China Ban, ETFs, Hyatt, and Markets (Podcast)

It's checking with George Ferguson does at Aerospace stuff Airlines. He's actually, if my eyes don't see me, actually in the Bloomberg Interactive Broger George Ferguson in the office before now He's fully embracing this work from the game in here, and I was like, who is this? Who is this guy? George Ferguson, Thanks for joining us. But I worked from the Bucolic farms of Princeton to the office. But I go to the Princeton off Yeah, it's like that's like

Bloomberg life. Yea. Um, George talked to us about this. China hitting back sanctions on some of these big Garro space companies Lockheed, Raitheon, give us a sense as to how important this is or is not much to do about nothing. So if the Chinese could buy something from Raytheon Missile and Defense, not Broader Raytheon, they would, and if they could buy something from Lockheed they would. They'll never be able to buy anything for the defense sides

of those businesses. It was interesting too again they went that's been the case for a long time, right, yes, okay, I mean they always sanctioned these companies, And it was interesting too that they made it Raytheon Missile and Defense, right because Raytheon makes the geared turbofan which powers about half of the airbus A three narrow bodies in the world. China is a GE country. There's a lot of GE powered aircraft, but there is some Pratt powered A three

twenties in the country. So if China sanctioned Broader Raytheon, they probably wouldn't be able to get spare parts for those airplanes. They wouldn't be able to compete the engine contract against Ge. So they're a bit, you know, stuck in the middle of that whole thing. And that's why they went down for for the big aerospace companies that you cover, what percentage of their business is China general. I mean, for for well, Boeing right now is out right,

because the Chinese haven't started to take their deliveries. It used to be of their business, right, and so so we would sell commercial We the US aerospace companies would sell commercial stuff to them. Military yes, okay, I mean really no military stuff at all going in there from

the US. Very very commercial and very important, isn't the Michael Creighton book which was from like the eighties, right, that's even that is about like wing construction and how they didn't want to let the Chinese know how they

built the wings. What was that airframe? You know? So I don't know that I've read that book, but I can tell you, you you know, the the update on that is one the Chinese and making their own airplane, the Comacs C nine one nine, right, So they know how to make wings and they know how to make fuselages. We've been doing that there for a while. But if you look at their airliner, it's supplied almost entirely by Western manufacturers, right, So the engines are coming from West

and manufactures the avionics Western I'm talking European US. I think some of those manufacturers very careful about what level of technology they build in the country and they put on the airplane, but they have down you know that that kind of aerostructure stuff. Aero structures is sort of the low hanging fruit in the business. The big stuff is engines, avionics. So is there is there any pressure on these Western aerospace companies too, maybe cut off all

business with China, including the commercial stuff. Just it just feels like things are getting worse by the day. And I'm wondering if that's big business. But it's big exports for the U. S economy. It is big exports, very important to the US economy. I haven't heard anybody talk about cutting off. There's a lot of concern about technology. I do think too. If you're an engine maker, you have to remember these engine makers have been making a lot of them have making engines since World War Two.

There's a lot of intellectual property inside those engines that are it's really hard to replicate, and I think they're trying to be very very careful about making sure that doesn't leak, you know, in sort of an industrial spl Look what just happened with the SML right um that they make the equipment that makes chips, and we're worried that one employee has taken information and given it to

the Chinese. I imagine they could have a trouble, have trouble even hiring employees from Raytheon or from Rolls Royce, you know. But I can't I can't understand why they wouldn't you know that they're already doing so well and making cars, and that effort has only been underway for

a couple of decades. Why don't they start making some of the stuff themselves and hire as many people as they can from Boeing and Lockeed Martin Well again, because I think sort of the big technology is the engine technology. There's a real you know, there's a real art inside that. So Pratt and Whitney, Rolls Royce ge right, So that that's the real sort of art in this business. Um and uh, that's not made in China, right, And so I think they just have a harder time fund, you know,

pulling people out of those companies. He's into China, um, you know. And I think it's I don't think any one person at Raytheon and g understands all the magic behind the engine. So that's another way you kind of firewall the intellectual property. But that's it is concerning. Again, They've been doing it since World War Two, I think, improving these processes and how they make these engines, engines

getting hotter. You know, some of these engines run at temperatures that would that would melt some of the products inside, you know, the components inside the engine. Special codings helped them, you know, help them last longer and not melt, like a lot of science inside there. And I think those companies are very very protective about that. I was talking to for a today, Um, the CEO of air Bus, and one of the questions that I didn't have time to ask him is what are you doing about materials

that you've had trouble getting from Russia? For example, titanium. It's my favorite metal by those Okay, I love it, Um, And I guess you have to get the stuff. Also. The Chinese have a lot of the rare earths, but maybe they have trouble getting a lot of the other stuff that goes into these engines. No, I don't. I

don't know that they have any difficulty. Again, I think, you know, Russia is a is a good source for a bunch of these medals, and I think the China, Chinese won't have any you know, good relationship out of Russia. Airbus was even getting some of the stuff out of

Russia until recently they've they've they've trailed that back. And you know, you have to remember too, some of these medals have been stockpiled because aircraft builds weren't as high as they you know, coming out of the pandemic, weren't as high as expected. So some of the West has been burning through some of these stockpiles, and these medals may become more of a problem here in the next

next few years. We can't talk out of space without talking about our good friends I'm going to still refer to them from Seattle and that is Bowing. Forget the Chicago and now Washington. That gigantic order. You were talking about this gigantic orders touch us about Bowing. What's happening there again? We saw this big order from Air Indian

mounts referencing. I mean, I think the you know, the bowing continues to uh sort of right the ship, I would say, right, they're driving for hyperduct ger rates, which is really what they need to boost profitability. I think the Air India order another in a string of good orders they've had recently. I'd say some of the higher qualities were probably you know the Southwest, the United some of those core customers, even you know the Ryanairs, Um

Air India, you know. Bowings challenge in India is they don't have a good dog in the fight, right in every economy, you want to have a really good airline that's taken market share. So as they take market share, you could be pumping airplanes into them. And air Bus has it with with Indigo Indigoes, you know, very fast growing, low cost airline in India. That's why Air India was a bit of a prize. We thought that that order was going to go entirely to Boeing. It got divided.

It felt to me a little bit like the American Airlines order back, you know, back in the day when the Neo was launched and the Max was launched, when American Airlines made went into the room to negotiate and they said, we got two great offers, we'll take them both right, and that sets up a fight down the road again to be that you know provider to Air India again. Boeing really needs it, but Air India is probably gonna squeeze you on price. So the challenge is

how bad do you want to be in India? How much do you want to discount to be in India? But I think Boeing really wants to be in India, so it was a nice order from that standpoint. It would have been better for them if it wasn't. What an economy to tap I mean one point four billion people and growing plus young people that are gonna keep flying for the rest of their lives, and it's not and it's not China and coming out of the pandemic. I think we watched China shut down and that was

so painful, and yet Boeing still out of there. So China being a much more open economy society, I think a better place to be a longer run. All right, George first, and he covers the airspace, he covers the airlines, anything that flies basically is in George's remit good guy. He is a US Army veterans, so we thank him for his service as always. How Bacco soon joins us here. He's a co portfolio manager for Hennessey Funds E S G,

Large Cap e t F Kyle. I mean we've seen some weak us in the market today, but you know, rallying a little bit this year to date versus the disaster disaster that was. What are you telling your clients,

what are you telling your fund managers? What are you telling your analysts about how they should think about positioning themselves in UM, I'd say is going to be an interesting year after what we had was a major correction and evaluates in the twenty two where names that I think had some very ambitious growth prospects go out of the reality checked by the prospect of delivering that growth in a higher interest rate environment caused which caused something

significant declines. I think this year we've seen a lot of those same names recover a bit of the losses. UM. In terms of like January, I'd say we think it's been a bit of a kind of a garbage rally where the stuff like I Beeping up the most has rallied significantly. UM. We're looking at Orange quite closely. By the way, Kyle, was you think that was people who sold stocks at a loss last year for tax purposes,

we're just getting back in them. Or UM, was it that people who shorted them down into two or covering those shorts or you know what, what why why was this garbage rally occurring? I think there's a couple of different forces. When we have the what I call retirement, which is a very powerful force for investors who are effectively forced to buy, and a lot of them have

been just seeing that influence. We've also seen some repositioning where some investors have said, look, these valuations look quite attractive now and I'm gonna I'm gonna actually move some cash into names like UM that Tesla and other names that have been i'd say that have taken a significant beat down where their core businesses are Actually, we're actually relatively strong when wh when you look at the evaluation declines that have occurred UM in terms of tax loss harvesting,

I do think that's a relatively powerful force, although I don't I highly doubt that most of those trades would have come in exactly on that timing yet, So I think there are a variety of different courses going on. The other big one I think that's we're going to see it's becoming more and more of a trend is UM as earnings and macro data comes out, as which names will have will be more attractive. So our name has dropped fifty six from last year. UM effectively has

seen evaluation. Couldn't happen if those names are still are still growing up, although at a much slower rate, it might be quite attractive to investors. So talk to us about health care. I know that's a space you guys, like, what's your thesis on healthcare here? As we you know, come out of this pandemic, maybe get into more normalized. I guess kind of a health scenario, I mean health care are I always joke that it's a fake UM sector name in that there's a lot of diversification in there.

As you have in germs names, you have m biotech research names, you have more established blake ship like farmer names, you have retail like names. So we actually quite like health care and that our quantum models find a lot of diversification in there. UM we always tend to be

overweight because of that. UM we actually like some of the names as as names normalized in terms of being the growth of insurance plans we are, we see, we see and forecast some growth on the on the use of labs that the effectively the country's getting older and health care ugalization is going up if you think about it, with everyone's having to kind of I'm not gonna use the word high, but have been at home to the last Year's not everyone, obviously, there's a lot of people

who've been out and about, but there's a large segment of the population that has not been using healthcare resources as they normally would in a non pandemic environment, and we do expect that utilization to go back up. That's a great that's a great point. You know, a lot of people probably during the pandemics, I don't need to go to the dermatologist. I don't need to go check out my tennis elbow, you know, those little or things, right or what we perceive as little or at least

the beginning. Um, now that everything's open and clear, you make as many appointments as you can. Well, it's not only that, it's also it's a bit easier to go to get right now. I mean, at the height of the pandemic, your doctor might be remote only it might require um significant masking sensation protocols of fact the nations. Now things are kind of normalizing, you don't need all of that. Yeah, you still got to wear the mask.

Unfortunately I go to HSS for my for my physical therapy tennis elbow, squash elbow, I got to wear a mask. I think that might be something for a very long time in those kinds of environments. So, Kyle, you talk about the quant background, what's the quant model you guys used today and how is it performed? I'd say are Our plant process has evolved a lot over the last

nine years. So we started off in kind of intersecting machine learning for investment views and what I call rules basest screens for values alignment, and the name that has both an expectation about performance from the machine learning and

a values alignment signal from our e STG process. You can think of as a potential long um, we've been blending a variety of different types of what i'd call them quantamental factors, So things like having our own in house sales growth forecast, our own relative valuation model, our own um time series framework, and we we we we combine all that with very tracditional metrics too, and we kind of let the machine figure kind of wait and deal with all of this, and it's our job to

feed better things in there um in terms of performance we've had as a firm, we've had quite strong performance. Although nine years UM we recently launched an ETS in March one. We had quite significant out performance last year. What was the t F S t n C S t nc UM. Yeah, the Hennessey Stants UM s G t f UM. I'd say last year was quite interesting in that our quant model, which was saying, i'll say Q one, for example, what it was saying to buy energy names which are U s G process promptly rejected.

So if I look at Q one, which was a bad quarter for us on a relative to benchmark basis of last year, a lot of the under performance was simply because we couldn't get access to those energy names, which went up in one case over nine probably because the SC signal said no, I was just gonna ask E s G is E s G something you slap on an E t F are a fund the way UM companies used to do with blockchain and their names so that people would think it was cool or UM.

I guess your models limit you do they help you in anyway? As E s G been a tail wind because you were up I mean at least the last twelve months, stances up like seven percent, right, so you've done well. Yep, we we we have done well. But I would say I don't think I B. S G is having to help or heard us. I actually think it gives us simply a list of names that are more values aligned with the data of our clientele in process,

and we actually think it's a firm. There's no alpha in E. S G. But because there's no alpha, it's effectively a free lunch. I can generate out performance from the use of quant models, I can build a more risk efficient portfolio to the use of optimization, and if

I can actually have a process. In our case, we actually have a systematic process that tries to pick the best names from each industry group as a function of sector specific indicators things like clean avenue, diversity, re resource efficiency, UH,

how they treat their workers. And also we also look at a lot of third party data in terms of bad lists where terms have been flagged for illegal behavior, non compliance fines, and we find the intersection of those of those two processes tends to yield a more what

I call values aligned portfolio. So I'd say it's not something you slap on if you're gonna do it you need to have a very explainable process and a way to show that why a company isn't our out, which I think is very important, versus saying, um, we actually critique as a firm the I'm gonna have some vendor r E s G score and just to fire this through my tracking error optimizer to have the highest on

the sc score, but give me back the SNP. I don't really think that's a good approach from product standpoint, as you're just trying to effectively sell the SNP with more fees. Just real quickly, thirty seconds. Give us your opinion on has E S G enthusiasm peaked? I don't think so. I actually think um, I actually think it's continuing to peaks. I always joke about this and when I say that anti E S T product is E S G product in the sense that it's some values aligned.

The values might be opposite to some scientele, but but it's still the exact same thing. They're saying, these are values just the opposite of those ones. Then we're going to invest accordingly. So I'd actually argue that it's some

continuing the peak. All right, good stuff. Kyle Backinson, co portfolio manager, Hennessey Funds e s G Large Cap e t F S t n C S t n C is the ticker for that E t F. I saw a story overnight by Katie Greifeld and Bildana Hirach about surging bond yields that are putting up real competition to the SMP five. In fact, they talked about a six month yield that is just a hair below five per cent, and that's risk free UM. That compares to an SMPS yield that clocks in about five point zero eight percent,

so pretty much the same thing. Let's go to Kara Murphy right now. She's ce IO at Castra Holdings UM, and she can tell us a thing or two about this because she does it for a living. Kara, you know when when your clients comes to you and says, you know, I'd rather have risk free five return than worry about stocks, what do you say, I think cash is really compelling here. And this is like the first time in over a decade that that has been the case.

But let's not forget for most of the history of the market that is kind of the norm where you were able to earn a decent risk free rate and whiskey athletes like stocks had to compete with that. So so I don't think that this is necessarily a bad thing. It's just getting to a more normal environment. And in that sense, then stocks have to make their case that much stronger than a straight up, you know, five percent

yield on an almost cash flight position. So care I'd love to get a sense kind of where which camp you're in here with this UM inflation and the Federal Reserve discussion and the ability to engineer a soft landing and all of that, because that's clearly what's still driving the market. How do you see Yeah, and and I think you know, today's data shows that that it's becoming even more difficult to be able to thread this needle right. So the FET has been working for over a year

to have this just right landing. And we've kind of described the economy as as a big plane that the FET is trying to land in turbulence without disturbing the passengers. It's a very high level difficulty, and I think today is showing us that um the challenges of monetary policy having an impact out a lag. So there are certain parts of the economy, like let's take housing for instance, that reacted very quickly to hire interest rates. You saw

starts really slow down, traffic really slow down. Prices have taken longer to really modern, right, but then things like labor and services prices are taking a lot longer to respond to this tighter monetary environment. We still think that it will happen, it's just taking longer. The good news is that we're no longer having this almost existential discussion that we were, you know, towards the middle part of last year, about whether they said could even get its

arms around inflation. There were a lot of people who are questioning if the FEDS, like typical medicine of higher interest rates is going to work. The good news is that it is working. It just might take some more medicine for it to actually have the desired impact. You Know.

One of the things that I've started to worry about recently is you get a lot allowed voices people who are you know, cynics like me, who say, man, the Fed is raised rates four our seventy five basis points, and all they have to show for it is like a drop in stocks. You know, we have three point four percent unemployment and financial conditions are looser than they were a year go. So on the other hand, care you point out we have to be careful about these

long and variable lags. If you're putting some pressure on the yoke and you're I don't know, uh boeing seven and you're not turning hard enough, then you just really

wrench it to one side. All of a sudden, you're in a violent spin that you can't control what happens if you know, the FED keeps raising rates, raises rates too much, and then next year we're not just in a recession but a deep, deep procession and a housing crash of like thirty or Is that a concern for you, Yeah, for sure, And it's a concern for the Fed as well, which is why they've started to moderate interest rate um increases.

I also think that's why the Fed is probably going to start to lean harder on this idea of higher for longer. That's an easier discussion to have to try and convince the market that they're not going to be cutting rates anytime soon. And it's a little bit softer of an adjustment to the landing rather than saying, hey, we need to go for another fifty or seventy five basis point rate hike in the near term. Alright, So kar,

given that backdrop, here where do we go. I mean, you know, the portfolio got decimated in two people a little shell shocked. We are seeing a little bit of a bounce here in stocks this year, But what are you telling your clients? Yeah, and and as you said, you know, you have these tighter financial conditions, but stocks are rallied. And it's not just the broad market. It's particularly the nonprofitable kind of like low quality names that

have really been catching a bit more recently. And so that's always a bit of a cautionary tale as we think that economic conditions are still weakening. So typically in that type of an environment, where you would go is to more defensive areas like consumer staples, utilities, healthcare, those bills that people have to pay even when their wages are being squeezed. The challenge there is that those valuations

already look relatively rich compared to history. So all right, that tells us that the market has already made that move. So then we start looking around more broadly, and we're seeing interesting opportunities outside the US. UM you know, SMP has you know trounced any other non US UM stock Index for a very long time, and maybe that's starting to turn and we're seeing very chea valuations, attractive dividend yields, okay,

earnings environments. UM, So we think it's time to start looking outside the US where specifically do you like Europe? Do you like emerging markets? So there there. You know, in emerging markets you always have to be very careful UM, and generally we keep it a smallish part of a total portfolio, but yes, we think that there are certain opportunities there. I think Europe is an easier call. Um. We have valuations that are not just cheaper than the US,

but cheaper to their own historic averages dividend yields. They're running it like one and a half times what you would find in the US. And again we're expecting weaker economic environment there as well, but we think that that's already largely priced in. Have been earnings risk in this marketplace where just pretty much through this most recent earnings period, how much more downside, if any, do you see out

there for earnings. So we've been talking since the middle of last year that earnings expectations for two thousand twenty three were too rich. So back then analysts were estimating that earnings would grow by ten percent this year. That seemed way too optimistic. By the end of the year, those estimates had come down to five percent grows, and now we're looking at three percent growth. So if we're right, we're continuing to see these lagged impact of monetary policy

that will kick in later in the year. We think that that three percent growth is probably still optimistic, especially given that corporate profit margins are coming off of historic highs, so companies don't have a ton of room to cut expenses. That said, we're in a much more realistic position than we were just six months ago, but we do think

that there's some additional downside. I wonder, um, Carol, when you're appointing investors towards UM areas like Europe, for example, even if it's a small part part of their portfolio, what's the best vehicle? I mean, do you go there and buy stocks in those markets? Specifically? Do you like E T f s or funds? What makes the most sense? Yeah, but for most of our clients, ets are a great vehicle. They're very liquid, they're very transparent, they're chiefs to get

in and out of. You can get access to a very broad, diversified basket of stocks without having to worry about all the transaction costs associated with buying individual securities. So for most of our clients, that's perfectly appropriate. Cool alright, great stuff, Kara Murphy. We really appreciate you checking in with us. You bet, Kara Murphy. She's a chief investment officer Orchestra Investment Management. Here a little bit of caution I noted in some of her out look and why

not one of the top red stories. Not surprisingly, they were the last of teen thirty minutes on the Bloomberg terminals about Bank of America. They're planning some job cuts in their investment banks, uh, as Wall Street continues to re entrench. So we want to get a sense of kind of what's going on that's only at BA, but just across the street as they think about headcount going into another perhaps difficult year on Wall Street. So for that we bring in Snali bassik Uh. She covers all

things Wall Street for Bloomberg News. Snally, what do you make of this? We've seen some job cuts, uh, you know, from some of the other players. Now it seems like Bank of America is jumping in yeah, listen, the number of cuts being discussed, according to this great scoop today by Katherine Dougherty and our team, Listen, it's less than two under bankers globally, so that is the good news. It is a fairly small amountain for now, for now, and that's the important part because we have been like

laser eyes watching Bank of America. They have a huge workforce. Arises a crypto thing. Yeah, crypto absolutely, Uh well crypto, but I know what you mean. Look, if I was telling our producer Eric Mallow, because he said, maybe it's not a huge number of people, I thought, it's not about really the speed. It's about the direction of travel here, and they're just one more bank, you know. Put aside what we heard from Fidelity this morning, and we'll get

to that. Um, it seems like Wall Street banks are really starting to retrench and they're starting to fire people. And listen, there's a calculus all these banks have to make. When I spoke to somebody at Goldman, the sense was, okay, fine, we cut people, but our comp was still up in broad strokes. But a lot of banks didn't make those cuts, and you might have seen comp compensation that is fall at a more drastic pace at Bank of America. The longer this goes on, the longer it's harder to keep

people around. There's a sense that dealmaking could start to pick up in the second half of the year, but as you say, Paul, if rates stay higher for longer than does that stifle a lot of the things that these bankers are and their fees off of Jeffreys is another injury sting example of this because their communication couldn't have been clearer. They don't want to let go of all the people that they just added. It's bad for morale.

It sends the wrong signal to clients in terms of where their ambitions are, which is why you're seeing right now that's small number of Bank of America. But to your point, this is just you know, six weeks ago, Brian moynihan was saying something different, right exactly. Here's what's great about Bloomberg Bloomberg Radio TV because we get the draw upon Matt some the biggest and best news organization

on the plan at Bloomberg News. And then we've got what I think is the biggest and the best research department on Wall Street, not as Bloomberg Intelligence. So we get Shanali Basset from Bloomberg News and Bloomberg News of course with this story here today. And then of course we have Allison Williams, who has been covering the investment banks for decades, and Allison joins us live in our Bloomberg Interactive Broker studios. Now we can kind of round

table table it with Shale and Allison. So Allison, I mean, it just seems like you and I've been on the street for a long time. We've seen this come and go. Is this a surprise or is this just what Wall Street does when businesses stuff. I think it is Wall Street what Wall Street does when business is tough. And I think the timing really relates to a very slow start to the year, especially in equity issue and so

on the death side of things. Things are looking up a little bit um, you know, and we're looking versus last quarter, so typically the fourth quarter is seasonally slow. There's not a lot going on um when we look, so we would expect a big pick up in the first quarter. We're just still not getting it in equities. And obviously when we compare to the year ago quarter,

um things are things are much worse. JP Morgan came out and said they expected drop and I think across all these banks UM and Gennale alluded to this before when she was talking about Jeffreys. There's such a scramble to add bodies, um, and so to your point, that's what happens in the cycle, right. So, but there was such a scramble, and their pipelines have remained really strong, and so there's this this term bank a hoarding right

boom bust. Right. You think that after so many years that this would not be the case anymore, But right here we are. And I think what was a little bit different this time is because the pandemic and things have been very extreme. UH as they said, you know what, we're gonna hold that out. The pipelines are still strong. Maybe we'll get that lift, and we're not seeing it on the equity side, so you might just see like a little bit of throwing in the tow at Bank

America on the dead side of things. UM. JP Morgan's UH fixed income trading boss, Troy Warbox said Um. He's the global head of markets at JP Morgan. He said, fixed income is in wh I thought of Paul when I read that, because he's excited but I wonder if this doesn't signal a new phase, a bigger, more worrying phase. Is it just Allison's slow start too, and we're gonna let down like go two hundred people? Or is this

like Goldman Sachs is letting people go? Um, you know, Bank America goes letting people go city Jeffreies Citadel, like is everybody else gonna follow? I think that looks like the case. But again I think the latter because yeah, yeah, And so to Sale's point, there's two sides of the business, right so um, to the extent that markets are higher, and I think that's been the surprise this quarter. Right, so markets are higher. We had a strong equity start

of the year. Um, you know, Paul, as we know that generally means a lot of activity, a lot of hustle going on, and the fact that that hasn't come with the better markets, I think is the disappointment. Whereas on the asset management side of things, higher assets mean higher fees. Um, so you don't fidelity the story this morning out of Boston Fidelities adding four thousand people. So I guess, look the two under investment bankers leaving Bank

America They're not gonna go from Charleston up to Boston. Right, There's a different skill set. It is a different sales set, and I would just you know, circle back to what you said about fixed income. I think that is. I think what we're going to see this quarter, UM, from a mix standpoint is credit trading, which was, you know, sort of the the underperformer last year. It was all about rates and macro credit trading doing a little bit better.

Part of that is the fees that we talked about, So the debt bankers are a little bit happier with their outlook than than on the accorties. I'm just wondering about the individuals affected by this, um, you know, who are they and where do they go? I'm assuming you let go like the older white guys first, and then where do you where do you send them? Did they move to a smaller bank? Um? Do they move to what's Paul? What's the so you know, there's a few things.

I know, Paul's pointy at himself. Stop doing that, you know. Um, a lot of people had started to anticipate this and moved before and what they've ended up doing was there are still private debt firms that are hiring. They're raising money. You know, you think about a place like Aries and they're raising money at seven of their ten largest funds. Because so much activities outside of the banking system into the private debt world. So that's a place people are going.

If you're a trader. Some of the big multi street hedge funds are growing very quickly. There's a question about how sustainable that growth is, but that's another boom bust. You know, if you want to sit there and have a job for the next ten years, not typically the place you got, but they are hiring, uh, and so there are places to go, and there are some of the smaller firms. The boutiques are trying to they say they're trying to pick up that's all. That's exactly what

I was going to point to. If you look at the boutiques, they are still very much in hiring mode. And that's something that's something that's something that we didn't have the coming boutique, right, That's something that we didn't have a decade ago. We have all these smaller boutiques that are public now UM have money. They're going after UM some of the senior talent. So that you know, at the smaller firms like the molest of the world, and do you have the we do you have the

credit suites first Boston? You know, as that evolves, right, So that's that's going to evolve over the next couple of years. What's fun too, is those places are actually promoting young people faster as well. And so even for you know, the thirtysomething banker, they're trying to make it really attractive to come over there because you just get

in front of clients quicker. Lastly, i'd say restructuring. I mean the restructuring guys are having the time of their life because there has been no restructuring activity in so long. And so whether it's like you know, quote unquote liability management and just kind of you know that's hot right now? Oh my god, it's the most boring thing alive. But yes it's hot. So I love it. I love it.

You build up so much debt during ZIRP and then you hire a banker to fix your balance, and then you've got to sell stuff off to get rid of it. Sounds like my household help restructure exactly. Money on both sides, yep. I remember, alright, great stuff, we can put this together again. The News Bank of America laying off a small number of people. But it just kind of goes to the trend we're singing on Wall Street. It's an important story.

It's a highly read story on the Bloomberg Criminal So we got two of our smarter folks in the building to come in here and chat with us. That's Shinnelli Bassik from Bloomberg News and Alison Williams and Bloomberg Intelligence. Put it all together and get a nice little round table. Thank you, Eric Mulla for putting that together. All right, let's go to the hotel business high reported. Uh some

pretty darn good numbers. Uh. Just recently stocks off about one point eight percent, but boy, the stock is up twenty seven percent year to date this year. Hotel stocks are just ripping. Uh, they're all up about year to date. So people are getting out there, they're traveling. Let's see what's going on with there. Mark Hoplamaze, and he's the CEO and president of Hyatt, joins us here by phone. Mark, thanks so much for taking the time, give us the

the highlights the takeaways from your recent quarterly report. Thanks for having me. Um. Yeah, we we finished a transformative year with another record quarter driven really across the business. UH Leisure has been the the UH the strongest segment by far. We see no signs of slowdown in that in that segment. UM Group business that is meetings and conventions and so forth. Has we fully worked coverage levels in the fourth quarter, and we are seeing great demand

heading into this year. Our bookings in January or paced into the rest of the year rather for twenty three is ahead of where it was last year. UM. And even business transient is showing signs of real improvement. UM. You know, we were down eighteen to nineteen levels in the fourth quarter. We ended January started off much further down because everyone's still on holiday, but ended seventeen percent down. But the first two weeks of February we're down twelve UM.

So it's really improved a lot UM, and we see great strength across the board. So Mark, talk to us about that business travel segment. UM. You know, just somematcdonald evidence here at Bloomberg. I mean, it's it feels like it's picking up. Where asked to go to various conferences and things like that. It feels like it's picking up. But how do you guys think about that long term, but it just feels like it might not every return to the level pre pandemic level. How do you guys

think about it? Well, the first thing I would say is that the the dividing lines between business transient group and leisure have all blurred. So we see more leisure trips where people are going on Thursday nights staying in hotels for a long weekend. So Thursday and Sunday night occupancies have recovered faster than weekday occupancies. UM. That's notable because we're seeing that that crossover trip between hanging out

and working remotely for a long weekend. UM. So there's some measure of of I think challenge, and it's fuzzy line now between leisure transient and business transient. And secondly, quite a few corporations UM have have turned to travel with the c suite or with groups of people UM, and we track any group of ten or more as a group as opposed to business transient. And so there's some substitution going on where you used to have a bunch of individual trips and now they're aggregating that up

and traveling in teams. And that part of that has to do with maximizing the impact of client meetings, um, but partly by virtue of the fact that not every one of their clients is in the office on a full time basis, so when they can capture the important people they need to see, they want to bring the full measure of their firms to bear. This is really pronounced in the financial services industry, so I would say

that the dividing lines are are blurring. The one thing I would say is commercial travel in general, whether it's group or business transient as a category, will be growing and will exceed pre pandemic levels because their secular economy. Hey,

Mark talked to us about the labor issue. I've just done some travel recently, and you know, it doesn't feel like hotels are ever going to return to Hey, We'll come to your housekeeping every day, um I, And I know that's partly a function of labor availability, but I kind of feel like, you know, you guys are in the hotel industry realizing that as guests will take that lower level of service. Uh, and that's cost savings to you guys. How do you think about labor and how

you deploy labor? Yeah, First of all, the labor market conditions have improved a lot. UM. A year ago, we were running sort of fiftent vacancy rates and now we're down to eight, which is sort of I would say, in the range of that I would consider to be typical. UM. So we've we've we've seen a great improvement in being able to hire people. UM. But it's true that UM,

there there has been a change in policy. You can still get daily housekeeping, but it's with requests in many lower end brands and select service brands for our luxury hotels, UH, in our lifestyle hotels that we we are maintaining daily housekeeping. I personally, when I travel, all I really need is a is a refresh on towels. UM. I actually sounds a little a little strange. But during the during the pandemic, I made it a practice to make make you know

our bed in the morning. UM. And I still do that. And when I'm at hotels, I seem to be reverting to my autonomic response and I make the bed. So sometimes the housekeepers come in and they remake it because apparently I didn't do the job according to their standards. But apart from that, I actually prefer a re USh to a full clean and so I think some people are just choosing to opt out, But I think it's gonna we will discover a different type of equilibrium going forward.

And I do think that the incidents of full housekeeping every day is is going to be lower. Are you able to get the UM employees that you need or is it a regional problem where you are in you know, some countries and you're not in others. Yeah, I think the answer is it's it's a challenge in many markets. The number one issue in the United States at least is that the temporary visas that are have been issued for summer workers for for temporary workers UM for decades.

This is not a new program. This has been around forever. UM has been dramatically limited in numbers. UM. We through through our Industry Association, appealed for a significant increase in the number of visas for temporary work visas for the last summer and we got a small fraction, like one fifth of the of the employees that we would have needed.

Because leisure, a lot of these positions are resorts. So I would say, first and foremost, our industry Association is focused on constructive way to increase those temporary visas, but ultimately a better uh well, a an immigration policy period UM would really significantly improve this. Why why has the

Biden administration seemingly dropped the ball on that. I don't know the specifics of what they're doing, but I do know that, you know, the Trump administration severely limited foreign access to this country and that affected you know, workers, you know, legal immigration as well as illegal immigration. A lot of people thought it would get back to normal when President Biden came into office, and we're still looking at a backup of almost two million people waiting for

legal visas. Why don't you and the other uh, you know, top on CEOs in the country just go to Washington and say, dude, you gotta do something on this. Yeah, well, I I share your sense of urgency. I think it is one of the key issues that we face as a as an economy, US economy looking forward. Uh, this is really a high priority for the American Hotel and Lodging Association UM, and we as a group of UM CEOs across the industry are heavily engaged in this. So

we are making the case. UM. There are various reasons why the needlessent moved on this UM, and I'm not able. I'm not a political commentator, so I'm not going to try. What I can tell you is that the pressure on focusing people on what the actual net impact on the economy is UH is that case is being made and it's persistent, like we are going back to the to Capitol Hill over and over and over again to make these make these same points. I strongly agree with your

sense of urgency, though. Mark talked to us about the growth outlook for Hiatt. What are the drivers that you're going to be pulling to drive revenue and earnings? Ford? Is it focusing on revenue prevailable room that rev part metric. Is it adding rooms through new hotels as acquisitions? What's your growth story? Yeah, it's it's all of the above.

But but first and foremost, we for the last six years in a row, we've had the highest net rooms growth in the industry among major companies, and UM, we're very proud of that. But it's really partly a result of the fact that we are a small We have a smaller footprint than some of our bigger competitors, so

we are not running into ourselves in any markets. We are underpenetrated in most markets in which we operate the vast majority of them actually, so we've been able to grow at a faster pace and we expect that to continue UM really into the future. We've done part of that through organic growth and part of it through acquisition. UM the acquisitions that we've made have had a couple of attributes associated with them. First, fits into our portfolio

and our customer base. Second, UH creates more of a network effect, so that UM the kind of customers that we're serving in the locations of those brands help helped to strengthen the entirety of the higher network for our loyalty members. And Third, in each case, they were brand platforms that had future significant future growth potential. Our most recent acquisition that we just closed on is Dream Hotel Group.

We start off with twelve open hotels, but they have twenty four signed contracts for new UM management agreements for hotels opening in the future. That's just an example of what we've been doing, which is finding brands that have very strong growth prospects and bringing that growth into UM into the company. Alright, good stuff, Mark hop amaze, and

thank you so much for joining us. A Mark is the CEO and president of high at the just reported some numbers, some better than expected numbers, their financial results and stock up about year to date. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller, three pen on Fall Sweeney I'm on Twitter at pt Sweeney.

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