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At the other headline of the day, we love it. It's Jamie Diamond, CEO of JP Morgan and his annual letter. Lots of things to get through on this one. You know, he says that AI could augument virtually every job, so that was sort of the one thing he did talk about. Obviously, he doesn't like lots of regulation in Boswell three, so let's dig into it. Allison Williams, Bloomberg Intelligence, Senior Analyst,
Global Banks and Asset Managers, joins us. Now, all right, Alison, what are some of the takeaways here?
So I think, you know, it's always interesting to hear what's on Jamie's mind. I think some things are consistent. He gives his views on on regulation, which he feels like there definitely needs to be some changes as well as the policy.
And the political front.
You know, one of the interesting things this year was the twenty year look back it's the anniversary of the JP Morgan Bank One deal. As you may remember, Bank One was actually the buyer of JP Morgan, and I was lucky enough to be at the dinner that night with the CEOs of both Bank One and JP Morgan, and certainly did not anticipate what would be where we'd be, you know, twenty years later, But did anticipate that. Jamie Diamond, even I think at that time, showed himself to be
a patient CEO. He waited to take the job, he was selective, he took the job with Bank One, he was selective about the JP Morgan deal. He stored up his capital and was in a good position at the crisis. And so you know, today when we're seeing a lot of headlines around some of his concerns, and again certainly he does outline a lot of these in the annual report, it just really just puts into mind that the risk.
Manager that he is.
And so while there's a lot of headlines about his talk about inflation, he's been very vocal about the world needing to be prepared for higher rates. I think it's just a way that he does his job and manages his company thinking about the downsides, thinking about the risks out there and sort of always being prepared to be in the best position he can.
All right, Allison, So those are you know, we always look to that letter for some long term trend issues and he calls out AI in particular this time, how about the short term stuff. We're gonna hear about the short term stuff this Friday with the earning starting.
What are you what are you looking for.
From JPM and maybe from some of the other big banks that we care about.
Sure, and you know, there are a lot of call outs about the great job that they've been doing, the great year that they had last year, and we really think that this quarter they're going to continue to you know, execute on all cylinders. I think that the net interest income story is you know, that's sort of the big
thing that everyone's watching. We've had a big shift in the market view on rates since the last time these banks have reported, but we think that JP Morgan will continue to show resilience in that net interest income and surprise investors positively on that front. Part of that is the credit card business, where it just continues to show very strong growth, and part of it is the deposit pricing, which has come in a little bit better than expected.
So we think that's that's going to help JP.
Morgan, it's going to help Bank of America the card side, helping JP Morgan and City Group a little bit more. But also we're we may see provisions tick up, but that's not because of the weaker environment. It's more because the card loan growth continues to be strong. It's normalizing, and this tends to be the seasonally.
Higher quarter for card losses.
So I think that we could get more resilient and interesting income up, also higher provisions.
Yeah, let's talk about that, because last week Marcus Golden Sax's Marcus lowered the rate on its savings account high yield savings account. It was just ten basis points, but and I obviously use it, and I was like, dude, we haven't even had a rate cut. What are we doing? But that's clearly going to be good for these guys, but bad for me.
Yeah.
So, I mean on the deposit front, you know, really a year ago, I think it became a big news with all the bank turmoil that deposit prices were going up, and consumers I think that saw those headlines if they hadn't already been getting the yield, they were going after it, and so the yields have gone up.
We saw the yields on loans go up, and then we saw the yields.
On deposits go up and now are out of place where you know, the question is will that will those deposit prices continue to go up and sort of eat
away at the yield. The reason why banks are or one benefit of banks of if the rate cuts come is that those prices will come down, as you said, But then you know, there for all of these banks, there is a question of you know, the deposits and what they can do with those deposits, excuse me, And there is a competitive aspect to it, and so there are times when banks are more aggressively pricing, and there are times when you know, as you said, for Goldman Sachs,
maybe they're less aggressively pricing. Maybe they see, you know, less of a need of what they can do with that money, or balance sheet management because as we know, there is a cost to capital to fund that balance sheet, that there are higher capital requirements, there are other things you can do with your capital, and so I think these.
All kind of go into the mix of what banks are thinking.
Hey, Allison, going to hear anything this quarter from the banks about commercial real estate and the problems that may pose for the US I guess economy and maybe the banking system. Or is that just a regional bank thing.
I think, you know, it will continue to tick up. I think it's it is a.
Broad I guess bank thing, But the commercial the regional banks is just more important to their earnings.
So I was speaking.
Before about card If you look at card that the banks that I cover, you know, especially JP Morgan, City, Wells, and Bank of America are tend to be over indexed to.
Card less so to commercial real estate.
Of those four banks, Wells Fargo is really the one that that sort of has a commercial real estate exposure similar to the regional piers. They have the largest US office exposure across the banks I cover, But they also have an eight percent reserve already against those loans, so they've been very conservative.
On that book. I think the newer worry, if you will, is the excuse me multifamily lending business.
New York Community really sort of brought that to Like JP Morgan has the closest business to that, but they've talked about some underwriting protections they have there just in terms of how they look at rents and the way they underwrite being much more conservative. And so they've had you know, very good performance in that book over a long period of time. Still, you know people are going to look at it, but it's just it's more of sort of a very long term story for the.
Banks and having a hard time getting excited about JP Morgan kicking off earnings on Friday. What's going to be for me? Sort of and for you the biggest surprise, like what are you most jazzed about watching when it comes to all the big banks, all the asset managers, all the private all the guys.
I mean, I think the biggest surprise will be that interest income resilience and just the fact that it does come in better than expected. You know, it was interesting last quarter all the banks generally beat on net interest income but guided down and so the stocks were acted, you know, very negatively towards that.
This quarter, I think there.
Will be the resilience in the net interest income that could surprise to the upside. They will adjust the outlooks the ladder is expected. I think the other thing that that I'll be focusing on investors are going to be focusing on is those investment banking fees. So there's been
a lot of talk about bullishness for those fees. You know, we also think that we could see a big jump in the fees, but we're still you know, nowhere near compared to where we were at the twenty twenty one, So, you know, you could see a big jump in fees, but the questions are going to be you know, how are things trending. I pos the volumes have been good, but you know, there's still a lot of questions from
investors around some of the performance. We've had some good performers, there have been some not so good performer We still have some valuations that you know, investors are waiting to get better. They don't want to go public and have to mark down those investments. So I think the pipelines and the investment banking fees are going to be right. I guess one of the more exciting things this quarter, Alex, you know, maybe not as exciting as we had hoped for earlier in the year.
Yeah, we'll see, all right. Alison Williams, thanks so much for joining us.
Alson Williams. She's a senior animal. She covers all the big banks on a global basis. She does that for Bloomberg Intelligence. Before that, she alluded to she was at Morgan Stanley Investment Management on the buy side and where she covered the banks. And of course, when a couple of big banks get together, they need to court their large shareholders, and Morgan Stanley Investment Management is certainly one of those. So that's why Allison was on the front lines.
And when those two JP Morgan Chase with the predecessor and the bank from Ohio.
I can't think of the name one one.
I bet she's not watching the eclipse because it's hard at work. So I mean, I'm just saying, but I'm also looking at multiple countdown clocks now are counting down to the eclipse special orre we counting down to the actual eclipse. See, I'm just saying, this is a lot happening.
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This is Bloomberg Intelligence Radio. We bring you all the top analysts from all our great coverage. We cover about two thousand companies one hundred and thirty industries worldwide. We are broadcasting too, live from Interactive Broker's studio right here in Midtown Manhattan. You can also check us on YouTube. So Bloomberg Intelligence has an amazing arm of analysts cover
companies and themes. We also have something here at Bloomberg called Bloomberg New Energy Finance, and the idea behind it is to provide data on commodities, power, transport, industry, buildings, and agriculture as well as new technology as we kind
of build a more sustainable world. Right we know we're transitioning, and we know we have to get there, and how you finance it is the huge question, and there's a big gap between like the VC things and then the scalable stuff, and helping to finance that gap is very tricky. So we thought every Monday we would bring you an amazing analyst from BNF and sort of talk through some of these issues that we're confronting. So this time we're
going to talk about ev charging. So Ryan Fisher is Bloomberg BNF EV charging team leader and he joins us now from London. So I guess, just to start off, who are the big players in EV charging?
Yeah, so some of them maybe not quite household Thames yet, but you've got charge Point in the US certainly people may have heard of, and the sentiment was pretty positive a few years ago. Stock prices up and then everything is kind of crashed down, sentiment not so great. Some of these companies have not met the targets that they might have done. But what we're starting to see the few companies that you definitely won't have heard of actually
have started to post some positive profit margins. So there's like fast charging manufacturers in Europe call Ken Power making that the kind of units that concern big power to evs and charge it fast. And then you've got some of the ones who do the slower power units as well. And then also you've got a couple of these companies that you may have heard of, like ABB, producing chargers
as part of a portfolio. So they're selling transformers and they're sort of using that as somewhat of a way to get into companies and sell some of their other products that they've got and added on as an additional so lots going on on the hardware side, and then you've got operators. So these are like the companies who basically will sell the electricity to charge a vehicle. You kind of think of it like filling up with petrol.
And none of those so far are profitable, but we have seen some good signs, so some of those being EBITDAR positive now fast ned posted that which is a Dutch one the other day in the US. Unprofitable so far, but there's a company called EVgo you may have heard of, who has these fast charges and they actually basically delivered one hundred and ninety one percent more energy in twenty twenty three than they had in twenty twenty two, so good progress there.
So Ryan, where are we kind of, I guess on a timeline of kind of getting enough charging capabilities into the system that can really support, you know, a wide adoption of evs. It feels like what we're hit We've hit a speed bump here. What's the timeline do you think? When you talk to folks in the industry.
Yeah, it's an interesting one because we cover the global markets. So you look at China and they installed about a million of these public charges last year, and the US did sort of low tens of thousands. So there's a big difference depending on where you are in the world. I think the US and Europe are more similar in how they'll play out, and Europe is maybe just five
years ahead. So Europe has got actually loads of competition at the moment, and the story a little bit when we look at this is some of the companies looking like competition is starting to weigh on the demand that they're delivering because it's a bit monopolistic. So I want the best land as a company, and I want the best grid connection, and I want that to be somewhere that people are going and somewhere where people can buy things.
And they're realizing that, well, the demand isn't quite there yet. But if we believe in the long term trajectory of evs, let's get in this business. Let's get those spots. So we've seen that in Europe, and I think the US is just starting to tick over. The US has been hugely dominated by Tesla. So if you look at Tesla on the vehicle side, kind of eighty percent of these pure battery electric vehicles five years ago, kind of Tesla's and then they also provide the supercharging, and that's kind
of pushed all the competition out. But what we saw last year was some of these other auto makers really producing the evs and therefore providing a market for other people to come into, but the US slightly behind basically the global maybe just because Tesla has this dominance in the market.
This is a super dumb question. Where does a charging operator get the power to then enable me to put a Tesla into that network?
Yeah, it's an interesting one. So there has been a lot of these companies that are going out and they're saying, you know what, instead of putting two charges in at my petrol station where the power exists, I actually now need kind of twelve chargers. And in some cases, when you look at, for example, the Tesla stations, they've got like one hundred chargers in one spot. Now that becomes a big grid connection. The next thing is charging the trucks.
So this could be like the same amount of power as a town, and a lot of the utilities are taking too long to do it. So it's like that how long does it take to get a permit? How long does it take to actually get energized, can you make the agreements with the land, Lisa, All of this has kind of slowed it down, but clearly industries trying to work together, and this has become a big topic for the automakers and the utilities as well, some of
them trying to sign contracts on site. So if you imagine these companies small fry, like several small meters across multiple places, the utility is maybe not so interested in that, but now they're actually delivering a lot of demand. So as I say, looking to other markets in the US and China being a good example, the public chargers in China now deliver more energy than the whole of Ireland,
so a lot of energy. And therefore that becomes interesting because if you're an energy developer and you're doing like solar on site next to it with a battery, and we've seen what TV, which is one of these truck charging companies, basically build a station that's not connected to the grid at all. It's just got straight to the solar and a battery. So cool innovations going on there.
Hey, Ryan, Here in the US, EV sales have slowed materially and a lot of people are trying to think there's a combination of reasons, price being a big big one, but one of those drivers is just the lack of a fully ubiquitous charging in structure. When you talk to your EV companies, how did they think about it? Are they concerned about the long term demand of EV's in general, and if so, do they feel like they could be part of the solution there?
Yeah, and there's definitely kind of differences in opinions. The US hionde CEO saying something along the lines of today, why buy an EV from an automaker who's lobbying against EV's, And obviously he's talking about the US there. But you do see a difference in those that are kind of in on it and those that aren't. And I think some who aren't have previously been so they've they've committed billions, they've talked about targets, and then they're starting to row
it back. And some of that is maybe because the technology is behind they can't do it as cheap as everyone else. So there's different reasons. And I think when you look at liabilities, I don't think that's talked about enough. Actually, some of these companies have put cars out there and then the batteries had a problem and they've got to
recall it, and that could be multi billions. So I think there's some caution as well in saying, why don't we put a few less casts out because then we can learn from them and we can do it later. Some of the narrative has been they're not putting the cars out because quite physibly, like the battery operations are up and running. But I think there was other reasons.
Ryan, Hey, look, this was great. We really appreciated Ryan Fisher, Bloomberg BNF EV charging head, and we'll be doing this every Monday, talking about different areas within the energy transition. This is why Paul stuck with me, because somehow I'm going to make him talk about all this stuff. But interesting you might have, like what little power centers around EV charging networks.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Effle car Playing and broud Otto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
And Barry, founder and managing partner at the Red Needle, is joining us. Equity is doing nothing A body yelds up a little bit. But before we get to all that fun stuff, an, are you watching the eclipse?
Absolutely would have missed it. I remember the last one seven years ago, Alex and just standing out in Central Park with armies full of people. So I'm hoping to repeat the experience again. Today's look of fun.
All right, So she's not a clip stow, fine, are you bon yield out at this point? That's my way of asking, like, hey, how much higher can yield go at this point?
Yeah?
I got to tell you, Alex, I for a while now stopped looking at bon yields as an indicator of where I should be putting capital to work. Just these usual indicators haven't been as consistent over the last couple of years, and so I've just really gone back to good old fashioned fundamentals, esoteric signs, looking specifically at what might be a catalyst for the stocks individually, to try and see you out of play right now?
All right, So where you guys, as you think about just kind of M and A in general, what's kind of your outlook here for the remainder of twenty twenty four Because we've got, you know, equity markets higher, but rates are still higher as well.
They are, but I do think that the actual backdrop for M and A this year has gotten a lot more interesting. If you think back over the last two years and you put yourself in the position of the boards of public companies, and I've been there, it's been a really difficult place to say yay or nay to getting deals done. We've seen a bit of an exception in the oil and gas based alex that I know is your forte And the reason for that lack of
activity has been. Yes, partly, financing has obviously been a lot more expensive, whether it's been in cash deals or stock deals, but also because you just didn't want to be the board member who looked like a bit of a schmuck if you've got the care wrong. Because the macro is just so volatile and a lot of the key factors you want, you know, you didn't want to be selling too cheap, you're buying too expensively. I think things all settled down a little bit now, which gives
people more confidence to go out and buy. And I do think that we're going to see some names forced to do some M and A activity, and specifically they're all like all these fallen angels from that twenty twenty twenty twenty one pandemic irradarling period where I think some of these names are going to have to diversify or die, and it's going to force them to go and do some M and A.
So how do you play all of that? So, Okay, if you're buying yielded out, so you're looking less at that, you're looking at the fundamentals, you do think M and A could be it sounds like a catalyst. Yeah, talk to me about the sectors first and that that you want to play.
Well, let's take a look at consumer, for example, alex and you know that's one where you've got a history if you go back in time where deals tended to be. First of all, they were a lot bigger, so you saw lots of mass consolidation and sort of murders of equals. And then you have the shift towards consumer brands and food and beauty and apparel trying to buy these high growth challenger brands with really fast top plane growth but lesser a focus and profitability. We look at what happened
last year. We still Campbell's go and buy sobos brands. That's a two point eight billion dollar deal. And I think that's because in food, for example, you're going to see the fact that inflation's not gone completely the consumers, they are not going to keep putting up a price increases in the cost space of seeing a step function up. Organic growth on the margin level and on the top
light level has slowed down. So I think that's going to force more m and A the lights of which we started to see last year again with Campbell one specific company. I'm going to go out on a limb here and sort of testing the thesis. I look at something alex like Olipleaux. Do you remember when that went public? You know, when we're all sitting at home, the valuation on that hair company and shampoo company was absolutely astronomical. It's now trading at a fraction single digit fraction of
where it was. But it's a good cash flow business. It's got a smart backer advent, a private equity firm that knows what it's doing. That business, in my opinion, is going to have to go and buy other brands to regain the trust of the public market again, so I would look at that as a potential acquire It's got the means to do it, And that's the kind of thesis I find a little bit contrarian and interesting.
Right now, and talk to us about the private equity and the private credit business.
How ready are those two folks willing to commit to M and A. Here, it would.
Seem like the private equity folks, they've been holding on to a lot of assets a lot longer they probably would like to, so they have some incentive to get deals done.
Are they going to be a player?
Yeah, that's a great point. That's a terrific point. They've got an incentive to get deals done because a lot of deals were done six or seven years ago, so traditional private equity is now a little bit past the horizon to get out of those investments. The other piece of this is too, if you think about when a deal is done and inception, a lot of leverages often put on these private companies, and a lot of those
debt maturities are coming up. Private equity firms don't necessarily want to recapitalize them with much more expensive debt, and we start holding them for longer, I think they'd rather
sell than deal with that maturity wall. So I think you're going to have a lot of willing sellers, And I do think this again is going to be an opportunity where buyers, now that the macro has died down, will start sharpening their pencils, look at the cash balances they've accumulated, and I think we'll start seeing strategics perhaps being a lot more active in buying private equity assets than they were before.
Okay, so I get all of this, But at what point, though, do you need to start looking at yields again? Like if we get a stronger CPI your thesis is sound, what if raids hit five percent?
Yeah? I think that rates have been expected to be higher for longer, and I think the street's actually been reunderwriting that thesis are its for quite a long time, and I think they've sort of got the past the point of the sticker shock. I think the other piece that I would say when it comes to bond yields and looking at treasuries as the PEG is one of my thesis coming into this year is the importance of fiscal policy form really dictating what appetite was going to
be around a lot of these debt plays. And one thing that's been interesting to me in watching the election, which if anything is going to be one of the big influences in terms of shocks to that thesis. None of the key presidential candidates are coming out right now with March daylight between them when the fiscal policy front at least nothing concrete, although no shots or surprises. So
I'm just still continuing to think that BONN yields. Yes, they're important, Yes that cost of financing is critical, but in terms of catalysts to move markets, I just don't see them at this particular moment.
So, and just as it relates to financing deals here, you know, these rates, they're still by historical standards, these rates are not terribly high, but for the average CEO, CFO and board member they feel really high relative in the past decade or here. So how much of a hindrance is that to just getting deals done.
I think it has been a hindrance, but I don't think that it's going to continue to be a hindrance because one thing that has changed in this narrative is a level of confidence that at some point, yes, inflation will come down and yes interest rates will come down. Now, what obviously has changed is the pace at which that is going to take place. You remember the six rate cuts that some of the most aggressive analysts had on the docket for this year. It's now gone to maybe two, right,
So the pace of decline is coming down. But if we look forward not to twenty twenty five, but we look to twenty twenty six, you know, you can see a deal being negotiated at some point towards the second half of this year. It probably won't close until twenty twenty five, by which time we hope the rate action will have taken place, and you can see corporates being a little bit more confident that there'll be a slightly lower interest rate environment when it comes to actually executing
against a plan to deliver deliver synergies against. So again you're absolutely right, higher than recent history, but manageable.
So you mentioned consumers can consumer stocks in terms of m and a other areas that we've seen, right, We've seen a ton in the biotech space, which we tend to see normally. Right, we see energy. We also hear a lot about potential software deals because there's just so many software players and regional banks. Where do you think is the most likely.
In terms of like activity. I think we'll continue to see contolidate consolidation alex in you the permia and in the boiling gas space where scale really is critical and where you've got these absolutely act intensive companies, you need to get those benefits of scale. So that's one space I think will continue to spend activity. I don't spend a ton of time that I have in the past, but I do think we'll see activity there. When it comes to software, I think that this is an interesting space.
It's still very expensive. But one area that I do think the strategics will start to go shopping a little bit more aggressively is buying some of these private companies backed by venture capital, backed by growth stage equity, where valuations are now a bit more sensible and there are some real buyers of choice out there where you know, when I talk to the private side community in tech, salesforce is where people want to sell their businesses too.
How auto networks, if you're in cyber very healthy balance sheet, it's lots of free cash flow. And if you look back in history, and McKinsey had a very interesting piece out on the so in recent weeks, Programmatic m and A, which has lots of acquisitions behind a thesis rather than a really one really big mega merger has tended to actually generate quite good incremental shareholder returns above the average
by about two hundred basis points. And so I do think looking at some of those historical m ANDA machines who know what they're doing on integration will be interesting.
Interesting and thanks a lot, really great stuff. Really enjoyed, have fun at the eclipse today and very founder and managing partner at thread Needle, Paul and John and jam again John Tucker.
I'll join you there with his with his welding helmet.
Yeah, he's a welding helmet, apparently not glasses. You're a good, good work out, but I kept the helmet because you never know, you never know, you never know what you're going to need that welding health. I want to see what your garage looks like. I actually don't fation the garage.
I have a shed, large shed, and with the basement.
You can't even move in there. Somebody with old welding gear.
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All right, well, let's go to someone who's probably not eclipsed out yet, and that is Julie Fine. She's Bloomberg Texas Bureau chief and she's standing by. I mean, it's not that I don't think it's cool. It just it's a lot. It's a lot. Are you eclipsed out?
I'm getting eclipse stot Yesterday I was in Target and I was like in the line for self checkout for like twenty minutes. It's just so crowded here. I think you think about a Super Bowl when you know a stadium holds roughly one hundred thousand people, so you probably have two hundred thousand people in town right now in the Dallas area. The mayor estimates four hundred thousand.
So people are coming there because Dallas is in the totality area.
Is that is that the story?
Dallas is totality.
We get totality for three minutes and fifty one seconds, to be exact, So Dallas is in totality. So we have a lot of people in town, and you can certainly feel it.
I mean, okay, to be fair, I mean I made joke, but this is there's a definite economic reasons here, Like how much could Texas make on this thing?
A leading economists estimate estimates over four hundred million dollars for the entire state. Because there's areas that are in almost totality, like Austin and Houston. You got the Hill Country. I mean, hotels are jammed. My family said to me on Friday, we should try to come in for the eclipse. And you're looking at you know, to even get here was twelve hundred dollars on Sunday.
Oh my god.
Well and this is a little late to think about that exactly.
Well, Governor Hoche, the Governor Hoche.
For the state of New York is telling people like because another one is up in Buffalo and Niagara Falls.
Well, fun fact, that's where I'm from.
Oh, I'm all eclipse.
Today, and in Buffalo it's supposed to be better forecast actually than here in Dallas. We're a little overcast here. But Buffalo apparently is jammed with people as well.
It is actually quite interesting if you look at like an Airbnb map. This came out on on X like a few weeks ago. I guess, and you just saw exactly where the line was where the eclipse was going to go sold out airbnbs, So to your point, all right, Julie, well, what what else are you going to be watching? Kind of what are some of the highlights here?
Well, I think there was some questions about the power grid because solar will be affected for a short period of time, but the power grid in Texas seems very prepared to handle that. So we'll be watching that.
You know.
We our office is smack in the middle of downtown, so they're actually blocking entrances and exits for an hour or so. What's really interesting is we're supposed to have severe weather this evening, so obviously everybody will be paying attention to that. It'll be really interesting and actually, you know, hopefully people are smart about when they choose.
To travel and come in and out of town.
If there's a horrible rainstorm and everybody's kind of trying to get out of Dallas.
Big dings, big in Texas.
That sounds fun.
Everything's bigger here and better.
Yeah, I do think that the solar thing is also kind of interesting, but again, if you're prep for it, maybe it's not that big.
Of a deal.
All right, Julie, thank you so much. Have fun, Be safe, Julie Fine Blueberg, Texas Beera chief joining us.
There.
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Again, we think about where we are, where we were back in October, to where we are now SP five hundred up over twenty five percent.
Just a big, big move, big first quarter as.
Well to kind of finish that off, and we got a little bit more green here today.
So the question for a lot of folks is, boy, that was quick.
And did I miss that move in the market. Let's check in with Walter Todd. He does his stuff for living. He's a president, chief investment officer, managing director of Greenwood Capital.
And Walter, I'm guessing you're in South Carolina.
I am.
I've got my clips glasses ready for the viewing later today, and.
I'm guessing you're pretty happy after your lady game Cocks last night put on a heck of a show.
Yeah, congratulates.
I gave a shout out to dawns Daley and the team for a great win, undefeated season.
Pretty incredible, Yes, amazing.
All right, Walter, what are you telling your clients? You're about kind of these markets where they've moved, where the opportunities are.
What are you talking? What do you saying to your clans these days?
Yeah, Well, as you kind of alluded to in the lead in here, it's been quite a move off the lows, and you know, it's this year has been a little bit hard to figure out, quite honestly for me. I mean, the move off the loads in October and rates peaked at five and the SMB started to rise as rates fell.
That made a lot of sense.
But as we see here today, you know, up almost ten percent for the first quarter for the SMP. You know, rates have risen, the expectation for fed cuts has gone from seven to less than three. So it's a little bit puzzling to see the market kind of screaming in that. With that backdrop, having said that, you know, the reason for the rate cut push out is because economic data has been better and that should be good for earnings.
I think, you know, depending on your time horizon. In the very short term, it feels like this market's a little bit tired, kind of churning here.
We're seeing some rotation underneath the surface.
So I think you can kind of bide your time a little bit here and look for opportunities in the volatility that we think will come. But again, it's it's it's It reminds me of the quote from Mark Twain. It ain't once you don't know that gets you into trouble. It's what you know for sure that just ain't.
So yeah, and Walter, that really depends on the volatility actually materializing. What what does that volatility look like, and what do you think finally causes that.
Yeah, well, I think we got a little bit of a peek at that last week. If you look at the action on Thursday from the you know, the comments from Kashkari Thursday afternoon and then the you know, geopolitical issues.
Going on in the Middle East.
You saw the market drop you two percent, basically from high to low in a couple of hours. So that's I think a little snapshot of what could happen. I mean, we'll see what happens with the CPI report on Wednesday, and if that were to come out a little bit high, we could see some more volatility. But you're right, I mean, it's been incredibly low volatility backdrop for markets really off
the lows from last October. So there's no guarantee that it will emerge, but I think the odds are that it likely will as a function of probably higher rates being the catalyst there.
Walter, Walter, what are you guys doing in the fixed income space here? Man, I can just park myself for to your treasure and get four point seven eight percent.
That's a lot too bad.
Yeah, absolutely.
I mean I think on the fixed income side, when we have managed you know, a good number of fixed income assets, I mean we take a Barbelle approach on that, you know, as you say, you know, taking advantage of the short end, but also you know, taking advantage of rates moving higher and starting to step out a little bit on the duration spectrum, but still staying you know, shorter than the index. The other aspect of fixed income
is corporate spreads. Those are extremely tight right now. And kind of back to the previous point about where where's the volatility and it come from? You really haven't seen anytime you've seen volatility in the equity market, the little that we've seen, you really haven't seen spreads react, and so we're kind of watching that to see it kind of as a coincident indicator to validate any type of sell off maybe has some legs on the corporate bond markets.
So we were actually transitioning a little bit of weight out of corporates into treasuries as a result of those tight spreads.
Yeah, yeah, you know, you and everybody else have been waiting for those spreads to change. It's really fascinating. Do you think we see for the tenure three percent or five percent?
First, that's a great question. I think we I think we can. Uh.
I think we could see a push back towards five percent, you know, in that direction. Whether we whether we clip it or not and get back to those highs from October, IM not sure, but I think directionally we're gonna move towards five percent before we head back below four and and maybe head towards three as we moved through this year.
Because the other dynamic here is the federal government just continues to run deficits and spend, you know, have deficit spending, which has really kind of been the support for financial markets in the economy. If you look over the past several years, we've been running you know, five percent deficits a year after year, which is you know, certainly helpful to uh, the economic environment, financial conditions.
So on the equity side here, where are you seeing opportunities here? Are you kind of all in with some of those big growth stocks that have been powering the market really for the last eighteen months, you know, the nvd's of the world, or are you looking for maybe some value in other spots.
Yeah, for us, it's kind of a bar bell.
So we certainly have exposure to you know, technology, not in Nvidia specifically, but other technology names within the index because that is I think a multi year kind of growth dynamic with AI, but probably getting a little bit
stretched here in the short term. On the flip side, we also see opportunities and want to have some exposure to the value side of the equation, so think energy, materials, industrials, And that's something we've really seen over the past month is kind of this emerging inflation trade where you've seen the commodities kind of catch a bid here. Industrials have
been consistently good, particularly down the cap scale. So we believe you want to have a balance within the portfolio between the growth and the value engine energy.
Thank you very much. So how do you want to play that? Like, what's the best way to play the recent our performance?
Yeah, Alex, I know you're a big energy energy fan there and follower and expert.
Yeah.
So within the portfolio we have, you know, a variety of.
Different exposures there.
So certainly on the EMP front, I think this m and A that we've seen over the past year is going to continue as we move through the rest of this year and into twenty twenty five. We also have exposures to some of the big integrated names like Exxon and Chevron and different strategies. We don't have a ton of exposure to the equipment and service space right now, but I know that's been catching, you know, catching up a little bit to the to the broader energy space.
So we think having a you know, a broad exposure within energy and quite frankly, you know, it's just four percent of the S and P, so you can have you know, a pretty good overweight with just six to seven percent of the portfolio in there. And we still think this dynamic of you know, Nvidia, for example, being larger than the entire energy space just make a whole lot of common sense to us.
So we think there are opportunities in the energy space.
How about in healthcare?
A lot of folks are suggesting that could be a defense area, but still some some growth, I guess.
Yeah, healthcare has been been disappointing, certainly disappointing. You know, it was great in twenty twenty two when the market was off, it was you know, lagged last year, started to kind of emerge early this year, but it's falling back off.
We see a lot of value within healthcare.
You know, whether that be pharmaceuticals, biotech, healthcare equipment, but certainly has lagged the overall market. But we definitely have a healthy weight within that sector and see opportunities. One of the challenges for healthcare is an election year, which tends to be a little bit of a headwind for those names.
What don't you like right now, like what's like Forbotten where you are?
Yeah, so we're we're underweight consumer discretionary right now. We're underweight you know, real estate and utilities as interest rates sensitive sectors and we're actually slightly underweight technology, which I know is it seems like a crazy thing right now, but again we think a little bit stretched here in the short term given the move that we've seen, you know, over the past eighteen months in that sector.
Yeah, that's so funny. It's like you don't want it, but you have to have it, but it's stretched. That's a tricky spot, definitely.
To be That's why people get absolutely this stuff matter's tr true.
That's why I don't do that.
Walter Todd, thank you so much for joinings our president, chie investment officer, Managing director Greenwood Capital. Coming to us from the great state of South Carolina. Greenwood, South Carolina, or I guess the whole state's going nuts.
I know. Amy mars is at Bloomberg News down in Washington. We chatter with her this morning. She was overcome with emotion talking about her University of South Carolina sports lady game piks, when's basketball?
Yeah, no, I you know, puzz looking at me like, come on, Alex, I get it a little bit together. I got a little bit together.
For that, got a little bit together.
Yeah.
So that was a lot of fun for those folks down there.
So We're done with that. Now we're moving on to the men's match. Right, when's that.
Nine T tonight? So I'm not even nice exactly.
Wait, we got on the clips and the final four in one day.
And you got coach cal Pari leaving Kentucky for Arkansas. Perhaps the biggest news of the day.
Wow.
See she has no idea.
I don't, I really don't.
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