Fed 'Takes Back' Last Year's Hike: Invesco's Hooper

at Bloomberg dot com. Well, it certainly was a news filled afternoon yesterday with the FED cutting rates by twenty five basis points, and then the Q and a and presentation by Chairman Pal which calls I think some uncertainty with many investors in the marketplace to try to make sense of it. We welcome our next guest, Christina Hooper. Christina is a chief global market strategist for Investco based here in York. Christina, you're joining us here on Bloomberg

Interactor Broker Studio. It's great to see you. What were your takeaways yesterday from yesterday's testimony and Q and a and all that. Well, there are a few key takeaways Paul. First of all, it seems that the narrative is that the last rate hike of two thousand eighteen was a mistake, and we're giving that back, um, but that it doesn't necessarily mean we're going to see any series of rate

cuts from here. Maybe one war. But J. Powell was very clear and suggesting that this is an adjustment, not a trend, and so that speaks volumes, but it does also cause confusion in markets. I think the other key takeaway was that the FET is confused because there are so many different data points swirling around that suggests different things. The dichotomy in the US economy strengthen the consumer, strengthened services, but of course weakness in manufacturing, which really mirrors what

we're seeing globally. Um. Also just in general, we're seeing a strong domestic economy for the most part, but we have to worry about trade wars, and really there is no playbook for trade wars. So a lot of people said the VODO reserved disappointed markets. Yesterday you did see US so often equities a bit of a sell often bonds. Today we're seeing bonds rally and we're seeing two year yields come in uh the most in a couple of weeks.

I'm trying to figure this out. Why. Well, I think there's always that visceral knee jerk reaction, and then markets take time to digest information, so they didn't necessarily get what they wanted from the press conference. They seemed to get what they wanted from the actual decision, but stock started to go down when the press conference occurred, and so it seems as though they were left feeling a little empty. Because J. Powell UM insisted that this is

more of an adjustment rather than a trent. I say, this feels like a relationship. You know, they wanted to hear more, something more, what's what's the future? Well, it is a relationship. Uh And and luckily though, um J. Powell has colleagues on the FED, and so most likely we're going to see Vice Chair Clara to come out and clean up some of the comments and comfort markets. Um, this is a relationship. So, Christina, is there anything that happened yesterday or that will change how you guys view

the marketplace? Maybe? How yet, allocating some capital for the remainder of the year, anything changed from yesterday? Nothing really changes, but it does suggest that we are likely to see more dollar strength um, and that really the FED has paved the way for other central banks to start getting more accommodative, so UM on the margins, though really not a lot of change UM, just I would expect that

stronger dollar. I would expect UM something of a tilt towards UH risk assets performing well in environment where the Fed stands ready to be more accommodative if it needs to. UM certainly, and balance sheet normalization a bit early was a nod to the doves. So I think this is an environment that all else being equal, favors risk assets.

What about emerging markets given the fact that you're expecting the dollar to strengthen, So emerging markets could do well in this environment in that the Fed has removed UM one key headwind, which is balance sheet normalization. Recall that was creating something of a liquidity suck for emerging market So I think that actually this could pave the way

UM for for UM emerging markets to perform better. So another news item that seems a narrative that seems to be have been addressed a little bit this week, as trade. It appears that you know what the U S trade delegation going, and then coming back from Shanghai that it appears that while there doesn't look like there's going to be a deal immediately. At least there's just kicked this can down the road, and maybe this might even be a post election. Is that scenario from a trade perspec

enough for the markets right now? I think it's enough. I think what we need to do, though, is watch for any signs of a deterioration in the relationship. But luckily, I think markets have begun to manage their own expectations with this. I think there was way too much optimism. I've always been a real pessimist when it comes to the U S. China trade situation, and I think now

markets have come to again it's another relationship. Have come to accept um diminished expectations for what could happen between the US and China. However, if we see more tariffs than I do, think that will send stocks lower and really shape confidence. So we have the market on the couch speaking with the therapist right now. UM. I do want to know. You know a lot of people were talking about J. Powell and that his performance was not great.

Do you agree? No? Actually, UM, what I would say is that, uh, you know, quite often it is hard to articulate a decision, uh, particularly one in which um, there are so many factors at play. I actually felt for him. Um. I certainly think Janet Yellen probably would have done more in the way of preparation and would have been very very scripted in her comments to make

sure there was nothing offhanded that was mentioned. But when you think about UM J. Powell, he did try to articulate, um, the kind of conflicts the FED had in terms of what's looking positive and what's looking negative. And also I think he really stood up for FED independence as well, UM by making that stay. But he of course he does. I mean he's act to say, yeah, actually we're going a cave to what the president says. Lisa. Nothing is

a given in this environment. So I actually do think that he had to to stand up and say that, and he did, Uh, And I think he was quite clear um not giving in. He could have been much easier for him to say, you know, to to really say nothing about this, but he tried to make sure it was viewed as an adjustment because he doesn't want to look like he's cow towing to the White House. Christine is about thirty seconds left up. We're about halfway

through the earning season. What have you seen anything unusual? I've seen again that phenomenon that managing expectations can be a very good thing because while um earnings estimates were lowered, now they're coming in meeting expectations or in some cases beating them, and that has created something of a positive sentiment in markets. Christina Hooper, thank you so much. We

love having you on. Thank you, thank you. Christina Hooper is chief Global market strategist for investco Whish overseas nearly a trillion dollars. This has been a mixed second quarter earnings period for many company ease, but there is one company that is doing a huge victory lap today and that is Shopify, the darling of the Canadian tech world, shares surging at ten today to a new record after

reporting better than expected earnings. We're lucky to have with us now the chief operating officer of the firm, Harley Ficklstein. He's uh, He's based in Ottawa, Ontario, in Canada. Harley, congratulations and a very good earnings report and obviously the shares are reflecting that. What was the main driver of growth in the second quarter. Thanks so much for the kind words and thanks for having me on your show.

I mean a couple of things are happening. One is I think people are getting to realize what Shopflight actually is doing. UM. I think for a long time we were known as this this very popular e commerce provider

to help merchants build online stores. And I believe with the release of things like Shopslight Capital or point of sale offering, which is now in a hundred thousand stores, UH, these shop Flight of film and network that we've recently announced, people get into realize that we're actually building here is the first global retail operating system for for businesses both

big and and and very small. UH. And I think part of the part of that is finally coming to people are being to realize that now after uh, sort of putting all the pieces together over the last couple of years. So hardly in the quarter I'm just looking at the quarterly numbers, internationals called out as an area of growth. What's driving the international growth for you guys?

So I think Shopify, just by virtue of the fact that we were online, you know, our an internet company, we've always had merchants in in UH, in a global in a global reach. We've had merchants in hunter seventy five countries. UH. Even at the time of our I PO back into thousands fifteen. What's changed though in the

last twelve eight months is a couple of things. We realized that even though we have merchants in places like Japan, Singapore, in Germany and France, we didn't actually have true product market fit for those merchants, meaning the Shopify admin where the merchants run their store, run their businesses, that was only in English, and last year we we translated it into a number of languages. Now it's it's close to nineteen languages, so merchants that don't speak English can also

you Shopify today. We also went ahead and begin to did We did a deeper dive figuring out what are the nuances of what merchants need in each particular geography. So, for example, in a place like Germany, credit card penetration and credit card usage is not as high as in the US, debit cards are a lot more popular. So beyond just the translation, we began to figure out what those merchants need there from a payment perspective, from integration perspective.

And then finally we also created and began to develop

our international Shopify partner community. We began going to these countries, and cultivating relationships and partnerships with agencies and freelancers who not only refer merchants to Shopify, and I mentioned on the call more than twenty two thousand partners orfer business of Shopify in the last twelve months, but beyond that are now building applications and and integrations for merchants in those locations that are particularly relevant to the needs of

merchants in places like Japan or Germany or France and all that. All that has led to us having the largest because of international merchants today that we've ever had. So the numbers are pretty impressive. Revenue grew forty eight percent according to the statement and analysts for projecting a three hundred and fifty point five million dollar revenue. Sounds amazing, right, increase, Yet it is the slowest in shop fives four years

as a listed company. And I'm wondering whether you're the slowdown is due to just the fact that you're maturing as a company, or whether this has to do with just sort of the global macro backdrop and some of these slow in growth. Yeah, look, we think, you know, growing revenue at our size almost fifty percent, we think is really great. We also saw g m V growth beyond so g m V for the for the second quarter was almost fourteen billion, which again is greater than

last year. Uh. Frankly, because we're so distributed and we're we have merchants all over the world. Um, you know, obviously some macro trends will affect us, but but generally we think that there's huge opportunities for us, not just internationally, but also with our existing merchants. We've been eight hundred thousand merchants now and figure out ways to expand what

they use from us, whether it's capital. We've given out more than six thirty million dollars of cash advances to merchants, helping them now with filment and shipping, helping them with fraud protection. We think that not only can we get way more merchants, but the merchant we already have, we can also expand the services that we provide for them and and and make Shopify much more relevant to their their their business. Harley, what's the risk to your story?

What's the bear case? Look? I think for a while people were a little nervous that some of the merchants coming on to Shopify. We're small businesses and not all some small small businesses succeed. We know that, and actually we think that that's okay. The way that we look at it from a business perspective is we want to

create the largest top of final possible. We want anyone that has an aspiration or an ambition to build a startup or a business or a small a small retailer to do so on Shopify, and we acknowledge not all will succeed. What's important to us, though, is that the ones that do succeed offset the cost of those that don't, and that certainly is happening with us, and we've we've been seeing that for a number of years. And then the other piece of it is retail in general is

getting far more complicated. So now you're you know, we're seeing companies like Instagram create create new new retail channels. We're seeing new marketplaces pop up, We're seeing accelerated check out with things like shopify pay and Apple Pay. The more that retail becomes complicated for a small business, we think the value of shop of that increases because shop if I can allow you to sell anywhere you want online or offline, or on marketplaces or on Instagram, but

it all feeds back from one centralized back office. And so I would say that even though complexity and the challenge of a retail needs to grow, we continue to bend that learning curve. And and that's really what we're focused on. We think there's an opportunity for us at a macro global scale to be the entrepreneurship company. There isn't a company out there right now that truly owns entrepreneurship, and we think we have the best shot at doing that of anyone UM And and and so that's what we're

focused on today. Harley, thank you so much for your comments and reviewing the quarter with us and the kind of the outlook for the company. Hardly Finglestein, chief operating officer for Shopify, thanks for joining us. I'm just looking at the consensus numbers on the Bloomberg terminal um you know, looking for revenue group about sixty percent last year, gonna grow forecast at over this year and then overt uh next year. And the company has gone from IBATA negative

to forecast at EBA positive in nineteen. So the company seems to be making the pivot here and clearly the stock up about a d and fifty percent this year. Investors clearly paying up for this stock. This is Bloomberg. I remember a time when people thought that hil bonds were gonna lose money, but instead they've just continued their gravy train. This year. You see returns of ten and a half percent for the US junk bonds year to date. The question did the Fed just give them another leg

to go? Here? Andrew Feltis is joining us here in our Blomberg Interactive Broker Studios. He's co director of Global High Yield for a Moony Pioneer, which oversees about eighty billion dollars. Andrew, wonderful having you. So, what do you think what's going to be the full year total return for US hiled bonds. That's a loaded question, but here the bulk of the spread tikings probably occurred, but the faults are low. You're still get a pretty good yield. So I think we're about ten ten and a half

right now. Probably will continue to clip that coupon, and I think it's an environment we're choosing. The right security has gonna matter a lot more, so we think we can add some value in that side. Fourteen fifteen sounds about right, Wow, Andrew, what did you did you hear anything yesterday from the FED chairman Pal that makes you change at all? Shade at all? How you guys are looking at the market, So our our concern is more about the market reaction. I think we're consistent with what

the FED sees. The economy is in good shape. We don't see a lot of risks here in the us UH. Internationally there's more risks, and that seems to be hitting trade and other issues. But the curve is inverted, and openly that's going to cause banks to change their behavior and that could lead openly to a recession. Now we think the FED will probably cut again, but the Fed was to keep that curve inverted. The longer it stays inverted,

the more risk there is of a negative outcome. So at this point we haven't changed our views, but we're monitoring the situation closely. So whenever hil bonds rallied, there are the slews of nervous nellies that come out and say the end is nigh and this means that everything is going to go to pot next year when we face a day of reckoning. What gives you comfort that we're not just setting ourselves up for some sort of

publicious frabie beer goggle type behavior. Well, that's great question list at least uh The first thing that most comfortable with is we're not seeing a lot of excess activity. So when I do see risky bonds, they tend to be getting priced very uh wide, So we're not underwriting a lot of bad deals, and you actually see the average credit qualities improving. There's more double b s, there's less triple cs. We don't see l B o s

coming into the market, so quality is very high. Actually, the average credit ratings the highest we've ever seen it in the high yale market. So what does that start to cheerating as companies take advantage of this borrowing environment, so you'd see you have to see triple cs be able to come into the market, more l B o s,

but also the pricing get much lower. And the problem is if you do in a triple ce and you've gotta pay ten per cent, you really can't refi a LBO type structure and make money with that type of return. So it's really limiting the type of bad deals are getting done in the market. So it gives a sense of the new issue market. It seems like if I had any capital needs whatsoever. Uh, you know, I would just love to access the high yield market given where

rates are. Are you singing issuance pick up? So we're actually on track for a record month in July. About a quarter of that comes from one single deal, so that that's a bit of a one off, but generally that was the Diamond Sports. So those are the Disney Regional Sports and that Cereal. Yeah exactly, and you get now that deal one over great, right, Well, all these deals have done well. All the higher quality deals have

done really well. Uh So, if you're a double B company, which means you don't have too much leverage, you're in your one notch below investment grade, you can get financed

at five to six percent. That's pretty aggressively. The guys that they will ultimately lead to a bubble that lead you to lose money, and not just on a market market basis, our permanent impairman default Those are the triple see you guys and those you know, you monitor the amount of issuance in there and like what kind of pricing and if people are not being paid for default risk, that's when you start getting worried about a bubble, and we just don't see that type of behavior going on.

The market's been very disciplined, so that gives us a certain level of confidence. How do you go about selecting securities in this environment since it does become that, Yeah, it's just rolling up your sleeves and doing hard work, so modeling the company's talking to management, understanding the business models. And then most importantly, you have to look at covenants, right because that's if something goes wrong, the covenants are there to protect you in anymore. That's keep hearing exactly,

and that's become reality. But it's something you do have to pay attention to because in the next recession those type of things will matter. Any names that you can throw up, I'm not a BA exactly, So what it just gives a sense of kind of leverage where you know, I think about the media industry and that can you can borrow money at you know, five six times leverage maybe even a little bit higher where we're just in

terms of leverage in your mind. So you know, first all the rating seas have been pretty steady on this. So if I look at Double be in two thousand nineteen, same type of average leverage that you've see in two thousand nine two eight, so that they have not done what they did in the housing market where they just completely abandoned all standards. So it depends on the business.

You know, if you are a less cyclical business like a utility, you can leverage a little bit more than you can So single bees are more than that five to six territory, while your average double be is going to be more than that three to four type area. So what's the argument. If credit is good or not bad, and the FED is supportive of the market, why not just invest in stocks and and rates? Why go to entire bonus? So the beauty of high yield is you get paid to weight. So if we are moving sideways

marketing pitch. So if we move sideways in the economy, we're not growing profits, We're not growing the top line. These guys can pay their bills. So you clip your cupon and you make your six seven, which is probably pretty close to what you get an equity these days for equities style perform, And look, we want equities outperformed because it makes our job easier. It's another source of capital for our companies. So there's load defaults when equities

are going up. But equity guys need to grow that top line. They need to have improving profits. Margins are at great levels now, but it's really hard to expand margins. You know. Now we did the tax reform, that's not off the table. You really need to have growth, and we think you're gonna get growth, but it's a much harder environment to get that profit growth. So high yield is something that will give you that cupin and really help balance your portfolio up anything else, tu, I mean,

this is fixed income, this is high yield. Basically, I'm not gonna engaged, just real quick. How long can this go on? The good times? This can go on until somebody makes a mistake. So whether that's the FED, whether that's a fiscal policy, whether that's something on the regulatory front, on the trade front, but until uh, someone makes a mistake, this can go on forever. Probably won't, but I can. Music is just class, that's right. Andrew Felt is co

director of Global high Yield at a Mundy Pioneer. Thank you so much for joining us on our Bloomberg Interactive Broker studio talking all things high yield. And again, I think still if we're hearing from Andrew. Still a constructive market, US four turns in a year that's plaised to be one of the best years since they're recovery from the financial crisis. Well after a two year slowdown, solar energy in America is apparently taking off again. To figure out

what's going on there, we welcome Hugh Bromley. Hugh is a solar market analyst for Bloomberg New Energy financi joins us here in a Bloomberg eleven three oh studio. Hugh, thanks so much for joining us. Just give us, if you will, kind of the state of the solar energy market in the US right now. Yeah, sures you really think about it as a couple of different markets. First of all, the rooftop market homes of businesses buying solar, and that's really been slowing down the last couple of years.

A couple of reasons for that. One. There was a little bit of a consumer uncertainty on the back of some regulatory change, mostly at the state level. Uh. And then also kind of investor where you know, it's following a couple of bankruptcies a few years ago, kind of investors pulling back, questioning their their investments the solar companies and saying don't grow so fast. We want to see profits rather than unsustainable growth. Both of those in cumbinations

slowed down that rooftop market in utility scale. It's all about subsidy. There was a threat that federal subsidy would have been removed a couple of years ago, a lot of builder as a result, and then when it finally was extended, this wasn't enough products to build in the

last two years. So the market has slowed down just because there's not enough land ready ready to move forward um across the board though, although all those elements, all those market sectors are ready to kind of start to start rebounding now um were the the the consumer unease or or uncertainty is certainly wearing off, and we're starting to see many many of the state markets former former

large solo markets could cover. So it's interesting to hear you talk about and the hardware of this, basically the solar panels for example, and then also the utilities that rely on solar energy. And I'm just I'm wondering how much the success or failure of these companies hinges on subsidies from the government. Or incentive programs versus just being

economic at their own rate. Sure, so it's a big question right now because those same federal subsidies that were thought to have that may have expired a few years ago and worltimate extandard are now stepping out of the next few years. A lot of lobbying if it's underway again to extend those those subsidies. But many players would argue they're not required anymore. Certainly for your large utility scale projects that are the supplying supplying our bulk power needs.

Um those projects with the energy from those products could be competitive in many com many cases without subsidy. Certainly, project finance heres would love those subducting out of the way. In many cases, they distort pricing, make deals much more complicated to to to to arrange and to transact upon.

In small scaling rooftop markets, those vendors, the large venders in particular, have business models that are that are almost entirely reliant on there being a federal tax subsidy, tax incentive, and without those they would need really to rethink their business model. Talking about the commercial market, it seems like I when I drive down the road and you you know, go by an office park, you'll see this huge solar

panel field, I mean just huge. Even Bloomberg Down in Princeton we have a great, really cool solar panel field. I'm not sure what it's called, but um, how prevalent is it in the commercial market our business is adopting solar? Well, look, it really depends on where in the country you are.

It's such a such part of the policies and incentives are mostly at the state level, and New Jersey being one of the richest richest states for incentive, California, Massachusetts being some of the other really big markets and therefore build but build, you know, the number of panels that are installed tends to boom and bust depending on the state of states, of state subsidy um. And for that reason, across the entire country, it hasn't been a big, big market.

You know, maybe well under one percent half percent of businesses at the moment have have have solar installed on their facilities. There's a whole lot of room to to grow, but at the moment, pricing gets in the way. It is it is expensive, and that's partly partly because of these these incentives that are distorting pricing, and partly because there is just there isn't the presence of of of of large national firms in the states where there aren't

generous state incenters. So we're talking about companies, solar companies. Let's give some names to the Sun Power corp Uh and Phase Energy. Are there others that we should be looking at just off the bat, Yeah, sure. So those two firms are done particularly well recently on the back of partly regulatory change and a shift in technology preferences

towards what they're offering. They're both offering premium equipment and Phase some Power produces really high end panels, the panels that go on your roof and face produces high ended inverters. That's a little device that clips onto the panel that converts the power in from solar power into into what you need in your home. They're doing quite well because the regulators have kind of shifted the market to war the particular product that in Phase is selling further downstreaming.

There's a lot of opportunity or companies that people like to watch that are the installers themselves, the ones that finance the deals and structure that structured the deals, and in many cases have the crews that come I come to your home. That's groups like sun Run, some Power as well as active in that space, Fun Hotel that really struggled, Vivin Solar and and and Tesla. But Tesla

is really full back from this sector. Honestly, I do have to wonder how much the rebound that we're seeing this year is due to just the degree of the pullback in the prior four years, because a global inext of solar stocks. Maintain my bloomberk has surged tht so far this year, but it declined for of the past five years. And I do have to wonder some of the positioning, how much there is hedge fund involvement sort

of crowding. Absolutely, I said before that kind of investors pulling back from this space was was a major factor here. Certainly some sorry Tesla after acquiring Solo City back in back in really slowed down their business model. That the contraction we've seen in Tesla explains a lot of the contraction we've seeing the entire solo market, but not all of it. So the market was still slowing overall. But really where the growth has been is in small local firms.

You know, two guys in a truck taking market share from these big national players. Not as sexy probably for people looking for an easy share to buy, but definitely compelling. Hugh Bromley, thank you so much for being with us. He Bromley has a solar market analyst with Bloomberg New Energy Finance, which does some incredible work looking at all of the new energies that are coming up. Really interesting to see some of the new technology. Thanks for listening

to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa Abramloids. I'm on Twitter at Lisa A. Bramwoids. One Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio.