flavor of what everybody is focused on. You're not taking the kind of extra ordinary risks that most other technology rallies require, because here you have comp have real profits and real businesses and real futures no matter what happens on AI. But it'll be really enhanced as they roll out and continue to build their AI functions.
Hey, Michael, how about alternative investments? I mean your members they sell oftentimes their businesses for tens or hundreds of millions of dollars and then they really have to allocate capital cross a portfolio. How is investing in alternative investments, whether it's head funds or private equity or private credit. Has that changed over the last decade for your members?
So the two biggest changes, The single biggest is that private equity fifteen years ago with about ten percent of our members' portfolios. Today our members manage one hundred and fifty billion dollars and private equity is just about thirty percent. Wow, that's been the biggest change. And a big portion of that private equity is venture capital because a period of time ago you wouldn't have even seen venture capital fifteen years and now we think that's the largest sub segment
of private equity. But on the other side, more recently, the biggest down shift we've ever seen is in real estate. Real estate was king for fifteen years bouncing between twenty seven and thirty percent, and in the last year it came down quite precipitously to around twenty two percent. And you know, our members are exquisitely sensitive to interest rates, and as interest rates are going up, that takes some
of the potential off the table for real estate. But as your last speaker was mentioning, office, which was one of the most solid areas in the real estate area, is now up for grabs. A lot of problems, not just with vacancies, but you know where offices were easy to lev and so as buildings, they probably are more highly levered and the equity is more at risk. And behind that on the negative would be retail and on
the positive side would be industrial. But the office, you know, where the office is going is one of the great conundrums that will only figure out over the next decade.
Well, that's one of the things I find interesting about these member feedback results you sent us is that you asked about their most favorite public equity sectors and they're tied. Twenty four percent said real estate and twenty four percent said it. I'm fascinated that real estate is getting as much love as the IT space given the big tech rally that we've seen this year, can you help me make sense of that?
Sure, our members are by accomplishment about one in ten thousand, equivalent to being in the major League. And the largest area our members created wealth in maybe a quarter of our members, was in real estate. So you have extraordinary knowledge that most investors don't have. That's the advantage of being in one of our groups and being with somebody who built their career in real estate. So my guess is that real estate has been beaten up in certain
areas and our members are a little more attuned. The big question we ask in a meeting is if you buy something at twenty and it goes down to fifteen, should you get out? And the answer is, if you really knew what you were investing at twenty and it goes down to fifteen, it's a better deal. But as I think you guys well know, over the history of the stock market, individual investors have never matched the returns because they buy at the wrong time and sell at
the wrong time. And so I think the high interest in real estate opportunities shows the sort of expertise that our members has looking for deals and navigating in this volatile climate.
Hey Michael, real quick, just give us the latest on kind of estate planning. What are your members kind of focused on these days.
Well, first of all, there's a big date coming up at the end of twenty twenty five where some of the major estate planning tools will sunset. But you know, I think our members are focused on the tension between giving kids too much and ruining. Essentially, what they saw was their entrepreneurial ability to be successful. So this notion, this notion of kying to figure out what to do
and how much to leave. So you know, there's something called the giving pledge among billionaires where they are at half of their money to foundation and philanthropy, and a lot of our members are thinking about philanthropy in a new way, particularly with all the problems that are in the world today.
All right, Michael, thank you so much for joining us. Always a unique perspective there, Michael Snefelt. He's a chairman and founder of Tiger twenty one kind of collection of high net worth individuals get a really interesting perspective how they allocate capital across the sectors.
You're listening to the teenth Ken's Are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
We've been hearing from a lot of the big banks over the last four or five days talking about their business net interesting income positive, but certainly offset by a lack of deal making for a lot of these companies. Comparisons are very tough. We want to get a sense of what's happening in the mn A space. We talked to Rob Brown, he's the CEO of Lincoln International. He joins us here live in the Bloomberg Interactor Brokers studio.
They're based in Chicago, one of my favorite towns anywhere. Rob, thanks for joining us here. Talk to us about kind of the m and A environment we're seeing out there now. A lot of uncertainty about the economy and not historically it doesn't really bode well for boards and CEOs getting out there and putting big capital to work.
What are you seeing in your practice?
Yeah, I think what you just allude to, Paul is what we've seen really over the last eight months to a year, right, the economic uncertainty really slowing down on the m and a market, and you're seeing it in the release of some of the big bakes and even Goldman's release today, in the investment banking business being down.
So I think that's what we've seen.
Interestingly, there's some alchemy right now for improved activity, and I think there's really four factors that are driving that. I think one is, if you go back to how we came into the year, there seems to be more consensus of a soft landing, or at least not a really hard landing.
And I think there was always that.
Fear of investors saying, well, joh, I don't want to put something to work and have the bottom fall out of the economy. So I think the backdrop is we may have a recession, but it's probably not going to be as severe as I thought. I think the other the other key input here is that as each quarter has gone by since probably midyear last year, when you saw inflation spike and the FED respond aggressively, you're seeing sellers expectations moderate.
Down a bit.
So you know, twenty twenty one and the first half of twenty twenty two were really peak valuations. So I think as time has gone on, sellers are starting to realize I may not be able to sell it for exactly what I could, but I can still get a good return. So and I think the two last pieces are we are seeing the aperture of the private credit markets improve a bit, the credit markets are actually hardening up in a good way, and that lenders are saying,
I will finance this deal. It's going to be expensive, right. Rates are high, but they're going to be there. And the last and maybe the biggest driver is the amount of dry powder sitting in institutional equity holders, in private equity, venture capital, and even the private debt funds. It's starting to burn a hole in the pocket of investors, and on top of that, they're under pressure to show some returns and return some capital to raise the next fund.
So I think all of that kind of pointing maybe not up hugely, but starting to trend in the right. I think we're expecting much better activity for the back half of the year than the first half.
Well, Paul and I talk about this all the time, just that it's a challenging environment to get deals done in I'm curious how your conversations and strategies have shifted, if at all, Given some of the hawkishness that we've seen from the FDC, from the Justice Department when it comes to M and A deals.
Well, there's no doubt about that.
I mean, we're all trying to wait and see what comes out of the new proposed FTC rules for Heart Scott Ridino and clearance, and we're in a comment period on that, and I know our industry is commenting aggressively to we understand.
Listen, these rules haven't been changed in forty or fifty years.
It's okay to revisit them, but I think they need to be done in a way that's going to achieve the objective. So there is worry about that. But I think your point is right. Deals are harder to get done. I think what we're seeing is more targeted processes, making sure you have financing lined up before you approach anybody, and really going to investors with a pretty compelling investment thesis that says, listen, you know, we know what you like to acquire. Here's why you really need to look
at this. But it's more challenging to get things done right. You got to get the financing in place. I think the leverage has shifted a bit to the buyers in terms of dictating the due diligence schedules and dictating what they need to get done. But we are seeing things get done. They're taking longer, they're a little more painful, but they're getting done.
Talk to us about the role of private credit because that's kind of a relatively new business.
In Madison.
I we spend a lot of time talking about We try to speak to as many smart people as we can about the private credit business because really it's really just became a big source of capital after the financial crisis. How does that factor into your deals? You typically do more middle market transactions. How does that factor into your deal?
It factors in massively.
Most of our deals, particularly if we're selling to a financial sponsor, a private equity group, or an institutional investor. A good chunk of our deals are going to need leverage to get done. And the entire market for that is a private credit market. I mean, the banks have you know, the compliance issues coming out of the global
financial crisis. The banks are out of this market, so now you're dealing with private credit funds, hedge funds, unitronics investors, and that market has attracted a tremendous amount of capital over the last decade, and they have a lot of dry powder too, But that market really closing up a bit in the back half of the last year as much as the fear of the economy downturning is what
really casts a little of appall over our market. So what happens in that market is a really important driver of the overall private the overall private capital markets and the deals that get done on the private market.
Did some of the banking turmoil have any impact on you guys via the impact on private.
Credit, You know, not really.
I think in particularly you look at SVB, there was a little bit of a shock as to you know, what does that mean? But they were really in the venture debt market, and so the short answer is not really. Although one thing I will say that's interesting is our European M and A business, and we have offices in sixteen countries, twenty offices. We've got a lot of offices
in Europe. It's a big part of our business. That M and A market is actually holding up better than the US M and A market this year, partly because there still is a bank lending market in some of the major economies to get deals done where we don't have that here, so they've been able to look through some of the private credit markets pulling their horns in.
I think they also have a situation where in the UK, the largest capital market in Europe, they're worried about a labor government next year and cap gains rates going up, so there's a little bit of a push to get things done now.
The more regulation in the UK.
Definitely, definitely. I think the regulation headwinds are going to be everywhere.
Okay, you guys are a lot bigger than I thought you were in I'm just reading some reporting that you guys did.
It recently got into Australia, India.
You guys, you said you're in sixteen countries reporting here, eight hundred and fifty investment bankers.
Why don't you guys.
Public You know we've followed.
We have followed our public investors or our public competitors. Right, there's clearly an appetite for what we do. I think for us, we have a pretty clearly stated goal to be the leading advisor in the private capital markets, and to date we felt that being a private.
Partnership is the right way to do that.
But we're constantly evaluating should we have a different ownership structure and access to broader capital. So it's something we haven't ruled out. And I think we've made some investments to be public company ready. If and when we determine that's the right thing to do.
What is the.
Biggest benefit for you staying private?
Then you know, for us, I think the thing we need to balance that. What's made us unique and what's allowed us to grow from seven of us to one of the largest private markets M and A Advisors in the world has been a real focus on culture that attracts people and keeps people for the long time, long term. And we've been able to define that measure against it managed to it as a private company without having to
worry about what's going on in every single quarter. And you know, if we were to go public, we'd want to make sure that we can continue to really have that as the oxygen of everything we do. So and I think part of it's just different, right We kind of know, we know the governance, we know how this works.
But I think organizations, if.
They're going to evolve, if they're going to continue to grow, have to continually reevaluate, you know, what's the right capital structure and ownership structure to achieve our goals.
So India, for example, a lot of folks are saying India over the next twenty years is going to be the It's gonna be China.
Was the last twenty years maybe for example, but better. How do you guys view if you I agree with that statement. We have been in India a long time. We've been in India over a decade. We are about to announce in the very near term here an acquisition in India that's going to materially increase our presence there
as And we also have offices in China. As we're seeing as we're seeing those off to slow down, as we're seeing the economic ties really cool with China, we think that the biggest benefactor of that is going to be India. I mean India, it's the largest democracy on the planet. Their laws based on English common law, it's much easier to do business there, and it's a really
really innovative economy. So we're very bullish on what we're seeing in India right now and really doubling down in that market.
And conversely, twenty seconds left China.
Yeah, you know, I don't see in the near term any sort of warming up of the economic ties with China. I think that it's very difficult to get a Chinese investor clear we were talking about compliance. Trying to sell something to a Chinese buyer today in any Western country, very very hard.
Interesting, all right, Rob, thanks so much for joining us. Fascinating company which I need to learn more about. Rob Brown, CEO of Lincoln International. They're based in the Great City of Chicago, but as Rob is just saying, these guys are all over and they focus on middle market M and A, which, as we've learned from a lot of people like Rob, a very lucrative business. Competitive business, but very lucrative business, and so we'll pay attention to that as well.
You're listening to the tape Can't Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Let's check out with Poocha Kumra.
She's a European rate strategist at TD.
Poocha, what did you.
Make of the UK economic data. The inflation data came out today.
Good morning. Yes, never a dull moment in UK. I think for the first time since February, the inflation did surprise you downside, and I think this has come as a big relief for the hawkish expectations that we're actually playing out in UK and right our markets have actually moved the tom expectations from close to six point five that you saw a month ago to actually five point seventy five, which seems much more reasonable. But as you say,
inflation in UK is still very elevated. Food intation is almost thrice the levels that we see in US, so I think we do have a long way to go. But on the positive side, going forward, the base effects both the energy and good prices should actually allow UK inflation to actually be more correlated to what we are seeing in UK and we have in sorry in Europe, and we do see inflation to end the year around the four to five percent level, which is a big relief for BOE as well as riches.
Luck.
You mentioned the cost of food and I wonder to what extent your average I'm going to steal this from Paul the watering Hole attendees of the UK are able to feel any sort of decrease in the inflation numbers when they're still going out to get the same meal they would have gotten a year ago and it's so much more expensive. Do you have a take on when the consumer in the UK might start to be able to feel any sort of decline to the red hot inflation they've been experiencing.
Yes, I mean the last six months have been pretty much high prices everywhere, but we are actually seeing prices going down when we go to all supermarket as well as grocery stores there. We are actually getting emails from all the grocery chains that they are actually reducing prices. So I think there is some government pressure also involved.
And also one of the key things that the government as well as the BOE is aware of is that we are going to get very big mortgage payments as we enter towards the end of the year and twenty twenty four, so household buffer is actually going to be more compressed and it's going to be a slow move, but definitely we are moving in the right direction and that should be a good news for you.
Ken.
That's why the crank basis points rally in today's session.
So putji, you talk to your institutional clients around the world, and you're talk talking to about the European rates business, what's kind of the most common trade that you're hearing people, I guess are most interested in right right right now.
So right now, I think the US CPI as well as the UK CPI have actually told us one thing that we are done with this entire hiking story you want or two hikes more central banks are done And the key thing is how long we stay here. From a trading perspective, we like long duration and I think that is something even investors are looking at. But I think after today's UK CPI report, one of the key traits that I like is being long UK versus Bunce.
Just given the fact that that I think euro has rallied quite a bit, when inflation will be equally sticky in Europe as compared to in UK as.
Well, are you thinking about currency quite a bit then in your calculations.
When it comes to the general strong pounds.
In Yeah, the strong pound, and I guess, particularly as we're starting to see the decline of the U US dollar hitting fourteen months low last week, is that something that you think is going to be potentially a tail or headwind for you this year.
I think generally now it's the FEDS show, just because the fact that I mean so far, what we saw that UK was just not correlated with the moves in US as well as in Europe, just because we had the strength of inflation, and BOE actually had to come up more hawkish as well as hawk fifty basis points when most of the central banks are actually at the terminal.
But I think that pound strength should actually be a little new, more muted, and we should now be more driven by where FED takes it from here, whether it's one hike or two hikes going forward. And I think that would be key when it comes to messaging going into next week's FED meeting.
And to what extent just give us a kind of a little bit of tutorial here, to what extent does the Bank of England and the European Center Bank, to what extent do they follow the US FED Reserve?
Well, to quote unquote, I mean actually's on the central back meetings. We are told that we are different, we have different economic background to handle it. But I think FED is one central bank that basically determines interest rate for the entire world, so I think one way or the other one when FED actually decides to stop, it would actually mean that the other central banks also need to do less. So I think yes, FED still plays a very key role when it comes to where terminal comes.
For most central.
Banks, we think that next week the FED is it seems like a foregone conclusion. Here in the state, it's a twenty five basis point hike. When you look ahead to August for the ECB, is it going to be maybe down to twenty five basis points after this inflation print.
So for when it comes to ECB, they've already told us that they will be doing a twenty five basis points in July. I think the key question is whether they go twenty five again in September. I think at this stage they will like to maintain the optionality. But we have had hawks even coming in last this week's thing, that there's no need to press that much on terminal. So I think it is very much possible that we
are done with one high. But I think central banks right now, including FED, wants to keep the optionality for going in September as well. And I think the key driver right now will be the August Jackson Hole meeting. I think that would be the stage, the next stage where central banks give us the key insight into what they are thinking for the September meeting. I think right now all central banks want a little more data to convince themselves, whether it's one or two highs and they're done.
Hey, Pusha, thanks so much for joining us. Really appreciate getting your perspective. The European call there the UK call on rates Poosiakumra European rates Strategists at TD.
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So Madison back in my cell said research days, you'd have to slip out through San Francisco two or three times a year to see institutional investor clients out there.
Love that town, still one of my faves.
But then you'd have to go not downtown, you have to go slept all the way out to San Mateo to see these Franklin Templeton people.
Now, it wasn't a.
Bad trip because they have a great Starbucks right there. But nice people, smart people, and they manage a bunch of money. So I've still got some bodies out there from back in the day. Ed Perks, he's out there in San Mateo. He's the CIO Franklin Templeton Income Investors. Ed, I mean, you got fix income folks had a brutal twenty twenty two. There was just nowhere to hide off
to a little bit better start this year. How are you guys position out there with some of your fixingcome, you know, kind of asset allocations in your performance?
Yeah, absolutely, you're right. Twenty twenty two was a tremendous challenge for fixed income investors. You know, I think the key element for us, for Franklin income investors is multi
asset flexibility. So really, at no other time in my career, really have I theened this play out in a six to eight quarter way where we entered twenty twenty two with a very strong bias and tilting our multi asset portfolios towards dividend paying common stock, and that was really just reflecting the landscape and the opportunity set entering last year.
Ten year rates were I think we were down here one and a quarter still one in a quarter, one and a half percent, and you just didn't have enough spread. And you know, the key things that we looked to fixed income for in our portfolios attractive yield, potential for some upside, or potential to help diversify our portfolio. And I tell you, you know, most of twenty twenty two, particularly the start of the year, we couldn't check any
of those. So we've come full circle though, and today we sit from a tilt of nearly seventy five twenty five in favor of equities eight to twelve quarters ago to now better than sixty forty tilting to fixed income. So that landscape has totally changed. And yes, you are seeing it, whether you look at broader aggregate bomb market returns, investment,
great corporate returns. How ye, corporate returns all doing much better, a little paling in comparison to something like the NASDAK move, But I think fixed income investors have a lot to look forward to.
Well, Okay, since you brought up the NASDAK move, I just have to ask you about this. We saw the NASDAK dip into the red a couple of minutes ago because of some moves that we're seeing in the big tech names, the Microsoft's, the Googles. It feels like the perfect example of why it's a challenge when you have this breadth of names leading the charge when it comes to these indices. Is that a concern for you that you think think about in terms of your allocation into equities, you.
Know it as it relates to the Nasdaq in particular, given given worry income investors, we really aren't too concerned about, you know, some of those moves or the narrowness of the leadership. I know that's well been well discussed in markets here the last couple of months. You know, we're
really focused on this kind of broader move. So we clearly point more to you know, the S and P five hundred, both the difference we've seen, the dispersion we've seen year to date between something like the market cap
weighted index and the equal weighted index. You know that's starting to perform a little bit better, But we wouldn't be surprised if there's a pretty significant breather here in in equity markets, and uh, you know we are going to see you know, we'll see even even with companies reporting slightly better earnings, we're still looking at at likely
flat to slightly negative year year earnings. And that's something that you know, we think as you look forward into the end of twenty three and particularly into twenty twenty four, this bar, the hurdle really starts to rise, because consensus really bakes in a resurgence in growth in Q four and then into twenty twenty four, and we just think that maybe a little premature. You know, we're still looking at a pretty modest level of GDP growth, we're seeing disinflation.
We think a lot of companies have actually had a bit more of a struggle with unit volumes, but have had tremendous pricing that's going to start to wane and certainly become much tougher with comps. So you know, we wouldn't be surprised if the remainder of this year might tilt a little bit more to some of the fixed income markets, and equities have some digesting to do of this very big move they've had.
Hey ed in the fixed income space, you know, as income investors where are you guys kind of putting.
Your money to work? Where have you been putting your money to work this year?
Yeah, we've really focused on some of the higher quality segments within investment great corporates. And that's a big difference from you know, last year, where we started with much shorter duration. We're very selective, actually liked high yield bonds.
We didn't see the economy completely create airing and then high yield you can find some really interesting opportunities with very minimal interest rate risk as rates move first into the fall last year, then this spring before the regional banking crisis, and then more recently we've had you know, opportunities with the ten year in and around four percent through that level a couple of times, and UH and spreads while not maybe as wide as a lot of
credit investors would would you know, would ideally like to see. You had yields at levels that we haven't seen in a while. You had bond prices because of last year's decimation, at much more attractive discounts to face, and like I said before, you know, you want to check some of these boxes and fixed income today, particularly higher quality investment
Great corpor Brits you now have that opportunity incomes. Attractive total return possibilities are there as we think rates do decline over the next four to six quarters, and they're nice diversification again in a multi ASID portfolio.
Right, hey, Ed, why don't you in your lunch break hop down on the one on one go a little bit south to Coopertino see our friends there that make cell phones and tell them to step up and pay a real dividend. Is that frustrate you as an income investor that you got a company with a ga jillion dollars of cash on a balance sheet, one hundred billion dollars for free cash flow every year and they pay a dividend yield less than one percent.
Yeah, you're preaching to the choir. We certainly are strong advocates of that. We think it just makes sound sense. It broadens your investor base, and you know, there's certainly other things that we can do with using convertible securities, for example in our portfolios or other structured equity like investments where you're kind of effectively doing some covered call
writing and getting some premium. So you know, we do have some opportunity in lower dividend paying or non dividend paying stocks, but absolutely would firmly agree with you there.
All right, if you see him, you know, Tim Cook, around the neighborhood, maybe can put that in his ear. Ed Perks Cio Franklin Income Investors out in San Mateo, giving us some good discussion on income investing.
Thanks for listening to the Bloomberg Markets podcasts. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
And I'm Faul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio