Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moven news.
Find the Bloomberg Markets podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. Let's bring in Data Peterson. She's a chief economist this conference board. Dana, thanks so much for joining us here. Talk to us about the Leading Economic Index. What it, what you guys reported today, what it tells you, and what should we take away from all this?
Absolutely so, the Leading Economic indicator fell again for I think the fourteenth consecutive months, and the weakness was definitely in expectations from the ism in terms of manufacturing and also from consumers. And then the yield curve continued to be negative, and also the leading credit indicator was negative. So that's all telling us that there's still some weakness out there. There's still expectations that maybe we'll go into
a recession. Certainly it's pointing to recession starting probably about now. I know we keep forecasting it, but the key thing is that there's been strength in the labor market that's definitely forestalling what we think is the inevitable.
It's interesting because even though it's a leading economic index, a lot of investors look at it more as lagging, just because of when you're looking at the economy, and since investors are looking you know, six months twelve months out, do you think that's why we're seeing the stock market more supported. Do you think investors think the worst of the pain is already passed?
Well, I think investors are looking at data like labor markets, and indeed, in the leading economic indicator and even in our current economic indicator, the labor market data are holding up. Why. It's because of labor shortages and so many businesses instead of letting people go, they're holding on to their workers. And then you also still have a number of sectors that are still trying to catch up from losses during
the pandemic, especially services that are in high demand. And so if you're looking at that, you know, I understand why investors might look at our measure and say, well, what's going on here? Right?
So talk to us about the housing market data that continues to kind of befuddel me in the midst of rising interest rates, still strong. How do you think about the housing market right here?
Well, I think you're coming off of very low levels. When you look at most of the housing market data, it really slowed dramatically last year, so and it seems like we kind of reached the bottom. So you're still you're in a hole and you're just trying to climb out of that hole. And so the thing is that we're probably not going to see a real resurgence in housing activity until next year, when we think the Fed will begin cutting interest rates.
So if you're expecting more of that weakness in the economy to start around, Now, where is it being driven by? Is it the consumer, which obviously you know propelling GDP by more than two thirds of when you were looking at economic growth.
Well, it's got to come from several places already. Like I said, the housing market, it has collapsed, and we don't we think it's just going to be middling, so it's not going to be a contributor. But businesses have been pulling back certainly on spending on equipment and also structures because the cost of capital is rising for many of them, and you definitely need consumers to spend less. So we have seen a little bit of moderation in terms of spending on big ticket items that you have
to finance. The consumers are still spending a lot of money on services, especially travel and restaurants, things they couldn't really spend on during the pandemic. So the key thing is when that excess income that consumers have, you know, the excess savings go away. We think they're going to run out of steam in the second half of this year.
And also we think consumers are going to become a little bit more concerned about job prospects and that might cause them to pull back on some of the spending as well.
A follow up I have to that is when it comes to the repayment for the student debt that was delayed off and going through forbearance during the pandemic, that's supposed to presume in October. So when you're thinking about the consumer and those types of payments that are going to start up again, is that also going into those calculations of a pullback there.
Absolutely we have folded that into our forecast for the last the second half of this year. And then also let's not forget the debt ceiling deal. While that's not really going to affect the fiscal year twenty twenty three, it does affect fiscal year twenty twenty four, and that starts in October as well.
Dan, to talk to.
Us about your view of the labor market here still, you know, very strong by historical measures here, and I know the Fed is talking about they expect the unemployment rate to go up and you know, maybe I have a fore handle here in a not too distant future.
What's your view at the conference.
Ward, Yes, we think also that we're probably going to have a four handle, that the unemployment rate may ultimately rise by one percentage point to four and a half percent, But that's that's not going to happen probably until early next year, because the unemployment rate really lags what goes
on with GDP. And so certainly if the Fed continues to hike interest rates, which is strongly signaling a chair Powell signaled that certainly to Congress very recently, then that's also going the weigh on the economy and consequently the labor market.
What industries do you think are most vulnerable to layoffs right now?
So those pandemic darlings, those industries now are very vulnerable, so tech, finance, residential construction, and some of the sectors that.
We've continued to see those cost cutting efforts, those are going to still be the ones that we'll.
See absolutely because there's not as much demand for their products and services.
All right, Dan, thank you so much for joining us. I always appreciate getting some thoughts from you. Dana Peterson, Chief Economists at the Conference Board. The Leading Economic Indicator data out today kind of showing some continuedness, and I think that Dantas had fourteen months in a row with a negative number, so it's very interesting to keep out an eye on that.
Again.
It came in it negative zero point seven percent on the Leading Index versus negative zero point six percent last month.
You're listening to the Team Ken's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app and the Bloomberg Business app, or listen on demand wherever you get your podcasts.
Let's pivot here to the Big Take story of the day on the Bloomberg terminal. This is we love the Big Take stories. They are so well researched, so well reported.
Away the best.
Yeah, deep, good team efforts.
They really dive deep here and today is a good one talking about the electric vehicle market in Ford Motor Company in particular, they're racing as is GM and stillant Is to kind of really take the lead here in this ev transformation. Ford gets nine point two billion dollars from the US government for the effort. Oxshot Rathi one of the reporters on the story. He's a senior climate
reporter with Bloomberg News. He joins us here. Okshot talk to us about Ford and the support it is receiving from the government authorities to kind of make this transformation to electric vehicles.
Right, every car maker has to make this transformation and it's not going to be cheap. It has to be made, but it's not going to be cheap. And that's where the US government is coming in. Ford last year said it's going to spend us but just fifty billion dollars over the next four years towards electrification strategy. And this nine point two billion dollar loan, it's a conditional loan. The conditions are very light and they'll meet them, no doubt,
but that will go towards building three battery factories. And that is a lot of battery factories, but still not enough. Ford has an ambition to electrify its entire fleet, but it's starting out with increasing its number of electric vehicles made from one hundred and thirty thousand last year to
two million by twenty twenty six. So that's quite a jump and they need all the help they can and Joe Biden's Climate Plan is allowing the government to be able to give these billions out right now to be able to encourage these companies down the transition.
And what you were mentioning for. Did have an investor event last month actually, where they were focusing on this fifty billion dollar plan for EV models and the availability in the cost of these crucial battery metals, and when you were thinking about nickel and cobalt, they've been key concerns for years among EV makers trying to build out their electric lineup. So what do you think are the main hurdles at play?
So the main order from a Ford perspective actually is profitability. Ford is going to lose three billion dollars this year on its TV business, and it says it's going to turn the losses into profit by twenty twenty six. Of course, that is just from a company's perspective, but you're right,
metals are going to be another constraint. And so this program, the US government program, it's called the Loan Program's Office, which gave this nine point two billion dollar loan for a battery manufacturing facility, is also giving out billions of dollars in battery recycling facility. And so the goal would there be to take the batteries that are already in the United States, recycle their metals, and reuse them. So that's one way in which you can deal with the
metal crunch that is coming. But another is that you're going to have to mine metals. And now is America ready to do it domestically? That remains unclear. It's very much a live topic in the US Congress.
So actually, I just gave us a sense of this nine point two billion dollars, the two or three plants they're thinking about here. Where is that in total the total need that they will have.
For these types of facilities.
Is this just kind of a good first step or is this kind of a giant leap for fulfilling their ultimate needs.
I guess it's actually both, which is to say, they're going from zero battery facilities to three. So it's a giantly, but it's the first step because if you're going to have to electrify your entire fleet, you're going to have to build many more battery factories. And that's probably why
this loan makes sense. If it's a giant leap, companies are typically conservative in taking those and getting a bit of government support, which would be in terms of a loan with conditions that are easier than what you would get on Wall Street, can make the difference between making a decision or not, and so that's going to help forward.
But you're absolutely right, there is a long way to go for to transition to a fully electric vehicle company, which there is already one giant one in America called Tesla.
I was just taking a look at Ford stock. Let's stick your simple afforts up about twenty two percent this year after that investor day last month, do you think they were successfully able to persuade investors on the merits of this plan when you are looking at this sixteen four increase an EV production in the span of just a few years.
Well, Ford is trying to convince the investors as hard as it can. So there was a long conversation internal I'm sure even longer to try and see whether it is worth splitting the company into its TV business and into and its separate traditional engine business. But Ford came to a conclusion that that wouldn't be right because there are certain specializations between the two companies on design et cetera. On manufacturing also some components that are just too good
to give up. You would have to replicate, you would have to actually increase costs. And so they decided in the end to stick with one company doing two things. But they are going to separate out the business in reporting terms, and that's going to give investors an insight into whether this transition is going as for things it
can go with this current business structure. And you know, given that the stock prices up, clearly businesses clearly investors are in a position thinking that Ford's going in the right direction. But it's going to be analyzing as things go. There are clearly plans and Ford is starting to execute them. Now how well it executes them is the caution.
Ok, shot, how about the Fords competitors in the US Stillantis and GM. Is the US government prepared to support those as well.
So the US goverment has already funded a GM battery plant. So GM got two point five billion dollars last year in December twenty twenty two.
And.
STILLANTIS is actually getting money from the Canadian government. Okay, So in Canada, Volkswagen got ten billion dollars and STILLANTIS is in conversation to get something similar for its battery factories.
But yes, it's one of those industries where profitability is hard, upfront investments high, and they tend to be national champions, so to speak, and governments want to protect them both for having the company domestically but also from the perspective of jobs that they give to many many different states that they.
All right, Okshott, great reporting for you and your team. Appreciate that. Oxshot Rothy a senior reporter for climate for Bloomberg News. He and his team put out this Big Take story. Always good stories. You can find those stories at Bloomberg dot com, Slash Big Take or nispace Big Take. Go on the Bloomberg terminal.
You're listening to the tape Cats are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio. The tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa, play Bloomberg eleven thirty.
Just meant Paul Sweeney here the Bloomberg Interactive Workers Studio.
We're going to Mike McLoone.
He's a senior macro strategist for Bloomberg Intelligence.
Just should we tell Mike what we.
Just yes, nicknamed him Miami Mike, Miami Mike.
That's where we're going with Mike. That's that's You can thank Katie Greifeld for that. But you are forever known up here in the Bloomberg radio circles as Miami Mike.
How do you like that?
I'll take it.
I actually last night got to shake of Mayor Mayor Suarez's hand for the fourth time last night, So I feel like I'm entrenched in the city.
You are.
You are our guy down there, and that's great. Hey, Mike, you know what we've been hearing about a lot over the last few days is that this equity market is over bought.
A do you buy that?
And b If so, what do you look at that kind of give you that sense.
Well, I really appreciated your conversation about Gene and Martin Adams earlier. She has been spot on. But right now we have a little dichotomy, which we're supposed to with pure research professionals with on a Wong. On a Wong is our our chief economist. Now, she points out the term she's used for second half is ugly for the US economic It's trajectory.
Now.
She started saying this a year ago, and she said it would start in basically three Q she moved a little forward the banking crisis. So I'm going with that, and I look at it for first, you look at it a simple risk asset manager or a trader. Markets have bounced in this opium for a soft landing in the FED eventually ease. So the risk is it all tilts back towards a recession. The FED not easy in
what you're seeing testifying right now from Erman Pow. He is banging hard and he has no incentive all to let the markets know they're going to provide more liquidity.
So the lessons of liquidity and contraction.
Money supplight minus five percent you mentioned LII, the annual measure is down has dropped the most in about thirty years. It's down almost eight percent. To me, that all tilts towards a pretty ugly second half, and I think that's the risk. Also, there was one little thing metric going with just last Friday and Tuesday, the Nasdaq reached about twenty four percent above its two hundred day movement average.
It has not stayed sustained above that level, that high lofty level the Internet bubble that ended in two thousand.
Now when it comes to what's happening with the bitcoin space, because I know you cover all things with this, it actually hit its highest soele level since April yesterday after obviously when you're thinking the correlation with this ETF type optimism that Katie Greyfield was just here talking to us
about that what are you seeing there with bitcoin? And because the last time you were here, we were talking about how that thirty thousand sort of threshold level was the psychologically key level that investors were watching exactly.
I stick with that, Jess, and I just sent an editorial I'm going to point that out for publishing tomorrow, that there's so much enthusiasm about this thirty thousand level. I think the risk is similar to the stock market. If we get a little bit of rollover the fastest horse in the race that went up the most this year, again it bounds, risks go back, going back down. Now, this ETF from Blackrock, Eric Belchunus points out it might not get approved until next We don't know that for sure,
but there's so much enthusiasm here at this level. Here, I look at it as the macro is still unfavorable. Bitcoin phases its first recession. It's one of the riskiest assets in the business. It's still the least risky crypto, and it's at this key threshold. And my senses from digging into all the crypto people as they're all a little too giddy. I sense this around sixty thousand when Mayor Suarez took his salary in bitcoin.
So I'm concerned at.
These levels that we're gonna have here's the bottom line. I'm concerned we're gonna have that ebbing tied in the stock market. Hopefully Gino will be right, but I'm sensing more at least get a correction, and then Bitcoin will drop with that. So what we need eventually is bitcoin to either I'll perform the Nasdaq. But the problem is it's been the same level with the NASTEK since twenty seventeen.
It's about two to one right now versus a.
Nasdaq and it or we needed to transition in a recession towards trading more like treasury bonds or gold.
And it's just not there yet. Maybe it's starting, but I don't see it yet.
Mike.
If we're having a top second half economically in the commodities space, are you looking at is this is my time to go out and b like pork bellies?
What should I be thinking about?
Yeah?
Gold, I the only think I think goes backed up, it's rallied, but it's still a five percent in the I think gold's going to be the best performing commodity, probably one of the best reporting commodities as we tilt this recession specifically get to a serious recession. But the problem I see for most commodities it's still a bear market, and typically to bottom a bear market need a long lag to significant amount of federal reserve easy and we're still tightening, and that to me is the key thing.
So just today, right now cordill is down another four percent, set sixty nine dollars a bill. I'm still looking afford to head towards fifty dollars a barrow, and there's precedent for that. It's done it since twenty fourteen to keep its actually since the financial crisis in two thousand and this year already natural gas has done the equivalent.
So I look at.
Commodities, there are still bear marketing. The bottom line is you have to ask yourself what ends that. All the data from China is disappointing, and the FED and most central banks are still tightening. We just saw the Bank of England just did a surprise fifty based point hike. That's not a good environment for commodities.
Mike.
When it comes to the gold to copper ratio, last time you were here, it was moving lower. Now it's actually moving higher this month. What do you think this is telling us in relation to when we're especially when it comes to copper and what that means for the trajectory of the global economy.
Yes, so the gold outpracing copper is what I fully expect, and that's normally what happens in a recession, and when the FED starts it has to ease for that. So I think that's going to really break out and potentially make new highs. That's what it did during we had that big pump and liquidity, right they had twenty twenty one, And this is things like the bond manager Jeff Gunnle like watches. So gold to copper, I think is going to break out higher. And also remember the enduring propensity
over time is for gold to beat most commodities. Certainly when it comes from having to hold that asset, it's the easiest, the cheapest to store. And so I'm quite bullish gold versus most combintic to my particularly crudel, particularly copper.
Copper and crudel the most industrial sensitive.
And if Onna Wong's right and I leading indicators are right, and the yield curves right, the inverted deal curve, which I think it will be, then we should expect copper to underperform gold and go to outperform in the next year or so.
It's interesting because that indicator actually rose with US stocks after the lows in two thousand and nine, twenty eleven, twenty eighteen, and in twenty twenty. So does that actually point to brighter times ahead?
Well, it's it's it will point to brighter times ahead once copper starts outperforming goal.
So this case right now points to recession.
It fits in with Anna's model, it fits in with the UH, the inverted Yeeld curve, and with plunging commodities. So I fully expect that we need some kind of shock. We need to not have this recession and the FED a year from now to sa oh, we're still at the same rates because economy is doing great. That will repress gold. Remember gold is a good competition for gold is high rates. You're getting five percent in a T bill, that's great, and the stock market out performing the rest
of the world, the US stock market. If that starts tilting lower, gold's gonna beat most asset. So I see it right now is look at copper on the year it was, it's basically up about two percent.
But here's a key thing.
The way to look at copper the dollar price of copper, if you overlay that with the S and P five hundred, just take the S and P five hundred and divide it by a thousand. They've been almost the exact same for about five years. So right now the dollar price of copper implies that S and P five hundred should be about three thousand, nine hundred and it's currently about
four thousand, four hundred. The question we'll see within the next few months if that ration has that relationship and broken down, or is copper being the leading indicator and showing us what leading indicators are telling us that they were heading towards a pretty bad recession, which means the stock market's gonna have a problem.
All right, I got your gold call. You've been very consistent on that, Mike. How about the poor man's gold silver?
Bilver has been a really good performing this year.
The problem with silver is it's no longer a monetary ascid. It's much more an industrial metal. It's been replaced by gold, and Sir Isaac Newton started that in the seventeenth century when he was head of the US I'm sorry the British mint. So I think what we've seen this year so far as a bounce in silver, just like you've seen in some of the other commodities. I'm sorry, like it's the stock market, but I think silver is going
to more succumb to the recession. The industrial metals like copper trade lower and gold outperform, but overall the price of gold versus copper is really I'm sorry versus silver. The gold silver ratio has appreciated over time. I expect that to kick in and to rally go to outperform silver, particularly if we get to a New York's recession.
All right, Mike, thanks as always for joining us. Always appreciate getting your input there. Mike yep aka Miami Mike Senior Mac was strategist for Bloomberg Intelligence. We can talk to him about anything on a commodity space.
You're listening to the team Ken's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app and the Bloomberg Business app, or listen on demand wherever you get your podcasts.
I just met in Paul Sween here in a Bloomberg INTERACTI broker studio. It just here's a company, Jess, Equinix. It's like a June sized company and I don't know anything about it.
Data center provider.
Yeah, I mean that's like that is call it the backbone of technology.
Got to the data center somewhere.
It's a seventy billion market cap company, Equinix. Eqix is a ticker. The good news is we have the CFO in our Bloomberg Interactive Broker studio. Keith Taylor, CFO of Equinox again eq Ix. We also have Jeff Langbaum. He is the reet analyst who covers all of the reats, including Equinix, because Equinox is a REAT. So we're gonna be brought Jeff in here because he's the smartest guy we having to build. Need to talk about this company. So Keith, let's start with you talk to us about Equinix.
What do you guys do? Number one and number two? I knew you guys had a big investor day yesterday. What was kind of the message you were trying to get across?
Yeah, Paul looks largest data center company in the world. Think of all things digital coming into our environment. We sit on a foundation of two thousand networks, three thousand cloud and IT services companies. We've got two hundred and fifty data centers about around the world, and we're investing a tremendous amount of capital. All things digital belong inside Equinics.
What specific companies are you providing these connected digital infrastructures too, because I've seen you also work with companies like Google, Cloud, Zoom, Oracles, so these are some big names.
No, absolutely, but first and form, the top ten customers for us represent about eighteen percent of our business, and it's the large hyperscalers. And think of us as effectively on an off ram to the Internet and to the cloud. We have again two thousand networks, three thousand IT and cloud companies. We have majority of the forty percent of the cloud on ramps. And so it's how data transfers through basically the systems. And for us, they need proximity,
they need diversity, and we provide that. We're in seventy one markets around the world, will soon soon be in in seventy five and thirty one country is going to thirty five. So a very exciting time for us.
Well, and from from the rep perspective, it paints a very different picture than a lot of the other asset classes that we typically talk about.
Right, demand is through the roof.
I mean, they spent a lot of time yesterday talking about, you know, the demand drivers for their business and just you know, the just the connectivity.
We haven't even touched on AI.
I'm sure Keith is nun is tired of talking about it, but I mean that's probably the next wave, right, the demand for the data center business is through the roof and you can see it extending out over the next whatever timeframe you choose.
So what do you think about AI.
Well, at first, the opportunities amous if you believe that all things digital have a home inside Aquinics, and you think about AI where it will take us. I just think it's a broader opportunity for us. So it's exciting. Whether it's autonomous driving, you know, whether it's AI, whether it's electronic trading, all those have a home inside Aquinics.
So a lot of our message Paul was yesterday was really about the opportunity that's in front of us, and Charles talked about, you know, the size of the market opportunity. We see it as roughly one hundred and forty billion dollars opportunity and we'll play inside that space. So it's
an exciting time for us. And sort of the back end of the conversation was really about we're no, we're the best representative of a very strong financial financially strong company that has the balance sheet, has the liquidity, has the wherewithal to invest to scale where I think others are going to have a tougher time over the next the next little while.
And Keith, you can you talk a little bit about what the growth looks like from you, you know, from your perspective in terms of top line bottom line, you know, and frankly how that differentiates you from your data center piers, but also reads broadly.
Yes, well, the top line. What we told the market yesterday we had our analyst day and today's our twenty fifth anniversary. Interestingly enough, and so twenty five years into our history. We basically told them, you know, just despite our scale and size today that we can still grow the top line eight to ten percent. But I said there's accelerants to that that we're not willing to share just yet, and one of them is AI and just the opportunity, and largely we said that because of it's
in its infancy. The other aspect of it was really digital services. It's going to be an adjacency service to our to are for our customers. And again it's just a little bit early on the flip side. When we look at we look at profitability, we said that we can grow AFFO per share seven to ten percent. And part of the reason we said seven to ten percent, as many people know, there's an element of refinancing that we have to do, and the cost of capital, of
course is larger today. But despite that, we also committed and suggested that we could spend three billion dollars a year for the next five years. That's fifteen billion dollars and the majority of us going to be funded from internal resources. It means the cash flow in the business is fueling that growth, which is which I think is just a great opportunity, unparalleled compared to anyone else.
You're based in California. I wanted to get your view after we saw a lot of those regional banking stresses back in March, what your outlook is for growth and if you were impacted at all by that.
Yeah, just the.
Obviously there were stress in the system. I think what it did was it created an environment where decisions were paused and it caused people to stop and reflect on what really was happening within the financial segment. A large component of our business is certainly in with the banking industry.
A lot of the electronic trading takes place inside Equin that all said, the implications to us was very, very minor, and I'm saying minor in the sense that we had Silicon Valley Bank we first Republican some of the others, but it wasn't a meaningful part of our revenue exposure.
Keith, you mentioned just a minute ago the potential to spend three billion dollars a year fifteen billion dollars in total on capex. That's expanding your portfolio domestically globally. Can you talk about the demand trends that is fueling the need for so much space and why you feel comfortable putting that much capital to work.
Yeah, well, right now, we have fifty projects underway today of size in thirty seven marcus in twenty five countries, so it gives you a sense of the breadth of our business. One of the things I shared with the investors yesterday also was seventy five percent of our revenues come from customers who want to operate in more than one region of the world, and so we're the best manifestation of that. So we draw comfort from I think we have something that's very uni relative to the majority
of the marketplace. Number two, all things digital feel like they should have a home and equinics. And then number three, I suggest they are posited that, you know, in with the difficulties in the marketplace. It feels like the supply over time is going to get constrained because cost capital is high, is harder to build. You have supply chain implications to power, access to power, access to water. These all would suggest that for the unsophisticated it's going to
be harder build. And therefore we think we can we can fill that void, and in many ways we even believe that pricing can move up favorably towards us. But you know the beauty is look, I suggested three billion dollars a year. We have, we have levers. We can pull them as we see the information. We're making decisions, and their decisions are long term based. You have to decide today what you're going to do years years from now, and we can pull back in those if we need to.
So Keith, you know your CEO was just on the desk start a little bit earlier. But we prefer to get the money guy in the studio here because you guys, you really pull the I'm looking at your balance sheet here, I see about fifteen billion of net debt. I see you know a little bit more than three billion dollars three and a half million dollars for free cashally she gets some.
Leverage on the balance sheet.
Is it too much leverage? Is it optimal leverage? Where are you in terms of your balance sheet? And if you need to fund fifteen billion dollars, where's that coming from?
Again?
Yeah, well, look, I'll tell you a few things. First and foremost, we're lever three point four times when you look at an industry average at about six point one times, So that's one. Number two. We have two point six billion dollars of cash on our balance sheet, is correct. We have a four billion dollar unused line of credit, So I feel that we have the liquidity, but more than anything, the affo that we generate in the business.
Think of that as the cash flow because it's after tax, after interest, after running the business and investing.
Ros I tried to teach me, fine it.
Paul loves dividends.
Talk to you, but think about that's a three billion dollar number or they're about that's growing in the range of seven to ten percent per year. So Number one, you've got the cash and because of our structure, we only have to distribute out forty two cents of every dollar to the shareholders in the form of a dividend,
and as a result, you're keeping fifty eight cents. And when you do that, unless just you three billion for a simple number times sixty percent, you get to keep one point eight billion dollars a year just to fund your growth. And of course it's a growing number. So it's actually the model works exceedingly well. So the dividend is going up, the investment is going up, but I think the opportunity is going up even more so.
If you have that cash, are you looking to acquire any particular companies to expand your network globally?
Just the answer is, Look, we're alway, We're always going to look at acquisitions. We've done thirty in our time, thirty plus. But the best use of our capital is actually investing in organic bill that's where we get the highest return. But we are expanding in the Aussian countries. We want to be another markets. So it's an exciting time. But I rather build organically than buy somebody.
All right, Keith, So glad to get some of your time here.
Keith Taylor, CFO Equinox, joining us as well as Jeff Langboun, who covers all the reats including Equinics for Bloomberg Intelligence.
You're listening to the tape Cat's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
I want to talk about this economy.
We want to talk about this FED.
We want to see where we're going here, and to do that, we have a welcome guest, returning, Chevin yeltikin the dean at the University of Rochester Business School, joining us live here in our Bloomberg Interactive Brooker Studio. Chevin, so great to see you again. What do you make of this Federal Reserve? We've heard FED Chairman Pal today in front of the Senate, yesterday in front of the House, and every other FED president is speaking all over the place.
This FED seems pretty consistent about raising rates here.
Yes, he definitely wanted to signal that they did. They're not pausing for good. I mean see, you know, even though they've they've paused for a bit, and they might pause through that the summer or something, but until that inflation figures come down to about two percent or somewhere close to it. They're not pausing for a long period of time, So that was that was quite a strong statement.
And also pointing out that at least two more rate increases, which something James Bullard had already pointed to about a month ago, and that's been priced into their dot plots. What do you think it's going to take and when do you think the next potential rate increase could be? Paul and I've been talking about this a lot this morning, because there's not a ton of data between now and the next FED meeting in late July.
I mean, one of the interesting things about his statement was he was saying, you know, monetary policy takes a little while to sort of percolate throughout the economy, and what we're really doing is kind of giving it a chance to percolate, rather than what we're seeing is very strong data for us to stop the inflationary you know, suppressing inflation. So I don't think much is going to
come between now and then. It's just that they're going to look at some very micro data, very low frequency data, to be able to tell whether, you know, if the economy is not plunging into any kind of major you know, slow down. I think they're going to continue to raise.
Rates, all right, smart people like you tell tell me about this long and variable lags of FED policy. I mean the Fed raise it's in strate over five hundred basis points within a year. Why don't we just stop and just see how it plays out over the next several months. Why do they feel the need to kind of keep talking very hawkishly about raising rates, do you think?
I think because they know that people are going to be making investment decisions and certainly pricing things into long term and they don't want to signal that they're done. They want to leave a lot of kind of gray
room for them to maneuver. I think that's part of it as well, because we're not there yet, We're not seeing inflation, especially core inflation is still kind of high, and I think it really gives them an opportunity to be able to maneuver the economy in whatever way that they see fit at the time that the data arrives. I mean, this is not a perfect science, but nowhere
near it. Right, there's a lot of weight and see and feel the ground and feel the data and crutch the numbers and do another kind of you know, projection. So I think what we're seeing is just really that kind of work being played out. But now we get to see that data very very frequently ourselves, which we didn't used to do twenty thirty years ago.
I like to use the ECFC function in the terminal to kind of gauge where economy is pulled by Bloomberg are gauging where the economy is headed. And coming into this year, as you know, a lot of economists were expecting that we would already be in a recession at this point. Now it continues to get pushed back, but it's more when you're looking at a quarter over quarter basis, not year over year. Now it's looking maybe for the
tail end of this year. What do you think, how do you where this away when you still see resilient consumer data versus the inflation backdrop, and this whole coming into this year where everybody was telegraphing a recession that hasn't necessarily come to fruision just yet.
I would like to say that I was one of the very few economists who kept saying, even on record in this show, that I actually thought that the economy had a lot of pockets of resilience that that recession. You know, what we see where the recession it, you know, signs there's a lot in the expectations, but that's because we're also talking a lot about it. I mean, a lot of the news we receive are negative these days, from Ukraine to relations with China to a whole variety
of things. A lot of the news that we receive are negative. So that's affecting expectations. But consumers are very resilient, and I don't think it's just that fiscal stimulus that but that fiscal stimulus had run its course a while ago. Our savings direct are down back to close to zero again, so it's not really people spending the money that they had been given, you know, two years ago during the pandemic. There's a lot of consumer resilience. There's a lot of
resilience in the service market. Housing market is still doing relatively well. I mean, it's not what it was a year and a half ago. I just I think it's still really really pessimistic to say that we're going to go into a recession. Labor market is very tight, we can't hire people fast enough, and we're losing people every day.
How about your students at University of Rochester, the business school there, how are they doing in the job market.
They're doing really well. So one of the places that they go to typically is the tech market. So the tech market certainly has taken a hit. What we are seeing is a little bit of a slow down in decision making. They're not pulling out of the market, they're not you know, stopping interviews, but they are taking a little longer to extend or putting out the start dates further into the summer rather than a Junie start date,
a September start date or a little bit later. But we haven't really consulting as one of the areas that where we do see actually a slow down.
Okay, what do you think the catalysts could really be to actually see growth slow more significantly, because are we really headed for a recession or is it just kind of a little bit more of a slower growth regime for the next few quarters. It's really hard.
I mean, I know this is such an economist answer, but at the same time, you know, we're talking about the housing market slowing down at the same time inventory is really low, you know, and at the same time, we know that the cost of building is going up, so people who want to build want to build sooner rather than later, because we still have a lot of supply issues going on at the same time, we have geopolitics, right, and then we have a very strong dollar.
There's just so.
Many mixed signals and mixed sort of information coming through that it's really hard to make a very strong prediction. And that's why I think all of us are having a really hard time to pinpoint exactly what's going to happen and when it's going to happen. But I've been much more optimistic because the resilience is certainly there. I think if we see a La Baber market really tightness go away, that's when we're going to get worried.
Why are so many people overlooking some of these resilient pockets and still going toward ward this kind of gloom scenario.
Maybe it sells more.
Obviously what we saw with decades high inflation exactly.
I mean, because typically I think historically too, if you saw inflation and that kind of numbers in inflation almost close to sort of double digits, historically when we look back, those were followed by recessions.
And then also the Fed obviously not having the best track record when it comes to say these soft type.
They have absolutely so I think looking back historically, people are right to assume that there is going to be some sort of a slow down. But again, we're seeing a lot of growth in the service sector at least sort of going towards back to the pandemic levels. We're seeing a lot of sort of consumer resilience and labor market resilience. And I'm not quite sure that you know, firms are really holding onto labor because you know, there's a lot of talk about labor hoarding, and it's it's
certainly new. You know, placements are just not getting the applications that we used to see pre pandemic. So it's hard. It's hard to replace people.
Let's talk about Turkey. Oh, central Bank hikes policy eight to fifteen percent. Liar drops to a record low. I'm you're expert on Turkey, I know, just give us their thirty thousand foot view.
What's happening there.
I mean, it's a good sign that they're reversing the policy of low interest rates, this idea that you know, low interest rates with curb inflation is diametrically opposed to anything that we know about how any economy works. So they have raised it, but not raised it fast or large enough. They now have, you know, a new finance minister along with a new central Bank governor, so hopefully we'll see a little bit more orthodox policies coming.
Out of it.
The lira is a huge I mean it's now down to about one dollar to twenty lirias or so. Election, well, he's got another five year term, so there will be at least you know, we'll see how that pans out too. But Turkey, it's going to take a while before investors come back.
I know, there's been so many challenges in Turkey in terms of natural disasters, and so how are the people doing?
They are, at least the people that I'm in touch with, and they have a very negative outlook. They have a very negative outlook about the you know, they don't trust the inflation numbers. They don't really trust some of the numbers.
Yet they put er one back in for another five years.
Yes, absolutely, all.
Right, you're an expert, so we're going to.
Be coming here.
I want to say it was a very fair election, right.
Yep, we'll leave it there all right. Chevin Yeltakain, thank you so much for join us. Always appreciate getting your perspective. Chevin is the dean at the University of Rochester Business School. I'm a big fan of Rochester. They turn out a lot of good graduates there. I've hired a bunch of myself back in the day.
You're listening to the tape Cat's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
I'm really excited for our next guest, first time I've been able to meet him in person. What is work for you?
Oh boy, this must be a street for you.
Barry Ridholt's host of Masters in Business. I mean for me, it's nothing, but it's just Barry just host some Masters of business. I think you run some money too. He's a chairman in chief Investment off Serbert Holts Wealth Management. Hey, Barry s and P five hundred. It's up fourteen percent this year. Why don't I just index my money and just go onto the golf course.
I don't know, why don't you?
I don't know, I mean, why am I sitting her waits and trying to do research and all that kind of stuff just by the index?
I mean, at the very least, having the core of your investment portfolio be index and then you know, I like to describe it as the Christmas tree and the ornaments. If your core is the S and P five hundred, you know you're never going to be that far off from the market. You'll at the very least compound at
a different at a pretty close to market rate. And then if you feel like you're enthusiastic about different things, maybe you like value, maybe you like technology, maybe you want to go regional and say I think India is the next great growth region or whatever it happens to be. I'm just randomly pulling examples out of the air. That's perfectly fine. You can absolutely start with the index, especially when you look at how easy it is to go out and buy an ETF and the cost is four
or five basis points' it's practically free. So for the average you know, home viewer listening at home. It's a great place to start.
And you had a column recently specifically about this and why indexing should be a part of investors core investment strategy. What were these five issues? Can you walk us through with sure?
You know, it's funny because there's sort of been a cottage industry trashing indexing. If you remember a couple of years ago, we heard it was un American, it was anti competitive. When Jack Bogel and Vanguard first launched in seventy four, they were told it was literally communistic. The
advantage so let's start out first and foremost costs. And while the active side has gotten much better on costs used to be about two hundred basis points for the average active mutual fund, that's now somewhere between let's call it fifteen seventy five basis points. It's not four BIPs.
It's you know, appreciably higher over thirty years. If you're gonna compound with fees of seventy five basis points just for the fund, say nothing about the advice or trading or taxes or anything like that, that's gonna end up being about twenty percent of your total returns. It really has a giant impact so costs are a big part of it. Second of the five things is simply behavior.
You know, if you're just buying an index, you're not engaging in stock selection, you're not market timing, you're not jumping in and out, you're not thinking about all the things that lead human beings to make bad investment decisions. It turns out people are full of cognitive errors and behavioral biases, and it leads us to places that not the greatest when it comes to to making investing. I mentioned stock selection, which you don't do. That's the third thing.
There have been a number of studies. Hendrik Besting Minder is probably the most famous of the studies. Most stocks don't really do anything. Some stocks go up a little, some stocks go down a little. A couple really crash and burn. But it turns out the market indexes are primarily driven by the big winners, and that's one one and a half percent of the total stocks. So not only do you have to find that needle in a haystack, you also have to avoid all the rest of the
mass stocks really really hard. When you buy an index like the S and P five hundred that's cap weighted, not only are you pretty much guaranteed to have those winners in them, but as they get bigger, you own more of them. The Apple is the largest component in the S and P five hundred. It's also the biggest US company in the world. And what a surprise. It used to be a tiny percentage of the S and P five hundred in the nineties and now it's large.
And then the last couple of things are really I don't know, a little Pickyn, but those three are the where you start from.
Yep, ye, hey, Barry.
When I started out in the business, we went to the mutual funds because that's where all the money was. As a sellside analysts, I'd got the Boston three or four times a year, walk around town seeing Fidelity and Puttingham and all those because that's where the money was. Now I'm asking my question, is there any future for the mutual fund business? ETFs is gobbling up all the money I've got mutual funds converting to ETFs. It's a
race to the bottom on costs. What's the future of the mutual fund business?
Do you think so?
The single biggest advantage of ETFs is that there's no phantom capital gains tax. Maybe This is a little controversial. This is my opinion, but it's hard to argue that if I own a mutual fund and I don't sell it, right, I continue to hold it. But there are sales and transactions within and people who own that fund buy it or sell it. Suddenly I get a tax bill that's terrible. So I could understand why in taxable accounts there's a built in preference for ETFs. However, the mutual fund structure
is well known, it's well understood in many ways. It's scale very nicely, whereas you have some issues with ETF scaling. So in qualified tax accounts, in iras and four oh one k's, of course you want to go with the mutual fund. They don't trade during the day, so there's none of that headache. You get priced daily. That's all you really need. The costs have come down dramatically, and your biggest concern is that phantom tax that goes away
in a four oh one K or an IRA. So I think the future of mutual funds is going to be in those retirement accounts. Yeah, ETFs give you some thematics, they give you some indexes, they give you some other things that work better in the non tax exempt accounts. There's room for both of them. They each serve a different role.
Money market mutual funds have been such a hot topic, and especially given just with investors being able to yield more, and last week actually the Investment Company Institute showed how there were flows coming out of that for the first time in about two months. I'm wondering, what's the catalyst push more of the cash that's sitting there into the equity market.
That's that's always a key question. I Mean, the amazing thing is, you know, you got zero in money market funds and practically nothing in bonds for a long time. Wait, I could put money in a money market fund can get five and a half percent pretty safely. I mean, as long as it's a name brand that you don't have to worry about it somehow being tied to some stable coin that blows up. But like if you want a Vanguard or a Fidelity or a Franklin Templeton money
market fund, you're gonna get five percent. That's pretty safe money. If I'm gonna rotate some of that into the equity market, there really has to be a promise or an expected return appreciably higher than five percent, and you know, up fourteen percent for the year halfway through the year. That's a good year, right, you know the equity market. Could you know, right, gone fishing and take the rest of
your gear off and it's a good year. Not that that's gonna happen unless your own pal goes fishing and takes the rest of the year off and then we're off to the races.
Yeah, NASAK one hundred is off to its best first six months to a year ever.
Actually be fair, it's coming off a horrific.
Yes, right for last year.
But by the way, people.
Don't think this way, but NASDAK down thirty percent. I'm absolutely a buyer anytime. Maybe not the whole position. Maybe you're waiting to see if you're down forty percent or more. But anytime you have that sort of a selloff in that rapid period of time, you have to you have to think, hey, this is fallen so far out of favor that the valuations have become attractive.
Thirty seconds balance power, I'm sorry, master's in business.
Who you got coming up?
So coming up in two weeks of Jenny Johnson of Franklin Templeton next week is going to be Alana Weinstein, one of the Hedge fun Hunter and this weekend Peter Borish pulled Tudor Jones' partner and runs the Robin Hood Foundation.
You get players every time every Tuesday. His recording here and a lot of fun.
I kind of just make sure I kind of walk by the studio to see who's there.
Ye kind of like stargazing Barry Ridolts.
He's host of Masters in Business fantastic podcast, check it out. He also is a chairman and chief investment officer Rit Holtz Wealth Management. Love getting him here and it's good to get him in studio.
Thanks for listening to the Bloomberg Markets podcasts. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three and on.
Faull Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio Time